FMC SELECT FUND
ANNUAL REPORT
OCTOBER 31, 1998
ADVISED BY:
FIRST MANHATTAN CO.
<PAGE>
MANAGER'S DISCUSSION OF FUND PERFORMANCE
Dear Shareholder:
The FMC Select Fund (the "Fund") had a total return of 9.8% for the year ended
October 31, 1998. The Fund outperformed the average total return of 9.1% of its
peer group, the Lipper Flexible Fund Universe. The Fund underperformed the 19.4%
total return of its benchmark, which is an 80% weighting of the S&P 500 Index
and a 20% weighting of the Merrill Lynch Corporate/Government Bond Index of one
to ten year maturities. It should be noted that almost one-half of the Fund's
equity portion is invested in companies not in the S&P 500 Index, and that the
Fund outperformed both the 6.7% total return of the S&P Midcap Index and the
- -11.1% total return of the S&P Small Cap Index. As of October 31, 1998, 81% 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 equivalents.
In keeping with our philosophy of investing in attractively priced, quality
businesses irrespective of size, an increasing proportion of the portfolio is
invested in companies not in the S&P 500. Historically we found better value
among the high quality businesses within the large cap universe. This has
changed as many of the largest caps are being valued at P/E levels well above
those of high quality, but smaller companies. This process has made our
portfolio more attractively valued relative to the S&P Industrials Index. When
we reported to you six months ago, each unit of hypothetical earnings generated
by the companies in our equity portfolio cost 84% as much as each unit of
earnings generated by the S&P Industrials. As of October 31, 1998 the cost of
each unit of earnings in the portfolio declined to 77% of that of the S&P
Industrials.
TOTAL RETURN 1
Annualized
One Year Inception
Return to Date
9.81% 21.41%
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 Bond Index, and 80/20 hybrid of the above S&P
and Merrill Indices.
[LINE GRAPH OMITTED]
PLOT POINTS ARE AS FOLLOWS:
Merrill Lynch 80/20 Hybrid
FMC S&P 1-10 Year of the above
Select Composite Corp./Gov't S&P & Merrill
Fund Index Bond Index and Indices
5/31/95 10,000 10,000 10,000 10,000
10/31/95 10,844 11,005 10,353 10,873
10/31/96 13,445 13,654 10,948 13,093
10/31/97 17,547 18,039 11,781 16,656
10/30/98 19,268 22,006 12,864 19,899
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.
<PAGE>
Our investment process remains focused on owning good businesses, selling at
what we believe are attractive valuations. This discipline keeps us centered on
fundamentals such as returns on equity, free cash flow and a valuation that we
believe provides a margin of safety. The equity portion of the portfolio
continues to be invested in businesses with strong balance sheets and
historically less cyclical exposure than the overall economy. While these
qualities may be less appreciated after seven 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 reflects 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] 26% 19%
Period Needed to Retire
Debt from Free Cash Flow [2] 2 Years 4 Years
Estimated Annual EPS Growth
for 1998-2002 14% 7%
VALUATION
- ---------
1999 Estimated Price/Earnings 18.7X 24.3X
- --------------------------------------------------------------------------------
[1] The ROE is based on net income for the trailing four quarters ended 9/30/98
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 would 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's fundamentals.
[PIE CHART OMITTTED]
PLOT POINTS ARE AS FOLLOWS:
Portfolio Composition
Packaging 1%
Auto & Truck Related 1%
Insurance 1%
Healthcare 1%
Preferred Stock 1%
Technology 2%
Consumer Products 2%
Hotels, Lodging & Gaming 2%
Computers & Services 3%
U.S. Treasury Obligations 3%
Household Products 3%
Miscellaneous Industrial 4%
U.S. Gov't. Agency Obligations 6%
Food, Beverage & Tobacco 6%
Media/Information 8%
Corporate Obligations 8%
Banks 9%
Medical Products & Services 9%
Financial Services 10%
Retail 10%
Miscellaneous Business Services 10%
% of Total Fund Investments
<PAGE>
Since we last reported to you, the Fund established positions in Nielsen Media
Research, the leader in broadcast audience measurement and analysis, and
Stryker, the global leader in orthopedic implants and powered surgical
instruments. Below are descriptions of the fundamentals of these two
strong franchises.
