BARTLETT MUTUAL FUNDS
BARTLETT VALUE INTERNATIONAL FUND
Seeks capital appreciation by investing primarily
in foreign equity securities. Income is a sec-
ondary consideration. Provides a means for indi-
vidual and institutional investors to invest a
portion of their assets outside the United States.
BARTLETT BASIC VALUE FUND
Seeks capital appreciation by investing primarily
in common stocks or securities convertible into
common stocks. Income is a secondary
consideration.
Investment Manager
Bartlett & Co.
Cincinnati, OH
Distributor
BFP Financial Partners
Baltimore, MD
Bartlett & Co.
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REGISTERED INVESTMENT ADVISORS
36 East Fourth Street, o Cincinnati, OH 45202-3896
513/621-4612 o 800/822-5544 o FAX 513/621-6462
8/97
BARTLETT & CO.
------------------------------
REGISTERED INVESTMENT ADVISORS
BARTLETT
MUTUAL
FUNDS
QUARTERLY
REPORT
FOR THE QUARTER ENDED
JUNE 30, 1997
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
BASIC VALUE FUND
<PAGE>
PRESIDENT'S LETTER
Dear Fellow Shareholder:
The total returns during the last quarter for both the Basic Value Fund and the
Value International Fund were very good--almost 15% for Basic Value and just
over 13% for Value International. That's the good news. The bad news, if one
could call it that, is that this occurred as the US market produced a 17.5%
return and the international markets increased by 13%.
Money managers today are in a tough position. During the wonderful market that
we have had, most investors want good relative results. My guess is that, if and
when the market generates losses, these investors will want high absolute
results. In other words, when there is easy sledding, we'd better win the race
and when the going gets tough, we'd better not lose any money. Over a complete
market cycle, which would include good times as well as bad, value managers
generally do win the race. During the last six months, however, we have felt
more like the tortoise than the hare.
The most difficult decision facing money managers today, whether they consider
themselves to be growth or value managers, is the dilemma between taking a
business risk or an investment risk. We could reduce our risk of underperforming
the popular indexes by investing substantial amounts of our clients' money in
the popular stocks that are the driving force behind the overall market's
current strength. The problem with this strategy is that we believe it increases
the clients' risk, because many of these stocks are too highly valued compared
to their current worth as businesses and their potential for future growth.
Alternatively, we are buying companies with strong balance sheets, that have
strong positions within their industry, but are not necessarily the largest
companies, so we miss the artifical boost that most familiar names get in a
rip-roaring market. Owning these institutional favorites exclusively would be
tantamount to limiting our business risk while shifting all the investment risk
onto our clients.
We need only recall the lesson learned by international investors a few years
ago. At the end of 1989, the EAFE (Europe, Australia, and Far East) Index, which
is the international equivalent of the S&P 500 Index, had a 62% weighting in
Japanese stocks and the stock market was trading for roughly 55x earnings. Since
the Japanese market had such a heavy weighting in the EAFE Index, international
investors who were judged against this index, which was most of them, had
roughly half of their portfolios in Japanese stocks to reduce their business
risk inherent in underperforming the index. Conversely, having half of
portfolios exposed to stocks that were overpriced when evaluated according to
the businesses they represented carried a high level of investment risk--which
was borne out during the ensuing several years as the Japanese market plummeted.
We avoided this situation by having none of our clients' money invested in Japan
during this period, which was considered an extreme measure in the community of
international managers.
We will continue to do our jobs as investment managers by paying much more
attention to investment risk than to business risk. Sticking with our
value-based approach means that we shall continue to make forays away from our
generation's "nifty fifty" favorite growth stocks from time to time which will
clearly play havoc with our relative results during those periods when these
favorites are soaring. We will also maintain a margin of safety in international
markets by focusing on the stocks of excellent businesses valued below the
global average, without focusing on geographic representation.
As always, it would be great to hear from you if you have any questions
regarding any aspect of your investment holdings.
/s/ Dale H. Rabiner
_______________________
Dale H. Rabiner, CFA
President
Bartlett Capital Trust
This report is for the information of shareholders of the Bartlett Mutual Funds.
It is authorized for distribution only when it is preceded or accompanied by a
current prospectus of the Bartlett Mutual Funds.
<PAGE>
PERFORMANCE
SUMMARY
Periods Ended June 30, 1997
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMPOUND
TOTAL RETURN* TOTAL RETURN*
---------------- -----------------------------------------------------
10 YEARS
OR
SECOND QUARTER FROM
3 MONTHS 1 YEAR 3 YEARS 5 YEARS INCEPTION
(Not Annualized)
<S><C>
BARTLETT VALUE INTERNATIONAL FUND 13.05% 23.74% 14.03% 11.81% **
Inception 10/6/89 9.41%
Bartlett Basic Value Fund 14.86% 23.63% 20.94% 15.27% 11.13%
Inception 5/5/83
</TABLE>
- --------------------------------------------------------------------------------
*The Bartlett Mutual Funds' total return figures assume all dividends and
distributions are reinvested at the net asset value on the reinvestment date.
The performance figures for the Bartlett Value International Fund reflects the
periodic absorption of some Fund expenses through the waiver of management fees.
Had a portion of these fees not been waived, the Fund's total returns would have
been slightly lower.
**Fund did not exist during this entire time period.
This performance information represents past performance and is no guarantee of
future results. Shares of these Funds are not bank deposits or obligations, nor
are they insured or guaranteed by any bank, federal agency or government entity,
including the Federal Deposit Insurance Corporation (FDIC) . The principal value
and investment returns of the Funds will fluctuate so that upon redemption you
may receive more or less than your original investment.
For more information about your account or any of the Bartlett Mutual Funds'
services, please call your financial advisor, or the Bartlett Mutual Funds at
800-822-5544 or 513-621-4612 in Cincinnati.
