AIG
MONEY MARKET FUND
ANNUAL REPORT
OCTOBER 31, 1996
[AIG LOGO]
ADVISED BY
AIG CAPITAL MANAGEMENT CORP.
<PAGE>
THE AIG MONEY MARKET FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS, OCTOBER 31, 1996
Dear Shareholder:
We are pleased to provide you with the annual report on the AIG Money Market
Fund (the "Fund") for its fiscal year ending October 31, 1996. During the second
half of the Fund's fiscal year, short term interest rates moved within a narrow
range as conflicting or inconclusive economic statistics predominated.
The Federal Open Market Committee ("FOMC") held rates steady at its September
meeting, as it has since lowered the Discount Rate and target Federal Funds rate
by .25% at its January meeting, to 5.00% and 5.25%, respectively. Market
observers were concerned that the FOMC would be forced to raise rates in order
to blunt an economic upsurge. The FOMC kept rates the same, however, and its
expectations of moderating growth appear to have been borne out. Growth in third
quarter 1996 Gross Domestic Product ("GDP") was reported at 2.2 percent, less
than half the 4.7 percent growth rate of the previous three months. Market
opinion appears to have coalesced and an extended period of stable interest
rates is projected.
Expectations of any interest rate moves may be confounded as evidence suggests
the economy has cooled, but not so much as to lower the inflation rate. Capacity
utilization remains high, but below worrisome levels. The Consumer Price Index
has been within expectations, though the inflation rate has not declined
substantially. Non-farm payroll growth has eased to more sustainable levels. The
unemployment rate remains at levels conventional wisdom suggests will generate
inflation pressures, but none are evident at this time. Early political polls
were confirmed just after month end as the election returned a Republican
Congress and a Democratic President. Public policy is, in our opinion, therefore
unlikely to veer far from its current course.
AIG Capital Management Corp. ("AIGCM") remains optimistic about U.S. economic
prospects in 1997. The Fund has slightly extended its Weighted Average Maturity
("WAM"), taking advantage of relative returns. We eye further extension warily
as we believe a considerable amount of positive information has already been
factored into current rates.
At present, the Fund maintains a shorter WAM than the average Prime
Institutional Fund as reported by IBC/Donoghue, primarily attributable to its
higher concentration in short term bank obligations and commercial paper. Over
the coming quarters, the Fund's investments are expected to maintain, but not
substantively lengthen, its WAM unless prospective market yields warrant an
extension strategy. As always, the Fund continues to review all market factors,
concrete economic statistics and anecdotal market psychology, with a focus on
continuing to meet our shareholders' investment objectives. We are also pleased
to announce that effective October 3, 1996, in addition to certain waivers and
its agreement to reimburse certain expenses, as more fully disclosed in the
prospectus, AIGCM began waiving 10 basis points (.10%) of its advisory fee,
which should translate to improved returns for Fund shareholders.
Sincerely,
/S/ Daniel K. Kingsbury
Daniel K. Kingsbury
President
AIG Capital Management Corp.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Shareholders and Trustees of
AIG Money Market Fund of
The Advisors' Inner Circle Fund:
We have audited the accompanying statement of net assets of AIG Money
Market Fund (the "Fund"), one of the funds constituting The Advisors' Inner
Circle Fund, as of October 31, 1996, 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. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of AIG
Money Market Fund of The Advisors' Inner Circle Fund as of October 31, 1996, the
results of its operations, changes in its net assets, and financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 6, 1996
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
================================================================================
AIG MONEY MARKET FUND
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FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (77.8%)
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Associates Corporation of North America
$15,000 5.409, 11/19/96 $ 14,960
Bankers Trust New York
10,000 5.794, 03/11/97 9,797
Bil North America
15,000 5.404, 01/23/97 14,816
Chevron U.K. Investment PLC
15,000 5.317, 11/07/96 14,987
Chiao Tung Bank
5,000 5.474, 12/16/96 4,966
5,000 5.476, 01/17/97 4,942
10,000 5.576, 01/17/97 9,883
Clorox
13,000 5.338, 12/02/96 12,941
Commerzbank U.S. Finance
5,000 5.263, 11/20/96 4,986
9,200 5.762, 03/13/97 9,011
General Electric Capital Services
15,000 5.301, 11/12/96 14,976
Glaxo Wellcome PLC (A)
10,000 5.420, 12/13/96 9,937
Hertz
10,000 5.307, 12/10/96 9,943
J.P. Morgan
5,000 5.375, 12/10/96 4,971
Korea Development Bank
15,000 5.516, 12/13/96 14,905
Merrill Lynch
10,000 5.498, 11/18/96 9,974
5,000 5.573, 11/18/96 4,987
5,000 5.423, 01/21/97 4,940
Morgan Stanley Group
19,000 5.701, 11/01/96 19,000
Northern States Power
13,985 5.365, 12/23/96 13,878
Pacific Mutual Life Insurance
19,400 5.273, 11/22/96 19,341
Rockwell International (A)
15,000 5.276, 11/25/96 14,948
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FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
Scotiabank - Bank of Nova Scotia
$10,000 5.430, 12/13/96 $ 9,937
Telstra
20,000 5.287, 11/13/96 19,965
Unilever Capital
15,000 5.294, 11/25/96 14,947
USAA Capital
15,000 5.366, 01/23/97 14,817
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TOTAL COMMERCIAL PAPER
(Cost $302,755) 302,755
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CERTIFICATE OF DEPOSIT (2.6%)
- --------------------------------------------------------------------------------
Sumitomo Bank, Ltd.
10,000 5.380, 11/15/96 10,000
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TOTAL CERTIFICATE OF DEPOSIT
(Cost $10,000) 10,000
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U.S. GOVERNMENT AGENCY OBLIGATION (3.8%)
- --------------------------------------------------------------------------------
Federal Farm Credit Bank
15,000 4.950, 03/03/97 14,982
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATION
(Cost $14,982) 14,982
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TIME DEPOSITS (16.3%)
- --------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale
18,290 5.719, 11/01/96 18,290
BHF-Bank
15,000 5.625, 11/01/96 15,000
Credit Commercial De France
15,000 5.625, 11/01/96 15,000
Sun Trust Bank, Atlanta
15,000 5.625, 11/01/96 15,000
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TOTAL TIME DEPOSITS
(Cost $63,290) 63,290
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TOTAL INVESTMENTS (100.5)
(Cost $391,027) 391,027
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OTHER ASSETS AND LIABILITIES (-0.5%)
- --------------------------------------------------------------------------------
Other Assets and Liabilities, Net (1,778)
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
================================================================================
AIG MONEY MARKET FUND (concluded)
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VALUE
(000)
- --------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------
Portfolio Shares of Class A (unlimited
authorization -- no par value)
based on 253,862,721 outstanding
shares of beneficial interest $253,863
Portfolio Shares of Class B (unlimited
authorization -- no par value)
based on 135,383,980 outstanding
shares of beneficial interest 135,384
Undistributed net investment
income 3
Accumulated net realized loss
on investments (1)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS (100.0%) $389,249
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Net Asset Value, Offering and Redemption
Price Per Share -- Class A $1.00
Net Asset Value, Offering and Redemption
Price Per Share -- Class B $1.00
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(A) SECURITY SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT FROM
REGISTRATION UNDER SECTION 4(2) OR 144A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS." THESE SECURITIES HAVE BEEN DETERMINED TO BE
LIQUID UNDER GUIDELINES ESTABLISHED BY THE BOARD OF DIRECTORS.
PLC -- PUBLIC LIMITED CORPORATION
The accompanying notes are an integral part of the financial statements
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
================================================================================
11/1/95 TO
10/31/96
AIG MONEY MARKET FUND (000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $24,446
--------
Total Investment Income 24,446
--------
EXPENSES:
Investment Advisory Fees 1,105
Waiver of Investment Advisory Fees (81)
Administrative Fees 425
Waiver of Administrative Fees (13)
Custodian Fees 55
Professional Fees 62
Distribution Fees (1) 397
Transfer Agent Fees 55
Printing Fees 19
Trustee Fees 5
Registration and Filing Fees 27
Insurance and Other Fees 27
Amortization of Deferred Organizational Costs 8
Rating Fees 27
--------
Total Expenses 2,118
--------
Net Investment Income 22,328
--------
NET REALIZED LOSS FROM SECURITIES SOLD (1)
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $22,327
========
(1) DISTRIBUTION FEES ARE INCURRED BY THE CLASS B SHARES ONLY.
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
======================================================================================================================
11/1/95 TO 12/1/94 TO
10/31/96 10/31/95 (1)
AIG MONEY MARKET FUND (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C>
Net Investment Income $ 22,328 $ 17,596
Net Realized Gain (Loss) on Securities (1) 3
----------- -----------
Increase in Net Assets Resulting from Operations 22,327 17,599
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Class A (16,913) (15,644)
Class B (5,415) (1,952)
----------- -----------
Total Distributions (22,328) (17,596)
----------- -----------
SHARE TRANSACTIONS (AT $1.00 PER SHARE):
Class A
Shares Issued 20,518,210 14,099,321
Shares Issued in Lieu of Cash Distributions 16,941 14,200
Shares Redeemed (20,594,942) (13,799,867)
----------- -----------
Net Class A Share Transactions (59,791) 313,654
----------- -----------
Class B
Shares Issued 298,083 178,792
Shares Issued in Lieu of Cash Distributions 5,368 1,516
Shares Redeemed (288,549) (59,826)
----------- -----------
Net Class B Share Transactions 14,902 120,482
----------- -----------
Increase (Decrease) in Net Assets From Share Transactions (44,889) 434,136
----------- -----------
Total Increase (Decrease) in Net Assets (44,890) 434,139
Beginning of Period 434,139 --
----------- -----------
End of Period $ 389,249 $ 434,139
=========== ===========
<FN>
(1) THE AIG MONEY MARKET FUND CLASS A AND CLASS B COMMENCED OPERATIONS
ON DECEMBER 1, 1994 AND FEBRUARY 16, 1995, RESPECTIVELY.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
================================================================================
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
RATIO
RATIO OF OF NET
NET NET NET RATIO EXPENSES INCOME
ASSET DISTRIBUTIONS ASSET ASSETS RATIO OF NET TO AVERAGE TO AVERAGE
VALUE NET FROM NET VALUE END OF EXPENSES INCOME NET ASSETS NET ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS)
--------- ---------- ------------- --------- ------ --------- ----------- ---------- ----------- ----------
- ---------------------
AIG MONEY MARKET FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A (1)
1996 $1.00 0.05 (0.05) $1.00 5.26% $253,865 0.39% 5.15% 0.41% 5.13%
1995 $1.00 0.05 (0.05) $1.00 5.75%* $313,657 0.40%* 5.60%* 0.47%* 5.53%*
CLASS B (1)
1996 $1.00 0.05 (0.05) $1.00 4.89% $135,384 0.74% 4.79% 0.77% 4.76%
1995 $1.00 0.04 (0.04) $1.00 5.43%* $120,482 0.75%* 5.18%* 0.85%* 5.08%*
<FN>
* Annualized
(1) The AIG Money Market Fund Class A and Class B commenced operations on
December 1, 1994 and February 16, 1995, respectively.
</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, 1996
================================================================================
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a
Massachusetts business trust under a Declaration of Trust dated July 18, 1991.
The Trust is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified open-end management investment company with
eight portfolios. The financial statements herein are those of one such
portfolio, the AIG Money Market Fund (the "Fund"). The Fund is registered to
offer two classes of shares: Class A and Class B. 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 prospectuses provide 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 are stated at amortized
cost, which approximates market value. Under this valuation method,
purchase discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
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.
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
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
directly to the Fund. Other operating expenses of the Trust are
prorated to the portfolios on the basis of relative net asset value.
