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MUTUAL FUNDS
BARTLETT
PROSPECTUS
May 3, 1999
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
BASIC VALUE FUND
BARTLETT
EUROPE FUND
BARTLETT
FINANCIAL SERVICES FUND
CLASS A AND CLASS C SHARES
BARTLETT CAPITAL TRUST
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
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<PAGE>
TABLE OF CONTENTS
About the funds:
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1 Investment objectives
5 Principal risks
8 Performance
13 Fees and expenses of the funds
17 Management
About your investment:
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20 How to invest
24 How to sell your shares
26 Account policies
27 Services for investors
28 Dividends and taxes
29 Financial highlights
<PAGE>
BARTLETT CAPITAL TRUST
[GRAPHIC APPEARS HERE]
INVESTMENT OBJECTIVES
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Bartlett Capital Trust currently offers four series: Bartlett Value
International Fund, Bartlett Basic Value Fund, Bartlett Europe Fund
and Bartlett Financial Services Fund. The investment objectives of
Value International, Basic Value and Financial Services may each be
changed without shareholder approval; however, shareholders of these
funds will be given a minimum of 30 days' prior written notice before
any change takes place. Europe Fund's investment objective may not be
changed without shareholder approval.
BARTLETT VALUE INTERNATIONAL FUND
Investment objective: capital appreciation
Principal investment strategies:
Bartlett & Co., the fund's investment adviser, under normal
circumstances, invests substantially all of the fund's assets in
equity securities of non-U.S. issuers. Such securities generally
include common stocks, common stock equivalents and preferred stocks.
Bartlett & Co. offers a bottom up, value based approach to
international investment, with the goal of producing investment
returns that are consistently above average while maintaining below
average levels of risk (as measured by volatility). Its approach to
equity investment is to screen equities for valuations based upon
earnings, cash flow, book value and dividend multiples that fall into
the lower half of the global stock universe. Only companies with
strong balance sheets and proven track records are included. It then
performs a more intense financial and company evaluation to select
those stocks with superior outlooks. Finally, it evaluates the
economic, political and market environment in which the company
operates, as well as potential currency risk.
The fund invests in non-U.S. securities, and is broadly diversified
by country and region. The currency exposure is therefore nominally
the same as the country/regional exposure, although the functional
currency exposure of many companies in the portfolio is quite
different from the base currency.
Bartlett & Co.'s goal of individual stock selection and portfolio
construction is to produce a portfolio with above average potential
for growth and financial strength, albeit with attractive valuations.
It selects stocks with a time horizon of at least two years, and
turnover is low -- it has averaged about 30% over the last twelve
years.
In seeking its objective, the fund intends to diversify its
investments among issuers representing various countries. The fund
may invest in countries in Europe,
Bartlett Capital Trust 1
<PAGE>
the Far East, Latin America, Asia, Africa, Canada, Australia and
other geographic regions. The fund may at times invest more than 25%
of its total assets in any major industrial or developed country when
the adviser believes there is no unique investment risk.
The adviser will invest in foreign equity securities that it believes
to be attractively priced relative to their intrinsic value. Income
is a secondary consideration. The adviser focuses on characteristics
such as relative price/earnings ratios, dividend yields and
price/book value ratios when analyzing a security's intrinsic value.
If a stock reaches a valuation that is higher than the intrinsic
value and growth prospects of the company warrant, or if the
fundamentals of the company's operations turn negative, the stock
will be sold.
For temporary defensive purposes, the fund may invest substantially
all of its assets in one or two countries and may hold all or a
portion of its assets in money market instruments, cash equivalents,
short-term government and corporate obligations or repurchase
agreements. As a result, the fund may not achieve its investment
objective when so invested.
BARTLETT BASIC VALUE FUND
Investment objective: capital appreciation
Principal investment strategies:
The fund invests primarily in common stocks or securities convertible
into common stocks that Bartlett & Co., the fund's investment
adviser, believes to be selling at attractive prices relative to
their intrinsic value. Income is a secondary consideration.
Bartlett & Co. offers a bottom up, value based approach to investing
in equity securities, with the goal of producing investment returns
that are above average over long-term market cycles while maintaining
below average levels of risk (as measured by volatility). Its
approach to equity investment is to screen equities for valuations
based upon earnings, cash flow, book value and dividend multiples
that fall into the lower half of the stock universe (primarily U.S.).
It then performs a more intense financial and company evaluation to
select those stocks with superior outlooks.
Bartlett & Co.'s goal of individual stock selection and portfolio
construction is to produce a diversified portfolio with above average
potential for growth and financial strength, albeit with attractive
valuations. It selects stocks with a time horizon of at least two
years, and turnover is low -- it has averaged below 35% over the last
seven years.
In seeking its objective, the fund invests only in securities of
companies with at least three years of operating history.
2
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If a stock appreciates to such a level that its position in relation
to the entire portfolio would be inordinately large, a portion of the
position will be sold so that no position will be in excess of 5% of
the total portfolio. Positions may also be reduced once the stock has
reached a price objective that is determined upon purchase of the
stock. Securities may be sold prior to their reaching their target
price in the event that certain fundamental aspects of the company's
business have changed.
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. As a result, the fund may not achieve its investment
objective when so invested.
BARTLETT EUROPE FUND
Investment objective: long-term growth of capital
Principal investment strategies:
Lombard Odier International Portfolio Management Limited, the fund's
sub-adviser, under normal circumstances, invests substantially all of
the fund's assets in equity securities of European issuers that it
selects as offering above-average potential for capital appreciation.
Such securities include common stocks, preferred stocks, convertible
securities, rights and warrants. The sub-adviser focuses on
relatively larger capitalized issuers with good earnings, growth
potential and strong management.
A smaller portion of the fund's assets may be invested in fixed
income securities such as obligations of foreign or domestic
governments, government agencies or municipalities and obligations of
foreign or domestic companies. The sub-adviser will invest in such
securities for potential capital appreciation.
Securities in the fund's portfolio may be sold when they attain
certain price targets or when better opportunities arise. Sell
decisions also are affected by the level of subscriptions and
redemptions of shares of the fund. The sub-adviser's investment
technique may result in high portfolio turnover.
For temporary defensive purposes, the fund may hold all or a portion
of its total assets in money market instruments, cash equivalents,
short-term government and corporate obligations or repurchase
agreements. As a result, the fund may not achieve its investment
objective when so invested.
Bartlett Capital Trust 3
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BARTLETT FINANCIAL SERVICES FUND
Investment objective: long-term growth of capital
Principal investment strategies:
Gray, Seifert & Co., Inc., the fund's sub-adviser, under normal
circumstances, invests substantially all of the fund's assets in
equity securities of issuers in the financial services industry that
it believes are undervalued and thus may offer above average
potential for capital appreciation. Equity securities include common
stocks, preferred stocks, convertible securities, rights and
warrants.
Financial services companies include, but are not limited to:
o regional and money center banks
o securities brokerage firms
o asset management companies
o savings banks and thrift institutions
o specialty finance companies (e.g., credit card, mortgage providers)
o insurance and insurance brokerage firms
o government sponsored agencies
o financial conglomerates
o foreign financial services companies (limited to 25% of total
assets, not including ADRs)
Investments may also include 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 ratings services, internet services and
business services.
The sub-adviser believes the financial services industry is
undergoing many changes due to legislation reform and the shifting
demographics of the population. In deciding what securities to buy,
the sub-adviser analyzes an issuer's financial statements to
determine earnings per share potential. It also reviews, as
appropriate, the economy where the issuer does business, the products
offered, its potential to benefit from the changes and the strength
and goals of management.
The sub-adviser will sell a security in the fund's portfolio if that
security experiences earnings problems.
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. As a result, the fund may not achieve its investment
objective when so invested.
4
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PRINCIPAL RISKS
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An investment in any of these funds is not guaranteed; investors may
lose money by investing in the funds. There is no guarantee that any
fund will achieve its objective. The principal risks of investing in
the funds are described below. The amount and types of risks vary
depending on:
o the fund's investment objective
o the fund's ability to achieve its investment objective
o the markets in which the fund invests
o prevailing economic conditions
Market risk -
Stock prices generally fluctuate more than those of other securities.
A fund may experience a substantial or complete loss on an individual
stock. Market risk may affect a single issuer, industry or section of
the economy or may affect the market as a whole.
Value International and Basic Value invest in stocks believed to be
attractively priced relative to their intrinsic value. Such an
approach involves the risk that those stocks may remain undervalued
and you could lose money. Value stocks as a group may be out of favor
for a long period of time, while the market concentrates on "growth"
stocks.
Foreign securities risk -
Value International and Europe Fund invest a substantial portion of
their assets in foreign securities. Investments in foreign securities
(including those denominated in U.S. dollars) involve certain risks
not typically associated with investments in domestic issuers. The
values of foreign securities are subject to economic and political
developments in the countries and regions where the companies
operate, such as changes in economic or monetary policies, and to
changes in exchange rates. Values may also be affected by foreign tax
laws and restrictions on receiving the investment proceeds from a
foreign country. Some foreign governments have defaulted on principal
and interest payments.
In general, less information is publicly available about foreign
companies than about U.S. companies. Foreign companies are generally
not subject to the same accounting, auditing and financial reporting
standards as are U.S. companies. Transactions in foreign securities
may be subject to less efficient settlement practices, including
extended clearance and settlement periods. Foreign stock markets may
be less liquid and less regulated than U.S. stock markets.
The risks of foreign investment are greater for investments in
emerging markets. Emerging market countries typically have economic
and political systems that are less fully developed, and can be
expected to be less stable, than those of more
Bartlett Capital Trust 5
<PAGE>
advanced countries. Low trading volumes may result in a lack of
liquidity and in price volatility. Emerging market countries may have
policies that restrict investment by foreigners.
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. Currency
exchange rates can be volatile and affected by, among other factors,
the general economics of a country, the actions of the U.S. and
foreign governments or central banks, the imposition of currency
controls, and speculation.
On January 1, 1999, the conversion of European currencies into the
Euro began and is expected to continue into 2002. Full implementation
of the Euro may be delayed and difficulties with the conversion may
significantly impact European capital markets resulting in increased
volatility in world capital markets.
Concentration risk -
Financial Services Fund invests primarily in securities in the
financial services industry. Europe Fund invests primarily in
securities of European issuers. A fund concentrating most of its
investments in a single region or industry will be more susceptible
to factors adversely affecting issuers within that region or industry
than would a more diversified portfolio of securities.
Financial services companies are subject to extensive government
regulation. The profitability of financial services companies is
dependent on the availability and cost of funds, and can fluctuate
significantly when interest rates change. Economic downturns, credit
losses and severe price competition can negatively affect this
industry.
