Manager's Discussion of Fund Performance
Dear Shareholder:
The FMC Strategic Value Fund (the "Fund") had a total return of 13.3% and 3% for
the six months and twelve months ended October 31, 1999, which compares with a
total return of -3.5% and 0.7% for the Fund's benchmark, the Russell 2000 Value
Index, for the same periods. In comparison with our last report covering the six
months ended April 30, 1999 during which the Fund appreciated by 13%, we are
disappointed with the decline during this most recent six month period.
As reflected in the chart below, stocks with low price/earnings ratios
experienced a decline in value over the past six months while high
price/earnings stocks appreciated significantly. In our April report, we noted
that the average multiple for many of our key holdings was in a modest range of
10-12 times earnings. Currently the average multiple is in a range of 8-9 times
earnings. By most historic measures of the stock market, the current range
reflects a low relative valuation.
In the printed version of the document, a line graph appears which depicts the
following plot points:
[GRAPHIC OMITTED]
Price/earnings multiple is not the only barometer used in our valuation analysis
but rather it is a part of the empirical and subjective data that we assess in
trying to determine a company's intrinsic value. Nevertheless, the recent market
volatility has created discounts to potential value that we find surprising and
extreme. For example, the stock price for Tecumseh Products, one of our key
holdings, has declined about 20% at a time when earnings for 1999 are expected
to exceed the previous record by 18%. By all measures, 1999 has been a solid
year for Tecumseh and 2000 could be as good, perhaps better. Not only is the
current multiple of 7 times earnings low, but the stock now trades below its
tangible book value. In addition, after adjusting for $14 per share in net cash
on the balance sheet, the core operating assets are being priced at less than 4
times earnings before interest, depreciation and taxes (EBIDTA). The company's
management recognizes this low valuation and the company has steadily
repurchased its shares at a meaningful 5% annual rate.
In another instance, Burns International (formerly Borg Warner Security) missed
its quarterly earnings estimate, and full year earnings look to be about 10%
below expectations. This in turn caused a 50% decline in share price. The
decline follows the company's repurchase of 20% of its shares. At current levels
the stock sells at 7 times cash earnings, which equates to an after-tax free
cash flow yield of 14% attributed to each outstanding share. We think this is an
extremely low valuation for the largest guard services company which is
benefiting from increased outsourcing by major national accounts. With both
Tecumseh and Burns, we added to our position after the stock prices declined.
1
<PAGE>
We initiated a new position in Cordant Technologies after a similar 5-10%
reduction in earnings estimates triggered a 40% decline in its stock price. We
paid approximately 7 times free cash flow and 4 times EBITDA for a company
generating a 14% return on invested capital with a leading market position in
its business niches within the aerospace, defense and industrial sectors.
Last year, when oil prices declined to levels below $15 per barrel, we
established positions in this sector, where values had become depressed similar
to the examples cited above. With oil prices now having recovered to $25 per
barrel, we reduced our positions in Rowan and Cooper Cameron, the stock prices
of which have appreciated along with the commodity price.
In summary, with the overall market's focus on richly valued technology stocks,
we believe that there are excellent opportunities to invest in businesses that
are highly undervalued and which we expect will provide attractive longer term
rewards.
Sincerely,
/s/ Signature omitted
- ------------------------
Edward Lefferman
Portfolio Manager
2
<PAGE>
- --------------------------------------------------------------------------------
TOTAL RETURN(1)
- --------------------------------------------------------------------------------
Annualized Cumulative
One Year Inception Inception(2)
Return(4) to Date to Date
- --------------------------------------------------------------------------------
0.26% 3.73% 4.52%
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the
FMC Strategic Value Fund, versus the Russell 2000 Value Index.
In the printed version of the document, a line graph appears which depicts the
following plot points:
[GRAPHIC OMITTED]
FMC Russell 2000
8/31/98 10000 10000
10/31/98 11114 10879
10/31/99 11143 10957
(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 Strategic Value Fund commenced operations on August 17, 1998.
(3) The performance reflected in the graph begins at the end of the month
operations commenced.
(4) One year return is for the period beginning 11/01/98 and ending 10/31/99.