Class specific expenses, such as the 12b-1 fees, are borne by that
class. Income, other expenses and realized gains and losses of the
Fund are allocated to the respective classes on the basis of the
relative net asset value each day.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE ADVISORS' INNER CIRCLE FUND
OCTOBER 31, 1996
================================================================================
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 U.S. Federal income tax
regulations, which may differ from those amounts determined under
generally accepted 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:
The Fund incurred organization costs of $33,000. These costs have been
capitalized by the Fund and are being amortized over sixty months commencing
with operations. In the event any of the initial shares of the Fund are redeemed
by any holder thereof during the period that the Fund is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Fund will be reduced by the unamortized organizational costs in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption. Organization costs include
legal fees of approximately $21,000 for organizational work performed by a law
firm of which a trustee of the Trust is a partner and two officers of the Trust
are partners.
Certain officers of the Trust are also officers of SEI Fund Resources (the
"Administrator") and/or SEI Financial Services Corporation. 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
under which the Administrator provides administrative services at an annual rate
of .145% of the Fund's average daily net assets up to $100 million; .1125% of
the Fund's average daily assets from $100 million up to and including $200
million; .07% of the Fund's average daily net assets from $200 million up to and
including $450 million; and .05% of the Fund's average daily net assets over
$450 million. In the agreement, the Administrator agreed to cap certain expenses
of the portfolio. For the year ended October 31, 1996, the Administrator waived
$13,000 to cap these expenses.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) THE ADVISORS' INNER CIRCLE FUND
OCTOBER 31, 1996
================================================================================
The Trust and SEI Financial Services Company ("SFS" or "the Distributor")
have entered into a Distribution Agreement under which SFS acts as the
Distributor of the Fund's shares. The Distributor receives no fees for its
distribution services under this agreement.
AIG Equity Sales Corp. serves as the Sub-Distributor and Shareholder
Servicing Agent to the Fund. The Fund has adopted a Distribution Plan ("the
Plan") relating to the Class B shares pursuant to the Investment Company Act of
1940, Rule 12b-1. The Plan provides for payment of fees to the Distributor at an
annual rate of .35% of the average daily net assets of the Class B shares. Such
fees are then paid to the Sub-Distributor for services provided.
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS:
The Trust and AIG Capital Management Corp. (the "Advisor") are parties to
an Investment Advisory Agreement (the "Advisory Agreement"). Under the terms of
the Advisory Agreement, the Advisor receives an annual fee equal to .25% of the
Fund's average daily net assets. The Advisor has voluntarily agreed to waive
.10% of its fee, and to waive additional fees and/or reimburse certain expenses
of the Portfolio in order to limit operating expenses to not more than .40% of
the average daily net assets of Class A and not more than .75% of the average
daily net assets of Class B. Fee waivers are voluntary and may be terminated at
any time upon sixty days' written notice to the Fund.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund.
Fees of the Custodian are being paid on the basis of the net assets of the Fund.
The Custodian plays no role in determining the investment policies of the Fund
or which securities are to be purchased and sold by the Fund.
6. CONCENTRATION OF CREDIT RISK:
The Fund invests primarily in high quality money market instruments. The
Fund maintains a diversified portfolio which currently has a concentration of
assets in the banking industry. The ability of the issuers of the securities
held by the Fund to meet their obligations may be affected by economic
developments in the banking industry.
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE AIG MONEY MARKET FUND
A SERIES OF THE ADVISORS' INNER CIRCLE TRUST
(UNAUDITED)
For the shareholders that do not have an October 31, 1996 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1996 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1996, the Portfolio is designating long
term capital gains, qualifying dividends and exempt interest income with regard
to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
------------ ------------- -------------- -------------
<S> <C> <C> <C>
AIG Money Market Fund 0% 100% 100%
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST TAX CREDIT
------------ ------------ ---------- ----------
AIG Money Market Fund 0% 0% 0%
<FN>
(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.
</FN>
</TABLE>
<PAGE>
INVESTMENT ADVISOR:
AIG CAPITAL MANAGEMENT CORP.
70 PINE STREET
NEW YORK, NY 10270
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
530 EAST SWEDESFORD ROAD
WAYNE, PA 19087-1658
For information call: 1-800-845-3885
This information must be preceded or accompanied by a current prospectus.
AIG-F-005-03
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
CLOVER CAPITAL EQUITY VALUE FUND
CLOVER CAPITAL FIXED INCOME FUND
CLOVER CAPITAL SMALL CAP VALUE FUND
ANNUAL REPORT TO SHAREHOLDERS
AS OF OCTOBER 31, 1996
THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED
BY A CURRENT PROSPECTUS FOR EACH FUND DESCRIBED.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
CLOVER CAPITAL MANAGEMENT, INC.
CLOVER CAPITAL EQUITY VALUE FUND
The Clover Capital Equity Value Fund utilizes a research driven, value oriented
approach to equity investing. The Fund invests in equity and convertible
securities which possess favorable valuation attributes relative to the stock
market averages or the valuation characteristics of the company's stock in past
years. Valuations are measured by a stock's price relative to the company's per
share cash flows, revenues, book value, earnings and its liquidation value on
the private market. Earnings and cash flow are normalized in the case of
companies where profit margins are temporarily depressed and improvements are
anticipated.
For the fiscal year ended October 31, 1996 the Equity Value Fund posted a total
return of 16.5% versus a total return of 24.1% for the S&P 500 Composite Index.
Energy, computer software, communication and electrical equipment sectors led
market performance in 1996. A mid-year inflation scare gave way to a slow but
stable economic outlook where companies with steady, reliable earnings streams
were sought after by investors. Cyclical sectors such as home-building, trucking
and steel lagged as investors searched for more recession proof opportunities.
The Fund's performance was lead by several of its retail, healthcare and
industrial companies which offset the poor performance of a few of the Fund's
computer software and electronic parts distribution companies. The relatively
high cash balances maintained throughout the year also contributed somewhat to
the Fund's underperformance.
Valuations for most common stocks persisted at or near record levels during the
year with only a brief summer correction interrupting the market's climb. The
Fund will continue to patiently search for value in out-of-favor sectors.
Considering the past 15 years of torrid stock market gains which have driven the
stock market averages to the current record high valuations, the Fund advisor
believes that equity investing may become more challenging in the future. The
Fund's investment philosophy and research based selectivity will become
increasingly valuable in a slower growth environment.
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
CLOVER CAPITAL EQUITY VALUE FUND, VERSUS THE S&P 500 COMPOSITE INDEX
Following are the plot points as depicted in the chart:
Clover Capital Equity Value Fund S&P 500 Composite Index
12/31/91 $10,000 $10,000
10/31/92 $ 9,938 $10,281
10/31/93 $11,511 $11,817
10/31/94 $13,560 $12,272
10/31/95 $16,442 $15,515
10/31/96 $19,150 $19,253
- --------------------------------------
TOTAL RETURN1
- --------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR 3 YEAR INCEPTION
RETURN RETURN TO DATE
- --------------------------------------
16.47% 18.49% 15.53%
- --------------------------------------
[LINE GRAPH]
1 These 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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
CLOVER CAPITAL MANAGEMENT, INC.
CLOVER CAPITAL FIXED INCOME FUND
The Clover Capital Fixed Income Fund produced a total rate of return for the
fiscal year ended October 31, 1996 of 6.26%, outperforming the total rate of
return posted by the Merrill Lynch Corporate/Government Mortgage Bond Index by
53 basis points.
For the fiscal year, interest rates, while exhibiting significant volatility,
rose only modestly. Yields on two year Treasury notes rose .12% to end the
period at 5.73%. Ten year Treasury issues rose .32% to yield 6.34% at period end
while the thirty year Treasury, or long bond, finished the year at 6.64%, up
.31%. Uncertainty over the direction of the U.S. economy and Federal Reserve
Board policy caused yields to move somewhat higher through mid-year. However,
reports of subdued economic growth and stable rates of inflation at both the
consumer and wholesale level resulted in interest rates returning to levels only
slightly above those posted at the start of the fiscal year.
The Fund's outperformance of the Merrill Lynch Corporate/Gov't./Mortgage Bond
Index during the year was primarily a result of strong performance by our
special situation bonds, such as convertible debentures, offset somewhat by our
conservative positioning into Treasury's and high quality recession resistant
corporate bonds.
Going forward, the Fund continues to operate as a market risk bond portfolio
targeting sectors where we see value and attempting to avoid sectors and credits
where risk does not justify participation while maintaining an intermediate
maturity structure.
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE CLOVER
CAPITAL FIXED INCOME FUND, VERSUS THE MERRILL LYNCH CORPORATE/GOV'T./
MORTGAGE BOND INDEX
Following are the plot points as depicted in the chart:
Merrill Lynch Corporate/
Clover Capital Fixed Income Fund Gov/t./Mortgage Index
12/31/91 $10,000 $10,000
10/31/92 $10,582 $10,596
10/31/93 $12,002 $11,869
10/31/94 $11,582 $11,440
10/31/95 $13,350 $13,247
10/31/96 $14,186 $14,006
- --------------------------------------
TOTAL RETURN1
- --------------------------------------
ANNUALIZED ANNUALIZED
ONE YEAR 3 YEAR INCEPTION
RETURN RETURN TO DATE
- --------------------------------------
6.26% 5.73% 7.87%
- --------------------------------------
[LINE GRAPH]
1 These 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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
CLOVER CAPITAL MANAGEMENT, INC.
CLOVER CAPITAL SMALL CAP VALUE FUND
The Clover Capital Small Cap Value Fund seeks attractive returns through
investment in a diversified portfolio of stocks. This portfolio is focused on
small capitalization companies with attractive stock valuations based on
measures such as stock price relative to book value and cash flow. This sector
of the public equities market has provided exceptional long term returns in the
past, however short term behavior of these stocks may differ significantly from
stock markets indices.
For the fiscal year ended October 31, 1996, the Small Cap Value Fund provided a
total return of 8.97%, exceeding the benchmark Frank Russell 2000 Index return
of 5.97%. These returns represent performance since February 28, 1996, which was
the inception date of the Fund.
Fund performance was aided by the appreciation of stocks from a broad variety of
sectors. Investment efforts were focused on small, undervalued and relatively
obscure companies with reasonable prospects for share price appreciation.
Although no industry sectors were specifically targeted for investment,
depressed valuations in several sectors led to emphasis in those areas. Sectors
which made significant contributions to fund performance included the retail,
apparel/textile, and railroad sectors.
Looking ahead, the Fund will continue to consistently apply its core investment
methodology. This involves isolation of individual companies with inexpensive
share prices relative to their fundamental statistics and future operating
potential. The Advisor believes that there is no value gained by attempting to
forecast broad market movements, interest rates or macroeconomic changes, and
therefore intends to keep levels of cash reasonably low at all times. Despite
vigorous returns in the equity markets in the past year the Advisor was able to
opportunistically purchase the shares of undervalued companies, and anticipates
additional opportunities in the months ahead.