European issuers are subject to the special risks in that region,
including risks related to the introduction of the Euro and the
potential for difficulties in its acceptance and the emergence of
more unified economic and financial governance in the EMU countries.
Interest rate risk -
Europe Fund may invest up to 35% of its total assets in fixed income
securities. Market prices of a fund's fixed income investments may
decline due to an increase in interest rates. Changes in interest
rates will affect the value of longer-term fixed income securities
more than shorter-term securities.
6
<PAGE>
Credit risk -
There is a risk that a fund's holdings in fixed income securities
could be downgraded or could default. Credit ratings are the opinions
of the private companies that rate companies or their securities;
they are not guarantees.
Year 2000 -
Like other mutual funds (and most organizations around the world),
the funds could be adversely affected by computer problems related to
the year 2000. These could interfere with operations of the funds,
their adviser, distributor or sub-adviser, or could impact companies
in which the funds invest. The year 2000 poses an even greater risk
for foreign securities than for other securities in which the funds
invest.
While no one knows if these problems will have any impact on the
funds or on financial markets in general, the adviser and its
affiliates are taking steps to protect fund investors. These include
efforts to determine that the problem will not directly affect the
systems used by major service providers.
Whether these steps will be effective can only be known for certain
in the year 2000.
Portfolio turnover -
Europe Fund may have an annual portfolio turnover rate significantly
in excess of 100%. High turnover rates can result in increased
trading costs and higher levels of realized capital gains.
Bartlett Capital Trust 7
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PERFORMANCE
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Each fund has three authorized classes of shares: Class A shares, Class C
shares and Class Y shares. The information provided below is primarily for
Class A which is the class with the longest history. Its expenses generally are
slightly lower, and its performance higher than Class C shares. Each class is
subject to different expenses and a different sales charge structure. Class Y
shares are offered through a separate prospectus only to certain investors. The
information below provides an indication of the risks of investing in a fund by
showing changes in Value International's, Basic Value's and Europe Fund's
performance from year to year. Annual returns assume reinvestment of dividends
and distributions. Historical performance of a fund does not necessarily
indicate what will happen in the future. Sales charges have not been deducted
from total returns (in the bar chart) for Class A shares. Returns would have
been lower had these charges been deducted.
Bartlett Value International Fund -- Class A Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears. See the table below for plot points.)
1990 1991 1992 1993 1994 1995 1996 1997 1998
(14.52) 21.49 (1.83) 31.35 (0.53) 9.15 16.05 6.14 (2.88)
During the last nine years:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- ----------------------- ---------------------- ---------------------
Best quarter: June 30, 1997 +13.05%
Worst quarter : September 30, 1990 -19.17%
</TABLE>
8
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In the following table, average annual total returns as of December
31, 1998 are compared with the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index, which is an unmanaged index
of common stocks of foreign companies.
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years Life of Class
- ----------------------------------------- ----------- ----------- --------------------
Bartlett Value International Fund
Class A -7.49% +4.36% +5.82%(a)
Bartlett Value International Fund
Class C -3.64% n/a -10.01%(b)
MSCI EAFE Index +20.00% +9.19% +5.36%(c)
</TABLE>
(a) October 6, 1989 (commencement of sale of Class A shares) to
December 31, 1998.
(b) July 23, 1997 (commencement of sale of Class C shares) to
December 31, 1998.
(c) For Class A, the index's return shown in the table is for the
period September 30, 1989 to December 31, 1998. For Class C, the
index's return of 5.62% is for the period July 31, 1997 to
December 31, 1998.
These figures include changes in principal value, reinvested
dividends and capital gain distributions, if any.
Bartlett Capital Trust 9
<PAGE>
Bartlett Basic Value Fund -- Class A Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears. See the table below for plot points.)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.66 (9.60) 25.96 10.24 11.65 0.40 31.56 18.42 29.46 3.76
</TABLE>
During the past ten years of Class A:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ---------------------- --------------------
Best quarter: March 31, 1991 +16.74%
Worst quarter: September 30, 1990 -18.78%
</TABLE>
In the following table, average annual total returns as of December
31, 1998 are compared with the Standard & Poor's 500 Stock Composite
Index, a broad-based unmanaged index of common stocks commonly used
to measure general stock market activity.
<TABLE>
<S> <C> <C> <C> <C>
1 Year 5 Years 10 Years Life of Class
- ------------------------------------------ ----------- ----------- ----------- --------------------
Bartlett Basic Value Fund Class A -1.19% +14.89% +12.09% +12.35%(a)
Bartlett Basic Value Fund Class C +2.96% n/a n/a +6.99%(b)
Standard & Poor's 500 Stock
Composite Index +28.58% +24.06% +19.21% +17.31%(c)
</TABLE>
(a) May 5, 1983 (commencement of sale of Class A shares) to December
31, 1998.
(b) September 12, 1997 (commencement of sale of Class C shares) to
December 31, 1998.
(c) For Class A, the index's return shown in the table is for the
period April 30, 1983 to December 31, 1998. For Class C, the
index's return of 25.08% is for the period September 30, 1997 to
December 31, 1998.
These figures include changes in principal value, reinvested
dividends and capital gain distributions, if any.
10
<PAGE>
Bartlett Europe Fund -- Class A Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears. See the table below for plot points.)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.47 (20.56) 7.07 (7.17) 29.91 (4.23) 19.90 31.53 17.52 41.85
</TABLE>
During the past ten years of Class A:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ---------------------- --------------------
Best quarter: March 31, 1991 +25.74%
Worst quarter: September 30, 1990 -20.21%
</TABLE>
In the following table, average annual total returns as of December
31, 1998 are compared with the Morgan Stanley Capital International
(MSCI) Europe Index, a broad-based unmanaged index based on the share
prices of common stocks in different European countries. The
countries included in this index are Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain,
Sweden, Switzerland and the UK.
<TABLE>
<S> <C> <C> <C> <C>
1 Year 5 Years 10 Years Life of Class
- ------------------------------------- ----------- ----------- ----------- --------------------
Bartlett Europe Fund Class A +35.09% +19.12% +10.72% +9.58%(a)
Bartlett Europe Fund Class C +40.48% n/a n/a +27.13%(b)
MSCI Europe Index +28.53% +19.10% +15.23% +14.02%(c)
</TABLE>
(a) August 19, 1986 (commencement of sale of Class A shares) to
December 31, 1998.
(b) July 23, 1997 (commencement of sale of Class C shares) to
December 31, 1998.
(c) For Class A, the index's return shown in the table is for the
period August 31, 1986 to December 31, 1998. For Class C, the
index's return of 22.26% is for the period July 31, 1997 to
December 31, 1998.
These figures include changes in principal value, reinvested
dividends and capital gain distributions, if any.
Bartlett Capital Trust 11
<PAGE>
Prior to July 21, 1997, Europe Fund operated as a closed-end
investment company, Worldwide Value Fund, Inc. Prior to 1992, Europe
Fund was a broad-based global fund, not concentrating in European
equity securities.
12
<PAGE>
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FEES AND EXPENSES OF THE FUNDS
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The table below describes the fees and expenses you will incur
directly or indirectly as an investor in a fund. Each fund pays
operating expenses directly out of its assets so they lower that
fund's share price and dividends. Other expenses include transfer
agency, custody, professional and registration fees.
CLASS A SHARES
<TABLE>
Shareholder Fees
(fees paid directly from your investment)
- -------------------------------------------------------------------------------------------------------
Financial
Value Basic Europe Services
International Value Fund Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a % of
offering price) (a) 4.75% 4.75% 4.75% 4.75%
- -------------------------------------------------------------------------------------------------------
Maximum deferred sales
charge (as a % of net asset
value) (b) None None None None
</TABLE>
<TABLE>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets) (d)
- ----------------------------------------------------------------------------------------
Financial
Value Basic Europe Services
International Value Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees (c) 1.25% 0.75% 1.00% 1.00%
Service (12b-1) fees 0.25% 0.25% 0.25% 0.25%
Other expenses 0.37% 0.20% 0.64% 0.40%
- ----------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses (c) 1.87% 1.20% 1.89 % 1.65%
</TABLE>
(a) Sales charge waivers and reduced sales charge purchase plans are
available for Class A shares. See "How to Invest."
(b) A contingent deferred sales charge ("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 Invest."
(c) Bartlett & Co., as investment adviser, has voluntarily agreed to
waive fees so that expenses of Class A shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed annual
rates of each fund's average daily net assets attributable to Class A
shares as follows: Value International, 1.80%; Basic Value, 1.15%;
Europe Fund, 1.85%; and Financial Services Fund, 1.50%. These
voluntary waivers will continue until May 1, 2000 and may be
terminated at any time. With these waivers, management fees and total
annual fund operating expenses would have been as follows: Value
International, 1.11% and 1.73%; Basic Value, 0.63% and 1.08%; Europe
Fund, 0.92% and 1.81%; and Financial Services Fund, 0.85% and 1.50%.
(d) The fees and expenses shown are for the fiscal year ended
December 31, 1998 and are calculated as a percentage of average net
assets.
Bartlett Capital Trust 13
<PAGE>
Example:
This example helps you compare the cost of investing in a fund with
the cost of investing in other mutual funds. Although your actual
costs may be higher or lower, you would pay the following expenses on
a $10,000 investment in a fund, assuming (1) a 5% return each year,
(2) the fund's operating expenses remain the same as shown in the
table above, and (3) you redeem all of your shares at the end of the
time periods shown. This example also assumes that the maximum
initial sales charge is deducted at the time of purchase.
<TABLE>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value International $ 656 $ 1,035 $ 1,438 $ 2,561
Basic Value $ 591 $ 838 $ 1,103 $ 1,860
Europe Fund $ 658 $ 1,041 $ 1,448 $ 2,582
Financial Services
Fund $ 635 $ 971 n/a n/a
</TABLE>
14
<PAGE>
CLASS C SHARES
<TABLE>
Shareholder Fees
(fees paid directly from your investment)
- --------------------------------------------------------------------------------------------------------
Financial
Value Basic Europe Services
International Value Fund Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a % of
offering price) None None None None
- --------------------------------------------------------------------------------------------------------
Maximum deferred
sales charge (as a % of
net asset value) (a) 1.00% 1.00% 1.00% 1.00%
</TABLE>
<TABLE>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets) (c)
- ---------------------------------------------------------------------------------------
Financial
Value Basic Europe Services
International Value Fund Fund
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees (b) 1.25% 0.75% 1.00% 1.00%
Distribution and
Service (12b-1) fees 1.00% 1.00% 1.00% 1.00%
Other expenses 0.44% 0.27% 0.59% 0.40%
- -------------------------- ------ ------ ------ ------
Total Annual Fund
Operating Expenses (b) 2.69% 2.02% 2.59% 2.40%
</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 Invest."
