Bartlett & Co.
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REGISTERED INVESTMENT ADVISORS
BARTLETT
MUTUAL
FUNDS
QUARTERLY
REPORT
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
BARTLETT
BASIC VALUE FUND
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
EUROPE FUND
<PAGE>
PRESIDENT'S LETTER
To Our Shareholders:
The quarter ended September 30, 1998 was a turbulent one and was the worst
quarter for US equity funds since the third quarter of 1990. According to Lipper
Analytical Services, Inc. the average US stock fund lost 15% on a total return*
basis compared to a 16% decline in 1990's third quarter.
Investors' anxieties and poor investment performance were not confined to US
shares as virtually all of the markets abroad, whether in fledgling economies or
in the more developed economies of Europe, also experienced double-digit
declines. Within the US markets, one's performance had little to do with whether
a value or growth discipline was followed, but hinged primarily upon whether the
portfolio had representation in small-capitalization or large-capitalization
issues. For instance, the Russell Mid-Cap Index produced a decline of 15% during
the quarter, while the S&P 500 Index produced a decline of 9.95%. The Bartlett
Basic Value Fund, being a multi-cap fund which incorporates small, medium and
large issues into its investment discipline, encountered headwind due to the
presence of such smaller securities.
The Bartlett Value International Fund experienced the woes of any fund that had
exposure to emerging markets in Asia and Latin America and, of course, the
European markets had a very strong overreaction to the economic collapse in
Russia. While non-domestic equity investments have yet to attain the popularity
that domestic equities have enjoyed, the portfolio managers of the Bartlett
Europe Fund and the Bartlett Value International Fund continue to find
compelling investment opportunities -- especially since the setback that these
markets encountered over the summer.
On the following pages, the portfolio managers for the Funds discuss the
quarter's performance, changes in the Fund portfolios' composition, and their
investment outlook.
Sincerely,
/s/ Edward A. Taber, III
________________________
Edward A. Taber, III
President
November 3, 1998
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*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.
<PAGE>
PERFORMANCE SUMMARY
Periods Ended September 30, 1998:
<TABLE>
<CAPTION>
Cumulative Average Annual
Total Return* Total Return*
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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 -15.21% -7.73% +13.49% +11.38% +11.89%
Including 4.75% front-end sales load -19.22% -12.10% +12.39% +10.84% +11.54%
Class C (Inception 9/12/97) -15.35% -8.48% N/A N/A -4.75%
Class Y (Inception 8/14/97) -15.17% -7.43% N/A N/A -1.24%
Bartlett Value International Fund
Class A (Inception 10/6/89)
Excluding 4.75% front-end sales load -16.38% -23.85% +4.71% N/A +5.13%
Including 4.75% front-end sales load -20.37% -27.48% +3.70% N/A +4.57%
Class C (Inception 7/23/97) -16.56% -24.35% N/A N/A -20.41%
Class Y (Inception 8/14/97) -16.38% -23.63% N/A N/A -20.89%
Bartlett Europe Fund
Class A (Inception 8/19/86)
Excluding 4.75% front-end sales load -13.04% +14.17% +17.56% +9.33% +8.36%
Including 4.75% front-end sales load -17.18% +8.76% +16.43% +8.80% +7.93%
Class C (Inception 7/23/97) -13.40% +13.33% N/A N/A +12.40%
Class Y (Inception 8/21/97) -12.96% +14.76% N/A N/A +18.59%
</TABLE>
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*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. 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
Fear overcame greed in the third quarter as investors faced the first
significant market decline in eight years. The steady and substantial rise of
the market over the last two decades, and particularly the 1990's, has created
extraordinary expectations among investors. The threat to those expectations
from crumbling foreign economies, hedge fund blowups and the incipient signs of
profit problems at American corporations has resulted in market volatility at a
level that we have not seen in many years. In the heat of the indiscriminate
selling, smaller companies once again suffered the brunt of the market impact.
The broader market averages have recently recovered after a near 20% decline
from their peaks in July, which approaches the average decline of 26% during the
bear markets that we have experienced in this century. At this point, there are
many investors who would be happy to settle for average.
