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mutual funds
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Bartlett
Prospectus
November 2, 1998
BARTLETT
INTERNATIONAL FUND
BARTLETT
BASIC VALUE FUND
BARTLETT
EUROPE FUND
BARTLETT
FINANCIAL SERVICES FUND
Class A and Class C Shares
BARTLETT CAPITAL TRUST
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS
CLASS A AND CLASS C SHARES
November 2, 1998
TABLE OF CONTENTS
Prospectus Highlights......................................................... 2
Fund Expenses................................................................. 5
Financial Highlights.......................................................... 7
Investment Performance....................................................... 14
Investment Objectives and Policies........................................... 15
Investment Policies, Techniques and Risk
Considerations............................................................. 18
How to Purchase and Redeem Your Shares....................................... 24
Calculation of Share Price................................................... 29
Dividends and Other Distributions............................................ 30
Taxes........................................................................ 31
Management of the Trust...................................................... 32
Description of the Trust..................................................... 35
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Bartlett Capital Trust ("Trust") is an open-end management investment company
which currently offers four series: Bartlett Value International Fund, Bartlett
Basic Value Fund, Bartlett Europe Fund and Bartlett Financial Services Fund
(each a "Fund").
BARTLETT VALUE INTERNATIONAL FUND ("Value International") seeks capital
appreciation by investing primarily in foreign equity securities believed by its
adviser, Bartlett & Co. ("Bartlett" or "Adviser"), to be attractively priced
relative to their intrinsic value. Income is a secondary consideration.
BARTLETT BASIC VALUE FUND ("Basic Value") seeks capital appreciation by
investing primarily in common stocks or securities convertible into common
stocks that are believed by the Adviser to be attractively priced relative to
their intrinsic value. Income is a secondary consideration.
BARTLETT EUROPE FUND ("Europe Fund") seeks long-term growth of capital by
investing primarily in equity securities of European issuers which Lombard Odier
International Portfolio Management Limited ("Lombard Odier"), investment
sub-adviser to Europe Fund, believes are undervalued and thus may offer
above-average potential for capital appreciation.
BARTLETT FINANCIAL SERVICES FUND ("Financial Services Fund") seeks long-term
growth of capital by investing primarily in securities of issuers in the
financial services industry which Gray, Seifert & Co., Inc. ("Gray, Seifert"),
investment sub-adviser to Financial Services Fund, believes are attractively
priced relative to their intrinsic value.
This Prospectus sets forth concisely the information about the Funds that
you ought to know before investing. Please read and retain this Prospectus for
future reference. A Statement of Additional Information for the Funds dated
November 2, 1998 has been filed with the Securities and Exchange Commission
("SEC") and, as amended or supplemented from time to time, is incorporated
herein by reference. The Statement of Additional Information is available
without charge upon request by calling LM Financial Partners, Inc. ("LMFP"), the
Trust's distributor, at (800) 800-3609.
INVESTORS SHOULD BE COGNIZANT OF THE UNIQUE RISKS OF INTERNATIONAL
INVESTING, INCLUDING EXPOSURE TO CURRENCY FLUCTUATIONS AND TO FOREIGN ECONOMIC
AND POLITICAL CHANGES.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For further information, call (800) 800-3609 or contact your broker/dealer.
BARTLETT CAPITAL TRUST
<PAGE>
---------------------------------
PROSPECTUS HIGHLIGHTS
---------------------------------
Bartlett Value International Fund
Bartlett Basic Value Fund
Bartlett Europe Fund
Bartlett Financial Services Fund
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus and in the Statement of
Additional Information.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES: VALUE INTERNATIONAL is a diversified, professionally managed
portfolio seeking to provide capital appreciation. In attempting
to achieve the Fund's objective, the Fund normally invests at
least 65% of its total assets in equity securities of non-U.S.
issuers.
BASIC VALUE is a diversified, professionally managed portfolio
seeking to provide capital appreciation. In attempting to achieve
the Fund's objective, the Fund invests primarily in common stocks
or securities convertible into common stocks. The Fund seeks to
diversify its investments across industry sectors.
EUROPE FUND is a diversified, professionally managed portfolio
seeking to provide long-term growth of capital. In attempting to
achieve the Fund's objective, the Fund normally invests at least
65% of its total assets in equity securities of European issuers.
FINANCIAL SERVICES FUND is a newly organized diversified,
professionally managed portfolio seeking long-term growth of
capital. In attempting to achieve the Fund's objective, the Fund
invests primarily in securities of issuers in the financial
services industry which Gray, Seifert believes are attractively
priced relative to their intrinsic value.
INVESTMENT ADVISER: Bartlett & Co. has provided investment advice to individuals,
pension and profit-sharing plans and trust accounts since 1898.
INVESTMENT SUB-ADVISER TO Lombard Odier International Portfolio Management Limited, a
EUROPE FUND: subsidiary of one of the oldest and largest private banks in
Switzerland, specializes in advising and managing investment
portfolios for institutional clients.
INVESTMENT SUB-ADVISER TO Gray, Seifert & Co., Inc., an indirect wholly owned subsidiary of
FINANCIAL SERVICES FUND: Legg Mason, Inc.
PURCHASE PLANS: Investors may select Class A or Class C shares, each subject to
different expenses and a different sales charge structure.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
CLASS A SHARES: Offered at net asset value plus any applicable sales charge
(maximum is 4.75% of public offering price) and subject to service
fees at an annualized rate of 0.25% of the average daily net
assets of each Fund's Class A shares. A contingent deferred sales
charge ("CDSC") may be imposed under limited circumstances.
CLASS C SHARES: Offered at net asset value and subject to service and distribution
fees at an annualized rate of 1.00% of the average daily net
assets of each Fund's Class C shares. A CDSC of 1% of net asset
value at the time of purchase or sale, whichever is less, may be
charged on redemptions of Class C shares made within one year of
the purchase date.
SHARES AVAILABLE THROUGH: Many brokerage firms nationwide, or directly through the Funds'
distributor. See "How to Purchase and Redeem Your Shares."
INITIAL PURCHASE: $1,000 minimum, generally.
SUBSEQUENT PURCHASES: $100 minimum, generally.
EXCHANGE PRIVILEGE: Exchanges may be made for shares of the corresponding class of
shares of any other Fund and for shares of Legg Mason Cash Reserve
Trust, a money market mutual fund. See "Exchange Privilege."
DIVIDENDS AND OTHER DISTRIBUTIONS: Dividends from net investment income are declared and paid
quarterly by Value International and Basic Value and annually by
Europe Fund and Financial Services Fund. Distributions of net
capital gains are declared and paid annually for each Fund. See
"Dividends and Other Distributions." All dividends and other
distributions are automatically reinvested in Fund shares unless
cash payments are requested.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
RISK FACTORS: There can be no assurance that any Fund will achieve its
investment objective. Each Fund's net asset value will fluctuate,
reflecting fluctuations in the value of its securities. The value
of the equity and other instruments held by the Funds is subject
to market risk. The market risk of equity securities is generally
perceived to be higher than that of any other securities of an
issuer. The value of debt instruments generally fluctuates
inversely with movements in market interest rates. The values of
longer-term debt securities generally fluctuate more than those of
shorter-term securities.
Changes in economic conditions in, or governmental policies of,
foreign nations may have a significant impact on the performance
of Value International and Europe Fund. Foreign investment
involves a possibility of expropriation, nationalization,
confiscatory taxation, limitations on the use or removal of funds
or other assets of a Fund, the withholding of tax on interest or
dividends, and restrictions on the ownership of securities by
foreign entities such as the Funds. Fluctuations in the value of
foreign currencies relative to the U.S. dollar also will affect
the value of Fund holdings denominated in such currencies.
The Financial Services Fund will invest substantially all of its
assets in issuers in the financial services industry and generally
the Financial Services Fund's holdings will be concentrated in
that specific industry. Compared to the broad market, an
individual industry may be more strongly affected by changes in
the economic climate, broad market shifts, moves in a particular
dominant stock, or regulatory changes. The financial services
industry in general is subject to extensive governmental
regulation which may affect its profitability and the relative
profitability of different issuers. In addition, the regulatory
environment is subject to change. The profitability of issuers in
the financial services industry is largely dependent upon the
availability and cost of capital funds, and may fluctuate
significantly in response to changes in interest rates, as well as
changes in general economic conditions. From time to time, severe
competition may also affect the profitability of issuers in the
financial services industry.
Each Fund's participation in hedging and option strategies also
involves certain investment risks and transaction costs. None of
the Funds should be considered a complete investment program. See
"Investment Objectives and Policies" and "Investment Policies,
Techniques and Risk Considerations."
</TABLE>
4
<PAGE>
---------------------------------
FUND EXPENSES
---------------------------------
The purpose of the following tables is to assist an investor in
understanding the various costs and expenses that an investor in Class A or
Class C shares of a Fund will bear directly or indirectly. The expenses and fees
set forth below are based on average net assets and annual Fund operating
expenses related to Class A and Class C shares, respectively, for the period
ended December 31, 1997. For Financial Services Fund, which has no operating
history prior to the date of this Prospectus, other expenses are based on
estimates for the current fiscal year, and fees are adjusted for current expense
limits and fee waiver levels.
Long-term Class A and Class C shareholders may pay more in direct and
indirect sales charges (including 12b-1 distribution fees) than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc. For further information concerning Fund
expenses, see "Management of the Trust."
CLASS A SHARES
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<TABLE>
<CAPTION>
VALUE BASIC EUROPE FINANCIAL
SHAREHOLDER TRANSACTION EXPENSES INTERNATIONAL VALUE FUND SERVICES FUND
- -------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price)(a) 4.75% 4.75% 4.75% 4.75%
Deferred sales charges(b) None None None None
Redemption or exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES(c)
(as a % of average net assets)
- ---------------------------------
Management fees (after fee waivers) 1.25% 0.75% 1.00% 0.85%
12b-1 fees 0.25% 0.25% 0.25% 0.25%
Other expenses 0.28% 0.13% 0.60% 0.40%
-------------------------------------------------
Total operating expenses (after fee waivers) 1.78% 1.13% 1.85%(d) 1.50%
</TABLE>
(a) Sales charge waivers and reduced sales charge purchase plans are available
for Class A shares. See "How to Purchase and Redeem Your Shares."
(b) A CDSC of 1% of the net asset value of Class A shares will be imposed on
redemptions of shares purchased pursuant to the front-end sales charge
waiver on purchases of $1 million or more of Class A shares made within one
year of the purchase date. See "How to Purchase and Redeem Your Shares."
(c) Pursuant to voluntary expense limitations, the Adviser has agreed to waive
fees to the extent that Value International's Class A expenses exceed 1.80%,
Basic Value's Class A expenses exceed 1.15%, Europe Fund's Class A expenses
exceed 1.85%, and Financial Services Fund's Class A expenses exceed 1.50% of
their respective average daily net assets through May 1, 1999. In the
absence of such waivers, the expected management fee, 12b-1 fee, other
expenses and total operating expenses relating to Class A would have been
1.00%, 0.25%, 0.40% and 1.65%, respectively, for Financial Services Fund.
(d) The expense ratio shown reflects both the operations of Bartlett Europe
Fund's predecessor, Worldwide Value Fund, prior to its merger with Bartlett
Europe Fund on July 18, 1997 and Bartlett Europe Fund's operations through
December 31, 1997.
5
<PAGE>
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Class A shares over various time periods assuming (1) a 5%
annual rate of return and (2) full redemption at the end of each time period.
With the limited exception noted above, the Funds charge no redemption fees of
any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VALUE INTERNATIONAL........................................................ $65 $101 $139 $247
BASIC VALUE................................................................ $58 $ 82 $107 $178
EUROPE FUND................................................................ $65 $103 $143 $254
FINANCIAL SERVICES FUND.................................................... $62 $ 93 N/A N/A
</TABLE>
This example assumes that the maximum initial sales charge is deducted at
the time of purchase and that there is no deduction of the 1% CDSC imposed on
redemptions of shares purchased pursuant to the front-end sales charge waiver on
purchases of $1 million or more made within one year of the purchase date. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT, THE
PROJECTED OR ACTUAL PERFORMANCE OF CLASS A SHARES OF THE FUNDS. THE ABOVE TABLES
AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The actual
expenses attributable to Class A shares will depend upon, among other things,
the level of average net assets, the levels of sales and redemptions of shares,
the extent to which Bartlett waives its fees and the extent to which Class A
shares incur variable expenses, such as transfer agency costs.
CLASS C SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE BASIC EUROPE FINANCIAL
SHAREHOLDER TRANSACTION EXPENSES INTERNATIONAL VALUE FUND SERVICES FUND
- -------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases None None None None
Deferred sales charges(a) 1.00% 1.00% 1.00% 1.00%
Redemption or exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES(b)
(as a % of average net assets)
- ---------------------------------
Management fees (after fee waivers) 1.25% 0.75% 1.00% 0.85%
12b-1 fees 1.00% 1.00% 1.00% 1.00%
Other expenses 0.30% 0.15% 0.60% 0.40%
-------------------------------------------------
Total operating expenses (after fee waivers) 2.55% 1.90% 2.60% 2.25%
</TABLE>
(a) A CDSC of 1% of net asset value at the time of purchase or sale, whichever
is less, may be charged on redemptions of Class C shares made within one
year of the purchase date. See "How to Purchase and Redeem Your Shares."
(b) Pursuant to voluntary expense limitations, the Adviser has agreed to waive
fees to the extent that Value International's Class C expenses exceed 2.55%,
Basic Value's Class C expenses exceed 1.90%, Europe Fund's Class C expenses
exceed 2.60% and Financial Services Fund's Class C expenses exceed 2.25%, of
their respective average daily net assets through May 1, 1999. In the
absence of such waivers, the expected management fee, 12b-1 fee, other
expenses and total operating expenses of Value International would be 1.25%,
1.00%, 0.45% and 2.70%; of Basic Value would be 0.75%, 1.00%, 0.25% and
2.00%; of Europe Fund would be 1.00%, 1.00%, 0.68% and 2.68%; and of
Financial Services Fund would be 1.00%, 1.00%, 0.40% and 2.40%, of average
daily net assets, respectively.
6
<PAGE>
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Class C shares over various time periods assuming (1) a 5%
annual rate of return and (2) full redemption at the end of each time period.
With the exception of shares redeemed within one year of purchase, the Funds
charge no redemption fees of any kind with respect to Class C shares.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------
<S> <C> <C> <C> <C>
VALUE INTERNATIONAL
Assuming full redemption................................................. $36 $79 $136 $289
Assuming no redemption................................................... $26 $79 $136 $289
BASIC VALUE
Assuming full redemption................................................. $29 $60 $103 $222
Assuming no redemption................................................... $19 $60 $103 $222
EUROPE FUND
Assuming full redemption................................................. $36 $81 $138 $293
Assuming no redemption................................................... $26 $81 $138 $293
FINANCIAL SERVICES FUND
Assuming full redemption................................................. $33 $70 N/A N/A
Assuming no redemption................................................... $23 $70 N/A N/A
</TABLE>
THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT
REPRESENT, THE PROJECTED OR ACTUAL PERFORMANCE OF CLASS C SHARES OF THE FUNDS.
THE ABOVE TABLES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
actual expenses attributable to Class C shares will depend upon, among other
things, the level of average net assets, the levels of sales and redemptions of
shares, the extent to which Bartlett waives its fees and the extent to which
Class C shares incur variable expenses, such as transfer agency costs.
---------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------
Each Fund offers three classes of shares. Prior to July 18, 1997, Value
International and Basic Value each offered only a single class of shares, which
have been redesignated as Class A shares. The financial information for the six
months ended June 30, 1998 in the tables that follow is unaudited. The financial
information for the period ended December 31, 1997 in the tables that follow has
been audited by PricewaterhouseCoopers LLP, independent accountants. The
financial highlights for the periods ended prior to December 31, 1997 were
audited by other accountants. The financial statements for Value International
and Basic Value for the nine months ended December 31, 1997, the financial
statements for Europe Fund for the year ended December 31, 1997 and the report
of PricewaterhouseCoopers LLP thereon are included in the Funds' combined annual
report to shareholders and are incorporated by reference into the Statement of
Additional Information. The annual report for the Funds is available to
shareholders without charge by calling LMFP at (800) 800-3609. As of the date of
this Prospectus, Financial Services Fund has not commenced operations.
7
<PAGE>
BARTLETT VALUE INTERNATIONAL FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------
SIX NINE
MONTHS MONTHS YEARS ENDED MARCH 31,
ENDED ENDED --------------------------------------------------------------
6/30/98(K) 12/31/97(A) 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 12.45 $ 13.64 $ 12.59 $ 11.64 $ 12.46 $ 10.08 $ 9.93 $ 9.09
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .06(E) .05(E) .08 .13 .09 .07(D) .12 .18
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions .29 .31 1.81 1.33 (.21) 2.38 .15 .88
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .35 .36 1.89 1.46 (.12) 2.45 .27 1.06
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- (.17) (.08) (.13) (.09) (.07) (.10) (.22)
In excess of net investment
income -- -- (.01) (.01) -- -- -- --
Distributions from realized
gains -- (1.38) (.75) (.37) (.61) -- (.02) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.55) (.84) (.51) (.70) (.07) (.12) (.22)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $ 12.80 $ 12.45 $ 13.64 $ 12.59 $ 11.64 $ 12.46 $ 10.08 $ 9.93
- -----------------------------------------------------------------------------------------------------------------------------
Total return(G) 2.89%(H) 2.79%(H) 15.45% 12.76% (1.18%) 24.42% 2.71% 11.88%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $66,959 $ 68,648 $83,973 $72,041 $57,664 $49,607 $29,572 $22,042
Ratio of net expenses to average
net assets 1.76%(E,I) 1.78%(E,I) 1.81% 1.83% 1.83% 1.88%(D) 2.00% 2.00%
Ratio of net investment income to
average net assets 1.08%(E,I) .49%(E,I) .62% 1.06% .80% .55%(D) 1.13% 1.79%
Portfolio turnover rate 30%(I) 44%(I) 31% 38% 24% 19% 19% 27%
Average commission rate paid(J) $ .0421 $ .0227 $ .0296 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A
---------------------
YEARS ENDED MARCH 31,
---------------------
1991 1990(B)
---------------------
<S> <C> <C>
Net asset value,
Beginning of period $ 9.79 $ 10.00
- --------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .30 .08
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions (.70) (.05)
- --------------------------------------------------------
Total from investment operations (.40) .03
- --------------------------------------------------------
Less distributions:
Dividends from net investment
income (.28) (.08)
In excess of net investment
income -- --
Distributions from realized
gains (.02) (.16)
- --------------------------------------------------------
Total distributions (.30) (.24)
- --------------------------------------------------------
Net asset value,
End of period $ 9.09 $ 9.79
- --------------------------------------------------------
Total return(G) (3.84%) 0.59%(I)
- --------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $23,661 $20,557
Ratio of net expenses to average
net assets 1.99% 1.41%(I)
Ratio of net investment income to
average net assets 3.31% 1.80%(I)
Portfolio turnover rate 39% 155%(I)
Average commission rate paid(J) -- --
- --------------------------------------------------------
</TABLE>
8
<PAGE>
BARTLETT VALUE INTERNATIONAL FUND, Continued
<TABLE>
<CAPTION>
CLASS C
-------------------------
JULY 23,
SIX 1997(C)
MONTHS TO
ENDED DEC. 31,
6/30/98(K) 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $12.30 $15.70
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .18(F) .08(F)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .12 (1.82)
- ------------------------------------------------------------------------------------
Total from investment operations .30 (1.74)
- ------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- (.28)
In excess of net investment income -- --
Distributions from realized gains -- (1.38)
- ------------------------------------------------------------------------------------
Total distributions -- (1.66)
- ------------------------------------------------------------------------------------
Net asset value,
End of period $12.60 $12.30
- ------------------------------------------------------------------------------------
Total return(G) 2.44%(H) (10.87%)(H)
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $3,942 $895
Ratio of net expenses to average net
assets 2.55%(F,I) 2.55%(F,I)
Ratio of net investment income to
average net assets .59%(F,I) (1.68%)(F,I)
Portfolio turnover rate 30%(I) 44%(I)
Average commission rate paid(J) $.0421 $.0227
- ------------------------------------------------------------------------------------
</TABLE>
(A) The year end for Bartlett Value International Fund has been changed from
March 31 to December 31.
(B) From the date of the public offering of Value International (October 6, 1989
through March 31, 1990).
(C) Commencement of operations of this Class.
(D) The Adviser has periodically absorbed expenses of the Bartlett Value
International Fund through management fee waivers. If the Adviser had not
waived any fees, the ratio of net expenses to average net assets would have
been 1.94%.
(E) Net of fees waived pursuant to a voluntary expense limitation of 1.80%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 1.95%.
(F) Net of fees waived pursuant to a voluntary expense limitation of 2.55%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 2.70%.
(G) Excluding sales charge
(H) Not Annualized
(I) Annualized
(J) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(K) Unaudited
9
<PAGE>
BARTLETT BASIC VALUE FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------------------
SIX NINE
MONTHS MONTHS YEARS ENDED MARCH 31,
ENDED ENDED -----------------------------------------------------------------------
6/30/98(I) 12/31/97(A) 1997 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 18.95 $ 18.33 $ 17.94 $ 15.39 $ 14.89 $ 14.76 $ 13.47 $ 12.60 $ 12.34
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .10(C) .19(C) .22 .30 .27 .22 .30 .36 .46
Net realized and
unrealized gains
(losses)
on investments 1.09 5.59 1.82 3.32 1.53 .28 1.57 .87 .26
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.19 5.78 2.04 3.62 1.80 .50 1.87 1.23 .72
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (.22) (.26) (.24) (.27) (.23) (.30) (.36) (.46)
Distributions from
realized gains -- (4.94) (1.39) (.83) (1.03) (.14) (.28) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (5.16) (1.65) (1.07) (1.30) (.37) (.58) (.36) (.46)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $ 20.14 $ 18.95 $ 18.33 $ 17.94 $ 15.39 $ 14.89 $ 14.76 $ 13.47 $ 12.60
- -----------------------------------------------------------------------------------------------------------------------------
Total return(E) 6.28%(F) 33.14%(F) 11.30% 24.05% 12.67% 3.42% 14.22% 9.91% 6.29%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $135,281 $133,076 $119,208 $125,636 $102,721 $94,289 $103,507 $88,536 $96,165
Ratio of expenses to
average net assets 1.09%(C,G) 1.13%(C,G) 1.16% 1.17% 1.20% 1.20% 1.21% 1.22% 1.21%
Ratio of net investment
income to average net
assets .97%(C,G) 1.15%(C,G) 1.18% 1.79% 1.81% 1.48% 2.14% 2.77% 3.87%
Portfolio turnover rate 30%(G) 42%(G) 23% 25% 26% 33% 43% 49% 92%
Average commission rate
paid(H) $ .0764 $ .0723 $ .0655 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A
-----------------------------
YEARS ENDED MARCH 31,
-----------------------------
1990 1989 1988
-----------------------------
<S> <C> <C> <C>
Net asset value,
Beginning of period $ 12.56 $ 12.44 $ 12.96
- ----------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .62 .57 .35
Net realized and
unrealized gains
(losses)
on investments .21 1.20 (.51)
- ----------------------------------------------------------
Total from investment
operations .83 1.77 (.16)
- ----------------------------------------------------------
Less distributions:
Dividends from net
investment income (.62) (.56) (.36)
Distributions from
realized gains (.43) (1.09) --
- ----------------------------------------------------------
Total distributions (1.05) (1.65) (.36)
- ----------------------------------------------------------
Net asset value,
End of period $ 12.34 $ 12.56 $ 12.44
- ----------------------------------------------------------
Total return(E) 6.49% 15.61% (1.24%)
- ----------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $105,842 $100,333 $80,583
Ratio of expenses to
average net assets 1.19% 1.23% 1.57%
Ratio of net investment
income to average net
assets 4.81% 4.57% 2.75%
Portfolio turnover rate 77% 99% 97%
Average commission rate
paid(H) -- -- --
- ----------------------------------------------------------
</TABLE>
10
<PAGE>
BARTLETT BASIC VALUE FUND, Continued
<TABLE>
<CAPTION>
CLASS C
--------------------------
SEPT. 12,
SIX 1997(B)
MONTHS TO
ENDED DEC. 31,
6/30/98(I) 1997
- ------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
Beginning of period $18.75 $22.84
- ------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .06(D) .24(D)
Net realized and unrealized
gains (losses)
on investments 1.03 .88
- ------------------------------------------------------------------------------------------
Total from investment
operations 1.09 1.12
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (.27)
Distributions from realized
gains -- (4.94)
- ------------------------------------------------------------------------------------------
Total distributions -- (5.21)
- ------------------------------------------------------------------------------------------
Net asset value,
End of period $19.84 $18.75
- ------------------------------------------------------------------------------------------
Total return(E) 5.81%(F) 6.07%(F)
- ------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $1,769 $395
Ratio of expenses to average
net assets 1.90%(D,G) 1.90%(D,G)
Ratio of net investment income
to average net assets .26%(D,G) 1.11%(D,G)
Portfolio turnover rate 30%(G) 42%(G)
Average commission rate paid(H) $.0764 $.0723
- ------------------------------------------------------------------------------------------
</TABLE>
(A) The year end for Bartlett Basic Value Fund has been changed from March 31 to
December 31.
(B) Commencement of operations of this Class.
(C) Net of fees waived pursuant to a voluntary expense limitation of 1.15%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 1.19%.
(D) Net of fees waived pursuant to a voluntary expense limitation of 1.90%. If
no fees has been waived, the annualized ratio of expenses to average daily
net assets would have been 2.00%.
(E) Excluding sales charge
(F) Not annualized
(G) Annualized
(H) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(I) Unaudited
11
<PAGE>
BARTLETT EUROPE FUND(A)
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------------
SIX
MONTHS YEARS ENDED DECEMBER 31,
ENDED ------------------------------------------------------------------------------------
6/30/98(J) 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 20.97 $ 24.24 $ 21.13 $ 17.68 $ 18.46 $ 14.29 $ 15.44 $ 14.65 $ 20.14
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .05(C) (.05)(C) .02 .01 (.03) .14 .08 .08 .19
Net realized and
unrealized gains
(losses) on investments
and foreign currency
transactions 6.79 4.11 6.34 3.50 (.75) 4.13 (1.19) .92 (4.30)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 6.84 4.06 6.36 3.51 (.78) 4.27 (1.11) 1.00 (4.11)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- -- -- (.06) -- (.05) (.04) (.21) (.08)
In excess of net
investment income -- -- -- -- -- (.05) -- -- (.85)
Distributions from net
realized gains -- (7.33) (3.25) -- -- -- -- -- (.45)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (7.33) (3.25) (.06) -- (.10) (.04) (.21) (1.38)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $ 27.81 $ 20.97 $ 24.24 $ 21.13 $ 17.68 $ 18.46 $ 14.29 $ 15.44 $ 14.65
- ------------------------------------------------------------------------------------------------------------------------------
Market value per share,
end of period N/A N/A $ 22.00 $ 16.88 $ 14.25 $ 16.63 $ 12.00 $ 12.50 $12.125
- ------------------------------------------------------------------------------------------------------------------------------
Total return (market
value) N/A N/A 49.5% 18.8% (14.3%) 39.3% (3.7%) 4.7% (30.4%)
Total return(E,F)(NAV) 32.6%(G) 17.5% 31.5% 19.9% (4.2%) 29.9% (7.2%) 7.1% (20.6%)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $58,332 $52,253 $70,991 $62,249 $53,135 $55,486 $42,930 $46,405 $44,026
Ratio of net expenses to
average net assets 1.79%(C,H) 1.90%(C) 2.0% 2.1% 2.1% 2.1% 2.2% 2.3% 2.4%
Ratio of net investment
income to average net
assets .57%(C,H) (.12%)(C) 0.1% 0.1% -- 0.9% 0.5% 0.5% 1.1%
Portfolio turnover rate 113%(H) 123% 109% 148% 75% 67% 148% 92% 84%
Average commission rate
paid(I) $ .0526 $ .0374 $ .0313 -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A
---------------------
YEARS ENDED MARCH 31,
---------------------
1989 1988
- ------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $ 19.53 $ 16.46
- ------------------------------------------------
Income from investment
operations:
Net investment income
(loss) .03 .03
Net realized and
unrealized gains
(losses) on investments
and foreign currency
transactions 2.19 4.04
- ------------------------------------------------
Total from investment
operations 2.22 4.07
- ------------------------------------------------
Less distributions:
Dividends from net
investment income (.19) --
In excess of net
investment income (1.42) (1.00)
Distributions from net
realized gains -- --
- ------------------------------------------------
Total distributions (1.61) (1.00)
- ------------------------------------------------
Net asset value,
End of period $ 20.14 $ 19.53
- ------------------------------------------------
Market value per share,
end of period $ 19.00 $16.125
- ------------------------------------------------
Total return (market
value) 28.5% 42.2%
Total return(E,F)(NAV) 12.5% 25.6%
- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $60,522 $58,684
Ratio of net expenses to
average net assets 2.2% 2.2%
Ratio of net investment
income to average net
assets 0.1% 0.2%
Portfolio turnover rate 122% 96%
Average commission rate
paid(I) -- --
- ------------------------------------------------
</TABLE>
12
<PAGE>
BARTLETT EUROPE FUND(A), Continued
<TABLE>
<CAPTION>
CLASS C
------------------------------
SIX JULY 23,
MONTHS 1997(B)
ENDED TO
6/30/98(J) DEC. 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $ 20.86 $26.56
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .17(D) (.10)(D)
Net realized and unrealized
gains (losses) on
investments and foreign
currency transactions 6.46 .23
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 6.63 .13
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- --
In excess of net investment
income -- --
Distributions from net
realized gains -- (5.83)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (5.83)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $ 27.49 $20.86
- --------------------------------------------------------------------------------------------------------------------------------
Market value per share,
end of period N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Total return (market value) N/A N/A
Total return(E,F)(NAV) 31.8%(G) .7%(G)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $14,899 $302
Ratio of net expenses to
average net assets 2.50%(D,H) 2.50%(D,H)
Ratio of net investment income
to average net assets .68%(D,H) (1.79%)(D,H)
Portfolio turnover rate 113%(H) 123%
Average commission rate paid(I) $ .0526 $.0374
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The financial information in this table for the years ended December 31,
1988 through 1996 is for the Worldwide Value Fund, Bartlett Europe Fund's
predecessor. The financial information for the year ended December 31, 1997
is for Bartlett Europe Fund and Worldwide Value Fund. Prior to July 18,
1997, the Worldwide Value Fund operated as a closed-end fund.
(B) Commencement of operations of this Class.
(C) The expense ratio shown reflects both the operations of Bartlett Europe
Fund's predecessor, Worldwide Value Fund, prior to its merger with Bartlett
Europe Fund on July 18, 1997 and Bartlett Europe Fund's operations through
December 31, 1997. For the period July 19 to December 31, 1997, the Fund's
annualized expense ratio was 1.71%, net of fees waived pursuant to a
voluntary expense limitation of 1.75%. If no fees had been waived, the
annualized ratio of expenses to average daily net assets would have been
2.08%.
(D) Net of fees waived pursuant to a voluntary expense limitation of 2.50%. If
no fees has been waived, the annualized ratio of expenses to average daily
net assets would have been 2.68%.
(E) Prior to July 18, 1997, total return for Worldwide Value Fund, a closed-end
fund, was calculated using market value per share.
(F) Excluding sales charge
(G) Not Annualized
(H) Annualized
(I) Pursuant to SEC regulations adopted for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(J) Unaudited
13
<PAGE>
---------------------------------
INVESTMENT PERFORMANCE
---------------------------------
From time to time each Fund may quote the TOTAL RETURN of each class of
shares in advertisements or in reports or other communications to shareholders.
A mutual fund's total return is a measurement of the overall change in value,
including changes in share price and assuming reinvestment of dividends and
capital gain distributions, of an investment in the fund. CUMULATIVE TOTAL
RETURN shows the fund's performance over a specific period of time. AVERAGE
ANNUAL TOTAL RETURN is the average annual compounded return that would have
produced the same cumulative total return if the fund's performance had been
constant over the entire period. Average annual returns, which differ from
actual year-by-year results, tend to smooth out variations in a fund's return.
No adjustment will be made for any income taxes payable by shareholders.
At December 31, 1997, Basic Value and Value International changed their
year end from March 31 to December 31. Total returns as of December 31, 1997 are
shown below. The returns shown for Europe Fund reflect the operation of
Worldwide Value Fund, Inc. prior to its merger with Europe Fund on July 18,
1997. Sales charges have not been deducted from total returns. Prior to the date
of this Prospectus, Financial Services Fund has not commenced operations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A SHARES(dagger):
BASIC VALUE EUROPE
CUMULATIVE TOTAL RETURN VALUE INTERNATIONAL FUND
- ----------------------- -------------------------------------
<S> <C> <C> <C>
One Year +29.46% +6.14% +17.52%
Three Years +101.68% +34.45% +85.35%
Five Years +126.10% +75.67% +130.61%
Ten Years +300.18% n/a +156.88%
Life of Class +526.87%(a) +82.33%(b) +129.25%(c)
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
One Year +29.46% +6.14% +17.52%
Three Years +26.34% +10.37% +22.84%
Five Years +17.72% +11.93% +18.19%
Ten Years +14.88% n/a +9.89%
Life of Class +13.34%(a) +7.56%(b) +7.57%(c)
</TABLE>
(dagger) Prior to July 18, 1997, Value International and Basic Value each
offered a single class of shares, which have been redesignated as Class
A shares.
(a) Inception of Basic Value -- May 5, 1983
(b) Inception of Value International -- October 6, 1989
(c) Inception of Worldwide Value Fund, Inc. (which was reorganized into
Europe Fund on July 18, 1997) -- August 19, 1986
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES:
BASIC VALUE EUROPE
CUMULATIVE TOTAL RETURN VALUE INTERNATIONAL FUND
- ----------------------- --------------------------------------
<S> <C> <C> <C>
Life of Class +6.07%(a) -10.87%(b) +0.68%(c)
</TABLE>
(a) Commencement of sale of Class C of Basic Value -- September 12, 1997
(b) Commencement of sale of Class C of Value International -- July 23, 1997
(c) Commencement of sale of Class C of Europe Fund -- July 23, 1997
Total return information reflects past performance and is not a prediction
or guarantee of future results. Investment return and share price will
fluctuate, and the value of an investor's shares, when redeemed, may be worth
more or less than their original cost. Further information about each Fund's
performance is contained in the Funds' combined annual report to shareholders,
which may be obtained without charge by calling LMFP at (800) 800-3609.
14
<PAGE>
------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
------------------------------------------
The investment objective of Basic Value, Value International and Financial
Services Fund may be changed without shareholder approval; however, shareholders
of these Funds will be given a minimum of 30 days' prior written notice before
any change in investment objective becomes effective. Europe Fund's investment
objective may not be changed without shareholder approval.
BARTLETT VALUE INTERNATIONAL FUND
The investment objective of Value International is to seek capital
appreciation. The Fund seeks its objective by investing primarily in foreign
equity securities believed by Bartlett to be attractively priced relative to
their intrinsic value. Income is a secondary consideration.
The Fund invests primarily in equity securities of non-U.S. issuers
generally consisting of common stocks, common stock equivalents and preferred
stocks. The Fund also may invest indirectly in foreign equity securities by
purchasing American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities and by purchasing shares of closed-end
investment companies that hold foreign equity securities in their portfolios.
There is no requirement that the Fund invest exclusively in foreign equity
securities. The Fund may invest in other types of foreign securities such as
fixed income obligations of foreign companies, foreign governments, foreign
governmental agencies and international organizations. In addition, the Fund may
invest a portion of its assets in U.S. government obligations, debt and equity
obligations of U.S. issuers, and repurchase agreements, and may hold a portion
of its assets in cash and U.S. dollar-denominated time deposits.
In seeking its objective, the Fund intends to diversify its investments
among issuers representing various countries. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in equity securities of
non-U.S. issuers. The Fund may invest in countries in Europe, the Far East,
Latin America, Asia, Africa, Canada, Australia and other geographic regions. The
Fund may, from time to time, have more than 25% of its total assets invested in
any major industrial or developed country which in the view of Bartlett poses no
unique investment risk. If circumstances warrant, for temporary defensive
purposes, the Fund may invest substantially all of its assets in one or two
countries.
The Fund may employ several investment techniques, including the use of
options, hedging programs, currency transactions, repurchase agreements, lending
of portfolio securities, short sales "against the box" and forward commitment
transactions. For temporary defensive purposes, the Fund may hold all or a
portion of its assets in money market instruments, cash equivalents, short-term
government and corporate obligations or repurchase agreements.
Bartlett selects portfolio securities on the basis of what it considers to
be the intrinsic value of each security. In analyzing the intrinsic value of a
specific security, particular emphasis is given to such characteristics as
relative price/earnings ratio, dividend yield, and price/book value ratio. In
making investment decisions, Bartlett considers all other pertinent factors
affecting the intrinsic value of a security, including financial, tax, social,
political and national conditions.
Although the Fund provides a means for individuals and institutional
investors to invest a portion of their assets outside the U.S., it should not be
considered a complete investment program. In addition, investments in foreign
securities may be subject to risks not typically associated with investments in
domestic securities. See "Foreign Securities" for a more complete discussion of
certain risks associated with investments in foreign securities.
See "Investment Policies, Techniques and Risk Considerations" beginning at
page 18 for a more detailed discussion of risks associated with the securities
and investment techniques discussed above.
15
<PAGE>
BARTLETT BASIC VALUE FUND
The investment objective of Basic Value is to seek capital appreciation.
The Fund seeks its objective by investing primarily in common stocks or
securities convertible into common stocks that Bartlett believes to be selling
at attractive prices relative to their intrinsic value. Income is a secondary
consideration. In determining whether a specific security represents investment
value, particular emphasis is given to such characteristics as low debt,
relative price/earnings ratio, dividend yield, and price/book value ratio. The
Fund seeks to diversify its investments across industry sectors. The Fund's
investments may include foreign securities.
In seeking its objective, Basic Value invests only in securities of
companies with at least three years of operating history. Due to the Fund's
disciplined investment methodology, and the cyclical nature of the economy and
investment markets, there will be times when Bartlett is unable to purchase
reasonably valued common stocks and common stock equivalents. At these times,
the Fund may hold all or a portion of its assets in fixed income securities.
The Fund may employ several investment techniques, including the use of
options, hedging programs, currency transactions, repurchase agreements, reverse
repurchase agreements and dollar rolls, lending of portfolio securities, short
sales, short sales "against the box," structured securities and forward
commitment transactions. For temporary defensive purposes, the Fund may hold all
or a portion of its assets in money market instruments, cash equivalents,
short-term government and corporate obligations or repurchase agreements.
For a further discussion of the risks associated with these securities and
techniques, see "Investment Policies, Techniques and Risk
Considerations,"beginning on page 18.
BARTLETT EUROPE FUND
The investment objective of Europe Fund is to seek long-term growth of
capital. The Fund seeks to achieve its investment objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of European issuers that Lombard Odier believes are undervalued and thus may
offer above-average potential for capital appreciation.
The Fund invests primarily in equity securities, including common stock,
preferred stock, convertible securities, rights and warrants, but may also
invest in bonds, notes and other fixed income securities. The Fund will normally
invest at least 65% of its total assets in equity securities and may invest up
to 35% of its total assets in fixed income securities. When conditions warrant,
for temporary defensive purposes, the Fund may invest over 35% and as much as
100% of its total assets in fixed income securities. The fixed income securities
in which the Fund may invest generally include obligations of foreign or
domestic governments, government agencies or municipalities, and obligations of
foreign or domestic companies. The Fund may invest in fixed income securities
without regard to rating, although Lombard Odier does not anticipate that more
than 5% of the Fund's total assets will be invested in fixed income securities
rated lower than "investment grade" (that is, Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's ("S&P")), or, if unrated, deemed by
Lombard Odier to be of comparable quality. Most fixed income securities of
foreign issuers are not rated by Moody's or S&P. Generally, the fixed income
securities in which the Fund will invest will be those which Lombard Odier
believes offer potential for capital appreciation, either because of anticipated
changes in the general level of interest rates, or because of anticipated
improvement in the issuer's credit rating.
For temporary defensive purposes, the Fund may hold all or a portion of its
assets in money market instruments, cash equivalents, short-term government and
corporate obligations. The Fund may also enter into repurchase agreements.
The Fund may purchase securities both on recognized stock exchanges and in
over-the-counter markets. Most of the Fund's portfolio
16
<PAGE>
transactions will be effected in the primary trading market for the given
security.
The Fund may also invest in depositary receipts and securities of other
investment companies, and may enter into when-issued and delayed-delivery
transactions. The Fund is authorized to invest in options, futures and options
on futures contracts and may enter into foreign currency transactions and
forward foreign currency exchange contracts ("forward contracts"). The Fund may
invest up to 15% of its net assets in illiquid or restricted securities.