(b) Bartlett & Co., as investment adviser, has voluntarily agreed to
waive fees so that expenses of Class C shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed annual
rates of each fund's average daily net assets attributable to Class C
shares as follows: Value International, 2.55%; Basic Value, 1.90%;
Europe Fund, 2.60%; and Financial Services Fund, 2.25%. These
voluntary waivers will continue until May 1, 2000 and may be
terminated at any time. With these waivers, management fees and total
annual fund operating expenses would have been as follows: Value
International, 1.11% and 2.55%; Basic Value, 0.63% and 1.90%; Europe
Fund, 0.92% and 2.51%; and Financial Services Fund, 0.85% and 2.25%.
(c) The fees and expenses shown are for the fiscal year ended
December 31, 1998 and are calculated as a percentage of average net
assets.
Bartlett Capital Trust 15
<PAGE>
Example:
This example helps you compare the cost of investing in a fund with
the cost of investing in other mutual funds. Although your actual
costs may be higher or lower, you would pay the following expenses on
a $10,000 investment in a fund, assuming (1) a 5% return each year,
(2) the fund's operating expenses remain the same as shown in the
table above, and (3) you redeem all of your shares at the end of the
time periods shown. This example also assumes that the deferred sales
charge is imposed on certain redemptions of Class C shares.
<TABLE>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value International $ 372 $ 835 $ 1,425 $ 3,022
(Assuming no
redemption) $ 272 $ 835 $ 1,425 $ 3,022
Basic Value $ 305 $ 634 $ 1,088 $ 2,348
(Assuming no
redemption) $ 205 $ 634 $ 1,088 $ 2,348
Europe Fund $ 362 $ 805 $ 1,375 $ 2,925
(Assuming no
redemption) $ 262 $ 805 $ 1,375 $ 2,925
Financial Services Fund $ 343 $ 748 n/a n/a
(Assuming no
redemption) $ 243 $ 748 n/a n/a
</TABLE>
16
<PAGE>
[GRAPHIC APPEARS HERE]
MANAGEMENT
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Adviser:
Bartlett & Co., 36 East Fourth Street, Cincinnati, Ohio, is the
funds' investment adviser. The adviser is responsible for the actual
investment management of the funds, including making decisions and
placing orders to buy, sell or hold a particular security. The
adviser has delegated investment advisory functions for Europe Fund
and Financial Services Fund to separate sub-advisers as described
below. Bartlett also supervises all aspects of the operations of each
fund as administrator.
The adviser provides investment advice to individuals, corporations,
pension and profit sharing plans, trust accounts and mutual funds.
Aggregate assets under management of the adviser were approximately
$3.0 billion as of March 31, 1999. Bartlett is a wholly owned
subsidiary of Legg Mason, Inc., a financial services holding company.
For it services during the fiscal year ended December 31, 1998, each
fund paid the adviser a fee equal to a percentage of its average
daily net assets as follows:
Value International 1.11%
Basic Value 0.63%
Europe Fund 0.92%
Financial Services Fund is obligated to pay the adviser a fee of
1.00% of its average daily net assets, net of any waivers.
Sub-Advisers:
Lombard Odier International Portfolio Management Limited, Norfolk
House, 13 Southampton Place, London, England, serves as investment
sub-adviser to Europe Fund. For its services, Lombard receives a
monthly fee from Bartlett equal to 60% of the fee actually paid to
Bartlett by the fund (net of any waivers). Lombard Odier specializes
in advising and managing investment portfolios for institutional
clients and mutual funds. Lombard Odier is an indirect wholly owned
subsidiary of Lombard Odier & Cie, a Swiss private bank.
Gray, Seifert & Co., Inc., 380 Madison Avenue, New York, New York,
serves as investment sub-adviser to Financial Services Fund. For its
services, Gray, Seifert receives a monthly fee from Bartlett equal to
60% of the fee actually paid to Bartlett by the fund (net of any
waivers). Gray, Seifert is known for its research and securities
analysis with respect to the financial services industry. They have
not previously advised a mutual fund; however, Gray, Seifert has been
the evaluator of the Legg Mason Regional Bank and Thrift Unit
Investment Trusts. As of March 31, 1999, Gray, Seifert had aggregate
assets under management of
Bartlett Capital Trust 17
<PAGE>
$1.2. Gray, Seifert is an indirect wholly owned subsidiary of Legg
Mason, Inc., a financial services holding company.
Portfolio management:
VALUE INTERNATIONAL -- Madelynn M. Matlock, CFA, is primarily
responsible for managing the fund. She has been the Director of
International Investments at Bartlett for the past five years. Her
responsibilities include the portfolio management of Bartlett's
international accounts, including the fund, as well as analytical and
administrative duties related to that function. Ms. Matlock joined
Bartlett in 1981.
BASIC VALUE -- James A. Miller, CFA and Woodrow H. Uible, CFA, are
responsible for co-managing the fund. Mr. Miller is a Senior
Portfolio Manager, President and a Director of Bartlett. He joined
Bartlett in 1977. He divides his time among fulfilling administrative
functions as the President of Bartlett, handling client service
aspects of the client relationship, and management of investment
portfolios. Mr. Uible is a Senior Portfolio Manager and chairs
Bartlett's Equity Investment Group. He joined Bartlett in 1980.
EUROPE FUND -- Neil Worsley and William Lovering are responsible for
co-managing Europe Fund. Mr. Worsley has been Director and Senior
Investment Manager of Lombard Odier since June 1, 1996. Prior
thereto, he was an Assistant Director and Senior Fund Manager. He
joined Lombard Odier in 1990. Mr. Lovering has been Assistant
Director of Lombard Odier since June 1, 1996. Prior thereto, he was a
Senior Fund Manager. He joined the firm in 1994. Previously, Mr.
Lovering was employed at Arbuthnot Latham Investment Management.
FINANCIAL SERVICES FUND -- Miles Seifert and Amy LaGuardia are
responsible for co-managing Financial Services Fund. Mr. Seifert has
been Chairperson of the Board and a Director of Gray, Seifert since
its inception in 1980. Ms. LaGuardia has been Senior Vice President
and Director of Research at Gray, Seifert for four years. Prior
thereto, she was Vice President. She has been employed there since
1982.
Distributor of the funds' shares:
LM Financial Partners, Inc.("LMFP"), 100 Light Street, Baltimore,
Maryland, serves as distributor or principal underwriter of each
fund's shares. Each fund has adopted a separate plan with respect to
each class that allows it to pay distribution fees and/or shareholder
service fees for the sale of its shares and for services provided to
shareholders. These fees are calculated daily and paid monthly.
Each class of shares bears differing class-specific expenses.
Salespersons and others entitled to receive compensation for selling
or servicing fund shares may receive more with respect to one class
than another.
18
<PAGE>
For Class A shares, each fund may pay LMFP a service fee at an annual
rate of 0.25% of its average daily Class A net assets.
For Class C shares, each fund may pay LMFP a distribution fee at an
annual rate of 0.75% and a service fee of 0.25% of average daily
Class C net assets.
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 Class A Purchase Schedule 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.
Because these fees are paid out of the funds' assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
LMFP is a wholly owned subsidiary of Legg Mason, Inc., a financial
services holding company.
Bartlett Capital Trust 19
<PAGE>
[GRAPHIC APPEARS HERE]
HOW TO INVEST
--------------------------------------------------------------------------
To open an account, complete an account application and return it to:
LMFP Funds Processing Applications may be obtained by calling
P.O. Box 1476 LMFP at 800-800-3609
Baltimore, Maryland 21203-1476
Shares may also be purchased through a broker/dealer that has an agreement
with LMFP. Broker/dealers that do not have dealer agreements with LMFP may
offer to place purchase orders for the funds. Investors may be charged a
transaction fee by these broker/dealers. This fee will be in addition to any
sales charge payable on purchases of Class A shares.
For each class of shares, the minimum initial investment in a regular
account or retirement account is $1,000 and the minimum for each purchase of
additional shares is $100. Retirement accounts include traditional IRAs,
spousal IRAs, education IRAs, Roth IRAs, simplified employee pension plans,
savings incentive match plans for employees and other qualified retirement
plans.
When placing a purchase order, please specify whether the order is for Class
A or Class C. All purchase orders that fail to specify a class will
automatically be invested in Class A shares.
Once an account is opened, investors may purchase shares of the funds
directly through LMFP. LMFP will also accept purchases via bank wire. Such
purchases will be effected at the net asset value next determined, plus any
applicable sales charge, after the bank wire is received. Your bank may
charge a service fee for wiring money to the funds.
Purchase orders received by LMFP or your broker/dealer and transmitted to
the funds' transfer agent before the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time), will be processed at that day's closing
net asset value plus any applicable sales charge. Orders received and
transmitted to the transfer agent after the close of the exchange will be
processed at the closing net asset value (plus any applicable sales charge)
on the next day.
20
<PAGE>
- --------------------------------------------------------------------------------
Class A Purchase Schedule:
Each fund's offering price for Class A purchases is equal to the net asset
value per share plus a front-end sales charge determined from the following
schedule (which may be amended from time to time):
<TABLE>
Sales Charge Sales Charge Dealer Reallowance
as a % of as a % of as a % of
Amount of Purchase Offering Price Net Investment Offering 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 "How to Sell Your
Shares" for a discussion of any applicable CDSC on Class A shares.
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.
Sales Charge Waivers for Class A Shares:
Purchases of Class A shares made by the following investors will not be
subject to a sales charge:
- 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 Bartlett Capital Trust
- employees of Legg Mason, Inc. and its affiliates
- registered representatives or full-time employees of broker/dealers
that have dealer agreements with LMFP
- the children, siblings and parents of such persons
Bartlett Capital Trust 21
<PAGE>
- --------------------------------------------------------------------------------
- broker/dealers, registered investment advisers, 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
- purchases of $1,000,000 or more (purchases of two or more funds may
be combined for this purpose)
In addition, all existing shareholders of Basic Value and Value
International as of July 18, 1997 will be allowed to purchase additional
Class A shares of their fund without a sales charge.
Investors may be eligible for a reduced sales charge on purchases of Class A
shares through a Right of Accumulation or under a Letter of Intent.
Right of Accumulation:
To receive the Right of Accumulation, investors must give LMFP or their
broker/dealer sufficient information to permit qualification. If qualified,
investors may purchase shares of the funds at the sales charge applicable to
the total of:
- the dollar amount being purchased plus
- the dollar amount of the investors concurrent purchases of Class A
shares of other funds plus
- the price of all shares of Class A shares of funds already held by
the investor
Letter of Intent:
Investors may execute a Letter of Intent indicating an aggregate amount to
be invested in Class A shares of any fund in the following thirteen months.