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE CLOVER
CAPITAL SMALL CAP VALUE FUND, VERSUS THE FRANK RUSSELL 2000 INDEX
Following are the plot points as depicted in the chart:
Clover Capital Small Cap Value Fund Frank Russell 2000 Index
2/29/96 $10,000 $10,000
10/31/96 $10,908 $10,586
- -------------------------
TOTAL RETURN1
- -------------------------
ANNUALIZED CUMULATIVE
INCEPTION INCEPTION
TO DATE TO DATE2
- -------------------------
13.60% 8.97%
- -------------------------
1 These 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. 2 The Clover Capital Small Cap Value Fund
commenced operations on February 28, 1996.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of Clover Capital Equity Value Fund, Clover
Capital Fixed Income Fund and Clover Capital Small Cap Value Fund of The
Advisors' Inner Circle Fund:
We have audited the accompanying statements of net assets of Clover Capital
Equity Value Fund, Clover Capital Fixed Income Fund and Clover Capital Small Cap
Value Fund ("the Funds"), three of the funds constituting The Advisors' Inner
Circle Fund, as of October 31, 1996, 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
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Clover
Capital Equity Value Fund, Clover Capital Fixed Income Fund and Clover Capital
Small Cap Value Fund of The Advisors' Inner Circle Fund as of October 31, 1996,
the results of their operations, changes in their net assets, and financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 6, 1996
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Market
Value
CLOVER CAPITAL EQUITY VALUE FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK -- 73.1%
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.5%
Comcast, Special, Cl A ............................ 200,000 $ 2,950
-------
COMMUNICATIONS EQUIPMENT -- 1.3%
California Microwave* ............................. 75,000 1,106
-------
COMPUTERS & SERVICES -- 7.6%
Marcam* ........................................... 280,700 3,439
Sungard Data Systems* ............................. 70,600 3,018
-------
6,457
-------
ENTERTAINMENT -- 4.6%
King World Productions* ........................... 110,000 3,960
-------
FOOD, BEVERAGE & TOBACCO -- 6.5%
Interstate Bakeries ............................... 50,000 2,119
RJR Nabisco ....................................... 60,000 1,733
United Biscuits Holdings ADR ...................... 500,000 1,690
-------
5,542
-------
MEASURING DEVICES -- 1.8%
Wheelabrator Technologies ......................... 100,000 1,550
-------
MEDICAL PRODUCTS & SERVICES -- 9.9%
Medpartners * ..................................... 344,850 7,285
Salick Health Care* ............................... 27,500 1,100
-------
8,385
-------
MISCELLANEOUS BUSINESS SERVICES -- 2.8%
Advo .............................................. 166,400 2,350
-------
PETROLEUM & FUEL PRODUCTS -- 1.9%
Union Texas Petroleum ............................. 75,000 1,603
-------
PRINTING & PUBLISHING -- 1.4%
American Greetings, Cl A .......................... 40,000 1,173
-------
RAILROADS -- 6.5%
Canadian National Railway ......................... 200,000 5,500
-------
RETAIL -- 8.8%
Cash America International ........................ 191,000 1,385
Kroger* ........................................... 50,000 2,231
Melville .......................................... 70,000 2,607
Pier 1 Imports .................................... 89,250 1,249
-------
7,472
-------
SEMI-CONDUCTORS/INSTRUMENTS -- 7.2%
Amphenol, Cl A* ................................... 170,000 3,379
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Shares/Face Market
Amount Value
CLOVER CAPITAL EQUITY VALUE FUND (000) (000)
- --------------------------------------------------------------------------------
Augat ............................................. 85,000 $ 2,337
IEC Electronics* .................................. 75,000 450
-------
6,166
-------
WHOLESALE -- 9.3%
Avnet ............................................. 80,000 4,030
Pioneer Standard Electronics ...................... 100,000 1,050
Wyle Electronics .................................. 95,000 2,838
-------
7,918
-------
TOTAL COMMON STOCK (Cost $53,729) 62,132
-------
REAL ESTATE INVESTMENT TRUSTS -- 7.0%
Manufactured Home Communities ..................... 75,000 1,462
Meditrust ......................................... 9,259 333
Public Storage PFD, Convertible to 1.6835 shares .. 31,000 1,209
ROC Communities ................................... 50,000 1,219
Storage Trust Realty .............................. 75,000 1,734
-------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $5,137) ... 5,957
-------
CONVERTIBLE BONDS -- 0.7%
Meditrust, Convertible to 27.6396 Shares
7.500%, 03/01/01 ............................. $ 600 621
-------
TOTAL CONVERTIBLE BONDS (Cost $590) .................. 621
-------
CORPORATE OBLIGATIONS -- 3.7%
Canandaigua Wine
8.750%, 12/15/03 ............................. 1,500 1,429
Service Merchandise Callable 12/15/97 @ 104.50
9.000%, 12/15/04 ............................. 2,000 1,685
-------
TOTAL CORPORATE OBLIGATIONS (Cost $3,110) ............ 3,114
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.3%
Federal Home Loan Bank (A)
4.059%, 02/14/97 ............................. 1,000 1,000
5.330%, 02/14/97 ............................. 1,000 998
-------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,995) ..................................... 1,998
-------
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
CLOVER CAPITAL EQUITY VALUE FUND (000) (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 12.3%
Lehman Brothers, 5.07%, dated 10/31/96,
matures 11/01/96, repurchase price
$10,485 (collateralized by U.S. Treasury
Bond, par value $10,547, 7.500%,
matures 01/31/97: market value $10,800) ......... $10,484 $ 10,484
---------
TOTAL REPURCHASE AGREEMENT (Cost $10,484) ............ 10,484
---------
TOTAL INVESTMENTS (COST $75,045) -- 99.1% ............ 84,306
---------
OTHER ASSETS AND LIABILITIES, NET -- 0.9% ............ 744
---------
NET ASSETS:
Portfolio Shares (unlimited authorization -- no par value)
based on 5,249,344 outstanding shares of beneficial interest 71,765
Undistributed net investment income ............... 57
Accumulated net realized gain on investments ...... 3,967
Net unrealized appreciation on investments ........ 9,261
---------
TOTAL NET ASSETS-- 100.0% 85,050
=========
Net Asset Value, Offering Price and Redemption Price Per Share $ 16.20
=========
* NON-INCOME PRODUCING SECURITY
(A) VARIABLE RATE SECURITY - THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT AS OF OCTOBER 31, 1996.
ADR - AMERICAN DEPOSITORY RECEIPT
CL - CLASS
PFD - PREFERRED
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
CLOVER CAPITAL FIXED INCOME FUND (000) (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 48.9%
Abbott Laboratories
5.600%, 10/01/03 ............................. $700 $ 664
Anheuser Busch
6.750%, 08/01/03 ............................. 750 758
Bass America
6.750%, 08/01/99 ............................. 450 456
Canandaigua Wine
8.750%, 12/15/03 ............................. 850 810
Commonwealth Edison
5.750%, 11/01/96 ............................. 400 400
Dayton Hudson
7.500%, 03/01/99 ............................. 500 512
Detroit Edison
6.560%, 05/01/01 ............................. 500 501
Eli Lilly
6.250%, 03/15/03 ............................. 750 734
Florida Power & Light
5.500%, 07/01/99 ............................. 800 784
General Motors Acceptance
7.750%, 01/15/99 ............................. 400 412
Grand Metro Investment
6.500%, 09/15/99 ............................. 250 252
Masco
6.125%, 09/15/03 ............................. 200 192
Mattel
6.750%, 05/15/00 ............................. 350 352
McGraw-Hill
9.430%, 09/01/00 ............................. 600 658
Northern Illinois Gas
5.875%, 05/01/00 ............................. 400 391
Private Export Funding
6.620%, 10/01/05 ............................. 250 249
Texaco Capital MTN
7.420%, 07/15/02 ............................. 500 523
Union Electric
5.500%, 03/01/97 ............................. 250 250
Walt Disney
6.375%, 03/30/01 ............................. 750 749
------
TOTAL CORPORATE OBLIGATIONS (Cost $9,650) ........... 9,647
------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 18.9%
Federal Home Loan Mortgage Corporation, REMIC,
Series 1546, Cl H
7.000%, 12/15/22 ............................. 390 376
Federal Home Loan Mortgage Corporation, Pool # 252641
8.000%, 07/01/07 ............................. 79 81
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
CLOVER CAPITAL FIXED INCOME FUND (000) (000)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation, Pool # 277449
8.500%, 09/01/09 ............................. $ 78 $ 81
Federal National Mortgage Association, REMIC,
Series 1993-95, Cl PE
6.500%, 10/25/07 ............................. 750 752
Federal National Mortgage Association, REMIC,
Series G93-21, Cl VE
6.600%, 11/25/07 ............................. 184 178
Federal National Mortgage Association, REMIC
Series 1993-118 G
6.500%, 11/25/06 ............................. 1,000 1,002
Government National Mortgage Association, Pool # 13125
8.000%, 10/15/06 ............................. 39 41
Government National Mortgage Association, Pool # 187899
8.000%, 05/15/17 ............................. 259 265
Government National Mortgage Association, Pool # 196477
10.000%, 04/15/10 ............................. 112 121
Government National Mortgage Association, Pool # 202886
8.000%, 03/15/17 ............................. 269 275
Government National Mortgage Association, Pool # 221235
8.500%, 07/15/17 .............................. 100 105
Government National Mortgage Association, Pool # 331786
8.000%, 08/15/22 ............................. 438 448
-------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES (Cost $3,726) 3,725
-------
U.S. TREASURY OBLIGATIONS -- 22.2%
U.S. Treasury Notes
7.500%, 11/15/01 ............................. 100 106
7.250%, 05/15/04 ............................. 650 688
7.500%, 02/15/05 ............................. 300 323
6.500%, 05/15/05 ............................. 550 556
6.500%, 08/15/05 ............................. 500 505
U.S. Treasury Bonds
9.375%, 02/15/06 ............................. 400 485
7.500%, 11/15/16 ............................. 550 596
8.000%, 11/15/21 ............................. 750 862
7.250%, 08/15/22 ............................. 250 265
-------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $4,246) ........ 4,386
-------
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
CLOVER CAPITAL FIXED INCOME FUND (000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.5%
Federal Home Loan Bank (A)
4.059%, 02/14/97 ............................. $250 $ 250
Federal National Mortgage Association, MTN
6.250%, 01/14/04 ............................. 250 243
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $478) 493
--------
CONVERTIBLE BONDS -- 3.0%
Meditrust, Convertible to 27.6396 Shares
7.500%, 03/01/01 ............................. 570 590
---------
TOTAL CONVERTIBLE BONDS (Cost $575) .................. 590
---------
REPURCHASE AGREEMENT -- 3.0%
Lehman Brothers, 5.07%, dated 10/31/96,
matures 11/01/96, repurchase price
$589 (collateralized by U.S. Treasury
Bond, par value $593, 7.500%,
matures 01/31/97: market value $607) ............ 589 589
--------
TOTAL REPURCHASE AGREEMENT (Cost $589) ............... 589
--------
TOTAL INVESTMENTS (COST $19,264) -- 98.5% ............ 19,430
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.5% ............ 301
--------
NET ASSETS:
Portfolio Shares (unlimited authorization -- no par value)
based on 2,002,637 outstanding shares of beneficial interest 19,358
Undistributed net investment income ............... 11
Accumulated net realized gain on investments ...... 196
Net unrealized appreciation on investments ........ 166
--------
TOTAL NET ASSETS-- 100.0% 19,731
========
Net Asset Value, Offering and Redemption Price Per Share $ 9.85
========
(A) VARIABLE RATE SECURITY--THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT AS OF OCTOBER 31, 1996.