BARTLETT FINANCIAL SERVICES FUND
The investment objective of Financial Services Fund is to seek long-term
growth of capital. The Fund seeks to achieve its investment objective by
investing, under normal market conditions, at least 65% of its total assets in
equity securities of issuers in the financial services industry that Gray,
Seifert believes are undervalued and thus may offer above-average potential for
capital appreciation.
The financial services companies in which the Fund may invest include
regional and money center banks, securities brokerage firms, asset management
companies, savings banks and thrift institutions, specialty finance companies
(e.g., credit card, mortgage providers), insurance and insurance brokerage
firms, government sponsored agencies, financial conglomerates and foreign
financial services companies. Some of the companies in which the Fund may invest
have material operations in more than one of the sectors of the financial
services industry, including, for example, companies with banking, finance and
asset management operations. In addition, the Fund may invest in other companies
that derive more than 50% of their revenues from providing products and services
to the financial services industry, including software, hardware, publishing,
news services, credit research and rating services, internet services and
business services. The Fund also may invest in companies that provide ancillary
services or products to companies in the financial services industry.
The Fund invests primarily in equity securities, including common stock,
convertible securities and rights and warrants. It is not anticipated that the
Fund will invest more than 25% of its total assets in convertible securities,
and not more than 5% of its assets in below investment grade convertible
securities. The Fund will not invest in bonds, notes and other fixed-income
securities except for temporary or extraordinary circumstances. The Fund may
invest up to 25% of its total assets in foreign securities, not including ADRs.
The Fund will invest primarily in securities of issuers with market
capitalizations in the range of $1 to $12 billion. However, the Fund will also
invest in securities of issuers with smaller and larger capitalizations.
For temporary defensive purposes, the Fund may hold all or a portion of its
assets in money market instruments, cash equivalents, short-term government and
corporate obligations. The Fund may also enter into repurchase agreements.
Gray, Seifert bases the Fund's stock selection on the fundamental prospects
of each issuer using analysis of its products and financial statements. A
critical step in the investment process is evaluating and knowing an issuer's
management in order to understand its vision, character and goals.
Except as otherwise noted, the investment policies of each Fund described herein
may be changed by the Trust's Board of Trustees without a shareholder vote.
There can be no assurance that any Fund will achieve its investment objective.
Each Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities.
17
<PAGE>
------------------------------------------------------------------
INVESTMENT POLICIES, TECHNIQUES AND RISK CONSIDERATIONS
------------------------------------------------------------------
This section contains general information about various types of securities
and investment techniques. Each Fund may invest in any security or employ any
investment technique described in this section unless specifically noted
otherwise. Each Fund may purchase combinations of different types of securities
provided that the securities in the combination are permissible investments of
the Fund.
EQUITY SECURITIES
Equity securities include common stock, preferred stock and other similar
securities such as convertible preferred stock, convertible debentures, rights
and warrants. Convertible preferred stock is preferred stock that can be
converted into common stock pursuant to its terms. Convertible debentures are
debt instruments that can be converted into common stock pursuant to their
terms. Warrants are options to purchase equity securities at a specified price
valid for a specific time period. Rights are similar to warrants, but normally
have a short duration and are distributed by the issuer to its shareholders.
FOREIGN SECURITIES
Each Fund may invest in foreign equity securities. Value International and
Europe Fund are expected normally to invest at least 65% of their respective
assets in foreign securities. As noted above, Financial Services Fund will limit
its investments in foreign securities to 25% of its total assets, not including
ADRs.
ADRs, EDRs and other similar securities convertible into securities of
foreign companies provide a means for investing indirectly in foreign equity
securities. ADRs are receipts typically issued by a U.S. bank evidencing
ownership of the underlying foreign securities. EDRs are receipts typically
issued by a European bank evidencing ownership of the underlying foreign
securities. To the extent an ADR or EDR is issued by a bank unaffiliated with
the foreign company issuer of the underlying security, the bank has no
obligation to disclose material information about the foreign company issuer.
Each Fund may invest in ADRs and EDRs.
Foreign fixed income securities include corporate debt obligations issued
by foreign companies and debt obligations of foreign governments or
international organizations. This category may include floating rate
obligations, variable rate obligations, Yankee dollar obligations (U.S.
dollar-denominated obligations issued by foreign companies and traded on U.S.
markets) and Eurodollar obligations (U.S. dollar-denominated obligations issued
by foreign companies and traded on foreign markets).
Foreign government obligations generally consist of debt securities
supported by national, state or provincial governments or similar political
units or governmental agencies. Such obligations may or may not be backed by the
national government's full faith and credit and general taxing powers.
Investments in foreign securities also include obligations issued by
international organizations, which include entities designated or supported by
governmental entities to promote economic reconstruction or development as well
as international banking institutions and related governmental agencies.
Examples are the International Bank for Reconstruction and Development (the
World Bank), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank. In addition, investments in foreign
securities may include debt securities denominated in multinational currency
units of an issuer (including international issuers). An example of a
multinational currency unit is the European Currency Unit. A European Currency
Unit represents specified amounts of the currencies of certain member states of
the European Economic Community, more commonly known as the Common Market. Each
Fund may include foreign fixed income securities and foreign government
obligations in its portfolio.
Value International and Europe Fund under normal conditions will invest at
least 65% of their assets in foreign securities and European securities,
respectively. For purposes of this
18
<PAGE>
65% test, foreign and European securities respectively include securities of
issuers: (i) which are organized under the laws of a foreign country or Europe;
(ii) for which the principal trading market is in a foreign country or Europe;
or (iii) which derive at least 50% of their revenues or profits from goods
produced or sold, investments made, or services performed in foreign countries
or Europe or which have at least 50% of their assets situated in foreign
countries or Europe.
Purchases of foreign securities are usually made in foreign currencies and,
as a result, a Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. In addition, there may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the U.S. Other risks associated with
investments in foreign securities include changes in restrictions on foreign
currency transactions and rates of exchange, changes in the administrations or
economic and monetary policies of foreign governments, the imposition of
exchange control regulations, the possibility of expropriation decrees and other
adverse foreign governmental action, the imposition of confiscatory foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal and Spain are presently members of the European Economic
and Monetary Union (the "EMU"). EMU intends to establish a common European
currency on January 1, 1999. The old national currencies will be sub-currencies
of the euro until July 1, 2002 at which time the old currencies will disappear
entirely. Other European countries may adopt the euro in the future.
The planned introduction of the euro presents uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; whether exchange rates
for existing currencies and the euro will be in operation. These and other
factors may cause market disruptions before or after January 1, 1999 and could
adversely affect the value of securities held by the Funds.
Some financial contracts may become unenforceable when the currencies are
unified. These financial contracts may include bank loan agreements, master
agreements for swaps and other derivatives, master agreements for foreign
exchange and currency option transactions and debt securities. The European
Council has enacted laws and regulations designed to ensure that financial
contracts will continue to be enforceable after the conversion. There is no
guarantee, however, that these laws will be completely effective in preventing
disputes from arising. Disputes and litigation over these contract issues could
negatively impact the Funds' portfolio holdings and may create uncertainties in
the valuation of financial contracts the Funds hold.
After January 1, 1999, the introduction of the euro is expected to impact
European capital markets in ways that are impossible to quantify at this time,
For example, investors may begin to view EMU countries as a single market, and
that may impact future investment decisions for the Funds. As the euro is
implemented, there may be changes in the relative strength and value of the U.S.
dollar and other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries -- present and future -- may impact the
fiscal and monetary policies of those participating countries. There may be
increased levels of price competition among business firms within the EMU
countries and between business in EMU and non-EMU countries. The outcome of
these uncertainties could have unpredictable effects on trade and commerce and
result in increased volatility for all financial markets.
19
<PAGE>
EMERGING MARKETS
Value International and Europe Fund may invest in securities of issuers
based in emerging markets. Europe Fund may (but is not limited to) invest in
issuers based in Greece, Portugal, Hungary, Poland, Czech Republic, Slovakia or
Turkey. Value International may (but is not limited to) invest in issuers based
in the countries in Latin America, Southeast Asia and the Far East. Subject to
the above restrictions, emerging markets will include any country: (i) having an
"emerging stock market" as defined by the International Finance Corporation;
(ii) with low-to middle-income economies according to the World Bank; (iii)
listed in World Bank publications as developing; or (iv) determined by Bartlett
or Lombard Odier to be an emerging market in accordance with the criteria of
those organizations. The following are considered emerging market securities:
(1) securities publicly traded on emerging market stock exchanges, or whose
principal trading market is over-the-counter (I.E., off-exchange) in an emerging
market; (2) securities (i) denominated in any emerging market currency or (ii)
denominated in a major currency if issued by companies to finance operations in
an emerging market; (3) securities of companies that derive a substantial
portion of their total revenues from goods or services produced in, or sales
made in, emerging markets; (4) securities of companies organized under the laws
of an emerging market country or region, which are publicly traded in securities
markets elsewhere; and (5) ADRs (or similar instruments) with respect to the
foregoing.
The risks of foreign investment, described above, are greater for
investments in emerging markets. Investors are strongly advised to consider
carefully the special risks involved in emerging markets, which are in addition
to the usual risks of investing in developed markets around the world. Many
emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, very
negative effects on the economies and securities markets of certain emerging
markets. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by economic conditions, trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. In addition, many of the
currencies of emerging market countries have experienced steady devaluations
relative to the U.S. dollar, and major devaluations have occurred in certain
countries.
FIXED INCOME SECURITIES
Fixed income securities include corporate debt securities, municipal
obligations, mortgage-related securities, asset-backed and receivable-backed
securities, U.S. government obligations and participation interests in such
securities. Certain fixed income securities are floating rate obligations or
variable rate obligations. Certain fixed income securities may carry demand
features that permit a Fund to sell the obligation back to the issuer or to a
third party at a specified price upon short notice at any time or prior to
specific dates. Preferred stock and convertible debt securities may also be
considered to be fixed income securities.
Corporate Debt Securities. Each Fund is permitted to invest in corporate
debt securities, I.E., long-term and short-term debt obligations issued by
companies (such as publicly issued and privately placed bonds, notes and
commercial paper.) Corporate debt securities include variable amount master
demand notes. These obligations permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Variable amount master demand notes are direct lending
arrangements between the lender and borrower and are not generally transferable.
A Fund may invest in such notes only if the Board of Trustees believes that the
notes are of comparable quality to the other obligations in which the Fund may
invest. Variable amount master demand notes may be deemed illiquid under certain
circumstances, and a Fund's investment in such notes would be limited to the
extent that it is not permitted to invest more than 10% (15% for Europe Fund) of
the value of its net assets in illiquid investments.
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<PAGE>
INVESTMENTS IN THE FINANCIAL SERVICES INDUSTRY
Because investments made by Financial Services Fund are concentrated in the
financial services industry, its shares are subject to greater risk than the
shares of a fund whose portfolio is not so concentrated, and it will be
particularly affected by economic, competitive and regulatory developments
affecting that industry.
Financial services companies are subject to extensive governmental
regulation. This regulation may limit both the amounts and types of loans and
other financial commitments these companies can make, as well as the interest
rates and fees they can charge. The industry and the Fund may be significantly
affected by legislation, including legislation currently being considered to
reduce the separation between commercial and investment banking businesses.
Profitability of financial services companies is largely dependent on the
availability and cost of funds, and can fluctuate significantly when interest
rates change. In addition, credit losses resulting from financial difficulties
of borrowers can negatively affect the industry. Accordingly, the financial
services industry is susceptible to overall economic factors and credit losses
can be severe in a recession or other economic downturn. Companies in the
financial services industry also may be subject to severe price competition.
A more complete description of the risks associated with securities in the
financial services industry is included in the Statement of Additional
Information.
OPTIONS, FUTURES AND FORWARD CURRENCY EXCHANGE CONTRACTS (FOR EACH FUND OTHER
THAN FINANCIAL SERVICES FUND)
Each Fund may engage in option transactions involving equity securities,
debt securities, futures contracts and stock indexes. Each Fund may also engage
in option transactions involving foreign currencies and foreign stock indexes.
To cover the potential obligations involved in option transactions, a Fund
will own the underlying equity security, debt security, futures contract or
foreign currency or the Fund will segregate with its custodian (i) appropriate
liquid assets sufficient to purchase the underlying equity security, debt
security, futures contract or foreign currency or (ii) appropriate liquid assets
equal to the market value of the stock index. A Fund will engage in options on
futures contracts only for hedging purposes (see below). Option transactions
involve the following principal risks: (i) the loss of a greater percentage of
the Fund's investment than a direct investment in the underlying instrument,
(ii) the loss of opportunity to profit from price movements in the underlying
instrument, and (iii) the inability to effect a closing transaction on a
particular option.
There is no restriction on the percentage of a Fund's total assets which
may be committed to transactions in options (except options on futures contracts
as discussed below). However, the SEC considers over-the-counter options to be
illiquid. As long as the SEC maintains this position, a Fund will not engage in
an over-the-counter option transaction if such transaction would cause the value
of such options purchased by the Fund and the assets used to cover such options
written (sold) by the Fund, together with the value of other illiquid securities
held by the Fund, to exceed 10% (15% for Europe Fund) of its net assets. The
policy of Basic Value and Value International with respect to options is
fundamental, although the particular practices followed with respect to options,
such as the procedures used to cover or secure options which a Fund writes, are
not deemed fundamental and may be changed by the Board of Trustees without
shareholder vote.
Each Fund may hedge all or a portion of its portfolio investments through
the use of options, futures contracts and options on futures contracts. Each
Fund may hedge currency risks associated with investments in foreign securities
and in particular may hedge its portfolio through the use of forward contracts
as described below. The objective of a hedging program is to protect a profit or
offset a loss in a portfolio security from future price erosion or to assure a
definite price for a security, stock index, futures contract or currency. There
are transactional costs connected with a hedging program.
The principal risks associated with hedging transactions are: (i) possible
imperfect correla-
21
<PAGE>
tion between the prices of the options and futures contracts and the market
value of a Fund's portfolio securities, (ii) possible lack of a liquid secondary
market for closing out an option or futures contract transaction, (iii) the need
for additional skills and techniques beyond normal portfolio management, and
(iv) losses resulting from market movements not anticipated by Bartlett and/or
Lombard Odier.
No Fund may purchase or sell futures contracts or purchase related options
if, immediately thereafter, more than one-third of its net assets would be
hedged. In addition, no Fund may enter into transactions involving futures
contracts and related options if such transactions would result in more than 5%
of the fair market value of the Fund's assets being deposited as initial margin
for such transactions.
When a Fund purchases or sells a security denominated in a foreign
currency, it may be required to settle the purchase transaction in the relevant
foreign currency or to receive the proceeds of the sale in the relevant foreign
currency. In either event, the Fund will be obligated to acquire or dispose of
the foreign currency by selling or buying an equivalent amount of U.S. dollars.
To effect the conversion of the amount of foreign currency involved in the
purchase or sale of a foreign security, the Fund may purchase or sell such
foreign currency on a "spot" (I.E., cash) basis.
In addition, a Fund may wish to lock in the U.S. dollar value of the
transaction at or near the time of the purchase or sale at the exchange rate or
rates then prevailing between the U.S. dollar and the currency in which the
foreign security is denominated. Therefore, a Fund may enter into a forward
contract. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded directly between currency traders
(usually large commercial banks) and their customers. By entering into a forward
contract in U.S. dollars for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction, a Fund is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the U.S. dollar and
such foreign currency. This process is known as transaction hedging. Transaction
hedging may protect a Fund from a possible loss, but will limit potential gains
which might result from a positive change in the currency relationships.
When it is desirable to limit or reduce exposure in a foreign currency in
order to moderate potential changes in the U.S. dollar value of the portfolio, a
Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of that Fund's portfolio securities denominated in such foreign currency. This
technique is known as portfolio hedging. Hedging against a decline in the value
of currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline. The Funds
may also employ forward contracts to hedge against an increase in the value of
the currency in which the securities a Fund intends to buy are denominated.
A Fund may also hedge its foreign currency exchange rate risk by engaging
in currency futures contracts and options transactions described above. No Fund
will engage in foreign currency transactions for speculative purposes.
A more complete description of the characteristics, risks and possible
benefits of option and hedging transactions is included in the Funds' Statement
of Additional Information.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. A repurchase agreement is a
transaction by which a Fund purchases a security and simultaneously commits to
resell that security to the seller at an agreed upon price and date. In the
event of a bankruptcy or other default of the seller of a repurchase agreement,
a Fund could experience both delays in liquidating the underlying security and
losses. Europe Fund may enter into repurchase agreements with respect to
securities issued by the U.S. government, its agencies or instrumentalities.
Under normal circumstances, no more than 25% of Europe Fund's total assets will
be invested in repurchase agreements at any time.
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<PAGE>
ILLIQUID SECURITIES
The portfolio of each Fund may contain illiquid securities. A Fund will not
invest more than 10% (15% with respect to Europe Fund and Financial Services
Fund) of its net assets in securities for which there are legal or contractual
restrictions on resale or other illiquid securities. Illiquid securities
generally include securities which cannot be disposed of promptly and in the
ordinary course of business without taking a reduced price. Securities may be
illiquid due to contractual or legal restrictions on resale or lack of a ready
market. The following securities are considered generally to be illiquid
(although if they are liquid they will be treated as such): repurchase
agreements and time deposits maturing in more than seven days, options traded in
the over-the-counter market, nonpublicly offered securities, stripped
collateralized mortgage obligations ("CMOs"), CMOs for which there is no
established market, direct investments in mortgages and restricted securities.
RESTRICTED SECURITIES
Each Fund may invest in restricted securities, although Basic Value and
Value International do not intend to invest more than 5% of their respective net
assets in restricted securities. Restricted securities are securities the resale
of which is subject to legal or contractual restrictions. Restricted securities
may be sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expense, and a considerable period may elapse between the time of
the decision to sell and the time such security may be sold under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than the price it could
have obtained when it decided to sell.
LOANS OF PORTFOLIO SECURITIES
Each Fund may make short- and long-term loans of their portfolio
securities. Under the lending policy authorized by the Board of Trustees and
implemented by Bartlett or the respective sub-adviser, in response to requests
of broker/ dealers or institutional investors which Bartlett or the respective
sub-adviser deems qualified, the borrower must agree to maintain collateral, in
the form of cash or U.S. government obligations, with the Fund on a daily
mark-to-market basis in an amount at least equal to 100% of the value of the
loaned securities. The Funds will continue to receive dividends or interest on
the loaned securities and may terminate such loans at any time or reacquire such
securities in time to vote on any matter which the Board of Trustees determines
to be serious. There is the risk that the borrower may fail to return the loaned
securities or that the borrower may not be able to provide additional
collateral. No loan of securities will be made if, as a result, the aggregate
amount of such loans would exceed 25% of the value of a Fund's total assets.
OTHER INVESTMENT COMPANIES
Each Fund is permitted to invest in other investment companies at any time.
A Fund will not invest more than 10% of its total assets in securities of other
investment companies or invest more than 5% of its total assets in securities of
any investment company and will not purchase more than 3% of the outstanding
voting stock of any investment company. If a Fund acquires securities of another
investment company, the shareholders of the Fund may be subject to duplicative
management fees.
Value International and Europe Fund each may invest in any closed-end
investment company that holds foreign equity securities in its portfolio. For
Value International, investments in the shares of closed-end investment
companies that invest primarily in the equity securities of non-U.S. issuers
will be included in the 65% of total assets that Value International normally
would expect to invest in such issuers. Likewise, investments by Europe Fund in
the shares of closed-end investment companies that invest primarily in equity
securities of European issuers will be included in the 65% of total assets that
Europe Fund normally would expect to invest in European issuers.
23
<PAGE>
----------------------------------------------------
HOW TO PURCHASE AND REDEEM YOUR SHARES
----------------------------------------------------
GENERAL
For further information concerning the purchase/redemption of your shares
or for further instructions regarding any purchase/ redemption options, please
contact your broker/dealer or LMFP.
Each Fund is authorized to issue three classes of shares. Class A shares of
the Funds are subject to an initial sales charge or a CDSC under limited
circumstances. Class C shares are sold without an initial sales charge but are
subject to a CDSC on certain redemptions and are subject to higher ongoing
expenses. The third class of shares of the Funds, Class Y shares, is offered
through a separate prospectus only to certain investors.
PURCHASES
Orders received before the close of regular trading on the New York Stock
Exchange ("Exchange") (normally 4:00 p.m. Eastern time) ("close of the
Exchange") on any day the Exchange is open will be executed at the net asset
value for the applicable class of shares, plus any applicable sales charge,
determined as of the close of the Exchange on that day. Orders received after
the close of the Exchange or on days the Exchange is closed will be executed at
the net asset value for the applicable class of shares, plus any applicable
sales charge, determined as of the close of the Exchange on the next day the
Exchange is open. When placing purchase orders, investors should specify whether
the order is for Class A or Class C shares of a Fund. All purchase orders that
fail to specify a class will automatically be invested in Class A shares. The
Funds and LMFP reserve the right to reject any purchase order and to suspend the
offering of shares for a period of time. The Funds do not issue share
certificates.
The minimum initial investment for each class of shares is $1,000,
including investments made by exchange from another Fund or Legg Mason Cash
Reserve Trust, and investments through an individual retirement account ("IRA"),
simplified employee pension plan ("SEP"), savings incentive match plan for
employees ("SIMPLE") or other qualified retirement plan. The minimum investment
for each purchase of additional shares is $100. Each Fund may reduce or waive
such minimums for investments made by employer sponsored qualified retirement
plans or through automatic investment programs, investments made through
brokerage firms or other financial institutions, or investments made by advisory
clients of Bartlett and employees of Bartlett and their families, or under other
circumstances.
Once an account has been established, investors may also purchase shares of
the Funds through LMFP by bank wire. Bank wire purchases will be effected at the
next determined net asset value, plus any applicable sales charge, after the
bank wire is received. An investor's bank may charge a service fee for wiring
money to the Funds.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; an annual report for the Funds will
contain financial statements audited by the Trust's independent accountants.
Shareholder inquiries should be addressed to:
[insert complete Fund name]
LMFP Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
Telephone inquiries:
call LMFP at (800) 800-3609
PURCHASES THROUGH BROKER/DEALERS:
Shares of the Funds may be purchased through broker/dealers with which LMFP
has entered into dealer agreements. Orders received by such broker/dealers
before the close of the Exchange will be effected that day, provided that such
order is transmitted to Boston Financial Data Services, Inc. ("BFDS"), the
Trust's
24
<PAGE>
transfer agent, prior to its close of business on such day. The broker/dealer
will be responsible for forwarding the investor's order to BFDS so that it will
be received prior to such time. After an initial investment is made and a
shareholder account is established through a broker/dealer, at the investor's
option, subsequent purchases may be made directly through LMFP.
Broker/dealers that do not have dealer agreements with LMFP also may offer
to place orders for the purchase of shares. Purchases made through such
broker/dealers will be effected at the net asset value per share plus any
applicable sales charge next determined after the order is received by BFDS.
Such a broker/dealer may charge the investor a transaction fee as determined by
the broker/dealer. That fee will be in addition to the sales charge payable by
the investor with respect to Class A shares, and may be avoided if shares are
purchased through a broker/dealer that has a dealer agreement with LMFP or
directly through LMFP.
PURCHASING CLASS A SHARES:
Each Fund's public offering price for Class A shares is equal to the net
asset value per share plus a sales charge determined in accordance with the
following schedule, which may be amended from time to time:
<TABLE>
<CAPTION>
DEALER
REALLOWANCE AS
SALES CHARGE AS A % OF A PERCENTAGE
---------------------- OF THE
OFFERING NET OFFERING
AMOUNT OF PURCHASE PRICE INVESTMENT PRICE
- ------------------ -------- ---------- --------------
<S> <C> <C> <C>
Less than $25,000....................................................... 4.75% 4.99% 4.00%
$25,000 to $49,999...................................................... 4.50% 4.71% 3.75%
$50,000 to $99,999...................................................... 4.00% 4.17% 3.25%
$100,000 to $249,999.................................................... 3.50% 3.63% 2.75%
$250,000 to $499,999.................................................... 2.50% 2.56% 2.00%
$500,000 to $999,999.................................................... 2.00% 2.04% 1.60%
$1 million or more*..................................................... 0.00% 0.00% 1.00%
</TABLE>
* A CDSC of 1% of the shares' net asset value at the time of purchase or sale,
whichever is less, may be charged on redemptions of shares purchased pursuant
to the front-end sales charge waiver for purchases of $1 million or more made
within one year of the purchase date. See below.
LMFP will pay the following commission to brokers that initiate and are
responsible for purchases of Class A shares by any single purchaser of $2
million or more in the aggregate: 0.80% up to $2,999,999, plus 0.50% of the
excess over $3 million up to $20 million, plus 0.25% of the excess over $20
million.
From time to time, LMFP may reallow to broker/dealers the full amount of
the sales charge on Class A shares or may pay out, in addition to a sales
commission, special additional compensation and promotional incentives to
broker/dealers who sell Class A shares. To the extent that LMFP reallows the
full amount of the sales charge to broker/dealers, such broker/dealers may be
deemed to be underwriters under the Securities Act of 1933, as amended.
SALES CHARGE WAIVERS:
Class A shares of each Fund are sold at net asset value without imposition
of sales charges when investments are made by the following classes of
investors: advisory clients (and related accounts) of Bartlett & Co. or Gray,
Seifert & Co., Inc., certain employee benefit or retirement accounts (subject to
the discretion of Bartlett & Co.), officers and trustees of the Trust, employees
of Legg Mason, Inc. and its affiliates, registered representatives or full-time
employees of broker/dealers that have entered into dealer agreements with LMFP,
and the children, siblings and parents of such persons. All existing
shareholders of Basic Value and Value International as of July 18, 1997 will be
eligible to purchase additional Class A shares of their respective Fund without
the imposition of a
25
<PAGE>
sales charge. All shareholders who owned Class A shares of Europe Fund on July
18, 1997, and who remain as shareholders of Europe Fund, are eligible to
purchase additional Class A shares of Europe Fund without the imposition of a
sales charge through May 1, 1999. No initial sales charge will be imposed on
Class A shares issued as a result of reinvestment of any dividends or other
distributions.
Class A shares are also sold at net asset value without the imposition of a
sales charge to broker/dealers, registered investment advisors, financial
institutions, or financial planners for the accounts of clients participating in
"wrap fee" advisory programs that adhere to certain standards and that are
subject to agreements between those entities and LMFP.
REDUCED SALES CHARGE PURCHASE PLANS -- CLASS A SHARES:
Class A shares may be purchased at reduced sales charges either through the
Right of Accumulation or under a Letter of Intent. For more details on these
plans, investors should contact their broker/dealers or LMFP.
RIGHT OF ACCUMULATION. Pursuant to the Right of Accumulation, shareholders
are permitted to purchase shares of the Funds at the sales charge applicable to
the total of (a) the dollar amount then being purchased plus (b) the dollar
amount of the shareholder's concurrent purchases of Class A shares of other
Funds plus (c) the price of all shares of Class A shares of Funds already held
by the shareholder. To receive the Right of Accumulation, at the time of
purchase shareholders must give their broker/dealers or LMFP sufficient
information to permit confirmation of qualification.
LETTER OF INTENT. In executing a Letter of Intent ("LOI"), a shareholder
indicates an aggregate investment amount he or she intends to invest in Class A
shares of a Fund and the Class A shares of other Funds in the following thirteen
months. The sales charge applicable to that aggregate amount then becomes the
applicable sales charge on all purchases made concurrently with the execution of
the LOI and in the thirteen months following that execution. If a shareholder
executes an LOI within 90 days of a prior purchase of Class A shares, the prior
purchase may be included under the LOI and an appropriate adjustment, if any,
with respect to the sales charges paid by the shareholder in connection with the
prior purchase will be made, based on the then-current net asset value(s) of the
pertinent Fund(s).
If at the end of the thirteen month period covered by the LOI, the total
amount of purchases does not equal the amount indicated, the shareholder will be
required to pay the difference between the sales charges paid at the reduced
rate and the sales charges applicable to the purchases actually made. Shares
having a value equal to 5% of the amount specified in the LOI will be held in
escrow during the thirteen month period (while remaining registered in the
shareholder's name) and are subject to redemption to assure any necessary
payment to LMFP of a higher applicable sales charge.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES:
Purchases of Class A shares of $1,000,000 or more may be made without an
initial sales charge. Purchases of Class A shares of two or more Funds may be
combined for this purpose, and the Right of Accumulation and LOI also apply to
such purchases. If a shareholder redeems any Class A shares that were purchased
without a sales charge by reason of a purchase of $1,000,000 or more within one
year after the date of purchase, a CDSC of 1% of the lower of the original
purchase price or the net asset value of such shares at the time of redemption
will be charged. Class A shares that are redeemed will not be subject to the
CDSC to the extent that the value of such shares represents: (1) reinvestment of
dividends or other distributions or (2) Class A shares redeemed more than one
year after their purchase. Such share purchases of at least $1,000,000 without a
sales charge may be exchanged for Class A shares of another Fund without the
imposition of a CDSC, although the CDSC described above will apply to the
redemption of the shares acquired through an exchange. For federal income tax
purposes, the amount of the CDSC will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any CDSC
will be paid to LMFP.
PURCHASING CLASS C SHARES:
The public offering price of Class C shares of each Fund is the net asset
value next determined after the order has been received. No
26
<PAGE>
initial sales charge is imposed, but Class C shares are subject to higher
ongoing expenses.
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES:
A CDSC of 1% of net asset value at the time of purchase or sale, whichever
is less, may be charged on redemptions of Class C shares made within one year of
the purchase date. Class C shares that are redeemed will not be subject to the
CDSC to the extent that the value of such shares represents: (1) reinvestment of
dividends or other distributions or (2) Class C shares redeemed more than one
year after their purchase. For federal income tax purposes, the amount of the
CDSC will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any CDSC will be paid to LMFP.
Class C shares purchased through a Legg Mason financial advisor are not
subject to the CDSC.
PROGRAMS APPLICABLE TO CLASS A AND CLASS C:
SYSTEMATIC INVESTMENT PLAN. Shares of each Fund may be purchased through
the Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in the Funds of $50 or more by authorizing BFDS to transfer
funds each month from your checking account. Please contact your broker/dealer
or LMFP for further information.
AUTOMATIC INVESTMENTS. Arrangements may be made with some employers and
financial institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be possible
for dividends from certain unit investment trusts to be invested automatically
in shares. Persons interested in establishing such automatic investment programs
should contact the Funds through their broker/dealer or LMFP.
REDEMPTIONS
As described below, shares of the Funds may be redeemed at their net asset
value (subject to any applicable CDSC). Redemption proceeds normally will settle
in your LMFP brokerage account two business days after trade date; however, each
Fund reserves the right to take up to seven days to make payment upon redemption
if, in the judgment of Bartlett and/or the respective sub-adviser, the
respective Fund could be adversely affected by immediate payment. The Statement
of Additional Information describes several other circumstances in which the
date of payment may be postponed or the right of redemption suspended.
REDEMPTIONS THROUGH BROKER/DEALERS:
Shareholders may call LMFP or their broker/dealer and give them an order
for redemption. Shareholders should have the following information ready when
they call: the name of the Fund, the number of shares (or dollar amount) to be
redeemed and their shareholder account number. Shareholders may also send a
written request for redemption to the address listed below.
Shareholders with accounts at broker/ dealers that sell shares of the Funds
may submit redemption requests to such broker/ dealers. Broker/dealers may honor
a redemption request either by repurchasing shares from a redeeming shareholder
at the shares' net asset value next determined after the broker/dealer receives
the request or by forwarding such requests to BFDS.
Redemption proceeds (less any applicable CDSC) normally will be paid by
check or, if offered by the broker/dealer, credited to the shareholder's
brokerage account at the election of the shareholder. If shares are held in the
broker/dealer's "street name," the redemption must be made through the broker/
dealer. Broker/dealers may impose a service charge for handling redemption
transactions placed through them and may have other requirements concerning
redemptions. Shareholders should contact their broker/dealers for further
information.
All redemptions will be effected at the net asset value next determined
after BFDS has received the request in good order and any required supporting
documentation (less any applicable CDSC). Redemption requests received before
the close of the Exchange will be effected at the net asset value calculated on
that day. ALL WRITTEN REDEMPTION REQUESTS MUST BE ACCOMPANIED BY A SIGNATURE
GUARANTEE UNLESS THE REDEMPTION PROCEEDS ARE TO BE SENT TO THE REDEEMING
SHAREHOLDER AT THE SHAREHOLDER'S ADDRESS OF RECORD AS MAINTAINED BY BFDS. A
signature guarantee
27
<PAGE>
may be obtained by a national bank, a state bank, a member firm of a principal
stock exchange or other entity described in Rule 17Ad-15 under the Securities
Exchange Act of 1934.
Written redemption requests will be considered to be received in "good
order" only if:
1. The shareholder has indicated in writing the number of shares (or the
dollar amount) of the specific class to be redeemed, the complete Fund
name and shareholder account number;
2. The written request is signed by the shareholder and by any co-owner of
the account with exactly the same name or names used in establishing the
account;
3. The signatures on the written request have been guaranteed, if required,
as described above.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption or repurchase. Please contact LMFP or your
broker/dealer for further information.
PURCHASES AND REDEMPTIONS THROUGH INSTITUTIONS
Certain institutions that have agreements with LMFP or the Funds may be
authorized to accept purchase and redemption orders on their behalf. In that
case, a Fund will be deemed to have received your purchase or redemption order
when the authorized institution accepts the order, and your order will receive
the next price calculated after the order has been accepted by the institution.
You should consult with your institution to determine the time by which it must
receive your order for you to purchase or redeem Fund shares at that day's
price. It is the institution's responsibility to transmit your order to the Fund
in a timely fashion.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders may elect to make systematic withdrawals from their Fund
account of a minimum of $50 on a monthly basis if they are purchasing or already
own shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan with respect to that Fund. Please contact LMFP or your
broker/dealer for further information.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed their Class A shares in a Fund may reinstate
their Fund account without a sales charge up to the dollar amount redeemed by
purchasing shares within 90 days of the redemption ("reinstatement privilege").
Shareholders may exercise their reinstatement privilege by notifying LMFP or
their broker/dealer of such desire and placing an order for the amount to be
purchased within 90 days after the date of redemption. The reinstatement will be
made at the net asset value next determined after the Notice of Reinstatement
and order have been received by BFDS.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your shares of a Fund
for the corresponding class of shares of another Fund or the Legg Mason Cash
Reserve Trust (a money market mutual fund), provided that such shares are
eligible for sale in your state of residence.
Investments by exchange into a class of a Fund sold with an initial sales
charge are made at the per share net asset value (plus any applicable sales
charge) determined on the same business day as redemption of the Fund shares you
wish to exchange.
No initial sales charge will be imposed on an exchange where the investor
paid an initial sales charge upon the purchase of shares. Investments by
exchange into the Legg Mason Cash Reserve Trust, which is sold without an
initial sales charge, are made at the per share net asset value determined on
the same business day as redemption of the Fund shares you wish to exchange. A
CDSC may apply to the redemption of Class A and/or Class C shares acquired
through an exchange.
There is no charge for the exchange privilege, but each Fund reserves the
right to terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from that Fund in one calendar year. To effect an
exchange by telephone, or to obtain further information concerning the exchange
privilege, please contact LMFP or your broker/dealer.
28
<PAGE>
OTHER IMPORTANT REDEMPTION INFORMATION
The proceeds of your redemption may be more or less than your original
cost. If the shares to be redeemed were paid for by check (including certified
or cashier's checks) within 10 business days of the redemption request, the
proceeds may not be disbursed unless the Fund can be reasonably assured that the
check has been collected.
None of the Funds will be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable procedures to
identify the caller. Each Fund may request identifying information from callers
or employ identification numbers. Each Fund may be liable for losses due to
unauthorized or fraudulent instructions if it does not follow reasonable
procedures. Telephone redemption privileges are available automatically to all
shareholders. Shareholders who do not wish to have telephone redemption
privileges should call LMFP or their broker/dealer for further instructions.
Because of the relatively high cost of maintaining small accounts, each
Fund may elect to close any account with a current value of less than $500 by
redeeming all of the shares in the account and mailing the proceeds to you.
However, no Fund will redeem accounts that fall below $500 solely as a result of
a reduction in net asset value per share. If a Fund elects to redeem the shares
in your account, you will be notified that your account is below $500 and will
be allowed 60 days in which to make an additional investment in order to avoid
having your account closed.
The shares of each Fund are subject to redemption at any time if the Board
of Trustees of the Trust determines in its sole discretion that failure to so
redeem may have materially adverse consequences to all or any of the
shareholders of the Trust or any Fund.
TELEPHONE TRANSACTIONS:
Call LMFP at (800) 800-3609
MAIL TRANSACTIONS:
[insert complete Fund name]
LMFP Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
---------------------------------
CALCULATION OF SHARE PRICE
---------------------------------
Net asset value per share of each Fund class is determined daily, as of the
close of the Exchange, on every day that the Exchange is open, by subtracting
the liabilities attributable to each class from the total assets of such class
and dividing the result by the number of shares of such class outstanding.
Securities owned by each Fund for which market quotations are readily available
are valued at current market value. In the absence of readily available market
quotations, securities are valued at fair value as determined by Bartlett and/or
the respective sub-adviser, under authority delegated by the Board of Trustees.
The Funds may use pricing services to determine the market value of its
portfolio securities, subject to the adviser's and/or sub-adviser's review. If
the Board of Trustees determines in good faith that another method of valuing
options and futures contracts is necessary to appraise their fair value, such
other method will be used.
Equity securities, options and commodities listed on exchanges are valued
at the last sale price as of the close of business on the day the securities are
being valued. Listed securities not traded on a particular day and securities
traded in the over-the-counter market are valued at the mean between closing bid
and ask prices quoted by brokers or dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
an exchange are valued according to the broadest and most representative market.
Fixed income securities generally are valued by using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. However, if the adviser and/or sub-adviser
29
<PAGE>
believes that the market value of a security will be more accurately reflected
thereby, it will use market value estimates obtained from yield spreads relating
to securities with similar characteristics as to credit quality, coupon rate,
maturity and other factors. Fixed income securities having a maturity of less
than 60 days are valued at amortized cost.
For valuation purposes, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the then-prevailing
exchange rates. In computing the net asset value of a Fund, the values of
foreign portfolio securities are generally based upon market quotations that,
depending upon the exchange or market, may be last sale price, last bid price,
or the mean between last bid and asked prices as of, in each case, the close of
the appropriate exchange or another designated time.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the Exchange is open. Trading of these
securities may not take place on every business day the Exchange is open. In
addition, trading may take place in various foreign markets on Saturdays or on
other days when the Exchange is not open and on which a Fund's share price is
not calculated. Therefore, the value of the portfolio of a Fund holding foreign
securities may be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
The calculation of the share price of a Fund holding foreign securities in
its portfolio does not take place contemporaneously with the determination of
the values of many of the foreign portfolio securities used in such calculation.
Events affecting the values of foreign portfolio securities that occur between
the time their prices are determined and the calculation of the Fund's share
price will not be reflected in the calculation unless the advier and/or sub-
adviser determines, subject to review by the Trust's Board of Trustees, that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
------------------------------------------
Each Fund distributes substantially all of its investment company taxable
income (which consists of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions), if any, in the form of
dividends to its shareholders of each class. Value International and Basic Value
each declares and pays dividends from net investment income on a quarterly basis
and dividends from any net short-term capital gains annually; Europe Fund and
Financial Services Fund each declares and pays all dividends on an annual basis.
Each Fund also distributes substantially all of its net capital gain (the excess
of net long-term capital gain over net short-term capital loss) and net gains
from foreign currency transactions, if any, after the end of the taxable year in
which the gains are realized. A second distribution of net capital gain may be
necessary in some years to avoid imposition of the excise tax described under
the heading "Additional Tax Information" in the Statement of Additional
Information.
Dividends and other distributions, if any, on Class A or Class C shares of
a Fund held in an IRA, SEP, SIMPLE or other qualified retirement plan and by
shareholders maintaining a Systematic Withdrawal Plan generally are reinvested
in the corresponding class of shares of the distributing Fund on the payment
date (including instances when no election is made). Other shareholders may
elect to:
1. Receive both dividends and other distributions in shares of the
corresponding class of the distributing Fund (automatic option -- no
action needed);
2. Receive dividends in cash and other distributions in shares of the
corresponding class of the distributing Fund;
3. Receive dividends in shares of the corresponding class of the
distributing Fund and other distributions in cash; or
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<PAGE>
4. Receive both dividends and other distributions in cash.
If a shareholder has elected to receive dividends and/or other
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
In certain cases, shareholders may reinvest dividends and other
distributions in the corresponding class of shares of another Fund. Please
contact LMFP or your broker/dealer for additional information concerning this
option. If no election is made, both dividends and other distributions are
credited to your account in shares of the corresponding class of the
distributing Fund at the net asset value of the shares determined as of the
close of the Exchange on the reinvestment date. Shares received pursuant to any
of the first three (reinvestment) elections above are also credited to your
account at that net asset value. Shareholders electing to receive dividends
and/or other distributions in cash will be sent a check or will have their
brokerage account credited after the payment date. You may elect at any time to
change your option by notifying the applicable Fund in writing at: [insert
complete Fund name], c/o LMFP Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476. Your election must be received at least 10 days before the
record date in order to be effective for dividends and other distributions paid
to shareholders as of that date.
