+ Returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distri- butions or the redemption of Fund shares.
(2) Total return would have been lower had the Adviser not waived a portion of
its fees during the period.
(3) Ratio excludes the effect of fees paid indirectly. If these expense
offsets were included, the ratio would have been the same.
(4) On November 30, 2009, shareholders of the Accessor Limited Duration U. S.
Government Fund (the "Predecessor Fund") approved a tax-free reorganization
under which all assets and liabili- ties of the Predecessor Fund were
transferred to The Advisors' Inner Circle Fund USFS Funds Limited Duration
Government Fund at the close of business on December 11, 2009.
+ Total return is for the period indicated and has not been annualized.
Returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemp- tion of Fund shares.
(3) Ratio excludes the effect of fees paid indirectly. If these expense
offsets were included, the ratio would have been the same.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
The Advisors' Inner Circle Fund (the "Trust") is organized as a Massachusetts
business trust under an Amended and Restated Agreement and Declaration of Trust
dated February 18, 1997. The Trust is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company with
forty seven funds. The financial statements herein are those of the USFS Funds
Limited Duration Government Fund, a diversified fund and the USFS Funds
Tactical Asset Allocation Fund, a non-diversified fund (the "Funds"). The
financial statements of the remaining funds are presented separately. The USFS
Funds Limited Duration Government Fund seeks a high level of current income
consistent with the preservation of capital. The USFS Funds Tactical Asset
Allocation Fund seeks to provide above-average total return (capital
appreciation and income) when compared to the broad U.S. equity market. The
Funds may change their investment objective without shareholder approval upon
60 days' notice to shareholders. The assets of each fund of the Trust are
segregated, and a shareholder's interest is limited to the fund in which shares
are held.
The Funds are registered to offer Institutional Shares.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Funds:
USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the fair value of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates and such
differences could be material.
SECURITY VALUATION -- Certificates of deposits are valued at their
amortized cost, which approximates market value. Securities listed on a
securities exchange, market or automated quotation system for which
quotations are readily available (except for securities traded on NASDAQ),
including securities traded over the counter, are valued at the last quoted
sale price on the primary exchange or market (foreign or domestic) on which
they are traded, or, if there is no such reported sale, at the most recent
quoted bid price. For securities traded on NASDAQ, the NASDAQ Official
Closing Price will be used. If available, debt securities are priced based
upon valuations provided by independent, third-party pricing agents. Such
values generally reflect the last reported sales price if the security is
actively traded. The third-party pricing agents may also value debt
securities at an evaluated bid price by employing methodologies that
utilize actual market transactions, broker-supplied valuations, or other
methodologies
22
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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|
designed to identify the market value for such securities. Debt obligations
with remaining maturities of sixty days or less may be valued at their
amortized cost, which approximates market value. Investments in open-end
and closed-end registered investment companies that do not trade on an
exchange are valued at the end of day net asset value per share.
Securities for which market prices are not "readily available" are valued
in accordance with Fair Value Procedures established by the Funds' Board of
Trustees (the "Board"). The Funds' Fair Value Procedures are implemented
through a Fair Value Committee (the "Committee") designated by the Board.
Some of the more common reasons that may necessitate that a security be
valued using Fair Value Procedures include: the security's trading has been
halted or suspended; the security has been de-listed from a national
exchange; the security's primary trading market is temporarily closed at a
time when under normal conditions it would be open; the security has not
been traded for an extended period of time; the security's primary pricing
source is not able or willing to provide a price; or trading of the
security is subject to local government-imposed restrictions. When a
security is valued in accordance with the Fair Value Procedures, the
Committee will determine the value after taking into consideration relevant
information reasonably available to the Committee. As of December 31, 2012,
there were no securities valued in accordance with Fair Value Procedures.
In accordance with GAAP, the Funds disclose the fair value of their
investments in a hierarchy that prioritizes the inputs to valuation
techniques used to measure the fair value. The objective of a fair value
measurement is to determine the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price). Accordingly,
the fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities (Level
1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy are described below:
Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Funds have the ability to
access at the measurement date;
Level 2 -- Other significant observable inputs (includes quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, referenced indices, quoted prices in inactive markets, adjusted
quoted prices in active markets, adjusted quoted prices on foreign
equity securities that were adjusted in accordance with pricing
procedures approved by the Board, etc.); and
Level 3 -- Prices, inputs or exotic modeling techniques which are both
significant to the fair value measurement and unobservable (supported
by little or no market activity).