CL -- CLASS
MTN -- MEDIUM TERM NOTE
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Market
Value
CLOVER CAPITAL SMALL CAP VALUE FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK -- 92.6%
AIR TRANSPORTATION -- 0.2%
Petroleum Helicopters ............................. 600 $ 10
-----
APPAREL/TEXTILES -- 6.6%
Crown Crafts ...................................... 8,000 77
Dyersburg ......................................... 1,500 9
Fredericks of Hollywood, Cl B ..................... 6,200 24
Interface, Cl A ................................... 1,900 32
Kellwood .......................................... 4,700 85
Quaker Fabric* .................................... 1,900 20
Westpoint Stevens * ............................... 1,400 37
Worldtex* ......................................... 1,400 11
-----
295
-----
AUTOMOTIVE -- 1.2%
Harvard Industries* ............................... 400 4
R & B * ........................................... 6,400 52
-----
56
-----
BEAUTY PRODUCTS -- 2.1%
Jean Philippe Fragrances* ......................... 14,000 93
-----
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.4%
Comcast, Special, Cl A ............................ 10,300 152
-----
BUILDING & CONSTRUCTION -- 1.5%
M/I Schottenstein Homes * ......................... 7,800 69
-----
BUILDING & CONSTRUCTION SUPPLIES -- 1.1%
International Aluminum ............................ 2,000 49
-----
CHEMICALS -- 2.8%
Envirodyne Industries * ........................... 16,900 70
Pioneer, Cl A* .................................... 11,400 57
-----
127
-----
COAL MINING -- 0.3%
Ashland Coal ...................................... 500 12
-----
COMMUNICATIONS EQUIPMENT -- 3.5%
Aseco* ............................................ 9,400 74
California Microwave* ............................. 5,500 81
-----
155
-----
COMPUTERS & SERVICES -- 12.9%
American List ..................................... 1,800 50
Key Tronic* ....................................... 5,300 41
Marcam* ........................................... 18,000 221
Mentor Graphics* .................................. 8,000 68
Metatec, Cl A* .................................... 10,900 79
Proxima* .......................................... 3,100 46
Sequent Computer Systems* ......................... 5,200 77
-----
582
-----
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Market
Value
CLOVER CAPITAL SMALL CAP VALUE FUND Shares (000)
- --------------------------------------------------------------------------------
CONCRETE & MINERAL PRODUCTS -- 0.2%
Green (A.P.) Industries ........................... 1,000 $ 10
-------
ENVIRONMENTAL SERVICES -- 1.4%
Harding Lawson Associates Group* .................. 8,100 55
International Technology* ......................... 3,000 7
-------
62
-------
FOOD, BEVERAGE & TOBACCO -- 4.3%
Canandaigua Wine, Cl A* ........................... 3,100 70
Chock Full O'Nuts * ............................... 13,100 62
J & J Snack Foods* ................................ 4,000 44
John B. Sanfilippo & Son* ......................... 900 5
Orange-Co ......................................... 1,300 10
-------
191
-------
INSURANCE -- 2.9%
Fremont General ................................... 1,900 56
Presidential Life ................................. 1,400 16
Rightchoice Managed Care* ......................... 3,400 34
Stewart Information Services ...................... 1,000 22
-------
128
-------
LEISURE PRODUCTS -- 0.1%
Aldila* ........................................... 1,300 5
-------
MACHINERY -- 2.8%
Gehl* ............................................. 1,100 9
Goulds Pumps ...................................... 2,000 46
Interlake * ....................................... 10,500 35
NACCO Industries, Cl A ............................ 800 37
-------
127
-------
MEDICAL PRODUCTS & SERVICES -- 1.2%
Hanger Orthopedic Group * ......................... 6,900 44
Mine Safety Appliances ............................ 200 10
-------
54
-------
MISCELLANEOUS BUSINESS SERVICES -- 5.3%
ACX Technologies* ................................. 400 7
Advo .............................................. 12,400 175
Isomedix* ......................................... 2,100 29
Pitt Des Moines ................................... 700 28
-------
239
-------
OFFICE FURNITURE & FIXTURES -- 0.2%
Tab Products ...................................... 1,000 8
-------
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Market
Value
CLOVER CAPITAL SMALL CAP VALUE FUND Shares (000)
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 1.4%
Mail-Well * ....................................... 4,700 $ 65
-------
PETROLEUM & FUEL PRODUCTS -- 1.8%
Bellwether Exploration * .......................... 8,900 60
ICO ............................................... 3,700 23
-------
83
-------
PRINTING & PUBLISHING -- 0.2%
Hollinger International, Cl A ..................... 650 8
-------
PROFESSIONAL SERVICES -- 4.7%
Acmat, Cl A* ...................................... 700 10
Baker (Michael)* .................................. 14,500 83
Children's Discovery Centers* ..................... 15,400 90
Dynamics Research* ................................ 1,000 9
URS* .............................................. 2,100 18
-------
210
-------
RAILROADS -- 1.8%
Canadian National Railway ......................... 3,000 83
-------
RETAIL -- 12.9%
Cash America International ........................ 18,000 130
Davco Restaurants* ................................ 4,200 39
Designs * ......................................... 9,000 54
Eljer Industries * ................................ 6,600 73
Elxsi* ............................................ 10,000 50
Hi-Lo Automotive * ................................ 16,000 42
Marsh Super Markets ............................... 900 9
Movie Gallery* .................................... 5,000 68
Payless Cashways* ................................. 19,700 37
Piccadilly Cafeterias ............................. 2,300 20
Pier 1 Imports .................................... 3,400 48
Reeds Jewelers* ................................... 900 7
Shopko Stores ..................................... 250 4
-------
581
-------
SEMI-CONDUCTORS/INSTRUMENTS -- 6.0%
Exar* ............................................. 6,000 82
IEC Electronics* .................................. 19,200 115
VLSI Technology* .................................. 4,100 71
-------
268
-------
STEEL & STEEL WORKS -- 0.1%
National Steel, Cl B* ............................. 550 5
-------
TRANSPORTATION SERVICES -- 0.2%
PLM International * ............................... 3,000 9
-------
<PAGE>
STATEMENT OF NET ASSETS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Shares/Face Market
Amount Value
CLOVER CAPITAL SMALL CAP VALUE FUND (000) (000)
- --------------------------------------------------------------------------------
TRUCKING -- 2.1%
Builders Transport* ............................... 10,300 $ 49
Celadon Group * ................................... 4,500 39
Trism* ............................................ 1,100 5
-------
93
-------
WHOLESALE -- 7.4%
Cameron Ashley Building Products* ................. 2,000 27
JPE* .............................................. 7,800 64
Pioneer Standard Electronics ...................... 6,500 68
Software Spectrum* ................................ 700 19
Syncor International* ............................. 2,100 19
Wyle Electronics .................................. 4,600 137
-------
334
-------
TOTAL COMMON STOCK (Cost $4,093) .................... 4,163
-------
REAL ESTATE INVESTMENT TRUST -- 2.0%
Storage Trust Realty .............................. 3,800 88
-------
TOTAL REAL ESTATE INVESTMENT TRUST (Cost $81) ........ 88
-------
REPURCHASE AGREEMENT -- 5.1%
Lehman Brothers, 5.07%, dated 10/31/96,
matures 11/01/96, repurchase price
$231 (collateralized by U.S. Treasury
Bond, par value $232, 7.500%,
matures 01/31/97: market value $238) ............ $231 231
-------
TOTAL REPURCHASE AGREEMENT (Cost $231) ............... 231
-------
TOTAL INVESTMENTS (COST $4,405) -- 99.7% ............. 4,482
-------
OTHER ASSETS AND LIABILITIES, NET -- 0.3% ............ 13
-------
NET ASSETS:
Portfolio Shares (unlimited authorization -- no par
value) based on 413,539 outstanding shares of
beneficial interest ............................ 4,355
Accumulated net realized gain on investments ..... 63
Net unrealized appreciation on investments ....... 77
-------
TOTAL NET ASSETS -- 100.0% 4,495
=======
Net Asset Value, Offering and Redemption Price Per Share $10.87
=======
* NON-INCOME PRODUCING SECURITY
CL - CLASS
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
<TABLE>
<CAPTION>
CLOVER CAPITAL CLOVER CAPITAL CLOVER CAPITAL
EQUITY VALUE FIXED INCOME SMALL CAP VALUE
FUND FUND FUND
-------------- -------------- ---------------
11/01/95 11/01/95 02/28/96(1)
TO 10/31/96 TO 10/31/96 TO 10/31/96
(000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend income ................................. $ 899 $ -- $ 13
Interest income ................................. 772 1,166 10
- ----------------------------------------------------------------------------------------------------------------
Total Investment Income ..................... 1,671 1,166 23
- ----------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees ........................ 511 77 14
Investment advisory fee waiver .................. (73) (53) (14)
Contributions by adviser ........................ -- -- (52)
Administrator fees .............................. 138 50 34
Custodian fees .................................. 8 6 2
Transfer agent fees ............................. 81 18 10
Professional fees ............................... 18 14 13
Trustee fees .................................... 6 6 3
Registration fees ............................... 34 9 9
Printing fees ................................... 29 8 2
Pricing fees .................................... 1 -- 1
Insurance and other fees ........................ 5 1 --
Amortization of deferred organizational costs ... 2 1 1
- ----------------------------------------------------------------------------------------------------------------
Total expenses .............................. 760 137 23
- ----------------------------------------------------------------------------------------------------------------
Net investment income ....................... 911 1,029 --
- ----------------------------------------------------------------------------------------------------------------
Net realized gain from securities sold .......... 3,967 208 67
Net unrealized appreciation (depreciation)
of investment securities ..................... 5,039 (166) 77
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments ...................... 9,006 42 144
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations ............................. $9,917 $1,071 $144
================================================================================================================
<FN>
AMOUNTS DESIGNED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) THE CLOVER CAPITAL SMALL CAP VALUE FUND COMMENCED OPERATIONS ON FEBRUARY
28, 1996.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
<TABLE>
<CAPTION>
CLOVER CAPITAL CLOVER CAPITAL CLOVER CAPITAL
EQUITY VALUE FIXED INCOME SMALL CAP VALUE
FUND FUND FUND
------------------------ ------------------------ ---------------
11/01/95 11/01/94 11/01/95 11/01/94 02/28/96
TO 10/31/96 TO 10/31/95 TO 10/31/96 TO 10/31/95 TO 10/31/96
(000) (000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment activities:
Net investment income .......... $ 911 $ 686 $ 1,029 $ 699 $ --
Net realized gain from
securities sold ............. 3,967 4,206 208 76 67
Net unrealized appreciation
(Depreciation) of investment
securities .................. 5,039 1,800 (166) 823 77
- -------------------------------------------------------------------------------------------------------
Net increase in
Net assets resulting from
operations .................. 9,917 6,692 1,071 1,598 144
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income .......... (992) (602) (1,030) (696) (4)
Capital gains .................. (4,207) (1,755) (76) (24) --
- -------------------------------------------------------------------------------------------------------
Total distributions (5,199) (2,357) (1,106) (720) (4)
- -------------------------------------------------------------------------------------------------------
Capital share transactions:
Shares issued .................. 35,078 23,522 8,594 5,633 4,664
Shares issued in lieu of
cash distributions .......... 5,130 2,339 1,094 588 3
Shares redeemed ................ (11,523) (3,798) (4,607) (2,176) (312)
- -------------------------------------------------------------------------------------------------------
Increase in net assets
derived from capital
share transactions .......... 28,685 22,063 5,081 4,045 4,355
- -------------------------------------------------------------------------------------------------------
Total increase in net asset.. 33,403 26,398 5,046 4,923 4,495
- -------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period ........... 51,647 25,249 14,685 9,762 --
- -------------------------------------------------------------------------------------------------------
End of period ................. $85,050 $51,647 $19,731 $14,685 $4,495
=======================================================================================================
Shares issued and redeemed:
Issued ........................ 2,281 1,618 877 583 442
Issued in lieu of cash
distributions .............. 349 179 112 62 1
Redeemed ...................... (758) (257) (471) (228) (29)
- -------------------------------------------------------------------------------------------------------
Net Increase in share
transactions ............... 1,872 1,540 518 417 414
=======================================================================================================
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
This page is left intentionally blank.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET NET
ASSET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE NET UNREALIZED FROM NET FROM VALUE
BEGINNING INVESTMENT GAINS OR (LOSSES) INVESTMENT CAPITAL END TOTAL
OF PERIOD INCOME ON SECURITIES INCOME GAINS OF PERIOD RETURN(4)
- ---------------------------------------------------------------------------------------------------------
CLOVER CAPITAL EQUITY VALUE FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $15.29 0.19 2.15 (0.22) (1.21) $16.20 16.47%
1995 $13.74 0.24 2.46 (0.22) (0.93) $15.29 21.25%
1994 $11.94 0.08 2.01 (0.08) (0.21) $13.74 17.80%
1993 $10.45 0.10 1.54 (0.10) (0.05) $11.94 15.83%
1992(1) $10.00 0.10 0.44 (0.09) -- $10.45 5.94%*
CLOVER CAPITAL FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------------------
1996 $ 9.89 0.59 0.01 (0.59) (0.05) $ 9.85 6.26%
1995 $ 9.14 0.58 0.77 (0.58) (0.02) $ 9.89 15.27%
1994 $10.85 0.57 (0.92) (0.57) (0.79) $ 9.14 (3.54)%
1993 $10.23 0.61 0.72 (0.61) (0.10) $10.85 13.40%
1992(1) $10.00 0.56 0.23 (0.56) -- $10.23 9.05%*
CLOVER CAPITAL SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------
1996(2) $10.00 0.02 0.88 (0.03) -- 10.87 8.97%
</TABLE>
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
<TABLE>
<CAPTION>
RATIO OF
RATIO NET INCOME
OF EXPENSES OR (LOSS)
NET RATIO TO AVERAGE TO AVERAGE
ASSETS RATIO OF NET INCOME NET ASSETS NET ASSETS
END OF EXPENSES OR (LOSS) (EXCLUDING (EXCLUDING PORTFOLIO AVERAGE
OF PERIOD TO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER COMMISSION
(000) NET ASSETS NET ASSETS CONTRIBUTIONS) CONTRIBUTIONS) RATE RATE(3)
- ---------------------------------------------------------------------------------------------------------------
CLOVER CAPITAL EQUITY VALUE FUND
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $85,050 1.10% 1.32% 1.21% 1.21% 51.36% $0.0577
1995 $51,647 1.10% 1.82% 1.20% 1.72% 84.76% N/A
1994 $25,249 1.14% 0.71% 1.30% 0.55% 58.44% N/A
1993 $15,070 1.18% 0.89% 1.51% 0.56% 82.51% N/A
1992(1) $ 9,005 1.20%* 1.15%* 2.09%* 0.26%* 31.00% N/A
CLOVER CAPITAL FIXED INCOME FUND
- --------------------------------
1996 $19,731 0.80% 6.00% 1.11% 5.69% 24.52% N/A
1995 $14,685 0.80% 6.13% 1.40% 5.53% 35.84% N/A
1994 $ 9,762 0.80% 5.88% 1.46% 5.22% 11.11% N/A
1993 $ 7,966 0.78% 5.62% 1.29% 5.11% 68.61% N/A
1992(1) $ 8,982 0.80%* 6.28%* 1.76%* 5.32%* 113.00% N/A
CLOVER CAPITAL SMALL CAP VALUE FUND
- -----------------------------------
1996(2) $ 4,495 1.40%* (0.03)%* 5.29%* (3.92)%* 14.17% 0.0470
<FN>
* ANNUALIZED
(1) THE CLOVER CAPITAL FIXED INCOME FUND AND THE CLOVER CAPITAL EQUITY VALUE
FUND COMMENCED OPERATIONS ON DECEMBER 6, 1991.