---------------------------------
TAXES
---------------------------------
Each Fund intends to qualify or continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of federal income tax on that part of its
investment company taxable income and net capital gain that it distributes to
its shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or reinvested in shares) are taxable to its shareholders (other than IRAs,
SEPs, SIMPLEs, other qualified retirement plans and other tax-exempt investors)
as ordinary income to the extent of the Fund's earnings and profits.
Distributions of a Fund's net capital gain (whether paid in cash or reinvested
in shares), when designated as such, are taxable to those shareholders as long-
term capital gain, regardless of how long they have held their Fund shares. The
maximum tax rate applicable to a noncorporate taxpayer's net capital gain
recognized on capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). In the case of a regulated
investment company, such as the Funds, the relevant holding period is determined
by how long the Fund has held the portfolio security on which the gain was
realized, not by how long you have held your Fund shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends and
other distributions paid (or deemed paid) during the year. Each Fund is required
to withhold 31% of all dividends, capital gain distributions and redemption
proceeds payable to any individuals and certain other noncorporate shareholders
who do not provide the Fund with a certified taxpayer identification number.
Each Fund also is required to withhold 31% of all dividends and capital gain
distributions payable to such shareholders who otherwise are subject to backup
withholding.
A redemption of Fund shares may result in a taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any initial sales charge paid on Class A shares). An exchange
of Fund shares for shares of any other Fund or the Legg Mason Cash Reserve Trust
generally will have similar tax consequences. See "How to
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<PAGE>
Purchase and Redeem Your Shares -- Exchange Privilege," above. Special rules
apply when a shareholder redeems or exchanges Class A shares of a Fund within 90
days after purchase thereof and subsequently reacquires shares of the same Fund
or acquires shares of another Fund or the Legg Mason Cash Reserve Trust without
paying a sales charge due to the 90-day reinstatement privilege or the exchange
privilege. See "How to Purchase and Redeem Your Shares -- Reinstatement
Privilege" and " -- Exchange Privilege," above. In these cases, any gain on the
redemption or exchange of the original Fund shares would be increased, or any
loss would be decreased, by the amount of the sales charge paid when those
shares were acquired, and that amount will increase the basis of the shares
subsequently acquired. If Fund shares are purchased within 30 days before or
after redeeming at a loss other shares of the same Fund (regardless of class),
all or part of that loss will not be deductible and instead will increase the
basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
income tax. Accordingly, an investor should recognize that a purchase of shares
immediately before the record date for a dividend or other distribution could
cause the investor to incur tax liabilities and should not be made solely for
the purpose of receiving the dividend or other distribution.
Shareholders may be entitled to claim tax credits or deductions, subject to
certain limitations, for foreign income taxes paid by a Fund (see "Additional
Tax Information" in the Statement of Additional Information). Each Fund will
notify its shareholders if such credit or deduction is available.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition to
federal income tax, you may also be subject to state, local or foreign taxes on
distributions from the Funds, depending on the laws of your home state and
locality or country of residence. Prospective shareholders are urged to consult
their tax advisers with respect to the effects of this investment on their own
tax situations.
------------------------------------------------
MANAGEMENT OF THE TRUST
------------------------------------------------
BARTLETT & CO.
Bartlett & Co., 36 East Fourth Street, Cincinnati, Ohio, serves as
investment adviser and administrator to each Fund. Bartlett is an investment
advisory firm which has provided investment advice to individuals, corporations,
pension and profit sharing plans and trust accounts since 1898. As of September
30, 1998, Bartlett had aggregate assets under management of approximately $2.9
billion. Bartlett is a wholly owned subsidiary of Legg Mason, Inc., a financial
services holding company.
Pursuant to an Investment Management and Administration Agreement, which
was approved by the Board of Trustees, Bartlett acts as investment adviser for
each Fund and has responsibility for the actual investment management of the
Funds, including the responsibility for making decisions and placing orders to
buy, sell or hold a particular security, except with respect to Europe Fund,
where it has delegated that responsibility to Lombard Odier and except with
respect to Financial Services Fund, where it has delegated that responsibility
to Gray, Seifert. Bartlett also supervises all aspects of the operations of each
Fund in its capacity as administrator for each Fund.
Bartlett receives for its services a management fee from each Fund
attributable to the net assets of each class, calculated daily and payable
monthly. For its services to Basic Value, Bartlett receives an annual fee of
0.75% of its average daily net assets; for its services to Value International,
Bartlett receives an annual fee of 1.25% of its average daily net assets; for
its services to Europe Fund, Bartlett receives an annual fee of 1.00% of its
average daily net
32
<PAGE>
assets; and for its services to Financial Services Fund, Bartlett receives an
annual fee of 1.00% of its average daily net assets.
LOMBARD ODIER
Lombard Odier, Norfolk House, 13 Southampton Place, London WC1A 2AJ,
England, serves as investment sub-adviser to Europe Fund pursuant to a
Sub-Advisory Agreement with Bartlett, which was approved by the Board of
Trustees. For its services under the Sub-Advisory Agreement, Lombard Odier will
receive from Bartlett (not Europe Fund) a monthly fee at the rate of 60% of the
monthly fee actually paid to Bartlett by the Fund under the Investment
Management and Administration Agreement, taking into account any fee waiver
arrangements in effect for Europe Fund (see below).
Lombard Odier specializes in advising and managing investment portfolios
for institutional clients and also serves as investment adviser for one other
investment company. As of September 30, 1998, Lombard Odier had approximately
$8.6 billion in aggregate assets under management. Lombard Odier is an indirect
wholly owned subsidiary of Lombard Odier & Cie, a Swiss private bank.
GRAY, SEIFERT
Gray, Seifert, 380 Madison Avenue, New York, New York, serves as investment
sub-adviser to Financial Services Fund pursuant to a Sub-Advisory Agreement with
Bartlett, which was approved by the Board of Trustees. For its services under
the Sub-Advisory Agreement, Gray, Seifert will receive from Bartlett (not
Financial Services Fund) a monthly fee at the rate of 60% of the monthly fee
actually paid to Bartlett by the Fund for advisory and administrative services,
taking into account any fee waiver arrangements in effect for Financial Services
Fund (see below).
Gray, Seifert is known for its research and securities analysis with
respect to the financial services industry. Gray, Seifert has not previously
advised a mutual fund; however, it has been the evaluator of the Legg Mason
Regional Bank and Thrift Unit Investment Trusts. As of August 18, 1998, Gray,
Seifert had approximately $1.3 billion in aggregate assets under management.
Gray, Seifert is an indirect, wholly owned subsidiary of Legg Mason, Inc.
FEE WAIVERS
Bartlett has agreed to waive fees to the extent that a Fund's expenses
exceed the following annual rates of average daily net assets until May 1, 1999:
CLASS A CLASS C
------- -------
Value International 1.80% 2.55%
Basic Value 1.15% 1.90%
Europe Fund 1.85% 2.60%
Financial Services Fund 1.50% 2.25%
These agreements are voluntary and may be terminated by Bartlett at any
time. Each Fund pays all its other expenses which are not assumed by Bartlett.
EXPENSE RATIOS
For the fiscal period ended December 31, 1997, the ratio of each Fund's
expenses to its average net assets (after application of any fee waivers) was:
CLASS A CLASS C
------- -------
Value International 1.78% 2.55%
Basic Value 1.13% 1.90%
Europe Fund 1.90% 2.50%
As of the date of this Prospectus, Financial Services Fund has not yet
begun operations. In addition to management and distribution fees, that Fund,
like the others, will be responsible for interest, taxes, brokerage fees and
commissions, expenses of preparing and printing prospectuses, proxy statements
and reports to shareholders and of distributing them to existing shareholders,
custodian charges, transfer agency fees, compensation of the independent
trustees, legal and audit expenses, insurance expenses, shareholder meetings,
proxy solicitations, expenses of registering and qualifying Fund shares for sale
under federal and state law, governmental fees and expenses incurred in
connection with industry organizations.
PORTFOLIO MANAGERS
James A. Miller, CFA, Vice President of the Trust, and Woodrow H. Uible,
CFA, Vice President of the Trust, are responsible for co-managing Basic Value.
Mr. Miller is a Senior Portfolio Manager, President and a Director of Bartlett.
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<PAGE>
Mr. Miller joined Bartlett in 1977 and is a member of its Institutional
Investment Group. Mr. Uible is a Senior Portfolio Manager of Bartlett. Mr. Uible
has been employed by Bartlett since 1980. He chairs Bartlett's Equity Investment
Group, and is responsible for Bartlett's equity investment processes.
Madelynn M. Matlock, CFA, Vice President of the Trust, is primarily
responsible for managing Value International. Ms. Matlock, Director of
International Investments for Bartlett, joined Bartlett in 1981. She also served
as Director of Research for Bartlett from 1983 to 1992.
Neil Worsley, Director and Senior Investment Manager of Lombard Odier, and
William Lovering, Assistant Director of Lombard Odier, serve as portfolio
co-managers of Europe Fund. Mr. Worsley joined Lombard Odier in December 1990.
Mr. Lovering joined Lombard Odier in August 1994. Previously, Mr. Lovering was
employed at Arbuthnot Latham Investment Management.
Miles Seifert and Amy LaGuardia are responsible for co-managing Financial
Services Fund. Mr. Seifert is Chairperson of the Board and a Director of Gray,
Seifert, and has been with Gray, Seifert since its inception in 1980. Ms.
LaGuardia is Senior Vice President and Director of Research at Gray, Seifert.
Ms. LaGuardia has been employed at Gray, Seifert since 1982.
YEAR 2000
Like other mutual funds and other financial and business organizations
around the world, the Fund could be adversely affected if the computer systems
used by Bartlett and each sub-adviser, other service providers and entities with
computer systems that are linked to Fund records do not accurately process and
calculate date sensitive information after January 1, 2000. This is commonly
referred to as the "Year 2000 Issue." Calculating net asset value, redeeming
shares, delivering account statements and providing other information to
shareholders are all functions that are performed by computer. Bartlett and each
sub-adviser are taking steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to the computer systems they use and to
obtain satisfactory assurances that each of the Fund's other major service
providers will continue to provide services without interruption. However, there
can be no certainty that these steps will be sufficient to avoid any adverse
impact on the Fund.
The companies in which the Fund invests also could be adversely affected by
the Year 2000 Issue. While many companies are taking steps to address the Year
2000 Issue, there can be no assurance that these steps will be sufficient to
avoid an adverse impact. Bartlett and each sub-adviser endeavor to obtain
information on this problem, but it is difficult to assess accuracy or
completeness, or potential impact on portfolio companies if their suppliers
suffer from the problems.
LMFP
LMFP is the distributor, or principal underwriter, of each Fund's shares
pursuant to a Distribution Agreement with the Trust on behalf of each Fund. The
Distribution Agreement obligates LMFP to pay certain expenses in connection with
the offering of shares of each Fund, including any compensation to
broker/dealers, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the offering
to prospective investors, after the prospectuses, statements of additional
information and periodic reports have been prepared, set in type and mailed to
existing shareholders at the Fund's expense, and for any supplementary sales
literature and advertising costs. LMFP collects the sales charges imposed on
purchases of Class A shares and any CDSCs that may be imposed on certain
redemptions of Class A and Class C shares. LMFP reallows a portion of the sales
charges on Class A shares to broker/dealers that have sold such shares in
accordance with the schedule set forth under "Purchasing Class A Shares," and
may from time to time reallow the full amount of the sales charge. LMFP may also
pay special additional compensation and promotional incentives to broker/dealers
who sell Class A shares of the Funds. LMFP is a wholly owned subsidiary of Legg
Mason, Inc.
The Board of Trustees of the Trust has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act, with respect to each Fund's Class A
shares ("Class A Plan"). The Class A Plan provides that as compensation for its
ongoing services to investors, each Fund may pay LMFP a service fee at an annual
rate of
34
<PAGE>
0.25% of the average daily net assets of each Fund's Class A shares. Pursuant to
a separate Plan of Distribution adopted with respect to each Fund's Class C
shares ("Class C Plan"), each Fund may pay LMFP distribution and service fees at
an annual rate of 0.75% and 0.25%, respectively, of the average daily net assets
of each Fund's Class C shares for its activities and expenses related to the
sale and distribution of Class C shares and its ongoing services to investors.
These fees are calculated daily and paid monthly. The fees received by LMFP
during any year may be more or less than its costs of providing distribution and
shareholder services for Class A and Class C shares. NASD rules limit the amount
of annual distribution fees that may be paid by mutual funds and impose a
ceiling on the cumulative distribution fees received. Each Fund's distribution
plans comply with those rules.
-----------------------------------------
DESCRIPTION OF THE TRUST
-----------------------------------------
The Trust is a diversified, open-end management investment company
organized as a Massachusetts business trust on October 31, 1982. The business
activities of the Trust are supervised by its Board of Trustees. Like other
mutual funds, the Trust retains various organizations to perform specialized
services.
The trustees of the Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series, all without par value. Shares
of four series, consisting of the Funds, have been authorized.
The shares of beneficial interest of each Fund are divided into three
classes, designated Class A, Class C and Class Y shares. Each class represents
interests in the same assets of the Fund. The classes differ as follows: (1)
each of Class A and Class C has exclusive voting rights on matters pertaining to
its plan of distribution, (2) Class A shares generally are subject to an initial
sales charge, and may, under limited circumstances, be subject to a CDSC, and
ongoing service fees, (3) no initial sales charge is imposed on Class C shares,
but Class C shares may be subject to a CDSC, and bear ongoing distribution and
service fees, and (4) each Class may bear differing amounts of certain
class-specific expenses.
The differing sales charges and other expenses applicable to the different
classes of each Fund's shares may affect the performance of those classes. More
information concerning the classes of shares of the Funds may be obtained by
calling LMFP at (800) 800-3609.
Any trustee of the Trust may be removed by vote of the shareholders holding
not less than two-thirds of the outstanding shares of the Trust. The Trust does
not hold annual meetings of shareholders. Shareholders of the Funds are entitled
to one vote per share and fractional votes for fractional shares held. Voting
rights are not cumulative. All shares of the Funds are fully paid and
nonassessable and have no preemptive or conversion rights. A separate vote is
taken by a class of shares of a Fund if a matter affects just that class of
shares. Each class of shares may bear certain differing class-specific expenses.
Broker/dealers and others entitled to receive compensation for selling or
servicing Fund shares may receive more with respect to one class than another.
The Board of Trustees of the Trust does not anticipate that there will be
any conflicts among the interests of the holders of the different classes of
Fund shares. On an ongoing basis, the Board will consider whether any such
conflict exists and, if so, take appropriate actions.
Each Fund acknowledges that it is solely responsible for the information or
any lack of information about it in this joint Prospectus and in the joint
Statement of Additional Information, and no other Fund is responsible therefor.
There is a possibility that one Fund might be deemed liable for misstatements or
omissions regarding another Fund in this Prospectus or in the joint Statement of
Additional Information; however, the Funds deem this possibility slight.
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INVESTMENT ADVISER
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202-3896
INVESTMENT SUB-ADVISER TO EUROPE FUND
Lombard Odier International Portfolio
Management Limited
Norfolk House
13 Southampton Place
London WC1A 2AJ, England
INVESTMENT SUB-ADVISER TO FINANCIAL SERVICES FUND
Gray, Seifert & Co., Inc.
380 Madison Avenue
New York, New York 10017
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
SUB-CUSTODIAN FOR EUROPE FUND
The Chase Manhattan Bank, N.A.
1 Chaseside
Bournemouth, Dorset BH7 7DB
England
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
250 W. Pratt Street
Baltimore, Maryland 21201
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036
- ---------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS BEING AUTHORIZED BY THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
BY THE TRUST TO SELL ITS SHARES IN ANY STATE
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
- ---------------------------------------------
Printed on Recycled paper
<PAGE>
- --------------------------------------------------------------------
mutual funds
- --------------------------------------------------------------------
Bartlett
Prospectus
November 2, 1998
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
BASIC VALUE FUND
BARTLETT
EUROPE FUND
BARTLETT
FINANCIAL SERVICES FUND
Class Y Shares
BARTLETT CAPITAL TRUST
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS
CLASS Y SHARES
November 2, 1998
TABLE OF CONTENTS
Prospectus Highlights......................................................... 2
Fund Expenses................................................................. 5
Financial Highlights.......................................................... 6
Investment Performance....................................................... 10
Investment Objectives and Policies........................................... 10
Investment Policies, Techniques and Risk
Considerations............................................................. 13
How to Purchase and Redeem Your Shares....................................... 19
Calculation of Share Price................................................... 22
Dividends and Other Distributions............................................ 23
Taxes........................................................................ 24
Management of the Trust...................................................... 25
Description of the Trust..................................................... 27
- --------------------------------------------------------------------------------
Bartlett Capital Trust ("Trust") is an open-end management investment company
which currently offers four series: Bartlett Value International Fund, Bartlett
Basic Value Fund, Bartlett Europe Fund and Bartlett Financial Services Fund
(each a "Fund").
BARTLETT VALUE INTERNATIONAL FUND ("Value International") seeks capital
appreciation by investing primarily in foreign equity securities believed by its
adviser, Bartlett & Co. ("Bartlett" or "Adviser"), to be attractively priced
relative to their intrinsic value. Income is a secondary consideration.
BARTLETT BASIC VALUE FUND ("Basic Value") seeks capital appreciation by
investing primarily in common stocks or securities convertible into common
stocks that are believed by the Adviser to be attractively priced relative to
their intrinsic value. Income is a secondary consideration.
BARTLETT EUROPE FUND ("Europe Fund") seeks long-term growth of capital by
investing primarily in equity securities of European issuers which Lombard Odier
International Portfolio Management Limited ("Lombard Odier"), investment
sub-adviser to Europe Fund, believes are undervalued and thus may offer
above-average potential for capital appreciation.
BARTLETT FINANCIAL SERVICES FUND ("Financial Services Fund") seeks long-term
growth of capital by investing primarily in securities of issuers in the
financial services industry which Gray, Seifert & Co., Inc. ("Gray, Seifert"),
investment sub-adviser to Financial Services Fund, believes are attractively
priced relative to their intrinsic value.
This Prospectus sets forth concisely the information about the Funds that
you ought to know before investing. Please read and retain this Prospectus for
future reference. A Statement of Additional Information for the Funds dated
November 2, 1998 has been filed with the Securities and Exchange Commission
("SEC") and, as amended or supplemented from time to time, is incorporated
herein by reference. The Statement of Additional Information is available
without charge upon request by calling LM Financial Partners, Inc. ("LMFP"), the
Trust's distributor, at (800) 800-3609.
The Class Y shares described in this Prospectus are currently offered for
sale only to advisory clients of Bartlett that are employee benefit or
retirement plans, other than individual retirement accounts ("IRAs"), to
retirement plans having net assets of at least $10 million, to purchasers of
$5 million or more in shares of any Fund, and to participants in certain wrap
fee investment advisory programs that are currently or in the future sponsored
by Bartlett and that may invest in Bartlett proprietary funds, provided that
shares are purchased through or in connection with those programs.
INVESTORS SHOULD BE COGNIZANT OF THE UNIQUE RISKS OF INTERNATIONAL
INVESTING, INCLUDING EXPOSURE TO CURRENCY FLUCTUATIONS AND TO FOREIGN ECONOMIC
AND POLITICAL CHANGES.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For further information, call (800) 800-3609 or contact your broker/dealer.
BARTLETT CAPITAL TRUST
<PAGE>
---------------------------------
PROSPECTUS HIGHLIGHTS
---------------------------------
Bartlett Value International Fund
Bartlett Basic Value Fund
Bartlett Europe Fund
Bartlett Financial Services Fund
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus and in the Statement of
Additional Information.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES: VALUE INTERNATIONAL is a diversified, professionally managed
portfolio seeking to provide capital appreciation. In attempting
to achieve the Fund's objective, the Fund normally invests at
least 65% of its total assets in equity securities of non-U.S.
issuers.
BASIC VALUE is a diversified, professionally managed portfolio
seeking to provide capital appreciation. In attempting to achieve
the Fund's objective, the Fund invests primarily in common stocks
or securities convertible into common stocks. The Fund seeks to
diversify its investments across industry sectors.
EUROPE FUND is a diversified, professionally managed portfolio
seeking to provide long-term growth of capital. In attempting to
achieve the Fund's objective, the Fund normally invests at least
65% of its total assets in equity securities of European issuers.
FINANCIAL SERVICES FUND is a newly organized diversified,
professionally managed portfolio seeking long-term growth of
capital. In attempting to achieve the Fund's objective, the Fund
invests primarily in securities of issuers in the financial
services industry which Gray, Seifert believes are attractively
priced relative to their intrinsic value.
INVESTMENT ADVISER: Bartlett & Co. has provided investment advice to individuals,
pension and profit-sharing plans and trust accounts since 1898.
INVESTMENT SUB-ADVISER TO Lombard Odier International Portfolio Management Limited, a
EUROPE FUND: subsidiary of one of the oldest and largest private banks in
Switzerland, specializes in advising and managing investment
portfolios for institutional clients.
INVESTMENT SUB-ADVISER TO Gray, Seifert & Co., Inc., an indirect wholly owned subsidiary of
FINANCIAL SERVICES FUND: Legg Mason, Inc.
PURCHASE PLAN: Class Y shares are offered only to a limited class of investors.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
CLASS Y SHARES: Offered for sale only (1) to advisory clients of Bartlett that are
employee benefit or retirement plans, other than IRAs, (2) to
retirement plans having net assets of at least $10 million, (3) to
purchasers of $5 million or more in shares of any Fund, and (4) to
participants in certain wrap fee investment advisory programs that
are currently or in the future sponsored by Bartlett and that may
invest in Bartlett proprietary funds, provided that shares are
purchased through or in connection with those programs. See "How
to Purchase and Redeem Your Shares."
INITIAL PURCHASE: $1,000 minimum, generally, subject to the above limitations.
SUBSEQUENT PURCHASES: $100 minimum, generally.
EXCHANGE PRIVILEGE: Exchanges may be made for shares of the corresponding class of
shares of any other Fund and for shares of Legg Mason Cash Reserve
Trust, a money market mutual fund. See "Exchange Privilege."
DIVIDENDS AND OTHER DISTRIBUTIONS: Dividends from net investment income are declared and paid
quarterly by Value International and Basic Value and annually by
Europe Fund and Financial Services Fund. Distributions of net
capital gains are declared and paid annually for each Fund. See
"Dividends and Other Distributions." All dividends and other
distributions are automatically reinvested in Fund shares unless
cash payments are requested.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
RISK FACTORS: There can be no assurance that any Fund will achieve its
investment objective. Each Fund's net asset value will fluctuate,
reflecting fluctuations in the value of its securities. The value
of the equity and other instruments held by the Funds is subject
to market risk. The market risk of equity securities is generally
perceived to be higher than that of any other securities of an
issuer. The value of debt instruments generally fluctuates
inversely with movements in market interest rates. The values of
longer-term debt securities generally fluctuate more than those of
shorter-term securities.
Changes in economic conditions in, or governmental policies of,
foreign nations may have a significant impact on the performance
of Value International and Europe Fund. Foreign investment
involves a possibility of expropriation, nationalization,
confiscatory taxation, limitations on the use or removal of funds
or other assets of a Fund, the withholding of tax on interest or
dividends, and restrictions on the ownership of securities by
foreign entities such as the Funds. Fluctuations in the value of
foreign currencies relative to the U.S. dollar also will affect
the value of Fund holdings denominated in such currencies.
The Financial Services Fund will invest substantially all of its
assets in issuers in the financial services industry and generally
the Financial Services Fund's holdings will be concentrated in
that specific industry. Compared to the broad market, an
individual industry may be more strongly affected by changes in
the economic climate, broad market shifts, moves in a particular
dominant stock, or regulatory changes. The financial services
industry in general is subject to extensive governmental
regulation which may affect its profitability and the relative
profitability of different issuers. In addition, the regulatory
environment is subject to change. The profitability of issuers in
the financial services industry is largely dependent upon the
availability and cost of capital funds, and may fluctuate
significantly in response to changes in interest rates, as well as
changes in general economic conditions. From time to time, severe
competition may also affect the profitability of issuers in the
financial services industry.
Each Fund's participation in hedging and option strategies also
involves certain investment risks and transaction costs. None of
the Funds should be considered a complete investment program. See
"Investment Objectives and Policies" and "Investment Policies,
Techniques and Risk Considerations."
</TABLE>
4
<PAGE>
---------------------------------
FUND EXPENSES
---------------------------------
The purpose of the following tables is to assist an investor in
understanding the various costs and expenses that an investor in Class Y shares
of a Fund will bear directly or indirectly. The expenses and fees set forth
below are based on average net assets and annual Fund operating expenses
relating to Class Y shares for the periods ended December 31, 1997. For
Financial Services Fund, which has no operating history prior to the date of
this Prospectus, other expenses are based on estimates for the current fiscal
year and fees are adjusted for current expense limits and fee waiver levels.
CLASS Y SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE BASIC EUROPE FINANCIAL
SHAREHOLDER TRANSACTION EXPENSES INTERNATIONAL VALUE FUND SERVICES FUND
- -------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases None None None None
Deferred sales charges None None None None
Redemption or exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES(a)
(as a % of average net assets)
- ---------------------------------
Management fees (after fee waivers) 1.25% 0.75% 1.00% 0.85%
12b-1 fees None None None None
Other expenses 0.19% 0.11% 0.31% 0.40%
-------------------------------------------------
Total operating expenses (after fee waivers) 1.44% 0.86% 1.31% 1.25%
</TABLE>
(a) Pursuant to voluntary expense limitations, the Adviser has agreed to waive
fees to the extent that Value International's Class Y expenses exceed 1.55%,
Basic Value's Class Y expenses exceed 0.90%, Europe Fund's Class Y expenses
exceed 1.60%, and Financial Services Fund's Class Y expenses exceed 1.25% of
their respective average daily net assets through May 1, 1999. In the
absence of such waivers, the expected management fee, other expenses and
total operating expenses of Financial Services Fund would be 1.00%, 0.40%
and 1.40%, of average daily net assets.
5
<PAGE>
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Class Y shares over various time periods assuming (1) a 5%
annual rate of return and (2) full redemption at the end of each time period.
The Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VALUE INTERNATIONAL........................................................ $15 $46 $79 $172
BASIC VALUE................................................................ $ 9 $27 $48 $106
EUROPE FUND................................................................ $13 $42 $72 $158
FINANCIAL SERVICES FUND.................................................... $13 $40 N/A N/A
</TABLE>
THE ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT,
THE PROJECTED OR ACTUAL PERFORMANCE OF CLASS Y SHARES OF THE FUNDS. THE ABOVE
TABLES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The actual
expenses attributable to Class Y shares will depend upon, among other things,
the level of average net assets, the levels of sales and redemptions of shares,
the extent to which Bartlett waives its fees and the extent to which Class Y
shares incur variable expenses, such as transfer agency costs.
---------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------
The financial information in the tables that follow for the six months
ended June 30, 1998 is unaudited. The financial information in the tables that
follow for the periods ended December 31, 1997 has been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial statements
for Value International and Basic Value for the nine months ended December 31,
1997, the financial statements for Europe Fund for the year ended December 31,
1997 and the report of PricewaterhouseCoopers LLP thereon are included in the
Funds' combined annual report to shareholders and are incorporated by reference
into the Statement of Additional Information. The annual report for the Funds is
available to shareholders without charge by calling LMFP at (800) 800-3609. As
of the date of this Prospectus, Financial Services Fund has not commenced
operations.
6
<PAGE>
BARTLETT VALUE INTERNATIONAL FUND
<TABLE>
<CAPTION>
CLASS Y
---------------------------------------------------
SIX MONTHS AUGUST 15, 1997(A) TO
ENDED JUNE 30, 1998(F) DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $ 12.33 $ 15.27
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.05)(B) (.11)(B)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .42 (1.21)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .37 (1.32)
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income -- (.24)
Distributions from realized gains -- (1.38)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.62)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $ 12.70 $ 12.33
- -------------------------------------------------------------------------------------------------------------------------
Total return 3.00%(C) (8.38%)(C)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 9,246 $ 13,084
Ratio of net expenses to average net
assets 1.49%(B,D) 1.44%(B,D)
Ratio of net investment income to
average net assets 1.26%(B,D) (.75%)(B,D)
Portfolio turnover rate 30%(D) 44%(D)
Average commission rate paid(E) $ .0421 $ .0227
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Commencement of operations of this Class.
(B) Net of fees waived pursuant to a voluntary expense limitation of 1.55%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 1.59%.
(C) Not Annualized
(D) Annualized
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(F) Unaudited
7
<PAGE>
BARTLETT BASIC VALUE FUND
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------
SIX MONTHS AUGUST 15, 1997(A) TO
ENDED JUNE 30, 1998(F) DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $18.87 $21.92
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .12(B) .18(B)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions 1.09 1.94
- -------------------------------------------------------------------------------------------------------
Total from investment
operations 1.21 2.12
- -------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (.23)
Distributions from realized gains -- (4.94)
- -------------------------------------------------------------------------------------------------------
Total distributions -- (5.17)
- -------------------------------------------------------------------------------------------------------
Net asset value,
End of period $20.08 $18.87
- -------------------------------------------------------------------------------------------------------
Total return 6.41%(C) 10.97%(C)
- -------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $2,589 $2,387
Ratio of net expenses to average
net assets .83%(B,D) .86%(B,D)
Ratio of net investment income
to average net assets 1.24%(B,D) 1.51%(B,D)
Portfolio turnover rate 30%(D) 42%(D)
Average commission rate paid(E) $.0764 $.0723
- -------------------------------------------------------------------------------------------------------
</TABLE>
(A) Commencement of operations of this Class.
(B) Net of fees waived pursuant to a voluntary expense limitation of 0.90%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 0.96%.
(C) Not Annualized
(D) Annualized
(E) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(F) Unaudited
8
<PAGE>
BARTLETT EUROPE FUND(A)
<TABLE>
<CAPTION>
CLASS Y
-------------------------------------------------
SIX MONTHS AUGUST 21, 1997(B) TO
ENDED JUNE 30, 1998(G) DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $21.01 $25.61
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .09(C) (.04)(C)
Net realized and unrealized
gains (losses) on
investments and foreign
currency transactions 6.74 1.27
- -------------------------------------------------------------------------------------------------------------
Total from investment
operations 6.83 1.23
- -------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- --
In excess of net investment
income -- --
Distributions from net
realized gains -- (5.83)
- -------------------------------------------------------------------------------------------------------------
Total distributions -- (5.83)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
End of period $27.84 $21.01
- -------------------------------------------------------------------------------------------------------------
Total return 32.6%(D) 4.9%(D)
- -------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $8,840 $8,025
Ratio of net expenses to
average net assets 1.48%(C,E) 1.31%(C,E)
Ratio of net investment income
to average net assets .82%(C,E) (.60%)(C,E)
Portfolio turnover rate 113%(E) 123%
Average commission rate paid(F) $.0526 $.0374
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The financial information in this table for the year ended December 31, 1997
is for Bartlett Europe Fund and Worldwide Value Fund. Prior to July 18,
1997, the Worldwide Value Fund operated as a closed-end fund.
(B) Commencement of operations of this Class.
(C) Net of fees waived pursuant to a voluntary expense limitation of 1.50%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 1.49%.
(D) Not Annualized
(E) Annualized
(F) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(G) Unaudited
9
<PAGE>
---------------------------------
INVESTMENT PERFORMANCE
---------------------------------
From time to time each Fund may quote the TOTAL RETURN of each class of
shares in advertisements or in reports or other communications to shareholders.
A mutual fund's total return is a measurement of the overall change in value,
including changes in share price and assuming reinvestment of dividends and
capital gain distributions, of an investment in the fund. CUMULATIVE TOTAL
RETURN shows the fund's performance over a specific period of time. AVERAGE
ANNUAL TOTAL RETURN is the average annual compounded return that would have
produced the same cumulative total return if the fund's performance had been
constant over the entire period. Average annual returns, which differ from
actual year-by-year results, tend to smooth out variations in a fund's return.
No adjustment will be made for any income taxes payable by shareholders.
At December 31, 1997, Basic Value and Value International changed their
year end from March 31 to December 31. Total returns as of December 31, 1997 are
shown below. Prior to the date of this Prospectus, Financial Services Fund has
not commenced operations.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS Y SHARES:
BASIC VALUE EUROPE
CUMULATIVE TOTAL RETURN VALUE INTERNATIONAL FUND
- ----------------------- -----------------------------------------
<S> <C> <C> <C>
Life of Class +10.97%(a) -8.38%(b) +4.93%(c)
</TABLE>
(a) Commencement of sale of Class Y of Basic Value -- August 15, 1997
(b) Commencement of sale of Class Y of Value International -- August 15, 1997
(c) Commencement of sale of Class Y of Europe Fund -- August 21, 1997
Total return information reflects past performance and is not a prediction
or guarantee of future results. Investment return and share price will
fluctuate, and the value of an investor's shares, when redeemed, may be worth
more or less than their original cost. Further information about each Fund's
performance is contained in the Funds' combined annual report to shareholders,
which may be obtained without charge by calling LMFP at (800) 800-3609.
--------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
--------------------------------------------
The investment objective of Basic Value, Value International and Financial
Services Fund may be changed without shareholder approval; however, shareholders
of these Funds will be given a minimum of 30 days' prior written notice before
any change in investment objective becomes effective. Europe Fund's investment
objective may not be changed without shareholder approval.
BARTLETT VALUE INTERNATIONAL FUND
The investment objective of Value International is to seek capital
appreciation. The Fund seeks its objective by investing primarily in foreign
equity securities believed by Bartlett to be attractively priced relative to
their intrinsic value. Income is a secondary consideration.
The Fund invests primarily in equity securities of non-U.S. issuers
generally consisting of common stocks, common stock equivalents and preferred
stocks. The Fund also may invest indirectly in foreign equity securities by
purchasing American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities and by purchasing shares of closed-end
investment companies that hold foreign equity securities in their portfolios.
10
<PAGE>
There is no requirement that the Fund invest exclusively in foreign equity
securities. The Fund may invest in other types of foreign securities such as
fixed income obligations of foreign companies, foreign governments, foreign
governmental agencies and international organizations. In addition, the Fund may
invest a portion of its assets in U.S. government obligations, debt and equity
obligations of U.S. issuers, and repurchase agreements, and may hold a portion
of its assets in cash and U.S. dollar-denominated time deposits.
In seeking its objective, the Fund intends to diversify its investments
among issuers representing various countries. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in equity securities of
non-U.S. issuers. The Fund may invest in countries in Europe, the Far East,
Latin America, Asia, Africa, Canada, Australia and other geographic regions. The
Fund may, from time to time, have more than 25% of its total assets invested in
any major industrial or developed country which in the view of Bartlett poses no
unique investment risk. If circumstances warrant, for temporary defensive
purposes, the Fund may invest substantially all of its assets in one or two
countries.
The Fund may employ several investment techniques, including the use of
options, hedging programs, currency transactions, repurchase agreements, lending
of portfolio securities, short sales "against the box" and forward commitment
transactions. For temporary defensive purposes, the Fund may hold all or a
portion of its assets in money market instruments, cash equivalents, short-term
government and corporate obligations or repurchase agreements.
Bartlett selects portfolio securities on the basis of what it considers to
be the intrinsic value of each security. In analyzing the intrinsic value of a
specific security, particular emphasis is given to such characteristics as
relative price/earnings ratio, dividend yield, and price/book value ratio. In
making investment decisions, Bartlett considers all other pertinent factors
affecting the intrinsic value of a security, including financial, tax, social,
political and national conditions.
Although the Fund provides a means for individuals and institutional
investors to invest a portion of their assets outside the U.S., it should not be
considered a complete investment program. In addition, investments in foreign
securities may be subject to risks not typically associated with investments in
domestic securities. See "Foreign Securities" for a more complete discussion of
certain risks associated with investments in foreign securities.
See "Investment Policies, Techniques and Risk Considerations" beginning at
page 13 for a more detailed discussion of risks associated with the securities
and investment techniques discussed above.
BARTLETT BASIC VALUE FUND
The investment objective of Basic Value is to seek capital appreciation.
The Fund seeks its objective by investing primarily in common stocks or
securities convertible into common stocks that Bartlett believes to be selling
at attractive prices relative to their intrinsic value. Income is a secondary
consideration. In determining whether a specific security represents investment
value, particular emphasis is given to such characteristics as low debt,
relative price/earnings ratio, dividend yield, and price/book value ratio. The
Fund seeks to diversify its investments across industry sectors. The Fund's
investments may include foreign securities.
In seeking its objective, Basic Value invests only in securities of
companies with at least three years of operating history. Due to the Fund's
disciplined investment methodology, and the cyclical nature of the economy and
investment markets, there will be times when Bartlett is unable to purchase
reasonably valued common stocks and common stock equivalents. At these times,
the Fund may hold all or a portion of its assets in fixed income securities.
The Fund may employ several investment techniques, including the use of
options, hedging programs, currency transactions, repurchase agreements, reverse
repurchase agreements and
11
<PAGE>
dollar rolls, lending of portfolio securities, short sales, short sales "against
the box," structured securities and forward commitment transactions. For
temporary defensive purposes, the Fund may hold all or a portion of its assets
in money market instruments, cash equivalents, short-term government and
corporate obligations or repurchase agreements.
For a further discussion of the risks associated with these securities and
techniques, see "Investment Policies, Techniques and Risk Considerations,"
beginning on page 13.
BARTLETT EUROPE FUND
The investment objective of Europe Fund is to seek long-term growth of
capital. The Fund seeks to achieve its investment objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of European issuers that Lombard Odier believes are undervalued and thus may
offer above-average potential for capital appreciation.
The Fund invests primarily in equity securities, including common stock,
preferred stock, convertible securities, rights and warrants, but may also
invest in bonds, notes and other fixed income securities. The Fund will normally
invest at least 65% of its total assets in equity securities and may invest up
to 35% of its total assets in fixed income securities. When conditions warrant,
for temporary defensive purposes, the Fund may invest over 35% and as much as
100% of its total assets in fixed income securities. The fixed income securities
in which the Fund may invest generally include obligations of foreign or
domestic governments, government agencies or municipalities, and obligations of
foreign or domestic companies. The Fund may invest in fixed income securities
without regard to rating, although Lombard Odier does not anticipate that more
than 5% of the Fund's total assets will be invested in fixed income securities
rated lower than "investment grade" (that is, Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's ("S&P")), or, if unrated, deemed by
Lombard Odier to be of comparable quality. Most fixed income securities of
foreign issuers are not rated by Moody's or S&P. Generally, the fixed income
securities in which the Fund will invest will be those which Lombard Odier
believes offer potential for capital appreciation, either because of anticipated
changes in the general level of interest rates, or because of anticipated
improvement in the issuer's credit rating.
For temporary defensive purposes, the Fund may hold all or a portion of its
assets in money market instruments, cash equivalents, short-term government and
corporate obligations. The Fund may also enter into repurchase agreements.
The Fund may purchase securities both on recognized stock exchanges and in
over-the-counter markets. Most of the Fund's portfolio transactions will be
effected in the primary trading market for the given security.
The Fund may also invest in depositary receipts and securities of other
investment companies, and may enter into when-issued and delayed-delivery
transactions. The Fund is authorized to invest in options, futures and options
on futures contracts and may enter into foreign currency transactions and
forward foreign currency exchange contracts ("forward contracts"). The Fund may
invest up to 15% of its net assets in illiquid or restricted securities.
BARTLETT FINANCIAL SERVICES FUND
The investment objective of Financial Services Fund is to seek long-term
growth of capital. The Fund seeks to achieve its investment objective by
investing, under normal market conditions, at least 65% of its total assets in
equity securities of issuers in the financial services industry that Gray,
Seifert believes are undervalued and thus may offer above-average potential for
capital appreciation.
