================================================================================
FMC SELECT FUND
SEMI-ANNUAL REPORT
APRIL 30, 1999
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 17.1% for the six months
ended April 30, 1999. The Fund significantly outperformed the average total
return of 12.8% of its peer group, the Lipper Flexible Fund Universe, and almost
matched the 17.7% 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 Index of one to ten year maturities. As of April 30, 1999, 82.7% of
the Fund's assets were invested in equities, within the targeted equity
allocation of 75-85%. The remaining assets were in investment grade, medium
term, fixed income instruments and cash equivalents.
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 eight 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.
As value investors, we examine many measurements to determine the value of the
businesses that we analyze and own. "Earnings yield", which measures how much
net income a business generates relative to its price, is one of our favorite
measurements. We like to compare this measurement to both the earnings yield
available on the S&P Industrials and the yield available from the 30 year U.S.
Treasury. As of April 30, 1999, the equity portion of the portfolio had an
earnings yield of 5.1%, significantly above the S&P Industrials' 3.4% earnings
yield. The portfolio's earnings yield almost matched the 5.7% yield available on
the 30 Year U.S. Treasury. While the interest coupon paid on the 30 Year U.S.
Treasury is fixed (i.e. 0% growth), the portfolio's earnings are estimated by us
to double over the next five years, which, if realized, would raise the earnings
yield to 10.2% based on current prices.
<PAGE>
The table below compares a weighted average of key measures of the equity
portion of the Fund with the S&P Industrials Index. It shows that the Fund is
invested in profitable businesses selling at attractive valuations.
- --------------------------------------------------------------------------------
FMC SELECT FUND S&P INDUSTRIALS INDEX
--------------- ---------------------
QUALITY
- ------
Return-on-Equity (ROE) [1] 20% 18%
Period Needed to Retire
Debt from Free Cash Flow [2] 2 Years 5 Years
Estimated Annual EPS Growth
for 1999-2003 14% 7%
VALUATION
- --------
2000 Estimated Price/Earnings 19.5X 29.5X
- --------------------------------------------------------------------------------
[1] The ROE is based on net income for the trailing four quarters ended 3/31/99
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.
Since we last reported to you, the Fund established a position in Amgen, one of
the world's leading biotechnology firms. Amgen uses biotechnology to develop and
manufacture a variety of pharmaceuticals. Amgen's two major products are Epogen
and Neupogen. Epogen, the fourth largest selling drug in the U.S., stimulates
red blood cell growth, helping patients on kidney dialysis. Epogen accounts for
over 50% of Amgen's sales and, we estimate, over 65% of operating income.
Neupogen, which accounts for over one-third of sales, stimulates white blood
cell growth, helping patients on chemotherapy. We purchased Amgen during the
fourth quarter of 1998 at under $38 or about 20x 1999 estimated EPS of $1.85,
which represented a 40% discount to the average price to earnings multiple of
U.S.-based pharmaceutical stocks. Historically, Amgen had traded at a multiple
premium to the pharmaceuticals, but its valuation was depressed by Wall Street's
bleak view of Amgen's R&D pipeline. We were intrigued by several of the pipeline
opportunities and were primarily focused on the near-term blockbuster prospects
for NESP, a second-generation Epogen.
<PAGE>
In order for NESP to be a commercial success, Amgen had to prove in an
arbitration proceeding that it was a novel compound to which Johnson & Johnson
(JNJ) had no rights under the initial marketing agreement for Epogen. The common
view was that there were only two outcomes from this arbitration:
"winner-take-all" in favor of JNJ, deemed more likely by analysts, or
winner-take-all for Amgen. We performed extensive due diligence on this issue,
including consultation with a biotechnology patent attorney who reviewed the
Amgen-JNJ licensing agreement for Epogen. Our conclusion was that Amgen had a
better than 50% chance of winning the arbitration proceeding and, even if Amgen
did not prevail, it stood to make significant profits from manufacturing or
licensing manufacturing of NESP for JNJ. In December 1998, Amgen announced that
it had won the arbitration proceeding. In March 1999, Amgen announced the
licensing of a late-stage potential blockbuster product for the treatment of
prostate cancer. These fundamentals drove a 55% appreciation in the price of
Amgen from the purchase through April 30, 1999.
In our last letter we highlighted our investment in Nielsen Media Research
(NMR). At that point NMR comprised 6.2% of the Fund. During the reporting period
covered by this letter, NMR appreciated 92% as Smart TV, its only competitor in
television audience measurement, shut down its sole measurement operation in
Philadelphia, and as the rollout of NMR's new Internet measurement service was
well received. As a result of appreciation, NMR increased to 10.1% of the Fund.
While we think NMR's fundamentals remain solid, we felt that it would be prudent
to reduce our position and have done so since April 30.
