[Photograph of Office Buidings Omitted]
CRA
- -----------------------------------------------------------------------
REALTY
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SHARES
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PORTFOLIO
- -----------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1997
ADVISED BY:
CRA REAL ESTATE
SECURITIES, L.P.
<PAGE>
CRA
---------
REALTY
---------
SHARES
---------
PORTFOLIO
MANAGER'S DISCUSSION OF FUND PERFORMANCE
To Our Shareholders:
We present our report for the CRA Realty Shares Portfolio for the period ended
October 31, 1997, which includes the ten months since the inception of the fund
on January 1, 1997.
PORTFOLIO REVIEW:
The table below compares the net return for the portfolio to the two major real
estate securities indices and other stock and bond indices. The portfolio has
outperformed both the major real estate securities indices over the last three
months, six months, and since inception.
---------------------------------------------------------------------
Trailing Trailing
October 3 mo. 6 mo. YTD
---------------------------------------------------------------------
CRA Realty Shares Portfolio -2.87% 6.36% 19.00% 18.17%
Wilshire R.E. Securities -4.25 4.41 16.57 14.88
NAREIT - Equity REITs -2.70 5.54 17.44 15.02
S&P 500 (Large Co. Stocks) -3.34 -3.75 15.17 25.29
Russell 2000 (Small Co. Stocks) -4.39 4.96 27.30 21.05
Lehman Govt./Corp. Bonds 1.60 2.04 7.41 8.04
---------------------------------------------------------------------
Once again, October lived up to its reputation as a very volatile month. After
wild gyrations in the last week of the month, the Dow Jones Industrial average
of large capitalization stocks had declined over 6% for the month. The S&P 500
Composite Index fared somewhat better finishing the month down only 3.3%. The
Russell 2000 Index of small capitalization stocks declined 4.4% for the month.
Only bonds turned in positive performance for the month as investors' flight to
safety drove the yield on the 30-year U.S. Treasury bond to 6.14%.
In a "shot heard round the world," investors woke up to the possibility of
significant volatility in the equity markets when the Hong Kong stock market
declined 18% in the third week of the month prompting a series of sell-offs in
other markets around the world. The U.S. equity market was not immune, as the
S&P 500 Composite Index plunged 6.7% on Monday, October 27th. By contrast, the
Morgan Stanley REIT Index (quoted on-line) declined 3.2% on October 27th. By the
end of the week, the S&P 500 Composite Index had recovered 4% to finish off 2.7%
for the week. REITs also recovered some of their lost ground to finish off 1.0%
for the week.
Prompted by the wild and wooly last week of October, CRA examined daily price
behavior of the S&P 500 Composite Index and Morgan Stanley REIT Index since July
1, 1996. Investors will remember that July of 1996 was also a volatile month --
large capitalization stocks finished off more than 4% and small capitalization
stocks declined more than 9%. Somewhat surprisingly, CRA found that the S&P 500
Composite Index has had changes of over 1% on 84 of the 338 trading days in this
16-month period -- or approximately 25% of the time! 35 days had declines of
more than 1% and 49 days had increases of more than 1%. On the 35 days that the
S&P 500 declined more than 1%, the average decline was 1.73%. By contrast, on
those same days the Morgan Stanley REIT Index declined on average only 0.44%, or
25% as much, demonstrating REITs' greater stability in periods of market
decline.
OUTLOOK:
Despite the rebound in most of the world stock markets since the dramatic
declines on October 27th, the risk of increasing volatility cannot be ignored.
The implications for the U.S. economy and by extension, U.S. real estate
companies is somewhat mixed. Most commentary focused on the fact that Southeast
Asia accounts for "only 29%" of U.S. exports. The effect of dramatically reduced
demand from Southeast Asia would reduce the U.S. economic growth rate only 0.2%
to 0.5% which would still leave expected growth at a healthy 2% to 2.5% level.
For the U.S. economy and the Federal Reserve Board there are two major competing
forces: (1) tight domestic labor markets versus (2) ample or over-capacity in
globally
CRA REAL ESTATE SECURITIES, L.P.
- --------------------------------------------------------------------------------
AN AFFILIATE OF CLARION PARTNERS
<PAGE>
traded goods. We find ourselves persuaded that the Fed will not raise interest
rates until there is a clearer indication that the tight labor market
inflationary pressure is stronger than the global deflationary pressure of
excess capacity.
This environment is positive for real estate equities. The real risk to
continued positive real estate market fundamentals is not rising rates due to a
stronger than expected economy, but the risk of deflationary-led economic
contraction. While some bears are claiming the risk of deflation is real and at
hand, we have not yet seen real and convincing evidence to change our continued
positive outlook for real estate markets.
