================================================================================
FUND:
FMC SELECT FUND
P.O. Box 419009
Kansas City, MO 64141-6009
ADVISER:
FIRST MANHATTAN CO.
437 Madison Avenue
New York, NY 10022
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.
================================================================================
FMC-F-004-03
================================================================================
FMC SELECT FUND
SEMI-ANNUAL REPORT
APRIL 30, 1997
ADVISED BY:
FIRST MANHATTAN CO.
================================================================================
FMC-F-004-03
<PAGE>
MANAGER'S DISCUSSION OF FUND PERFORMANCE
Dear Shareholder:
The FMC Select Fund (the "Fund") had a total return of 10.1% for the six months
ended April 30, 1997, compared to a total return of 12.1% for 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 April 30, 1997, the Fund had a total
return of 51.0% versus 50.5% for the benchmark. As of April 30, 1997, 82% of the
Fund's assets were invested in equities, well within the targeted equity
allocation of 75-85%. The remaining assets were in investment grade, medium
term, fixed income instruments and cash.
Over the past six months equity performance has been dominated by companies with
the largest market capitalizations. In fact, during the period over 75% of the
total return of the S&P 500, the index commonly used to measure large cap
stocks, came from the companies with the thirty largest market capitalizations.
As of April 30, 1997, only 40% of the Fund's equity portion was invested in
large cap stocks, with 35% invested in mid-cap stocks and 25% invested in small
cap stocks. The Fund's skewing away from the large cap stocks is in keeping with
our philosophy of investing in high quality businesses selling at attractive
prices -- regardless of whether they are large, medium or small.
-------------------------------
TOTAL RETURN 1
-------------------------------
Annualized
One Year (Inception (2)
Return to Date)
-------------------------------
15.91% 23.14%
-------------------------------
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 an 80/20 blend of the above S&P and Merrill
Indices
[LINEGRAPH OMITTED]
[PLOT POINTS]
5/31/95 10/95 10/96 04/97
- --------------------------------------------------------------------------------
FMCSELECT FUND $10,000 $10,844 $13,445 $14,808
S&P 500 COMPOSITE INDEX $10,000 $11,005 $13,654 $15,663
MERILL 1-10 YEAR CORP./GOV'T. INDEX $10,000 $10,353 $10,948 $11,149
80/20 BLEND OF THE ABOVE
S&P AND MERRILL INDICES $10,000 $10,873 $13,093 $14,682
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 FMC Select Fund commenced operations
on May 8, 1995.
<PAGE>
The focus of our investment process remains on fundamentals such as returns on
equity, free cash flow and a valuation which provides a margin of safety. The
equity portion of the portfolio continues to be invested in 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.
- --------------------------------------------------------------------------------
FMC SELECT FUND S&P INDUSTRIALS INDEX
--------------- ---------------------
QUALITY
- -------
Return-on-Equity (ROE) [1] 24% 18%
Period Needed to Retire
Debt from Free Cash Flow [2] 2 Years 4 Years
Estimated Annual EPS Growth
for 1997-2001 13% 8%
VALUATION
- ---------
1998 Estimated Price/Earnings 13.8X 17.6X
- --------------------------------------------------------------------------------
[1] The ROE is based on net income for the trailing four quarters ended 3/31/97
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 a business' fundamentals.
<PAGE>
PORTFOLIO COMPOSITION
[PIECHART OMITTED]
Other Equity 11%
U.S. Gov't Agency Obligations 3%
Packaging 4%
Consumer Products 4%
Miscellaneous Business Services 4%
Healthcare 5%
Corporate Obligations 6%
Food, Beverage & Tobacco 7%
Media 14%
Financial Services 10%
Miscellaneous Industrial 9%
Banking 8%
U.S. Treasury Obligations 8%
Retail 7%
The two largest equity positions we have added since our last report have been
Cognizant and Idex. Both have high ROEs, strong free cash flows, solid balance
sheets and managements who work in the shareholders' interest.
Cognizant (CZT) is the leading provider of market information to the drug (IMS
International), broadcasting (Nielsen Media Research) and computer hardware and
software (51% owned Gartner Group) industries. The company was formed in
November 1996 pursuant to the spin-out by Dun & Bradstreet of its three highest
quality businesses. CZT earned a 29% ROE in 1996 on a balance sheet with over
$2/share in net cash.