All purchases made during that period will be subject to the sales charge
applicable to that aggregate amount.
If a Letter of Intent is executed within 90 days of a prior purchase of
Class A shares, the prior purchase may be included under the Letter of
Intent and an adjustment will be made to the applicable sales charge. The
adjustment will be based on the current net asset value of the respective
fund(s).
If the total amount of purchases does not equal the aggregate amount covered
by the Letter of Intent after the thirteenth month, you will be required to
pay the difference between the sales charges paid at the reduced rate and
the sales charge applicable to the purchases actually made.
Shares having a value equal to 5% of the amount specified in the Letter of
Intent will be held in escrow during the thirteen month period (while
remaining registered in your name) and will be subject to redemption to
assure any necessary payment to LMFP of a higher applicable sales charge.
22
<PAGE>
- --------------------------------------------------------------------------------
Purchasing Class C Shares:
Purchases of Class C shares are not subject to a front-end sales charge but
are subject to higher ongoing expenses. Class C shares purchased through a
Legg Mason financial advisor are not subject to the CDSC.
Programs Applicable to Class A and Class C:
For further information regarding these programs, please contact LMFP or
your broker/dealer.
<TABLE>
Systematic Shares of a fund may be purchased through the Systematic Investment Plan by
Investment authorizing the transfer agent to transfer $50 or more each month from your checking
Plan account.
- ---------------- ---------------------------------------------------------------------------------------
<S> <C>
Automatic Arrangements may be made with some employers and financial institutions, such as
Investments banks or credit unions, for regular automatic monthly investments of $50 or more in a
fund. Dividends from certain unit investment trusts may also be invested automatically
in a fund.
</TABLE>
Purchases and Redemptions Through Institutions:
Certain institutions having an agreement with LMFP or the funds may accept
purchase and redemption orders. A fund will be deemed to have received your
purchase or redemption order when that institution accepts the order. Your
order will be processed at the next price calculated after the order has
been accepted by the institution. Investors should consult with their
institution regarding the time by which they must receive your order to get
that day's price. It is the institution's responsibility to transmit your
order to the fund in a timely fashion.
Bartlett Capital Trust 23
<PAGE>
[GRAPHIC APPEARS HERE]
HOW TO SELL YOUR SHARES
--------------------------------------------------------------------------
Any of the following methods may be used to sell your Class A and
Class C shares:
Telephone Call LMFP at 800-800-3609 or your broker/dealer and request a
redemption. Please have the following information ready when you
call: the name of the fund, the number of shares (or dollar
amount) to be redeemed and your shareholder account number.
Wire requests will be subject to a fee of $18. Be sure that LMFP
or your broker/dealer has your bank account information on file.
The funds will follow reasonable procedures to ensure the validity
of any telephone redemption request, such as requesting
identifying information from callers or employing identification
numbers. Unless you specify that you do not wish to have telephone
redemption privileges, or if the funds follow reasonable
procedures to ensure the validity of telephone redemption
requests, you may be held responsible for any fraudulent telephone
order.
Mail Send a letter to LMFP Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476 or to your broker/dealer requesting redemption
of your shares. The letter should be signed by all of the owners
of the account and their signatures guaranteed without
qualification unless the proceeds are to be sent directly to the
address of record as maintained by the transfer agent. You may
obtain a signature guarantee from most banks or securities
dealers.
Redemption requests received by the transfer agent before the close
of the exchange will be effected at that day's closing net asset
value (plus any applicable CDSC).
Your order will be processed promptly and the proceeds normally will
settle in your LMFP brokerage account within two business days.
Proceeds may also be paid by check or, if offered by your
broker/dealer, credited to your brokerage account there. If shares
are held in the broker/dealer's "street name," the redemption must be
made through the broker/dealer. Broker/dealers may charge a service
fee for handling redemption transactions placed through them.
Investors should contact their broker/dealer for further information.
Payment of the proceeds of redemptions of shares that were recently
purchased by check may be delayed for up to 10 days from the purchase
date in order to allow for the check to clear.
Additional documentation may be required from corporations,
executors, partnerships, administrators, trustees or custodians.
Contingent Deferred Sales Charges:
Class A -- If you redeem any Class A shares within one year that were
purchased without a sales charge because the purchase totaled
$1,000,000 or more, you will be subject to 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. You may exchange
24
<PAGE>
- --------------------------------------------------------------------------------
such shares purchased without a sales charge for Class A shares of
another fund without being charged a CDSC. You will be subject to a
CDSC if you redeem shares acquired through exchange.
Class C -- 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 A or Class C shares that are redeemed will not be subject to
the CDSC to the extent that the value of such shares represents (i)
reinvestment of dividends or other distributions or (ii) shares
redeemed more than one year after their purchase. The amount of any
CDSC will be paid to LMFP.
Bartlett Capital Trust 25
<PAGE>
[GRAPHIC APPEARS]
ACCOUNT POLICIES
--------------------------------------------------------------------------
Calculation of net asset value:
Net asset value per share is determined daily, as of the close of the
New York Stock Exchange, on every day that the exchange is open. To
calculate each fund's share price, the fund's assets for each class
are valued and totaled, liabilities are subtracted, and the resulting
net assets are divided by the number of shares outstanding for that
class.
Each fund's listed securities are valued using the last sale price as
of the close of the exchange. 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. Where no
readily available market quotations exist, securities are valued at
fair value as determined under the guidance of the Board of Trustees.
Fund shares will not be priced on the days on which the exchange is
closed for trading.
Foreign securities denominated in a foreign currency are converted
into U.S. dollars using current exchange rates. Trading of foreign
securities may not take place on every day the exchange is open and
may take place in various foreign markets on Saturdays or on other
days when the exchange is not open. As a result, the net asset value
of a fund's shares may change on days when investors will not be able
to purchase or redeem their fund shares.
Events affecting the value of foreign securities that occur after the
close of the exchange but before a fund's net asset value is
calculated will not be reflected in that day's net asset value unless
a determination is made that the event would materially affect the
fund's net asset value. In such a case, the adviser/sub-adviser may
adjust the fund's net asset value, subject to review by the Board of
Trustees.
Fixed income securities generally are valued using market quotations
or independent pricing services that use prices provided by market
makers or estimates of market values. Fixed income securities with
remaining maturities of 60 days or less are valued at amortized cost.
Other:
If your account falls below $500, the fund may ask you to increase
your balance. If, after 60 days, your account is still below $500,
the fund may close your account and send you the proceeds.
Each fund reserves the right to:
- reject any order for shares or suspend the offering of
shares for a period of time
- change its minimum investment amounts
- delay sending out redemption proceeds for up to seven days.
This generally applies only in cases of very large
redemptions, excessive trading or during unusual market
conditions. The funds may delay redemptions beyond seven
days, or suspend redemptions, only as permitted by the SEC.
26
<PAGE>
[GRAPHIC APPEARS HERE]
SERVICES FOR INVESTORS
--------------------------------------------------------------------------
For further information regarding any of the services below, please
contact LMFP or your broker/dealer.
Confirmations and Account Statements:
Confirmations will be sent to you after each transaction (except a
reinvestment of dividends or capital gains distributions and
purchases through the Systematic Investment Plan or through automatic
investments).
LMFP or your broker/dealer will send you account statements monthly
unless there has been no activity in the account, in which case you
will receive a statement quarterly. You will also receive a statement
quarterly if you participate in the Systematic Investment Plan or if
you purchase shares through automatic investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares of a fund with a net
asset value of $5,000 or more, you may elect to make systematic
withdrawals from the fund. The minimum amount for each withdrawal is
$50. You should not purchase shares of the fund that is participating
in the plan.
Exchange Privilege:
Fund shares may be exchanged for the corresponding class of shares of
any of the other Bartlett funds or the Legg Mason Cash Reserve Trust
(a money market fund), provided these funds are eligible for sale in
your state of residence. You can request an exchange in writing or by
phone. Be sure to read the current prospectus for any fund into which
you are exchanging.
There is currently no fee for exchanges; however, you may be subject
to a sales charge when exchanging into a fund that has one. A CDSC
may apply to the redemption of Class A and/or Class C shares acquired
through an exchange. In addition, an exchange of the fund's shares
will be treated as a sale of the shares and any gain on the
transaction may be subject to tax.
Each fund reserves the right to:
- terminate or limit the exchange privilege of any shareholder
who makes more than four exchanges from the fund in one
calendar year
- terminate or modify the exchange privilege after 60 days'
notice to shareholders
Reinstatement Privilege:
If you have redeemed your Class A shares, you may reinstate your fund
account without a sales charge up to the dollar amount redeemed by
purchasing shares within 90 days of the redemption. Within 90 days of
a redemption, contact LMFP or your broker/dealer and notify them of
your desire to reinstate and give them an order for the amount to be
purchased. The reinstatement will be made at the net asset value next
determined after the notification and purchase order have been
received by the transfer agent.
Bartlett Capital Trust 27
<PAGE>
[GRAPHIC APPEARS HERE]
DIVIDENDS AND TAXES
--------------------------------------------------------------------------
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 distributes substantially all net capital gain (the excess
of net long-term capital gain over net short-term capital loss) and
any net realized gains from foreign currency transactions after the
end of the taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to
avoid imposition of a federal excise tax.
Your dividends and distributions will be automatically reinvested in
the same class of shares of the distributing fund. If you wish to
receive dividends and/or distributions in cash, you must notify the
fund at least 10 days before the next dividend or distribution is to
be paid. You may also request that your dividends and distributions
be reinvested in the same class of shares of another fund.
If the postal or other delivery service is unable to deliver your
check, your distribution option will automatically be converted to
having all dividends and distributions reinvested in fund shares. No
interest will accrue on amounts represented by uncashed distribution
or redemption checks.
Fund dividends and distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in
cash or reinvested in additional shares. Dividends of net investment
income and any net short-term capital gains will be taxable as
ordinary income. Distributions of a fund's net capital gain will be
taxable as long-term capital gain, regardless of how long you have
held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or
loss, depending on whether the proceeds are more or less than the
cost of your shares.
A tax statement is sent to each investor at the end of each year
detailing the tax status of your distributions.
Each fund will withhold 31% of all dividends, capital gains
distributions and redemption proceeds payable to individuals and
certain other non-corporate shareholders who do not provide the fund
with a valid taxpayer identification number. Each fund will also
withhold 31% of all dividends and capital gain distributions payable
to such shareholders who are otherwise subject to backup withholding.
Because each investor's tax situation is different, please consult
your tax advisor about federal, state and local tax considerations.