Portfolio Composition
In the printed version of the document, a line graph appears which depicts the
following plot points:
[PIE CHART GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following percentages:
Rubber & Plastic 3% Retail 2%
Apparel/Textiles 4%
Chemicals 4% Manufacturing 19%
Printing &
Publishing 4%
Aerospace & Defense 5%
Food, Beverages &
Tobacco 5% Specialty Machinery 12%
Insurance 5%
Miscellaneous
Manufacturing 5% Miscellaneous
Business Services 11%
U.S. Treasury Obligations 7%
Petroleum & Machinery 7%
Fuel Products 7%
% of Total Fund Investments
3
<PAGE>
Statement of Net Assets FMC Strategic Value Fund
October 31, 1999
<TABLE>
<CAPTION>
Market
Value
FMC STRATEGIC VALUE FUND Shares (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock (95.5%)
Aerospace & Defense (4.9%)
B.F. Goodrich ................................................................. 6,440 $ 153
Cordant Technologies .......................................................... 10,000 312
------
465
------
Apparel/textiles (4.0%)
U.S. Industries ............................................................... 26,000 385
------
Chemicals (4.2%)
Ck Witco ...................................................................... 13,863 130
McWhorter Technologies* ....................................................... 20,100 275
------
405
------
Food, Beverage & Tobacco (5.1%)
Corn Products International ................................................... 15,000 488
------
Insurance (5.2%)
Commerce Group ................................................................ 10,000 254
Homefed * ..................................................................... 6,400 6
Leucadia National ............................................................. 10,000 234
------
494
------
Machinery (7.1%)
Denison International ADR* .................................................... 33,000 303
Gardner Denver* ............................................................... 21,000 253
Motivepower Industries* ....................................................... 10,000 119
------
675
------
Manufacturing (19.6%)
Agrium ........................................................................ 45,000 380
Aztec ......................................................................... 35,500 359
Justin Industries ............................................................. 22,000 308
Trinity Industries ............................................................ 14,000 417
Westinghouse Air Brake ........................................................ 22,000 404
------
1,868
------
Miscellaneous Business Services (11.2%)
Advo* ......................................................................... 20,000 354
Burns International Services * ................................................ 30,000 302
Moore ......................................................................... 50,000 419
------
1,075
------
Miscellaneous Manufacturing (5.0%)
Mueller Industries * .......................................................... 15,000 479
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Statement of Net Assets FMC Strategic Value Fund
October 31, 1999
<TABLE>
<CAPTION>
Shares/ Market
Face Amount Value
FMC STRATEGIC VALUE FUND (concluded) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Petroleum & Fuel Products (7.7%)
HS Resources* ................................................................ 25,000 $ 391
Rowan* ....................................................................... 22,000 342
------
733
------
Printing & Publishing (4.1%)
New England Business Service ................................................. 15,000 390
------
Retail (1.8%)
CKE Restaurants .............................................................. 25,000 169
------
Rubber & Plastic (2.8%)
Hanna ........................................................................ 25,000 267
------
Specialty Machinery (12.8%)
Cooper Cameron* .............................................................. 11,000 426
Hussman International ........................................................ 20,000 320
Tecumseh Products ............................................................ 10,000 479
------
Total Specialty Machinery ....................................................... 1,225
------
TOTAL COMMON STOCK
(Cost $9,391) ................................................................ 9,118
------
U.S. Treasury Obligations (7.7%)
United States Treasury Bills
4.961%, 02/17/00 ........................................................... $ 173 171
4.857%, 05/25/00 ........................................................... 587 570
------
Total U.S. Treasury Obligations
(Cost $741) .................................................................. 741
------
Total Investments (103.2%)
(Cost $10,132) ............................................................... 9,859
------
Other Assets and Liabilities, Net (-3.2%) ....................................... (307)
------
Net Assets:
Portfolio Shares (unlimited authorization -- no par value)
based on 926,212 outstanding shares of beneficial interest ................. 9,505
Distributions in Excess of Net Investment Income ............................. (2)
Accumulated Net Realized Gain on Investments ................................. 322
Net Unrealized Depreciation on Investments ................................... (273)
------
Total Net Assets (100.0%) ....................................................... $9,552
======
Net Asset Value, Offering and Redemption Price Per Share ..................... $10.31
======
</TABLE>
*Non-income producing security
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Statement of Operations FMC Strategic Value Fund
For the year ended October 31, 1999
<TABLE>
<CAPTION>
FMC
Strategic
Value Fund
(000)
- ----------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividend Income........................................................... $ 75
Interest Income .......................................................... 103
- ----------------------------------------------------------------------------------------
Total Investment Income................................................. 178
- ----------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ................................................. 94
Investment Advisory Fee Waiver ........................................... (94)
Reimbursements by Advisor................................................. (34)
Administrative Fees ...................................................... 77
Administrative Fee Waiver ................................................ (50)
Professional Fees ........................................................ 41
Printing Fees ............................................................ 34
Transfer Agent Fees ...................................................... 30
Trustee Fees ............................................................. 7
Registration and Filing Fees ............................................. 4
Insurance and Other Fees ................................................. 3
Organization Costs........................................................ 8
Custodian Fees ........................................................... 3
- ----------------------------------------------------------------------------------------
Total Expenses, Net .................................................... 123
- ----------------------------------------------------------------------------------------