All three of CZT's core businesses have high levels of recurring revenue (75%+),
pricing flexibility and high margins (20%+ operating margins) by merit of
providing vital information where the value to the client is significantly above
CZT's price or cost. All three serve industries with below-average exposure to
the US economic cycle, which have been growing two to five times as fast as GNP
and whose growth is likely to persist at these rates. We purchased CZT at 15X
1998 estimated EPS of $2.10 or a 15% discount to the S&P Industrials. We believe
that earnings are likely to grow at 16-20% from 1997-1999, a rate well above
that of the S&P Industrials, and with a far higher degree of predictability.
IDEX (IEX) is a highly profitable ($750MM market capitalization) maker of fluid
handling equipment (about three quarters of sales and operating income --
specialized pumps, compressors, dispensing and lubrication equipment) and niche
industrial products (about one quarter of sales and profits -- vibration
control, clamping and other equipment). IEX has consistently earned a high
return on equity (currently 25%) and has generated impressive operating margins
(currently 18% and has remained near this level throughout economic cycles).
<PAGE>
The common characteristics of IEX's businesses which lead to these consistently
high returns are: leading global shares (nine out of twelve businesses are the
global leader, the remaining three are close seconds, all have at least 33%
global shares); a high level of repair and replacement sales (over one-third
sales and probably over one-half of profits); customers with below average
cyclicality (fire and rescue, water conditioning, coatings, food processings,
etc.); and a focus on niche markets (all twelve businesses serve end markets
under $250 million) with a shrinking number of competitors (all twelve
businesses have fewer competitors than five years ago).
Our interest in IEX was prompted by favorable comments which we received from a
number of its customers and suppliers, some of whom are owned in the Fund. IEX
has a well-earned reputation of quality, innovation and service. Management is
disciplined at both controlling costs and fostering innovation, and owns 6% of
the company. The board has a number of well-respected and disciplined outsiders
including both Henry Kravis and George Roberts, who through KKR Associates, a
partnership consisting mostly of their personal capital, own 30% of IEX. We
purchased this high quality enterprise at 11X 1998 estimated EPS of $2.25 or a
35% discount to the S&P Industrials.
Please feel free to call us with any questions or comments on the Fund.
Sincerely yours,
/S/ SIGNATURE /S/ SIGNATURE /S/ SIGNATURE
Bernard Groveman William McElroy A. Byron Nimocks
Equity Manager Fixed Income Manager Equity Manager
<PAGE>
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
Market
Value
FMC SELECT FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (81.8%)
AUTO & TRUCK RELATED (2.4%)
Mark IV Industries 23,593 $ 549
Snap-On Tools 23,200 893
--------
1,442
--------
BANKS (8.1%)
Charter One Financial 7,665 341
Compass Bancshares 23,100 699
Dime Bancorp * 52,100 840
North Fork Bancorp 31,500 1,248
TF Financial 32,000 548
Wells Fargo 4,700 1,254
--------
4,930
--------
CONSUMER PRODUCTS (3.7%)
Ekco Group 168,600 801
Kimberly-Clark 28,600 1,466
--------
2,267
--------
DEFENSE (0.3%)
Newport News Shipbuilding 10,900 163
--------
FINANCIAL SERVICES (10.3%)
Federal Home Loan Mortgage Corporation 72,000 2,295
Federal National Mortgage Association 23,000 946
Fidelity National Financial 43,560 539
Household International 15,415 1,356
Northern Trust 26,800 1,193
--------
6,329
--------
FOOD, BEVERAGE & TOBACCO (6.6%)
Philip Morris 31,620 1,245
Schweitzer-Mauduit International 51,100 1,667
UST 43,800 1,144
--------
4,056
--------
HEALTHCARE (4.8%)
Johnson & Johnson 7,400 453
Pfizer 9,200 883
Schering Plough 20,300 1,624
--------
2,960
--------
HOTELS, LODGING & GAMING (3.1%)
Harrah's Entertainment* 25,050 401
Red Roof Inns* 98,800 1,519
--------
1,920
--------
<PAGE>
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
Market
Value
FMC SELECT FUND (CONTINUED) Shares (000)
- --------------------------------------------------------------------------------
MEDIA (13.5%)
Cognizant 82,900 $ 2,705
E.W. Scripps 13,000 494
Gannett 20,400 1,780
Harte-Hanks Communications 83,850 2,285
Omnicom Group 18,400 975
--------
8,239
--------
MISCELLANEOUS BUSINESS SERVICES (4.5%)
Manpower 29,200 1,172
Olsten 88,500 1,560
--------
2,732
--------
MULTIPLE INDUSTRIES (9.1%)
Blount International 22,000 891
General Electric 12,200 1,353
IDEX 104,400 2,740
Stanley Works 14,500 564
--------
5,548
--------
PACKAGING (3.5%)
Sealed Air * 23,600 1,091
W.R. Grace 20,400 1,061
--------
2,152
--------
RAILROADS (2.1%)
Burlington Northern Santa Fe 8,600 677
Union Pacific 9,801 625
--------
1,302
--------
RETAIL (7.2%)
Dollar General 64,593 2,043
Intertan* 258,500 969
Tandy 27,100 1,419
--------
4,431
--------
SPECIALTY CHEMICALS (2.6%)
