================================================================================
FMC SELECT FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
ADVISED BY:
FIRST MANHATTAN CO.
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<PAGE>
MANAGER'S DISCUSSION OF FUND PERFORMANCE
Dear Shareholder:
We are pleased to report that the FMC Select Fund (the "Fund") received special
commendation from Lipper Analytical Services for being the number one performing
flexible fund in 1997 out of a universe of over 200 such funds. During 1997 the
Fund had a total return of 34.1%, besting the 33.3% total return of the S&P 500
and 24.9% total return of the Dow Jones Industrials, despite having about 20% of
the portfolio invested in bonds and cash.
The Fund had a total return of 16.6% for the six months ended April 30, 1998,
compared to a total return of 18.6% 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. While we report to
you on a semi-annual basis, we urge you to focus on the long term. From
inception on May 8, 1995 through April 30, 1998 the Fund had a total return of
108.1% versus 105.5% for the benchmark. As of April 30, 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.
TOTAL RETURN 1
Annualized
One Year Inception (3)
Return (2) to Date
38.10% 27.97%
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.
[LINE GRAPH OMITTED]
Plot points follow:
FMC Select Fund 80/20 Blend of the above
S&P and Merrill Indices
5/31/95 $10,000 $10,000
10/31/95 10,844 10,873
10/31/96 13,445 13,093
10/31/97 17,547 16,656
4/30/98 20,451 19,753
[LINE GRAPH OMITTED]
Plot points follow:
FMC Select Fund S&P 500 Merrill Lynch 1-10 Year
Composite Index Corp./Gov't.Index
5/31/95 $10,000 $10,000 $10,000
10/31/95 10,844 11,005 10,353
10/31/96 13,445 13,654 10,948
10/31/97 17,547 18,039 11,781
4/30/98 20,451 22,092 12,148
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 One year return is for the period beginning 5/1/97 and ending 4/30/98.
3 The 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 underappreciated 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] 25% 19%
Period Needed to Retire
Debt from Free Cash Flow [2] 2 Years 4 Years
Estimated Annual EPS Growth
for 1998-2002 14% 8%
VALUATION
- ---------
1999 Estimated Price/Earnings 18.4X 21.9X
- --------------------------------------------------------------------------------
[1] The ROE is based on net income for the trailing four quarters ended 3/31/98
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.
<PAGE>
PORTFOLIO COMPOSITION
[PIE CHART OMITTED]
Plot Points are as follows:
Technology 5%
Specialty Chemicals 4%
Retail 8%
Railroads 1%
Packaging 3%
Miscellaneous Industrial 5%
Miscellaneous Business Services 5%
Media/Information 13%
Hotels, Lodging & Gaming 3%
Healthcare 4%
Preferred Stock 1%
Corporate Obligations 6%
U.S. Gov't. Agency Obligations 5%
U.S. Treasury Obligations 7%
Auto & Truck Related 1%
Banks 11%
Consumer Products 6%
Financial Services 7%
Food, Beverage & Tobacco 5%
% of Total Fund Investments
Towards the end of 1997 the Fund established positions in First Data Corp.
(FDC), the global leader in payment processing and Benckiser (BNV), the global
leader in both automatic dishwashing detergent and consumer water softeners.
Below are descriptions of the fundamentals of these two strong franchises.
First Data Corp. is well positioned to benefit from two powerful trends -- the
transition from paper money to electronic methods of payment and the increasing
propensity of financial institutions to outsource data processing functions. FDC
earns a 20% ROE (all earnings are free cash flow), derives 80% of its revenues
from recurring sources and possesses a solid balance sheet. FDC has the leading
market share by at least 15 percentage points in each of its three core
businesses, money transfer (Western Union, about 40% of operating income),
issuer credit card processing (about 25% of operating income) and merchant
credit card processing (about 20% of operating income).