Nielsen Media Research (NMR), a small company, has a monopoly franchise in North
American broadcast audience measurement and analysis. NMR became a freestanding
entity in July when Cognizant, a Fund holding, was split into IMS Health and
NMR. NMR's audience measurement business has a number of characteristics
associated with an excellent business including: high barriers to entries,
leading to limited competition and a 20%+ operating margin; a client base that
must have NMR's data to conduct their business efficiently, leading to an 85%+
renewal rate and highly predictable cash flows; a client base of media and
advertising firms growing, in aggregate at 1.5-2X GDP, leading to revenue growth
for NMR of 10-12%.
The high barriers to entry protecting NMR's franchise have withstood attempts at
penetration from both Audits of Great Britain and Control Data. In both cases
the potential competitors withdrew after losing over $100MM. Smart TV, the
latest challenger, seems to be heading towards a similar fate. Recent reports
indicate that the major television networks have pulled back from further
capital commitments to Smart after expending over $60 MM. The television
networks appear to have been unable to get material commitments from the major
cable TV networks, advertising agencies, syndicators and media buyers; we
estimate the total cost of building and rolling out a technically viable
competitor to NMR at $250 MM-$360 MM. The perception of Smart TV as a viable
competitor this past summer presented us with the opportunity to purchase NMR, a
business which earns an 18% return on assets, at less than 13X 1999 estimated
EPS.
Stryker (SYK), a midcap company which is the global leader in orthopedic
implants and powered surgical instruments, has earned a 20% return on equity and
has grown earnings at a compounded rate of 20% for the past 20 years. SYK is a
major beneficiary of both the aging of populations in the developed world and
the increasing adoption of Western medical practices in the developing world.
SYK has a reputation for being the most focused, innovative and efficient firm
in the industry. SYK, whose primary focus is on implants and instruments,
competes mostly against the somewhat neglected subsidiaries of companies whose
primary focus is on pharmaceuticals. SYK has led the industry in innovation with
new products such a HA (hydroxylapatite) coated cementless implants which are
more comfortable, and decrease the need for costly and physically demanding
revision surgery. SYK's efficiency is highlighted by having the industry's
fastest order turnaround time and lowest manufacturing defect rate.
<PAGE>
SYK has unit production costs estimated at 10-20% below competitors, and should
experience further declines in unit production costs as it rationalizes and
integrates the recently acquired Howmedica division of Pfizer. The addition of
Howmedica should also lead to a significant increase in profits at SYK's
European operations, which historically were marginally profitable due to a lack
of scale. We purchased SYK at $36 or 16X estimated 2000 EPS of $2.20, which
incorporates most of the benefits from the Howmedica acquisition. This estimate
excludes any benefit from OP-1, a biotechnologically-derived bone growth factor,
which alone could be worth $15 per SYK share if full FDA approval is obtained.
We continue to work hard analyzing the Fund's existing and prospective
investments, Thank you for your continued confidence.
Sincerely yours,
/s[signature omitted] /s[signature omitted] /s[signature omitted]
Bernard Groveman William McElroy A. Byron Nimocks
Equity Manager Fixed Income Manager Equity Manager
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
October 31, 1998
Market
Value
FMC SELECT FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (80.1%)
AUTO & TRUCK RELATED (0.8%)
Snap-On Tools 23,200 $ 822
-------
BANKS (9.1%)
BankAmerica 71,045 4,081
Charter One Financial 16,900 464
Compass Bancshares 23,100 850
Dime Bancorp 52,100 1,241
North Fork Bancorp 94,500 1,878
TF Financial 32,000 592
-------
9,106
-------
COMPUTERS & SERVICES (2.3%)
Acxiom* 77,616 1,950
Gartner Group, Cl A* 16,000 318
-------
2,268
-------
CONSUMER PRODUCTS (2.0%)
Ekco Group 168,600 611
Kimberly-Clark 28,600 1,380
-------
1,991
-------
FINANCIAL SERVICES (9.9%)
Fannie Mae 23,000 1,629
Freddie Mac 72,000 4,140
Household International 112,545 4,115
Northern Trust 100 7
-------
9,891
-------
FOOD, BEVERAGE & TOBACCO (5.5%)
Philip Morris 71,420 3,651
Schweitzer-Mauduit International 21,100 384
UST 43,800 1,489
-------
5,524
-------
HEALTHCARE (1.2%)
Johnson & Johnson 15,000 1,222
-------
HOTELS, LODGING & GAMING (1.7%)
Red Roof Inns* 98,800 1,710
-------
HOUSEHOLD PRODUCTS (2.8%)
Benckiser N.V., Cl B* 49,900 2,844
-------
INSURANCE (1.2%)
General Re 5,600 1,230
-------
MEDIA (8.2%)
E.W. Scripps 13,000 575
Gannett 45,900 2,840
Harte-Hanks Communications 197,700 4,807
-------
8,222