(2) THE CLOVER CAPITAL SMALL CAP VALUE FUND COMMENCED OPERATIONS ON
FEBRUARY 28, 1996.
(3) AVERAGE COMMISSION RATE PAID PER SHARE FOR THE SECURITY PURCHASES AND SALES
MADE DURING THE PERIOD.
(4) RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(5) ANNUALIZED RETURN FOR THE CLOVER CAPITAL SMALL CAPITAL VALUE FUND IS 13.60%.
</FN>
</TABLE>
The accompaning notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eight portfolios. The
financial statements included herein are those of the Clover Capital Equity
Value Fund, the Clover Capital Fixed Income Fund, and the Clover Capital Small
Cap Value Fund (the "Funds"). The financial statements of the remaining
portfolios are presented separately. The assets of each portfolio are
segregated, and a Shareholder's interest is limited to the portfolio in which
shares are held. The Funds' prospectus provides a description of each Fund's
investment objectives, policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Funds.
SECURITY VALUATION -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations
are readily available are valued at the most recently quoted bid price.
Debt obligations with sixty days or less remaining until maturity may be
valued at their amortized cost, which approximates market value.
FEDERAL INCOME TAXES -- It is each Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no
provisions for Federal income taxes are required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold adjusted for the accretion and amortization of
purchase discounts and premiums during the respective holding period.
Purchase discounts and premiums on securities held by the Funds are
accreted and amortized to maturity using the scientific interest method,
which approximates the effective interest method.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of the default of the counterparty. If the counterparty
defaults and the value of the collateral declines or if the counterparty
enters an insolvency proceeding, realization of the collateral by the Funds
may be delayed or limited.
NET ASSET VALUE PER SHARE -- The net asset value per share of each Fund is
calculated on each business day by dividing the total value of each Fund's
assets, less liabilities, by the number of shares outstanding.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
EXPENSES -- Expenses that are directly related to one of the Funds are
charged to that Fund. Other operating expenses of the Trust are prorated to
the Funds on the basis of relative daily net assets.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared and paid quarterly to Shareholders for the Equity Value Fund
and declared daily and paid monthly for the Fixed Income Fund. Any net
realized capital gains on sales of securities are distributed to
Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature. In accordance with Statement of Position 93-2,
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distribution by Investment Companies,"
$41,471, $11,556, and $4,283 relating to differences attributable to the
classification of short-term capital gains and net investment income for
tax distribution purposes of the Clover Capital Equity Value, Clover
Capital Fixed Income, and Clover Capital Small Cap Value Funds,
respectively, as of October 31, 1996 have been reclassified between the
Funds' accumulated net realized gains/losses and undistributed net income
accounts, as appropriate. The reclassifications had no effect on 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:
The Clover Capital Equity Value Fund, the Clover Capital Fixed Income Fund, and
the Clover Capital Small Cap Value Fund incurred organization costs of
approximately $17,000, $14,000 and $18,000, respectively. These costs have been
capitalized by the Funds and are being amortized over sixty months commencing
with operations. These costs include legal fees of approximately $7,000 for the
Clover Capital Equity Value Fund and the Clover Capital Fixed Income Fund and
$13,000 for the Clover Capital Small Cap Value Fund for organizational work
performed by a law firm of which a trustee of the trust is a partner and two
officers of the Fund are partners. In the event any of the initial shares of a
Fund are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of SEI Fund Resources (the
"Administrator") and/or SEI Financial Services Company (the "Distributor"). Such
officers are paid no fees by the Trust for serving as officers of the Trust.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an Administration Agreement,
under which the Administrator provides management and administrative services
for an annual fee of .20% of the average daily net assets of each of the Funds.
There is a minimum annual fee of $50,000 per Fund payable to the Administrator
for services rendered to the Funds under the Administration Agreement.
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend distributing agent for the Funds under a transfer agency agreement with
the Trust.
The Trust and the Distributor are parties to a Distribution Agreement. The
Distributor receives no fees for its distribution services under this agreement.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS:
The Trust and Clover Capital Management, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement under which the Adviser receives an annual fee
equal to .74% of the average daily net assets of the Equity Value Fund, .45% of
the average daily net assets of the Fixed Income Fund and .85% of the average
daily net assets of the Small Cap Value Fund. The Adviser has voluntarily agreed
to waive all or a portion of its fees (and to reimburse the expenses of the
Funds) in order to limit operating expenses to not more than 1.20% of the
average daily net assets for net assets below $20 million and to not more than
1.10% for net assets of $20 million or more for the Equity Value Fund. Operating
expenses for the Fixed Income Fund are limited to not more than .80% of the
average daily net assets for net assets below $20 million and to not more than
.75% for net assets of $20 million or more. Operating expenses for the Small Cap
Value Fund are limited to 1.40% of the Portfolio's average daily net assets. Fee
waivers and expense reimbursements are volun-tarily and may be terminated at any
time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Funds. Fees of
the Custodian are being paid on the basis of the net assets of the Funds. The
Custodian plays no role in determining the investment policies of the Trust or
which securities are to be purchased or sold by the Funds.
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, 1996, are as follows:
EQUITY VALUE FIXED INCOME SMALL CAP
FUND FUND VALUE FUND
(000) (000) (000)
------------ ------------ -----------
Purchases
Government ....... $ -- $3,353 $ --
Other 45,186 5,137 4,428
Sales
Government ....... $ -- $1,939 $ --
Other 30,871 2,011 320
NOTES TO FINANCIAL STATEMENTS (CONCLUDED) THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
At October 31, 1996, 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 Funds
at October 31, 1996 is as follows:
<TABLE>
<CAPTION>
EQUITY VALUE FIXED INCOME SMALL CAP
FUND FUND VALUE FUND
(000) (000) (000)
------------ ------------ ----------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation $12,380 $ 315 $374
Aggregate gross unrealized depreciation (3,119) (149) (297)
------------ ------------ ----------
Net unrealized appreciation $ 9,261 $ 166 $ 77
============ ============ ==========
</TABLE>
7. CONCENTRATION OF CREDIT RISK:
The Fixed Income Fund invests primarily in fixed income securities which are
rated in the top four rating categories by either Moody's Investors Services,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"), or if not rated,
determined by the Adviser to be of comparable quality. The ability of the
issuers of the securities held by the Fund to meet their obligations may be
affected by economic developments in a specific industry, state or region.
The summary of credit quality rating for securities held by the Fund at October
31, 1996 is as follows:
S&P MOODY'S
------------------- -------------------
Bonds: AAA 52.1% Aaa 51.2%
AA 15.0% Aa 9.2%
A 14.1% A 27.7%
BBB 8.7% Baa 7.7%
B 4.2% B 4.2%
NR 5.9% NR --
------- -------
100.0% 100.0%
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For the shareholders that do not have an October 31, 1996 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1996 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1996, the portfolio is designating long
term capital gains, qualifying dividends and exempt interest income with regard
to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS)
---------- ------------- ------------- -------------
<S> <C> <C> <C>
Clover Capital Fixed Income Fund .... 1% 99% 100%
Clover Capital Equity Value Fund .... 61% 39% 100%
Clover Capital Small Cap Value Fund . 0% 100% 100%
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST TAX CREDIT
---------- ------------ ---------- ----------
Clover Capital Fixed Income Fund .... 0% 0% 0%
Clover Capital Equity Value Fund .... 58% 0% 0%
Clover Capital Small Cap Value Fund . 14% 0% 0%
- -------------
<FN>
(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.
</FN>
</TABLE>
<PAGE>
CLO-F-018-04
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
HGK FIXED INCOME FUND
ANNUAL REPORT TO SHAREHOLDERS
AS OF OCTOBER 31, 1996
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 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 period ending October
31, 1996 of 4.29% (net of fees) versus a total return of 5.39% for the Lehman
Brothers Government/Corporate Index. The Fund has also grown to over $12.5
million in assets.
Bond market conditions were extremely volatile throughout this period, with
interest rates declining from November through January, rising sharply from
February to early July, then recovering most of this lost ground from mid-July
through October. As an example of this volatility, the yield on the 10 year U.S.
Treasury began the period on 11/1/95 at a yield of 5.98%, dropped to a low of
5.52% on 1/18/96, reached a high of 7.05% on 7/8/96 and steadily declined to
6.34% on 10/31/96.
This roller coaster ride in interest rates can be attributed to stronger than
expected economic growth in the first and second quarters, particularly in the
labor market and housing sector, which fueled speculation that an increase in
inflationary pressures and a Federal Reserve rate hike were a foregone
conclusion. HGK perceived the strength in the economy as unsustainable,
particularly in light of high consumer debt loads, and remained firm in our
opinion that the tight labor market would not trigger an uptick in inflation and
that any Federal Reserve action was neither warranted nor imminent. Our view
proved accurate in the third quarter, as growth in the labor market slowed,
inflation came in at lower levels than 1995, and the Federal Reserve remained on
hold. This favorable economic environment, coupled with the market's expectation
that the status quo in the White House and Congress will lead to progress
towards an agreement on a balanced budget, fueled the fall rally in the bond
market. While the duration of the Fund was longer than the benchmark for this
entire period, adversely affecting performance, we have used the recent rally to
return to a more neutral duration posture, as we expect yield to be range-bound
for the near future.
As of October 31, 1996 the net asset value (NAV) of the fund was $10.29, and the
thirty day yield was 6.07%. The slight underperformance of the Fund versus the
Lehman Brothers Government/Corporate Index was due to a duration posture that
was slightly longer than the benchmark. Going forward, we will remain duration
neutral and continue to overweight corporate bonds which should continue to
outperform their government peers on a duration adjusted basis. The Fund will
continue to rotate among different sectors of the market as relative value
opportunities present themselves.