We have followed FDC since the initial public offering by American Express in
1992, but we did not invest in the company at that time because it sold at a
premium valuation. However, in the second half of 1997 FDC's price declined from
46 to 30, as many of the momentum and growth investors who historically owned
FDC sold their positions because of a slowing in one of the three core
businesses. Our research suggested that the problems were short-term in nature
and likely to reverse out within the next 2-4 quarters, rather than indicative
of a long-term deterioration in profitability. In fact, our research showed
FDC's market share and cost advantage widening in each of its three businesses
and a number of key metrics, such as asset turnover, unit costs and cash
generation improving. In addition, FDC's joint venture with Microsoft ("MS-FDC")
in bill presentation over the Internet has the prospect of becoming the leading
mode of electronic commerce early in the next century. We purchased FDC at 16X
1998 estimated earnings, or at a 20% discount to the Standard & Poor's
Industrials.
<PAGE>
Benckiser is the world leader in both automatic dishwasher cleaning products
(38% share, major brands: Jet Dry, Electrasol, Finish, Calgonit, Double Action)
and water softeners (80%+ share, major brands: Calgon, Double Protection), and
number two in lime and trust cleaners (33% share, major brands: Lime-a-Way,
Cillit). These high shares are mostly a function of BNV's dominating the market
in Western Europe, where it generates 70% of revenue and 90% of operating
income. BNV is a profitable business (30% ROCE or return on capital employed)
selling products with predictable, stable demand, and limited exposure to the
business cycle, 75% of sales are in products where BNV is either #1 or #2 in
market share and 66% of sales are in premium niche products where BNV commands a
15% or greater pricing premium over the competition.
We purchased BNV at $35 in December. This equates to 16x 1998E EPS of $2.20 and
a 1998E free cash flow of 7%; by either metric BNV was valued 20-50% below that
of the major publicly traded, household products companies. This valuation gap
more than offset the presence of risks that we do not normally encounter, i.e.
foreign exchange risk, recent initial public offering, non-U.S. corporate
governance further compounded by insider control of votes via supervoting stock.
But what really drove the decision to purchase BNV was the enthusiasm of actual
users regarding the superior cleaning capabilities of Electrasol Dual Action
Tabs, the new tabular dishwashing detergent with "no mess, no measuring and no
waste". We urge you all to try the product.
We continue to work hard analyzing the Fund's existing and prospective
investments. 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 FMC SELECT FUND
April 30, 1998 (Unaudited)
Market
Value
FMC SELECT FUND Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCK (80.8%)
AUTO & TRUCK RELATED (1.4%)
Mark IV Industries 23,593 $ 497
Snap-On Tools ..................................... 23,200 982
-------
1,479
-------
BANKS (11.2%)
Charter One Financial ............................. 8,048 545
Compass Bancshares ................................ 23,100 1,120
Dime Bancorp* ..................................... 52,100 1,599
NationsBank ....................................... 71,045 5,382
North Fork Bancorp ................................ 63,000 2,339
TF Financial ...................................... 32,000 880
-------
11,865
-------
CONSUMER PRODUCTS (5.7%)
Benckiser N.V., Cl B* ............................. 49,900 2,900
Ekco Group ........................................ 168,600 1,233
Kimberly-Clark .................................... 28,600 1,451
Tupperware ........................................ 17,500 474
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6,058
-------
FINANCIAL SERVICES (7.2%)
Fannie Mae ........................................ 23,000 1,377
Freddie Mac ....................................... 72,000 3,335
Household International ........................... 19,920 2,618
Northern Trust .................................... 3,700 270
Waddell & Reed Financial, Cl A* ................... 3,800 94
-------
7,694
-------
FOOD, BEVERAGE & TOBACCO (5.2%)
Philip Morris ..................................... 71,420 2,665
Schweitzer-Mauduit International .................. 51,100 1,699
UST ............................................... 43,800 1,207
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5,571
-------
HEALTHCARE (3.6%)
Johnson & Johnson ................................. 7,400 528