We believe that real estate securities still offer good value relative to other
investments for a number of reasons listed below:
[square bullet] STRONG EARNINGS GROWTH EXCEEDING EXPECTATIONS. Earnings growth
has been strong (nearly 12% vs. 2Q96) and has exceeded
analysts' estimates. The result has been prevalent upward
revisions in earnings estimates.
[square bullet] PRICES LOOK CHEAP RELATIVE TO OTHER STOCKS. Real estate
company stock prices trade at an average price to estimated
1998 earnings (as measured by Funds Available for Distribution
(FAD)) multiple of 12.2 versus the average stock in the S&P 500
Composite Index which trades at a multiple of nearly 20 times
1998 earnings. While FAD and earnings are not directly
comparable, data over the last four years suggests "normal"
REITFAD multiples are approximately 73% of S&P earnings
multiples. Today the average Price to FAD multiple stands at
only 65% of the S&P 500 earnings multiple.
[square bullet] MORE PREDICTABLE EARNINGS AND LESS VOLATILE RETURNS. An analysis
of REIT earnings (Funds From Operations (FFO)) over the past 24
years by Lehman Brothers shows that they have exhibited about
one half of the volatility of the earnings for companies in the
S&P 500. Said another way, public real estate companies have
delivered more predictable earnings. Coupled with a high
dividend payment, predictable earnings translate to lower
variability in total returns. This is supported by data which
shows that REIT stock prices tend to move less than half as much
as the market.
[square bullet] ATTRACTIVE DIVIDEND YIELD. The average REIT dividend yield is
now 5.8%, which is equal to the yield on 10-year Treasury notes
and nearly 3.5 times the 1.7% yield on the S&P 500. Considering
that the average company pays out only 70% of its cash flow
after capital expenditures, the dividend is not only attractive,
but also secure.
All of this leads us to expect solid performance in the fourth quarter. The
unanswered question remains whether real estate securities will make a strong
surge as they did in the final quarter of 1996 or whether they will simply plug
along in the face of a weak overall market. The answer may lie in the type of
profit results reported by industrial companies over the next 45 days. If
revenue growth proves weak, earnings expectations for companies in the S&P 500
could be revised down, leading to further weakness in the broad market and
relative strength for real estate securities. If the profit outlook for these
companies remains intact, then real estate securities prices could surge.
COMPARISON OF CHANGE IN THE
VALUE OF A $10,000 INVESTMENT
IN THE CRA REALTY SHARES PORTFOLIO,
VERSUS THE S&P 500 COMPOSITE
INDEX, THE WILSHIRE REAL ESTATE
SECURITIES INDEX, AND
THE NAREIT EQUITY INDEX
-----------------------------
Annualized Cumulative
Inception to Inception to
Date Date
------------ ------------
22.19% 18.17%
-----------------------------
[BAR GRAPH OMITTED -- PLOT POUNTS AS FOLLOWS]
CRA Realty Shares Portfolio $11,817
S&P 500 Composite Index $12,529
Wilshire Real Estate Securities Index $11,448
NAREIT Equity Index $11,502
Figures represent the period from December 31, 1996 through October 31, 1997.
1These figures represent past performance. Past performance is no guarantee of
future results. The invest ment 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.
CRA REAL ESTATE SECURITIES, L.P.
- --------------------------------------------------------------------------------
AN AFFILIATE OF CLARION PARTNERS
<PAGE>
PORTFOLIO REVIEW:
The best performing property sectors year-to-date (YTD) and over the last twelve
months continue to be office, hotels, and industrial. The following table recaps
the performance by property type as tracked by Wilshire (note that the
diversified group consists predominantly of companies owning a mix of office and
industrial properties) including performance in the volatile month of October.
WILSHIRE REAL ESTATE SECURITIES INDEX
PERFORMANCE BY PROPERTY TYPE AS OF 10/31/97
------------------------------------------------------------
Weight Year to Trailing
Property Type in Index October Date 12 Mos.