The financial services companies in which the Fund may invest include
regional and money center banks, securities brokerage firms, asset management
companies, savings banks
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and thrift institutions, specialty finance companies (e.g., credit card,
mortgage providers), insurance and insurance brokerage firms, government
sponsored agencies, financial conglomerates and foreign financial services
companies. Some of the companies in which the Fund may invest have material
operations in more than one of the sectors of the financial services industry,
including, for example, companies with banking, finance and asset management
operations. In addition, the Fund may invest in other companies that derive more
than 50% of their revenues from providing products and services to the financial
services industry, including software, hardware, publishing, news services,
credit research and rating services, internet services and business services.
The Fund also may invest in companies that provide ancillary services or
products to companies in the financial services industry.
The Fund invests primarily in equity securities, including common stock,
convertible securities and rights and warrants. It is not anticipated that the
Fund will invest more than 25% of its total assets in convertible securities,
and not more than 5% of its assets in below investment grade convertible
securities. The Fund will not invest in bonds, notes and other fixed-income
securities except for temporary or extraordinary circumstances. The Fund may
invest up to 25% of its total assets in foreign securities, not including ADRs.
The Fund will invest primarily in securities of issuers with market
capitalizations in the range of $1 to $12 billion. However, the Fund will also
invest in securities of issuers with smaller and larger capitalizations.
For temporary defensive purposes, the Fund may hold all or a portion of its
assets in money market instruments, cash equivalents, short-term government and
corporate obligations. The Fund may also enter into repurchase agreements.
Gray, Seifert bases the Fund's stock selection on the fundamental prospects
of each issuer using analysis of its products and financial statements. A
critical step in the investment process is evaluating and knowing an issuer's
management in order to understand its vision, character and goals.
Except as otherwise noted, the investment policies of each Fund described herein
may be changed by the Trust's Board of Trustees without a shareholder vote.
There can be no assurance that any Fund will achieve its investment objective.
Each Fund's net asset value fluctuates based upon changes in the value of its
portfolio securities.
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INVESTMENT POLICIES, TECHNIQUES AND RISK CONSIDERATIONS
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This section contains general information about various types of securities
and investment techniques. Each Fund may invest in any security or employ any
investment technique described in this section unless specifically noted
otherwise. Each Fund may purchase combinations of different types of securities
provided that the securities in the combination are permissible investments of
the Fund.
EQUITY SECURITIES
Equity securities include common stock, preferred stock and other similar
securities such as convertible preferred stock, convertible debentures, rights
and warrants. Convertible preferred stock is preferred stock that can be
converted into common stock pursuant to its terms. Convertible debentures are
debt instruments that can be converted into common stock pursuant to their
terms. Warrants are options to purchase equity securities at a specified price
valid for a specific time period. Rights are similar to warrants, but normally
have a short duration and are distributed by the issuer to its shareholders.
FOREIGN SECURITIES
Each Fund may invest in foreign equity securities. Value International and
Europe Fund are expected normally to invest at least 65% of their respective
assets in foreign securities. As noted above, the Financial Services Fund will
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limit its investments in foreign securities to 25% of its total assets, not
including ADRs.
ADRs, EDRs and other similar securities convertible into securities of
foreign companies provide a means for investing indirectly in foreign equity
securities. ADRs are receipts typically issued by a U.S. bank evidencing
ownership of the underlying foreign securities. EDRs are receipts typically
issued by a European bank evidencing ownership of the underlying foreign
securities. To the extent an ADR or EDR is issued by a bank unaffiliated with
the foreign company issuer of the underlying security, the bank has no
obligation to disclose material information about the foreign company issuer.
Each Fund may invest in ADRs and EDRs.
Foreign fixed income securities include corporate debt obligations issued
by foreign companies and debt obligations of foreign governments or
international organizations. This category may include floating rate
obligations, variable rate obligations, Yankee dollar obligations (U.S.
dollar-denominated obligations issued by foreign companies and traded on U.S.
markets) and Eurodollar obligations (U.S. dollar-denominated obligations issued
by foreign companies and traded on foreign markets).
Foreign government obligations generally consist of debt securities
supported by national, state or provincial governments or similar political
units or governmental agencies. Such obligations may or may not be backed by the
national government's full faith and credit and general taxing powers.
Investments in foreign securities also include obligations issued by
international organizations, which include entities designated or supported by
governmental entities to promote economic reconstruction or development as well
as international banking institutions and related governmental agencies.
Examples are the International Bank for Reconstruction and Development (the
World Bank), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank. In addition, investments in foreign
securities may include debt securities denominated in multinational currency
units of an issuer (including international issuers). An example of a
multinational currency unit is the European Currency Unit. A European Currency
Unit represents specified amounts of the currencies of certain member states of
the European Economic Community, more commonly known as the Common Market. Each
Fund may include foreign fixed income securities and foreign government
obligations in its portfolio.
Value International and Europe Fund under normal conditions will invest at
least 65% of their assets in foreign securities and European securities,
respectively. For purposes of this 65% test, foreign and European securities
respectively include securities of issuers: (i) which are organized under the
laws of a foreign country or Europe; (ii) for which the principal trading market
is in a foreign country or Europe; or (iii) which derive at least 50% of their
revenues or profits from goods produced or sold, investments made, or services
performed in foreign countries or Europe or which have at least 50% of their
assets situated in foreign countries or Europe.
Purchases of foreign securities are usually made in foreign currencies and,
as a result, a Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. In addition, there may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the U.S. Other risks associated with
investments in foreign securities include changes in restrictions on foreign
currency transactions and rates of exchange, changes in the administrations or
economic and monetary policies of foreign governments, the imposition of
exchange control regulations, the possibility of expropriation decrees and other
adverse foreign governmental action, the imposition of confiscatory foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands,
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Portugal and Spain are presently members of the European Economic and Monetary
Union (the "EMU"). EMU intends to establish a common European currency on
January 1, 1999. The old national currencies will be sub-currencies of the euro
until July 1, 2002 at which time the old currencies will disappear entirely.
Other European countries may adopt the euro in the future.
The planned introduction of the euro presents uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999 and whether exchange
rates for existing currencies and the euro will be in operation. These and other
factors may cause market disruptions before or after January 1, 1999 and could
adversely affect the value of securities held by the Funds.
Some financial contracts may become unenforceable when the currencies are
unified. These financial contracts may include bank loan agreements, master
agreements for swaps and other derivatives, master agreements for foreign
exchange and currency option transactions and debt securities. The European
Council has enacted laws and regulations designed to ensure that financial
contracts will continue to be enforceable after the conversion. There is no
guarantee, however, that these laws will be completely effective in preventing
disputes from arising. Disputes and litigation over these contract issues could
negatively impact the Funds' portfolio holdings and may create uncertainties in
the valuation of financial contracts the Funds hold.
After January 1, 1999, the introduction of the euro is expected to impact
European capital markets in ways that are impossible to quantify at this time.
For example, investors may begin to view EMU countries as a single market, and
that may impact future investment decisions for the Funds. As the euro is
implemented, there may be changes in the relative strength and value of the U.S.
dollar and other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries -- present and future -- may impact the
fiscal and monetary policies of those participating countries. There may be
increased levels of price competition among business firms within the EMU
countries and between business in EMU and non-EMU countries. The outcome of
these uncertainties could have unpredictable effects on trade and commerce and
result in increased volatility for all financial markets.
EMERGING MARKETS
Value International and Europe Fund may invest in securities of issuers
based in emerging markets. Europe Fund may (but is not limited to) invest in
issuers based in Greece, Portugal, Hungary, Poland, Czech Republic, Slovakia or
Turkey. Value International may (but is not limited to) invest in issuers based
in the countries in Latin America, Southeast Asia and the Far East. Subject to
the above restrictions, emerging markets will include any country: (i) having an
"emerging stock market" as defined by the International Finance Corporation;
(ii) with low-to middle-income economies according to the World Bank; (iii)
listed in World Bank publications as developing; or (iv) determined by Bartlett
or Lombard Odier to be an emerging market in accordance with the criteria of
those organizations. The following are considered emerging market securities:
(1) securities publicly traded on emerging market stock exchanges, or whose
principal trading market is over-the-counter (I.E., off-exchange) in an emerging
market; (2) securities (i) denominated in any emerging market currency or (ii)
denominated in a major currency if issued by companies to finance operations in
an emerging market; (3) securities of companies that derive a substantial
portion of their total revenues from goods or services produced in, or sales
made in, emerging markets; (4) securities of companies organized under the laws
of an emerging market country or region, which are publicly traded in securities
markets elsewhere; and (5) ADRs (or similar instruments) with respect to the
foregoing.
The risks of foreign investment, described above, are greater for
investments in emerging markets. Investors are strongly advised to consider
carefully the special risks involved in emerging markets, which are in addition
to the usual risks of investing in developed markets around the world. Many
emerging market countries have experienced substantial, and in some
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periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, very
negative effects on the economies and securities markets of certain emerging
markets. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by economic conditions, trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. In addition, many of the
currencies of emerging market countries have experienced steady devaluations
relative to the U.S. dollar, and major devaluations have occurred in certain
countries.
FIXED INCOME SECURITIES
Fixed income securities include corporate debt securities, municipal
obligations, mortgage-related securities, asset-backed and receivable-backed
securities, U.S. government obligations and participation interests in such
securities. Certain fixed income securities are floating rate obligations or
variable rate obligations. Certain fixed income securities may carry demand
features that permit a Fund to sell the obligation back to the issuer or to a
third party at a specified price upon short notice at any time or prior to
specific dates. Preferred stock and convertible debt securities may also be
considered to be fixed income securities.
Corporate Debt Securities. Each Fund is permitted to invest in corporate
debt securities, I.E., long-term and short-term debt obligations issued by
companies (such as publicly issued and privately placed bonds, notes and
commercial paper.) Corporate debt securities include variable amount master
demand notes. These obligations permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Variable amount master demand notes are direct lending
arrangements between the lender and borrower and are not generally transferable.
A Fund may invest in such notes only if the Board of Trustees believes that the
notes are of comparable quality to the other obligations in which the Fund may
invest. Variable amount master demand notes may be deemed illiquid under certain
circumstances, and a Fund's investment in such notes would be limited to the
extent that it is not permitted to invest more than 10% (15% for Europe Fund) of
the value of its net assets in illiquid investments.
INVESTMENTS IN THE FINANCIAL SERVICES INDUSTRY
Because investments made by Financial Services Fund are concentrated in the
financial services industry, its shares are subject to greater risk than the
shares of a fund whose portfolio is not so concentrated, and it will be
particularly affected by economic, competitive and regulatory developments
affecting that industry.
Financial services companies are subject to extensive governmental
regulation. This regulation may limit both the amounts and types of loans and
other financial commitments these companies can make, as well as the interest
rates and fees they can charge. The industry and the Fund may be significantly
affected by legislation, including legislation currently being considered to
reduce the separation between commercial and investment banking businesses.
Profitability of financial services companies is largely dependent on the
availability and cost of funds, and can fluctuate significantly when interest
rates change. In addition, credit losses resulting from financial difficulties
of borrowers can negatively affect the industry. Accordingly, the financial
services industry is susceptible to overall economic factors and credit losses
can be severe in a recession or other economic downturn. Companies in the
financial services industry also may be subject to severe price competition.
A more complete description of the risks associated with securities in the
financial services industry is included in the Statement of Additional
Information.
OPTIONS, FUTURES AND FORWARD CURRENCY EXCHANGE CONTRACTS (FOR EACH FUND OTHER
THAN FINANCIAL SERVICES FUND)
Each Fund may engage in option transactions involving equity securities,
debt securities, futures contracts and stock indexes. Each Fund
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may also engage in option transactions involving foreign currencies and foreign
stock indexes.
To cover the potential obligations involved in option transactions, a Fund
will own the underlying equity security, debt security, futures contract or
foreign currency or the Fund will segregate with its custodian (i) appropriate
liquid assets sufficient to purchase the underlying equity security, debt
security, futures contract or foreign currency or (ii) appropriate liquid assets
equal to the market value of the stock index. A Fund will engage in options on
futures contracts only for hedging purposes (see below). Option transactions
involve the following principal risks: (i) the loss of a greater percentage of
the Fund's investment than a direct investment in the underlying instrument,
(ii) the loss of opportunity to profit from price movements in the underlying
instrument, and (iii) the inability to effect a closing transaction on a
particular option.
There is no restriction on the percentage of a Fund's total assets which
may be committed to transactions in options (except options on futures contracts
as discussed below). However, the SEC considers over-the-counter options to be
illiquid. As long as the SEC maintains this position, a Fund will not engage in
an over-the-counter option transaction if such transaction would cause the value
of such options purchased by the Fund and the assets used to cover such options
written (sold) by the Fund, together with the value of other illiquid securities
held by the Fund, to exceed 10% (15% for Europe Fund) of its net assets. The
policy of Basic Value and Value International with respect to options is
fundamental, although the particular practices followed with respect to options,
such as the procedures used to cover or secure options which a Fund writes, are
not deemed fundamental and may be changed by the Board of Trustees without
shareholder vote.
Each Fund may hedge all or a portion of its portfolio investments through
the use of options, futures contracts and options on futures contracts. Each
Fund may hedge currency risks associated with investments in foreign securities
and in particular may hedge its portfolio through the use of forward contracts
as described below. The objective of a hedging program is to protect a profit or
offset a loss in a portfolio security from future price erosion or to assure a
definite price for a security, stock index, futures contract or currency. There
are transactional costs connected with a hedging program.
The principal risks associated with hedging transactions are: (i) possible
imperfect correlation between the prices of the options and futures contracts
and the market value of a Fund's portfolio securities, (ii) possible lack of a
liquid secondary market for closing out an option or futures contract
transaction, (iii) the need for additional skills and techniques beyond normal
portfolio management, and (iv) losses resulting from market movements not
anticipated by Bartlett and/or Lombard Odier.
No Fund may purchase or sell futures contracts or purchase related options
if, immediately thereafter, more than one-third of its net assets would be
hedged. In addition, no Fund may enter into transactions involving futures
contracts and related options if such transactions would result in more than 5%
of the fair market value of the Fund's assets being deposited as initial margin
for such transactions.
When a Fund purchases or sells a security denominated in a foreign
currency, it may be required to settle the purchase transaction in the relevant
foreign currency or to receive the proceeds of the sale in the relevant foreign
currency. In either event, the Fund will be obligated to acquire or dispose of
the foreign currency by selling or buying an equivalent amount of U.S. dollars.
To effect the conversion of the amount of foreign currency involved in the
purchase or sale of a foreign security, the Fund may purchase or sell such
foreign currency on a "spot" (I.E., cash) basis.
In addition, a Fund may wish to lock in the U.S. dollar value of the
transaction at or near the time of the purchase or sale at the exchange rate or
rates then prevailing between the U.S. dollar and the currency in which the
foreign security is denominated. Therefore, a Fund may enter into a forward
contract. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by
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the parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. By entering into a forward contract in U.S. dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, a Fund is able to protect itself against a possible loss
between trade and settlement dates resulting from an adverse change in the
relationship between the U.S. dollar and such foreign currency. This process is
known as transaction hedging. Transaction hedging may protect a Fund from a
possible loss, but will limit potential gains which might result from a positive
change in the currency relationships.
When it is desirable to limit or reduce exposure in a foreign currency in
order to moderate potential changes in the U.S. dollar value of the portfolio, a
Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of that Fund's portfolio securities denominated in such foreign currency. This
technique is known as portfolio hedging. Hedging against a decline in the value
of currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline. The Funds
may also employ forward contracts to hedge against an increase in the value of
the currency in which the securities a Fund intends to buy are denominated.
A Fund may also hedge its foreign currency exchange rate risk by engaging
in currency futures contracts and options transactions described above. No Fund
will engage in foreign currency transactions for speculative purposes.
A more complete description of the characteristics, risks and possible
benefits of option and hedging transactions is included in the Funds' Statement
of Additional Information.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. A repurchase agreement is a
transaction by which a Fund purchases a security and simultaneously commits to
resell that security to the seller at an agreed upon price and date. In the
event of a bankruptcy or other default of the seller of a repurchase agreement,
a Fund could experience both delays in liquidating the underlying security and
losses. Europe Fund may enter into repurchase agreements with respect to
securities issued by the U.S. government, its agencies or instrumentalities.
Under normal circumstances, no more than 25% of Europe Fund's total assets will
be invested in repurchase agreements at any time.
ILLIQUID SECURITIES
The portfolio of each Fund may contain illiquid securities. A Fund will not
invest more than 10% (15% with respect to Europe Fund and Financial Services
Fund) of its net assets in securities for which there are legal or contractual
restrictions on resale or other illiquid securities. Illiquid securities
generally include securities which cannot be disposed of promptly and in the
ordinary course of business without taking a reduced price. Securities may be
illiquid due to contractual or legal restrictions on resale or lack of a ready
market. The following securities are considered generally to be illiquid
(although if they are liquid they will be treated as such): repurchase
agreements and time deposits maturing in more than seven days, options traded in
the over-the-counter market, nonpublicly offered securities, stripped
collateralized mortgage obligations ("CMOs"), CMOs for which there is no
established market, direct investments in mortgages and restricted securities.
RESTRICTED SECURITIES
Each Fund may invest in restricted securities, although Basic Value and
Value International do not intend to invest more than 5% of their respective net
assets in restricted securities. Restricted securities are securities the resale
of which is subject to legal or contractual restrictions. Restricted securities
may be sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expense, and a considerable period may elapse between the time of
the decision to sell and
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the time such security may be sold under an effective registration statement. If
during such a period adverse market conditions were to develop, the Fund might
obtain a less favorable price than the price it could have obtained when it
decided to sell.
LOANS OF PORTFOLIO SECURITIES
Each Fund may make short- and long-term loans of their portfolio
securities. Under the lending policy authorized by the Board of Trustees and
implemented by Bartlett or the respective sub-adviser, in response to requests
of broker/ dealers or institutional investors which Bartlett or the respective
sub-adviser deems qualified, the borrower must agree to maintain collateral, in
the form of cash or U.S. government obligations, with the Fund on a daily
mark-to-market basis in an amount at least equal to 100% of the value of the
loaned securities. The Funds will continue to receive dividends or interest on
the loaned securities and may terminate such loans at any time or reacquire such
securities in time to vote on any matter which the Board of Trustees determines
to be serious. There is the risk that the borrower may fail to return the loaned
securities or that the borrower may not be able to provide additional
collateral. No loan of securities will be made if, as a result, the aggregate
amount of such loans would exceed 25% of the value of a Fund's total assets.
OTHER INVESTMENT COMPANIES
Each Fund is permitted to invest in other investment companies at any time.
A Fund will not invest more than 10% of its total assets in securities of other
investment companies or invest more than 5% of its total assets in securities of
any investment company and will not purchase more than 3% of the outstanding
voting stock of any investment company. If a Fund acquires securities of another
investment company, the shareholders of the Fund may be subject to duplicative
management fees.
Value International and Europe Fund each may invest in any closed-end
investment company that holds foreign equity securities in its portfolio. For
Value International, investments in the shares of closed-end investment
companies that invest primarily in the equity securities of non-U.S. issuers
will be included in the 65% of total assets that Value International normally
would expect to invest in such issuers. Likewise, investments by Europe Fund in
the shares of closed-end investment companies that invest primarily in equity
securities of European issuers will be included in the 65% of total assets that
Europe Fund normally would expect to invest in European issuers.
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HOW TO PURCHASE AND REDEEM YOUR SHARES
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GENERAL
For further information concerning the purchase/redemption of your shares
or for further instructions regarding any purchase/ redemption options, please
contact your broker/dealer or LMFP.
Each Fund is authorized to issue three classes of shares. Class A shares
and Class C shares of the Funds are offered through a separate prospectus. Class
Y shares, as described in this Prospectus, are offered for sale only to advisory
clients of Bartlett that are employee benefit or retirement plans, other than
IRAs, to retirement plans having net assets of at least $10 million, to
purchasers of $5 million or more in shares of any Fund, and to participants in
certain wrap fee investment advisory programs that are currently or in the
future sponsored by Bartlett and that may invest in Bartlett proprietary funds,
provided that shares are purchased through or in connection with those programs.
PURCHASES
Investors eligible to purchase Class Y shares may purchase them through a
brokerage account with Bartlett, LMFP or their affiliates.
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Subject to the above limitations, the minimum initial investment for Class Y
shares is $1,000, including investments made by exchange from other Funds or
Legg Mason Cash Reserve Trust. The minimum investment for each purchase of
additional shares is $100. Each Fund may reduce or waive such minimums for
investments made by employer sponsored qualified retirement plans or through
automatic investment programs, investments made through brokerage firms or other
financial institutions, or investments made by advisory clients of Bartlett and
employees of Bartlett and their families, or under other circumstances.
Share purchases will be processed at the net asset value next determined
after Bartlett or LMFP has received the order. Orders received before the close
of regular trading on the New York Stock Exchange ("Exchange") (normally 4:00
p.m. Eastern time) ("close of the Exchange") on any day the Exchange is open
will be executed at the net asset value determined as of the close of the
Exchange on that day. Orders received after the close of the Exchange or on days
the Exchange is closed will be executed at the net asset value determined as of
the close of the Exchange on the next day the Exchange is open. The Funds,
Bartlett and LMFP reserve the right to reject any purchase order and to suspend
the offering of shares for a period of time. The Funds do not issue share
certificates.
No sales charge is imposed by any Fund in connection with the purchase of
Class Y shares.
Once an account has been established, investors may also purchase shares of
the Funds through LMFP by bank wire. Bank wire purchases will be effected at the
next determined net asset value after the bank wire is received. An investor's
bank may charge a service fee for wiring money to the Funds.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; an annual report for the Funds will
contain financial statements audited by the Trust's independent accountants.
SHAREHOLDER INQUIRIES SHOULD BE ADDRESSED TO:
[insert complete Fund name]
LMFP Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
Telephone Purchase Transactions:
Call LMFP at (800) 800-3609
PROGRAMS APPLICABLE TO CLASS Y:
SYSTEMATIC INVESTMENT PLAN. Shares of each Fund may be purchased through
the Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in the Funds of $50 or more by authorizing BFDS to transfer
funds each month from your checking account. Please contact Bartlett or LMFP for
further information.
AUTOMATIC INVESTMENTS. Arrangements may be made with some employers and
financial institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be possible
for dividends from certain unit investment trusts to be invested automatically
in shares. Persons interested in establishing such automatic investment programs
should contact the Funds through Bartlett or LMFP.
REDEMPTIONS
As described below, shares of the Funds may be redeemed at their net asset
value. Redemption proceeds normally will settle in your Bartlett or LMFP
brokerage account two business days after trade date; however, each Fund
reserves the right to take up to seven days to make payment upon redemption if,
in the judgment of Bartlett and/or the respective sub-adviser, the respective
Fund could be adversely affected by immediate payment. The Statement of
Additional Information describes several other circumstances in which the date
of payment may be postponed or the right of redemption suspended.
Shareholders may call Bartlett or LMFP and give them an order for
redemption. Shareholders should have the following information ready when they
call: the name of the Fund, the
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number of shares (or dollar amount) to be redeemed and their shareholder account
number. Shareholders may also send a written request for redemption to the
address listed below.
Orders for redemption received by Bartlett or LMFP before the close of the
Exchange, on any day that the Exchange is open, will be transmitted to BFDS for
redemption at the net asset value per share determined as of the close of the
Exchange on that day. Requests for redemption received by Bartlett or LMFP after
the close of the Exchange will be executed at the net asset value determined as
of the close of the Exchange on its next trading day. A redemption request
received by Bartlett or LMFP may be treated as a request for repurchase and, if
it is accepted by Bartlett or LMFP, the investor's shares will be purchased at
the net asset value per share determined as of the next close of the Exchange.
PURCHASES AND REDEMPTIONS THROUGH INSTITUTIONS
Certain institutions that have agreements with LMFP or the Funds may be
authorized to accept purchase and redemption orders on their behalf. In that
case, a Fund will be deemed to have received your purchase or redemption order
when the authorized institution accepts the order, and your order will receive
the next price calculated after the order has been accepted by the institution.
You should consult with your institution to determine the time by which it must
receive your order for you to purchase or redeem Fund shares at that day's
price. It is the institution's responsibility to transmit your order to the Fund
in a timely fashion.
SYSTEMATIC WITHDRAWAL PLAN
Eligible shareholders may elect to make systematic withdrawals from their
Fund account of a minimum of $50 on a monthly basis if they are purchasing or
already own shares with a net asset value of $5,000 or more. Shareholders should
not purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan with respect to that Fund. Please contact LMFP or Bartlett for
further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, investors are entitled to exchange their shares of a
Fund for the corresponding class of shares of any of the other Funds or the Legg
Mason Cash Reserve Trust (a money market mutual fund), provided that such shares
are eligible for sale in the investor's state of residence.
Investments by exchange into a Fund are made at the per share net asset
value determined on the same business day as redemption of the Fund shares you
wish to exchange.
There is no charge for the exchange privilege, but each Fund reserves the
right to terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from that Fund in one calendar year. To effect an
exchange by telephone, or to obtain further information concerning the exchange
privilege, please contact LMFP or Bartlett.
OTHER IMPORTANT REDEMPTION INFORMATION
The proceeds of your redemption may be more or less than your original
cost. If the shares to be redeemed were paid for by check (including certified
or cashier's checks) within 10 business days of the redemption request, the
proceeds may not be disbursed unless the Fund can be reasonably assured that the
check has been collected.
None of the Funds will be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable procedures to
identify the caller. Each Fund may request identifying information from callers
or employ identification numbers. Each Fund may be liable for losses due to
unauthorized or fraudulent instructions if it does not follow reasonable
procedures. Telephone redemption privileges are available automatically to all
shareholders. Shareholders who do not wish to have telephone redemption
privileges should call LMFP or Bartlett for further instructions.
21
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Because of the relatively high cost of maintaining small accounts, each
Fund may elect to close any account with a current value of less than $500 by
redeeming all of the shares in the account and mailing the proceeds to you.
However, no Fund will redeem accounts that fall below $500 solely as a result of
a reduction in net asset value per share. If a Fund elects to redeem the shares
in your account, you will be notified that your account is below $500 and will
be allowed 60 days in which to make an additional investment in order to avoid
having your account closed.
The shares of each Fund are subject to redemption at any time if the Board
of Trustees of the Trust determines in its sole discretion that failure to so
redeem may have materially adverse consequences to all or any of the
shareholders of the Trust or any Fund.
TELEPHONE TRANSACTIONS:
Call LMFP at (800) 800-3609
MAIL TRANSACTIONS:
[insert complete Fund name]
LMFP Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
---------------------------------
CALCULATION OF SHARE PRICE
---------------------------------
Net asset value per share of each Fund class is determined daily, as of the
close of the Exchange, on every day that the Exchange is open, by subtracting
the liabilities attributable to each class from the total assets of such class
and dividing the result by the number of shares of such class outstanding.
Securities owned by each Fund for which market quotations are readily available
are valued at current market value. In the absence of readily available market
quotations, securities are valued at fair value as determined by Bartlett and/or
the respective sub-adviser, under authority delegated by the Board of Trustees.
The Funds may use pricing services to determine the market value of its
portfolio securities, subject to the adviser's and/or sub-adviser's review. If
the Board of Trustees determines in good faith that another method of valuing
options and futures contracts is necessary to appraise their fair value, such
other method will be used.
Equity securities, options and commodities listed on exchanges are valued
at the last sale price as of the close of business on the day the securities are
being valued. Listed securities not traded on a particular day and securities
traded in the over-the-counter market are valued at the mean between closing bid
and ask prices quoted by brokers or dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
an exchange are valued according to the broadest and most representative market.
Fixed income securities generally are valued by using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. However, if the adviser and/or sub-adviser believes
that the market value of a security will be more accurately reflected thereby,
it will use market value estimates obtained from yield spreads relating to
securities with similar characteristics as to credit quality, coupon rate,
maturity and other factors. Fixed income securities having a maturity of less
than 60 days are valued at amortized cost.
For valuation purposes, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the then-prevailing
exchange rates. In computing the net asset value of a Fund, the values of
foreign portfolio securities are generally based upon market quotations that,
depending upon the exchange or market, may be last sale price, last bid price,
or the mean between last bid and asked prices as of, in each case, the close of
the appropriate exchange or another designated time.
Trading in securities on European and Far Eastern securities exchanges and
over-the-
22
<PAGE>
counter markets is normally completed at various times before the close of
business on each day on which the Exchange is open. Trading of these securities
may not take place on every business day the Exchange is open. In addition,
trading may take place in various foreign markets on Saturdays or on other days
when the Exchange is not open and on which a Fund's share price is not
calculated. Therefore, the value of the portfolio of a Fund holding foreign
securities may be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
The calculation of the share price of a Fund holding foreign securities in
its portfolio does not take place contemporaneously with the determination of
the values of many of the foreign portfolio securities used in such calculation.
Events affecting the values of foreign portfolio securities that occur between
the time their prices are determined and the calculation of the Fund's share
price will not be reflected in the calculation unless the advier and/or sub-
adviser determines, subject to review by the Trust's Board of Trustees, that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
-----------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
-----------------------------------------
Each Fund distributes substantially all of its investment company taxable
income (which consists of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions), if any, in the form of
dividends to its shareholders of each class. Value International and Basic Value
each declares and pays dividends from net investment income on a quarterly basis
and dividends from any net short-term capital gains annually; Europe Fund and
Financial Services Fund each declares and pays all dividends on an annual basis.
Each Fund also distributes substantially all of its net capital gain (the excess
of net long-term capital gain over net short-term capital loss) and net gains
from foreign currency transactions, if any, after the end of the taxable year in
which the gains are realized. A second distribution of net capital gain may be
necessary in some years to avoid imposition of the excise tax described under
the heading "Additional Tax Information" in the Statement of Additional
Information.
Dividends and other distributions, if any, on Class Y shares of a Fund held
in a Simplified Employee Pension Plan ("SEP"), Savings Incentive Match Plan for
Employees ("SIMPLE") or other qualified retirement plan and by shareholders
maintaining a Systematic Withdrawal Plan generally are reinvested in Class Y
shares of that Fund on the payment date (including instances when no election is
made). Other shareholders may elect to:
1. Receive both dividends and other distributions in Class Y shares of the
distributing Fund (automatic option -- no action needed);
2. Receive dividends in cash and other distributions in Class Y shares of
the distributing Fund;
3. Receive dividends in Class Y shares of the distributing Fund and other
distributions in cash; or
4. Receive both dividends and other distributions in cash.
If a shareholder has elected to receive dividends and/or other
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
In certain cases, shareholders may reinvest dividends and other
distributions in Class Y shares of another Fund. Please contact LMFP or Bartlett
for additional information concerning
23
<PAGE>
this option. If no election is made, both dividends and other distributions are
credited to your account in Class Y shares of the distributing Fund at the net
asset value of the shares determined as of the close of the Exchange on the
reinvestment date. Class Y shares received pursuant to any of the first three
(reinvestment) elections above are also credited to your account at that net
asset value. Shareholders electing to receive dividends and/or other
distributions in cash will be sent a check or will have their brokerage account
credited after the payment date. You may elect at any time to change your option
by notifying the applicable Fund in writing at: [insert complete Fund name], c/o
LMFP Funds Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476. Your
election must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid to shareholders as of that
date.
---------------------------------
TAXES
---------------------------------
Each Fund intends to qualify or continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of federal income tax on that part of its
investment company taxable income and net capital gain that it distributes to
its shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or reinvested in shares) are taxable to its shareholders (other than
qualified retirement plans and other tax-exempt investors) as ordinary income to
the extent of the Fund's earnings and profits. Distributions of a Fund's net
capital gain (whether paid in cash or reinvested in shares), when designated as
such, are taxable to those shareholders as long-term capital gain, regardless of
how long they have held their Fund shares. The maximum tax rate applicable to a
noncorporate taxpayer's net capital gain recognized on capital assets held for
more than one year is 20% (10% for taxpayers in the 15% marginal tax bracket).
In the case of a regulated investment company, such as the Funds, the relevant
holding period is determined by how long the Fund has held the portfolio
security on which the gain was realized, not by how long you have held your Fund
shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends and
other distributions paid (or deemed paid) during the year. Each Fund is required
to withhold 31% of all dividends, capital gain distributions and redemption
proceeds payable to any individuals and certain other noncorporate shareholders
who do not provide the Fund with a certified taxpayer identification number.
Each Fund also is required to withhold 31% of all dividends and capital gain
distributions payable to such shareholders who otherwise are subject to backup
withholding.
A redemption of Fund shares may result in a taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares. An exchange
of Fund shares for shares of any other Fund or the Legg Mason Cash Reserve Trust
generally will have similar tax consequences. See "How to Purchase and Redeem
Your Shares -- Exchange Privilege," above. If Fund shares are purchased within
30 days before or after redeeming at a loss other shares of the same Fund
(regardless of class), all or part of that loss will not be deductible and
instead will increase the basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
income tax. Accordingly, an investor should recognize that a purchase of shares
immediately before the record date for a dividend or other distribution could
cause the investor to incur tax liabilities and should not be made solely for
the purpose of receiving the dividend or other distribution.
24
<PAGE>
Shareholders may be entitled to claim tax credits or deductions, subject to
certain limitations, for foreign income taxes paid by a Fund (see "Additional
Tax Information" in the Statement of Additional Information). Each Fund will
notify its shareholders if such credit or deduction is available.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition to
federal income tax, you may also be subject to state, local or foreign taxes on
distributions from the Funds, depending on the laws of your home state and
locality or country of residence. Prospective shareholders are urged to consult
their tax advisers with respect to the effects of this investment on their own
tax situations.
---------------------------------
MANAGEMENT OF THE TRUST
---------------------------------
BARTLETT & CO.
Bartlett & Co., 36 East Fourth Street, Cincinnati, Ohio, serves as
investment adviser and administrator to each Fund. Bartlett is an investment
advisory firm which has provided investment advice to individuals, corporations,
pension and profit sharing plans and trust accounts since 1898. As of September
30, 1998, Bartlett had aggregate assets under management of approximately $2.9
billion. Bartlett is a wholly owned subsidiary of Legg Mason, Inc., a financial
services holding company.
Pursuant to an Investment Management and Administration Agreement, which
was approved by the Board of Trustees, Bartlett acts as investment adviser for
each Fund and has responsibility for the actual investment management of the
Funds, including the responsibility for making decisions and placing orders to
buy, sell or hold a particular security, except with respect to Europe Fund,
where it has delegated that responsibility to Lombard Odier and except with
respect to Financial Services Fund, where it has delegated that responsibility
to Gray, Seifert. Bartlett also supervises all aspects of the operations of each
Fund in its capacity as administrator for each Fund.
Bartlett receives for its services a management fee from each Fund
attributable to the net assets of each class, calculated daily and payable
monthly. For its services to Basic Value, Bartlett receives an annual fee of
0.75% of its average daily net assets; for its services to Value International,
Bartlett receives an annual fee of 1.25% of its average daily net assets; for
its services to Europe Fund, Bartlett receives an annual fee of 1.00% of its
average daily net assets; and for its services to Financial Services Fund,
Bartlett receives an annual fee of 1.00% of its average daily net assets.
LOMBARD ODIER
Lombard Odier, Norfolk House, 13 Southampton Place, London WC1A 2AJ,
England, serves as investment sub-adviser to Europe Fund pursuant to a
Sub-Advisory Agreement with Bartlett, which was approved by the Board of
Trustees. For its services under the Sub-Advisory Agreement, Lombard Odier will
receive from Bartlett (not Europe Fund) a monthly fee at the rate of 60% of the
monthly fee actually paid to Bartlett by the Fund under the Investment
Management and Administration Agreement, taking into account any fee waiver
arrangements in effect for Europe Fund (see below).
Lombard Odier specializes in advising and managing investment portfolios
for institutional clients and also serves as investment adviser for one other
investment company. As of September 30, 1998, Lombard Odier had approximately
$8.6 billion in aggregate assets under management. Lombard Odier is an indirect
wholly owned subsidiary of Lombard Odier & Cie, a Swiss private bank.
25
<PAGE>
GRAY, SEIFERT
Gray, Seifert, 380 Madison Avenue, New York, New York, serves as investment
sub-adviser to Financial Services Fund pursuant to a Sub-Advisory Agreement with
Bartlett, which was approved by the Board of Trustees. For its services under
the Sub-Advisory Agreement, Gray, Seifert will receive from Bartlett (not
Financial Services Fund) a monthly fee at the rate of 60% of the monthly fee
actually paid to Bartlett by the Fund for advisory and administrative services,
taking into account any fee waiver arrangements in effect for Financial Services
Fund (see below).
Gray, Seifert is known for its research and securities analysis with
respect to the financial services industry. Gray, Seifert has not previously
advised a mutual fund; however, it has been the evaluator of the Legg Mason
Regional Bank and Thrift Unit Investment Trusts. As of August 18, 1998, Gray,
Seifert had approximately $1.3 billion in aggregate assets under management.
Gray, Seifert is an indirect, wholly owned subsidiary of Legg Mason, Inc.
FEE WAIVERS
Bartlett has agreed to waive fees to the extent that a Fund's expenses
exceed the following annual rates of average daily net assets until May 1, 1999:
CLASS Y
-------
Value International 1.55%
Basic Value 0.90%
Europe Fund 1.60%
Financial Services Fund 1.25%
These agreements are voluntary and may be terminated by Bartlett at any
time. Each Fund pays all its other expenses which are not assumed by Bartlett.
EXPENSE RATIOS
For the fiscal period ended December 31, 1997, the ratio of each Fund's
expenses to its average net assets (after application of any fee waivers) was:
CLASS Y
-------
Value International 1.44%
Basic Value 0.86%
Europe Fund 1.31%
As of the date of this Prospectus, Financial Services Fund has not yet
begun operations. In addition to management and distribution fees, that Fund,
like the others, will be responsible for interest, taxes, brokerage fees and
commissions, expenses of preparing and printing prospectuses, proxy statements
and reports to shareholders and of distributing them to existing shareholders,
custodian charges, transfer agency fees, compensation of the independent
trustees, legal and audit expenses, insurance expenses, shareholder meetings,
proxy solicitations, expenses of registering and qualifying Fund shares for sale
under federal and state law, governmental fees and expenses incurred in
connection with industry organizations.
PORTFOLIO MANAGERS
James A. Miller, CFA, Vice President of the Trust, and Woodrow H. Uible,
CFA, Vice President of the Trust, are responsible for co-managing Basic Value.
Mr. Miller is a Senior Portfolio Manager, President and a Director of Bartlett.
Mr. Miller joined Bartlett in 1977 and is a member of its Institutional
Investment Group. Mr. Uible is a Senior Portfolio Manager of Bartlett. Mr. Uible
has been employed by Bartlett since 1980. He chairs Bartlett's Equity Investment
Group, and is responsible for Bartlett's equity investment processes.
Madelynn M. Matlock, CFA, Vice President of the Trust, is primarily
responsible for managing Value International. Ms. Matlock, Director of
International Investments for Bartlett, joined Bartlett in 1981. She also served
as Director of Research for Bartlett from 1983 to 1992.
Neil Worsley, Director and Senior Investment Manager of Lombard Odier, and
William Lovering, Assistant Director of Lombard Odier, serve as portfolio
co-managers of Europe Fund. Mr. Worsley joined Lombard Odier in December 1990.
Mr. Lovering joined Lombard Odier in August 1994. Previously, Mr. Lovering was
26
<PAGE>
employed at Arbuthnot Latham Investment Management.
Miles Seifert and Amy LaGuardia are responsible for co-managing Financial
Services Fund. Mr. Seifert is Chairperson of the Board and a Director of Gray,
Seifert, and has been with Gray, Seifert since its inception in 1980. Ms.
LaGuardia is Senior Vice President and Director of Research at Gray, Seifert.
Ms. LaGuardia has been employed at Gray, Seifert since 1982.
YEAR 2000
Like other mutual funds and other financial and business organizations
around the world, the Fund could be adversely affected if the computer systems
used by Bartlett and each sub-adviser, other service providers and entities with
computer systems that are linked to Fund records do not accurately process and
calculate date sensitive information after January 1, 2000. This is commonly
referred to as the "Year 2000 Issue." Calculating net asset value, redeeming
shares, delivering account statements and providing other information to
shareholders are all functions that are performed by computer. Bartlett and each
sub-adviser are taking steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to the computer systems they use and to
obtain satisfactory assurances that each of the Fund's other major service
providers will continue to provide services without interruption. However, there
can be no certainty that these steps will be sufficient to avoid any adverse
impact on the Fund.
The companies in which the Fund invests also could be adversely affected by
the Year 2000 Issue. While many companies are taking steps to address the Year
2000 Issue, there can be no assurance that these steps will be sufficient to
avoid an adverse impact. Bartlett and each sub-adviser endeavor to obtain
information on this problem, but it is difficult to assess accuracy or
completeness, or potential impact on portfolio companies if their suppliers
suffer from the problems.