Given the difficult economic conditions that are emerging, investors favored
stocks with a domestic orientation whose products or services are fairly
insensitive to the economy. This certainly was the case in our portfolios, as
our three top performing holdings were Anheuser Busch (3.0%) (the parenthetical
numbers represent the approximate percentage of the Fund's assets invested in
that individual issue), UST, Inc. (2.2%) and Western Resources (3.3%). UST is
the dominant company in the smokeless tobacco business, while Western Resources
is an electric utility based in Kansas. Conversely, the three weakest stocks in
the portfolio were Travelers Group (now Citigroup (2.7%)), Pioneer Standard
Electronics (.5%) and AMR Corp (3.3%). This is not surprising, given that
investment services, electronics and air transportation are more leveraged to
economic and stock market conditions.
During the quarter we initiated positions in A.H. Belo (3.1%), Anheuser Busch
and Molex (1.0%). A.H. Belo is a diversified national media company which owns
seventeen television stations and six newspapers, most notably the Dallas
Morning News. The stock has declined due to some weakness in advertising
revenue. Anheuser Busch was one of the few large, stable demand companies that
we could identify that was selling for a reasonable valuation. The company is
becoming increasingly dominant in the global beer business. Molex manufactures
interconnect devices for the electronics industry. This high quality company has
been able to consistently gain market share versus its competitors because of
its innovative new products and its ability to market these products to industry
leaders. We also added to our positions in Lockheed Martin (2.7%), Charter One
Financial (3.4%) and Travelers.
We eliminated a number of positions during the quarter. Triton Energy was sold
when the auction of its oil properties did not bring the expected bids. This was
a big disappointment. Upheaval in the oil markets and uncertainties in the
political and economic regions in which these properties were located
overwhelmed our previous assessment of the inherent worth of the company. Pitney
Bowes reached our valuation target after a fairly long and successful holding
period. York International, Archer Daniels Midland and Frontier Insurance were
all sold due to deteriorating fundamentals which served to reduce our assessment
of their intrinsic value.
We thank you for your continued support.
- --James A. Miller, CFA, Portfolio Manager
- --Woodrow H. Uible, CFA, Portfolio Manager
Asset Composition
September 30, 1998
[PIE CHART APPEARS HERE]
40% All Other Industries
10% Basic Industry
21% Financial
23% Consumer Products
6% Cash Equivalents
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BARTLETT VALUE INTERNATIONAL FUND
QUARTERLY REVIEW
Stock markets all over the world had a bad summer vacation, suffering from
Russia's woes and growing concern about the overall health of the global
economy. The dip spared no geographic area; the US market fell, along with the
previously buoyant European region. The startlingly quick implosion of the
Russian market and the crumbling of the hedge fund Long-Term Capital Management
gave further evidence that financial markets are very vulnerable to bad news.
The Asian crisis that began over a year ago has spread like a shadow over the
rest of the world, darkening the optimism that drove corporate activity and
equity markets. The more narrow Europe, Australia and Far East (EAFE) Index*
fell 14.2% during the quarter, while the broader Morgan Stanley Capital
International All Country ex US (MSCI AC ex US) Index+, which includes Canada
and some emerging markets, fell 15.5%. The European region slipped further than
Pacific region markets, breaking a pattern of outperformance over the last
several quarters. Japan's market was weak, but actually did better than most
others, probably because so much bad news has already been discounted into
relatively lower valuations.
Bartlett Value International Fund fell by 16.4% in the quarter, reflecting the
overall market weakness. The portfolio continues to have a relatively higher
exposure to Pacific markets, including a market weighting in Japan, and lower
investment in the European region. The European markets are showing cracks in
the optimism that has come out of the progress to monetary union, and some
stocks have dropped significantly on earnings disappointments. The region could
continue to be weak simply because it has been perceived so positively and many
portfolios are overweight. The Americas continue to suffer from a combination of
commodity exposure and fears of Asian contagion, although actual economic
conditions are reasonably good. Valuations in both Canada and Latin America are
becoming compelling, but some stability needs to return to the global financial
situation before stocks are attractive again.