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
October 31, 1998
Shares/ Market
Face Amount Value
FMC SELECT FUND (continued) (000) (000)
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (8.8%)
IMS Health 97,400 $ 6,477
Stryker 54,100 2,269
-------
8,746
-------
MISCELLANEOUS BUSINESS SERVICES (9.8%)
Manpower 17,000 410
Nielsen Media Research* 437,166 6,202
Olsten 88,500 813
Personnel Group of America* 86,000 1,333
Wallace Computer Services 17,810 390
York Group 56,100 596
-------
9,744
-------
MISCELLANEOUS INDUSTRIES (3.1%)
Blount International 17,000 373
IDEX 104,400 2,701
-------
3,074
-------
PACKAGING (1.2%)
Sealed Air* 32,547 1,153
-------
RETAIL (10.0%)
Autozone* 119,100 3,134
Dollar General 117,116 2,796
InterTAN* 258,500 1,373
Tandy 54,200 2,686
-------
9,989
-------
SPECIALTY CHEMICALS (0.3%)
McWhorter Technologies* 15,000 305
-------
TECHNOLOGY (2.2%)
First Data 83,900 2,223
-------
TOTAL COMMON STOCKS
(Cost $60,800) 80,064
-------
PREFERRED STOCKS (0.7%)
Fresenius National Medical Care* 20,400 --
Sealed Air Convertible, Ser A 16,791 670
-------
TOTAL PREFERRED STOCKS
(Cost $688) 670
-------
CORPORATE OBLIGATIONS (7.7%)
Aon
7.400%, 10/01/02 $150 162
BellSouth Trust MTN
9.190%, 07/01/03 163 179
Bond Backed Certificate IBM
7.350%, 06/01/17 508 570
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
October 31, 1998
Face Market
Amount Value
FMC SELECT FUND (continued) (000) (000)
- --------------------------------------------------------------------------------
Commercial Credit
7.750%, 03/01/05 $150 $ 162
Dow Chemical
8.040%, 07/02/05 500 551
Eastman Kodak
9.750%, 10/01/04 300 373
Geico
7.500%, 04/15/05 200 223
General Motors
8.950%, 07/02/09 700 766
Gerber Products
9.000%, 10/15/06 694 852
H&R Block
6.750%, 11/01/04 615 661
Manufactures & Trader Trust
8.125%, 12/01/02 250 274
May Department Stores
9.750%, 02/15/21 415 555
Monsanto
8.130%, 12/15/06 555 647
Norwest MTN
6.375%, 09/15/02 350 363
Philip Morris
7.250%, 01/15/03 200 213
7.200%, 02/01/07 300 320
Simon Debartolo
6.875%, 11/15/06 400 383
Union Pacific
7.600%, 05/01/05 250 269
United Postal Savings Association
9.000%, 07/26/99 150 154
-------
TOTAL CORPORATE OBLIGATIONS
(Cost $7,325) 7,677
-------
U.S. GOVERNMENT AGENCY OBLIGATIONS (5.4%)
Fannie Mae
6.595%, 12/01/03 492 508
6.640%, 07/02/07 500 548
6.800%, 08/27/12 400 444
Financial Assistance Corporation
9.375%, 07/21/03 200 238
Freddie Mac
6.830%, 06/15/05 250 258
Government Trade Trust, Ser 1995 A
8.010%, 03/01/07 223 253
Guaranteed Export Certificates
7.460%, 12/15/05 326 357
Guaranteed Trade Trust, Ser A
7.020%, 09/01/04 150 161
Overseas Private Investment Corporation
6.080%, 08/15/04 552 574
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
October 31, 1998
Face Market
Amount Value
FMC SELECT FUND (continued) (000) (000)
- --------------------------------------------------------------------------------
Overseas Private Investment
6.930%, 12/15/08 $ 800 $ 878
Small Business Administration, Ser 1996-10F
6.500%, 11/01/06 294 313
Small Business Administration, Ser 1997-20 L
6.550%, 12/01/17 488 517
Small Business Administration, Ser 1998 D
6.150%, 04/01/18 392 408
-------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $5,178) 5,457
-------
U.S. TREASURY OBLIGATIONS (3.2%)
U.S. Treasury Notes
9.125%, 05/15/99 121 124
8.000%, 05/15/01 45 49
7.500%, 11/15/01 250 272
6.250%, 02/15/03 250 268
6.250%, 02/15/07 93 103
United States Treasury Bills (A)
4.118%, 04/15/99 186 183
5.216%, 11/12/98 24 24
4.567%, 01/14/99 11 11
5.045%, 02/04/99 1,931 1,909
3.773%, 03/04/99 234 231
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,121) 3,174
-------
TOTAL INVESTMENTS (97.1%)
(Cost $77,114) 97,042
-------
OTHER ASSETS AND LIABILITIES, NET (2.9%) 2,919
-------
NET ASSETS:
Portfolio Shares (unlimited authorization
-- no par value) based on 5,792,528
outstanding shares of beneficial interest 75,174
Undistributed net investment income 90
Accumulated net realized gain on investments 4,769
Net unrealized appreciation on investments 19,928
-------
TOTAL NET ASSETS (100.0%) $99,961
=======
Net Asset Value, Offering and Redemption Price Per Share $17.26
=======
*NON-INCOME PRODUCING SECURITY
(A) THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS THE EFFECTIVE YIELD AS
OF OCTOBER 31, 1998.
CL -- CLASS
MTN -- MEDIUM TERM NOTE
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FMC SELECT FUND
FMC
SELECT
FUND
----------
11/01/97 TO
10/31/98
(000)
- --------------------------------------------------------------------------------------------------------------
Investment Income:
<S> <C>
Dividend Income...................................................................... $ 947
Interest Income ..................................................................... 1,101
- --------------------------------------------------------------------------------------------------------------
Total Investment Income............................................................ 2,048