Great Lakes Chemical 25,300 1,072
McWhorter Technologies* 24,300 535
--------
1,607
--------
TOTAL COMMON STOCKS
(Cost $38,700) 50,078
--------
<PAGE>
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
Face Market
Amount Value
FMC SELECT FUND (CONTINUED) (000) (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (6.4%)
Aon
7.400%, 10/01/02 $150 $ 152
BellSouth Trust MTN
9.190%, 07/01/03 190 204
Commercial Credit
7.750%, 03/01/05 150 154
Eastman Kodak
9.750%, 10/01/04 300 347
Geico
7.500%, 04/15/05 200 204
General Motors
8.950%, 07/02/09 200 218
Gerber Products
9.000%, 10/15/06 255 285
Manufactures & Trader Trust
8.125%, 12/01/02 250 260
Marriott International
7.875%, 04/15/05 375 382
Philip Morris
7.250%, 01/15/03 200 199
7.200%, 02/01/07 300 292
Simon Debartolo
6.875%, 11/15/06 200 191
Taubman Realty Group
7.000%, 10/01/03 400 385
Union Pacific
7.600%, 05/01/05 250 252
United Postal Savings Association
9.000%, 07/26/99 150 157
W. R. Grace
8.000%, 08/15/04 200 209
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $3,963) 3,891
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS (3.1%)
Aid-Israel Ser 1-A
7.750%, 04/01/98 84 86
Federal Home Loan Mortgage Corporation
6.830%, 06/15/05 250 244
Federal National Mortgage Association
6.595%, 12/01/03 498 491
Financial Assistance
9.375%, 07/21/03 200 225
Government Trade Trust Ser 1995A
8.010%, 03/01/07 257 272
Guaranteed Trade Trust Gtd Trade Ctfs Ser A
7.020%, 09/01/04 187 189
Small Business Administration Ser 1996-10F
6.500%, 11/01/06 375 369
--------
<PAGE>
STATEMENT OF NET ASSETS
April 30, 1997 (Unaudited)
Face Amount Market
(000)/ Value
FMC SELECT FUND (CONCLUDED) Shares (000)
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,896) $ 1,876
--------
U.S. TREASURY OBLIGATIONS (8.4%)
U.S. Treasury Bills
5.070%, 06/05/97 $ 2 2
5.040%, 06/26/97 166 165
5.240%, 07/10/97 403 399
5.190%, 07/24/97 344 340
5.250%, 08/21/97 1,547 1,521
5.280%, 09/18/97 921 902
U.S. Treasury Notes
5.875%, 10/31/98 250 249
9.125%, 05/15/99 255 269
8.750%, 08/15/00 250 267
8.000%, 05/15/01 250 263
7.500%, 11/15/01 250 259
6.375%, 08/15/02 250 248
6.250%, 02/15/03 250 246
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,133) 5,130
--------
PREFERRED STOCK (0.0%)
Fresenius National Medical Care* 20,400 2
--------
TOTAL PREFERRED STOCK
(Cost $0) 2
--------
TOTAL INVESTMENTS (99.7% )
(Cost $49,692) 60,977
--------
OTHER ASSETS AND LIABILITIES, NET (0.3%) 198
--------
NET ASSETS:
Portfolio Shares (unlimited authorization
-- no par value) based on 4,286,331 outstanding
shares of beneficial interest 48,788
Undistributed net investment income 44
Accumulated net realized gain on investments 1,058
Net unrealized appreciation on investments 11,285
--------
TOTAL NET ASSETS (100.0%) $61,175
=======
Net Asset Value, Offering and Redemption Price Per Share $14.27
=======
* NON-INCOME PRODUCING SECURITY
MTN--MEDIUM TERM NOTE
SER--SERIES
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the six-month period ended April 30, 1997 (Unaudited)
FMC
SELECT
FUND
(000)
- --------------------------------------------------------------------------------
Investment Income:
Dividend Income............................................... $ 337
Interest Income .............................................. 286
- --------------------------------------------------------------------------------
Total Investment Income..................................... 623
- --------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ..................................... 219
Investment Advisory Fee Waiver ............................... (21)
Administrative Fees .......................................... 55
Custodian Fees ............................................... 3
Professional Fees ............................................ 9
Transfer Agent Fees .......................................... 7
Cash Management Fees ......................................... 3
Printing Fees ................................................ 9
Trustee Fees ................................................. 3
Registration and Filing Fees ................................. 7
Pricing Fees ................................................. 1
Insurance and Other Fees ..................................... 2
Amortization of Deferred Organizational Costs ................ 4
- --------------------------------------------------------------------------------
Total Expenses ............................................. 301
- --------------------------------------------------------------------------------
Net Investment Income .................................... 322
- --------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ....................... 1,027
Net Unrealized Appreciation of Investment Securities ......... 3,745
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments ............ 4,772
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.......... $5,094
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six-month period ended April 30, 1997 (Unaudited) and for the year ended
October 31, 1996.