<PAGE>
BARTLETT VALUE INTERNATIONAL FUND
QUARTERLY REVIEW
International market performance was quite strong in the second quarter of 1997,
nearly matching that of the US market. The Europe, Australia and Far East (EAFE)
Index* increased 13% during the quarter, compared to a gain in the S&P 500 of
17.5%. The Morgan Stanley Capital International All Country ex US (MSCIAC)Index
increased slightly less at 12.4%. The Bartlett Value International Fund has
increased in market value by 16.7% for the first six months of 1997,
substantially exceeding the EAFE index' growth of 11.4%, and that of the MSCIAC
index at 11.8%. Over the first half of 1997, European markets have just about
doubled Pacific market performance. In the second quarter, however, the pattern
of dramatic outperformance by European markets as compared to Pacific markets
was broken. Pacific markets surged by 19% in the quarter, led by a gain in the
Japanese market of 23.7% in US dollar terms. The Hong Kong market was nearly as
strong, with a gain of 20%, offsetting weaker performance in Singapore, Malaysia
and Australia. European markets increased by nearly 9% in the quarter, a quite
respectable performance despite lagging the Pacific markets. Currency played a
smaller role in market performance in the second quarter than in previous
periods, with the biggest change coming from an 8% gain in the value of the
Japanese yen against the US dollar. The Bartlett Value International Fund grew
by 13% in the quarter, matching the EAFE's gain.
The performance of the Fund benefited from some excellent individual stock
performance and a favorable regional mix. Our investments in Japanese
electronics exporters did very well, as did Hudson's Bay Co., boosted by a
strong Canadian economy. The Fund also benefited from its investment in Grand
Metropolitan, which has announced a joint venture with Guinness, and in
Lufthansa, the German based airline, which is doing very well with its revamped
operations. Stocks that did not help performance in the second quarter included
St. Gobain, which has shown slow growth, Tomkins, on concerns about the UK's
currency strength, and Potash, which had a potentially profitable acquisition
nixed by the European Community. As this letter is written, the Fund has a bit
over half of its assets invested in Europe, another 37% in Pacific markets, with
a little less than half of that in the Japanese market, and another 10% in Latin
American and Canadian stocks. Based on the valuations and prospects we are
seeing in the various regions, we would not expect this regional mix to change
much in the near future.
- -- Madelynn M. Matlock, CFA, Portfolio Manager
PORTFOLIO COMPOSITION
June 30, 1997
[Pie Chart Appears Here -- See Plot Points Below]
49% Europe
19% Other Pacific
13% Japan
9% Latin America/Canada
10% Cash Equivalents
*The EAFE Index is an unmanaged index of common stocks of foreign companies. The
returns for the Index do not include any expenses or transaction costs. The
returns for the Fund include such expenses.
BARTLETT BASIC VALUE FUND
QUARTERLY REVIEW
The Bartlett Basic Value Fund's total returns for the quarter and twelve months
ended June 30, 1997 were 14.9% and 23.6%, respectively. The U.S. stock market
rocketed to new highs in the second quarter, with the S&P500 Index* advancing
17.5%. This remarkable performance was once again dominated by the giant "blue
chip growth" companies.
The lofty valuations accorded the market make it a challenge to find stocks
selling below our estimate of intrinsic value. Roger Lowenstein, in the July 9
Wall Street Journal, discussed the concept of valuing a stock as a business. He
then noted rhetorically, "The wonder is that so many analysts don't value stocks
that way." That methodology would keep one out of all the hot stocks like Coke
and Microsoft, but we do agree it is a sound way to make investment decisions
for the long haul.
Befitting the exceptional market, most of our holdings were up nicely during the
second quarter. In fact, we are quite pleased with our performance, given the
unusual nature of this market, especially in a value context. Almost 85% of our
holdings showed gains for the quarter. Our top performing companies once again
represented a broad range of industries in concert with our bottom-up approach.
In the Fund's portfolio, Bristol Myers Squibb (2.3%), (the parenthetical numbers
represent the approximate percentage of the fund invested in that individual
issue), Archer Daniels Midland (2.4%), Kansas City Southern (5.0%), Stewart &
Stevenson(1.6%), and ADT (3.4%, now Tyco after acquisition) were among the
stocks giving your portfolio a positive boost, while Zilog (1.2%) and United
Dominion Realty (1.8%) were down slightly for the quarter.
There were a number of portfolio changes during the second quarter. We reduced
or eliminated positions in Hartford Financial Services, KU Energy (which was
acquired), National Presto, Southwestern Energy and Wausau Paper. Additions to
the portfolio included AT&T, McDonalds (interestingly enough this was the
example of a business selling at a reasonable price which Mr. Lowenstein
included in the article mentioned above), First Data Corporation, and Triton
Energy.
First Data is a new company for Bartlett & Co. and perhaps a new name for our
clients. The company processes credit card transactions and is a dominant player
in the information technology industry. As the number of credit card-based
transactions increases, First Data is a direct beneficiary. The recently
announced joint venture with Microsoft to develop and market an internet billing
system adds to their leading edge in the industry and hedges their bets with
respect to alternate payment vehicles.
We appreciate your continued support of our value-oriented investment approach.
- -- James A. Miller, CFA, Portfolio Manager
- -- Woodrow H. Uible, CFA, Portfolio Manager
PORTFOLIO COMPOSITION
June 30, 1997
[Pie Chart Appears Here -- See Plot Points Below]
27% Consumer Products
17% Financial
15% Basic Industry
40% All Other Industries
1% Cash Equivalents
*The Standard & Poor's 500 index is an unmanaged index of common stocks. The
returns for the index do not include any expenses or transaction costs. The
returns for the fund include such expenses.