<PAGE>
COMPARISON OF CHANGE IN THE VALUE OF A $20,000 INVESTMENT IN THE HGK FIXED
INCOME FUND, VERSUS THE LEHMAN GOVERNMENT/CORPORATE INDEX
Following are the plot points as depicted in the chart:
HGK Fixed Income Fund Lehman Government/Corporate Index
11/30/94 $20,000 $20,000
10/31/95 $22,999 $23,273
10/31/96 $23,986 $24,528
- ------------------------
Total Return1
- ------------------------
Annualized
One Year Inception
Return to Date
- ------------------------
4.29% 9.99%
- ------------------------
Line Graph
1 These 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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
HGK Fixed Income Fund of
The Advisors' Inner Circle Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of HGK Fixed Income Fund (the "Fund"), one of the
funds constituting The Advisors' Inner Circle Fund, as of October 31, 1996, 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. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of HGK
Fixed Income Fund of The Advisors' Inner Circle Fund as of October 31, 1996, the
results of its operations, changes in its net assets, and financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 6, 1996
<PAGE>
SCHEDULE OF INVESTMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
HGK FIXED INCOME FUND (000) (000)
- ---------------------------------------------------------------
% of Total Fund Investments
[GRAPHIC]
Following are the plot points as depicted in the pie chart:
Yankee Bond 1%
Financial 25%
Asset Backed 2%
U.S. Gov't. Mortgage-Backed Securities 5%
U.S. Gov't. Agency
Obligations 22%
Repurchase Agreements 5%
Industrial 6%
U.S. Treasury Obligations 15%
Utility 19%
CORPORATE OBLIGATIONS (50.2%)
American General Finance
7.450%, 07/01/02 $300 $ 311
Argentaria Cap Funding MTN
6.375%, 02/14/06 500 466
Auburn Hills Trust
12.000%, 05/01/20 300 452
Banca Commerciale Italiana
8.250%, 07/15/07 275 294
Citicorp
7.250%, 10/15/11 150 152
Continental Cablevision
8.875%, 09/15/05 425 467
Countrywide Funding MTN
6.880%, 08/03/98 150 152
Fairfax Financial
8.300%, 04/15/26 225 230
Federal Express Series 1996-A1
7.850%, 01/30/15 150 155
Freeport McMoran YB
9.750%, 04/15/01 175 184
ITT
7.375%, 11/15/15 400 383
Lehman Brothers
8.500%, 05/01/07 125 135
7.250%, 10/15/03 350 353
Limited
7.800%, 05/15/02 400 413
News America
7.700%, 10/30/25 365 350
Niagara Mohawk Power
7.750%, 05/15/06 275 253
Paine Webber
7.625%, 10/15/09 175 177
Province of Newfoundland
9.000%, 10/15/21 300 350
Tele-Communications
9.800%, 02/01/12 275 284
Time Warner
9.125%, 01/15/13 75 81
6.850%, 01/15/26 425 422
Face Market
Amount Value
(000) (000)
- ---------------------------------------------------------------
Union Pacific Resources
7.500%, 11/01/96 $225 $ 224
---------
TOTAL CORPORATE OBLIGATIONS
(Cost $6,207) 6,288
---------
ASSET-BACKED SECURITIES (2.4%)
Fleetwood Credit 1996-B
6.900%, 03/15/12 294 300
---------
TOTAL ASSET-BACKED SECURITIES
(Cost $294) 300
---------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (21.7%)
FNMA
6.020%, 09/19/97 375 375
6.250%, 08/12/03 775 756
5.875%, 02/02/06 450 428
FNMA MTN
5.000%, 02/25/98 675 668
5.230%, 02/18/99 350 344
7.650%, 05/04/05 150 151
---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,734) 2,722
---------
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES (4.8%)
FHLMC
8.000%, 05/01/25 243 248
GNMA
6.500%, 10/20/25 369 351
---------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES
(Cost $590) 599
---------
U.S. TREASURY OBLIGATIONS (15.2%)
U.S. Treasury Notes
5.500%, 09/30/97 275 275
5.500%, 11/15/98 200 199
5.000%, 01/31/99 250 246
6.250%, 05/31/00 750 756
7.500%, 11/15/01 400 424
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,909) 1,900
---------
<PAGE>
SCHEDULE OF INVESTMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
Face Market
Amount Value
HGK FIXED INCOME FUND (concluded) (000) (000)
- ----------------------------------------------------------
REPURCHASE AGREEMENT (5.1%)
Lehman Brothers, 5.07%,
dated 10/31/96, matures
11/01/96, repurchase price
$634 (collateralized
by U.S. Treasury Bond,
par value $637, 7.500%,
matures 01/31/97: market
value $653) $633 $ 633
-------
TOTAL REPURCHASE AGREEMENT
(Cost $633) 633
-------
TOTAL INVESTMENTS (99.4%)
(COST $12,367) $12,442
=======
FHLMC - FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA - FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA - GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MTN - MEDIUM TERM NOTE
YB - YANKEE BOND
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
HGK
Fixed Income
Fund
(000)
- --------------------------------------------------------------------------------
Assets:
Investment Securities (Cost $12,367)..............................$12,442
Cash.............................................................. 58
Investment Securities Sold........................................ 453
Income Accrued.................................................... 219
Other Receivables................................................. 18
Other Assets...................................................... 24
- --------------------------------------------------------------------------------
Total Assets.............................................. 13,214
- --------------------------------------------------------------------------------
Liabilities:
Investment Securities Purchased .................................. 591
Income Payable.................................................... 59
Accrued Expenses Payable.......................................... 20
Capital Shares Redeemed........................................... 3
Other Liabilities ................................................ 26
- --------------------------------------------------------------------------------
Total Liabilities ........................................ 699
- --------------------------------------------------------------------------------
Net Assets:
Portfolio shares (unlimited authorization--no par value) based on
1,216,645 outstanding shares of beneficial interest ...............12,457
Accumulated net realized loss on investments....................... (17)
Net unrealized appreciation on investments ........................ 75
- --------------------------------------------------------------------------------
Net Assets ...............................................$12,515
================================================================================
Net Asset Value, Offering Price and Redemption Price Per Share ..... $10.29
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS THE ADVISORS' INNER CIRCLE FUND
HGK
Fixed Income
Fund
-----------
11/01/95
to 10/31/96
(000)
- --------------------------------------------------------------------------------
Investment Income:
Interest .......................................................... $ 804
- --------------------------------------------------------------------------------
Total Investment Income.................................... 804
- --------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees .......................................... 58
Investment Advisory Fee Waiver .................................... (58)
Contributions by Advisor .......................................... (2)
Administrative Fees ............................................... 75
Custodian Fees .................................................... 4
Professional Fees ................................................. 11
Transfer Agent Fees ............................................... 19
Printing Fees ..................................................... 5
Trustee Fees ...................................................... 4
- --------------------------------------------------------------------------------
Total Expenses .................................................... 116
- --------------------------------------------------------------------------------
Net Investment Income ..................................... 688
- --------------------------------------------------------------------------------
Net Realized Loss from Securities Sold ............................ (17)
Net Unrealized Depreciation of Investment Securities .............. (176)
- --------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments ........... (193)
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations .......... $ 495
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS THE ADVISORS' INNER CIRCLE FUND
<TABLE>
<CAPTION>
HGK
Fixed Income
Fund
--------------------------
11/01/95 11/03/94(1)
to 10/31/96 to 10/31/95
(000) (000)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Income ............................................. $ 688 $ 505
Net Realized Gain (Loss) on Securities Sold ....................... (17) 417
Net Unrealized Appreciation (Depreciation) of Investment Securities (176) 251
- -----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations .......... 495 1,173
- -----------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ............................................. (688) (505)
Realized Capital Gains ............................................ (417) --
- -----------------------------------------------------------------------------------------------
Total Distributions ........................................... (1,105) (505)
- -----------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued ..................................................... 4,139 10,408
Shares Issued in Lieu of Cash Distributions ....................... 1,095 504
Shares Redeemed ................................................... (2,529) (1,160)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions 2,705 9,752
- -----------------------------------------------------------------------------------------------
Total Increase in Net Assets .............................. 2,095 10,420
- -----------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................................... 10,420 --
- -----------------------------------------------------------------------------------------------
End of Period ..................................................... $ 12,515 $ 10,420
- -----------------------------------------------------------------------------------------------
Shares Issued and Redeemed:
Issued ............................................................ 402 1,022
Issued in Lieu of Cash Distributions .............................. 106 48
Redeemed .......................................................... (249) (112)
- -----------------------------------------------------------------------------------------------
Net Increase in Share Transactions ................................ 259 958
===============================================================================================
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
(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>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Realized and Net Net
Asset Unrealized Distributions Distributions Asset Assets Ratio
Value Net Gains or from Net From Value End of Expenses
Beginning Investment (Losses) on Investment Capital End Total of Period to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------ --------- -----------
- ----------------
HGK Fixed Income
- ----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $10.88 0.61 (0.17) (0.61) (0.42) $10.29 4.29% $12,515 1.00%
1995(1) $10.00 0.67 0.88 (0.67) -- $10.88 16.07%* $10,420 1.00%*
Ratio
Ratio of Net
of Expenses Income
Ratio to Average to Average
of Net Net Assets Net Assets
Income (Excluding (Excluding Portfolio
to Average Waivers and Waivers and Turnover
Net Assets Reimbursements) Reimbursements) Rate
---------- --------------- --------------- ---------
- ----------------
HGK Fixed Income
- ----------------
<C> <C> <C> <C> <C>
1996 5.92% 1.51% 5.41% 264.02%
1995(1) 6.38%* 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, 1996
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with 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 each 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 -- Investments in equity securities which are
traded on a national exchange (or reported on the NASdaq national
market system) are stated at the last quoted sales price if readily
available for such equity securities traded in the over-the counter
market and listed equity securities for which no sale was reported on
that date are stated at the last quoted bid price. Debt obligations
exceeding sixty days to maturity for which market quotations are
readily available are valued at the most recent quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be
valued at their amortized cost, which approximates market value.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate
provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provision for Federal income taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade
date). Interest income is recognized on the accrual basis. 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.
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 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:
The Fund incurred organization costs of approximately $23,000. These costs have
been capitalized and are being amortized on a straight line basis over a period
of sixty months commencing with operations. Organization costs include legal
fees of approximately $11,000 for organizational work performed by a law firm of
which a trustee of the Trust is a partner and two officers of the Trust are
partners. 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 Trust 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 Fund Resources (the
"Administrator") and/or SEI Financial Services Corporation (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 a transfer agency agreement with
the Fund.
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 Trust 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.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are being paid on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased or sold by the Fund.
6. INVESTMENT TRANSACTIONS: The cost of security purchases and the proceeds from
security sales, other than short-term investments, for the year ended
October 31, 1996 are as follows:
HGK FIXED INCOME
FUND (000)
----------------
Purchases
Government . . . . . . . . . . . $ 8,649
Other . . . . . . . . . . . . . 20,878
Sales
Government . . . . . . . . . . . $ 8,566
Other . . . . . . . . . . . . . 18,295
At October 31, 1996, 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, 1996, are as follows:
<PAGE>
NOTES TO FINANCIAL STATEMENTS THE ADVISORS' INNER CIRCLE FUND
October 31, 1996
HGK FIXED INCOME
FUND (000)
----------------
Aggregate gross unrealized
appreciation . . . . . . . . . . . . . . . . . 145
Aggregate gross unrealized
depreciation . . . . . . . . . . . . . . . . . (70)
----------------
Net unrealized appreciation . . 75
================
7. CAPITAL LOSS CARRYFORWARDS:
The capital loss carryforward at October 31, 1996 for federal income tax
purposes are as follows:
$16,807 expiring in 2004
The capital loss carryforwards will be used to offset future net realized gains,
if any, and such gains so offset will not be distributed.