------------------------------------------------------------
Office 19.3% -6.3% 24.8% 52.0%
Diversified 14.2 -3.6 18.1 38.1
Hotels 15.8 -5.5 27.4 37.1
Industrial 4.5 0.6 15.6 36.7
Mfr. Homes 1.7 -1.8 11.9 32.6
Shopping Centers 10.1 -0.5 14.3 32.6
Apartments 18.5 -4.2 10.9 24.6
Malls 9.7 -5.3 3.6 24.3
Storage 4.7 -6.1 -3.7 20.3
Outlet Centers 1.4 -0.2 1.0 5.4
------ ------ ------ ------
Total 100.0% -4.3% 14.9% 32.4%
------------------------------------------------------------
During October, hotel owning companies fared worst. The more defensive property
sectors of health care, shopping center, manufactured home communities, and
net-lease did the best. Outlet centers, the worst performing property sector
year-to-date also held up well. Notwithstanding the setbacks suffered in
October, CRA continues to favor office and hotel companies. We do admit,
however, to greater concern for companies with weak balance sheets and heavy
capital users (i.e., companies with significant acquisition and development
pipelines) with heavier debt levels or small market capitalization and
therefore, less capital market options. The good news is that most of our
investees have recently come to market or have strong balance sheets that allow
significant operating latitude in a prolonged weak stock market.
We expect good relative performance for an actively managed portfolio of real
estate securities for the balance of the year and into 1998. We appreciate your
continued faith and confidence.
Sincerely,
CRA REAL ESTATE SECURITIES, L.P.
/S/SIGNATURE /S/SIGNATURE
T. Ritson Ferguson Kenneth D. Campbell
Co-Chief Investment Officer Co-Chief Investment Officer
CRA REAL ESTATE SECURITIES, L.P.
- --------------------------------------------------------------------------------
AN AFFILIATE OF CLARION PARTNERS
<PAGE>
SCHEDULE OF INVESTMENTS
October 31, 1997
Market
Value
CRA REALTY SHARES PORTFOLIO Shares (000)
- --------------------------------------------------------------------------------
EQUITIES (87.9%)
APARTMENTS (18.8%)
Apartment Investment & Management Co. .. 31,600 $ 1,120
Avalon Properties Inc. ................. 31,300 919
Bay Apartment Communities Inc. ......... 29,000 1,135
BRE Properties ......................... 11,200 307
Camden Property Trust .................. 26,300 789
Equity Residential Properties Trust .... 21,400 1,081
Essex Property Trust Inc. .............. 8,900 305
Evans Withycombe Residential Inc. ...... 10,800 273
Security Capital Pacific Trust ......... 26,900 602
--------
6,531
--------
DIVERSIFIED (4.2%)
Trizec Hahn Corp. ...................... 11,800 296
Vornado Realty Trust ................... 25,900 1,156
--------
1,452
--------
HEALTHCARE FACILITIES (1.0%)
Capital Senior Living Corp.* ........... 20,000 335
--------
HOTELS (12.1%)
Bristol Hotel Co.* ..................... 22,150 570
Felcor Suite Hotels Inc. ............... 10,900 399
Host Marriott Corp.* ................... 28,500 595
Patriot American Hospitality Inc. ...... 40,400 1,333
Starwood Lodging Trust ................. 21,750 1,301
--------
4,198
--------
INDUSTRIAL (1.8%)
Catellus Development Corp.* ............ 17,300 297
Centerpoint Properties Corp. ........... 9,700 326
--------
623
--------
OFFICE (23.5%)
Arden Realty Inc. ...................... 14,300 436
Beacon Properties Corp. ................ 27,400 1,154
Boston Properties Inc.* ................ 5,800 186
Cali Realty Corp. ...................... 17,400 705
CarrAmerica Realty Corp. ............... 34,800 1,037
Crescent Operating Inc.* ............... 7,550 176
Crescent Real Estate Equities Co. ...... 32,200 1,159
Equity Office Properties Trust ......... 9,000 275
Highwoods Properties Inc. .............. 36,800 1,270
Kilroy Realty Corp. .................... 23,700 628
Koger Equity Inc. ...................... 28,600 618
SL Green Realty Corp.* ................. 15,100 378
Wellsford Real Properties Inc.* ........ 10,800 164
--------
8,186
--------
Shares/ Market
Face Amount Value
(000) (000)
- --------------------------------------------------------------------------------
OFFICE/INDUSTRIAL (7.1%)
Duke Realty Investments Inc. ........... 46,600 $ 1,049
Prentiss Properties Trust .............. 27,700 788
Spieker Properties Inc. ................ 16,600 649
--------
2,486
--------
RETAIL - MALLS (8.3%)
General Growth Properties Inc. ......... 27,500 949
Rouse Company .......................... 26,400 733
Simon DeBartolo Group Inc. ............. 38,928 1,204
--------
2,886
--------
RETAIL - OUTLET CENTERS (2.8%)
Chelsea GCA Realty Inc. ................ 15,700 642
Tanger Outlet Center ................... 11,000 314
--------
956
--------
RETAIL - SHOPPING CENTERS (6.2%)
Bradley Real Estate Inc. ............... 23,277 457
Developers Diversified Realty Corp. .... 23,100 912
JDN Realty Corp. ....................... 23,600 805
--------
2,174
--------
SELF STORAGE (2.1%)
Public Storage Inc. .................... 27,100 745
--------
TOTAL EQUITIES
(Cost $27,208) ......................... 30,572
--------
REPURCHASE AGREEMENT (2.6%)
Lehman Brothers
5.26%, dated 10/31/97, matures 11/03/97,
repurchase price $910,636 (collateralized
by U.S. Treasury Note, par value
$927,106, 3.625%, matures 07/15/02:
market value $939,001) ............... $910 910
--------
TOTAL REPURCHASE AGREEMENT
(Cost $910) ............................ 910
--------
TOTAL INVESTMENTS (90.5%)
(Cost $28,118) ......................... $31,482
========
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
CRA REALTY SHARES PORTFOLIO (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at Market Value (Cost $28,118)......................................................................... $31,482
Receivable For Portfolio Shares Sold .............................................................................. 3,740
Receivable For Investment Securities Sold ......................................................................... 65
Accrued Income..................................................................................................... 34
Other Assets....................................................................................................... 27
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets..................................................................................................... 35,348
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable For Investment Securities Purchased........................................................................ 518
Accrued Expenses .................................................................................................. 33
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities................................................................................................ 551
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Portfolio Shares -- Institutional Class (unlimited authorization -- no par value)