28
<PAGE>
[GRAPHIC APPEARS HERE]
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
The financial highlights tables on the following pages are intended
to help you understand each fund's financial performance for the past
5 years or since inception. Total return represents the rate that an
investor would have earned (or lost) on an investment in a fund,
assuming reinvestment of all dividends and distributions. This
information has been audited by the funds' independent accountants,
PricewaterhouseCoopers LLP, whose report, along with the funds'
financial statements, is incorporated by reference into the Statement
of Additional Information (see back cover) and is included in the
annual report. The annual report is available upon request by calling
toll-free 800-800-3609.
Bartlett Capital Trust 29
<PAGE>
VALUE INTERNATIONAL FUND
<TABLE>
<S> <C> <C> <C> <C>
Income from Investment Operations
---------------------------------
Net
For the Realized &
Years Net Asset Unrealized
Ended Value , Net Gain Total From
Dec. Beginning Investment (Loss) On Investment
31, of Year Income Investments Operations
Class A:
1998 $ 12.45 $ (.02)(c) $ (.35) $ (.37)
1997 (a) 13.64 .05 (c) .31 .36
1997 (b) 12.59 .08 1.81 1.89
1996 (b) 11.64 .13 1.33 1.46
1995 (b) 12.46 .09 (.21) (.12)
1994 (b) 10.08 .07 (d) 2.38 2.45
Class C:
1998 $ 12.30 $ .10(h) $ (.55) $ (.45)
1997(g) 15.70 .08(h) (1.82) (1.74)
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the
Years In Excess Net Asset
Ended From Net of Net From Net Value ,
Dec. Investment Investment Realized Total End of
31, Income Income Gains Distributions Year
Class A:
1998 $ (.20) $ -- $ (.38) $ (.58) $ 11.50
1997 (a) (.17) -- (1.38) (1.55) 12.45
1997 (b) (.08) (.01) (.75) (.84) 13.64
1996 (b) (.13) (.01) (.37) (.51) 12.59
1995 (b) (.09) -- (.61) (.70) 11.64
1994 (b) (.07) -- -- (.07) 12.46
Class C:
1998 $ (.13) $ -- $ (.38) $ (.51) $ 11.34
1997 (g) (.28) -- (1.38) (1.66) 12.30
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------------------
Net Investment
Expenses Income (Loss)
For the to Average to Average Portfolio Net Assets,
Years Ended Total Return Net Assets Net Assets Turnover Rate End of Year
Dec. 31, (%) (i) (%) (%) (%) (thousands -- $)
Class A:
1998 (2.88) 1.73(c) .37(c) 27 47,856
1997 (a) 2.79(e) 1.78(c,f) .49(c,f) 44(f) 68,648
1997 (b) 15.45 1.81 .62 31 83,973
1996 (b) 12.76 1.83 1.06 38 72,041
1995 (b) (1.18) 1.83 .80 24 57,664
1994 (b) 24.42 1.88(d) .55(d) 19 49,607
Class C:
1998 (3.64) 2.55(h) (.55)(h) 27 3,916
1997 (g) (10.87)(e) 2.55%(f,h) (1.68)f,h) 44(f) 895
</TABLE>
(a) For the nine months ended December 31, 1997. The fund changed its year end
from March 31 to December 31.
(b) For the years ended March 31.
(c) 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: for 1997, 1.95% and 1998,
1.87%.
(d) The adviser periodically absorbed expenses through management fee waivers.
If no fees had been waived, the ratio of net expenses to average net
assets would have been 1.94% and the ratio of net investment income to
average net assets would have been .49% for the period ended March 31,
1994.
(e) Not annualized
(f) Annualized
(g) July 23, 1997 (commencement of sale of this class) to December 31, 1997.
(h) 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: for 1997, 2.70% and 1998,
2.69%.
(i) Excluding sales charge
30
<PAGE>
BASIC VALUE FUND
<TABLE>
<S> <C> <C> <C>
Income From Investment Operations
---------------------------------
Net
Realized &
Net Asset Unrealized
For the Value, Net Gain
Years Ended Beginning Investment (Loss) on
Dec. 31, of Year Income Investments
Class A:
1998 $ 18.95 $ .20(c) $ .48
1997 (a) 18.33 .19(c) 5.59
1997 (b) 17.94 .22 1.82
1996 (b) 15.39 .30 3.32
1995 (b) 14.89 .27 1.53
1994 (b) 14.76 .22 .28
Class C:
1998 $ 18.75 $ .10(h) $ .41
1997 (d) 22.84 .24(h) .88
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the Total From From Net From Net Net Asset
Years Ended Investment Investment Realized Total Value,
Dec. 31, Operations Income Gains Distributions End of Year
Class A:
1998 $ .68 $ (.14) $ (1.15) $ (1.29) $ 18.34
1997 (a) 5.78 (.22) (4.94) (5.16) 18.95
1997 (b) 2.04 (.26) (1.39) (1.65) 18.33
1996 (b) 3.62 (.24) (.83) (1.07) 17.94
1995 (b) 1.80 (.27) (1.03) (1.30) 15.39
1994 (b) .50 (.23) (.14) (.37) 14.89
Class C:
1998 $ .51 $ (.08) $ (1.15) $ (1.23) $ 18.03
1997 (d) 1.12 (.27) (4.94) (5.21) 18.75
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------------
Net Investment
Expenses Income (Loss)
For the to Average to Average Portfolio Net Assets,
Years Ended Total Return Net Assets Net Assets Turnover Rate End of Year
Dec. 31, (%) (c) (%) (%) (%) (thousands -- $)
Class A:
1998 3.76 1.08(c) 1.05(c) 28 119,626
1997 (a) 33.14(f) 1.13(c,g) 1.15(c,g) 42(g) 133,076
1997 (b) 11.30 1.16 1.18 23 119,208
1996 (b) 24.05 1.17 1.79 25 125,636
1995 (b) 12.67 1.20 1.81 26 102,721
1994 (b) 3.42 1.20 1.48 33 94,289
Class C:
1998 2.96 1.90(h) .29(h) 28 2,228
1997 (d) 6.07(f) 1.90(g,h) 1.11(g,h) 42(g) 395
</TABLE>
(a) For the nine months ended December 31, 1997. The fund changed its year end
from March 31 to December 31.
(b) For the years ended March 31.
(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 for each period would have been: 1997, 1.19% and 1998, 1.20%.
(d) September 12, 1997 (commencement of sale of this class) to December 31,
1997.
(e) Excluding sales charge
(f) Not annualized
(g) Annualized
(h) 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: 1997, 2.00% and 1998, 2.02%.
Bartlett Capital Trust 31
<PAGE>
EUROPE FUND
<TABLE>
<S> <C> <C> <C>
Income from Investment Operations
---------------------------------
Net
Realized &
Unrealized
Gain
(Loss) on
Net Asset Net Investments
For the Value, Investment and Foreign
Years Ended Beginning of Income Currency
Dec. 31, Year (Loss) Transactions
Class A:
1998 $ 20.97 $ .02(a) $ 8.52
1997 24.24 (.05(a) 4.11
1996 21.13 .02 6.34
1995 17.68 .01 3.50
1994 18.46 (.03) (.75)
Class C:
1998 $ 20.86 $ .11(e) $ 8.09
1997 (b) 26.56 (.10) (e) .23
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the Total from From Net From Net Net Asset
Years Ended Investment Investment Realized Total Value,
Dec. 31, Operations Income Gains Distributions End of Year
Class A:
1998 $ 8.54 $ (.43) $ (4.31) $ (4.74) $ 24.77
1997 4.06 -- (7.33) (7.33) 20.97
1996 6.36 -- (3.25) (3.25) 24.24
1995 3.51 (.06) -- (.06) 21.13
1994 (.78) -- -- -- 17.68
Class C:
1998 $ 8.20 $ (.36) $ (4.31) $ (4.67) $ 24.39
1997 (b) .13 -- (5.83) (5.83) 20.86
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data
----------------------------------------------------------------------------------------------------------
Net Investment
Ratio of Income (Loss)
For the Expenses to to Average Portfolio Net Assets,
Years Ended Total Return Average Net Assets Turnover Rate End of Year
Dec. 31, (%)(c,d) Net Assets (%) (%) (%) (thousands -- $)
Class A:
1998 41.9 1.81(a) (.10)(a) 103 57,406
1997 17.5 1.90(a) (.12)(a) 123 52,253
1996 31.5 2.00 0.10 109 70,991
1995 19.9 2.10 0.10 148 62,249
1994 (4.2) 2.10 -- 75 53,135
Class C:
1998 40.5 2.51(e) (1.15)(e) 103 32,325
1997 0.7(f) 2.50(e,g) (1.79)(e,g) 123 302
</TABLE>
(a) The expense ratio shown reflects both the operations of the fund's
predecessor, Worldwide Value Fund, prior to its merger with the fund on
July 21, 1997 and the fund's operations through December 31, 1997. For the
period July 21 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, 2000. If no fees had
been waived, the annualized ratio of expenses to average daily net assets
for each period would have been: 1997, 2.08% and 1998, 1.89%.
(b) July 23, 1997 (commencement of sale of this class) to December 31, 1997.
(c) Prior to July 18, 1997, total return for Worldwide Value Fund, a closed-end
fund, was calculated using market value per share.
(d) Excluding sales charge
(e) Net of fees waived pursuant to a voluntary expense limitation of 2.50%
until April 30, 1998 and 2.60% until May 1, 2000. If no fees had been
waived, the annualized ratio of expenses to average daily net assets for
each period would have been: 1997, 2.68% and 1998, 2.59%.
(f) Not annualized
(g) Annualized
32
<PAGE>
FINANCIAL SERVICES FUND
<TABLE>
<S> <C> <C> <C>
Income from
Investment Operations
---------------------
Net
Net Asset Realized &
For the Value, Net Unrealized
Period Ended Beginning Investment Gains on
Dec. 31, of Period Income Investments
Class A:
1998 (a) $ 10.00 $ --(b) $ .58
Class C:
1998 (a) $ 10.00 $ (.01)(c) $ .58
<S> <C> <C> <C> <C> <C>
Distributions
-------------
Net Asset
For the Total From From Net From Net Value,
Period Ended Investment Investment Realized Total End of
Dec. 31, Operations Income Gains Distributions Period
Class A:
1998 (a) $ .58 $ -- $ -- $ -- $ 10.58
Class C:
1998 (a) $ .57 $ -- $ -- $ -- $ 10.57
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------------
Net Investment
For the Expenses Income (Loss) Portfolio Net Assets,
Period Ended Total Return to Average to Average Turnover Rate End of Period
Dec. 31, (%)(d) Net Assets (%) Net Assets (%) (%) (thousands -- $)
Class A:
1998 (a) 5.80(e) 1.50(b,f) .22(b,f) -- 7,451
Class C:
1998 (a) 5.70(e) 2.25(c,f) (.11)(c,f) -- 14,598
</TABLE>
(a) November 16, 1998 (commencement of sale of this class) to December 31,
1998.