Schering Plough ................................... 40,600 3,253
-------
3,781
-------
HOTELS, LODGING & GAMING (3.5%)
Harrah's Entertainment* ........................... 25,050 653
MGM Grand* ........................................ 38,400 1,296
Red Roof Inns* .................................... 98,800 1,748
-------
3,697
-------
MEDIA/INFORMATION (13.1%)
Cognizant ......................................... 87,900 4,521
Gannett ........................................... 40,800 2,772
Harte-Hanks Communications ........................ 197,700 4,485
May & Speh* ....................................... 97,020 1,443
E.W. Scripps ...................................... 13,000 737
-------
13,958
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1998 (Unaudited)
Market
Value
FMC SELECT FUND (CONTINUED) Shares (000)
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (4.7%)
Manpower .......................................... 29,200 $ 1,287
Olsten ............................................ 88,500 1,211
Wallace Computer Services ......................... 39,310 1,418
York Group ........................................ 56,100 1,024
-------
4,940
-------
MULTIPLE INDUSTRIES (5.3%)
Blount International .............................. 44,000 1,367
IDEX .............................................. 104,400 3,817
Stanley Works ..................................... 9,500 486
-------
5,670
-------
PACKAGING (2.6%)
Sealed Air* ....................................... 32,547 2,040
W.R. Grace & Company* ............................. 35,350 718
-------
2,758
-------
RAILROADS (0.8%)
Burlington Northern Santa Fe ...................... 8,600 851
-------
RETAIL (8.0%)
J. Baker .......................................... 46,200 543
Dollar General .................................... 93,693 3,549
InterTAN* ......................................... 258,500 1,745
Tandy ............................................. 54,199 2,696
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8,533
-------
SPECIALTY CHEMICALS (3.9%)
Betz Dearborn ..................................... 19,900 1,067
Ethyl ............................................. 147,070 1,121
Great Lakes Chemical .............................. 25,300 1,271
McWhorter Technologies* ........................... 24,300 632
-------
4,091
-------
TECHNOLOGY (4.6%)
First Data ........................................ 79,400 2,690
Northrop Grumman .................................. 21,000 2,219
-------
4,909
-------
TOTAL COMMON STOCK
(Cost $56,696) 85,855
-------
PREFERRED STOCK (1.0%)
Fresenius National Medical Care* .................. 20,400 1
Sealed Air Convertible, Ser A ..................... 16,791 1,034
-------
TOTAL PREFERRED STOCK
(Cost $688) 1,035
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1998 (Unaudited)
Face Market
Amount Value
FMC SELECT FUND (CONTINUED) (000) (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (6.5%)
Aon
7.400%, 10/01/02 ............................. $150 $ 156
BellSouth Trust MTN
9.190%, 07/01/03 ............................. 171 186
Bond-Backed Certificate IBM
7.350%, 06/01/17 ............................. 514 553
Commercial Credit
7.750%, 03/01/05 ............................. 150 161
Eastman Kodak
9.750%, 10/01/04 ............................. 300 355
GEICO
7.500%, 04/15/05 ............................. 200 215
General Motors
8.950%, 07/02/09 ............................. 700 781
Gerber Products
9.000%, 10/15/06 ............................. 255 299
H & R. Block
6.750%, 11/01/04 ............................. 615 624
Manufactures & Trader Trust
8.125%, 12/01/02 ............................. 250 267
May Department Stores
9.750%, 02/15/21 ............................. 415 538
Monsanto
8.130%, 12/15/06 ............................. 555 617
Norwest MTN
6.375%, 09/15/02 ............................. 350 351
Philip Morris
7.250%, 01/15/03 ............................. 200 206
7.200%, 02/01/07 ............................. 300 308
Simon DeBartolo
6.875%, 11/15/06 400 407
Taubman Realty Group
7.000%, 10/01/03 ............................. 400 403
Union Pacific
7.600%, 05/01/05 ............................. 250 264
United Postal Savings Association
9.000%, 07/26/99 ............................. 150 155
------
TOTAL CORPORATE OBLIGATIONS
(Cost $6,690) ...................................... 6,846
------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.5%)
Fannie Mae
6.595%, 12/01/03 ............................. 494 500
6.640%, 07/02/07 ............................. 500 522
6.800%, 08/27/12 ............................. 400 415
Farm Credit System
9.375%, 07/21/03 ............................. 200 228