based on 3,029,101 outstanding shares of beneficial interest.................................................... 29,867
Accumulated net realized gain on investments....................................................................... 1,566
Net unrealized appreciation on investments ........................................................................ 3,364
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets................................................................................................. $34,797
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption Price Per Share......................................................... $11.49
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
1/1/97
TO 10/31/97
CRA REALTY SHARES PORTFOLIO (1) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividend Income................................................................................................. $ 641
Interest Income ................................................................................................ 33
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income....................................................................................... 674
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ....................................................................................... 121
Investment Advisory Fee Waiver ................................................................................. (85)
Administrative Fees ............................................................................................ 63
Administrative Fee Waiver....................................................................................... (25)
Custodian Fees ................................................................................................. 4
Professional Fees .............................................................................................. 31
Transfer Agent Fees ............................................................................................ 17
Printing Fees .................................................................................................. 10
Trustee Fees ................................................................................................... 6
Registration and Filing Fees ................................................................................... 24
Amortization of Deferred Organizational Costs .................................................................. 5
Other Fees...................................................................................................... 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses ............................................................................................... 172
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income ...................................................................................... 502
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ......................................................................... 1,697
Net Unrealized Appreciation of Investment Securities ........................................................... 1,512
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .............................................................. 3,209
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............................................................ $3,711
====================================================================================================================================
<FN>
(1) The CRA Realty Shares Portfolio commenced operations on January 1, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
1/1/97
TO 10/31/97
CRA REALTY SHARES PORTFOLIO (1) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Activities:
Net Investment Income............................................................................................ $ 502
Net Realized Gain on Securities Sold ............................................................................ 1,697
Net Change in Unrealized Appreciation of Investment Securities .................................................. 1,512
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations........................................................... 3,711
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ........................................................................................... (633)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ........................................................................................... (633)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued ................................................................................................... 24,407
Shares Issued in Connection with Purchase In-Kind (2)............................................................ 7,497
Shares Issued in Lieu of Cash Distributions ..................................................................... 407
Shares Redeemed ................................................................................................. (592)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions................................................... 31,719
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets .................................................................................. 34,797
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................................................................................. --
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period ................................................................................................... $34,797
====================================================================================================================================
Shares Issued and Redeemed:
Shares Issued .................................................................................................. 2,297
Shares Issued in Connection with Purchase In-Kind............................................................... 749
Shares Issued in Lieu of Cash Distributions .................................................................... 37
Shares Redeemed ................................................................................................ (54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ............................................................................ 3,029
====================================================================================================================================
<FN>
(1) The CRARealty Shares Portfolio commenced operations on January 1, 1997.
(2) During 1997, the Fund received securities in-kind with market value of
$7,497,000, including unrealized appreciation approximating $1,852,000.