LMFP
LMFP is the distributor, or principal underwriter, of each Fund's shares
pursuant to a Distribution Agreement with the Trust on behalf of each Fund. The
Distribution Agreement obligates LMFP to pay certain expenses in connection with
the offering of shares of each Fund, including any compensation to
broker/dealers, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the offering
to prospective investors, after the prospectuses, statements of additional
information and periodic reports have been prepared, set in type and mailed to
existing shareholders at the Fund's expense, and for any supplementary sales
literature and advertising costs. LMFP is a wholly owned subsidiary of Legg
Mason, Inc.
---------------------------------
DESCRIPTION OF THE TRUST
---------------------------------
The Trust is a diversified, open-end management investment company
organized as a Massachusetts business trust on October 31, 1982. The business
activities of the Trust are supervised by its Board of Trustees. Like other
mutual funds, the Trust retains various organizations to perform specialized
services.
The trustees of the Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series, all without par value. Shares
of four series, consisting of the Funds, have been authorized.
The shares of beneficial interest of each Fund are divided into three
classes, designated Class A, Class C and Class Y shares. Each class represents
interests in the same assets of the Fund. The classes differ as follows: (1)
each of Class A and Class C has exclusive voting rights on matters pertaining to
its plan of distribution, (2) Class A shares generally are subject to an initial
sales charge, and may, under limited circumstances, be subject to a CDSC, and
bear ongoing service fees, (3) no initial sales charge is imposed on Class C
shares, but Class C
27
<PAGE>
shares may be subject to a CDSC, and bear ongoing distribution and service fees,
and (4) each Class may bear differing amounts of certain class-specific
expenses.
The differing sales charges and other expenses applicable to the different
classes of each Fund's shares may affect the performance of those classes. More
information concerning the classes of shares of the Funds may be obtained by
calling LMFP at (800) 800-3609.
Any trustee of the Trust may be removed by vote of the shareholders holding
not less than two-thirds of the outstanding shares of the Trust. The Trust does
not hold annual meetings of shareholders. Shareholders of the Funds are entitled
to one vote per share and fractional votes for fractional shares held. Voting
rights are not cumulative. All shares of the Funds are fully paid and
nonassessable and have no preemptive or conversion rights. A separate vote is
taken by a class of shares of a Fund if a matter affects just that class of
shares. Each class of shares may bear certain differing class-specific expenses.
Broker/dealers and others entitled to receive compensation for selling or
servicing Fund shares may receive more with respect to one class than another.
The Board of Trustees of the Trust does not anticipate that there will be
any conflicts among the interests of the holders of the different classes of
Fund shares. On an ongoing basis, the Board will consider whether any such
conflict exists and, if so, take appropriate actions.
Each Fund acknowledges that it is solely responsible for the information or
any lack of information about it in this joint Prospectus and in the joint
Statement of Additional Information, and no other Fund is responsible therefor.
There is a possibility that one Fund might be deemed liable for misstatements or
omissions regarding another Fund in this Prospectus or in the joint Statement of
Additional Information; however, the Funds deem this possibility slight.
28
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THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
INVESTMENT ADVISER
Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202-3896
INVESTMENT SUB-ADVISER TO EUROPE FUND
Lombard Odier International Portfolio
Management Limited
Norfolk House
13 Southampton Place
London WC1A 2AJ, England
INVESTMENT SUB-ADVISER TO FINANCIAL SERVICES FUND
Gray, Seifert & Co., Inc.
380 Madison Avenue
New York, New York 10017
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
SUB-CUSTODIAN FOR EUROPE FUND
The Chase Manhattan Bank, N.A.
1 Chaseside
Bournemouth, Dorset BH7 7DB
England
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
250 W. Pratt Street
Baltimore, Maryland 21201
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036
- ----------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS BEING AUTHORIZED BY THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
BY THE TRUST TO SELL ITS SHARES IN ANY STATE
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
- ----------------------------------------------
[Recycled Logo] Printed on Recycled paper
<PAGE>
BARTLETT CAPITAL TRUST:
Bartlett Value International Fund
Bartlett Basic Value Fund
Bartlett Europe Fund
Bartlett Financial Services Fund
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1998
The four funds named above (each a "Fund") are series of Bartlett
Capital Trust (the "Trust"), a diversified, open-end investment company.
BARTLETT VALUE INTERNATIONAL FUND ("Value International") seeks capital
appreciation; it invests primarily in foreign equity securities that its
investment adviser, Bartlett & Co. ("Bartlett"), believes are attractively
priced relative to their intrinsic value. Income is a secondary consideration.
BARTLETT BASIC VALUE FUND ("Basic Value") seeks capital appreciation; it invests
primarily in common stocks or securities convertible into common stocks that
Bartlett believes are selling at attractive prices relative to their intrinsic
value. Income is a secondary consideration. BARTLETT EUROPE FUND ("Europe Fund")
seeks long-term growth of capital; it invests, under normal conditions, at least
65% of its total assets in equity securities of European issuers that its
investment sub-adviser, Lombard Odier International Portfolio Management Limited
("Lombard Odier"), believes are undervalued and thus may offer above-average
potential for capital appreciation. BARTLETT FINANCIAL SERVICES FUND ("Financial
Services Fund") seeks long-term growth of capital; it invests, under normal
conditions, at least 65% of its total assets in equity securities of issuers in
the financial services industry that its investment sub-adviser, Gray, Seifert &
Co., Inc. ("Gray, Seifert"), believes are undervalued and thus may offer
above-average potential for capital appreciation.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectuses for Bartlett Capital Trust dated
November 2, 1998, which have been filed with the Securities and Exchange
Commission ("SEC"). Class A and Class C shares of the Funds are offered through
one Prospectus; the Funds' Class Y shares are offered through a separate
Prospectus. A copy of each Prospectus can be obtained by calling LM Financial
Partners, Inc. ("LMFP"), the Trust's distributor, toll-free at (800) 800-3609.
LM FINANCIAL PARTNERS, INC.
100 Light Street
Baltimore, Maryland 21202
(800) 822-5544
BARTLETT & CO.
36 East Fourth Street
Cincinnati, Ohio 45202
<PAGE>
TABLE OF CONTENTS
PAGE
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS 3
INVESTMENT LIMITATIONS 18
THE FUNDS' INVESTMENT ADVISER AND SUB-ADVISERS 21
THE TRUST'S DISTRIBUTOR 24
TRUSTEES AND OFFICERS 25
PORTFOLIO TRANSACTIONS AND BROKERAGE 30
DETERMINATION OF SHARE PRICE 32
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 32
ADDITIONAL TAX INFORMATION 33
TAX-DEFERRED RETIREMENT PLANS 37
INVESTMENT PERFORMANCE 38
DESCRIPTION OF THE TRUST 42
CUSTODIAN 43
ACCOUNTANTS 43
TRANSFER AGENT 43
FINANCIAL STATEMENTS 43
2
<PAGE>
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
This section supplements the information in the Prospectuses concerning
the investments the Funds may make and the techniques they may use (see
"Investment Objectives and Policies" and "Investment Policies, Techniques and
Risk Considerations").
EMERGING MARKET SECURITIES
Because of the high levels of foreign-denominated debt owed by many
emerging market countries, fluctuating exchange rates can significantly affect
the debt service obligations of those countries. This could, in turn, affect
local interest rates, profit margins and exports which are a major source of
foreign exchange earnings. Although it might be theoretically possible to hedge
for anticipated income and gains, the ongoing and indeterminate nature of the
foregoing risk (and the costs associated with hedging transactions) makes it
virtually impossible to hedge effectively against such risks.
To the extent an emerging market country faces a liquidity crisis with
respect to its foreign exchange reserves, it may increase restrictions on the
outflow of any foreign exchange. Repatriation is ultimately dependent on the
ability of a Fund to liquidate its investments and convert the local currency
proceeds obtained from such liquidation into U.S. dollars. Where this conversion
must be done through official channels (usually the central bank or certain
authorized commercial banks), the ability to obtain U.S. dollars is dependent on
the availability of U.S. dollars through those channels and, if available, upon
the willingness of those channels to allocate those U.S. dollars to a Fund. In
such a case, a Fund's ability to obtain U.S. dollars may be adversely affected
by any increased restrictions imposed on the outflow of foreign exchange. If a
Fund is unable to repatriate any amounts due to exchange controls, it may be
required to accept an obligation payable at some future date by the central bank
or other government entity of the jurisdiction involved. If such conversion can
legally be done outside official channels, either directly or indirectly, a
Fund's ability to obtain U.S. dollars may not be affected as much by any
increased restrictions except to the extent of the price which may be required
to be paid for the U.S. dollars.
Many emerging market countries have little experience with the
corporate form of business organization, and may not have well developed
corporation and business laws or concepts of fiduciary duty in the business
context.
The securities markets of emerging markets are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
U.S. and other more developed countries. Disclosure and regulatory standards in
many respects are less stringent than in the U.S. and other major markets. There
also may be a lower level of monitoring and regulation of emerging markets and
the activities of investors in such markets; enforcement of existing regulations
has been extremely limited.
Some emerging markets have different settlement and clearance
procedures. In certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of a Fund to make intended
securities purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to a Fund
due to subsequent declines in the value of the portfolio security or, if the
Fund has entered into a contract to sell the security, in possible liability to
the purchaser.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for a Fund's portfolio securities in
such markets may not be readily available.
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FINANCIAL SERVICES INDUSTRY
Companies in the financial services industry include regional and money
center banks, securities brokerage firms, asset management companies, savings
banks and thrift institutions, specialty finance companies (e.g., credit card,
mortgage providers), insurance and insurance brokerage firms, government
sponsored agencies, financial conglomerates and foreign banking and financial
services companies.
The financial services industry is currently undergoing relatively
rapid change as existing distinctions between financial service segments become
less clear. For instance, recent business combinations in the U.S. have included
insurance, finance, banking and/or securities brokerage under single ownership.
Moreover, the federal laws generally separating commercial and investment
banking are being studied actively by Congress. The services offered by banks
may expand if legislation broadening bank powers is enacted. While providing
diversification, expanded powers could expose banks to well-established
competitors, particularly as the historical distinctions between banks and other
financial institutions erode. Increased competition may also result from the
broadening of regional and national interstate banking powers, which has already
reduced the number of publicly traded regional banks.
Banks, savings and loan associations, and finance companies are subject
to extensive governmental regulation which may limit both the amounts and types
of loans and other financial commitments they can make and the interest rates
and fees they can charge. The profitability of these groups is largely dependent
on the availability and cost of capital funds, and can fluctuate significantly
when interest rates change. In addition, general economic conditions are
important to the operations of these concerns, with exposure to credit losses
resulting from possible financial difficulties of borrowers potentially having
an adverse effect.
Finance companies can be highly dependent upon access to capital
markets and any impediments to such access, such as adverse overall economic
conditions or a negative perception in the capital markets of a finance
company's financial condition or prospects, could adversely affect its business.
Insurance companies are likewise subject to substantial governmental
regulation, predominantly at the state level, and may be subject to severe price
competition. The performance of the Fund's investments in insurance companies
will be subject to risk from several additional factors. The earnings of
insurance companies will be affected by, in addition to general economic
conditions, pricing (including severe pricing competition from time to time),
claims activity, and marketing competition. Particular insurance lines will also
be influenced by specific matters. Property and casualty insurer profits may be
affected by certain weather catastrophes and other disasters. Life and health
insurer profits may be affected by mortality and morbidity rates. Individual
companies may be exposed to material risks, including reserve inadequacy,
problems in investment portfolios (due to real estate or "junk" bond holdings,
for example), and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential anti-trust or tax law changes also may affect
adversely insurance companies' policy sales, tax obligations and profitability.
Companies engaged in stock brokerage, commodity brokerage, investment
banking, investment management, or related investment advisory services are
closely tied economically to the securities and commodities markets and can
suffer during a decline in either. These companies also are subject tot he
regulatory environment and changes in regulations, pricing pressure and the
availability of funds to borrowing and interest rate levels.
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OPTION TRANSACTIONS (for Value International, Basic Value and Europe Fund only)
Each Fund may engage in option transactions involving equity
securities, debt securities, futures contracts and stock indexes. An option
involves either (a) the right or the obligation to buy or sell a specific
instrument at a specific price until the expiration date of the option, or (b)
the right to receive payments or the obligation to make payments representing
the difference between the closing price of a market index and the exercise
price of the option expressed in dollars times a specified multiple until the
expiration date of the option. Options are sold (written) on equity securities,
debt securities, futures contracts and stock indexes. The purchaser of an option
on an equity security, debt security or futures contract pays the seller (the
writer) a premium for the right granted but is not obligated to buy or sell the
underlying security or futures contract. The purchaser of an option on a stock
index pays the seller a premium for the right granted, and in return the seller
of such an option is obligated to make the payment. A writer of an option may
terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option. Options are traded on organized
exchanges and in the over-the-counter market. Options on equity securities, debt
securities or options on futures contracts which a Fund sells (writes) will be
covered or secured, which means that the Fund will own the underlying security
or futures contracts in the case of a call option and that the Fund will
segregate with the Trust's custodian, State Street Bank and Trust Company
("State Street" or "Custodian"), high grade liquid debt securities sufficient to
purchase the underlying security or futures contracts in the case of a put
option. Each Fund will also segregate and maintain with its Custodian liquid
assets equal to the market value of each put option sold (written) by the Fund
on a stock index. In addition, when a Fund writes options, it may be required to
maintain a margin account, to pledge the underlying securities or U.S.
government obligations or to deposit high grade liquid debt securities in escrow
with its Custodian.
The purchase and writing of options involves certain risks. The
purchase of options limits a Fund's potential loss to the amount of the premium
paid and can afford the Fund the opportunity to profit from favorable movements
in the price of an underlying security to a greater extent than if transactions
were effected in the security directly. However, the purchase of an option could
result in a Fund losing a greater percentage of its investment than if the
transaction were effected directly. When a Fund writes a covered call option, it
will receive a premium, but it will give up the opportunity to profit from a
price increase in the underlying security above the exercise price as long as
its obligation as a writer continues, and it will retain the risk of loss should
the price of the security decline. When a Fund writes a secured put option, it
will assume the risk that the price of the underlying security will fall below
the exercise price, in which case the Fund may be required to purchase the
security at a higher price than the market price of the security. In addition,
there can be no assurance that a Fund can effect a closing transaction on a
particular option it has written.
Each Fund may engage in option transactions involving foreign
currencies, foreign stock indexes or futures contracts. A foreign currency
option or an option on a futures contract involves either the right or the
obligation to buy or sell a specific currency or futures contract at a specific
price until the expiration date of the option. A foreign stock index option
involves either the right to receive payments or the obligation to make payments
representing the difference between the closing price of a market index and the
exercise price of the option until the expiration date of the option. The
purchaser of an option on a foreign currency or futures contract pays the seller
(the writer) a premium for the right granted but is not obligated to buy or sell
the underlying currency or futures contract. The purchaser of an option on a
stock index pays the seller a premium for the right granted, and in return the
seller of such an option is obligated to make the payment. A writer of an option
may terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option.
Options on foreign currencies and futures contracts which a Fund sells
(writes) will be covered or secured, which means that the Fund will own the
underlying currency or futures contract in the case of a call option and that
the Fund will segregate with its Custodian liquid assets sufficient to purchase
the underlying currency or futures contract in the case of a put option. Each
Fund will also segregate and maintain with its Custodian high grade liquid
assets equal to the market value of each put option sold
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(written) by the Fund on a stock index. In addition, when a Fund writes options,
it may be required to maintain a margin account, to pledge the underlying
currency, futures contract or U.S. government obligations, or to deposit high
grade liquid assets in escrow with its Custodian.
HEDGING TRANSACTIONS (for Value International, Basic Value and Europe Fund only)
(1) U. S. Securities
Each Fund may hedge all or a portion of its portfolio investments
through the use of options, futures contracts and options on futures contracts.
The objective of a hedging program is to protect a profit or offset a loss in a
portfolio security from future price erosion or to assure a definite price for a
security by acquiring the right or option to purchase or to sell a fixed amount
of the security at a future date. For example, in order to hedge against an
anticipated rise in interest rates that might cause the value of a Fund's
portfolio securities to decline, the Fund might sell interest rate futures
contracts. When hedging of this character is successful, any depreciation in the
value of the hedged portfolio securities will be substantially offset by an
increase in the Fund's equity in the interest rate futures position.
Alternatively, an interest rate futures contract may be purchased when a Fund
anticipates the future purchase of a security but expects the rate of return
then available in the securities market to be less favorable than rates
currently available in the futures markets.
There is no assurance that the objective of the hedging program will be
achieved, since the success of the program will depend on Bartlett and/or
Lombard Odier's ability to predict the future direction of stock prices or
interest rates and incorrect predictions Bartlett and/or Lombard Odier may have
an adverse effect on a Fund. In this regard, it should be noted that the skills
and techniques necessary to arrive at such predictions are different from those
needed to predict price changes in individual stocks. Bartlett is registered as
a commodity trading advisor with the Commodity Futures Trading Commission
("CFTC"), is a member of the National Futures Association and has prior
experience in the use of options, futures contracts and options on futures
contracts.
The hedging strategy involves the use of one or more techniques,
including buying and selling options (described above), futures contracts and
options on such futures contracts. A futures contract is a binding contractual
commitment which involves either (a) the delivery and payment for a specified
amount of securities or currency at a price agreed upon at the time the contract
is entered into but with actual delivery made during a specified period in the
future, or (b) the payment or receipt of payments representing, respectively,
the loss or gain of a specified group of stocks or market index. The securities
or currency underlying the contract may be government or corporate bonds (an
interest rate futures contract), foreign currency (a foreign currency futures
contract), or a group of stocks such as a popular market index (a stock index
futures contract). Interest rate futures contracts are currently available in
standardized amounts on government obligations (such as U.S. Treasury bills,
notes and bonds), Government National Mortgage Association ("GNMA")
certificates, corporate bonds, domestic certificates of deposit and Eurodollar
certificates of deposit. It is expected that other financial instruments will at
later dates be subject to other futures contracts. As new futures contracts are
developed and offered to investors, Bartlett and/or Lombard Odier will,
consistent with each Fund's investment objectives and policies, consider making
investments in such new futures contracts. Ordinarily a Fund will enter into
interest rate futures contracts to hedge its investments in fixed income
securities such as preferred stocks and money market obligations, stock index
futures contracts to hedge its investments in common stocks and foreign currency
futures contracts to hedge currency risks associated with investments in foreign
securities.
Futures contracts are traded on exchanges licensed and regulated by the
CFTC. Interest rate futures contracts are principally traded on the Chicago
Board of Trade and International Monetary Market. Stock index futures contracts
are principally traded on the New York Futures Exchange, Chicago Mercantile
Exchange, Kansas City Board of Trade, New York Stock Exchange and Chicago Board
of Trade. Each Fund will be subject to any limitations imposed by these boards
of trades and exchanges
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with respect to futures contracts trading and positions. A clearing corporation
associated with the particular exchange assumes responsibility for all purchases
and sales and guarantees delivery and payment on the contracts. Although most
futures contracts call for actual delivery or acceptance of the underlying
securities or currency, in most cases the contracts are closed out before
settlement date without the making or taking of delivery. Closing out is
accomplished by entering into an offsetting transaction, which may result in a
profit or a loss. There is no assurance that a Fund will be able to close out a
particular futures contract.
(2) International Securities
In general, the strategies and risks associated with hedging portfolio
investments in international securities are similar to those involved in hedging
U.S. securities, but have some differences.
Each Fund may hedge the international securities in its portfolio by
engaging in futures contracts transactions involving foreign currencies or stock
indexes. A foreign currency futures contract is a binding contractual commitment
which involves either the delivery and payment for a specified period in the
future. A foreign stock index futures contract involves either the payment or
receipt of payments representing, respectively, the loss or gain of a specified
group of stocks or market index. Ordinarily a Fund would enter into foreign
stock index futures contracts to hedge its investments in foreign common stocks
and foreign currency futures contracts to hedge currency risks associated with
investments in foreign securities.
There is no assurance that the objective of any hedging strategy used
by a Fund will be achieved, since the success of the strategy will depend on
Bartlett's and/or Lombard Odier's ability to predict the future direction of the
relevant currency, stock index or futures contract and incorrect predictions by
Bartlett and/or Lombard Odier may have an adverse effect on the Fund. The
forecasting of currency market movement is extremely difficult and whether a
hedging strategy involving foreign currency transactions will be successful is
highly uncertain. In addition, it should be noted that the skills and techniques
necessary to predict movements in a stock index are different from those needed
to predict price changes in individual stocks.
Futures contracts are traded on exchanges licensed and regulated by the
CFTC and analogous foreign regulatory agencies. Each Fund will be subject to any
limitations imposed by the exchanges with respect to futures contracts trading
and positions. A clearing corporation associated with the particular exchange
assumes responsibility for all purchases and sales and guarantees delivery and
payment on the contracts. Although foreign currency futures contracts call for
actual delivery or acceptance of the currency, in most cases the contracts are
closed out before settlement date without the making or taking of delivery.
Closing out is accomplished by entering into an offsetting transaction, which
may result in a profit or a loss. There is no assurance that a Fund will be able
to close out a particular futures contract or that a liquid secondary market
will exist for any particular futures contract at any specific time.
Futures contracts transactions entail some risks. For example, it is
possible that the futures contracts selected by a Fund will not follow the price
movement of the underlying currency or stock index. If this occurs, the hedging
strategy may not be successful. Further, if a Fund sells a stock index futures
contract and is required to pay an amount measured by any increase in the index,
it will be exposed to an indeterminate liability. In addition, a liquid
secondary market may not exist for any particular futures contract at any
specific time.
(3) Risks of Hedging Strategies
A hedging strategy involving options and futures contracts entails some
risks. For example, the total premium paid for an option on a futures contract
may be lost if a Fund does not exercise the option or the writer does not
perform his obligations. It is also possible that the futures contracts selected
by a Fund will not follow the price movement of the underlying securities,
currencies or stock index. If this
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occurs, the hedging strategy may not be successful. Further, if a Fund sells a
stock index futures contract and is required to pay an amount measured by any
increase in the market index, it will be exposed to an indeterminate liability.
In addition, a liquid secondary market may not exist for any particular option
or futures contract at any specific time.
Each Fund will incur transactional costs in connection with the hedging
program. When a Fund purchases or sells a futures contract, an amount of cash
and liquid assets will be deposited in a segregated account with the Trust's
Custodian to guarantee performance of the futures contract. The amount of such
deposits will depend upon the requirements of each exchange and broker and will
vary with each futures contract. Because open futures contract positions are
marked-to-market and gains and losses are settled on a daily basis, a Fund may
be required to deposit additional funds in such a segregated account if it has
incurred a net loss on its open futures contract positions on any day.
The Trust has filed a supplemental notice of eligibility with the CFTC
to claim relief from regulation as a commodity "pool" within the meaning of the
CFTC's regulations. In its filing, the Trust has represented that each Fund's
transactions in futures contracts and options on futures contracts will
constitute bona fide hedging transactions within the meaning of such regulations
and that each Fund will enter into commitments which require as deposits for
initial margin for futures contracts or premiums for options on futures
contracts no more than 5% of the fair market value of its total assets.
CORPORATE DEBT SECURITIES
Corporate debt securities are bonds or notes issued by corporations and
other business organizations, including business trusts, in order to finance
their credit needs. Corporate debt securities include commercial paper which
consists of short-term (usually from 1 to 270 days) unsecured promissory notes
issued by corporations in order to finance their current operations. Any Fund
may invest in foreign corporate debt securities denominated in U.S. dollars or
foreign currencies. Foreign debt securities include Yankee dollar obligations
(U.S. dollar denominated securities issued by foreign corporations and traded on
U.S. markets) and Eurodollar obligations (U.S. dollar denominated securities
issued by foreign corporations and traded on foreign markets).
U.S. GOVERNMENT OBLIGATIONS AND RELATED SECURITIES
U.S. government obligations include a variety of securities that are
issued or guaranteed by the U.S. Treasury, by various agencies of the U.S.
Government or by various instrumentalities that have been established or
sponsored by the U.S. Government. U.S. Treasury securities and securities issued
by the GNMA and Small Business Administration are backed by the "full faith and
credit" of the U.S. Government. Other U.S. government obligations may or may not
be backed by the "full faith and credit" of the U.S. In the case of securities
not backed by the "full faith and credit" of the U.S., the investor must look
principally to the agency issuing or guaranteeing the obligation (such as the
Federal Farm Credit System, the Federal Home Loan Banks, Fannie Mae and Freddie
Mac for ultimate repayment and may not be able to assert a claim against the
U.S. itself in the event the agency or instrumentality does not meet its
commitments.
Participation interests in U.S. government obligations are pro rata
interests in such obligations which are generally underwritten by government
securities dealers. Certificates of safekeeping for U.S. government obligations
are documentary receipts for such obligations. Both participation interests and
certificates of safekeeping are traded on exchanges and in the over-the-counter
market.
Each Fund may invest in U.S. government obligations and related
participation interests. In addition, each Fund may invest in custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain U.S. government obligations. Such obligations are held in custody by
a bank on behalf of the owners. These custodial receipts are known by various
names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs")
and Certificates of Accrual on Treasury
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Securities ("CATS"). Custodial receipts generally are not considered obligations
of the U.S. government for purposes of securities laws. The Funds will consider
all interest-only or principal-only fixed income securities as illiquid.
MUNICIPAL OBLIGATIONS
Municipal obligations are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest that is, in
the opinion of bond counsel to the issuer, exempt from federal income tax. Each
Fund may invest no more than 5% of its net assets in municipal obligations
(including participation interests). Municipal obligations are issued to obtain
funds to construct, repair or improve various public facilities such as
airports, bridges, highways, hospitals, housing, schools, streets and water and
sewer works, to pay general operating expenses or to refinance outstanding
debts. They also may be issued to finance various private activities, including
the lending of funds to public or private institutions for construction of
housing, educational or medical facilities or the financing of privately owned
or operated facilities. Municipal obligations consist of tax-exempt bonds,
tax-exempt notes and tax-exempt commercial paper. Tax-exempt notes generally are
used to provide short term capital needs and generally have maturities of one
year or less. Tax-exempt commercial paper typically represents short-term,
unsecured, negotiable promissory notes.
The two principal classifications of municipal obligations are "general
obligations" and "revenue" bonds. General obligation bonds are backed by the
issuer's full credit and taxing power. Revenue bonds are backed by the revenues
of a specific project, facility or tax. Industrial development revenue bonds are
a specific type of revenue bond backed by the credit of the private issuer of
the facility, and therefore investments in these bonds have more potential risk
that the issuer will not be able to meet scheduled payments of principal and
interest.
ZERO COUPON AND PAY-IN-KIND BONDS
Corporate debt securities and municipal obligations include so-called
"zero coupon" bonds and "pay-in-kind" bonds. A Fund may invest no more than 5%
of its net assets in zero coupon bonds or pay-in-kind bonds, respectively. Zero
coupon bonds are issued at a significant discount from their principal amount in
lieu of paying interest periodically. Pay-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of zero coupon and pay-in-kind bonds is subject to
greater fluctuation in response to changes in market interest rates than bonds
which make regular payments of interest. Both of these types of bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds which make
regular payments of interest. Even though zero coupon and pay-in-kind bonds do
not pay current interest in cash, a Fund holding those bonds is required to
accrue interest income on such investments and may be required to distribute
that income at least annually to shareholders. Thus, such a Fund could be
required at times to liquidate other investments in order to satisfy its
dividend requirements.
MORTGAGE-RELATED SECURITIES
Each Fund may invest no more than 5% of its net assets in
mortgage-related securities. Mortgage-related securities provide capital for
mortgage loans made to residential homeowners, including securities which
represent interests in pools of mortgage loans made by lenders such as savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled for sale to investors (such as the Funds) by
various governmental, government-related and private organizations, such as
dealers. The market value of mortgage-related securities will fluctuate as a
result of changes in interest rates and mortgage rates.
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Interests in pools of mortgage loans generally provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are caused by
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA)
are described as "modified pass-through" because they entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payment.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers, such
as dealers, create pass-through pools of conventional residential mortgage
loans. Such issuers also may be the originators of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments with respect to such pools. However, timely
payment of interest and principal of these pools is supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. A Fund may buy mortgage-related securities
without insurance or guarantees if, through an examination of the loan
experience and practices of the persons creating the pools, Bartlett and/or
Lombard Odier determines that the securities are appropriate investments for the
Fund.
Another type of security representing an interest in a pool of mortgage
loans is known as a collateralized mortgage obligation ("CMO"). CMOs represent
interests in a short-term, intermediate-term or long-term portion of a mortgage
pool. Each portion of the pool receives monthly interest payments, but the
principal repayments pass through to the short-term CMO first and the long-term
CMO last. A CMO permits an investor to more accurately predict the rate of
principal repayments. CMOs are issued by private issuers, such as broker/dealers
and government agencies, such as Fannie Mae and Freddie Mac. Investments in CMOs
are subject to the same risks as direct investments in the underlying
mortgage-backed securities. In addition, in the event of a bankruptcy or other
default of a broker who issued the CMO held by a Fund, the Fund could experience
both delays in liquidating its position and losses. Each Fund may invest in CMOs
in any rating category of the recognized rating services and may invest in
unrated CMOs. Each Fund may also invest in "stripped" CMOs, which represent only
the income portion or the principal portion of the CMO.
Each Fund's adviser and/or sub-adviser expects that governmental,
government-related or private entities may create mortgage loan pools offering
pass-through investments in addition to those described above. The mortgages
underlying these securities may be second mortgages or alternative mortgage
instruments (for example, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may differ from customary long-term
fixed rate mortgages). As new types of mortgage-related securities are developed
and offered to investors, the adviser and/or the respective sub-adviser will,
consistent with a Fund's investment objective and policies, consider making
investments in such new types of securities. The Prospectuses will be amended
with any necessary additional disclosure prior to that Fund investing in such
securities.
The average life of securities representing interests in pools of
mortgage loans is likely to be substantially less than the original maturity of
the mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, a Fund may experience a loss (if
the price at which the respective security was acquired by the Fund was at a
premium over par, which represents the price at which the security will be
redeemed upon prepayment) or a gain (if the price at which the respective
security was acquired by the Fund was at a
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discount from par). In addition, prepayments of such securities held by a Fund
will reduce the share price of the Fund to the extent the market value of the
securities at the time of prepayment exceeds their par value, and will increase
the share price of the Fund to the extent the par value of the securities
exceeds their market value at the time of prepayment. Prepayments may occur with
greater frequency in periods of declining mortgage rates because, among other
reasons, it may be possible for mortgagors to refinance their outstanding
mortgages at lower interest rates.
Although the market for mortgage-related securities issued by private
organizations is becoming increasingly liquid, such securities may not be
readily marketable. No Fund will purchase mortgage-related securities for which
there is no established market (including CMOs and direct investments in
mortgages as described below) or any other investments which the adviser and/or
the respective sub-adviser deems to be illiquid pursuant to criteria established
by the Board of Trustees if, as a result, more than 10% (15% for Europe Fund) of
the value of the Fund's net assets would be invested in such illiquid securities
and investments. Government-related organizations which issue mortgage-related
securities include GNMA, Fannie Mae and Freddie Mac. Securities issued by GNMA
and Fannie Mae are fully modified pass-through securities, i.e., the timely
payment of principal and interest is guaranteed by the issuer. Freddie Mac
securities are modified pass-through securities, i.e., the timely payment of
interest is guaranteed by Freddie Mac, principal is passed through as collected
but payment thereof is guaranteed not later than one year after it becomes
payable.
DIRECT INVESTMENT IN MORTGAGES
Mortgage-related securities include investments made directly in
mortgages secured by real estate. When a Fund makes a direct investment in
mortgages, the Fund, rather than a financial intermediary, becomes the mortgagee
with respect to such loans purchased by the Fund. Direct investments in
mortgages are normally available from lending institutions which group together
a number of mortgages for resale (usually from 10 to 50 mortgages) and which act
as servicing agent for the purchaser with respect to, among other things, the
receipt of principal and interest payments. (Such investments are also referred
to as "whole loans.") The vendor of such mortgages receives a fee from the
purchaser for acting as servicing agent. The vendor does not provide any
insurance or guarantees covering the repayment of principal or interest on the
mortgages. Each Fund will invest in such mortgages only if the adviser and/or
the respective sub-adviser has determined through an examination of the mortgage
loans and their originators that the purchase of the mortgages should not
present a significant risk of loss to the Fund.
LOAN PARTICIPATION INTERESTS
Basic Value and Value International may each invest no more than 5% of
its net assets in loan participation interests. Loan participation interests are
interests in debt obligations (such as corporate loans) that are owned by banks
or other financial institutions. Loan participation interests are subject to the
credit risks generally associated with the corporate borrower; however, certain
loan participation interests may be backed by irrevocable letters of credit or a
guarantee of the bank or financial institution. Certain loan participation
interests may carry demand features that permit a Fund to sell the obligations
back to the financial intermediaries for the full amount of the Fund's interest
in the debt obligation plus accrued interest upon short notice at any time or
prior to specific dates. In the event of a default by the corporate borrower, a
Fund may be required to assert its rights through the financial intermediary
which may subject the Fund to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower. Moreover, under the
terms of the loan participation, the Fund may be regarded as a creditor of the
bank or financial institution (rather than of the corporate borrower), so that
the Fund may also be subject to the risk that the financial intermediary may
become insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, the loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
financial intermediary. Loan participation interests which do not carry
unconditional demand features that can be exercised within
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seven days or less are deemed illiquid and a Fund's investment in such interests
would be limited to the extent that it is not permitted to invest more than 10%
of the value of its net assets in illiquid investments.
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES
Basic Value and Value International are permitted to invest in
asset-backed and receivable-backed securities. Each of these Funds may invest no
more than 5% of its net assets in asset-backed securities and receivable-backed
securities, respectively. Several types of asset-backed and receivable-backed
securities are available to investors, including CARs(SM) (Certificates for
Automobile Receivables(SM)) and interests in pools of credit card receivables.
CARs(SM) represent a pool (the "Pool") of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARs(SM) are passed through monthly to
certificate holders. Such payments may be guaranteed up to certain amounts for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the Pool. Early prepayment of principal on the underlying
vehicle sales contracts may reduce the overall return to an investor. If the
letter of credit is exhausted and if the full amount of the underlying sales
contracts is not repaid, certificate holders may experience losses on CARs(SM)
or delays in payment. Certificates representing pools of credit card receivables
have characteristics similar to CARs(SM), however, the underlying receivables
are not secured.
Consistent with each Fund's investment objective and subject to the
review and approval of the Board of Trustees, Basic Value and Value
International also may invest in other types of asset-backed and
receivable-backed securities. The Prospectuses will be amended with any
necessary additional disclosure prior to either Fund investing in such
securities.
FLOATING AND VARIABLE RATE OBLIGATIONS
Fixed income securities may be offered in the form of floating and
variable rate obligations. Each Fund may invest no more than 5% of its net
assets in floating and variable rate obligations, respectively. Floating rate
obligations have an interest rate which is fixed to a specified interest rate,
such as bank prime rate, and is automatically adjusted when the specified
interest rate changes. Variable rate obligations have an interest rate which is
adjusted at specified intervals to a specified interest rate. Periodic interest
rate adjustments help stabilize the obligations' market values.
A Fund may purchase these obligations from the issuers or may purchase
participation interests in pools of these obligations from banks or other
financial institutions. Variable and floating rate obligations usually carry
demand features that permit a Fund to sell the obligations back to the issuers
or to financial intermediaries at par value plus accrued interest upon short
notice at any time or prior to specific dates. The inability of the issuer or
financial intermediary to repurchase an obligation on demand could affect the
liquidity of the Fund's portfolio. Frequently, obligations with demand features
are secured by letters of credit or comparable guarantees. Floating and variable
rate obligations which do not carry unconditional demand features that can be
exercised within seven days or less are deemed illiquid unless the Board
determines otherwise. A Fund's investment in illiquid floating and variable rate
obligations would be limited to the extent that it is not permitted to invest
more than 10% (15% for Europe Fund) of the value of its net assets in illiquid
investments.
STRUCTURED SECURITIES
Basic Value may invest no more than 5% of its net assets in structured
securities which are derived from securities that are issued by U.S. government
agencies and are denominated in U.S. dollars. These short maturity notes differ
from traditional government agency securities in that the return (principal
and/or interest) is linked to the performance of a diversified array of
financial indices.
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An investment in structured securities entails risks not associated
with investments in conventional debt securities. However, the Fund uses these
securities only as a hedge or to protect its portfolio against rising interest
rates. Structured securities are privately issued securities, although they are
traded in the secondary market. The secondary market for such securities is
affected by factors independent of the creditworthiness of the issuer and the
value of the index, such as the volatility of the index, time remaining to
maturity and the amount of such securities outstanding.
FORWARD COMMITMENTS, REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Basic Value and Value International may purchase or sell securities on
a "forward commitment" basis, including purchases on a "when-issued" basis, a
"when, as and if issued" basis and a "to be announced" basis. Each of these
Funds may invest no more than 5% of its net assets in forward commitments. When
such transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed settlements
beyond two months may be negotiated. During the period between a commitment and
settlement, no payment is made by the purchaser for the securities purchased
and, thus, no interest accrues to the purchaser from the transaction. In a
"when, as and if issued" transaction, the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. In a "to be announced" transaction, a Fund
has committed to purchase or sell securities for which all specific information
is not yet known at the time of the trade, particularly the face amount in GNMA
securities transactions.
The use of forward commitments enables a Fund to hedge against
anticipated changes in interest rates and prices. Forward commitment securities
may be sold prior to the settlement date, but a Fund will enter into forward
commitment transactions only with the intention of actually receiving or
delivering the securities, as the case may be. Any significant commitment of a
Fund's assets to the purchase of securities on a forward commitment basis may
increase the possibility that its net asset value will fluctuate. In addition,
if a Fund chooses to dispose of the right to receive or deliver a forward
commitment security prior to the settlement date, it may incur a gain or loss.
Purchases of forward commitment securities also involve a risk of loss if the
value of the securities declines prior to the settlement date or if the seller
fails to deliver after the value of the securities has risen.
A Fund will direct State Street to place cash or U.S. government
obligations in a separate account in an amount equal to the commitments of the
Fund to purchase securities as a result of its forward commitment obligations.
With respect to forward commitments to sell securities, a Fund will direct State
Street to place the securities in a separate account. A Fund will direct State
Street to segregate such assets for "when, as and if issued" commitments only
when it determines that issuance of the security is probable.
Basic Value may enter into reverse repurchase agreements but may invest
no more than 5% of its net assets in such transactions. Reverse repurchase
agreements involve sales of portfolio securities by a Fund to member banks of
the Federal Reserve System or recognized securities dealers, concurrently with
an agreement by the Fund to repurchase the same securities at a later date at a
fixed price, which is generally equal to the original sales price plus interest.
The Fund retains record ownership and the right to receive interest and
principal payments on the portfolio security involved. The Fund's objective in
such a transaction would be to obtain funds to pursue additional investment
opportunities whose yield would exceed the cost of the reverse repurchase
transaction. Generally, the use of reverse repurchase agreements should reduce
portfolio turnover and increase yield.
In connection with each reverse repurchase agreement, the Fund will
direct State Street to place cash or U.S. government obligations in a separate
account in an amount equal to the repurchase price. In the event of bankruptcy
or other default by the purchaser, the Fund could experience both delays in
repurchasing the portfolio securities and losses.
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Basic Value also may enter in dollar roll transactions with certain
broker/dealers and banks but may invest no more than 5% of its net assets in
such transactions. For all purposes (including borrowing restrictions) the Fund
treats dollar roll transactions as reverse repurchase agreements. Dollar roll
transactions consist of the sale by a Fund of mortgage-backed securities
combined with a commitment to purchase similar (although not identical)
securities at a future date at the same price. The Fund would receive a fee for
entering into the commitment to purchase. The principal risk of dollar roll
transactions is that if the broker/dealer or bank to whom the Fund sells the
securities underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase similar securities may be restricted. Similarly, the value of
the securities may change adversely over the term of the dollar roll transaction
and the securities that the Fund is required to repurchase may be worth less
than the securities originally held by the Fund. Finally, the return earned by
the Fund with the proceeds of a dollar roll transaction may not exceed
transaction costs.
When a separate account is maintained in connection with forward
commitment transactions to purchase securities or reverse repurchase agreements,
the securities deposited in the separate account will be valued daily at market
for the purpose of determining the adequacy of the securities in the account. If
the market value of such securities declines, additional cash or securities will
be placed in the account on a daily basis so that the market value of the
account will equal the amount of the Fund's commitments to purchase or
repurchase securities. To the extent funds are in a separate account, they will
not be available for new investment or to meet redemptions.
Commitments to purchase securities on a when, as and if issued basis
will not be recognized in the portfolio of a Fund until Bartlett determines that
issuance of the security is probable. At such time, the Fund will record the
transaction and, in determining its net asset value, will reflect the value of
the security daily.