(b) 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 1.65%.
(c) Net of fees waived pursuant to a voluntary expense limitation of 2.25%. If
no fees had been waived, the annualized ratio of expenses to average daily
net assets would have been 2.40%.
(d) Excluding sales charge
(e) Not Annualized
(f) Annualized
Bartlett Capital Trust 33
<PAGE>
Bartlett Capital Trust
------------------------------------------------------------------
The following additional information about the funds is available upon
request and without charge:
Statement of Additional Information (SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by
reference into (is considered part of) the prospectus. The SAI provides
additional details about each fund and its policies.
Annual and Semiannual Reports - additional information about each
fund's investments is available in the funds' annual and semiannual
reports to shareholders. These reports provide detailed information
about each fund's portfolio holdings and operating results.
To request the SAI or any reports to shareholders, or to obtain
more information:
- call toll-free 800-800-3609
- visit us on the Internet via http://www.leggmason.com
- write to us at: Bartlett Mutual Funds
c/o LMFP
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the funds, including the SAI, can be reviewed and
copied at the SEC's public reference room in Washington, DC (phone
1-800-SEC-0330). Reports and other information about the funds are
available on the SEC's Internet site at http://www.sec.gov. Investors
may also write to: SEC, Public Reference Section, Washington, DC
20549-6009. A fee will be charged for making copies.
BAR-001 SEC file number 811-03613
<PAGE>
- ---------
BARTLETT
mutual funds
PROSPECTUS
May 3, 1999
BARTLETT
VALUE INTERNATIONAL FUND
BARTLETT
BASIC VALUE FUND
BARTLETT
EUROPE FUND
BARTLETT
FINANCIAL SERVICES FUND
CLASS Y SHARES
BARTLETT CAPITAL TRUST
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
- ---------
<PAGE>
TABLE OF CONTENTS
About the funds:
---------------------------------------------------------------------
1 Investment objectives
5 Principal risks
8 Performance
11 Fees and expenses of the funds
12 Management
About your investment:
---------------------------------------------------------------------
14 How to invest
16 How to sell your shares
17 Account policies
18 Services for investors
19 Dividends and taxes
20 Financial highlights
<PAGE>
BARTLETT CAPITAL TRUST
[GRAPHIC APPEARS HERE]
INVESTMENT OBJECTIVES
--------------------------------------------------------------------------
Bartlett Capital Trust currently offers four series: Bartlett Value
International Fund, Bartlett Basic Value Fund, Bartlett Europe Fund
and Bartlett Financial Services Fund. The investment objectives of
Value International, Basic Value and Financial Services may each be
changed without shareholder approval; however, shareholders of these
funds will be given a minimum of 30 days' prior written notice before
any change takes place. Europe Fund's investment objective may not be
changed without shareholder approval.
BARTLETT VALUE INTERNATIONAL FUND
Investment objective: capital appreciation
Principal investment strategies:
Bartlett & Co., the fund's investment adviser, under normal
circumstances, invests substantially all of the fund's assets in
equity securities of non-U.S. issuers. Such securities generally
include common stocks, common stock equivalents and preferred stocks.
Bartlett & Co. offers a bottom up, value based approach to
international investment, with the goal of producing investment
returns that are consistently above average while maintaining below
average levels of risk (as measured by volatility). Its approach to
equity investment is to screen cash flow, book value and dividend
multiples that fall into the lower half of the global stock universe.
Only companies with strong balance sheets and proven track records
are included. It then performs a more intense financial and company
evaluation to select those stocks with superior outlooks. Finally, it
evaluates the economic, political and market environment in which the
company operates as well as potential currency risk.
The fund invests in non-U.S. securities, and is broadly diversified
by country and region. The currency exposure is therefore nominally
the same as the country/regional exposure, although the functional
currency exposure of many companies in the portfolio is quite
different from the base currency.
Bartlett & Co.'s goal of individual stock selection and portfolio
construction is to produce a portfolio with above average potential
for growth and financial strength, albeit with attractive valuations.
It selects stocks with a time horizon of at least two years, and
turnover is low -- it has averaged about 30% over the last twelve
years.
In seeking its objective, the fund intends to diversify its
investments among issuers representing various countries. The fund
may invest in countries in Europe, the Far East, Latin America, Asia,
Africa, Canada, Australia and other geographic regions. The fund may
at times invest more than 25% of its total assets
Bartlett Capital Trust 1
<PAGE>
in any major industrial or developed country when the adviser
believes there is no unique investment risk.
The adviser will invest in foreign equity securities that it believes
to be attractively priced relative to their intrinsic value. Income
is a secondary consideration. The adviser focuses on characteristics
such as relative price/earnings ratios, dividend yields and
price/book value ratios when analyzing a security's intrinsic value.
If a stock reaches a valuation that is higher than the intrinsic
value and growth prospects of the company warrant, or if the
fundamentals of the company's operations turn negative, the stock
will be sold.
For temporary defensive purposes, the fund may invest substantially
all of its assets in one or two countries and may hold all or a
portion of its assets in money market instruments, cash equivalents,
short-term government and corporate obligations or repurchase
agreements. As a result, the fund may not achieve its investment
objective when so invested.
BARTLETT BASIC VALUE FUND
Investment objective: capital appreciation
Principal investment strategies:
The fund invests primarily in common stocks or securities convertible
into common stocks that Bartlett & Co., the fund's investment
adviser, believes to be selling at attractive prices relative to
their intrinsic value. Income is a secondary consideration.
Bartlett & Co. offers a bottom up, value based approach to investing
in equity securities, with the goal of producing investment returns
that are above average over long-term market cycles while maintaining
below average levels of risk (as measured by volatility). Its
approach to equity investment is to screen equities for valuations
based upon earnings, cash flow, bookvalue and dividend multiples that
fall into the lower half of the stock universe (primarily U.S.). It
then performs a more intense financial and company evaluation to
select those stocks with superior outlooks.
Bartlett & Co.'s goal of individual stock selection and portfolio
construction is to produce a diversified portfolio with above average
potential for growth and financial strength, albeit with attractive
valuations. It selects stocks with a time horizon of at least two
years, and turnover is low -- it has averaged below 35% over the last
seven years.
In seeking its objective, the fund invests only in securities of
companies with at least three years of operating history.
If a stock appreciates to such a level that its position in relation
to the entire portfolio would be inordinately large, a portion of the
position will be sold so
2
<PAGE>
that no position will be in excess of 5% of the total portfolio.
Positions may also be reduced once the stock has reached a price
objective that is determined upon purchase of the stock. Securities
may be sold prior to their reaching their target price in the event
that certain fundamental aspects of the company's business have
changed.
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. As a result, the fund may not achieve its investment
objective when so invested.
BARTLETT EUROPE FUND
Investment objective: long-term growth of capital
Principal investment strategies:
Lombard Odier International Portfolio Management, Limited, the fund's
sub-adviser, under normal circumstances, invests substantially all of
the fund's assets in equity securities of European issuers that it
selects as offering above-average potential for capital appreciation.
Such securities include common stocks, preferred stocks, convertible
securities, rights and warrants. The sub-adviser focuses on
relatively larger capitalized issuers with good earnings, growth
potential and strong management.
A smaller portion of the fund's assets may be invested in fixed
income securities such as obligations of foreign or domestic
governments, government agencies or municipalities and obligations of
foreign or domestic companies. The sub-adviser will invest in such
securities for potential capital appreciation.
Securities in the fund's portfolio may be sold when they attain
certain price targets or when better opportunities arise. Sell
decisions also are affected by the level of subscriptions and
redemptions of shares of the fund. The sub-adviser's investment
technique may result in high portfolio turnover.
For temporary defensive purposes, the fund may hold all or a portion
of its total assets in money market instruments, cash equivalents,
short-term government and corporate obligations or repurchase
agreements. As a result, the fund may not achieve its investment
objective when so invested.
Bartlett Capital Trust 3
<PAGE>
BARTLETT FINANCIAL SERVICES FUND
Investment objective: long-term growth of capital
Principal investment strategies:
Gray, Seifert & Co., Inc., the fund's sub-adviser, under normal
circumstances, invests substantially all of the fund's assets in
equity securities of issuers in the financial services industry that
it believes are undervalued and thus may offer above average
potential for capital appreciation. Equity securities include common
stocks, preferred stocks, convertible securities, rights and
warrants.
Financial services companies include, but are not limited to:
o regional and money center banks
o securities brokerage firms
o asset management companies
o savings banks and thrift institutions
o specialty finance companies (e.g., credit card, mortgage providers)
o insurance and insurance brokerage firms
o government sponsored agencies
o financial conglomerates
o foreign financial services companies (limited to 25% of total
assets, not including ADRs)
Investments may also include 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 ratings services, internet services and
business services.
The sub-adviser believes the financial services industry is
undergoing many changes due to legislation reform and the shifting
demographics of the population. In deciding what securities to buy,
the sub-adviser analyzes an issuer's financial statements to
determine earnings per share potential. It also reviews, as
appropriate, the economy where the issuer does business, the products
offered, its potential to benefit from the changes and the strength
and goals of management.
The sub-adviser will sell a security in the fund's portfolio if that
security experiences earnings problems.
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. As a result, the fund may not achieve its investment
objective when so invested.
4
<PAGE>
[GRAPHIC APPEARS HERE]
PRINCIPAL RISKS
--------------------------------------------------------------------------
An investment in any of these funds is not guaranteed; investors may
lose money by investing in the funds. There is no guarantee that any
fund will achieve its objective. The principal risks of investing in
the funds are described below. The amount and types of risks vary
depending on:
o the fund's investment objective
o the fund's ability to achieve its investment objective
o the markets in which the fund invests
o prevailing economic conditions
Market Risk -
Stock prices generally fluctuate more than those of other securities.
A fund may experience a substantial or complete loss on an individual
stock. Market risk may affect a single issuer, industry or section of
the economy or may affect the market as a whole.
Value International and Basic Value invest in stocks believed to be
attractively priced relative to their intrinsic value. Such an
approach involves the risk that those stocks may remain undervalued
and you could lose money. Value stocks as a group may be out of favor
for a long period of time, while the market concentrates on "growth"
stocks.
Foreign Securities Risk -
Value International and Europe Fund invest a substantial portion of
their assets in foreign securities. Investments in foreign securities
(including those denominated in U.S. dollars) involve certain risks
not typically associated with investments in domestic issuers. The
values of foreign securities are subject to economic and political
developments in the countries and regions where the companies
operate, such as changes in economic or monetary policies, and to
changes in exchange rates. Values may also be affected by foreign tax
laws and restrictions on receiving the investment proceeds from a
foreign country. Some foreign governments have defaulted on principal
and interest payments.