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
For the period ended October 31, 1997
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Distributions Asset Assets Ratio
Value Net Unrealized from Net Value End of Expenses
Beginning Investment Gain on Investment End Total of Period to Average
of Period Income Securities Income of Period Return (1) (000) Net Assets
--------- ---------- ------------ ------------- --------- ---------- --------- -----------
- ---------------------------
CRA REALTY SHARES PORTFOLIO
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997(3) $10.00 0.26 1.53 (0.30) $11.49 18.17% $34,797 1.00%*
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 Waivers) Waivers) Rate Rate (2)
----------- ----------- ----------- --------- ----------
- ---------------------------
CRA REALTY SHARES PORTFOLIO
- ---------------------------
<C> <C> <C> <C> <C> <C>
1997(3) 2.91%* 1.63%* 2.28%* 102.74% $0.0588
<FN>
* Annualized
(1) Total return is for the period indicated and has not been annualized.
(2) Average commission rate paid per share for security purchases and sales during the period.
(3) The CRA Realty Shares Portfolio commenced operations on January 1, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CRA REALTY SHARES PORTFOLIO
October 31, 1997
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under an Amended and Restated Agreement and Declaration of Trust
dated February 18, 1997. The Trust is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment company
with nine portfolios, three of which have not commenced operations as of October
31, 1997. The financial statements herein are those of the CRA Realty Shares
Portfolio (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
Fund's prospectus provides a description of the Fund's investment objectives,
policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- 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 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.
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 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.
The majority of the dividend income recorded by the Fund is from Real Estate
Investment Trusts ("REITs"). For tax purposes, a portion of these dividends
consists of capital gains and returns of capital. The Fund's Administrator
estimates the return of capital based upon historical returns of capital paid
by each REIT in prior periods. These estimates are then reconciled to the
actual returns of capital reported by the REITs shortly after calendar
yearend, and an adjustment, if any is required, is then recorded by the Fund.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
The Fund incurred organization costs of approximately $32,000. 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 $13,000 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 Investments Distribution Co. (the "Distributor").
Such officers are paid no fees by the Trust for serving as officers of the
Trust.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) CRA REALTY SHARES PORTFOLIO
October 31, 1997
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 0.15% of the first $100 million of
the Portfolio's average daily net assets; 0.125% of the next $100 million of the
Portfolio's average daily net assets; 0.10% of the next $100 million of the
Portfolio's average daily net assets; and 0.08% of the Portfolio's average daily
net assets over $300 million.
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.
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 Trust and CRA Real Estate Securities, L.P. (the "Adviser") are
parties to an Investment Advisory Agreement under which the Adviser receives an
annual fee equal to .70% of the Fund's average daily net assets. The Adviser
has, on a voluntary basis, agreed to waive its fee and reimburse Fund expenses
as applicable in order to limit the Fund's total operating expenses to a maximum
of 1.00% of the average daily net assets for Institutional shares. 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 period ended October 31, 1997 are as follows:
(000)
---------
Purchases ................................ $40,284
Sales .................................... $20,418
At October 31, 1997, 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, 1997, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ................................. $3,685
Aggregate gross unrealized
depreciation ................................. (321)
------
Net unrealized appreciation .................... $3,364
======
7. SHAREHOLDER VOTE:
On December 31, 1996 the sole shareholder of the CRA Realty Shares Portfolio
approved the following appointments: SEIFund Resources to serve as Administrator
of the Portfolio, CRA Real Estate Securities, L.P. to serve as investment
adviser to the assets of the Portfolio, SEIInvestments Distribution Co. to serve
as Distributor of the shares of the Portfolio, and Arthur Andersen LLP to serve
as the Independent Public Accountants of the Portfolio.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of
CRA Realty Shares Portfolio of
The Advisors' Inner Circle Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of CRA Realty Shares Portfolio (the "Portfolio"),
one of the funds constituting The Advisors' Inner Circle Fund, as of October 31,
1997, and the related statements of operations, changes in net assets and
financial highlights for the period presented. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit 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, 1997, by
correspondence with the custodian and brokers. 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 audit provides 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 CRA
Realty Shares Portfolio of The Advisors' Inner Circle Fund as of October 31,
1997, the results of its operations, changes in its net assets, and financial
highlights for the period presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 12, 1997
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
<PAGE>
FUND:
CRA REALTY SHARES PORTFOLIO
P.O. Box 419009
Kansas City, MO 64141-6009
ADVISER:
CRA REAL ESTATE SECURITIES, L.P.
Suite 205, 259 Radnor-Chester Road
Radnor, PA 19087
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, PA 19456
ADMINISTRATOR:
SEI FUND RESOURCES
Oaks, PA 19456
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.
CRA-F-004-01
