BARTLETT & CO.
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REGISTERED INVESTMENT ADVISORS
BARTLETT
MUTUAL
FUNDS
QUARTERLY
REPORT
FOR THE QUARTER ENDED
MARCH 31, 1998
BARTLETT
BASIC VALUE FUND
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
EUROPE FUND
<PAGE>
PRESIDENT'S LETTER
To Our Shareholders,
Performance of the markets, both here and abroad, remained strong during the
first quarter of 1998. The S&P 500 Index, an unmanaged index of widely-held US
stocks, produced total returns of 13.95% and 48.00%, respectively, for the
quarter and twelve months ended March 31, 1998.
Strong performance has not been limited to domestic stocks, however, as European
market returns were also excellent. The Morgan Stanley Capital International
Europe Index ("MSCI Europe") returned 20.30% and 42.01%, respectively, for the
three and twelve months ended March 31, 1998. Some of the Asian markets
rebounded as well, and the MSCI Europe, Australia and the Far East Index ("MSCI
EAFE") returned 14.71% and 18.61%, respectively, for the three and twelve month
periods ended March 31.
The Bartlett Family of Funds' performance during these periods has been good on
an ABSOLUTE basis, and mixed on a relative basis when measured against the
Indexes described above. Bartlett Basic Value shares trailed the S&P 500 for the
three months ended March 31, with a total return of 10.03%* and modestly trailed
the Index for the twelve month period, returning 46.49%* to its shareholders. We
are proud of the Fund's performance versus the Index because, as we have said in
prior reports, we do not chase "hot" stocks and we are not holders of the very
large capitalization stocks which have contributed so much to the Index's
performance. We continue to focus on the search for undervalued stocks which we
believe have the potential to outperform over time.
Bartlett Value International provided total returns of 7.96%* and 10.98%*,
respectively, for the three and twelve month periods ended March 31. The past
year has been a difficult one for international funds and Value International is
no exception. Despite very respectable absolute performance, international
indexes have not kept up with the surging US markets for several years. The
problem has been the Pacific markets, notably Japan, while European stocks have
been quite strong. Any investments in Asian stocks in broadly-based
international portfolios such as ours have led to weaker relative performance.
The flip side of this weakness is that we are finding new opportunities in value
stocks in the region.
Bartlett Europe Fund, the newest addition to our Family, has benefited from good
stock selection and the strong performance of the European markets. The Fund
returned 25.74%* during the first quarter, well ahead of the MSCI Europe Index,
and 41.19%* for the twelve months ended March 31, 1998, modestly behind the
Index.
After many years of fine service as President of Bartlett Capital Trust, Dale
Rabiner has stepped down from that office to enable him to focus more fully on
portfolio management within Bartlett. Dale remains a valued member of the firm
and we continue to rely on his good judgment and investment skills. At its
February Board meeting, the trustees elected me President of your Funds. I am Ed
Taber, a Senior Executive Vice President of Legg Mason, Inc., the parent of
Bartlett & Co. Within Legg Mason, I serve as head of the investment management
activities of the firm. I am pleased that the Board of Trustees chose me as
Dale's successor and I will work diligently as your President.
As always, we are pleased to answer your questions and welcome your comments.
Sincerely,
/s/ Edward A. Taber, III
________________________
Edward A. Taber, III
President
*Total return measures investment performance in terms of appreciation or
depreciation in net asset value per share plus dividends and capital gain
distributions. It assumes that dividends and distributions were reinvested at
the time they were paid. The total returns shown for the Bartlett funds are for
Class A shares and are calculated without the effect of any sales charges.
<PAGE>
PERFORMANCE
SUMMARY
Periods Ended March 31, 1998
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
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FIRST QUARTER SINCE
3 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION
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(Not Annualized)
<S> <C>
BARTLETT BASIC VALUE FUND
CLASS A (Inception 5/5/83)
Excluding 4.75% front-end sales load 10.03% 46.49% 18.70% 14.50% 13.83%
Including 4.75% front-end sales load 4.77% 39.55% 17.55% 13.94% 13.46%
BARTLETT VALUE INTERNATIONAL FUND
CLASS A (Inception 10/6/89)
Excluding 4.75% front-end sales load 7.96% 10.98% 12.18% N/A 8.30%
Including 4.75% front-end sales load 2.83% 5.71% 11.10% N/A 7.68%
BARTLETT EUROPE FUND
CLASS A (Inception 8/19/86)
Excluding 4.75% front-end sales load 25.74% 41.19% 21.99% 11.06% 9.55%
Including 4.75% front-end sales load 19.75% 34.46% 20.81% 10.52% 9.09%
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</TABLE>
*The performance tables and charts assume all dividends and distributions are
reinvested at the net asset value on the reinvestment date and reflect the
periodic absorption of some Fund expenses through the waiver of management fees.
Had a portion of these fees not been waived, the Funds' total returns would have
been slightly lower. A contingent deferred sales charge may be imposed under
certain circumstances on Class A and C shares. No performance information is
shown for Class C and Class Y shares which are less than twelve months old.