In general, less information is publicly available about foreign
companies than about U.S. companies. Foreign companies are generally
not subject to the same accounting, auditing and financial reporting
standards as are U.S. companies. Transactions in foreign securities
may be subject to less efficient settlement practices, including
extended clearance and settlement periods. Foreign stock markets may
be less liquid and less regulated than U.S. stock markets.
Bartlett Capital Trust 5
<PAGE>
The risks of foreign investment are greater for investments in
emerging markets. Emerging market countries typically have economic
and political systems that are less fully developed, and can be
expected to be less stable, than those of more advanced countries.
Low trading volumes may result in a lack of liquidity and in price
volatility. Emerging market countries may have policies that restrict
investment by foreigners.
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. Currency
exchange rates can be volatile and affected by, among other factors,
the general economics of a country, the actions of the U.S. and
foreign governments or central banks, the imposition of currency
controls, and speculation.
On January 1, 1999, the conversion of European currencies into the
Euro began and is expected to continue into 2002. Full implementation
of the Euro may be delayed and difficulties with the conversion may
significantly impact European capital markets resulting in increased
volatility in world capital markets.
Concentration Risk -
Financial Services Fund invests primarily in securities in the
financial services industry. Europe Fund invests primarily in
securities of European issuers. A fund concentrating most of its
investments in a single region or industry will be more susceptible
to factors adversely affecting issuers within that region or industry
than would a more diversified portfolio of securities.
Financial services companies are subject to extensive government
regulation. The profitability of financial services companies is
dependent on the availability and cost of funds, and can fluctuate
significantly when interest rates change. Economic downturns, credit
losses and severe price competition can negatively affect this
industry.
European issuers are subject to the special risks in that region,
including risks related to the introduction of the Euro and the
potential for difficulties in its acceptance and the emergence of
more unified economic and financial governance in the EMU countries.
Interest Rate Risk -
Europe Fund may invest up to 35% of its total assets in fixed income
securities. Market prices of a fund's fixed income investments may
decline due to an increase in interest rates. Changes in interest
rates will affect the value of longer-term fixed income securities
more than shorter-term securities.
6
<PAGE>
Credit Risk -
There is a risk that a fund's holdings in fixed income securities
could be downgraded or could default. Credit ratings are the opinions
of the private companies that rate companies or their securities;
they are not guarantees.
Year 2000 -
Like other mutual funds (and most organizations around the world),
the funds could be adversely affected by computer problems related to
the year 2000. These could interfere with operations of the funds,
their adviser, distributor or sub-adviser, or could impact companies
in which the funds invest. The year 2000 poses an even greater risk
for foreign securities than for other securities in which the funds
invest.
While no one knows if these problems will have any impact on the
funds or on financial markets in general, the adviser and its
affiliates are taking steps to protect fund investors. These include
efforts to determine that the problem will not directly affect the
systems used by major service providers.
Whether these steps will be effective can only be known for certain
in the year 2000.
Portfolio Turnover -
Europe Fund may have an annual portfolio turnover rate significantly
in excess of 100%. High turnover rates can result in increased
trading costs and higher levels of realized capital gains.
Bartlett Capital Trust 7
<PAGE>
[GRAPHIC APPEARS HERE]
PERFORMANCE
--------------------------------------------------------------------------
The information below provides an indication of the risks of
investing in a fund by showing changes in Value International's,
Basic Value's and Europe Fund's performance from year to year. Annual
returns assume reinvestment of dividends and distributions.
Historical performance of a fund does not necessarily indicate what
will happen in the future. As of the date of this Prospectus, Class Y
shares of Financial Services Fund have not commenced operations.
Bartlett Value International Fund -- Class Y Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears here. See the table below for plot points.)
1998
-2.65%
During 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: December 31, 1998 +13.03%
Worst quarter: September 30, 1998 -16.38%
</TABLE>
In the following table, average annual total returns as of December
31, 1998 are compared with the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index, which is an unmanaged index
of common stocks of foreign companies.
<TABLE>
<S> <C> <C>
1 Year Life of Class
- -------------------------------------------------- ----------- ---------------------
Bartlett Value International Fund Class Y -2.65% -9.80% (a)
MSCI EAFE Index +20.00% +22.26% (b)
</TABLE>
(a) August 15, 1997 (commencement of sale of Class Y shares) to
December 31, 1998.
(b) The index's return is for the period July 31, 1997 to December
31, 1998.
8
<PAGE>
Bartlett Basic Value Fund Class Y Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears here. See the table below for plot points.)
1998
3.99%
During 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: December 31, 1998 +15.20%
Worst quarter: September 30, 1998 -15.17%
</TABLE>
In the following table, average annual total returns as of December
31, 1998 are compared with the Standard & Poor's 500 Stock Composite
Index, a broad-based unmanaged index of common stocks commonly used
to measure general stock market activity.
<TABLE>
<S> <C> <C>
1 Year Life of Class
- ---------------------------------------------------- ----------- --------------------
Bartlett Basic Value Fund Class Y +3.99% +9.65%(a)
Standard & Poor's 500 Stock Composite Index +28.58% +28.45%(b)
</TABLE>
(a) August 15, 1997 (commencement of sale of Class Y shares) to
December 31, 1998.
(b) The index's return is for the period August 31, 1997 to December
31, 1998.
Bartlett Capital Trust 9
<PAGE>
Bartlett Europe Fund Class Y Shares:
Year by year total return as of December 31 of each year (%):
(A bar chart appears here. See the table below for plot points.)
1998
42.51%
During 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: March 31, 1998 +25.71%
Worst quarter: September 30, 1998 -12.96%
</TABLE>
In the following table, average annual total returns as of December
31, 1998 are compared with the Morgan Stanley Capital International
(MSCI) Europe Index, a broad-based unmanaged index based on the share
prices of common stocks in different European countries. The
countries included in this index are Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain,
Sweden, Switzerland and the UK.
<TABLE>
<S> <C> <C>
1 Year Life of Class
- ------------------------------------- ------------ ---------------------
Bartlett Europe Fund Class Y +42.51% +34.07% (a)
MSCI Europe Index +28.53% +22.26% (b)
</TABLE>
(a) August 21, 1997 (commencement of sale of Class Y shares) to
December 31, 1998.
(b) The index's return is for the period July 31, 1997 to December
31, 1998.
These figures include changes in principal value, reinvested
dividends and capital gain distributions, if any.
10
<PAGE>
[GRAPHIC APPEARS HERE]
FEES AND EXPENSES OF THE FUNDS
--------------------------------------------------------------------------
The table below describes the fees and expenses you will incur
directly or indirectly as an investor in a fund. Each fund pays
operating expenses directly out of its assets so they lower that
fund's share price and dividends. Other expenses include transfer
agency, custody, professional and registration fees.
CLASS Y SHARES
The fees and expenses shown are for the fiscal year ended December
31, 1998 and are calculated as a percentage of average net assets. As
of the date of this Prospectus, Class Y shares of Financial Services
Fund have not commenced operations.
<TABLE>
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
- -----------------------------------------------------------------------------------------
Financial
Value Basic Europe Services
International Value Fund Fund
- -----------------------------------------------------------------------------------------
Management fees(a) 1.25% 0.75% 1.00% 1.00%
Distribution and/or
service (12b-1) fees None None None None
Other expenses 0.36% 0.19% 0.63% 0.40%
- -----------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(a) 1.61% 0.94% 1.63% 1.40%
</TABLE>
(a) Bartlett & Co., as investment adviser, has voluntarily agreed to
waive fees so that expenses of Class Y shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed annual
rates of each fund's average daily net assets attributable to Class
Y shares as follows: Value International, 1.55%; Basic Value, 0.90%;
Europe Fund, 1.60%; and Financial Services Fund, 1.25%. These
voluntary waivers will continue until May 1, 2000 and may be
terminated at any time. With these waivers, management fees and
total annual fund operating expenses would have been as follows:
Value International, 1.11% and 1.47%; Basic Value, 0.63% and 0.82%;
and Europe Fund, 0.92% and 1.55%. Estimated management fees and
total annual fund operating expenses for Financial Services Fund
would be 0.85% and 1.25%.
Example:
This example helps you compare the cost of investing in a fund with
the cost of investing in other mutual funds. Although your actual
costs may be higher or lower, you would pay the following expenses on
a $10,000 investment in a fund, assuming (1) a 5% return each year,
(2) the fund's operating expenses remain the same as shown in the
table above, and (3) you redeem all of your shares at the end of the
time periods shown. The funds charge no redemption fees.
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
Value International $ 164 $ 508 $ 876 $ 1,911
Basic Value $ 96 $ 300 $ 520 $ 1,155
Europe Fund $ 166 $ 514 $ 887 $ 1,933
Financial Services
Fund $ 143 $ 443 n/a n/a
</TABLE>
Bartlett Capital Trust 11
<PAGE>
[GRAPHIC APPEARS HERE]
MANAGEMENT
--------------------------------------------------------------------------
Adviser:
Bartlett & Co., 36 East Fourth Street, Cincinnati, Ohio, is the
funds' investment adviser. The adviser is responsible for the actual
investment management of the funds, including making decisions and
placing orders to buy, sell or hold a particular security. The
adviser has delegated investment advisory functions for Europe Fund
and Financial Services Fund to separate sub-advisers as described
below. Bartlett also supervises all aspects of the operations of each
fund as administrator.
The adviser provides investment advice to individuals, corporations,
pension and profit sharing plans, trust accounts and mutual funds.
Aggregate assets under management of the adviser were approximately
$3.0 billion as of March 31, 1999. Bartlett is a wholly owned
subsidiary of Legg Mason, Inc., a financial services holding company.
For it services during the fiscal year ended December 31, 1998, each
fund paid the adviser a fee equal to a percentage of its average
daily net assets as follows:
<TABLE>
<S> <C>
Value International 1.11%
Basic Value 0.63%
Europe Fund 0.92%
</TABLE>
Financial Services Fund is obligated to pay the adviser a fee of
1.00% of its average daily net assets, net of any waivers.
Sub-Advisers:
Lombard Odier International Portfolio Management Limited, Norfolk
House, 13 Southampton Place, London, England, serves as investment
sub-adviser to Europe Fund. For its services, Lombard receives a
monthly fee from Bartlett equal to 60% of the fee actually paid to
Bartlett by the fund (net of any waivers). Lombard Odier specializes
in advising and managing investment portfolios for institutional
clients and mutual funds. Lombard Odier is an indirect wholly owned
subsidiary of Lombard Odier & Cie, a Swiss private bank.