Net Investment Income ................................................ 55
- ----------------------------------------------------------------------------------------
Net Realized Gain from Securities Sold ................................... 325
Net Change in Unrealized Depreciation of Investment Securities ........... (469)
- ----------------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments ........................ (144)
- ----------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations...................... $ (89)
========================================================================================
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Changes in Net Assets FMC Strategic Value Fund
<TABLE>
<CAPTION>
11/01/98 8/17/98
to 10/31/99 to 10/31/98(1)
(000) (000)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Income............................................... $ 55 $ 15
Net Realized Gain from Securities Sold ............................. 325 31
Net Change in Unrealized Appreciation(Depreciation) of
Investment Securities ............................................. (469) 195
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations... (89) 241
- --------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income .............................................. (63) (11)
Realized Capital Gains.............................................. (31) --
- --------------------------------------------------------------------------------------------------------------
Total Distributions .............................................. (94) (11)
- --------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued ........................................ 4,598 5,449
Reinvestment of Cash Distributions ................................. 94 12
Cost of Shares Redeemed ............................................ (648) --
- --------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions.... 4,044 5,461
- --------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets ..................................... 3,861 5,691
Net Assets:
Beginning of Period ................................................ 5,691 --
- --------------------------------------------------------------------------------------------------------------
End of Period ...................................................... $9,552 $5,691
==============================================================================================================
Shares Issued and Redeemed:
Shares Issued ..................................................... 429 546
Shares Issued in Lieu of Cash Distributions ....................... 9 1
Shares Redeemed ................................................... (59) --
- --------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ............................... 379 547
==============================================================================================================
</TABLE>
(1) The FMC Strategic Value Fund commenced operations on August 17, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Financial Highlights FMC Strategic Value Fund
For a Share Outstanding For Each Period
For the periods ended October 31,
<TABLE>
<CAPTION>
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 Strategic Value Fund
- ------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $10.40 0.07 (0.05) (0.07) (0.04) $10.31 0.26% $9,552 1.30% 0.59%
1998(1) $10.00 0.03 0.39 (0.02) -- $10.40 4.25%+ $5,691 1.30%* 1.45%*
<CAPTION>
Ratio
of Net
Ratio Investment
of Expenses Income
to Average to Average
Net Assets Net Assets
(Excluding (Excluding Portfolio
Waivers and Waivers and Turnover
Reimbursements) Reimbursements) Rate
--------------- --------------- ---------
- ------------------------
FMC Strategic Value Fund
- ------------------------
<S> <C> <C> <C>
1999 3.10% (1.21)% 11.85%
1998(1) 5.07%* (2.32)%* 6.86%
</TABLE>
* Annualized
+ Total return is for the period indicated and has not been annualized.
(1) The FMC Strategic Value Fund commenced operations on August 17, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Notes to Financial Statements FMC Strategic Value Fund
October 31, 1999
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 ten portfolios. The financial statements herein are those of the FMC
Strategic Value 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 Investment 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 Funds 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 were amortized over
twelve months commencing with the start-up.
9
<PAGE>
Notes to Financial Statements (concluded) FMC Strategic Value Fund
October 31, 1999
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 Fund's average daily
net assets. The Administrator has voluntarily agreed to limit its annual fee to
no higher than $27,500 for the Fund. 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 1.00%
of the Fund's 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 1.30%. 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, 1999 are as follows:
(000)
---------
Purchases
U.S. Government ..................... $ --
Other ............................... 6,238
Sales
U.S. Government ..................... $ --
Other ............................... 860
At October 31, 1999, 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, 1999, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ........................ $ 928
Aggregate gross unrealized
depreciation ........................ (1,201)
------
Net unrealized depreciation ........... $ (273)
======
10
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Trustees of
FMC Strategic Value Fund of
The Advisors' Inner Circle Fund:
We have audited the accompanying statement of net assets of the FMC Strategic
Value Fund (the "Fund"), one of the funds constituting The Advisors' Inner
Circle Fund, as of October 31, 1999, and the related statement of operations,
the statements of changes in net assets, and the 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, 1999, by correspondence with the custodian
and the application of alternative auditing procedures with respect to unsettled
securities transactions. 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 the
FMC Strategic Value Fund of The Advisors' Inner Circle Fund as of October 31,
1999, and the results of its operations, the changes in its net assets, and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
December 17, 1999
11
<PAGE>
NOTICE TO SHAREHOLDERS
OF
THE ADVISORS' INNER CIRCLE FUND
(UNAUDITED)
For shareholders that do not have an October 31, 1999 taxable year end, this
notice is for informational purposes only. For shareholders with an October 31,
1999 taxable year end, please consult your tax adviser as to the pertinence of
this notice.
For the fiscal year ended October 31, 1999, 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 Strategic Value Fund 0% 100% 100% 32% 0% 0%
</TABLE>
- ---------
(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.
12
<PAGE>
NOTES
<PAGE>
================================================================================
FMC STRATEGIC VALUE FUND
P.O. Box 219009
Kansas City, MO 64121-6009
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-007-07
================================================================================
FMC STRATEGIC
VALUE FUND
Annual Report
October 31, 1999
Advised By:
FIRST MANHATTAN CO.
================================================================================