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For the shareholders that do not have an October 31, 1996 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1996 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1996, 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-004-03
<PAGE>
================================================================================
FMC SELECT FUND
ANNUAL REPORT
OCTOBER 31, 1996
ADVISED BY:
FIRST MANHATTAN CO.
================================================================================
FMC-F-003-03
<PAGE>
MANAGER'S DISCUSSION OF FUND PERFORMANCE
Dear Shareholder:
The FMC Select Fund (the "Fund") had a total return of 23.99% for the year ended
October 31, 1996. This compares favorably with the 20.42% total return of the
Fund's benchmark, which is an 80% weighting of the S&P 500 Index and a 20%
weighting of the Merrill Lynch Corporate/Government Index of one to ten year
maturities. From inception on May 8, 1995 through October 31, 1996 the Fund had
a total return of 37.13% versus 33.4% for the benchmark. As of October 31, 1996,
83.89% of the Fund's assets were invested in equities, toward the upper end of
the targeted equity allocation of 75-85%. The remaining assets were in
investment grade, medium term, fixed income instruments and cash.
- ---------------------------------------------------------------------
TOTAL RETURN1
- ---------------------------------------------------------------------
Annualized Cumulative
One Year (Inception2 (Inception2
Return to Date) to Date)
- ---------------------------------------------------------------------
23.99% 23.74% 37.13%
- ---------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the FMC
Select Fund, versus the S&P 500 Composite Index, the Merrill Lynch 1-10
Year Corporate/Government Index and the S&P 80% Merrill 20% Blend of
the above S&P and Merrill Indices
CHART
[GRAPHIC OMITTED]
Following are the plot points as depicted in the chart:
Initial Investment Date 5/31/95 10/31/95 10/31/96
FMC Select Fund $10,000 $10,844 $13,445
S&P 500 Composite Index $10,000 $11,006 $13,657
Merrill 1-10 Year Gov't./Corp. Index $10,000 $10,353 $10,948
80/20 Blend of the above S&P
and Merrill Indices $10,000 $10,874 $13,095
Dow Jones Industrial Average $10,000 $10,764 $13,947
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.
2The FMC Select Fund commenced operations on May 8, 1995.
The equity portion of the portfolio continues to be invested in what we believe
are high quality businesses with strong balance sheets and significantly less
cyclical exposure than the overall economy. While these qualities may be
underappreciated after six consecutive years of economic growth, we perceive the
businesses in the portfolio to be well positioned to deal with adversity when
the economy inevitably slows and/or interest rates rise materially.
The table below compares a weighted average of key measures of the equity
portion of the Fund with the S&P Industrials Index. The table shows that the
Fund is invested in profitable businesses selling at attractive valuations.
<PAGE>
- --------------------------------------------------------------------------------
FMC SELECT FUND S&P INDUSTRIALS INDEX
--------------- ---------------------
QUALITY
- -------
Return-on-Equity (ROE) [1] 22% 19%
Period Needed to Retire
Debt from Free Cash Flow [2] 3 Years 4 Years
Estimated Annual EPS Growth
for 1996-2000 13% 8%
VALUATION
- ---------
1997 Estimated Price/Earnings 14.3X 17.0X
- --------------------------------------------------------------------------------
[1] The ROE is based on net income for the trailing four quarters ended 9/30/96
and the average equity over that period. ROE provides insight into both the
quality of the business and the quality of management in its use of the
shareholders' resources. Given the portfolio's heavy skewing towards
businesses with franchises we feel are significantly less dependent on the
business cycle than those in the S&P, it is anticipated that the portfolio's
"ROE advantage" relative to the S&P should expand in a recession.
[2] Free cash flow is defined for this purpose as net income plus depreciation
and amortization minus capital expenditures. We have intentionally omitted
dividends from this calculation to separate dividend policy, a financial
decision, from the enterprise's underlying economics, i.e. the cash
generated from operations. We believe that careful analysis of both working
capital and free cash flow is often more valuable than reported net income
in evaluating the fundamentals of a business.
PORTFOLIO COMPOSITION
[GRAPHIC OMITTED]
Following are the plot points for Portfolio Composition Pie Chart:
Other Equity Media
11% 10%
Packaging Financial
4% Services
10%
Specialty Banking
Chemicals 9%
4%
Multiple Healthcare
Industries 9%
4%
Hotels, Retail
Lodging 8%
& Gaming
5%
Corporate Food, Beverage &
Obligations Tobacco
6% 7%
Consumer Products
6%
U.S. Treasury Obligations
7%
% of Total Fund Investments
<PAGE>
We would like to discuss three equity positions purchased during 1996 which have
made significant contributions to the Fund's strong performance: Kimberly-Clark,
Schering-Plough and Household International. In keeping with our investment
philosophy, all three have high ROEs, strong free cash flows, solid balance
sheets and disciplined managements.
Kimberly-Clark (KMB) has the strongest US franchise in absorbency-based personal
care products with the leading brands in diapers (Huggies, 36% US share),
training pants (Pull-Ups, 70%+ US share), feminine pads (Kotex, 40% US share),
and adult incontinence diapers (Depends, 53% US share). KMB is the global leader
in tissue products with strong brands in facial tissue (Kleenex, #1 globally,
49% US share, brand is so strong that it has become the generic term for facial
tissue in several languages) and bathroom tissue (Kotex/Cottonelle for
premium/value, Scott for price/value). KMB's acquisition of Scott in December
1995 should be accretive to earnings from 1996 on; management has rationalized
the combined organizations quickly and forecasts at least $500 million in
incremental operating income by 1998. We purchased KMB at $70 or 12.5X our 1997
EPS estimate of $5.60.
Schering-Plough (SGP) is the leader in respiratory drugs in the US and many
other nations, a category which has been and will likely remain among the
fastest growing categories, as it benefits from the rapid increase in both the
quantity and variety of allergens responsible for allergies and asthma. This
growth is likely to be strongest in the newly industrialized nations of Asia and
Latin America where SGP has invested heavily to build a solid presence, and
where the rapidly growing middle class now has the purchasing power to switch
from traditional solutions to drug therapy to address sharp increases in
respiratory ailments.
SGP's flagship antihistamine, Claritin, has both the leading and a growing
share, despite several new entrants, because it is the only drug which is
non-sedating, does not have a poor cardiovascular side effect profile, and is
available in once-a-day dosage. SGP is expanding the Claritin franchise via line
extensions, such as Claritin D24, which adds a decongestant in the same
once-a-day format, and geographic expansion, such as Claritin's likely 1997
entry into the $1.5 billion Japanese antihistamine market.
SGP, while selling at 3-7 P/E multiples below the other major drug companies,
offers the prospect of a higher valuation based on its leading position in the
rapidly growing respiratory category and other fundamental strengths. SGP has
grown its EPS at 18.5% per year for both the past five years, exceeding all
major US drug firms, and for the past ten years, bested only by Merck. Among the
major drug firms, only Johnson & Johnson and Pfizer (both Fund holdings) have a
smaller proportion of their drug sales subject to US patent expirations between
now and 2002. Also, SGP continually leads in "disease management" surveys of
managed care organizations. In addition, SGP has been the industry's largest and
most consistent share repurchaser, and is run by a management team with a
substantial portion of its wealth tied to the business. We purchased SGP for $57
or 15.4X our 1997 estimated EPS of $3.70.
<PAGE>
Household International (HI) has been transformed over the past five years from
an unfocused conglomerate selling everything from toilets to first mortgages,
into a financial services firm narrowed down to its two most profitable
businesses -- consumer finance and credit cards. In both businesses HI has been
able to invest incremental capital at after-tax returns exceeding 20% and ranks
at or near the top of both industries in terms of efficiency and credit
experience. HI's credit card business has maintained high credit quality by
avoiding low interest rate promotions and by relying on co-branding. HI's
largest credit card, the co-branded GM Card, has had favorable repayment
experience because consumers have been reluctant to forfeit the bonuses (funded
by GM and equal to 5% of card charges) which they have accumulated towards the
purchase of a GM vehicle. We purchased HI at $70 or 10.9X our 1997 estimated EPS
of $6.45.
Thank you for your continued confidence. Please feel free to call us with any
questions or comments on the Fund.
Sincerely yours,
/s/ BERNARD GROVEMAN /s/ WILLIAM MCELROY /s/ A. BYRON NIMOCKS
Bernard Groveman William McElroy A. Byron Nimocks
Equity Manager Fixed Income Manager Equity Manager
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
FMC Select Fund of
The Advisors' Inner Circle Fund:
We have audited the accompanying statement of net assets of FMC Select Fund (the
"Fund"), one of the funds constituting The Advisors' Inner Circle Fund, as of
October 31, 1996, 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. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of FMC
Select Fund of The Advisors' Inner Circle Fund as of October 31, 1996, the
results of its operations, changes in its net assets, and financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 6, 1996
<PAGE>
STATEMENT OF NET ASSETS
October 31, 1996
Market
Value
FMC SELECT FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK (83.9%)
AUTO & TRUCK RELATED (1.0%)
Mark IV Industries .............................. 22,470 $ 486
-------
BANKS (9.2%)
Charter One Financial ........................... 7,665 333
Compass Bancshares .............................. 15,400 556
Dime Bancorp * .................................. 52,100 775
North Fork Bancorp .............................. 31,500 996
TF Financial .................................... 32,000 496
Wells Fargo ..................................... 4,700 1,255
-------
Total Banks .................................. 4,411
-------
CONSUMER PRODUCTS (5.7%)
Ekco Group ...................................... 168,600 569
Gillette ........................................ 11,400 852
Kimberly-Clark .................................. 14,300 1,333
-------
Total Consumer Products ...................... 2,754
-------
FINANCIAL SERVICES (9.9%)
Federal Home Loan Mortgage Corporation .......... 18,000 1,818
Fidelity National Financial ..................... 39,600 629
Household International ......................... 15,415 1,364
Northern Trust .................................. 13,400 928
-------
Total Financial Services ..................... 4,739
-------
FOOD, BEVERAGE & TOBACCO (6.9%)
Philip Morris ................................... 10,540 976
Schweitzer-Mauduit International* ............... 50,000 1,538
UST ............................................. 27,000 780
-------
Total Food, Beverage & Tobacco ............... 3,294
-------
HEALTHCARE (8.6%)
Fresenius National Medical Care ADR* .............. 8,401 250
Fresenius National Medical Care PFD ............... 20,400 3
Johnson & Johnson ................................. 7,400 364
Pfizer ............................................ 9,200 761
Schering Plough ................................... 20,300 1,299
Sierra Health Services* ........................... 50,200 1,437
------
Total Healthcare ............................... 4,114
------
HOTELS, LODGING & GAMING (4.8%)
Harrah's Entertainment* ........................... 67,700 1,134
Red Roof Inns* .................................... 86,200 1,153
------
Total Hotels, Lodging & Gaming ................. 2,287
------
<PAGE>
STATEMENT OF NET ASSETS
October 31, 1996
Market
Value
FMC SELECT FUND (CONTINUED) Shares (000)
- --------------------------------------------------------------------------------
MEDIA (10.3%)
E.W. Scripps ...................................... 13,000 $ 616
Gannett ........................................... 20,400 1,548
Harte-Hanks Communications ........................ 71,650 1,854
Omnicom Group ..................................... 18,400 915
-------
TotalMedia ..................................... 4,933
-------
MISCELLANEOUS BUSINESS SERVICES (4.0%)
Manpower .......................................... 29,200 829
Olsten ............................................ 54,900 1,098
-------
Total Miscellaneous Business Services .......... 1,927
-------
MULTIPLE INDUSTRIES (4.2%)
Blount International .............................. 22,000 792
General Electric .................................. 12,200 1,180
-------
Total Multiple Industries ...................... 1,972
-------
PACKAGING (4.2%)
Sealed Air * ...................................... 23,600 917
W.R. Grace ........................................ 20,400 1,081
-------
Total Packaging ................................ 1,998
-------
RAILROADS (2.6%)
Burlington Northern Santa Fe ...................... 8,600 708
Union Pacific ..................................... 9,801 550
-------
Total Railroads ................................ 1,258
-------
RETAIL (8.3%)
Dollar General .................................... 51,675 1,434
Footstar .......................................... 3,886 86
Intertan* ......................................... 165,000 949
Melville .......................................... 13,500 503
Tandy ............................................. 27,100 1,020
-------
Total Retail ................................... 3,992
-------
SPECIALTY CHEMICALS (4.2%)
Great Lakes Chemical .......................... 10,700 558
Loctite ....................................... 14,700 862
McWhorter Technologies* ....................... 24,300 468
Sherwin-Williams .............................. 2,800 140
------
Total Specialty Chemicals .................. 2,028
------
TOTAL COMMON STOCK
(Cost $32,677) ................................ 40,193
------
<PAGE>
STATEMENT OF NET ASSETS
October 31, 1996
Face Market
Amount Value
FMC SELECT FUND (CONTINUED) (000) (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (5.6%)
Aon
7.400%, 10/01/02 ..................................... 150 $ 155
BellSouth Trust MTN
9.190%, 07/01/03 ..................................... 201 220
Commercial Credit
7.750%, 03/01/05 ..................................... 150 158
Eastman Kodak
9.750%, 10/01/04 ..................................... 300 357
Geico
7.500%, 04/15/05 ..................................... 200 210