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>
TOTAL RETURN(1)
One Year Annualized Annualized
Return(2) 3 Year Inception(3)
10.34% Return to Date
20.88% 23.36%
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 an 80/20
Blended of the reference S&P and Merrill Indices.
[Line Graph Omitted]
Plot points are as follows:
FMC Select S&P 500 Merrill Lynch
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
10/30/98 19,268 22,006 12,864
4/31/99 22,556 26,917 12,920
[Line Graph Omitted]
Plot points are as follows:
FMC Select 80/20 Blend
of S&P, Merrill
5/31/95 10,000 10,000
10/31/95 10,844 10,874
10/31/96 13,445 13,076
10/31/97 17,547 16,612
10/30/98 19,268 19,899
4/31/99 22,556 23,419
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.
2One year return is for the period beginning 5/1/98 and ending 4/30/99.
3The FMC Select Fund commenced operations on May 8, 1995.The performance
reflected in the graph begins at the end of the month operations commenced.
[Pie chart Omitted]
Plot points are as follows:
Portfolio Composition
Financial Services 10%
Corporate Obligations 6%
Retail 12%
Miscellaneous Business Services 12%
Medical Products & Services 8%
Media 7%
Diversified Operations 3%
U.S. Gov't. Agency Obligations 5%
U.S. Treasury Obligations 3%
Packaging 2%
Computers & Services 4%
Technology 3%
Banks 9%
Hotels, Lodging & Gaming 1%
Household Products 2%
Consumer Products 2%
Special Chemicals 2%
Healthcare 1%
Miscellaneous Industries 2%
Drugs 3%
Other 2%
Auto & Truck Related 1%
% of Total Fund Investments
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1999 (Unaudited)
Market
Value
FMC SELECT FUND Shares (000)
- -------------------------------------------------------------------------
COMMON STOCK (82.7%)
AUTO & TRUCK RELATED (0.6%)
Snap-On Tools .................................. 23,200 $ 756
-------
BANKS (8.9%)
Bank of America ................................ 71,045 5,115
Charter One Financial .......................... 16,900 528
Compass Bancshares ............................. 34,650 944
Dime Bancorp ................................... 52,100 1,202
North Fork Bancorp ............................. 94,500 2,126
TF Financial ................................... 32,000 624
-------
10,539
-------
COMPUTERS & SERVICES (3.8%)
Acxiom* ........................................ 77,616 1,960
Gartner Group, Cl A* ........................... 132,000 2,516
-------
4,476
-------
CONSUMER PRODUCTS (2.0%)
Ekco Group ..................................... 168,600 569
Kimberly-Clark ................................. 28,600 1,754
-------
2,323
-------
DIVERSIFIED OPERATIONS (2.7%)
Berkshire Hathaway, Cl A* ...................... 41 3,132
Berkshire Hathaway, Cl B* ...................... 27 64
-------
3,196
-------
DRUGS (2.5%)
Amgen* ......................................... 49,200 3,023
-------
FINANCIAL SERVICES (9.9%)
Fannie Mae ..................................... 23,000 1,632
Freddie Mac .................................... 72,000 4,518
Household International ........................ 112,545 5,662
-------
11,812
-------
HEALTHCARE (1.2%)
Johnson & Johnson .............................. 15,000 1,463
-------
HOTELS, LODGING & GAMING (1.4%)
Red Roof Inns* ................................. 98,800 1,630
-------
HOUSEHOLD PRODUCTS (2.4%)
Benckiser N.V., Cl B* .......................... 49,900 2,819
-------
INSURANCE (0.1%)
Mony Group* .................................... 5,800 154
-------
MEDIA (7.4%)
E.W. Scripps ................................... 13,000 650
Gannett ........................................ 45,900 3,250
Harte-Hanks Communications ..................... 197,700 4,992
-------
8,892
-------
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1999 (Unaudited)
Shares/ Market
Face Amount Value
FMC SELECT FUND (continued) (000) (000)
- ---------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES (7.7%)
IMS Health ....................................... 194,800 $ 5,844
Stryker .......................................... 54,100 3,310
-------
9,154
-------
MISCELLANEOUS BUSINESS SERVICES (11.7%)
Nielsen Media Research* .......................... 437,166 11,967
Olsten 88,500 597
Personnel Group of America* ...................... 86,000 785
York Group ....................................... 56,100 501
-------
13,850
-------
MISCELLANEOUS INDUSTRIES (2.0%)
IDEX ............................................. 89,385 2,386
-------
PACKAGING (1.7%)
Sealed Air* ...................................... 32,547 1,979
-------
RETAIL (12.1%)
Autozone* ........................................ 119,100 3,573
Dollar General ................................... 117,116 4,106
InterTAN* ........................................ 258,500 2,811
Tandy* ........................................... 54,200 3,926
-------
14,416
-------
SPECIALTY CHEMICALS (1.6%)
Great Lakes Chemical ............................. 35,000 1,673
McWhorter Technologies* .......................... 15,000 222
-------
1,895
-------
TECHNOLOGY (3.0%)
First Data ....................................... 83,900 3,561
-------
TOTAL COMMON STOCK
(Cost $61,369) 98,324
.................................................... -------
PREFERRED STOCK (0.0%)
Fresenius National Medical Care* ................. 20,400 1
-------
TOTAL PREFERRED STOCK
(Cost $0) ........................................ 1
-------
CORPORATE OBLIGATIONS (6.2%)
Aon
7.400%, 10/01/02 ............................ $ 150 156
BellSouth Trust MTN
9.190%, 07/01/03 ............................ 149 159
Block Financial
6.750%, 11/01/04 ............................ 615 630
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1999 (Unaudited)
Face Market
Amount Value
FMC SELECT FUND (continued) (000) (000)
- ----------------------------------------------------------------------
Bond Backed Certificate IBM
7.350%, 06/01/17 ........................ $ 501 $ 539
Commercial Credit
7.750%, 03/01/05 ........................ 150 159
Dow Chemical
8.040%, 07/02/05 ........................ 500 529
Eastman Kodak
9.750%, 10/01/04 ........................ 300 353
Geico Corp.