11/1/96 11/1/95
TO 4/30/97 TO 10/31/96
FMC SELECT FUND (000) (000)
- --------------------------------------------------------------------------------
Investment Activities:
Net Investment Income........................... $ 322 $ 423
Net Realized Gain on Securities Sold ........... 1,027 1,531
Net Change in Unrealized Appreciation
of Investment Securities ..................... 3,745 5,592
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations..................................5,094 7,546
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income .......................... (299) (425)
Realized Capital Gains.......................... (1,500) (77)
- --------------------------------------------------------------------------------
Total Distributions .......................... (1,799) (502)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares Issued .................................. 10,905 14,642
Shares Issued in Lieu of Cash Distributions .... 1,760 418
Shares Redeemed ................................ (2,694) (1,397)
- --------------------------------------------------------------------------------
Increase in Net Assets Derived from
Capital Share Transactions ................... 9,971 13,663
- --------------------------------------------------------------------------------
Total Increase in Net Assets ................. 13,266 20,707
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................ 47,909 27,202
- --------------------------------------------------------------------------------
End of Period .................................. $61,175 $47,909
================================================================================
(1) Shares Issued and Redeemed:
Shares Issued ................................. 782 1,168
Shares Issued in Lieu of Cash Distributions ... 130 32
Shares Redeemed ............................... (196) (109)
- --------------------------------------------------------------------------------
Net Increase in Share Transactions ........... 716 1,091
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
For the six-month period ended April 30, 1997 (Unaudited) and for the periods
ended October 31.
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 (000) Net Assets
--------- ---------- ------------ ------------- ------------- --------- ------ --------- -----------
- ---------------
FMC SELECT FUND
- ---------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $13.42 0.08 1.25 (0.07) (0.41) $14.27 10.14%+ $61,175 1.10%*
1996 $10.97 0.14 2.48 (0.14) (0.03) $13.42 23.99% $47,909 1.10%
1995(2) $10.00 0.10 0.96 (0.09) -- $10.97 10.60%+ $27,202 1.10%*
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 (1)
---------- ----------- ---------- --------- ----------
- ---------------
FMC SELECT FUND
- ---------------
<C> <C> <C> <C> <C> <C>
1997 1.18%* 1.18%* 1.10%* 11.22% $0.0600
1996 1.10% 1.20% 1.00% 24.39% $0.0600
1995(2) 1.96%* 1.57%* 1.49%* 1.87% n/a
<FN>
* Annualized
+ Total return is for the period indicated and has not been annualized.
(1) Average commission rate paid per share for the security purchases and sales
made during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
(2) The FMC Select Fund commenced operations on May 8, 1995.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS FMC SELECT FUND
April 30, 1997 (Unaudited)
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 nine
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 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 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
April 30, 1997 (Unaudited)
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 Investments Distribution Co. (the "Distributor").
Such officers are paid no fees by the Trust for serving as officers of the
Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an Administration Agreement 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 period ended April 30, 1997 are as follows:
(000)
---------
Purchases
Government .......................... $ 1,141
Other ............................... 11,723
Sales
Government .......................... $ 554
Other ............................... 5,631
At April 30, 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 April 30, 1997, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ........................ $12,609
Aggregate gross unrealized
depreciation ........................ (1,324)
-------
Net unrealized appreciation ........... $11,285
=======
<PAGE>
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<PAGE>