Investments are classified within the level of the lowest significant input
considered in determining fair value. Investments classified within Level 3
whose fair value measurement considers several inputs may include Level 1 or
Level 2 inputs as components of the overall fair value measurement.
23
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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|
The summary of the inputs used as of December 31, 2012 in valuing the USFS
Funds Limited Duration Government Fund's investments carried at fair value is
as follows:
The following is a summary of the inputs used as of December 31, 2012 when
valuing the Fund's investments:
Investments in Securities LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------- ------------ ------------- ------------
U.S. Government Agency
Mortgage-Backed Obligations ........ $ -- $ 16,821,870 $ -- $ 16,821,870
Small Business .....................
Administration (SBA) ............... -- 16,511,354 -- 16,511,354
U.S. Government Agency
Obligations ........................ -- 2,359,990 -- 2,359,990
U.S. Treasury Obligations .......... -- 590,875 -- 590,875
Certificates of Deposit ............ -- 1,736,481 -- 1,736,481
Short-Term Investment .............. 1,601,299 -- -- 1,601,299
----------- ------------ ------------ ------------
Total Investments in Securities .... $ 1,601,299 $ 38,020,570 $ -- $ 39,621,869
=========== ============ ============ ============
|
As of December 31, 2012, all of the investments held in the USFS Funds Tactical
Asset Allocation Fund are Level 1. For details of investment classifications,
reference the Schedules of Investments.
During the year ended December 31, 2012, there have been no transfers between
Level 1 and Level 2 assets and liabilities and there have been no transfers
between Level 2 and Level 3 assets and liabilities. For the year ended December
31, 2012, there were no Level 3 securities. For the year ended December 31,
2012, there have been no significant changes to the Funds' fair valuation
methodologies.
FEDERAL INCOME TAXES -- It is the Funds' intention to continue to qualify as
regulated investment companies for Federal income tax purposes by complying
with the appropriate provisions of Subchapter M of the Internal Revenue Code of
1986, as amended and to distribute substantially all of its income to
shareholders.
The Funds evaluate tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether it is
"more-likely-than-not" (i.e., greater than 50-percent) that each tax position
will be sustained upon examination by a taxing authority based on the technical
merits of the position. Tax positions not deemed to meet the
more-likely-than-not threshold are recorded as a tax benefit or expense in the
current year. The Funds did not record any tax provision in the current period
and have no provision for taxes in the financial statements. However,
management's conclusions regarding tax positions taken may be subject to review
and adjustment at a later date based on factors including, but not limited to,
examination by tax authorities (i.e., the last 3 open tax year ends, as
applicable), on-going analysis of and changes to tax laws, regulations and
interpretations thereof.
24
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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|
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining realized gains and losses on the sales of investment
securities are those of the specific securities sold. Dividend income is
recorded on the ex-date. Interest income is recognized on an accrual basis from
settlement date. Discounts and premiums on securities purchased are accreted
and amortized using the scientific interest method, which approximates the
effective interest method.
MASTER LIMITED PARTNERSHIPS -- Entities commonly referred to as "MLPs" are
generally organized under state law as limited partnerships or limited
liability companies. The USFS Funds Tactical Asset Allocation Fund intend to
primarily invest in MLPs receiving partnership taxation treatment under the
Internal Revenue Code of 1986 (the "Code"), and whose interests or "units" are
traded on securities exchanges like shares of corporate stock. To be treated as
a partnership for U.S. federal income tax purposes, an MLP whose units are
traded on a securities exchange must receive at least 90% of its income from
qualifying sources such as interest, dividends, real estate rents, gain from
the sale or disposition of real property, income and gain from mineral or
natural resources activities, income and gain from the transportation or
storage of certain fuels, and, in certain circumstances, income and gain from
commodities or futures, forwards and options with respect to commodities.