7.500%, 04/15/05 ........................ 200 214
General Motors
8.950%, 07/02/09 ........................ 700 738
Gerber Products
9.000%, 10/15/06 ........................ 694 810
Manufactures & Trader Trust
8.125%, 12/01/02 ........................ 250 265
May Department Stores
9.750%, 02/15/21 ........................ 415 544
Monsanto
8.130%, 12/15/06 ........................ 555 608
Norwest MTN
6.375%, 09/15/02 ........................ 350 354
Philip Morris
7.250%, 01/15/03 ........................ 200 205
7.200%, 02/01/07 ........................ 300 312
Simon Debartolo
6.875%, 11/15/06 ........................ 400 384
Union Pacific
7.600%, 05/01/05 ........................ 250 262
United Postal Savings Association
9.000%, 07/26/99 ........................ 150 151
------
TOTAL CORPORATE OBLIGATIONS
(Cost $7,281) 7,372
------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.7%)
Fannie Mae
6.595%, 12/01/03 ........................ 489 496
6.640%, 07/02/07 ........................ 500 521
6.800%, 08/27/12 ........................ 400 414
Financial Assistance Corporation
9.375%, 07/21/03 ........................ 200 226
Government Trade Trust, Ser 1995-A
8.010%, 03/01/07 ........................ 214 232
Guaranteed Export Certificates, Ser 1994-B
7.460%, 12/15/05 ........................ 304 322
Guaranteed Export Certificates, Ser 1995-A
6.280%, 06/15/04 ........................ 388 393
Guaranteed Trade Trust, Ser A
7.020%, 09/01/04 ........................ 137 143
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF NET ASSETS FMC SELECT FUND
April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Face Market
Amount Value
FMC SELECT FUND (concluded) (000) (000)
- -------------------------------------------------------------------------------------------------------------
Overseas Private Investment
<S> <C> <C>
6.080%, 08/15/04 ............................................................. $ 514 $ 525
6.930%, 12/15/08 ............................................................. 800 848
Small Business Administration, Ser 1996
6.500%, 11/01/06 ............................................................. 281 287
Small Business Administration, Ser 1997
6.550%, 12/01/17 ............................................................. 474 481
Small Business Administration, Ser 1998-D
6.150%, 04/01/18 ............................................................. 383 382
U.S. Department of Housing & Urban Development, Ser 99-A
5.750%, 08/01/06 ............................................................. 265 263
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $5,460) ..................................................................... 5,533
--------
U.S. TREASURY OBLIGATIONS (2.7%)
U.S. Treasury Notes
8.000%, 05/15/01 ............................................................. 250 264
7.500%, 11/15/01 ............................................................. 250 264
6.250%, 02/15/03 ............................................................. 250 259
6.250%, 02/15/07 ............................................................. 93 98
U.S. Treasury Bills (A)
4.457%, 06/17/99 ............................................................. 6 6
4.476%, 07/22/99 ............................................................. 113 112
4.538%, 08/19/99 ............................................................. 230 227
4.457%, 09/16/99 ............................................................. 1,982 1,948
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,153) ..................................................................... 3,178
--------
TOTAL INVESTMENTS (96.3%)
(Cost $77,263) .................................................................... 114,408
--------
OTHER ASSETS AND LIABILITIES, NET (3.7%) ............................................. 4,446
--------
NET ASSETS:
Portfolio Shares (unlimited authorization -- no par value)
based on 6,188,353 outstanding shares of beneficial interest .................... 82,073
Undistributed Net Investment Income ............................................... 53
Net Unrealized Appreciation ....................................................... 37,145
Accumulated Net Realized Loss on Investments ...................................... (417)
--------
TOTAL NET ASSETS (100.0%) ............................................................ $118,854
========
Net Asset Value, Offering and Redemption Price Per Share .......................... $19.21
========
</TABLE>
*NON-INCOME PRODUCING SECURITY
(A) THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS THE EFFECTIVE YIELD AS
OF APRIL 30, 1999.