Securities purchased on a forward commitment basis, securities subject
to reverse repurchase agreements and the securities held in each Fund's
portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and changes in the level of
interest rates (which will generally result in all of those securities changing
in value in the same way, i.e., all those securities experiencing appreciation
when interest rates decline and depreciation when interest rates rise).
Therefore, if in order to achieve a higher level of income, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a forward commitment basis or entered into reverse repurchase transactions,
there will be a possibility that the market value of the Fund's assets will have
greater fluctuation.
SHORT SALES
Basic Value may sell a security short in anticipation of a decline in
the market value of the security. The Fund may invest no more than 5% of its net
assets in short sales. When the Fund engages in a short sale, it sells a
security which it does not own. To complete the transaction, the Fund must
borrow the security in order to deliver it to the buyer. The Fund must replace
the borrowed security by purchasing it at the market price at the time of
replacement, which may be more or less than the price at which the Fund sold the
security. The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a profit if
the security declines in price between those dates.
In connection with its short sales, the Fund will be required to
maintain a segregated account with State Street of cash or high grade liquid
debt assets equal to the market value of the securities sold less any collateral
deposited with its broker. The Fund will limit its short sales so that no more
than 25% of its net assets (less all its liabilities other than obligations
under the short sales) will be deposited as collateral and allocated to the
segregated account. However, the segregated account and deposits will not
necessarily limit the Fund's potential loss on a short sale, which is unlimited.
The Fund's policy with
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respect to short sales is fundamental, although the particular practices
followed with respect to short sales, such as the percentage of the Fund's
assets which may be deposited as collateral or allocated to the segregated
account, are not deemed fundamental and may be changed by the Board of Trustees
without the vote of the Fund's shareholders.
When Basic Value borrows a security in connection with a short sale,
the Fund is required to pay to the lender any dividends or interest which accrue
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium to the lender, which would increase the cost of the
security sold. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium, dividends or interest the Fund may
be required to pay in connection with the short sale. The proceeds of the short
sale will be retained by the lender or its broker, to the extent necessary to
meet margin requirements, until the short position is closed out by delivery of
the underlying security.
SHORT SALES AGAINST THE BOX
Basic Value and Value International may make short sales "against the
box." Short sales "against the box" are transactions, similar to those described
above, in which a security identical to one owned by a Fund is borrowed and sold
short. Neither Fund may invest more than 5% of its net assets in short sales
"against the box."
BOND RATINGS
Each Fund may invest in debt obligations (such as corporate debt
securities and municipal obligations) in any rating category of the recognized
rating services, including issues that are in default, and may invest in unrated
debt obligations. Most foreign debt obligations are not rated.
Generally, investments in securities in the lower rating categories or
comparable unrated securities provide higher yields but involve greater price
volatility and risk of loss of principal and interest than investments in
securities with higher ratings. Securities rated lower than Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's ("S&P")
(commonly known as "junk bonds"), are below investment grade and have
speculative characteristics, and those in the lowest rating categories are
extremely speculative and may be in default with respect to payment of principal
and interest. Each Fund does not intend to invest more than 5% of its net assets
in securities rated below investment grade.
Lower ratings reflect a greater possibility that an adverse change in
financial condition will affect the ability of the issuer to make payments of
principal and interest than is the case with higher grade securities. In
addition, lower-rated securities will also be affected by the market's
perceptions of their credit quality and the outlook for economic growth. In the
past, economic downturns or an increase in interest rates have under certain
circumstances caused a higher incidence of default by the issuers of these
securities and may do so in the future, especially in the case of highly
leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. For example, federal rules require that
savings and loan associations gradually reduce their holdings of high yield
securities. An effect of such legislation may be to significantly depress the
prices of outstanding lower-rated securities. The market for lower-rated
securities may be less liquid than the market for securities with higher
ratings. Furthermore, the liquidity of lower-rated securities may be affected by
the market's perception of their credit quality. Therefore, judgment may at
times play a greater role in valuing these securities than in the case of
higher-rated securities, and it also may be more difficult during certain
adverse market conditions to sell lower-rated securities at their face value to
meet redemption requests or to respond to changes in the market.
Although the above risks apply to all lower-rated securities, the
investment risk increases when the rating of the security is below investment
grade. The lowest-rated securities (D by S&P and C by Moody's) are regarded as
having extremely poor prospects of ever attaining any real investment standing
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and, in fact, may be in default of payment of interest or repayment of
principal. To the extent a Fund invests in these lower-rated securities, the
achievement of its investment objective may be more dependent on Bartlett's
and/or Lombard Odier's own credit analysis than in the case of a Fund investing
in higher-rated securities.
Each Fund may invest in securities which are in lower rating categories
or are unrated if Bartlett and/or the respective sub-adviser determines that the
securities provide the opportunity of meeting the Fund's objective without
presenting excessive risk. Bartlett and/or the respective sub-adviser will
consider all factors which it deems appropriate, including ratings, in making
investment decisions for a Fund and will attempt to minimize investment risks
through diversification, investment analysis and monitoring of general economic
conditions and trends. While Bartlett and/or each sub-adviser may refer to
ratings, they do not rely exclusively on ratings, but make their own independent
and ongoing review of credit quality.
Standard & Poor's Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB. Debt rated BB generally has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B. Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions likely will impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC. Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC. Debt rated CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C. The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
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D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-). The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Moody's Investors Service, Inc. Bond Ratings
Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper- medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium-grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad economic times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa. Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca. Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C. Bonds rated C are the lowest-rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from As through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
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INVESTMENT LIMITATIONS
Except as indicated, the investment limitations described below have
been adopted by the Trust with respect to each Fund and may not be changed
without the affirmative vote of a majority of the outstanding shares of the
applicable Fund. As used in the Prospectuses and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting; or (2) more than 50% of the outstanding shares
of the Trust (or the applicable Fund).
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the "Borrowing Money"
limitation. A Fund may borrow money consistent with this limitation and with the
applicable provisions of the Investment Company Act of 1940, as amended ("1940
Act").
Notwithstanding any of the following limitations, any investment
company (or series thereof), whether organized as a trust, association or
corporation, or a personal holding company, may be merged or consolidated with
or acquired by the Trust (or any Fund), provided that if such merger,
consolidation or acquisition results in an investment in the securities of any
issuer prohibited by said limitations, the Trust (or applicable Fund) shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed as of the date of consummation.
For purposes of the diversification requirements described below, a
Fund will treat both the corporate borrower and the financial intermediary as
issuers of a loan participation interest. Investments by a Fund in CMOs that are
deemed to be investment companies under the 1940 Act will be included in the
limitation on investments in other investment companies. Europe Fund's policy
regarding loans does not prohibit the Fund from loaning portfolio securities.
Fundamental Limitations Applicable to the Funds
1. BORROWING MONEY. A Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is an asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude Basic Value from entering
into reverse repurchase transactions and dollar rolls, provided that it has an
asset coverage of 300% for all borrowings and repurchase commitments pursuant to
reverse repurchase transactions and dollar rolls. Value International will not
borrow money in excess of one-third of the Fund's total assets at the time when
the borrowing is made. Europe Fund will not borrow money in excess of 15% of the
total value of its assets (including the amount borrowed) less its liabilities
(not including its borrowings), and will not purchase securities at any time
when borrowings exceed 5% of its total assets.
2. PLEDGING; SENIOR SECURITIES. Basic Value and Value International will not
mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any assets of the Fund except as may be necessary in connection
with borrowings described in limitation (1) above. (Margin deposits, security
interests, liens and collateral arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques are not deemed to be a mortgage, pledge or
hypothecation of assets for purposes of this limitation.) Europe Fund may not
issue senior securities except to evidence borrowings permitted by limitation
(1) above.
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3. UNDERWRITING. A Fund will not act as underwriter of securities issued by
other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. A Fund will not purchase, hold or deal in real estate. This
limitation is not applicable to investments in securities which are secured by
or represent interests in real estate or to securities issued by companies,
including real estate investment trusts, that invest in real estate or interests
in real estate. This limitation does not preclude a Fund from investing in
mortgage-related securities or (except for Value International) investing
directly in mortgages.
5. COMMODITIES. A Fund will not purchase, hold or deal in commodities or
commodities futures contracts except as described in the Prospectuses and this
Statement of Additional Information. This does not preclude Value International
or Europe Fund from investing in futures contracts, put and call options on
foreign currencies or forward currency exchange contracts.
6. LOANS. Basic Value, Financial Services Fund and Value International will
not make loans to other persons, except (a) by loaning portfolio securities, (b)
by engaging in repurchase agreements, (c) by purchasing nonpublicly offered debt
securities, or (except for Value International) (d) through direct investments
in mortgages. For purposes of this limitation, the term "loans" shall not
include the purchase of a portion of an issue of publicly distributed bonds,
debentures or other securities. Europe Fund may not lend money to other persons
except through the use of publicly distributed debt obligations and the entering
into of repurchase agreements consistent with its investment policies.
7. MARGIN PURCHASES. A Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by a Fund for the clearance of purchases and sales or redemption
of securities, or to arrangements with respect to transactions involving
options, futures contracts, short sales and other permitted investments and
techniques (including foreign currency exchange contracts).
8. CONCENTRATION. Basic Value, Value International and Europe Fund will not
invest 25% or more of its total assets in a particular industry. This limitation
is not applicable to investments in obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities or repurchase agreements with
respect thereto. Financial Services Fund will invest more than 25% of its total
assets in securities of companies comprising the financial services industry.
9. DIVERSIFICATION. Basic Value, Financial Services Fund and Value
International will not purchase the securities of any issuer if such purchase at
the time thereof would cause less than 75% of the value of its total assets to
be invested in cash and cash items (including receivables), securities issued by
the U.S. government, its agencies or instrumentalities and repurchase agreements
with respect thereto, securities of other investment companies, other securities
for the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the Fund
and to not more than 10% of the outstanding voting securities of such issuer.
Europe Fund will not purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities), if as a result (a) more than 25%
of the value of the Fund's total assets would then be invested in securities of
any single issuer, or (b) as to 75% of the value of the Fund's total assets (i)
more than 5% of the value of the Fund's total assets would then be invested in
securities of any single issuer, or (ii) the Fund would own more than 10% of the
voting securities of any single issuer.
Additional Fundamental Limitations Applicable to Europe Fund
1. SHORT SALES. Europe Fund may not make short sales of securities or
maintain a short position in any security.
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2. RESTRICTED SECURITIES. Europe Fund will not purchase securities for which
there are legal restrictions on resale and other securities that are not readily
marketable if as a result of such purchase more than 15% of the value of the
Fund's net assets would be invested in such securities, provided that securities
that are not subject to restrictions on resale in the country in which they are
principally traded are not considered subject to this restriction.
3. OIL AND GAS PROGRAMS. Europe Fund may not invest in oil, gas, mineral
exploration or development programs, except that the Fund may invest in issuers
which invest in such programs.
4. "UNSEASONED" COMPANIES. Europe Fund may not purchase any security if as a
result the Fund would have more than 5% of its net assets invested in securities
of companies which together with any predecessors have been in continuous
operation for less than three years.
5. WARRANTS. Europe Fund may not invest more than 5% of its net assets in
warrants issued by U.S. entities, provided that no more than 2% of its net
assets will be invested in warrants that are not listed on the New York Stock
Exchange or American Stock Exchange; except that these limitations are not
applicable to warrants issued by non-U.S. issuers.
Statement of Intention by Europe Fund
Europe Fund will monitor the level of illiquid securities in its portfolio
and may determine at times to sell certain securities to maintain adequate
liquidity.
Additional Fundamental Limitations Applicable to Basic Value
1. SHORT SALES. Basic Value will not effect short sales of securities except
as described in the Prospectuses and this Statement of Additional Information.
2. OPTIONS. Basic Value will not purchase or sell puts, calls, options or
straddles except as described in the Prospectuses and this Statement of
Additional Information.
3. OTHER INVESTMENT COMPANIES. Basic Value will not invest more than 10% of
its total assets in securities of other investment companies or invest more than
5% of its total assets in securities of any investment company and will not
purchase more than 3% of the outstanding voting stock of any investment company.
4. OIL AND GAS PROGRAMS. Basic Value will not purchase, hold or deal in oil,
gas or other mineral explorative or development programs.
5. ILLIQUID INVESTMENTS. Basic Value will not invest more than 10% of its
net assets in securities for which there are legal or contractual restrictions
on resale and other illiquid securities.
Non-Fundamental Limitation Applicable to Basic Value
SENIOR SECURITIES. Basic Value may not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the 1940 Act,
the rules and regulations promulgated thereunder or interpretations of the SEC
or its staff.
Additional Fundamental Limitation on Value International
SENIOR SECURITIES. Value International may not issue senior securities.
This limitation is not applicable to activities that may be deemed to involve
the issuance or sale of a senior security by the
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Fund, provided that the Fund's engagement in such activities is consistent with
or permitted by the 1940 Act, the rules and regulations promulgated thereunder
or interpretations of the SEC or its staff.
Statement of Intention by Value International
It is the intention of Value International (which may be changed by the
Trustees without shareholder approval) that it will not invest in
mortgage-related securities and will limit its borrowings to an amount not
exceeding 5% of the Fund's total assets at the time when the borrowing is made.
PORTFOLIO TURNOVER
For the nine months ended December 31, 1997, Basic Value's and Value
International's annualized portfolio turnover rates for its shares (redesignated
as Class A shares) were 42% and 44%, respectively. For the year ended December
31, 1997, the portfolio turnover rate of Europe Fund was 123%.
Value International, Basic Value, Europe Fund and Financial Services
Fund each anticipates that in the future its portfolio turnover rate will not
exceed 100%, 100%, 115% and 100%, respectively. The portfolio turnover rate is
computed by dividing the lesser of purchases or sales of securities for the
period by the average value of portfolio securities for that period. Short-term
securities are excluded from the calculation. High portfolio turnover rates
(100% or more) will involve correspondingly greater transaction costs which will
be borne directly by a Fund. It may also increase the amount of short-term
capital gains realized by a Fund and thus may affect the tax treatment of
distributions paid to shareholders, because distributions of net short-term
capital gains are taxable as ordinary income. Each Fund will take these
possibilities into account as part of its investment strategies.
It is expected that the portfolio turnover for Financial Services Fund
will be low to moderate.
THE FUNDS' INVESTMENT ADVISER AND SUB-ADVISERS
The Trust's investment adviser is Bartlett & Co., 36 East Fourth
Street, Cincinnati, Ohio 45202. Bartlett became a wholly owned subsidiary of
Legg Mason, Inc. ("Legg Mason") effective January 2, 1996. Bartlett has provided
investment advice to individuals, corporations, pension and profit sharing plans
and trust accounts since 1898.
The directors and officers of Bartlett are James A. Miller, William A.
Friedlander, Raymond A. Mason, Edward A. Taber, III, Robert G. Sabelhaus and
Thomas A. Steele.
An Investment Management and Administration Agreement dated July 18,
1997 and as revised on October 30, 1998 between the Trust and Bartlett
("Management Agreement") was approved by the Board of Trustees, including a
majority of the trustees who are not "interested persons" of the Trust, Bartlett
or LMFP, on August 14, 1998, by the vote of the sole shareholder of Europe Fund
on July 18, 1997 and by a majority of Value International's and Basic Value's
outstanding shares on July 15, 1997. Pursuant to the Management Agreement, and
subject to overall direction by the Board of Trustees, Bartlett manages the
Funds' investments consistent with each Fund's investment objective and policies
as described in the Prospectuses and this Statement of Additional Information.
As administrator, Bartlett also is obligated to, among other things, (a) furnish
the Funds with office space and executive and other personnel necessary for the
operations of each Fund; (b) supervise all aspects of each Fund's operations;
(c) bear the expense of certain informational and purchase and redemption
services to each Fund's shareholders; (d) arrange, but not pay for, the periodic
updating of prospectuses, proxy materials, tax returns and reports to
shareholders and state and federal regulatory agencies; and (e) report regularly
to the Trust's officers and trustees. Bartlett and its affiliates pay all the
compensation of trustees and officers of the Trust who are employees of
Bartlett.
21
<PAGE>
Each Fund pays all its other expenses which are not expressly assumed
by Bartlett. These expenses include, among others, interest expense, taxes,
brokerage fees, commissions, expenses of preparing and printing prospectuses,
statements of additional information, proxy statements and reports and of
distributing them to existing shareholders, custodian charges, transfer agency
fees, organizational expenses, distribution fees paid to the Funds' distributor,
compensation of the independent trustees, legal and audit expenses, insurance
expenses, expenses of registering and qualifying shares of the Funds for sale
under federal and state law, governmental fees and expenses incurred in
connection with membership in investment company organizations.
As compensation for the services provided and the expenses assumed
pursuant to the Management Agreement, each Fund will pay to Bartlett a fee,
subject to any fee waiver arrangements in place, computed daily and paid
monthly, at the following annual rates: 0.75% of Basic Value's average daily net
assets; 1.25% of Value International's average daily net assets; 1.00% of Europe
Fund's average daily net assets; and 1.00% of Financial Services Fund's average
daily net assets.
Bartlett has agreed to waive fees to the extent that a Fund's expenses
exceed the following annual rates of average daily net assets until May 1, 1999:
Class A Class C Class Y
------- ------- -------
Value International 1.80% 2.55% 1.55%
Basic Value 1.15% 1.90% 0.90%
Europe Fund 1.85% 2.60% 1.60%
Financial Services Fund 1.50% 2.25% 1.25%
The following table depicts the advisory fees paid by the Funds to Bartlett
for the fiscal years ended December 31, 1997, March 31, 1997 and March 31, 1996.
Value
International Basic Value Europe
Fund Fund Fund
------------- ----------- ------
December 31, 1997* $1,008,933 $ 889,047 $846,703
March 31, 1997 $1,430,591 $1,468,801 ---
March 31, 1996 $1,215,664 $1,366,123 ---
* Reflects advisory fees paid by Value International and Basic Value for the
nine months ended December 31, 1997. Reflects advisory fees paid by Europe Fund
for the period beginning July 18, 1997 through December 31, 1997.
The expenses of Value International and Europe Fund, like those of
other international funds, generally can be expected to be higher than expenses
of investment companies investing in domestic securities due to the greater
costs of custody, communications and investment advisory services for foreign
securities.
Under the Management Agreement, Bartlett will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Management Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties thereunder.
22
<PAGE>
The Management Agreement terminates automatically upon assignment. It
also is terminable at any time without penalty by vote of the Trust's Board of
Trustees, by vote of a majority of a Fund's outstanding voting securities, or by
Bartlett, on not less than 60 days' notice to the other party to the Management
Agreement and may be terminated immediately upon the mutual written consent of
both parties to the Management Agreement. Termination of the Management
Agreement with respect to any given Fund shall in no way affect the continued
validity of the Management Agreement or the performance thereunder with respect
to any other Fund.
Bartlett retains the right to use the name "Bartlett" in connection
with another investment company or business enterprise with which Bartlett is or
may become associated. The Trust's right to use the name "Bartlett"
automatically ceases thirty days after termination of the Management Agreement
and may be withdrawn by Bartlett on thirty days' written notice.
Lombard Odier International Portfolio Management Limited ("Lombard
Odier"), Norfolk House, 13 Southampton Place, London WC1A 2AJ, England, serves
as investment sub-adviser to Europe Fund under a Sub-Advisory Agreement dated
July 18, 1997, between Lombard Odier and Bartlett ("Europe Sub-Advisory
Agreement"). The Europe Sub-Advisory Agreement was approved by the Board of
Trustees, including a majority of the trustees who are not "interested persons"
of the Trust, Bartlett, LMFP or Lombard Odier, on February 20, 1998 and by the
sole shareholder of Europe Fund on July 18, 1997.
Lombard Odier is responsible for providing investment advice to Europe
Fund in accordance with its investment objective and policies, and for placing
orders to purchase and sell portfolio securities pursuant to directions from the
Fund's officers. For Lombard Odier's services to Europe Fund, Bartlett (not the
Fund) pays Lombard Odier a fee, computed daily and payable monthly, at an annual
rate equal to 60% of the monthly fee actually paid to Bartlett by the Fund under
the Management Agreement. For the year ended December 31, 1997, Bartlett paid
$151,145 to Lombard Odier.
Under the Europe Sub-Advisory Agreement, Lombard Odier will not be
liable for any error of judgment or mistake of law or for any loss suffered by
Bartlett or by the Fund in connection with the performance of the Sub-Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations or duties thereunder.
The Europe Sub-Advisory Agreement terminates automatically upon
assignment and is terminable at any time without penalty by vote of the Trust's
Board of Trustees, by vote of a majority of the Fund's outstanding voting
securities, by Bartlett or by Lombard Odier, on not less than 60 days' notice to
the Fund and/or the other party(ies). The Europe Sub-Advisory Agreement
terminates immediately upon any termination of the Management Agreement.
Gray, Seifert, 380 Madison Avenue, New York, New York, serves as
investment sub-adviser to Financial Services Fund under a Sub-Advisory Agreement
dated October 30, 1998 between Gray, Seifert and Bartlett ("Financial Services
Sub-Advisory Agreement"). The Financial Services Sub-Advisory Agreement was
approved by the Board of Trustees, including a majority of the trustees who are
not "interested persons" of the Trust, Bartlett, or Gray, Seifert, on August 14,
1998 and by the sole shareholder of Financial Services Fund on October 30, 1998.
Gray, Seifert is responsible for providing investment advice to
Financial Services Fund in accordance with its investment objective and
policies, and for placing orders to purchase and sell portfolio securities
pursuant to directions from the Fund's officers. For Gray, Seifert's services to
Financial Services Fund, Bartlett (not the Fund) pays Gray, Seifert a fee equal
to 60% of the fee it receives from the Fund for advisory and administrative
services.
23
<PAGE>
Under the Financial Services Sub-Advisory Agreement, Gray, Seifert will
not be liable for any error of judgment or mistake of law or for any loss
suffered by Bartlett or by the fund in connection with the performance of the
Financial Services Sub-Advisory Agreement, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.
The Financial Services Sub-Advisory Agreement terminates automatically
upon assignment and is terminable at any time without penalty by vote of the
Trust's board of Trustees, by vote of a majority of the Fund's outstanding
voting securities, by Bartlett or by Gray, Seifert, on not less than 60 days'
notice to the Fund and/or the other party(ies). The Financial Services
Sub-Advisory Agreement terminates immediately upon any termination of the
Management Agreement.
THE TRUST'S DISTRIBUTOR
LMFP acts as distributor of the Funds' shares pursuant to a
Distribution Agreement dated July 18, 1997 (and revised October 30, 1998)
between the Trust and LMFP ("Distribution Agreement"). The Distribution
Agreement obligates LMFP to promote the sale of Fund shares and to pay certain
expenses in connection with its distribution efforts, including the printing and
distribution of prospectuses and periodic reports used in connection with the
offering to prospective investors (after the prospectuses and reports have been
prepared, set in type and mailed to existing shareholders at each Fund's
expense) and for supplementary sales literature and advertising costs.
The Trust has adopted separate Distribution Plans ("Plan") pertaining
to the Class A and Class C shares of each Fund which, among other things, permit
a Fund to pay LMFP fees for its services related to sales and distribution of
Fund shares and the provision of ongoing services to shareholders. Service
and/or distribution activities for which such payments may be made include, but
are not limited to, compensation to persons who engage in or support
distribution and redemption of shares, printing of prospectuses and reports for
persons other than existing shareholders, advertising, preparation and
distribution of sales literature, overhead, travel, telephone and other
communication expenses.
Each Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by
a vote of the Board of Trustees on February 20, 1998 and on August 14, 1998 with
respect to Financial Services Fund, including a majority of the trustees who are
not "interested persons" of the Trust as that term is defined in the 1940 Act
and who have no direct or indirect financial interest in the operation of the
Plan ("12b-1 Trustees"). In approving each Plan, in accordance with the
requirements of Rule 12b-1, the trustees determined that there was a reasonable
likelihood that each Plan would benefit each Fund and its shareholders.
As compensation for its services and expenses as principal underwriter
of each Fund's Class A shares, LMFP receives an annual service fee equivalent to
0.25% of the average daily net assets of each Fund's Class A shares. For LMFP's
services and expenses as principal underwriter of each Fund's Class C shares,
LMFP receives annual distribution and service fees equivalent to 1.00% of the
average daily net assets of each Fund's Class C shares. Such fees shall be
calculated daily and paid monthly.
The following table depicts the distribution fees paid by Class A and
Class C shares of each Fund for the period July 18, 1997 to December 31, 1997:
Value Basic
International Value Europe
Fund Fund Fund
Class A: $86,180 $147,719 $69,217
Class C: $ 1,810 $ 168 $ 826
24
<PAGE>
Each Plan continues in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Trustees, including a
majority of the 12b-1 Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each Plan may be terminated with respect to each
Fund by a vote of a majority of 12b-1 Trustees or by vote of a majority of the
outstanding voting securities of that Fund. Any change in a Plan that would
materially increase the distribution costs to a Fund requires shareholder
approval; otherwise, each Plan may be amended by the trustees, including a
majority of the 12b-1 Trustees.
Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by a Fund, pursuant to the Plan or any
related agreement shall provide to that Fund's Board of Trustees, and the
trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which the expenditures were made. Rule 12b-1 also
provides that a Fund may rely on that Rule only if, while the Plan is in effect,
the nomination and selection of that Fund's independent trustees is committed to
the discretion of such independent trustees.
TRUSTEES AND OFFICERS
The Trust's officers are responsible for the operation of the Trust
under the direction of the Board of Trustees. The officers and trustees and
their principal occupations during the past five years are set forth below. An
asterisk (*) indicates those trustees who are "interested persons" of the Trust
as defined by the 1940 Act.
<TABLE>
<CAPTION>
Name, Date of Birth and Address Position with the Trust Principal Occupation
<S><C>
Lorrence T. Kellar Chairman of the Board Vice President - Real Estate for Kmart
8/10/37 and Trustee Corporation, (a general merchandise retailer)
36 East Fourth Street since May 1996; formerly: Group Vice
Cincinnati, Ohio 45202 President of Finance and Real Estate at the
Kroger Co. (a food retailer); Director of BT
Office Products International, Inc. and
Director of Multi-Color Corporation (a
producer of printed labels)
Alan R. Schriber Trustee President of ARS Broadcasting Corp., a
8/20/45 company which owns and operates radio stations
36 East Fourth Street
Cincinnati, Ohio 45202
William P. Sheehan Trustee Member of the State of Ohio Employment
2/16/27 Relations Board
36 East Fourth Street
Cincinnati, Ohio 45202
Prinz Wolfgang E. Ysenburg Trustee Director of Holland Fund (Dutch investment
6/20/36 company); Director of Beteilingungsgesellschaft
36 East Fourth Street (German investment company); Director of Profirent
Cincinnati, Ohio 45202 Investment Fund
A. John W. Campbell Trustee Director of Campbell Lutyens & Co. Ltd (UK
2/18/47 investment banking firm); Director of Beradin
36 East Fourth Street Holdings PLC (agricultural holding company)
Cincinnati, Ohio 45202
</TABLE>
25
<PAGE>
<TABLE>
<S><C>
Henri Deegenaar Trustee Independent Consultant; Investment Adviser to
10/7/35 Saint Honore Marche Emergents (French
36 East Fourth Street investment company); Director of Guilbert SA
Cincinnati, Ohio 45202 (office supplies distribution company) and
OFREX (office supplies distribution company)
Ian F. H. Grant Trustee Managing Director of Glenmoriston Estates
6/3/39 Ltd. (Scottish holding company); Chairman of
36 East Fourth Street Pacific Assets Trust PLC (UK investment
Cincinnati, Ohio 45202 company); Director of Royal Bank of Scotland
PLC, Royal Bank of Scotland Group PLC, Banco
Santander SA, and a number of publicly owned
comapnies in Europe and the Far East
Edmund J. Cashman, Jr.* Trustee Senior Executive Vice President and Director
8/31/36 of Legg Mason Wood Walker, Inc.;
100 Light Street President/Vice Chairman/Director/Trustee
Baltimore, MD 21202 of various Legg Mason funds; Director of
E.A. Engineering Science and Technology,
Inc. (a multidisciplinary environmental
services company)
Edward A. Taber, III * President and Trustee Senior Executive Vice President of Legg
8/25/43 Mason, Inc. and Legg Mason Wood Walker, Inc.;
100 Light Street Vice Chairman and Director of Legg Mason Fund
Baltimore, MD 21202 Adviser, Inc.; President and/or
Director/Trustee of various Legg Mason funds
</TABLE>
The executive officers of the Trust, other than those who also serve as
trustee, are:
<TABLE>
<CAPTION>
Name, Date of Birth and Address Position with the Trust Principal Occupation
<S><C>
Kathi D. Bair Secretary Secretary and/or Assistant Treasurer of other
12/15/64 registered investment companies for which
100 Light Street Legg Mason Fund Adviser, Inc. is investment
Baltimore, MD 21202 adviser or manager
Marie K. Karpinski, CPA Vice President Treasurer of Legg Mason Fund Adviser, Inc.,
1/1/49 and Treasurer Vice President and Treasurer of other
100 Light Street registered investment companies for which
Baltimore, MD 21202 Legg Mason Fund Adviser, Inc. is investment
adviser or manager; Vice President of Legg
Mason Wood Walker, Inc.
Madelynn M. Matlock, CFA Vice President Director of International Equities for
12/8/49 Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
</TABLE>
26
<PAGE>
<TABLE>
<S><C>
James A. Miller Vice President Senior Portfolio Manager, President and a
3/13/49 Director of Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
Donna M. Prieshoff Vice President Director of Operations of Bartlett & Co.
9/19/49
36 East Fourth Street
Cincinnati, Ohio 45202
James B. Reynolds, CFA Vice President Senior Portfolio Manager and a Managing
9/13/43 Director of Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
Thomas A. Steele Assistant Treasurer and Vice President, Secretary and Treasurer of
3/9/59 Assistant Secretary Bartlett & Co.
36 East Fourth Street
Cincinnati, Ohio 45202
Woodrow H. Uible, CFA Vice President Senior Portfolio Manager of Bartlett & Co.
6/13/53
36 East Fourth Street
Cincinnati, Ohio 45202
Robert H.C. Van Maasdijk Vice President Managing Director of Lombard Odier
Norfolk House International Portfolio Management Ltd.
13 Southampton Place
London WC1AJ, England
</TABLE>
For the nine months ended December 31, 1997, the Trustees of the Trust
received the following compensation:
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Registrant and Trust Complex
Name of Person, Position From Trust Paid to Trustees
<S><C>
Lorrence T. Kellar, $9,875 $9,875
Chairman of the Board and Trustee
Alan R. Schriber, $9,875 $9,875
Trustee
William P. Sheehan, $9,875 $9,875
Trustee
Prinz Wolfgang E. Ysenburg $4,875 $4,875
Trustee
</TABLE>
27
<PAGE>
<TABLE>
<S><C>
A. John W. Campbell $4,875 $4,875
Trustee
Henri Deegenaar $4,875 $4,875
Trustee
Ian F. H. Grant $3,375 $3,375
Trustee
Edmund J. Cashman, Jr.* None None
Trustee
Edward A. Taber, III None None
President and Trustee
</TABLE>
*Interested Person
Officers and trustees of the Trust who are "interested persons"
thereof, as defined in the 1940 Act, receive no salary or fees from the Trust.
Independent trustees of the Trust receive an annual fee of $3,750 and an
attendance fee of $1,500 per meeting of the Board plus travel and out-of-pocket
expenses incurred in connection with the Board of Trustees' meetings.
The Nominating Committee of the Board of Trustees is responsible for
the selection and nomination of disinterested trustees. The Committee is
composed of Lorrence T. Kellar, Alan R. Schriber, William P. Sheehan, Prinz
Wolfgang E. Ysenburg, A. John W. Campbell, Henri Deegenaar and Ian F. H. Grant.
As of October 1, 1998, no trustee or officer beneficially owned more than 1% of
the shares outstanding of any Fund.
Set forth below is a table which contains the name, address and
percentage ownership of each person who is known by each Fund to own
beneficially and/or of record five percent or more of its outstanding shares as
of August 1, 1998:
Bartlett Value International Fund:
<TABLE>
<CAPTION>
Name and Address Class C Class Y
<S><C>
Legg Mason Trust Co. TTEE St. Mary's Hospital Pension Plan and Trust 13.82% --
P.O. Box 1476
Baltimore, MD 21203
FirstCinco Pt -- 44.42%
P.O. Box 640229
Cincinnati, Ohio 45264
Saxon & Co. FBO Qualified Emergency Specialists MPP -- 7.94%
P.O. Box 7780-1888
Philadelphia, PA 19182
Clark Schaefer Hackett & Co -- 5.02%
Profit Sharing Retirement Plan
105 E. 4th Street Ste 16
Cincinnati, Ohio 45202
</TABLE>
28
<PAGE>
Bartlett Basic Value:
<TABLE>
<CAPTION>
Name and Address Class C Class Y
<S><C>
Claude J. Autin 6.27% --
DBA JA-BOB Investment Co.
1423 Whitney Ave.
Gretna, LA 70053
LMWW Custodian FBO George S. Goodman Ira 5.20% --
319 Willow Oak Circle
Baltimore, MD 21208
Clark Schaefer Hackett & Co. -- 40.86%
Profit Sharing Retirement Plan
with 401k provisions
105 E. 4th Street Ste 16
Cincinnati, Ohio 45202
Kevin M Reid Do Inc. -- 15.46%
Defined Contribution
1259 Timberwyck Ct
Dayton, OH 45458
Soma S Avva MD Inc. -- 11.20%
Retirement Income Trust
2200 Philadelphia Dr.
Dayton, OH 45406
Robert A. Schriber MD Inc -- 7.96%
Profit Sharing Plan
1430 First National Building
130 E 2nd St
Dayton, OH 45402
Jo Anne Orndorff TTEE -- 6.97%
Scrip-Safe Security Products
Defined Benefit Plan
11319 Grooms RD
Cincinnati, Ohio 45242
George D. Waissbluth -- 5.43%
Greater Cin Gastroenterology Assoc Inc. Pen/Profit Sharing Plan
2925 Vernon Place
Cincinnati, Ohio 45219
</TABLE>
Bartlett Europe Fund
<TABLE>
<CAPTION>
Name and Address Class A Class Y
<S><C>
SSB-Custodian -- 98.12%
Global Proxy Unit
PO Box 1631
Boston, MA 02105
</TABLE>
29
<PAGE>
<TABLE>
<S><C>
Charles Scwab & Co 13.50%
ADP Proxy Services
101 Montgomery Street
San Francisco, CA 94104
BHC Securities 5.82%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Smith Barney, Inc. 5.54%
333 W. 34th Street
New York, NY 10001
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
Bartlett and/or each sub-adviser is responsible for the Trust's portfolio
decisions and the placing of the Trust's portfolio transactions. In placing
portfolio transactions, Bartlett and/or each sub-adviser seeks the best
qualitative execution for the Trust, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), the execution
capability, financial responsibility and responsiveness of the broker or dealer
and the brokerage and research services provided by the broker or dealer.
Bartlett and/or each sub-adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. The Trust has no
obligation to deal with any broker or dealer in the execution of its
transactions.
Bartlett and/or each sub-adviser is specifically authorized to select
brokers or dealers who also provide brokerage and research services to the Trust
and/or the other accounts over which Bartlett and/or each sub-adviser exercises
investment discretion and to pay such brokers or dealers a commission in excess
of the commission another broker or dealer would charge if Bartlett and/or each
sub-adviser determines in good faith that the commission is reasonable in
relation to the value of the brokerage and research services provided. The
determination may be viewed in terms of a particular transaction or Bartlett's
and/or each sub-adviser's overall responsibilities with respect to the Trust and
to other accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Trust effects securities
transactions may also be used by Bartlett and/or each sub-adviser in servicing
all of its accounts and all such services might not be used by Bartlett and/or
each sub-adviser in connection with the Trust. Similarly, research and
information provided by brokers or dealers serving other clients may be useful
to Bartlett and/or each sub-adviser in connection with its services to the
Trust. Although research services and other information are useful to the Trust
and Bartlett and/or each sub-adviser, it is not possible to place a dollar value
on the research and other information received. It is the opinion of the Board
of Trustees and Bartlett and/or each sub-adviser that the review and study of
the research and other information will not reduce the overall cost to Bartlett
and/or each sub-adviser of performing its duties to the Trust under the
Agreement. Due to research services provided by brokers, the Trust directed to
the brokers $158,146,578 of brokerage transactions (on which the commissions
were $281,042) during the nine months ended December 31, 1997.
30
<PAGE>
Bartlett and Gray, Seifert and their affiliates (including Legg Mason
Wood Walker, Inc.) and Lombard Odier and its affiliates, in their capacity as
broker/dealers, may receive brokerage commissions in connection with effecting
portfolio transactions for the Trust. The Trust will not effect any brokerage
transactions in the Funds' portfolio securities with Bartlett and Gray, Seifert
or their affiliates or Lombard Odier or its affiliates if such transactions
would be unfair or unreasonable to the Trust's shareholders, and the commissions
will be paid solely for the execution of trades and not for any other services.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker/dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to market makers may include the spread between the bid and
asked prices. While the Trust contemplates no ongoing arrangements with any
other brokerage firms, brokerage business may be given from time to time to
other firms. Bartlett and Gray, Seifert and their affiliates and Lombard Odier
and its affiliates do not receive reciprocal brokerage business as a result of
the brokerage business placed by the Trust with others.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Trust as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principal for their own account, affiliated
persons of the Trust, including Bartlett and Gray, Seifert and their affiliates
and Lombard Odier and its affiliates, will not serve as the Trust's dealer in
connection with such transactions. However, affiliated persons of the Trust may
serve as its broker in over-the-counter transactions conducted on an agency
basis.
In determining the commissions to be paid to Bartlett and Gray, Seifert
or their affiliates and Lombard Odier and its affiliates, it is the policy of
the Trust that such commissions will, in the judgment of the Board of Trustees,
be (a) at least as favorable to the Trust as those which would be charged by
other qualified brokers having comparable execution capability and (b) at least
as favorable to the Trust as commissions contemporaneously charged by Bartlett
and Gray, Seifert and their affiliates and Lombard Odier and its affiliates on
comparable transactions for its most favored unaffiliated customers, except for
customers of Bartlett, Gray, Seifert or Lombard Odier considered by a majority
of the Trust's independent trustees not to be comparable to the Trust. The Board
of Trustees, including a majority of the independent trustees, will from time to
time review, among other things, information relating to the commissions charged
by Bartlett and Gray, Seifert and their affiliates and Lombard Odier and its
affiliates to the Trust and its other customers, and posted rates and other
information concerning the commissions charged by other qualified brokers.
To the extent that the Trust and another of Bartlett's, Gray, Seifert's
or Lombard Odier's clients seek to acquire the same security at about the same
time, the Trust may not be able to acquire as large a position in such security
as it desires or it may have to pay a higher price for the security. Similarly,
the Trust may not be able to obtain as large an execution of an order to sell or
as high a price for any particular portfolio security if the other client
desires to sell the same portfolio security at the same time. On the other hand,
if the same securities are bought or sold at the same time by more than one
client, the resulting participation in volume transactions could produce better
executions for the Trust. In the event that more than one client wants to
purchase or sell the same security on a given date, the purchases and sales on
behalf of Value International, Basic Value and Financial Services Fund will
normally be made by random client selection; purchases and sales on behalf of
Europe Fund would normally be allocated in terms of amount, according to the
proportion that Europe Fund's order bears to the aggregate size of all orders
simultaneously made, with appropriate adjustments to avoid odd lots.
The following table depicts, for the periods presented, the total
brokerage commissions paid by the Trust, the amount of those commissions paid to
Bartlett, the percentage of all commissions paid that were received by Bartlett
and the percentage of all portfolio transactions represented by the commissions
received by Bartlett.
31
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<TABLE>
<CAPTION>
Bartlett
Total Commissions Commissions Percentage
Fiscal Year Commissions Paid To As % Of All Of Portfolio
Ended Paid Bartlett Commissions Transactions
- ------------------ ------------ ------------ ------------ ------------
<S><C>
December 31, 1997 $363,662 $ 0 0.00% 0.00%
March 31, 1997 $284,114 $ 0 0.00% 0.00%
March 31, 1996 $300,025 $327 0.11% 0.10%
</TABLE>
As of December 31, 1997, Europe Fund owned securities of its regular
broker/dealers or their parents (as defined in Rule 10b-1 promulgated under the
1940 Act) as follows: 62,000 shares of Barclays PLC, with a market value of
$1,637,000.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of each class of a Fund is
determined as of the close of regular trading on the New York Stock Exchange
(generally, 4:00 P.M., Eastern time) on each day the Trust and the Custodian of
the applicable Fund are open for business. The price of the shares of each class
of a Fund will also be calculated on other days if there is sufficient trading
in the Fund's portfolio securities that its net asset value might be materially
affected. The Trust is open for business on every day except Saturdays, Sundays
and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, or any other national holiday which results in the
closing of the New York Stock Exchange. For a description of the methods used to
determine the net asset value (share price), see "Calculation of Share Price" in
the Prospectuses.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
SYSTEMATIC INVESTMENT PLAN
The Prospectuses explain that if you invest in shares of the Funds, you
may buy additional shares through the Systematic Investment Plan. Under this
plan, you may arrange for automatic monthly investments in the Funds of $50 or
more by authorizing Boston Financial Data Services ("BFDS"), the Funds' transfer
agent, to transfer funds to be used to buy Class A, Class C or Class Y shares at
the per share net asset value determined on the day the funds are sent by your
bank. You will receive a quarterly account statement. You may terminate the
Systematic Investment Plan at any time without charge or penalty. Forms to
enroll in the Systematic Investment Plan are available from your broker/dealer
or LMFP.