Mineral or natural resources activities include exploration, development,
production, processing, mining, refining, marketing and transportation
(including pipelines) of oil and gas, minerals, geothermal energy, fertilizer,
timber or industrial source carbon dioxide. An MLP consists of a general
partner and limited partners (or in the case of MLPs organized as limited
liability companies, a managing member and members). The general partner or
managing member typically controls the operations and management of the MLP and
has an ownership stake in the partnership. The limited partners or members,
through their ownership of limited partner or member interests, provide capital
to the entity, are intended to have no role in the operation and management of
the entity and receive cash distributions. The MLPs themselves generally do not
pay U.S. federal income taxes. Thus, unlike investors in corporate securities,
direct MLP investors are generally not subject to double taxation (i.e.,
corporate level tax and tax on corporate dividends). Currently, most MLPs
operate in the energy and/or natural resources sector.
EXPENSES -- Expenses that are directly related to the Funds are charged to the
Funds. Other operating expenses of the Trust are prorated to the Funds based on
the number of funds and/or relative daily net assets.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The USFS Funds Limited Duration
Government Fund declares its net investment income monthly and distributes its
net investment income monthly and makes distributions of its net realized
capital gains, if any, at least annually. The USFS Funds Tactical Asset
Allocation Fund declares its net investment income quarterly and distributes
its net investment income quarterly and makes distributions of its net realized
capital gains, if any, at least annually.
25
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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3. DERIVATIVE CONTRACTS:
In accordance with the authoritative guidance under GAAP, the Funds disclose:
a) how and why they use derivative instruments, b) how derivative instruments
and related hedged items are accounted for and c) how derivative instruments
and related hedged items affect their financial position, financial performance
and cash flows as follows:
The USFS Funds Tactical Asset Allocation Fund invests in financial options
contracts that seek to protect a position within its portfolio through hedging
techniques. When the Fund writes or purchases an option, an amount equal to the
premium received or paid by the Fund is recorded as a liability or an asset and
is subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on affecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds from the sale in determining whether the Fund has realized a gain or
a loss.
Options are valued at the last quoted sales price. If there is no such reported
sale on the valuation date, long positions are valued at the most recent bid
price and short positions are valued at the most recent ask price. The risk in
writing a call option is that the Fund gives up the opportunity for profit if
the market price of the security increases. The risk in writing a put option is
that the Fund may incur a loss if the market price of the security decreases
and the option is exercised. The Fund also has the additional risk of being
unable to enter into a closing transaction at an acceptable price if a liquid
secondary market does not exist. Option contracts also involve the risk that
they may not work as intended due to unanticipated developments in market
conditions or other causes.
Finally, for written options, the risk exists that losses could exceed amounts
disclosed on the Statement of Assets and Liabilities.
Transactions in option contracts written for the Tactical Asset Allocation Fund
for the fiscal year ended December 31, 2012, were as follows:
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
Outstanding at January 1, 2012 -- $ --
Options written ....................... (2,117) (182,660)
Options closed ........................ 700 60,598
Options expired ....................... 547 28,662
Options exercised ..................... 355 28,894
------- ------------
Outstanding at December 31, 2012 ...... (515) $ (64,506)
======= ============
|
26
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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|
4. TRANSACTIONS WITH AFFILIATES:
Certain officers of the Trust are also officers of SEI Investments Global Funds
Services (the "Administrator"), a wholly owned subsidiary of SEI Investments
Company and/or SEI Investments Distribution Co. (the "Distributor"). Such
officers are paid no fees by the Trust for serving as officers of the Trust,
other then the Chief Compliance Officer ("CCO") as described below.
A portion of the services provided by the CCO and his staff, whom are employees
of the Administrator, are paid for by the Trust as incurred. The services
include regulatory oversight of the Trust's Advisers and service providers as
required by SEC regulations. The CCO's services and fees have been approved by
and reviewed by the Board.
5. ADMINISTRATION, DISTRIBUTION, TRANSFER AGENCY AND CUSTODIAN AGREEMENTS:
The USFS Funds (the "Funds") and the Administrator are parties to an
Administration Agreement under which the Administrator provides administrative
services for fees calculated at an annual rate of 0.12% of the Funds' first $1
billion of average daily net assets; 0.10% of the Funds' average daily net
assets between $1 billion and $1.5 billion; and 0.08% of the Funds' average
daily net assets over $1.5 billion, subject to a minimum annual fee for the
Funds of $200,000 and $15,000 for each additional share class.