Please refer to the prospectus for details.
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
800-800-3609 or 513-621-4612 in Cincinnati.
<PAGE>
BARTLETT BASIC VALUE FUND
QUARTERLY REVIEW
Stock market conditions, which were widely proclaimed as unsustainable several
months ago, continue to amaze investors. Once again, the market generated a
year's worth of return in one quarter. Analysts attribute this growth to the
surprisingly good economic news which, in turn, was partly attributable to
advances in information technology. It seems that applying Moore's Law, which
holds that computing power doubles every eighteen months, to investment returns
is gaining acceptance. The Standard & Poor's 500 Index* gained 14% for the
quarter as the economy continued to display stellar performance, neatly
sidestepping Southeast Asia, El Nino and Saddam Hussein to boast terrific
statistics on employment, inflation, real wage growth, and, consequently,
consumer confidence.
Experienced value investors enjoy these returns with a good deal of
apprehension. Hopefully, this more cautious approach to valuations and
investment selection will be rewarding when this euphoria wanes.
In view of the economic data mentioned above, it is not surprising that consumer
related stocks did well in the first quarter. Among the winners in the portfolio
benefiting from consumer optimism were Lowe's (1.1%) (the parenthetical numbers
represent the approximate percentage of the Fund's assets invested in that
individual issue), Kansas City Southern (3.9%) and Ford Motor (1.6%). Kaydon
(3.4%), McDonald's (3.0%), and Triton Energy (3.7%) were also strong performers.
The admirable performance of Kansas City Southern and Kaydon was particularly
gratifying, given that they were our two largest equity positions at December
31, 1997. The soundness of our analysis and the strength of our convictions were
generously rewarded. The biggest negative impact on the portfolio came from the
tobacco issues, e.g. RJR Nabisco (1.4%) and UST (1.8%), and an electronics
distributor, Pioneer Standard (1.7%).
We added to Ucar International (3.6%) and Triton Energy during the quarter. We
trimmed a number of our successful holdings such as Fleetwood (3.5%), Kansas
City Southern, Kaydon and Tyco (1.4%) as the gap between market price and
intrinsic value narrowed. We eliminated our position in Canadian Pacific and
United Asset Management. New investments during the quarter include Union
Pacific (1.9%), Aetna (1.6%) and Charter One Financial (2.2%). The problems of
Union Pacific have been widely covered in the press. Its railroad assets are
substantial and impressive. In our opinion, Union Pacific's short-term problems
pale next to the value of its long-lived assets. Aetna is among the largest
HMO's in the country. Poor industry underwriting results recently drove the
stock down to a point at which its financial service operations nearly equaled
the total value of the company without regard to its sizable healthcare
business. Charter One Financial is a northern Ohio savings and loan with an
excellent record of growth and profitability. Short-term concerns over higher
interest rates in January created an attractive buying opportunity.
Market prognostications, as you know, are not the cornerstone of our investment
philosophy. Neither is hope. The only justification for the lofty valuations
accorded common stocks today is the prospect of excellent growth in corporate
earnings. Certainly a resolution of Asia's economic woes would seem to be
imperative to insure the stability of our domestic economy. Since we have no
control over American economic policy, let alone the economic policies pursued
by Japan and the other Pacific Rim countries, we can moderate the portfolio's
risk by sticking with investments that represent compelling value. We feel quite
fortunate that our equities have been able to perform in line with the relevant
indices during the raging bull market of the last twelve months while still
pursuing our conservative investment philosophy.
- --JAMES A. MILLER, CFA, PORTFOLIO MANAGER
- --WOODROW H. UIBLE, CFA, PORTFOLIO MANAGER
ASSET COMPOSITION
March 31, 1998
[PIE CHART APPEARS HERE]
40% All Other Industries
15% Basic Industry
19% Financial
24% Consumer Products
2% 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.
<PAGE>
BARTLETT VALUE INTERNATIONAL FUND
QUARTERLY REVIEW
After the anguish that was generated in the fourth quarter of 1997, markets so
far this year have reflected much more optimism. Most markets did well in the
first quarter of 1998, especially those in Europe. Even the devastated Asian
emerging markets bounced, as currencies stabilized and the IMF (International
Monetary Fund) began to weigh in. Exceptions to the fun were generally
lackluster Latin American markets, Japan, and commodity-heavy markets like
Norway and Australia. The Morgan Stanley Capital International Europe, Australia
and the Far East ("EAFE") Index* rose 14.7% in the first quarter, while the
broader-based Morgan Stanley Capital International All Country ex US Index rose
13.2%.
In Europe, market participants are seeing a "golden scenario" of lower inflation
and interest rates, combined with the restructuring and new business
opportunities resulting from the now almost-certain monetary union. These
markets have been very strong, especially in the "peripheral" countries like
Italy and Spain. On the other hand, the Asian market mood is much more gloomy,
despite the recent price increases in the smaller, emerging areas. The main
source of the pessimism is Japan, which has not yet figured out an effective way
to stimulate economic growth without offending its trading partners or treading
on key internal constituencies. To a large extent, market valuations reflect
these two divergent views of the world. European stock valuations are rising,
reflecting an increasing level of confidence, while Pacific stocks are much more
firmly in the value camp than they have been in many years. The weight of
European markets in the EAFE Index at 71% is rising to new highs, while the
Pacific weight continues to shrink. Japan's market weight in EAFE is now 22%, a
shadow of its high of over 60% nearly ten years ago.