SYSTEMATIC WITHDRAWAL PLAN
Investors in Class A and Class C shares, and certain eligible investors
in Class Y shares, with a net asset value of $5,000 or more, may also elect to
make systematic withdrawals from their Fund account of a minimum of $50 on a
monthly basis. The amounts paid to you each month are obtained by redeeming
sufficient shares from their account to provide the withdrawal amount that was
specified. The Systematic Withdrawal Plan is not currently available for shares
held in an Individual Retirement Account ("IRA"), Simplified Employee Pension
Plan ("SEP"), Savings Incentive Match Plan for Employees ("SIMPLE") or other
qualified retirement plan. You may change the monthly amount to be paid to you
without charge not more than once a year by notifying LMFP or the broker/dealer
with which you have an account. Redemptions will be made at the shares' net
asset value determined as of the close of regular trading on the Exchange on the
first day of each month. If the Exchange is not open for business on that day,
the shares will be redeemed at the net asset value determined as of the close of
regular trading on the Exchange on the preceding business day. The check for the
withdrawal payment will usually be mailed to you on the next business day
following redemption. If you elect to participate in the Systematic
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<PAGE>
Withdrawal Plan, dividends and other distributions on all shares in your account
must be automatically reinvested in the applicable class of shares. You may
terminate the Systematic Withdrawal Plan at any time without charge or penalty.
Each Fund, its transfer agent, and LMFP also reserve the right to modify or
terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or a capital gain distribution. These payments are taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and other
distributions, the amount of your original investment may be correspondingly
reduced.
Ordinarily, you should not purchase additional shares of the Fund in
which you have an account if you maintain a Systematic Withdrawal Plan because
you may incur tax liabilities in connection with such purchases and withdrawals.
Each Fund will not knowingly accept purchase orders from you for additional
shares if you maintain a Systematic Withdrawal Plan unless your purchase is
equal to at least one year's scheduled withdrawals. In addition, if you maintain
a Systematic Withdrawal Plan you may not make periodic investments under the
Systematic Investment Plan.
REDEMPTION SERVICES
Each Fund reserves the right to modify or terminate the wire or
telephone redemption services described in the Prospectuses at any time.
The date of payment may not be postponed for more than seven days, and
the right of redemption may not be suspended except (a) for any period during
which the Exchange is closed (other than for customary weekend and holiday
closings), (b) when trading in markets a Fund normally utilizes is restricted or
an emergency, as defined by rules and regulations of the SEC, exists, making
disposal of that Fund's investments or determination of its net asset value not
reasonably practicable, or (c) for such other periods as the SEC, by order, may
permit for protection of a Fund's shareholders. In the case of any such
suspension, you may either withdraw your request for redemption or receive
payment based upon the net asset value next determined after the suspension is
lifted.
Each Fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing that Fund's net
asset value per share. If payment is made in securities, a shareholder generally
will incur brokerage expenses in converting those securities into cash and will
be subject to fluctuation in the market price of those securities until they are
sold. Each Fund does not redeem in kind under normal circumstances but would do
so where Bartlett determines that it would be in the best interests of the
Fund's shareholders as a whole.
Foreign securities exchanges may be open for trading on days when the
Funds are not open for business. The net asset value of Fund shares may be
significantly affected on days when investors do not have access to their Fund
to purchase and redeem shares.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information regarding any
federal, state, local or foreign taxes that may be applicable to them.
GENERAL
For federal tax purposes, each Fund is a separate corporation. In order
to qualify or to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of
33
<PAGE>
1986, as amended ("Code"), a Fund must distribute annually to its shareholders
at least 90% of its investment company taxable income (generally, taxable net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions, if any) ("Distribution Requirement") and must
meet several additional requirements. For each Fund, these requirements include
the following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and does not represent more than 10% of the issuer's
outstanding voting securities; and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in the securities (other than U.S. government securities or the
securities of other RICs) of any one issuer.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or other distribution, the investor will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. Dividends and interest received by each Fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the total return on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors. For this and other purposes, dividends and other distributions
declared by a Fund in December of any year and payable to its shareholders of
record on a date in that month will be deemed to have been paid by the Fund and
received by the shareholders on December 31 if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or reinvested in Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
for any Fund may not exceed the aggregate dividends received by that Fund from
domestic corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax. Distributions of net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
made by each Fund do not qualify for the dividends-received deduction.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
FOREIGN SECURITIES
Foreign Taxes. Interest and dividends received by a Fund, and gains
realized thereby, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the
34
<PAGE>
value of Value International's or Europe Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, that Fund will be
eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign taxes paid by it. Pursuant to any such
election, a Fund would treat those taxes as dividends paid to its shareholders
and each shareholder would be required to (1) include in gross income, and treat
as paid by the shareholder, the shareholder's proportionate share of those
taxes, (2) treat the shareholder's share of those taxes and of any dividend paid
by the Fund that represents income from foreign or U.S. possessions sources as
the shareholder's own income from those sources, and (3) either deduct the
foreign taxes deemed paid by the shareholder in computing the shareholder's
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against the shareholder's federal income tax. If a Fund
makes this election, (a) it will report to its shareholders shortly after each
taxable year the shareholders' respective shares of the foreign taxes it paid
and its income from sources within foreign countries and U.S. possessions and
(b) individuals who have no more than $300 ($600 for married persons filing
jointly) of creditable foreign taxes included on Forms 1099 and all of whose
foreign source income is "qualified passive income" will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
Passive Foreign Investment Companies. Each Fund may invest in the stock
of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation -- other than a "controlled foreign corporation" (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly, indirectly, or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which a
Fund is a U.S. shareholder --that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to federal income
tax on a portion of any "excess distribution" received on the stock of a PFIC or
of any gain on disposition of the stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital --
which the Fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Fund from the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Each Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also may deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included in income by the Fund for prior
taxable years. A Fund's adjusted basis in each PFIC's stock subject to the
election would be adjusted to reflect the amounts of income included and
deductions taken thereunder (an under regulations proposed in 1992 that provided
a similar election with respect to the stock of certain PFICs).
Foreign Currencies. Gains or losses (1) from the disposition of foreign
currencies, (2) from the disposition of debt securities denominated in foreign
currencies that are attributable, in each case, to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of its disposition, and (3) that are attributable to fluctuations in
exchange rates that occur between the time a Fund accrues dividends, interest or
other receivables or expenses or other liabilities
35
<PAGE>
denominated in a foreign currency and the time the Fund actually collects the
receivables or pays the liabilities, generally will be treated as ordinary
income or loss. These gains or losses, referred to under the Code as "section
988" gains or losses, may increase or decrease the amount of a Fund's investment
company taxable income to be distributed to its shareholders.
OPTIONS, FUTURES, FORWARD CONTRACTS AND FOREIGN CURRENCIES
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the amount, character
and timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from options,
futures and forward contracts derived by a Fund with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement.
Regulated futures contracts, options and foreign currency contracts
that are subject to section 1256 of the Code (collectively, "Section 1256
contracts") and are held by a Fund at the end of each taxable year generally
will be required to be "marked-to-market" for federal income tax purposes (that
is, treated as having been sold at that time at market value). Any unrealized
gain or loss recognized under this mark-to-market rule will be added to any
realized gains and losses on section 1256 contracts actually sold by the Fund
during the year, and the resulting gain or loss will be treated (without regard
to the holding period) as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. Section 1256 contracts also may be marked-to-market for
purposes of the Excise Tax. The preceding rules may operate to increase the
amount of dividends, which will be taxable to shareholders, that must be
distributed to meet the Distribution Requirement and avoid imposition of the
Excise Tax, without providing the cash with which to make the distributions.
Each Fund may elect to exclude certain transactions from Section 1256, although
doing so may have the effect of increasing the relative proportion of short-term
capital gain (taxable as ordinary income when distributed to a Fund's
shareholders).
When a covered call option written (sold) by a Fund expires, the Fund
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a Fund terminates its obligations under
such an option by entering into a closing transaction, the Fund realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less than (or exceeds) the premium received when the option was
written. When a covered call option written by a Fund is exercised, the Fund is
treated as having sold the underlying security, producing long-term or
short-term capital gain or loss, depending on the holding period of the
underlying security and whether the sum of the option price received upon the
exercise plus the premium received when the option was written exceeds or is
less than the basis of the underlying security.
Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which a Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of recognition of gains and losses
from the affected straddle positions would be determined under rules that vary
according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.
If a Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument
36
<PAGE>
(other than "straight debt") or partnership interest the fair market value of
which exceeds its adjusted basis -- and enters into a "constructive sale" of the
same or substantially similar property, the Fund will be treated as having made
an actual sale thereof, with the result that gain will be recognized at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward contract entered into by a
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
ORIGINAL ISSUE DISCOUNT AND "PAY-IN-KIND" SECURITIES
Each Fund may purchase zero coupon or other debt securities issued with
original issue discount ("OID"). As a holder of those securities, a Fund must
include in its income the OID that accrues thereon during the taxable year, even
if it receives no corresponding payment on the securities during the year.
Similarly, a Fund must include in its gross income securities it receives as
"interest" on pay-in-kind securities. Because each Fund annually must distribute
substantially all of its investment company taxable income, including any OID
and other non-cash income, to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from a Fund's cash assets
or from the proceeds of sales of portfolio securities, if necessary. A Fund may
realize capital gains or losses from those dispositions, which would increase or
decrease its investment company taxable income and/or net capital gain.
TAX-DEFERRED RETIREMENT PLANS
Investors may invest in Class A or Class C shares of a Fund through
IRAs, SEPs, SIMPLEs and other qualified retirement plans. In general, income
earned through the investment of assets of qualified retirement plans is not
taxed to the beneficiaries thereof until the income is distributed to them.
Investors who are considering establishing such a plan should consult their
attorneys or other tax advisors with respect to individual tax questions. Please
contact LMFP or your broker/dealer for further information with respect to these
plans.
Traditional IRA. Certain investors in Class A or Class C shares may
obtain tax advantages by establishing an IRA. Specifically, except as noted
below, if neither you nor your spouse is an active participant in a qualified
employer or government retirement plan, or if either you or your spouse is an
active participant in such a plan and your adjusted gross income does not exceed
a certain level, then each of you may deduct cash contributions made to an IRA
in an amount for each taxable year not exceeding the lesser of 100% of your
earned income or $2,000. A married investor who is not an active participant in
such a plan and files a joint income tax return with his or her spouse (and
their combined adjusted gross income does not exceed $150,000) is not affected
by the spouse's active participant status. In addition, if your spouse is not
employed and you file a joint return, you may establish a separate IRA for your
spouse and contribute up to a total of $4,000 to the two IRAs, provided that the
contribution to either does not exceed $2,000.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Class A or Class C shares
through non-deductible IRA contributions, up to certain limits, because all
dividends and other distributions on your shares are then not immediately
taxable to you or the IRA; they become taxable only when distributed to you. To
avoid penalties, your interest in an IRA must be distributed, or start to be
distributed, to you not later than the end of the taxable year in which you
attain age 70 - 1/2. Distributions made before age 59- 1/2, in addition to being
taxable, generally are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability, where the distribution is rolled over
into another qualified plan, or certain other situations.
ROTH IRA. A shareholder whose adjusted gross income (or combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax
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<PAGE>
year to a Roth IRA. In addition, for a shareholder whose adjusted gross income
does not exceed $100,000 (or is not married filing a separate return), certain
distributions from traditional IRAs may be rolled over to a Roth IRA and any of
the shareholder's traditional IRAs may be converted to a Roth IRA; these
rollover distributions and conversions are, however, subject to federal income
tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).
Education IRA. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than the maximum amount allowable under
current law may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches 18; however, earnings accumulate tax-free, and withdrawals
are not subject to tax if used to pay the qualified higher education expenses of
the beneficiary (or transferred to an Education IRA of a qualified family
member).
SIMPLIFIED EMPLOYEE PENSION PLAN - SEP
LMFP also makes available to corporate and other employers a SEP for
investment in Class A or Class C shares.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES - SIMPLE
An employer with no more than 100 employees that does not maintain
another retirement plan may establish a SIMPLE either as separate IRAs or as
part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, will allow certain employees to make elective contributions of up to
$6,000 per year and will require the employer to make matching contributions up
to 3% of each such employee's salary or a 2% non-elective contribution.
Withholding at the rate of 20% is required for federal income tax
purposes on distributions eligible for rollover from the foregoing retirement
plans (except IRAs and SEPs), unless the recipient transfers the distribution
directly to an "eligible retirement plan" (including IRAs and other qualified
plans) that accepts those distributions. Other distributions generally are
subject to regular wage withholding or to withholding at the rate of 10%
(depending on the type and amount of the distribution), unless the recipient
elects not to have any withholding apply. Investors in Class A or Class C shares
should consult their plan administrator or tax advisor for further information.
INVESTMENT PERFORMANCE
"Average annual total return," as defined by the SEC, is computed by
finding the average annual compounded rates of return (over the one and five
year periods and the period from initial public offering through the end of a
Fund's most recent fiscal year) that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)(n)=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
38
<PAGE>
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the applicable
period.
The computation assumes that all dividends and other distributions are
reinvested at the net asset value on the reinvestment dates and that a complete
redemption occurs at the end of the applicable period.
A Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing a Fund's performance to those of other investment companies or
investment vehicles. The risks associated with a Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Funds
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the appropriate
Fund or considered to be representative of the stock market in general or the
fixed income securities market in general.
Fund advertisements may reference the history of the distributor and
its affiliates, the education and experience of the portfolio manager, and the
fact that the portfolio manager engages in value investing. With value
investing, the Adviser invests in those securities it believes to be undervalued
in relation to the long-term earning power or asset value of their issuers.
Securities may be undervalued because of many factors, including market decline,
poor economic conditions, tax-loss selling, or actual or anticipated unfavorable
developments affecting the issuer of the security. The Adviser believes that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total return than securities with prices that appear to reflect
anticipated favorable developments and that are therefore subject to correction
should any unfavorable developments occur. Each Fund may also include in
advertising biographical information on key investment and managerial personnel.
Value International and Europe Fund will use the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index"), the Morgan Stanley Capital
International EAFE Index ("EAFE Index"), the Morgan Stanley Capital
International World Index and the Consumer Price Index. The EAFE Index, compiled
from a composite of securities markets of Europe, Australiasia and the Far East,
is widely recognized by investors in foreign markets as the measurement index
for portfolios of non-North American securities. The Morgan Stanley Capital
International World Index, compiled from a composite of securities of the U.S.,
Europe, Canada, Mexico, Australia and the Far East, is widely recognized by
investors as the measurement index for portfolios of international securities.
Both indexes are prepared by Morgan Stanley Capital International, an investment
management and research company located in Geneva, Switzerland. The Consumer
Price Index, prepared by the U.S. Bureau of Labor Statistics, is a commonly used
measure of inflation. The index shows changes in the cost of selected consumer
goods and does not represent an investment return. The investment performance
figures for the Funds and the indices (other than the Consumer Price Index) will
include reinvestment of dividends and other distributions.
Basic Value and Financial Services Fund will use the S&P 500 Index, the
Dow Jones Industrial Average, the Value Line Composite Index and the BARRA Value
Index. The Value Line Composite Index is an index composed of approximately 1700
issues. As a broad index containing the issues of many
39
<PAGE>
smaller capitalization companies, it may be more representative of Basic Value
than narrower, large capitalization indices such as the Dow Jones Industrial
Average. The BARRA Value Index is prepared by ranking the stocks in the S&P 500
Index primarily on the basis of price to book value. That ranking is split into
two groups with equal aggregate market capitalization, and the group with the
lower price-to-book value ratio comprises the stocks in the BARRA Value Index.
The BARRA Value Index, which is weighted by market capitalization, is designed
as a long-term measure of investment performance based upon some of the value
investing criteria used by Bartlett.
The performance of a Fund may also be presented along with performance
information of other Funds in materials distributed to the public such as
annual, semi-annual and quarterly reports, advertising and sales literature. In
addition, the performance of any Fund may be compared to other groups of mutual
funds tracked by any widely used independent research firm which ranks mutual
funds by overall performance, investment objectives and assets, such as Lipper
Analytical Services, Inc., Value Line or Morningstar, Inc. The objectives,
policies, limitations and expenses of other mutual funds in a group may not be
the same as those of a Fund. Performance rankings and ratings reported
periodically in national financial publications such as Barron's and Fortune
also may be used.
Financial Services Fund has had no operating history prior to the date
of this Statement of Additional Information.
BASIC VALUE. The average annual total returns of Basic Value shares
(redesignated as Class A shares) for the one, five and ten year periods ended
December 31, 1997 were 29.46%, 17.72% and 14.88%, respectively.
The following table shows the one year and cumulative rates of total
return for the indicated period as well as the value of a $10,000 investment
made on May 5, 1983 (the date of the initial public offering of shares), as of
the end of the specified period. Sales charges have not been deducted from total
returns; the Fund did not impose such charges for the periods shown.
<TABLE>
<CAPTION>
Year End Value of
Year Net Asset Dividends $10,000 Total Return
Ended Value Paid Investment(a) One Year Cumulative(b)
----- --------- --------- ------------- -------------------------
<S><C>
3/31/84(b) $ 10.20 $ 0.46 $ 10,668 6.68%(b) 6.68%
3/31/85 10.88 0.75 12,202 14.38% 22.02%
3/31/86 13.13 1.23 16,194 32.72% 61.94%
3/31/87 12.96 1.56 18,037 11.38% 80.37%
3/31/88 12.44 0.36 17,813 -1.24% 78.13%
3/31/89 12.56 1.71 20,593 15.61% 105.93%
3/31/90 12.34 1.05 21,930 6.49% 119.30%
3/31/91 12.60 0.46 23,310 6.29% 133.10%
3/31/92 13.47 0.36 25,624 9.91% 156.24%
3/31/93 14.76 0.58 29,268 14.22% 192.69%
3/31/94 14.89 0.37 30,268 3.42% 202.68%
3/31/95 15.39 1.30 34,103 12.67% 241.03%
3/31/96 17.94 1.07 42,306 24.05% 323.06%
3/31/97 18.33 1.65 47,110 11.36% 371.10%
12/31/97 18.95 5.16 59,701 33.14%(c) 526.87%
</TABLE>
(a) Value at end of fiscal year of $10,000 investment made on May 5, 1983.
(b) Not annualized and from May 5, 1983.
(c) For the nine months ended December 31, 1997.
40
<PAGE>
VALUE INTERNATIONAL. The average annual total returns of Value
International's shares (redesignated as Class A shares) for the one and five
year periods ended December 31, 1997 and the period from October 6, 1989 (the
date of the initial public offering of shares) through December 31, 1997 were
6.14%, 11.93% and 7.56%, respectively.
The following table shows the one year and cumulative rates of total
return for the indicated period as well as the value of a $10,000 investment
made on October 6, 1989, as of the end of the specified period. Sales charges
have not been deducted from total returns; the Fund did not impose such charges
for the periods shown.
<TABLE>
<CAPTION>
Year End Value of
Year Net Asset Dividends $10,000 Total Return Total Return
Ended Value Paid Investments(a) One Year Cumulative(b)
----- --------- --------- -------------- ------------ -------------
<S><C>
3/31/90 $ 9.79 $0.24 $10,029 0.29%(b) 0.29%
3/31/91 9.09 0.30 9,644 (3.84)% (3.56)%
3/31/92 9.93 0.22 10,790 0.88% 7.90%
3/31/93 10.08 0.12 11,082 2.71% 10.82%
3/31/94 12.46 0.07 13,787 24.42% 37.87%
3/31/95 11.64 0.70 13,625 (1.18)% 36.25%
3/31/96 12.59 0.51 15,363 12.76% 53.63%
3/31/97 13.64 0.84 17,737 15.45% 77.37%
12/31/97 12.45 1.55 17,364 2.79%(c) 82.33%
</TABLE>
(a) Value at end of fiscal year of $10,000 investment made on October 6, 1989.
(b) Not annualized and from October 6, 1989.
(c) For the nine months ended December 31, 1997.
EUROPE FUND. The average annual total returns of Worldwide Value Fund,
Inc. (Europe Fund's predecessor) for the one, five and ten year periods ended
December 31, 1997 were 17.52%, 18.19% and 9.89%, respectively.
The following table shows the one year and cumulative rates of total
return (based on net asset value) for the indicated period as well as the value
of a $10,000 investment made on August 19, 1986 (the date of the initial public
offering of Worldwide Value Fund, Inc. shares), as of the end of the specified
period. Sales charges have not been deducted from total returns; that fund did
not impose such charges for the periods shown.
<TABLE>
<CAPTION>
Year End Value of Total
Year Net Asset Dividends $10,000 Return Total Return
Ended Value Paid Investments(a) One Year Cumulative(b)
----- --------- --------- -------------- -------- -------------
<S><C>
12/31/86 $17.41 0.00 $10,990 n/a (12.95)%
12/31/87 16.46 $1.11 8,925 2.52% (10.75)%
12/31/88 19.53 1.00 11,208 25.59% 12.09%
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Year End Value of Total
Year Net Asset Dividends $10,000 Return Total Return
Ended Value Paid Investments(a) One Year Cumulative(b)
----- --------- --------- -------------- -------- -------------
<S><C>
12/31/89 20.14 1.61 12,606 12.47% 26.06%
12/31/90 14.65 1.38 10,002 (20.66)% .02%
12/31/91 15.44 0.21 10,709 7.07% 15.78%
12/31/92 14.29 0.04 9,941 (7.17)% (0.59)%
12/31/93 18.46 0.10 12,915 29.91% 29.15%
12/31/94 17.68 0.00 12,369 (3.68)% 24.39%
12/31/95 21.13 0.06 14,831 19.94% 48.35%
12/31/96 24.24 3.25 19,555 31.53% 95.07%
12/31/97 20.97 7.33 21,834 17.52% 129.25%
</TABLE>
(a) Value at end of fiscal year of $10,000 investment made on August 19, 1986.
(b) Not annualized and from August 19, 1986.
DESCRIPTION OF THE TRUST
The Trust is a diversified, open-end investment company established
under the laws of Massachusetts by an Agreement and Declaration of Trust dated
October 31, 1982 (the "Trust Agreement"). The Trust Agreement permits the
Trustees to issue an unlimited number of shares of beneficial interest of
separate series without par value. Shares of three series have been authorized,
which shares constitute the interests in Value International, Basic Value,
Europe Fund and Financial Services Fund. Each Fund's shares are divided into
three classes, designated as Class A, Class C and Class Y shares.
Each share of each class of a Fund represents an equal proportionate
interest in the assets and liabilities belonging to that Fund. The shares of
each class of each Fund do not have cumulative voting rights or any preemptive
or conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any Fund into a greater or lesser number of
shares of that Fund so long as the proportionate beneficial interest in the
assets belonging to that Fund and the rights of shares of any other Fund are in
no way affected. In case of any liquidation of a Fund, the holders of shares of
the Fund being liquidated will be entitled to receive as a class a distribution
out of the assets, net of the liabilities, belonging to that Fund. Expenses
attributable to any Fund are borne by that Fund. Any general expenses of the
Trust not readily identifiable as belonging to a particular Fund are allocated
among the Funds by or under the direction of the Trustees in such manner as the
Trustees determine to be fair and equitable. No shareholder is liable to further
calls or to assessment by the Trust without his or her express consent.
Each Fund might determine to allocate certain of its expenses (in
addition to 12b-1 fees) to the specific classes of the Fund's shares to which
those expenses are attributable. For example, a higher transfer agency fee per
shareholder account may be imposed on a class of shares subject to a contingent
deferred sales charge because, upon redemption, the duration of the
shareholder's investment must be determined.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the 1940 Act have been
formed as Massachusetts business trusts, and the Trust is not aware of an
instance where such result has occurred. In addition, the Trust Agreement
disclaims shareholder liability for acts or
42
<PAGE>
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Trust Agreement also provides for the indemnification out
of the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Moreover, it provides that
the Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. As a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities, the Board of
Trustees believes that the risk of shareholder liability is slight and limited
to circumstances in which the Trust itself would be unable to meet its
obligations. The Board of Trustees believes that, in view of the above, the risk
of personal liability is remote.
CUSTODIAN
The Custodian acts as the Trust's depository, safekeeps its portfolio
securities, collects all income and other payments with respect thereto,
disburses funds at the Trust's request and maintains records in connection with
its duties.
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts is the custodian of the Trust.
The Chase Manhattan Bank, N.A., 1 Chaseside, Bournemouth, Dorset BH7
7DB, England, is the sub-custodian for Europe Fund.
ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP has been selected as independent
public accountants for the Trust for the fiscal period ending December 31, 1997.
PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore, Maryland, performs
an annual audit of the Trust's financial statements, reviews the Trust's federal
tax return and provides financial and accounting consulting services as
requested.
TRANSFER AGENT
Boston Financial Data Services, Inc., 2 Heritage Drive, North Quincy,
Massachusetts, acts as the Trust's transfer agent and, in such capacity,
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Trust's shares, acts as dividend and distribution disbursing agent and performs
other accounting and shareholder service functions.
FINANCIAL STATEMENTS
The Statement of Net Assets as of December 31, 1997 for all three
funds; the Statements of Operations for the nine months ended December 31, 1997
for Basic Value and Value International and one year ended for Europe Fund; the
Statements of Changes in Net Assets for the nine months ended December 31, 1997
for Basic Value and Value International and the years ended December 31, 1997
and 1996 for Europe Fund; the Financial Highlights for all periods; the Notes to
Financial Statements and the Report of Independent Public Accountants, each with
respect to all three Funds, are included in the combined annual report for the
nine months ended December 31, 1997, and are hereby incorporated by reference in
this Statement of Additional Information.
The unaudited Financial Statements for the six months ended June 30,
1998 for Basic Value, Value International and Europe Fund are included in this
Statement of Additional Information.
Since Financial Services Fund has no operating history as of the date
of this Statement of Additional Information, it has no financial statements.
43
<PAGE>
BARTLETT
- --------------------------------------------------------------------------------
MUTUAL FUNDS
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
BARTLETT
BASIC VALUE FUND
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
EUROPE FUND
<PAGE>
BARTLETT & CO.
PROFILE
[BARTLETT MUTUAL FUNDS LOGO] Bartlett & Co., headquartered in Cincinnati,
Ohio, is an asset management firm which
manages over $3.1 billion for individuals, family
groups and institutions. Established in 1898,
Bartlett & Co. has built a reputation among individual and institutional
investors of strong performance and superior client service for the last
century.
Bartlett & Co. offers its clients a diversity of services through four business
divisions:
(diamond) MUTUAL FUNDS
(diamond) INSTITUTIONAL CLIENT SERVICES
(diamond) PRIVATE CLIENT SERVICES
(diamond) REAL ESTATE PROGRAMS
Our tradition of excellence, the breadth of our services and the depth of our
experience give Bartlett & Co. the capabilities to serve as your financial
advisor.
<PAGE>
STATEMENT OF NET ASSETS
Bartlett Basic Value Fund
June 30, 1998 (Unaudited)
(Amounts in Thousands)
Market
Shares Value
- ------------------------------------------------------
Common Stock -- 97.7%
- ------------------------------------------------------
Aerospace/Defense -- 1.7%
Lockheed Martin Corporation 23 $ 2,435
- ------------------------------------------------------
Air Transportation -- 4.2%
AMR Corporation 71 5,919(A)
- ------------------------------------------------------
Automobiles &
Auto Parts -- 3.3%
Ford Motor Company 35 2,065
General Motors Corporation 37 2,472
--------
4,537
- ------------------------------------------------------
Broadcasting -- 2.0%
Time Warner, Inc. 32 2,734
- ------------------------------------------------------
Chemicals -- 1.9%
Ferro Corporation 107 2,715
- ------------------------------------------------------
Construction & Building
Materials -- 1.5%
Martin Marietta Materials, Inc. 46 2,085
- ------------------------------------------------------
Diversified -- 4.2%
Loews Corporation 40 3,485
Tyco International Ltd. 38 2,413
--------
5,898
- ------------------------------------------------------
Electronics -- 3.0%
Pioneer Standard
Electronics, Inc. 180 1,732
UCAR International, Inc. 84 2,452(A)
--------
4,184
- ------------------------------------------------------
Energy -- 10.1%
Cabot Oil & Gas Corporation 55 1,100
Phillips Petroleum Company 48 2,313
Total SA (ADR) 30 1,961
Triton Energy Ltd. 146 5,214(A)
Western Resources Inc. 92 3,571
--------
14,159
- ------------------------------------------------------
Financial Services -- 12.9%
Aetna Inc. 28 2,132
Charter One Financial, Inc. 108 3,638
Fannie Mae 90 5,468
H & R Block, Inc. 81 3,399
Washington Federal, Inc. 121 3,330
--------
17,967
- ------------------------------------------------------
Market
Shares Value
- ------------------------------------------------------
Food, Beverage & Tobacco-- 8.2%
Archer-Daniels-Midland Company 138 $ 2,670
McDonald's Corporation 74 5,106
RJR Nabisco Holdings Corp. 65 1,544
UST, Inc. 80 2,160
--------
11,480
- ------------------------------------------------------
Health Care -- 1.3%
Columbia/HCA Healthcare
Corporation 60 1,747
- ------------------------------------------------------
Insurance -- 3.5%
Frontier Insurance Group Inc. 79 1,787
Travelers Group 52 3,134
--------
4,921
- ------------------------------------------------------
Investment Companies -- 2.2%
Royce Value Trust, Inc. 182 3,012
- ------------------------------------------------------
Machinery -- 5.7%
Kaydon Corporation 120 4,237
York International Corporation 85 3,703
--------
7,940
- ------------------------------------------------------
Metals & Mining -- 1.5%
Potash Corporation of
Saskatchewan Inc. (ADR) 28 2,086
- ------------------------------------------------------
Manufactured Housing -- 3.1%
Fleetwood Enterprises, Inc. 109 4,360
- ------------------------------------------------------
Office Automation &
Equipment -- 0.7%
Pitney Bowes, Inc. 20 963
- ------------------------------------------------------
Railroads -- 10.8%
GATX Corporation 92 4,037
Kansas City Southern
Industries, Inc. 128 6,352
Union Pacific Corporation 106 4,677
--------
15,066
- ------------------------------------------------------
Real Estate Investment
Trusts (REITs) -- 4.2%
Chateau Communities, Inc. 121 3,471
United Dominion Realty
Trust, Inc. 170 2,359
--------
5,830
- ------------------------------------------------------
10
<PAGE>
Market
Shares Value
- ------------------------------------------------------
Retail -- 4.3%
Jostens, Inc. 150 $ 3,581
Toys `R' Us, Inc. 105 2,481(A)
--------
6,062
- -----------------------------------------------------
Services -- 2.0%
First Data Corporation 83 2,765
- -----------------------------------------------------
Telecommunications -- 3.0%
AT&T Corporation 74 4,227
- -----------------------------------------------------
Utilities -- 2.4%
Kansas City Power & Light Company 85 2,465
TNP Enterprises, Inc. 30 926
--------
3,391
- ------------------------------------------------------
Total Common Stock $136,483
- ------------------------------------------------------
(Identified Cost -- $94,003)
- ------------------------------------------------------
Face
Amount
- ------------------------------------------------------
Repurchase Agreement -- 1.8%
- ------------------------------------------------------
State Street Bank & Trust Company
4.25%, dated 6/30/98, to be
repurchased at $2,487 on 7/1/98
(Collateral: $1,620 United States
Treasury Notes, 10.625% due
8/15/15, value $2,607) $ 2,487 2,487
- ------------------------------------------------------
Total Repurchase Agreement $ 2,487
- ------------------------------------------------------
(Identified Cost -- $2,487)
- ------------------------------------------------------
Total Investments
At Value-- 99.5% $138,970
- ------------------------------------------------------
(Identified Cost -- $96,490)
- ------------------------------------------------------
Other Assets Less Liabilities-- 0.5% $ 669
- ------------------------------------------------------
Net Assets-- 100.0% $139,639
======================================================
- ------------------------------------------------------
Net Assets Consisting of:
Capital shares:
Class A shares $ 78,808
Class C shares 1,731
Class Y shares 2,757
Undistributed
net investment income 580
Undistributed net realized
gains from security
transactions 13,283
Net unrealized appreciation
of investments and
foreign currency
transactions 42,480
- ------------------------------------------------------
Net Assets-- 100.0% $139,639
======================================================
Shares of beneficial interest
outstanding (unlimited
number of shares
authorized, no par value)
Class A shares 6,717
Class C shares 89
Class Y shares 129
======================================================
Net asset value and
redemption price
per share-- Class A $ 20.14
======================================================
Maximum offering price
per share -- Class A
(net asset value plus
sales charge of 4.75%
of offering price) $ 21.14
======================================================
Net asset value,
offering price and
redemption price
per share-- Class C $ 19.84
======================================================
Net asset value,
offering price and
redemption price
per share-- Class Y $ 20.08
======================================================
(A) Non-dividend paying investment.
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF NET ASSETS
Bartlett Value International Fund
June 30, 1998 (Unaudited)
(Amounts in Thousands)
Market
Shares Value
- ------------------------------------------------------
Common Stock -- 92.3%
- ------------------------------------------------------
Argentina --4.3%
IRSA Inversiones y
Representaciones S.A. (GDR) 63 $ 1,826
YPF Sociedad Anonima SA (ADR) 55 1,653
-------
3,479
- ------------------------------------------------------
Australia -- 4.6%
Brambles Industries Ltd. 82 1,605
National Australia Bank (ADR) 31 2,050
-------
3,655
- ------------------------------------------------------
Canada -- 2.1%
Hudson's Bay Co. 45 1,026
Potash Corporation of
Saskatchewan Inc. (ADR) 9 695
-------
1,721
- ------------------------------------------------------
Finland -- 5.8%
Kemira Oyj 255 2,643
Metra Oyj 62 2,036
-------
4,679
- ------------------------------------------------------
France --7.1%
Michelin 35 2,020
Cie de Saint Gobain 6 1,045
Total SA 3 390
Total SA (ADR) 34 2,229
-------
5,684
- ------------------------------------------------------
Germany -- 5.8%
Buderus AG 5 2,346
Deutsche Lufthansa AG 91 2,293
-------
4,639
- ------------------------------------------------------
Hong Kong -- 2.7%
Swire Pacific Ltd.-B 572 2,159
- ------------------------------------------------------
India -- 1.7%
Morgan Stanley India
Investment Fund 212 1,365(A)
- ------------------------------------------------------
Ireland -- 2.1%
Allied Irish Banks PLC (ADR) 19 1,648
- ------------------------------------------------------
Italy -- 2.0%
Istituto Mobiliare SpA (ADR) 34 1,612
- ------------------------------------------------------
Market
Shares Value
- ------------------------------------------------------
Japan -- 18.7%
Canon Inc. 77 $ 1,754
Fujitsu Ltd. 189 1,996
Ito-Yokado (ADR) 41 1,938
Matsumotokiyoshi 53 1,870
Matsushita Electric Industrial
Company Ltd. 109 1,758
Rohm Company 17 1,752
Secom Co., Ltd. 34 1,970
Sumitomo Warehouse 516 1,937
-------
14,975
- ------------------------------------------------------
Korea -- 1.9%
Korea Fund Inc. 107 679(A)
Pohang Iron & Steel Company
Ltd. (ADR) 67 804
-------
1,483
- ------------------------------------------------------
Malaysia -- 1.2%
Perlis Plantations Bhd 1,145 994
- ------------------------------------------------------
Netherlands -- 2.8%
New Holland NV (ADR) 116 2,270
- ------------------------------------------------------
Norway --6.7%
Elkem ASA 191 2,288
Kvaerner ASA 36 1,235
Norsk Hydro ASA (ADR) 42 1,853
-------
5,376
- ------------------------------------------------------
Portugal -- 2.3%
Portugal Fund Inc. 91 1,841
- ------------------------------------------------------
Singapore -- 1.9%
Dairy Farm International
Holdings Ltd. 1,390 1,487
- ------------------------------------------------------
Spain -- 2.4%
Repsol SA (ADR) 35 1,930
- ------------------------------------------------------
Sweden -- 7.6%
AGA AB 146 2,233(A)
AssiDoman AB 80 2,342
Cardo AB 61 1,481
-------
6,056
- ------------------------------------------------------
Taiwan -- 1.8%
Taiwan Fund Inc. 107 1,434
- ------------------------------------------------------
12
<PAGE>
Market
Shares Value
- ------------------------------------------------------
United Kingdom -- 6.8%
Cadbury Schweppes PLC (ADR) 30 $ 1,849
Diageo PLC (ADR) 24 1,178
Tomkins PLC (ADR) 105 2,402
-------
5,429
- ------------------------------------------------------
Total Common Stock $73,916
- ------------------------------------------------------
(Identified Cost -- $68,921)
- ------------------------------------------------------
Face
Amount
- ------------------------------------------------------
Convertible Bond -- 3.0%
- ------------------------------------------------------
Canada -- 3.0%
Magna International Inc.
5%, 10/15/02 $ 1,900 2,415
- ------------------------------------------------------
Total Convertible Bond $ 2,415
- ------------------------------------------------------
(Identified Cost -- $2,022)
- ------------------------------------------------------
Repurchase Agreement -- 4.5%
- ------------------------------------------------------
State Street Bank & Trust Company
4.25%, dated 6/30/98, to be
repurchased at $3,629 on 7/1/98
(Collateral: $2,360 United States
Treasury Notes, 10.625%
due 8/15/15, value $3,798) 3,629 3,629
- ------------------------------------------------------
Total Repurchase Agreement $ 3,629
- ------------------------------------------------------
(Identified Cost -- $3,629)
- ------------------------------------------------------
Total Investments
At Value-- 99.8% $79,960
- ------------------------------------------------------
(Identified Cost -- $74,572)
- ------------------------------------------------------
Other Assets Less Liabilities-- 0.2% $ 187
- ------------------------------------------------------
Net Assets-- 100.0% $80,147
======================================================
- ------------------------------------------------------
Net Assets Consisting of:
Capital shares:
Class A shares $ 53,424
Class C shares 4,083
Class Y shares 13,169
Distributions in excess of
net investment income (615)
Undistributed net realized
gains from security
transactions 4,702
Net unrealized appreciation
of investments and
foreign currency
transactions 5,384
- ------------------------------------------------------
Net Assets-- 100.0% $80,147
======================================================
Shares of beneficial interest
outstanding (unlimited
number of shares
authorized, no par value)
Class A shares 5,231
Class C shares 313
Class Y shares 728
- ------------------------------------------------------
Net asset value and
redemption price
per share-- Class A $ 12.80
======================================================
Maximum offering price
per share -- Class A
(net asset value plus
sales charge of 4.75%
of offering price) $ 13.44
======================================================
Net asset value,
offering price and
redemption price
per share-- Class C $ 12.60
======================================================
Net asset value,
offering price and
redemption price
per share-- Class Y $ 12.70
======================================================
(A) Non-dividend paying investment.
See accompanying notes to financial statements.