The Trust and Distributor are parties to a Distribution Agreement dated
November 14, 1991, as Amended and Restated November 14, 2005. The Distributor
receives no fees for its distribution services under this agreement.
DST Systems, Inc. serves as the transfer agent and dividend disbursing agent
for the Funds under a transfer agency agreement with the Trust.
The Funds may earn cash management credits which can be used to offset transfer
agent expenses. During the year ended December 31, 2012, the Funds earned a
credit of $2 and $1 respectively, which were used to offset transfer agent
expenses. These amounts are labeled as "Fees Paid Indirectly" on the Statement
of Operations.
Union Bank, N.A. acts as custodian (the "Custodian") for the Funds. The
Custodian plays no role in determining the investment policies of the Funds or
which securities are to be purchased and sold by the Funds.
6. INVESTMENT ADVISORY AGREEMENT:
The Funds and Pennant Management, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement, under which the Adviser receives an annual fee
equal to 0.41% and 0.75% of each Fund's average daily net assets for the USFS
Funds Limited Duration Government Fund and the USFS Funds Tactical Asset
Allocation Fund, respectively. The Adviser agreed to voluntarily waive its fee
and other expenses to limit operating expenses to 0.75% of the USFS Funds
Limited Duration Government Fund. The Adviser does not have the ability to
recapture previously waived fees or reimbursed expenses.
27
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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7. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended December 31, 2012, were as
follows:
PURCHASES SALES AND MATURITIES
-------------------------------- -------------------------------
U.S. GOVERNMENT U.S. GOVERNMENT
SECURITIES OTHER SECURITIES OTHER
----------------- ------------- ----------------- -------------
USFS Funds
Limited Duration
Government Fund ..... $ 114,852,361 $ 28,111,981 $ 120,663,666 $ 31,326,323
USFS Funds
Tactical Asset
Allocation Fund ..... $ -- $ 42,813,658 $ -- $ 48,508,963
|
8. FEDERAL TAX INFORMATION:
The amount and character of income and capital gain distributions to be paid,
if any, are determined in accordance with Federal income tax regulations, which
may differ from U.S. generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. These book/tax differences may be temporary or permanent.
To the extent these differences are permanent in nature, they are charged or
credited to undistributed net investment income (loss), accumulated net
realized gain (loss) or to paid-in capital, as appropriate, in the period that
the differences arise.
Accordingly, the following permanent differences, primarily attributable to
paydowns, distribution, Master Limited Partnership reclassifications and REIT
adjustments, have been reclassified to (from) the following accounts:
UNDISTRIBUTED NET ACCUMULATED NET PAID IN
INVESTMENT INCOME REALIZED LOSS CAPITAL
----------------- --------------- -------
USFS Funds Limited Duration
Government Fund ................ $63,502 $(63,502) $ --
USFS Funds Tactical Asset
Allocation Fund ................ 4,377 (4,292) (85)
|
These reclassifications have no impact on net assets or net asset value per
share.
28
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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|
The tax character of dividends and distributions declared during the years
ended December 31, 2012 and 2011 was as follows:
ORDINARY LONG-TERM
INCOME CAPITAL GAIN TOTAL
-------- ------------ -----
|
USFS Funds Limited Duration Government Fund
2012 .............. $ 252,091 $ -- $ 252,091
2011 .............. 306,177 -- 306,177
USFS Funds Tactical Asset Allocation Fund
2012 .............. $ 393,601 $ 1,385,920 $ 1,779,521
2011 .............. 1,469,985 658,707 2,128,692
As of December 31, 2012, the components of distributable earnings on tax basis
were as follows:
USFS FUNDS USFS FUNDS
LIMITED DURATION TACTICAL ASSET
GOVERNMENT FUND ALLOCATION FUND
---------------- ---------------
Undistributed Ordinary Income ............. $ 3,621 $ 121,866
Undistributed Long-Term Capital Gains ..... -- 215,145
Capital loss carryforwards ................ (203,716) --
Unrealized Appreciation ................... 485,724 570,024
Other Temporary Differences ............... -- (26,751)
--------- -----------
Accumulated Earnings ...................... $ 285,629 $ 880,284
--------- -----------
|
Under the recently enacted Regulated Investment Company Modernization Act of
2010, Funds will be permitted to carry forward capital losses incurred in
taxable years beginning after December 22, 2010 for an unlimited period.