- --------------------------------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ............................................................ 773
Investment Advisory Fee Waiver ...................................................... (13)
Reimbursements by Advisor............................................................ --
Administrative Fees ................................................................. 167
Administrative Fee Waiver ........................................................... --
Custodian Fees ...................................................................... 9
Professional Fees ................................................................... 25
Transfer Agent Fees ................................................................. 30
Printing Fees ....................................................................... 24
Trustee Fees ........................................................................ 6
Registration and Filing Fees ........................................................ 21
Insurance and Other Fees ............................................................ 6
Organization Costs................................................................... 10
- --------------------------------------------------------------------------------------------------------------
Total Expenses, Net ............................................................... 1,058
- --------------------------------------------------------------------------------------------------------------
Net Investment Income ........................................................... 990
- --------------------------------------------------------------------------------------------------------------
Net Realized Gain from Securities Sold .............................................. 4,769
Net Change in Unrealized Appreciation of Investment Securities ...................... 1,077
- --------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments ................................... 5,846
- --------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations................................. $6,836
==============================================================================================================
Amounts designated as "--" are either $0 or have been rounded to $0.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS FMC SELECT FUND
FMC
SELECT FUND
----------------------
11/1/97 11/1/96
TO 10/31/98 TO 10/31/97
(000) (000)
- ---------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C>
Net Investment Income........................................................ $ 990 $ 685
Net Realized Gain from Securities Sold ...................................... 4,769 4,502
Net Change in Unrealized Appreciation of Investment Securities .............. 1,077 11,311
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations....................... 6,836 16,498
- ---------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ....................................................... (955) (681)
Realized Capital Gains....................................................... (4,503) (1,500)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions ....................................................... (5,458) (2,181)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued ................................................. 27,196 15,537
Reinvestment of Cash Distributions .......................................... 5,295 2,131
Cost of Shares Redeemed ..................................................... (9,599) (4,203)
- ---------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions............... 22,892 13,465
- ---------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets .............................................. 24,270 27,782
- ---------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ......................................................... 75,691 47,909
- ---------------------------------------------------------------------------------------------------------------
End of Period ............................................................... $ 99,961 $75,691
===============================================================================================================
Shares Issued and Redeemed:
Shares Issued .............................................................. 1,536 1,069
Shares Issued in Lieu of Cash Distributions ................................ 317 152
Shares Redeemed ............................................................ (561) (290)
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ........................................ 1,292 931
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS FMC SELECT FUND
For a Share Outstanding Throughout Each Period
For the Periods Ended October 31,
Ratio
Net Net Net of Net
Asset Realized and Distributions Distributions Asset Assets Ratio Investment
Value Net Unrealized from Net from Value End of Expenses Income