Freddie Mac
6.830%, 06/15/05 ............................. 250 253
Government Trade Trust, Ser 1995 A
8.010%, 03/01/07 ............................. 232 254
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1998 (Unaudited)
Face Market
Amount Value
FMC SELECT FUND (CONCLUDED) (000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (continued)
Guaranteed Export Certificates
7.460%, 12/15/05 ............................. $ 347 $ 366
Guaranteed Trade Trust, Ser A
7.020%, 09/01/04 ............................. 162 168
Overseas Private Investment
6.930%, 12/15/08 ............................. 800 835
Small Business Administration, Ser 1996-10F
6.500%, 11/01/06 ............................. 334 340
Small Business Administration, Ser 1997-20 L
6.550%, 12/01/17 ............................. 500 511
Small Business Administration, Ser 1998 D
6.150%, 04/01/18 ............................. 400 400
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $4,733) 4,792
--------
U.S. TREASURY OBLIGATIONS (7.1%)
U.S. Treasury Bills
0.000%, 05/28/98 .............................. 612 610
0.000%, 08/20/98 .............................. 1,096 1,079
0.000%, 09/17/98 .............................. 1,617 1,586
0.000%, 10/15/98 .............................. 2,678 2,615
U.S. Treasury Notes
5.875%, 10/31/98 .............................. 250 251
9.125%, 05/15/99 .............................. 255 264
8.750%, 08/15/00 .............................. 250 267
8.000%, 05/15/01 .............................. 250 267
7.500%, 11/15/01 .............................. 250 265
6.250%, 02/15/03 .............................. 250 256
6.250%, 02/15/07 .............................. 93 96
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TOTAL U.S. TREASURY OBLIGATIONS
(Cost $7,523) ....................................... 7,556
--------
TOTAL INVESTMENTS (99.9%)
(Cost $76,330) ...................................... 106,084
--------
OTHER ASSETS AND LIABILITIES, NET (0.1%) 151
--------
NET ASSETS:
Portfolio Shares (unlimited authorization --
no par value) based on 5,771,233 outstanding
shares of beneficial interest ..................... 74,315
Undistributed net investment income ................. 49
Accumulated net realized gain on investments ........ 2,117
Net unrealized appreciation on investments .......... 29,754
--------
TOTAL NET ASSETS (100.0%) .............................. $106,235
========
Net Asset Value, Offering and Redemption Price Per Share $18.41
========
* NON-INCOME PRODUCING SECURITY
CL--CLASS
MTN--MEDIUM TERM NOTE
SER--SERIES
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS FMC SELECT FUND
For the six-month period ended April 30, 1998 (Unaudited)
FMC
SELECT
FUND
(000)
- ------------------------------------------------------------------------------
Investment Income:
Dividend Income................................................. $ 458
Interest Income ................................................ 518
- ------------------------------------------------------------------------------
Total Investment Income....................................... 976
- ------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ....................................... 359
Investment Advisory Fee Waiver ................................. (13)
Administrative Fees ............................................ 90
Custodian Fees ................................................. 3
Professional Fees .............................................. 10
Transfer Agent Fees ............................................ 14
Printing Fees .................................................. 10
Trustee Fees ................................................... 3
Registration and Filing Fees ................................... 10
Insurance and Other Fees ....................................... 8
- ------------------------------------------------------------------------------
Total Expenses, Net .......................................... 494
- ------------------------------------------------------------------------------
Net Investment Income ...................................... 482
- ------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ......................... 2,087
Net Change in Unrealized Appreciation of Investment Securities . 10,903
- ------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .............. 12,990
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............ $13,472
==============================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS FMC SELECT FUND
For the six-month period ended April 30, 1998 (Unaudited) and for the year ended
October 31, 1997.