However, any losses incurred during those future taxable years will be required
to be utilized prior to the losses incurred in pre-enactment taxable years. As
a result of this ordering rule, pre-enactment capital loss carryforwards may be
more likely to expire unused. Additionally, post-enactment capital losses that
are carried forward will retain their character as either short-term or
long-term capital losses rather than being considered all short-term as under
previous law. Losses carried forward under these new provisions are as
follows:
SHORT-TERM LOSS LONG-TERM LOSS TOTAL
--------------- -------------- --------
USFS Funds Limited Duration
Government Fund ................. $182,145 $21,571 $203,716
|
29
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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For Federal income tax purposes, the cost of securities owned at December 31,
2012, and the net realized gains or losses on securities sold for the year,
were different from amounts reported for financial reporting purposes,
primarily due to wash sales which cannot be used for Federal income tax
purposes in the current year and have been deferred for use in future years.
The Federal tax cost and aggregate gross unrealized appreciation and
depreciation on investments held (excluding written options) by the Funds at
December 31, 2012, were as follows:
AGGREGATE AGGREGATE
GROSS GROSS NET
FEDERAL TAX UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
----------- ------------ ------------ ------------
USFS Funds Limited
Duration Government
Fund .............................. $39,136,145 $494,864 $ (9,140) $485,724
USFS Funds Tactical Asset
Allocation Fund ................... 14,697,527 720,914 (144,946) 575,968
|
9. CONCENTRATION OF RISK:
The market values of the USFS Funds Limited Duration Government Fund's
investments will change in response to interest rate changes and other factors.
Rising interest rates tend to cause the prices of debt securities (especially
those with longer maturities) and the Fund's share price to fall. Rising
interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
The credit rating or financial condition of an issuer may affect the value of a
debt security. Generally, the lower the quality rating of a security, the
greater the risk that the issuer will fail to pay interest fully and return
principal in a timely manner. If an issuer defaults or becomes unable to honor
its financial obligations, the security may lose some or all of its value. The
issuer of an investment-grade security is more likely to pay interest and repay
principal than an issuer of a lower rated bond. Adverse economic conditions or
changing circumstances, however, may weaken the capacity of the issuer to pay
interest and repay principal.
30
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DECEMBER 31, 2012
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10. OTHER:
At December 31, 2012, for the USFS Funds Limited Duration Government Fund, 99%
of total shares outstanding were held by one record shareholder. At December
31, 2012, for the USFS Funds Tactical Asset Allocation Fund, 95% of total
shares outstanding were held by one record shareholder. These shareholders were
comprised of omnibus accounts that were held on behalf of various individual
shareholders.
In the normal course of business, the Funds enter into contracts that provide
general indemnifications. The Funds' maximum exposure under these arrangements
is dependent on future claims that may be made against the Funds and,
therefore, cannot be estimated; however, based on experience, the risk of loss
from such claims is considered remote.
11. RECENT ACCOUNTING PRONOUNCEMENT:
In December 2011, the Financial Accounting Standards Board issued a further
update to the guidance "BALANCE SHEET -- DISCLOSURES ABOUT OFFSETTING ASSETS
AND LIABILITIES". The amendments to this standard require an entity to disclose
information about offsetting and related arrangements to enable users of its
financial statements to understand the effect of those arrangements on its
financial position. The amended guidance is effective for interim and annual
reporting periods beginning after January 1, 2013. At this time, management is
evaluating the implications of this update and its impact on the financial
statements has not been determined.
12. SUBSEQUENT EVENTS:
The Funds have evaluated the need for additional disclosures and/or adjustments
resulting from subsequent events through the date the financial statements were
issued. This evaluation did not result in any subsequent events that
necessitated disclosures and/or adjustments with the exception of the
following.