Beginning Investment Gains on Investment Capital End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ----------- ------------- ------------- --------- ------ --------- ----------- ----------
- ---------------
FMC SELECT FUND
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $16.82 0.17 1.43 (0.17) (0.99) $17.26 9.81% $99,961 1.09% 1.01%
1997 $13.42 0.16 3.81 (0.16) (0.41) $16.82 30.51% $75,691 1.10% 1.08%
1996 $10.97 0.14 2.48 (0.14) (0.03) $13.42 23.99% $47,909 1.10% 1.10%
1995(1) $10.00 0.10 0.96 (0.09) -- $10.97 10.60%+ $27,202 1.10%* 1.96%*
- ---------------
FMC SELECT FUND
- ---------------
Ratio
of Net
Ratio Investment
of Expenses Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ----------- ---------
1998 1.11% 0.99% 29.72%
1997 1.17% 1.01% 21.71%
1996 1.20% 1.00% 24.39%
1995(1) 1.57%* 1.49%* 1.87%
</TABLE>
* Annualized
+ Total return is for the period indicated and has not been annualized.
(1) The FMC Select Fund commenced operations on May 8, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS FMC SELECT FUND
October 31, 1998
1. ORGANIZATION:
THE ADVISORS' INNER CIRCLE FUND (the "Trust") is organized as a Massachusetts
business trust under an Amended and Restated Agreement and Declaration of Trust
dated February 18, 1997. The Trust is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment company
with eight portfolios. The financial statements herein are those of the 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.
3. ORGANIZATIONAL COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Trust and are being amortized
over sixty months commencing with the start-up. In the event 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded) FMC SELECT FUND
October 31, 1998
thereof by the Portfolio will be reduced by the unamortized organizational costs
in the same ratio as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption. These costs
include legal fees of approximately $10,000 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 Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers of the Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an Administration Agreement under
which the Administrator provides management and administrative services for an
annual fee equal to the higher of $75,000 or .15% of the Funds' 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 average daily net assets. The Adviser has, on a voluntary basis, agreed
to waive its fee in order to limit the Fund's total operating expenses to a
maximum of 1.10% of the average daily net assets. The Adviser reserves the right
to terminate this arrangement at any time in its sole discretion.
First Union National Bank acts as custodian (the "Custodian") for the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased 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, 1998 are as follows:
(000)
---------
Purchases
U.S. Government ..................... $ 2,831
Other ............................... 41,890
Sales
U.S. Government ..................... $ 1,739
Other ............................... 26,269
At October 31, 1998, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes were not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at October 31, 1998, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ........................ $24,683
Aggregate gross unrealized
depreciation ........................ (4,755)
-------
Net unrealized appreciation ........... $19,928
=======
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
FMC Select Fund of
Advisors' Inner Circle Fund:
We have audited the accompanying statement of net assets of the FMC Select Fund
(the "Fund"), one of the funds constituting Advisors' Inner Circle Fund, as of
October 31, 1998, and the related statement of operations, changes in net
assets, and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and broker. 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 Advisors' Inner Circle Fund as of October 31, 1998, and the
results of its operations, changes in its net assets, and financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 18, 1998
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For shareholders that do not have an October 31, 1998 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1998 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1998, the portfolio is designating long
term capital gains, qualifying dividends and exempt interest income with regard
to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL (D) (E) (F)
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING TAX EXEMPT FOREIGN
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1) INTEREST TAX CREDIT
------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FMC Select Fund 78% 22% 100% 84% 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>
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 INVESTMENTS MUTUAL FUNDS SERVICES
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-003-05