13
<PAGE>
STATEMENT OF NET ASSETS
Bartlett Europe Fund
June 30, 1998 (Unaudited)
(Amounts in Thousands)
Market
Shares Value
- ------------------------------------------------------
Common Stock -- 82.4%
- ------------------------------------------------------
Finland -- 2.7%
Nokia Oyj 33 $ 2,236
- ------------------------------------------------------
France -- 13.2%
Accor SA 6 1,682
Banque Nationale de Paris 17 1,387
Cap Gemini SA 9 1,469
Compagnie Financiere de Paribas 7 718
Elf Aquitaine SA 11 1,514
Lafarge SA 18 1,904
Pinault-Printemps-Redoute SA 2 1,733
Rhodia Inc. 15 427(A)
-------
10,834
- ------------------------------------------------------
Germany -- 9.5%
Adidas-Salomon AG 8 1,362
Allianz AG 5 1,598
Bayerische Vereinsbank AG 9 722
Deutsche Bank AG 18 1,522
Deutsche Telekom AG 54 1,490
Mannesmann AG 11 1,114
-------
7,808
- ------------------------------------------------------
Greece -- 1.9%
Alpha Credit Bank 19 1,522
Alpha Credit Bank--Rights 19 32(A)
-------
1,554
- ------------------------------------------------------
Hungary -- 0.8%
OTP Bank Rt. 14 687
- ------------------------------------------------------
Ireland -- 5.6%
Allied Irish Banks plc 117 1,705
Anglo Irish Bank Corporation plc 661 1,778
Green Property plc 157 1,093
-------
4,576
- ------------------------------------------------------
Italy -- 6.9%
Assicurazioni Generali 42 1,352
Credito Italiano 323 1,691
Fiat SpA 257 1,125
Istituto Nazionale delle
Assicurazioni (INA) 539 1,532
-------
5,700
- ------------------------------------------------------
Market
Shares Value
- ------------------------------------------------------
Netherlands -- 8.4%
Aegon N.V. 24 $ 2,105
ING Groep N.V. 26 1,735
Koninklijke Ahold NV 49 1,580
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit 39 1,407
--------
6,827
- ------------------------------------------------------
Portugal -- 2.3%
Cimpor-Cimentos de Portugal,
SGPS, SA 25 879
Portugal Telecom SA 19 988
--------
1,867
- ------------------------------------------------------
Spain -- 3.7%
Banco Bilbao Vizcaya, S.A. 27 1,411
Telefonica de Espana 35 1,632
--------
3,043
- ------------------------------------------------------
Sweden -- 2.1%
Telefonaktiebolaget LM Ericsson 58 1,700
- ------------------------------------------------------
Switzerland -- 6.0%
Novartis 2 2,572
Union Bank of Switzerland 3 1,253
Zurich Versicherungs-Gesellschaft 2 1,113
--------
4,938
- ------------------------------------------------------
United Kingdom -- 19.3%
Arriva PLC 146 850
Barclays PLC 40 1,140
Berkeley Group plc 104 1,087
British Aerospace PLC 193 1,479
British Petroleum Company plc 129 1,883
Granada Group plc 47 865
Kingfisher PLC 89 1,430
Lloyds TSB Group plc 82 1,148
National Westminster Bank 82 1,466
Railtrack Group PLC 57 1,392
SmithKline Beecham Plc 91 1,111
Stagecoach Holdings plc 52 1,109
Vodafone Group plc 70 883
--------
15,843
- ------------------------------------------------------
Total Common Stock $67,613
- ------------------------------------------------------
(Identified Cost -- $48,719)
- ------------------------------------------------------
14
<PAGE>
Market
Shares Value
- ------------------------------------------------------
Preferred Shares -- 3.4%
- ------------------------------------------------------
Germany -- 1.4%
Systeme, Anwendungen,
Produkte in der Datenverarbeitung 2 $ 1,103
- ------------------------------------------------------
Italy -- 2.0%
Telecom Italia Mobile (TIM) SpA 493 1,666
- ------------------------------------------------------
Total Preferred Shares $ 2,769
- ------------------------------------------------------
(Identified Cost -- $1,713)
- ------------------------------------------------------
Face
Amount
- ------------------------------------------------------
Repurchase Agreement -- 12.4%
- ------------------------------------------------------
State Street Bank & Trust Company
4.25%, dated 6/30/98, to be
repurchased at $10,215 on 7/1/98
(Collateral: $6,640 United States
Treasury Notes, 10.625%
due 8/15/15, value $10,423) $10,214 10,214
- ------------------------------------------------------
Total Repurchase Agreement $10,214
- ------------------------------------------------------
(Identified Cost -- $10,214)
- ------------------------------------------------------
Total Investments at Value -- 98.2 % $80,596
- ------------------------------------------------------
(Identified Cost -- $60,646)
- ------------------------------------------------------
Other Assets Less Liabilities-- 1.8% $ 1,475
- ------------------------------------------------------
Net Assets Consisting of:
Capital Shares:
Class A shares $29,292
Class C shares 14,343
Class Y shares 7,826
Undistributed net investment income 213
Undistributed net realized
gain on investments and
foreign currency transactions 10,445
Unrealized appreciation
of investments and
foreign currency
transactions 19,952
- ------------------------------------------------------
Net Assets-- 100.0% $82,071
======================================================
- ------------------------------------------------------
Shares of beneficial interest
outstanding (unlimited
number of shares
authorized, no par value)
Class A shares 2,098
Class C shares 542
Class Y shares 317
======================================================
Net asset value,
redemption price
per share -- Class A $ 27.81
======================================================
Maximum offering price
per share -- Class A
(net asset value plus
sales charge of 4.75%
of offering price) $ 29.20
======================================================
Net asset value,
offering price and
redemption price
per share -- Class C $ 27.49
======================================================
Net asset value,
offering price and
redemption price
per share -- Class Y $ 27.84
======================================================
(A) Non-dividend paying investment.
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
For the six months ended June 30, 1998 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Bartlett
Bartlett Bartlett Value Europe
Basic Value Fund International Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
- ---------------------------------------------------------------------------------------------------------------------------
Dividends $ 1,380 $ 1,379 $ 819
Less foreign taxes withheld (7) (147) (93)
Interest 55 (38) 104
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Income 1,428 1,194 830
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------------------------------
Investment advisory fees 522 519 342
Distribution and service fees 175 102 95
Custodian fees 44 73 89
Trustees' fees 26 24 27
Legal and audit fees 23 22 25
Registration fees 15 14 18
Transfer agent and shareholder
servicing expense 14 8 18
Reports to shareholders 12 8 13
Other expenses 3 2 53
Less expenses waived (76) (44) (63)
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses 758 728 617
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 670 466 213
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments:
Realized gain (loss) on:
Investments 9,788 2,609 9,614
Foreign currency transactions -- (7) 8
Change in unrealized appreciation of:
Investments (2,101) (825) 7,927
Assets and liabilities denominated
in foreign currencies -- (1) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments 7,687 1,776 17,531
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
from Operations $ 8,357 $ 2,242 $17,744
===========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Bartlett Basic Value Fund
<TABLE>
<CAPTION>
Six Months Nine Months Year
Ended Ended Ended
6/30/98 12/31/97(A) 3/31/97
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
From Operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 670 $ 1,061 $ 1,501
Net realized gain (loss) on investments and foreign
currency transactions 9,788 22,534 14,218
Change in unrealized appreciation of investments
and assets and liabilities denominated
in foreign currencies (2,101) 13,090 (1,663)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 8,357 36,685 14,056
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A shares -- (1,339) (1,781)
Class C shares -- (1) N/A
Class Y shares -- (20) N/A
From net realized gains on security transactions:
Class A shares -- (27,451) (8,971)
Class C shares -- (7) N/A
Class Y shares -- (518) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders -- (29,336) (10,752)
- ---------------------------------------------------------------------------------------------------------------------------
From Fund Share Transactions:
- ---------------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold:
Class A shares 4,883 5,649 38,457
Class C shares 1,399 392 N/A
Class Y shares 55 2,501 N/A
Net asset value of shares issued in reinvestment
of shareholder distributions:
Class A shares -- 28,078 10,364
Class C shares -- 8 N/A
Class Y shares -- 538 N/A
Payment for shares redeemed:
Class A shares (10,849) (27,524) (58,553)
Class C shares (58) (10) N/A
Class Y shares (6) (331) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share
transactions (4,576) 9,301 (9,732)
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Assets 3,781 16,650 (6,428)
Net Assets:
Beginning of period 135,858 119,208 125,636
- ---------------------------------------------------------------------------------------------------------------------------
End of period $139,639 $135,858 $119,208
- ---------------------------------------------------------------------------------------------------------------------------
Under/(over)distributed net investment income $ 580 $ (90) $ 210
===========================================================================================================================
</TABLE>
(A) The year end for Bartlett Basic Value Fund was changed from March 31 to
December 31.
See accompanying notes to financial statements.
17
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Bartlett Value International Fund
<TABLE>
<CAPTION>
Six Months Nine Months Year
Ended Ended Ended
6/30/98 12/31/97(A) 3/31/97
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
From Operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 466 $ 244 $ 486
Net realized gain (loss) on investments and foreign
currency transactions 2,602 7,326 5,035
Change in unrealized appreciation of investments
and assets and liabilities denominated
in foreign currencies (826) (5,257) 5,827
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 2,242 2,313 11,348
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A shares -- (973) (486)
Class C shares -- (11) N/A
Class Y shares -- (326) N/A
In excess of net investment income -- -- (47)
From net realized gains on security transactions:
Class A shares -- (6,780) (4,403)
Class C shares -- (54) N/A
Class Y shares -- (1,741) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders -- (9,885) (4,936)
- ---------------------------------------------------------------------------------------------------------------------------
From Fund Share Transactions:
- ---------------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold:
Class A shares 4,987 27,946 37,235
Class C shares 3,269 994 N/A
Class Y shares 276 20,134 N/A
Net asset value of shares issued in reinvestment
of shareholder distributions:
Class A shares -- 6,969 3,770
Class C shares -- 65 N/A
Class Y shares -- 2,067 N/A
Payment for shares redeemed:
Class A shares (8,739) (46,911) (35,484)
Class C shares (190) (55) N/A
Class Y shares (4,325) (4,983) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share
transactions (4,722) 6,226 5,521
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Assets (2,480) (1,346) 11,933
Net Assets:
Beginning of period 82,627 83,973 72,040
- ---------------------------------------------------------------------------------------------------------------------------
End of period $80,147 $ 82,627 $ 83,973
- ---------------------------------------------------------------------------------------------------------------------------
Under/(over)distributed net investment income $ (615) $ (1,081) $ --
===========================================================================================================================
</TABLE>
(A) The year end for Bartlett Value International Fund was changed from March 31
to December 31.
See accompanying notes to financial statements.
18
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Bartlett Europe Fund
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
6/30/98 12/31/97(A)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
From Operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 213 $ (104)
Net realized gain (loss) on investments and foreign currency transactions 9,622 19,781
Change in unrealized appreciation of investments
and assets and liabilities denominated in foreign currencies 7,909 (6,859)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 17,744 12,818
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gains on security transactions:
Class A shares -- (16,941)
Class C shares -- (49)
Class Y shares -- (1,741)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders -- (18,731)
- ---------------------------------------------------------------------------------------------------------------------------
From Fund Share Transactions:
- ---------------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold:
Class A shares 3,094 1,137
Class C shares 14,500 328
Class Y shares 157 7,693
Net asset value of shares issued in reinvestment
of shareholder distributions:
Class A shares -- 19,433
Class C shares -- 49
Class Y shares -- 1,741
Payment for shares redeemed or repurchased:
Class A shares (11,798) (34,844)
Class C shares (497) (35)
Class Y shares (1,709) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from Fund share transactions 3,747 (4,498)
Change in Net Assets 21,491 (10,411)
Net Assets:
Beginning of period 60,580 70,991
- ---------------------------------------------------------------------------------------------------------------------------
End of period $ 82,071 $ 60,580
- ---------------------------------------------------------------------------------------------------------------------------
Under/(over)distributed net investment income $ 213 $ --
===========================================================================================================================
</TABLE>
(A) Includes financial information for Bartlett Europe Fund and its predecessor,
Worldwide Value Fund (See note 6).
See accompanying notes to financial statements.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Bartlett Basic Value Fund
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Investment Operations: Distributions From:
-------------------------------------- --------------------
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized From Net Value,
Beginning Investment Gains on Investment Investment Realized Total End of
of Period Income Investments Operations Income Gains Distributions Period
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Class A Shares
Six Months Ended
June 30, 1998 $18.95 $0.10(A) $1.09 $1.19 $ -- $ -- $ -- $20.14
Nine Months Ended
Dec. 31, 1997(+) 18.33 0.19(A) 5.59 5.78 (0.22) (4.94) (5.16) 18.95
Years Ended March 31,
1997 17.94 0.22 1.82 2.04 (0.26) (1.39) (1.65) 18.33
1996 15.39 0.30 3.32 3.62 (0.24) (0.83) (1.07) 17.94
1995 14.89 0.27 1.53 1.80 (0.27) (1.03) (1.30) 15.39
1994 14.76 0.22 0.28 0.50 (0.23) (0.14) (0.37) 14.89
1993 13.47 0.30 1.57 1.87 (0.30) (0.28) (0.58) 14.76
Class C Shares
Six Months Ended
June 30, 1998 $18.75 $0.06(B) $1.03 $1.09 $ -- $ -- $ -- $19.84
Year Ended Dec. 31,
1997(H) 22.84 0.24(B) 0.88 1.12 (0.27) (4.94) (5.21) 18.75
Class Y Shares
Six Months Ended
June 30, 1998 $18.87 $0.12(C) $1.09 $1.21 $ -- $ -- $ -- $20.08
Year Ended Dec. 31,
1997(I) 21.92 0.18(C) 1.94 2.12 (0.23) (4.94) (5.17) 18.87
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data:
------------------------------------------------------------------------
Net
Investment Average Net Assets,
Expenses Income Portfolio Commission End of
Total to Average to Average Turnover Rate Period
Return(D) Net Assets Net Assets Rate Paid(G) (000's)
- -------------------------------------------------------------------------------------------------
<S><C>
Class A Shares
Six Months Ended
June 30, 1998 6.28%(E) 1.09%(A,F) 0.97%(A,F) 30%(F) $0.0764 $135,281
Nine Months Ended
Dec. 31, 1997(+) 33.14%(E) 1.13%(A,F) 1.15%(A,F) 42%(F) 0.0723 133,076
Years Ended March 31,
1997 11.30% 1.16% 1.18% 23% 0.0655 119,208
1996 24.05% 1.17% 1.79% 25% -- 125,636
1995 12.67% 1.20% 1.81% 26% -- 102,721
1994 3.42% 1.20% 1.48% 33% -- 94,289
1993 14.22% 1.21% 2.14% 43% -- 103,507
Class C Shares
Six Months Ended
June 30, 1998 5.81%(E) 1.90%(B,F) 0.26%(B,F) 30%(F) 0.0764 $ 1,769
Year Ended Dec. 31,
1997(H) 6.07%(E) 1.90%(B,F) 1.11%(B,F) 42%(F) 0.0723 395
Class Y Shares
Six Months Ended
June 30, 1998 6.41%(E) 0.83%(C,F) 1.24%(C,F) 30%(F) $0.0764 $ 2,589
Year Ended Dec. 31,
1997(I) 10.97%(E) 0.86%(C,F) 1.51%(C,F) 42%(F) 0.0723 2,387
- -------------------------------------------------------------------------------------------------
</TABLE>
(+) The year end for Bartlett Basic Value Fund was changed from March 31 to
December 31.
(++) Commencement of operations of this Class.
(A) Net of fees waived pursuant to a voluntary expense limitation of 1.15%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: for the nine months
ended December 1997, 1.19%; for the six months ended June 1998, 1.20%.
(B) Net of fees waived pursuant to a voluntary expense limitation of 1.90%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: 1997, 2.00%; 1998,
2.01%.
(C) Net of fees waived pursuant to a voluntary expense limitation of 0.90%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: 1997, 0.96%; 1998,
.94%.
(D) Excluding sales charge
(E) Not annualized
(F) Annualized
(G) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(H) For the period September 12, 1997 (commencement of operations of this
class) to December 31, 1997.
(I) For the period August 15, 1997 (commencement of operations of this class)
to December 31, 1997.
See accompanying notes to financial statements.
20
<PAGE>
FINANCIAL HIGHLIGHTS
Bartlett Value International Fund
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Investment Operations: Distributions From:
-------------------------------------- ----------------------------------
Net Asset Net Realized Total In Excess Net Asset
Value, Net and Unrealized From Net of Net Value,
Beginning Investment Gains on Investment Investment Investment Realized Total End of
of Period Income Investments Operations Income Income Gains Distributions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Class A Shares
Six Months Ended
June 30, 1998 $12.45 $ 0.06(B) $ 0.29 $ 0.35 $ -- $ -- $ -- $ -- $12.80
Nine Months Ended
Dec. 31, 1997(+) 13.64 0.05(B) 0.31 0.36 (0.17) -- (1.38) (1.55) 12.45
Years Ended March 31,
1997 12.59 0.08 1.81 1.89 (0.08) (0.01) (0.75) (0.84) 13.64
1996 11.64 0.13 1.33 1.46 (0.13) (0.01) (0.37) (0.51) 12.59
1995 12.46 0.09 (0.21) (0.12) (0.09) -- (0.61) (0.70) 11.64
1994 10.08 0.07(A) 2.38 2.45 (0.07) -- -- (0.07) 12.46
1993 9.93 0.12 0.15 0.27 (0.10) -- (0.02) (0.12) 10.08
Class C Shares
Six Months Ended
June 30, 1998 $12.30 $ 0.18(C) $ 0.12 $ 0.30 $ -- $ -- $ -- $ -- $12.60
Year Ended Dec. 31,
1997(I) 15.70 0.08(C) (1.82) (1.74) (0.28) -- (1.38) (1.66) 12.30
Class Y Shares
Six Months Ended
June 30, 1998 $12.33 $(0.05)(D) $ 0.42 $ 0.37 $ -- $ -- $ -- $ -- $12.70
Year Ended Dec. 31,
1997(J) 15.27 (0.11)(D) (1.21) (1.32) (0.24) -- (1.38) (1.62) 12.33
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data:
------------------------------------------------------------------------
Net
Investment Average Net Assets,
Expenses Income Portfolio Commission End of
Total to Average to Average Turnover Rate Period
Return(E) Net Assets Net Assets Rate Paid(H) (000's)
- -------------------------------------------------------------------------------------------------
<S><C>
June 30, 1998 2.89%(F) 1.76%(B,G) 1.08%(B,G) 30%(G) $0.0421 $66,959
Nine Months Ended
Dec. 31, 1997(+) 2.79%(F) 1.78%(B,G) 0.49%(B,G) 44%(G) 0.0227 68,648
Years Ended March 31,
1997 15.45% 1.81% 0.62% 31% 0.0296 83,973
1996 12.76% 1.83% 1.06% 38% -- 72,041
1995 (1.18)% 1.83% 0.80% 24% -- 57,664
1994 24.42% 1.88%(A) 0.55%(A) 19% -- 49,607
1993 2.71% 2.00% 1.13% 19% -- 29,572
Class C Shares
Six Months Ended
June 30, 1998 2.44%(F) 2.55%(C,G) 0.59%(C,G) 30%(G) $0.0421 $ 3,942
Year Ended Dec. 31,
1997(I) (10.87)%(F) 2.55%(C,G) (1.68)%(C,G) 44%(G) 0.0227 895
Class Y Shares
Six Months Ended
June 30, 1998 3.00%(F) 1.49%(D,G) 1.26%(D,G) 30%(G) $0.0421 $ 9,246
Year Ended Dec. 31,
1997(J) (8.38)%(F) 1.44%(D,G) (0.75)%(D,G) 44%(G) 0.0227 13,084
- -------------------------------------------------------------------------------------------------
</TABLE>
(+) The year end for Bartlett Value International Fund was changed from March
31 to December 31.
(++) Commencement of operations of this Class.
(A) The Advisor has periodically absorbed expenses of the Bartlett Value
International Fund through management fee waivers. If the Advisor had not
waived any fees, the ratio of net expenses to average net assets would have
been 1.94%.
(B) Net of fees waived pursuant to a voluntary expense limitation of 1.80%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: for the nine months
ended December 1997, 1.95%; for the six months ended June 1998, 1.87%.
(C) Net of fees waived pursuant to a voluntary expense limitation of 2.55%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: 1997, 2.70%; 1998,
2.66%.
(D) Net of fees waived pursuant to a voluntary expense limitation of 1.55%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets for each period would have been as follows: 1997, 1.59%; 1998,
1.60%.
(E) Excluding sales charge
(F) Not annualized
(G) Annualized
(H) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(I) For the period July 23, 1997 (commencement of operations of this class) to
December 31, 1997.
(J) For the period August 15, 1997 (commencement of operations of this class)
to December 31, 1997.
See accompanying notes to financial statements.
21
<PAGE>
FINANCIAL HIGHLIGHTS
Bartlett Europe Fund(+)
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Investment Operations: Distributions From:
-------------------------------------- ----------------------------------
Net Realized
and Unrealized
Net Asset Net Gains (Losses) on Total In Excess Net Asset
Value, Investment Investments and From Net of Net Value,
Beginning Income Foreign Currency Investment Investment Investment Realized Total End of
of Period (Loss) Transactions Operations Income Income Gains Distributions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Class A Shares
Six Months Ended
June 30, 1998 $20.97 $0.05(A) $ 6.79 $ 6.84 $ -- $ -- $ -- $ -- $27.81
Years Ended Dec. 31,
1997 24.24 (0.05)(A) 4.11 4.06 -- -- (7.33) (7.33) 20.97
1996 21.13 0.02 6.34 6.36 -- -- (3.25) (3.25) 24.24
1995 17.68 0.01 3.50 3.51 (0.06) -- -- (0.06) 21.13
1994 18.46 (0.03) (0.75) (0.78) -- -- -- -- 17.68
1993 14.29 0.14 4.13 4.27 (0.05) (0.05) -- (0.10) 18.46
Class C Shares
Six Months Ended
June 30, 1998 $20.86 $0.17(B) $ 6.46 $ 6.63 $ -- $ -- $ -- $ -- $27.49
Year Ended Dec. 31,
1997(I) 26.56 (0.10)(B) 0.23 0.13 -- -- (5.83) (5.83) 20.86
Class Y Shares
Six Months Ended
June 30, 1998 $21.01 $0.09(C) $ 6.74 $ 6.83 $ -- $ -- $ -- $ -- $27.84
Year Ended Dec. 31,
1997(J) 25.61 (0.04)(C) 1.27 1.23 -- -- (5.83) (5.83) 21.01
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data:
------------------------------------------------------------------------
Net
Investment Average Net Assets,
Expenses Income Portfolio Commission End of
Total to Average to Average Turnover Rate Period
Return(D,E) Net Assets Net Assets Rate Paid(H) (000's)
- -------------------------------------------------------------------------------------------------
<S><C>
Class A Shares
Six Months Ended
June 30, 1998 32.6%(F) 1.79%(A,G) 0.57%(A,G) 113%(G) $0.0526 $58,332
Years Ended Dec. 31,
1997 17.5% 1.90%(A) (0.12)%(A) 123% 0.0374 52,253
1996 31.5% 2.00% 0.10% 109% 0.0313 70,991
1995 19.9% 2.10% 0.10% 148% -- 62,249
1994 (3.7)% 2.10% -- 75% -- 53,135
1993 29.9% 2.10% 0.90% 67% -- 55,486
Class C Shares
Six Months Ended
June 30, 1998 31.8%(F) 2.50%(B,G) 0.68%(B,G) 113%(G) $0.0526 $14,899
Year Ended Dec. 31,
1997(I) 0.7%(F) 2.50%(B,G) (1.79)%(B,G) 123% 0.0374 302
Class Y Shares
Six Months Ended
June 30, 1998 32.6%(F) 1.48%(C,G) 0.82%(C,G) 113%(G) $0.0526 $ 8,840
Year Ended Dec. 31,
1997(J) 4.9%(F) 1.31%(C,G) (0.60)%(C,G) 123% 0.0374 8,025
- -------------------------------------------------------------------------------------------------
</TABLE>
(+) The financial information in this table for the years ended December 31,
1993 through 1996 is for the Worldwide Value Fund, Bartlett Europe Fund's
predecessor. The financial information for the year ended December 31, 1997
is for Bartlett Europe Fund and Worldwide Value Fund. Prior to July 21,
1997, the Worldwide Value Fund operated as a closed-end fund (See note 6).
(++) Commencement of operations of this Class.
(A) The expense ratio shown reflects both the operations of Bartlett Europe
Fund's predecessor, Worldwide Value Fund, prior to its merger with Bartlett
Europe Fund on July 21, 1997 and Bartlett Europe Fund's operations through
December 31, 1997. For the period July 19 to December 31, 1997, the Fund's
annualized expense ratio was 1.71%, net of fees waived pursuant to a
voluntary expense limitation of 1.75% until April 30, 1998; and 1.85% until
May 1, 1999. If no fees had been waived, the annualized ratio of expenses
to average daily net assets for each period would have been as follows:
1997, 2.08%; 1998, 1.97%.
(B) Net of fees waived pursuant to a voluntary expense limitation of 2.50%
until April 30, 1998; and 2.60% until May 1, 1999. If no fees had been
waived, the annualized ratio of expenses to average daily net assets for
each period would have been as follows: 1997, 2.68%; 1998, 2.68%.
(C) Net of fees waived pursuant to a voluntary expense limitation of 1.50%
until April 30, 1998; and 1.60% until May 1, 1999. If no fees had been
waived, the annualized ratio of expenses to average daily net assets for
each period would have been as follows: 1997, 1.49%; 1998, 1.66%.
(D) Prior to July 21, 1997, total return for Worldwide Value Fund, a closed-end
fund, was calculated using market value per share.
(E) Excluding sales charge
(F) Not annualized
(G) Annualized
(H) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
(I) For the period July 23, 1997 (commencement of operations of this class) to
December 31, 1997.
(J) For the period August 21, 1997 (commencement of operations of this class)
to December 31, 1997.
See accompanying notes to financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
(Amounts in Thousands)
1 Significant Accounting Policies
Bartlett Capital Trust ("the Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. Bartlett Capital Trust was established as a Massachusetts
business trust under a Declaration of Trust dated October 31, 1982. The
Declaration of Trust, as amended, permits the Trustees to issue an unlimited
number of shares of the Bartlett Value International Fund, Bartlett Basic Value
Fund and Bartlett Europe Fund (each a "Fund").
Each Fund consists of three classes of shares: Class A offered since 1983
for Basic Value, since 1989 for Value International, and since July 21, 1997 for
Europe Fund; Class C offered since July 21, 1997; and Class Y offered to certain
institutional investors since July 21, 1997. Prior to July 21, 1997, Worldwide
Value Fund, Inc. was a closed-end registered investment company whose single
class of shares traded on the New York Stock Exchange (NYSE). On July 21, 1997,
Europe Fund, which had no previous operating history, acquired the assets and
assumed the liabilities of Worldwide Value Fund, Inc. The income and expenses of
each of these Funds is allocated proportionately to the three classes of shares
based on daily net assets, except for Rule 12b-1 distribution fees, which are
charged only on Class A and Class C shares, and transfer agent and shareholder
servicing expenses, which are determined separately for each class.
The following is a summary of the investment objectives followed by the
Funds:
Bartlett Basic Value Fund seeks capital appreciation by investing primarily
in common stocks or securities convertible into common stocks that are believed
by Bartlett & Co. ("Adviser") to be attractively priced relative to their
intrinsic value. Income is a secondary consideration.
Bartlett Value International Fund seeks capital appreciation by investing
primarily in foreign equity securities believed by the Adviser to be
attractively priced relative to their intrinsic value. Income is a secondary
consideration.
Bartlett Europe Fund seeks long-term growth of capital by investing at
least 65% of its total assets in equity securities of European issuers that its
sub-adviser, Lombard Odier International Portfolio Management Limited ("Lombard
Odier"), believes are undervalued.
The following is a summary of the significant accounting policies of
Bartlett Capital Trust:
Security Valuation - Securities owned by each Fund for which market
quotations are readily available are valued at current market value. In the
absence of readily available market quotations, securities are valued at fair
value as determined by Bartlett and/or Lombard Odier, under authority delegated
by the Board of Trustees.
Equity securities and options listed on exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued. Listed securities not traded on a particular day and securities traded
in the over-the-counter market are valued at the mean between the closing bid
and ask prices quoted by brokers or dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
an exchange are valued according to the broadest and most representative market.
Fixed income securities generally are valued by using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. Fixed income securities having a maturity of less
than 60 days are valued at amortized cost.
Foreign Currency Translation - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the
closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income and
expenses at the rate of exchange prevailing on the respective date of
such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains or losses are reflected as a component of such gains or losses.
Investment Income and Distributions to Shareholders - Interest income and
expenses are accrued as earned. Dividend income is recorded on the ex-dividend
date. Distributions to shareholders from net investment income are declared and
paid quarterly for Basic Value and Value International and annually for Europe
Fund, and are recorded on the ex-dividend date. Net realized capital gains, if
any, are distributed to shareholders at least once a year.
23
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NOTES TO FINANCIAL STATEMENTS (cont.)
Security Transactions - Security transactions are accounted for on a trade
date basis, which is the date the order to buy or sell is executed.
Federal Income Taxes - No provision for federal income or excise taxes is
required since each Fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income to its shareholders.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Funds to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
2 Financial Instruments
As part of its investment program, each Fund may utilize options, futures,
forward currency exchange contracts and repurchase agreements. The nature and
risks of these financial instruments and the reasons for using them are set
forth more fully in the Trust's Prospectuses and Statement of Additional
Information.
Emerging Markets - Value International and Europe Fund may invest in
securities of issuers based in emerging markets. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
Options and Futures - Upon the purchase of a put option or a call option by
a fund, the premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the fund will realize a
loss in the amount of the cost of the option. When a fund enters into a closing
sale transaction, the fund will realize a gain or loss depending on whether the
proceeds from the closing sale transaction are greater or less than the cost of
the option. When a fund exercises a put option, it will realize a gain or loss
from the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When a fund exercises a call option,
the cost of the security which the fund purchases upon exercise will be
increased by the premium originally paid.
When a fund writes a call option or a put option, an amount equal to the
premium received by the fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the fund realizes a gain
equal to the amount of the premium received. When a fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to the option is eliminated. When a written call
option is exercised, the fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the fund
purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. Options written by a fund involve, to varying degrees, risk of
loss in excess of the option value reflected in the Statement of Net Assets. The
risk in writing a covered call option is that a fund may forego the opportunity
for profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a covered put option is that a fund may
incur a loss if the market price of the underlying security decreases and the
option is exercised. In addition, there is the risk that a fund may not be able
to enter into a closing transaction because of an illiquid secondary market or,
for over-the-counter options, because of the counterparty's inability to
perform. There were no options written during the six months ended June 30,
1998.
Upon entering into a futures contract, the fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a certain percentage
of the contract amount. This is known as the "initial margin." Subsequent
payments ("variation margin") are made or received by the fund each day,
depending on the daily fluctuation of the value of the contract. The daily
changes in contract value are recorded as unrealized gains or losses and the
fund recognizes a realized gain or loss when the contract is closed. Futures
contracts are valued daily at the settlement price established by the board of
trade or exchange on which they are traded.
The Funds enter into futures contracts as a hedge against anticipated
changes in interest rates. There are several risks in connection with the use of
futures contracts as a hedging device. Futures contracts involve, to varying
degrees, risk of loss in excess of amounts reflected in the financial
statements. The change in the value of futures contracts primarily corresponds
with
24
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the value of their underlying instruments, which may not correlate with the
change in the value of the hedged instruments. In addition, there is the risk
that a fund may not be able to enter into a closing transaction because of an
illiquid secondary market. There were no open futures contracts at June 30,
1998.
Forward Foreign Currency Exchange Contracts - Forward foreign currency
exchange contracts are marked-to-market daily using foreign currency exchange
rates supplied by an independent pricing service. The change in a contract's
market value is recorded by a fund as an unrealized gain or loss. When the
contract is closed or delivery is taken, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of a fund's securities, but it does
establish a rate of exchange that can be achieved in the future. These forward
foreign currency exchange contracts involve market risk in excess of amounts
reflected in the financial statements. Although forward foreign currency
exchange contracts used for hedging purposes limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In addition, the
Funds could be exposed to risks if the counterparties to the contracts are
unable to meet the terms of their contracts. Each Fund's adviser will enter into
forward foreign currency exchange contracts only with parties approved by the
Board of Trustees because there is a risk of loss to the Funds if the
counterparties do not complete the transaction.
For the six months ended June 30, 1998, Basic Value, Value International,
and Bartlett Europe had not entered into any forward currency contracts.
Repurchase Agreements - Repurchase agreements are valued at cost plus
accrued interest which approximates market value. It is the policy of each Fund
that its custodian take possession of the underlying collateral securities.
Collateral is marked-to-market daily to ensure that the market value of the
underlying assets equals or exceeds the value of the seller's repurchase
obligation. In the event of a bankruptcy or other default of the seller of a
repurchase agreement, a fund could experience both delays in liquidating the
underlying securities and losses. The loss would equal the amount by which the
carrying value of the repurchase agreement(s) exceeded the proceeds received in
liquidation of the underlying collateral securities. To minimize the possibility
of loss, the Funds enter into repurchase agreements only with institutions
deemed to be creditworthy by the Adviser.
At June 30, 1998, receivables for securities sold but not yet delivered and
payables for securities purchased but not yet received for each Fund were as
follows:
Receivable for Payable for
Securities Sold Securities Purchased
- ---------------------------------------------------------------
Basic Value $ 541 $ --
- ---------------------------------------------------------------
Value International -- --
- ---------------------------------------------------------------
Europe Fund 1,816 1,277
- ---------------------------------------------------------------
3 Investment Transactions
Investment transactions (excluding short-term securities) were as follows
for the six months ended June 30, 1998:
Basic Value Europe
Value International Fund
- -------------------------------------------------------------------------
Purchases of investment securities $20,077 $11,675 $35,847
- -------------------------------------------------------------------------
Proceeds from sales and maturities
of investment securities $21,373 $14,559 $45,442
- -------------------------------------------------------------------------
The following amounts are based on cost for both financial reporting and
federal income tax purposes as of June 30, 1998:
Basic Value Europe
Value International Fund
- ------------------------------------------------------------------
Unrealized appreciation $46,590 $16,023 $20,672
Unrealized depreciation (4,110) (10,635) (722)
- ------------------------------------------------------------------
Net unrealized appreciation
(depreciation) $42,480 $ 5,388 $19,950
- ------------------------------------------------------------------
Federal income tax cost
of investments $96,490 $74,572 $60,646
- ------------------------------------------------------------------
4 Transactions with Affiliates and Related Parties
The officers of the Trust are shareholders or employees of the Adviser or
Legg Mason Wood Walker, Incorporated ("LMWW"). LMWW is affiliated with the
Adviser through their common parent company, Legg Mason, Inc. The Adviser became
a wholly owned subsidiary of Legg Mason, Inc. in January 1996. Bartlett
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<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.)
Capital Trust's investments were managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement that was effective through
July 20, 1997, the Adviser paid all of the expenses of Basic Value and Value
International except brokerage, taxes, interest and extraordinary expenses. As
compensation for investment advisory services and the agreement to pay the above
Fund expenses, each of those Funds paid the Adviser a fee computed and accrued
daily and paid monthly. The fee for Basic Value was computed at an annual rate
of 2% of the average daily net assets of the Fund up to and including $10,000,
1.50% of such assets from $10,000 up to and including $30,000 and 1% of such
assets in excess of $30,000. The fee for Value International was computed at an
annual rate of 2% of the average daily net assets of the Fund up to and
including $20,000, 1.75% of such assets from $20,000 up to and including
$200,000 and 1.25% of such assets in excess of $200,000.
The Worldwide Value Fund, Inc. ("Worldwide", predecessor to Europe Fund)
had an investment advisory agreement with Lombard Odier for which Lombard Odier
received a monthly fee at an annual rate of 1% of Worldwide's net assets, based
on the net assets on the last business day of each month. This rate was reduced
on net asset values in excess of $100 million. Lombard Odier managed Worldwide's
portfolio since its inception in 1986.
Worldwide had an administration contract with Legg Mason Fund Adviser, Inc.
("Administrator") for which the Administrator received from Worldwide a monthly
fee at an annual rate of .20% of Worldwide's net assets, based on the net assets
on the last business day of each month. This rate was reduced on net asset
values in excess of $100 million.
Effective July 21, 1997, the shareholders of the Trust approved an
Investment Management and Administration Agreement ("Agreement"). Under the
Agreement, the Adviser receives for its services an advisory fee from each Fund,
computed daily and payable monthly at annual rates of each Fund's average daily
net assets as follows: Basic Value, .75%, Value International, 1.25%, and Europe
Fund, 1.00%.
Lombard Odier serves as investment sub-adviser to Europe Fund pursuant to a
Sub-Advisory Agreement, which was approved by the Board of Trustees. For its
services under the Sub-Advisory Agreement, Lombard Odier receives from the
Adviser (not Europe Fund) a monthly fee at the rate of 60% of the monthly fee
actually paid to the Adviser by Europe Fund under the Agreement, taking into
account any fee waiver arrangements in effect.
The Adviser has agreed to waive fees to the extent the expenses
attributable to Class A, C and Y shares (exclusive of taxes, interest, brokerage
and extraordinary expenses) exceed during any month annual rates based on each
respective class' average daily net assets as follows: 1.15%, 1.90% and 0.90%,
respectively, for Basic Value; 1.80%, 2.55% and 1.55%, respectively, for Value
International; and 1.85%, 2.60% and 1.60%, respectively, for Europe Fund. Fees
in excess of these limits will be waived through May 1, 1999. For the six months
ended June 30, 1998, advisory fees of $76, $44 and $63 were waived for all
classes of Basic Value, Value International and Europe Fund, respectively. At
June 30, 1998, amounts due to the Adviser were as follows: Basic Value, $75;
Value International, $51; and Europe Fund, $59.
LM Financial Partners, Inc., distributor of the Funds, and an affiliate of
the Adviser, receives from each Fund an annual service fee of 0.25% of the
average daily net assets of each Fund's Class A shares and distribution and
service fees at an annual rate of 0.75% and 0.25%, respectively, of average
daily net assets of each Fund's Class C shares. These fees are calculated daily
and paid monthly.
LMWW has an agreement with the Funds' transfer agent to assist it with some
of its duties. For this assistance, LMWW was paid the following amounts by the
transfer agent for the six months ended June 30, 1998: Basic Value, $4; Value
International, $3; and Europe Fund, $5.
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5 Line of Credit
The Funds, along with certain other Legg Mason funds, participate in a $150
million line of credit ("Credit Agreement") to be utilized as an emergency
source of cash in the event of unanticipated, large redemption requests by
shareholders. Pursuant to the Credit Agreement, each participating fund is
liable only for principal and interest payments related to borrowings made by
that fund. Borrowings under the line of credit bear interest at prevailing
short-term interest rates. For the six months ended June 30, 1998, the Funds had
no borrowings under the line of credit.
6 Reorganization of Worldwide Value Fund, Inc.
On July 18, 1997, Bartlett Europe Fund, a series of the Bartlett Capital
Trust, an open-end management investment company, acquired all the net assets of
Worldwide Value Fund, Inc. pursuant to a plan of reorganization approved by
Worldwide's shareholders on April 30, 1997. The acquisition was accomplished by
a tax-free exchange of 3,357 shares of Worldwide (valued at $88,660) outstanding
on July 18, 1997. The net assets of Worldwide ($88,660, including $18,092 of
unrealized appreciation and $12,991 of undistributed net capital gain) were
merged into the newly-created Bartlett Europe Fund. Prior to the reorganization,
Worldwide Value Fund, Inc. was a closed-end mutual fund whose shares traded on
the New York Stock Exchange.
7 Fund Share Transactions
Proceeds and payments on shares of the Funds as shown in the Statements of
Changes in Net Assets are the result of the share transactions on the following
page:
27
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NOTES TO FINANCIAL STATEMENTS (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Basic Value Value International Europe Fund
For the Six For the Nine For the Six For the Nine For the Six For the Period
Months Ended Months Ended Months Ended Months Ended Months Ended 7/21/97 through
Class A 6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Shares sold 243 273 398 1,960 114 27
Shares issued in reinvestment
of distributions -- 1,550 -- 565 -- 890
- ---------------------------------------------------------------------------------------------------------------------------
243 1,823 398 2,525 114 917
Less shares redeemed (548) (1,305) (683) (3,164) (508) (1,354)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding (305) 518 (285) (639) (394) (437)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Basic Value Value International Europe Fund
For the Six For the Period For the Six For the Period For the Six For the Period
Months Ended 9/12/97 through Months Ended 7/23/97 through Months Ended 7/23/97 through
Class C 6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Shares sold 71 21 255 72 546 13
Shares issued in reinvestment
of distributions -- 1 -- 5 -- 2
- ---------------------------------------------------------------------------------------------------------------------------
71 22 255 77 546 15
Less shares redeemed (3) (1) (15) (4) (18) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding 68 21 240 73 528 14
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Basic Value Value International Europe Fund
For the Six For the Period For the Six For the Period For the Six For the Period
Months Ended 8/15/97 through Months Ended 8/15/97 through Months Ended 8/21/97 through
Class Y 6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Shares sold 2 112 16 1,295 6 299
Shares issued in reinvestment
of distributions -- 30 -- 170 -- 83
- ---------------------------------------------------------------------------------------------------------------------------
2 142 161,465 6 382
Less shares redeemed -- (15) (349) (404) (71) --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding 2 127 (333) 1,061 (65) 382
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