11/1/97 11/1/96
TO 4/30/98 TO 10/31/97
FMC SELECT FUND (000) (000)
- --------------------------------------------------------------------------------
Investment Activities:
Net Investment Income...................... $ 482 $ 685
Net Realized Gain from Securities Sold .... 2,087 4,502
Net Change in Unrealized Appreciation
of Investment Securities ................ 10,903 11,311
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations...................... 13,472 16,498
- --------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ...................... (458) (681)
Realized Capital Gains...................... (4,503) (1,500)
- --------------------------------------------------------------------------------
Total Distributions ...................... (4,961) (2,181)
- --------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued ................ 18,767 15,537
Reinvestment of Cash Distributions ......... 4,816 2,131
Cost of Shares Redeemed .................... (1,550) (4,203)
- --------------------------------------------------------------------------------
Increase in Net Assets Derived from
Capital Share Transactions............... 22,033 13,465
- --------------------------------------------------------------------------------
Total Increase in Net Assets ............. 30,544 27,782
- --------------------------------------------------------------------------------
Net Assets:
Beginning of Period ........................ 75,691 47,909
- --------------------------------------------------------------------------------
End of Period .............................. $106,235 $75,691
================================================================================
Shares Issued and Redeemed:
Shares Issued ............................. 1,068 1,069
Shares Issued in Lieu of
Cash Distributions ..................... 289 152
Shares Redeemed ........................... (87) (290)
- --------------------------------------------------------------------------------
Net Increase in Share Transactions ....... 1,270 931
================================================================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS FMC SELECT FUND
For the six-month period ended April 30, 1998 (Unaudited) and for the periods ended October 31.
For a share outstanding throughout each period
Ratio Ratio
Net Net Net of Net of Expenses
Asset Realized and Distributions Distributions Asset Assets Ratio Investment to Average
Value Net Unrealized from Net from Value End of Expenses Income Net Assets
Beginning Investment Gains on Investment Capital End Total of Period to Average to Average (Excluding
of Period Income Securities Income Gains of Period Return (000) Net Assets Net Assets Waivers)
--------- ---------- ----------- ------------- ------------- --------- ------ --------- ----------- ---------- -----------
- ---------------
FMC SELECT FUND
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998** $16.82 0.09 2.58 (0.09) (0.99) $18.41 16.55% $106,235 1.10% 1.07% 1.13%
1997 $13.42 0.16 3.81 (0.16) (0.41) $16.82 30.51% $ 75,691 1.10% 1.08% 1.17%
1996 $10.97 0.14 2.48 (0.14) (0.03) $13.42 23.99% $ 47,909 1.10% 1.10% 1.20%
1995(1) $10.00 0.10 0.96 (0.09) -- $10.97 10.60% $ 27,202 1.10%* 1.96%* 1.57%*
<C> <C>
Ratio
of Net
Investment
Income
to Average
Net Assets Portfolio
(Excluding Turnover
Waivers) Rate
----------- ---------
1.04% 6.23%
1.01% 21.71%
1.00% 24.39%
1.49%* 1.87%
<FN>
* Annualized
** For the period ended April 30, 1998. All ratios have been annualized.
+ Total return is for the period indicated and has not been annualized.
(1) The FMC Select Fund commenced operations on May 8, 1995.
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS FMC SELECT FUND
April 30, 1998 (Unaudited)
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 seven 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, 1998 (Unaudited)
3. ORGANIZATION 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 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 $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. 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, 1998 are as follows:
(000)
---------
Purchases
Government .......................... $ 2,262
Other ............................... 18,155
Sales
Government .......................... $ 771
Other ............................... 4,621
At April 30, 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 April 30, 1998, is as follows:
(000)
--------
Aggregate gross unrealized
appreciation ........................ $31,324
Aggregate gross unrealized
depreciation ........................ (1,570)
--------
Net unrealized appreciation ........... $29,754
========
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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-004-04
================================================================================