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, 1999 (Unaudited)
FMC
SELECT
FUND
(000)
- --------------------------------------------------------------------------------
Investment Income:
Dividend Income.................................................... $ 475
Interest Income ................................................... 482
- --------------------------------------------------------------------------------
Total Investment Income.......................................... 957
- --------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees .......................................... 435
Administrative Fees ............................................... 82
Transfer Agent Fees ............................................... 18
Professional Fees ................................................. 12
Printing Fees ..................................................... 9
Registration and Filing Fees ...................................... 7
Organization Costs................................................. 6
Custodian Fees .................................................... 5
Insurance and Other Fees .......................................... 3
Trustee Fees ...................................................... 3
- --------------------------------------------------------------------------------
Total Expenses, Net ............................................. 580
- --------------------------------------------------------------------------------
Net Investment Income ......................................... 377
- --------------------------------------------------------------------------------
Net Realized Loss from Securities Sold ............................ (417)
Net Change in Unrealized Appreciation of Investment Securities .... 17,217
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments ................. 16,800
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations...............$17,177
================================================================================
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, 1999 (Unaudited) and for the year ended
October 31, 1998
<TABLE>
<CAPTION>
FMC
SELECT FUND
------------------------
11/01/98 11/01/97
TO 4/30/99 TO 10/31/98
(000) (000)
- --------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C>
Net Investment Income........................................................ $ 377 $ 990
Net Realized Gain ( Loss) from Securities Sold .............................. (417) 4,769
Net Change in Unrealized Appreciation of Investment Securities .............. 17,217 1,077
- --------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations....................... 17,177 6,836
- --------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ....................................................... (414) (955)
Realized Capital Gains....................................................... (4,769) (4,503)
- --------------------------------------------------------------------------------------------------------------
Total Distributions ....................................................... (5,183) (5,458)
- --------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued ................................................. 8,014 27,196
Reinvestment of Cash Distributions .......................................... 4,966 5,295
Cost of Shares Redeemed ..................................................... (6,081) (9,599)
- --------------------------------------------------------------------------------------------------------------
Increase in Net Assets Derived from Capital Share Transactions............... 6,899 22,892
- --------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets .............................................. 18,893 24,270
Net Assets:
Beginning of Period ......................................................... 99,961 75,691
- --------------------------------------------------------------------------------------------------------------
End of Period ............................................................... $118,854 $99,961
==============================================================================================================
Shares Issued and Redeemed:
Shares Issued .............................................................. 442 1,536
Shares Issued in Lieu of Cash Distributions ................................ 289 317
Shares Redeemed ............................................................ (336) (561)
- --------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ........................................ 395 1,292
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS FMC SELECT FUND
For the six-month period ended April 30, 1999 (Unaudited) and for the periods
ended October 31.
For a share outstanding throughout each period
<TABLE>
<CAPTION>
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>
1999 $17.26 0.06 2.79 (0.07) (0.83) $19.21 17.12%+ $118,854 1.07%* 0.69%* 1.07%*
1998 $16.82 0.17 1.43 (0.17) (0.99) $17.26 9.81% $ 99,961 1.09% 1.01% 1.11%
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) 0.00 $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
----------- ---------
0.69%* 3.75%
1.01% 21.71%
1.00% 24.39%
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.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS FMC SELECT FUND
April 30, 1999 (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 nine portfolios. The financial statements herein are those of the FMC
Select Fund (the "Fund"). The financial statements of the remaining portfolios
are not presented herein. The assets of each portfolio are segregated, and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund's prospectus provides a description of the Fund's investment objectives,
policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price. Debt
obligations exceeding sixty days to maturity for which market quotations
are readily available are valued at the most recent quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued
at their amortized cost, which approximates market value.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
SECURITY TRANSACTIONS AND 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 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
April 30, 1999 (Unaudited)
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 period ended April 30, 1999 are as follows:
(000)
---------
Purchases
U.S. Government ..................... $ 217
Other ............................... 8,045
Sales
U.S. Government ..................... $ 475
Other ............................... 3,554
At April 30, 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 April 30, 1999, is as follows:
(000)
---------
Aggregate gross unrealized
appreciation ........................ $41,090
Aggregate gross unrealized
depreciation ........................ (3,945)
-------
Net unrealized appreciation ........... $37,145
=======
<PAGE>
NOTES
<PAGE>
FMC SELECT 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-004-05