General Motors
8.950%, 07/02/09 ..................................... 200 223
Marriott International
7.875%, 04/15/05 ..................................... 200 208
Philip Morris
7.250%, 01/15/03 ..................................... 200 203
Taubman Realty Group
7.000%, 10/01/03 ..................................... 300 295
Union Pacific
7.600%, 05/01/05 ..................................... 250 262
United Postal Savings Association
9.000%, 07/26/99 ..................................... 150 160
W. R. Grace
8.000%, 08/15/04 ..................................... 200 208
-----
TOTAL CORPORATE OBLIGATIONS
(Cost $2,654) ............................................. 2,659
-----
U.S. GOVERNMENT AGENCY OBLIGATIONS (2.7%)
Aid-Israel Ser 1-A
7.750%, 04/01/98 ..................................... 124 128
Federal Home Loan Mortgage Corporation
6.830%, 06/15/05 ..................................... 250 247
Federal National Mortgage Association Principal STRIPS
0.000%, 11/01/01 ..................................... 250 250
Federal National Mortgage Association
8.500%, 01/13/00 ..................................... 250 251
Financial Assistance
9.375%, 07/21/03 ..................................... 200 231
Guaranteed Trade Trust Gtd Trade Ctfs Ser A
7.020%, 09/01/04 ..................................... 200 205
-----
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,317) ............................................. 1,312
-----
<PAGE>
STATEMENT OF NET ASSETS
October 31, 1996
Face Market
Amount Value
FMC SELECT FUND (CONCLUDED) (000) (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (7.3%)
U.S. Treasury Bills
5.360%, 12/19/96 ............................... $ 9 $ 9
5.000%, 01/30/97 ............................... 78 77
5.170%, 02/06/97 ............................... 209 206
5.020%, 02/13/97 ............................... 187 184
5.030%, 02/20/97 ............................... 342 337
5.030%, 02/27/97 ............................... 396 390
5.030%, 03/06/97 ............................... 465 457
5.080%, 03/06/97 ............................... 11 11
U.S. Treasury Notes
5.875%, 10/31/98 ............................... 250 250
9.125%, 05/15/99 ............................... 255 274
8.750%, 08/15/00 ............................... 250 273
8.000%, 05/15/01 ............................... 250 269
7.500%, 11/15/01 ............................... 250 265
6.375%, 08/15/02 ............................... 250 253
6.250%, 02/15/03 ............................... 250 251
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,482) ....................................... 3,506
-------
TOTAL INVESTMENTS (99.5%)
Total Investments (Cost $40,130) .................... 47,670
-------
OTHER ASSETS AND LIABILITIES, NET (0.5%) ............... 239
-------
NET ASSETS:
Portfolio Shares (unlimited authorization --
no par value) based on 3,570,309 outstanding
shares of beneficial interest ..................... 38,817
Undistributed net investment income ................. 21
Accumulated net realized gain on investments ........ 1,531
Net unrealized appreciation on investments .......... 7,540
-------
TOTAL NET ASSETS (100.0%) .............................. 47,909
=======
Net Asset Value, Offering and Redemption
Price Per Share ................................... $ 13.42
=======
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
MTN -- MEDIUM TERM NOTE
PFD -- PREFERRED
SER -- SERIES
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPAL SECURITIES
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS
11/01/95
TO 10/31/96
FMC SELECT FUND (000)
- --------------------------------------------------------------------------------
Investment Income:
Dividend Income............................................... $ 485
Interest Income .............................................. 360
- --------------------------------------------------------------------------------
Total Investment Income..................................... 845
- --------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ..................................... 307
Investment Advisory Fee Waiver ............................... (39)
Administrative Fees .......................................... 81
Custodian Fees ............................................... 7
Professional Fees ............................................ 14
Transfer Agent Fees .......................................... 15
Cash Management Fees ......................................... 6
Printing Fees ................................................ 10
Directors' Fees .............................................. 5
Registration and Filing Fees ................................. 9
Insurance and Other Fees ..................................... 1
Amortization of Deferred Organizational Costs ................ 6
- --------------------------------------------------------------------------------
Total Expenses ............................................. 422
- --------------------------------------------------------------------------------
Net Investment Income .................................... 423
- --------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ....................... 1,531
Net Unrealized Appreciation of Investment Securities ......... 5,592
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments ............ 7,123
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.......... $7,546
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
11/1/95 5/8/95(1)
TO 10/31/96 TO 10/31/95
FMC SELECT FUND (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Income..................................................... $ 423 $ 222
Net Realized Gain on Securities Sold ..................................... 1,531 77
Net Change in Unrealized Appreciation of Investment Securities ........... 5,592 1,948
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.................... 7,546 2,247
- ---------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income .................................................... (425) (199)
Realized Capital Gains.................................................... (77) --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions .................................................... (502) (199)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued ............................................................ 14,642 25,763
Shares Issued in Lieu of Cash Distributions .............................. 418 --
Shares Redeemed .......................................................... (1,397) (609)
- ---------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions............ 13,663 25,154
- ---------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets ........................................... 20,707 27,202
- ---------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ...................................................... 27,202 --
- ---------------------------------------------------------------------------------------------------------------
End of Period ............................................................ $47,909 $27,202
===============================================================================================================
Shares Issued and Redeemed:
Shares Issued ............................................................ 1,168 2,536
Shares Issued in Lieu of Cash Distributions .............................. 32 --
Shares Redeemed .......................................................... (109) (57)
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ..................................... 1,091 2,479
===============================================================================================================
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) The FMC Select Fund commenced operations on May 8, 1995
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Distributions Distributions Asset Assets Ratio
Value Net Unrealized from Net from Value End of Expenses
Beginning Investment Gains on Investment Capital End Total of Period to Average
of Period Income Securities Income Gains of Period Return (1) (000) Net Assets
---------- ---------- ------------- ------------- -------------- --------- ---------- --------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------
FMC SELECT FUND
- ---------------
1996 $10.97 0.14 2.48 (0.14) (0.03) $13.42 23.99% $47,909 1.10%
1995(3) $10.00 0.10 0.96 (0.09) -- $10.97 10.60% $27,202 1.10%*
</TABLE>
Ratio
of Net
Ratio Ratio Investment
of Net of Expenses Income
Investment to Average to Average
Income Net Assets Net Assets Portfolio Average
to Average (Excluding (Excluding Turnover Commission
Net Assets Reimbursements) Reimbursements) Rate Rate (2)
---------- -------------- -------------- --------- ----------
- ---------------
FMC SELECT FUND
- ---------------
1996 1.10% 1.20% 1.00% 24.39% $0.0600
1995(3) 1.96%* 1.57%* 1.49%* 1.87% --
* Annualized
(1) Total return is for the period indicated and has not been annualized.
(2) Average commission rate paid per share for the security purchases and sales
made during the period.
(3) The FMC Select Fund commenced operations on May 8, 1995.
The accompanying notes are an integral part of thefinancial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS FMC SELECT FUND
October 31, 1996
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with eight portfolios. The
financial statements herein are those of the FMC Select Fund (the "Fund"). The
financial statements of the remaining portfolios are not presented herein. The
assets of each portfolio are segregated, and a Shareholder's interest is limited
to the portfolio in which shares are held. The Funds' prospectus provides a
description of each 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 -- Investments in equity securities which are traded on a
national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations are
readily available are valued at the most recent quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued at
their amortized cost, which approximates market value.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provision for
Federal income taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Costs used in determining realized gains and losses on the sales of
investment securities are those of the specific securities sold, adjusted for
the accretion and amortization of purchase discounts or premiums during the
respective holding period which is calculated using the effective interest
method. Interest income is recognized on the accrual basis. Dividend income
is recorded on the ex-date.
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.
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 compared to the aggregate daily net assets
of the Trust.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are
declared and paid to Shareholders quarterly. Any net realized capital gains
are distributed to Shareholders at least annually.
Distributions from net investment income and net realized capital gains are
determined in accordance with the U.S. Federal income tax regulations, which
may differ from those amounts determined under generally accepted accounting
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) FMC SELECT FUND
October 31, 1996
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
The Fund incurred organization costs of approximately $35,000. These costs have
been capitalized by the Fund and are being amortized over sixty months
commencing with the start-up. In the event the initial shares of the Fund are
redeemed by any holder thereof during the period that the Fund is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Fund will be reduced by the unamortized organizational costs in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption. These costs include legal
fees of approximately $14,000 for organizational work performed by a law firm of
which a trustee of the Trust is a partner and two officers of the Trust are
partners.
Certain officers of the Trust are also officers of SEI Fund Resources (the
"Administrator") and/or SEI Financial Services Corporation (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 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 a transfer agency agreement with
the Fund.
The Trust and Distributor are parties to a Distribution Agreement. The
Distributor receives no fees for its distribution services under this agreement.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS:
The Fund and First Manhattan Co. (the "Adviser") are parties to an Investment
Advisory Agreement under which the Adviser receives an annual fee equal to .80%
of the Fund's average daily net assets. The Adviser has, on a voluntary basis,
agreed to reimburse Fund expenses in order to limit the Fund's total operating
expenses to a maximum of 1.10% of the average daily net assets of the Fund. The
Adviser reserves the right to terminate this arrangement at any time in its sole
discretion.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are being paid on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased and sold by the Fund.
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended October 31, 1996 are as follows:
(000)
---------
Purchases
Government .......................... $ 2,397
Other ............................... 20,092
Sales
Government .......................... $ 349
Other ............................... 8,586
At October 31, 1996, 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, 1996, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ........................ $ 8,761
Aggregate gross unrealized
depreciation ........................ (1,221)
-------
Net unrealized appreciation ........... $ 7,540
=======
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For the shareholders that do not have an October 31, 1996 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1996 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1996, 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)
--------- ------------ ------------ ------------
FMC Select Fund.......... 0% 100% 100%
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO DIVIDENDS(1) INTEREST TAX CREDIT
--------- ------------ ------------ ------------
FMC Select Fund.......... 32% 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>
================================================================================
FUND:
FMC SELECT FUND
P.O. Box 419009
Kansas City, MO 64141-6009
ADVISER:
FIRST MANHATTAN CO.
437 Madison Avenue
New York, NY 10022
TRUST:
THE ADVISORS' INNER CIRCLE FUND
680 East Swedesford Road
Wayne, PA 19087
DISTRIBUTOR:
SEI FINANCIAL SERVICES CORPORATION
530 East Swedesford Road
Wayne, PA 19087
ADMINISTRATOR:
SEI FUND RESOURCES
530 East Swedesford Road
Wayne, PA 19087
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
1800 M Street N.W.
Washington, DC 20036
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
1601 Market Street
Philadelphia, PA 19103
This information must be preceded or accompanied by a
current prospectus for the Fund described.
FMC-F-003-03
================================================================================