Bartlett Value International Fund grew by 8% in the first quarter. The Fund's
51% weight in European markets was less than that of the EAFE Index, which held
back results despite good stock performance. The weighting in Pacific markets at
34% was higher than that of the Index. Stocks that did well during the quarter
include Cadbury Schweppes (1.9%), (the parenthetical numbers represent the
approximate percentage of the Fund's assets invested in that individual issue),
on an improving earnings outlook, as well as Istituto Mobiliare Italia (2.3%)
and Allied Irish Banks (2.1%), benefiting from the excitement surrounding the
European financial sector. Laggards include Kvaerner Industries (1.9%), which
suffered along with the Norwegian market, along with Rohm (1.8%) and Canon
(2.0%), mirroring Japanese market weakness. We continue to see good value coming
from the Pacific Rim, and we are taking some profits in European holdings. The
attitudes toward equity investment and valuation levels in the two main regions
of the EAFE markets are just about the mirror image of those a decade ago. The
valuation relationships between regions shift over time as circumstances and
growth prospects change, and we look to the valuation of companies as operating
businesses as a good guide to staying ahead of these shifts.
- -- MADELYNN M. MATLOCK, CFA, PORTFOLIO MANAGER
ASSET COMPOSITION
March 31, 1998
[PIE CHART APPEARS HERE]
51% Europe
18% Other Pacific
16% Japan
10% Latin America/Canada
5% 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.
<PAGE>
BARTLETT EUROPE FUND
QUARTERLY REVIEW
Nearly all European equity markets continued to move into record territory over
the quarter, with the Mediterranean and peripheral markets being the best
performers. The major corporate event that grabbed the headlines was the
US$160bn merger of Glaxo and Smithkline Beecham (1.7%), (the parenthetical
numbers represent the approximate percentage of the Fund's assets invested in
that individual issue), however celebrations proved premature as the deal
floundered over a dispute over key management positions. Nevertheless, merger
and acquisition activity has not cooled off and we would continue to expect that
corporate actions will continue apace.
Increasingly over the quarter, speculation centered on which economies would
fulfill the Maastricht criteria, and become founding members of the EMU
(European Monetary Union). In the end, the headlines were made not by Italy but
from overlooked Greece which devalued the Drachma by 14% and made a surprise
entry into the ERM (European Rate Mechanism)--well ahead of most expectations.
The Greek equity market responded well to this news and the Fund took advantage
of the currency fall to purchase a holding in Greece's prominent retail
bank--Alpha Credit Bank (2.7%).
Inflation in Europe remains subdued, although there are distinct signs of
improvement in the consumer sector across core Europe which has been subdued for
some considerable time. Our strategy continues to maintain an overweight
position in peripheral Europe where interest rates have further to fall and the
strength of these economies should continue to be reflected in stock market
valuations. Given the strong rise in market values over the period, a time of
consolidation seems appropriate.
The Asian effect is as yet confined to the commodity-related European sectors
although the strong restructuring theme provides a buttress to modest top line
growth. However, the supply/demand relationship is very much intact as European
pension and mutual funds commit more to equity markets and grow overall at a
rapid pace.
The outlook for European markets remains positive, although gains this year have
been substantial. Consequently, stock selection remains the key to continued
performance and we are confident our approach will continue to be rewarded.
- -- RONNIE ARMIST, PORTFOLIO MANAGER
- -- NEIL WORSELY, PORTFOLIO CO-MANAGER
- -- WILLIAM LOVERING, PORTFOLIO CO-MANAGER
ASSET COMPOSITION
March 31, 1998
[PIE CHART APPEARS HERE]
39% Financial
10% Consumer, Non-cyclical
22% All Other Industry
24% Consumer, Cyclicals
5% Cash Equivalents
<PAGE>
BARTLETT MUTUAL FUNDS
BARTLETT BASIC VALUE FUND
Seeks capital appreciation by investing primarily in common stocks or securities
convertible into common stocks. Income is a secondary consideration.
BARTLETT VALUE INTERNATIONAL FUND
Seeks capital appreciation by investing primarily in foreign equity securities.
Income is a secondary consideration. Provides a means for individual and
institutional investors to invest a portion of their assets outside the United
States.
BARTLETT EUROPE FUND
Seeks long-term growth of capital by investing primarily in equity securities of
European issuers which the investment sub-advisor believes are undervalued and
thus may offer above-average potential for capital appreciation.
This report is for the information of shareholders of Bartlett Mutual Funds. It
is authorized for distribution only when it is preceded or accompanied by a
current prospectus of the Bartlett Mutual Funds.
Investment Manager
Bartlett & Co.
Cincinnati, OH
Distributor
LM Financial Partners, Inc.
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
4/98