At a meeting held on November 13, 2012, the Board of Trustees (the "Board") of
the Trust approved an Agreement and Plan of Reorganization (the "Plan") between
the Trust, on behalf of the USFS Funds Limited Duration Government Fund (the
"Target Government Fund") and USFS Funds Tactical Asset Allocation Fund (the
"Target Tactical Fund"), and USFS Funds Trust (the "USFS Trust"), a Delaware
statutory trust.
The Board's decision to reorganize the Target Government Fund and Target
Tactical Fund is subject to shareholder approval. If approved by shareholders,
the reorganization is anticipated to close on March 28, 2013.
31
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
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32
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of The Advisors' Inner Circle Fund and Shareholders of
USFS Funds Limited Duration Government Fund and USFS Funds Tactical Asset
Allocation Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of USFS Funds Limited Duration
Government Fund and the USFS Funds Tactical Asset Allocation Fund (two of the
funds constituting The Advisors' Inner Circle Fund, hereafter referred to as the
"Funds") at December 31, 2012, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2012 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights of the USFS Limited Duration Government Fund for the year ended
December 31, 2008 were audited by another independent registered public
accounting firm whose report, dated February 27, 2009, expressed an unqualified
opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 28, 2013
33
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
All mutual funds have operating expenses. As a shareholder of a mutual fund,
your investment is affected by these ongoing costs, which include (among
others) costs for portfolio management, administrative services, and
shareholder reports like this one. It is important for you to understand the
impact of these costs on your investment returns.
Operating expenses such as these are deducted from a mutual fund's gross income
and directly reduce its final investment return. These expenses are expressed
as a percentage of a mutual fund's average net assets; this percentage is known
as a mutual fund's expense ratio.
The following examples use the expense ratio and are intended to help you
understand the ongoing costs (in dollars) of investing in your Fund and to
compare these costs with those of other mutual funds. The examples are based on
an investment of $1,000 made at the beginning of the period shown and held for
the entire period.
The table on the following page illustrates your Fund's costs in two ways:
o ACTUAL FUND RETURN. This section helps you to estimate the actual expenses
after fee waivers that your Fund incurred over the period. The "Expenses Paid
During Period" column shows the actual dollar expense cost incurred by a $1,000
investment in the Fund, and the "Ending Account Value" number is derived from
deducting that expense cost from the Fund's gross investment return.
You can use this information, together with the actual amount you invested in
the Fund, to estimate the expenses you paid over that period. Simply divide
your actual account value by $1,000 to arrive at a ratio (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the
number shown for your Fund under "Expenses Paid During Period."
o HYPOTHETICAL 5% RETURN. This section helps you compare your Fund's costs with
those of other mutual funds. It assumes that the Fund had an annual 5% return
before expenses during the year, but that the expense ratio (Column 3) for the
period is unchanged. This example is useful in making comparisons because the
Securities and Exchange Commission requires all mutual funds to make this 5%
calculation. You can assess your Fund's comparative cost by comparing the
hypothetical result for your Fund in the "Expenses Paid During Period" column
with those that appear in the same charts in the shareholder reports for other
mutual funds.
34
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS
DISCLOSURE OF FUND EXPENSES (CONCLUDED) (UNAUDITED)
NOTE: Because the hypothetical return is set at 5% for comparison purposes --
NOT your Fund's actual return -- the account values shown may not apply to your
specific investment.
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BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT ANNUALIZED PAID
VALUE VALUE EXPENSE DURING
07/01/12 12/31/12 RATIOS PERIOD*
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USFS FUNDS LIMITED DURATION GOVERNMENT FUND
ACTUAL FUND RETURN $1,000.00 $1,004.70 0.75% $3.78
HYPOTHETICAL 5% RETURN 1,000.00 1,021.44 0.75% 3.81
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USFS FUNDS TACTICAL ASSET ALLOCATION FUND
ACTUAL FUND RETURN $1,000.00 $1,039.20 1.69% $8.68
HYPOTHETICAL 5% RETURN 1,000.00 1,016.69 1.69% 8.58
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* Expenses are equal to the Fund's annualized expense ratio multiplied by
the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
35
THE ADVISORS' INNER CIRCLE FUND USFS FUNDS