We reduced exposure to some of the more cyclical stocks in the portfolio during
the quarter, as the outlook has become more negative, and the potential to
surface value in asset rich companies declined as market pessimism rose. Stocks
that did relatively better in the quarter include Brambles Industries (2.9%)
(the parenthetical numbers represent the approximate percentage of the Fund's
assets invested in that individual issue), based in Australia, along with Secom
(3.1%), a Japanese alarm and security services firm, and Pohang Iron & Steel
(1.5%), based in Korea. Stocks that hurt performance included Michelin (2.3%),
the French tire maker, on weaker than expected earnings, and New Holland (2.1%),
a Dutch producer of agricultural machinery, on concerns that weak agricultural
prices will negatively impact their sales.
Many changes will be confronting global equity markets over the next several
months, including the transition to the single currency in Europe, changes in
leadership in some of the world's biggest economies, a move to financial
isolation by some countries, and the continued fallout from financial
"accidents" created in a previously overconfident era. Much will depend on the
decisions made by the US Federal Reserve Chairman, Alan Greenspan, about the
direction of US short-term interest rates, along with Bundesbank and Japanese
policy makers. Skill and creativity will be essential to guide the world's
economy through the current reef of problems. The optimism that has carried US
and European markets over the last couple of years has been severely eroded,
increasing the diversification benefits of a more globally-oriented portfolio.
- -- Madelynn M. Matlock, CFA, Portfolio Manager
Asset Composition
September 30, 1998
[PIE CHART APPEARS HERE]
50% Europe
13% Other Pacific
20% Japan
9% Latin America/Canada
8% 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.
+ The MSCI AC ex US Index is an unmanaged Index of common stocks of foreign
companies from both the developed and the emerging markets, excluding the US.
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
European investors entered the second half of the year in a buoyant mood
encouraged by new highs in the US market for both bonds and equities. July's
exuberance proved short-lived as cautious comments from Mr. Greenspan in his
semi-annual testimony to Congress prompted profit taking, which accelerated as
events unfolded through the quarter, especially in August. European fundamentals
did not change dramatically during the period, but the problems in Southeast
Asia and Japan showed little sign of resolution. Add to this, events in Russia,
Venezuelan devaluation, Brazil's debt-funding problem and the emergence of
over-leverage in the hedge fund Long-Term Capital Management ("LTCM") business,
then weakness should have been expected. The contagion was most notably felt in
the banking and insurance sectors which were certainly last year's stockmarket
favorites. The falls in the financial sector were fairly indiscriminate.
Institution after institution revealed the extent of their exposure to either
Russia, Latin America or LTCM. There seemed little in the way of abatement of
bearish sentiment during September as stockmarkets weighed up further high
profile profit warnings. Not only have the markets continued downwards, but the
intra-day volatility has increased, while volumes have remained subdued.
On a brighter note we can reaffirm the relative status of European markets in a
global context. While earnings forecasts for this year and next have been
reduced, they remain significantly higher than the global average. European bond
markets have also continued to perform well, reaching all time lows in yield
terms which should be considered supportive.
The question today is: healthy correction from extended valuation levels or the
beginning of a bear market? Clearly inflation is a thing of the past and US
interest rates have been cut twice in response to the global slowdown. Further
monetary easing can be expected from other Central Banks, taking the Federal
Reserve's lead, but only concerted and significant action will remedy the
current situation.
We remain confident that the portfolio will continue to benefit on a relative
basis from both good stock selection and top down asset allocation. The strong
growth story of peripheral Europe is intact and the corporate restructuring
theme continues to gather momentum in the core of France, Germany, Holland and
Switzerland. The shorter-term direction of the market will be determined by
global events rather than Euro-specific factors, but the longer-term safe haven
attractions of the European markets for diversifying international investors are
strong.
- -- Neil Worsely, Co-portfolio Manager
- -- William Lovering, Co-portfolio Manager
Asset Composition
September 30, 1998
[PIE CHART APPEARS HERE]
34% Financial
9% Consumer, Non-cyclical
38% All Other Industry
15% Consumer, Cyclicals
4% Cash Equivalents
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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-adviser 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 Adviser Investment Sub-Adviser
Bartlett & Co. to Europe Fund
Cincinnati, OH Lombard Odier International
Distributor Portfolio Management Limited
LM Financial Partners, Inc. London, England
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
11/98