Gray, Seifert & Co., Inc., 380 Madison Avenue, New York, New York,
serves as investment sub-adviser to Financial Services Fund. For its
services, Gray, Seifert receives a monthly fee from Bartlett equal to
60% of the fee actually paid to Bartlett by the fund (net of any
waivers). Gray, Seifert is known for its research and securities
analysis with respect to the financial services industry. They have
not previously advised a mutual fund; however, Gray, Seifert has been
the evaluator of the Legg Mason Regional Bank and Thrift Unit
Investment Trusts. As of March 31, 1999, Gray, Seifert had aggregate
assets under management of $1.2.
12
<PAGE>
Gray, Seifert is an indirect wholly owned subsidiary of Legg Mason,
Inc., a financial services holding company.
Portfolio Management:
VALUE INTERNATIONAL -- Madelynn M. Matlock, CFA, is primarily
responsible for managing the fund. She has been the Director of
International Investments at Bartlett for the past five years. Her
responsibilities include the portfolio management of Bartlett's
international accounts, including the fund, as well as analytical and
administrative duties related to that function. Ms. Matlock joined
Bartlett in 1981.
BASIC VALUE -- James A. Miller, CFA and Woodrow H. Uible, CFA, are
responsible for co-managing the fund. Mr. Miller is a Senior
Portfolio Manager, President and a Director of Bartlett. He joined
Bartlett in 1977. He divides his time among fulfilling administrative
functions as the President of Bartlett, handling client service
aspects of the client relationship, and management of investment
portfolios. Mr. Uible is a Senior Portfolio Manager and chairs
Bartlett's Equity Investment Group. He joined Bartlett in 1980.
EUROPE FUND -- Neil Worsley and William Lovering are responsible for
co-managing Europe Fund. Mr. Worsley has been Director and Senior
Investment Manager of Lombard Odier since June 1, 1996. Prior
thereto, he was an Assistant Director and Senior Fund Manager. He
joined Lombard Odier in 1990. Mr. Lovering has been Assistant
Director of Lombard Odier since June 1, 1996. Prior thereto, he was a
Senior Fund Manager. He joined the firm in 1994. Previously, Mr.
Lovering was employed at Arbuthnot Latham Investment Management.
FINANCIAL SERVICES FUND -- Miles Seifert and Amy LaGuardia are
responsible for co-managing Financial Services Fund. Mr. Seifert has
been Chairperson of the Board and a Director of Gray, Seifert since
its inception in 1980. Ms. LaGuardia has been Senior Vice President
and Director of Research at Gray, Seifert for four years. Prior
thereto, she was Vice President. She has been employed there since
1982.
Distributor of the Funds' Shares:
LM Financial Partners, Inc. ("LMFP"), 100 Light Street, Baltimore,
Maryland, serves as distributor or principal underwriter of each
fund's shares. LMFP is obligated to pay certain expenses in
connection with offering shares of each fund, including any
compensation to broker/dealers, the printing and distribution of
prospectuses, statements of additional information, reports,
supplementary sales literature and advertising for prospective
investors. The funds pay for the preparation and printing of
prospectuses, statements of additional information and reports that
are mailed to existing shareholders.
LMFP is a wholly owned subsidiary of Legg Mason, Inc., a financial
services holding company.
Bartlett Capital Trust 13
<PAGE>
[GRAPHIC APPEARS HERE]
HOW TO INVEST
--------------------------------------------------------------------------
Class Y shares are offered for sale only to:
- advisory clients of Bartlett & Co. that are employee benefit or
retirement plans, other than IRAs
- retirement plans having net assets of at least $10 million
- purchasers of $5 million or more in shares of any fund
- participants in certain wrap fee investment advisory programs that
are currently or in the future sponsored by Bartlett & Co. and that
may invest in Bartlett proprietary funds, provided that shares are
purchased through or in connection with those programs.
Investors eligible to purchase Class Y shares may purchase them through a
brokerage accounts with Bartlett & Co., LMFP or their affiliates. Investors
should complete an account application and return it to:
LMFP Funds Processing Applications may be obtained by calling
P.O. Box 1476 LMFP at 800-800-3609
Baltimore, Maryland 21203-1476
Shares may also be purchased through a broker/dealer that has an agreement
with LMFP. Broker/dealers that do not have dealer agreements with LMFP may
offer to place purchase orders for the funds. Investors may be charged a
transaction fee by these broker/dealers.
The minimum initial investment is $1,000, including investments by exchange
and the minimum for each purchase of additional shares is $100.
Once an account is opened, investors may purchase shares of the funds
directly through LMFP. LMFP will also accept purchases via bank wire. Such
purchases will be effected at the net asset value next determined, after the
bank wire is received. Your bank may charge a service fee for wiring money
to the funds.
Purchase orders received by LMFP or your broker/dealer and transmitted to
the funds' transfer agent before the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time), will be processed at that day's closing
net asset value. Orders received and transmitted to the transfer agent after
the close of the exchange will be processed at the closing net asset value
on the next day.
14
<PAGE>
- --------------------------------------------------------------------------------
Programs Applicable to Class Y:
For further information regarding these programs, please contact LMFP or
your broker/dealer.
<TABLE>
<S> <C>
Systematic Shares of a fund may be purchased through the Systematic Investment Plan by
Investment authorizing the transfer agent to transfer $50 or more each month from your checking
Plan account
Automatic Arrangements may be made with some employers and financial institutions, such as
Investments banks or credit unions, for regular automatic monthly investments of $50 or more in a
fund. Dividends from certain unit investment trusts may also be invested automatically
in a fund.
</TABLE>
Purchases and Redemptions Through Institutions:
Certain institutions having an agreement with LMFP or the funds may accept
purchase and redemption orders. A fund will be deemed to have received your
purchase or redemption order when that institution accepts the order. Your
order will be processed at the next price calculated after the order has
been accepted by the institution. Investors should consult with their
institution regarding the time by which they must receive your order to get
that day's price. It is the institution's responsibility to transmit your
order to the fund in a timely fashion.
Bartlett Capital Trust 15
<PAGE>
[GRAPHIC APPEARS HERE]
HOW TO SELL YOUR SHARES
--------------------------------------------------------------------------
Any of the following methods may be used to sell your Class Y shares:
<TABLE>
<S> <C>
Telephone Call LMFP at 800-800-3609 or your broker/dealer and request a
redemption. Please have the following information ready when you
call: the name of the fund, the number of shares (or dollar
amount) to be redeemed and your shareholder account number.
Wire requests will be subject to a fee of $18. Be sure that LMFP
or your broker/dealer has your bank account information on file.
The funds will follow reasonable procedures to ensure the
validity of any telephone redemption request, such as requesting
identifying information from callers or employing identification
numbers. Unless you specify that you do not wish to have
telephone redemption privileges, or, if the funds follow
reasonable procedures to ensure the validity of telephone
redemption requests, you may be held responsible for any
fraudulent telephone order.
Mail Send a letter to LMFP Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476 or to your broker/dealer requesting
redemption of your shares. The letter should be signed by all of
the owners of the account and their signatures guaranteed without
qualification unless the proceeds are to be sent directly to the
address of record as maintained by the transfer agent. You may
obtain a signature guarantee from most banks or securities
dealers.
</TABLE>
Redemption requests received by the transfer agent before the close
of the exchange will be effected at that day's closing net asset
value.
Your order will be processed promptly and the proceeds normally will
settle in your LMFP brokerage account within two business days.
Proceeds may also be paid by check or, if offered by your
broker/dealer, credited to your brokerage account there. If shares
are held in the broker/dealer's "street name," the redemption must be
made through the broker/dealer. Broker/dealers may charge a service
fee for handling redemption transactions placed through them.
Investors should contact their broker/dealer for further information.
Payment of the proceeds of redemptions of shares that were recently
purchased by check may be delayed for up to 10 days from the purchase
date in order to allow for the check to clear.
Additional documentation may be required from corporations,
executors, partnerships, administrators, trustees or custodians.
16
<PAGE>
[GRAPHIC APPEARS HERE]
ACCOUNT POLICIES
--------------------------------------------------------------------------
Calculation of net asset value:
Net asset value per share is determined daily, as of the close of the
New York Stock Exchange, on every day the exchange is open. To
calculate each fund's share price, the fund's Class Y assets are
valued and totaled, liabilities are subtracted, and the resulting net
assets are divided by the number of Class Y shares outstanding.
Each fund's listed securities are valued using the last sale price as
of the close of the exchange. 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. Where no
readily available market quotations exist, securities are valued at
fair value as determined under the guidance of the Board of Trustees.
Fund shares will not be priced on the days on which the exchange is
closed for trading.
Foreign securities denominated in a foreign currency are converted
into U.S. dollars using current exchange rates. Trading of foreign
securities may not take place on every day the exchange is open and
may take place in various foreign markets on Saturdays or on other
days when the exchange is not open. As a result, the net asset value
of a fund's shares may change on days when investors will not be able
to purchase or redeem their fund shares.
Events affecting the value of foreign securities that occur after the
close of the exchange but before a fund's net asset value is
calculated will not be reflected in that day's net asset value unless
a determination is made that the event would materially affect the
fund's net asset value. In such a case, the adviser/sub-adviser may
adjust the fund's net asset value, subject to review by the Board of
Trustees.
Fixed income securities generally are valued using market quotations
or independent pricing services that use prices provided by market
makers or estimates of market values. Fixed income securities with
remaining maturities of 60 days or less are valued at amortized cost.
Other:
If your account falls below $500, the fund may ask you to increase
your balance. If, after 60 days, your account is still below $500,
the fund may close your account and send you the proceeds.
Each fund reserves the right to:
- reject any order for shares or suspend the offering of
shares for a period of time
- change its minimum investment amounts
- delay sending out redemption proceeds for up to seven days.
This generally applies only in cases of very large
redemptions, excessive trading or during unusual market
conditions. The funds may delay redemptions beyond seven
days, or suspend redemptions, only as permitted by the SEC.
Bartlett Capital Trust 17
<PAGE>
[GRAPHIC APPEARS HERE]
SERVICES FOR INVESTORS
--------------------------------------------------------------------------
For further information regarding any of the services below, please
contact LMFP or your broker/dealer.
Confirmations And Account Statements:
Confirmations will be sent to you after each transaction (except a
reinvestment of dividends or capital gains distributions and
purchases through the Systematic Investment Plan or through automatic
investments).
LMFP or your broker/dealer will send you account statements monthly
unless there has been no activity in the account, in which case you
will receive a statement quarterly. You will also receive a statement
quarterly if you participate in the Systematic Investment Plan or if
you purchase shares through automatic investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares of a fund with a net
asset value of $5,000 or more, you may elect to make systematic
withdrawals from the fund. The minimum amount for each withdrawal is
$50. You should not purchase shares of the fund that is participating
in the plan.
Exchange Privilege:
Fund shares may be exchanged for the corresponding class of shares of
any of the other Bartlett funds or the Legg Mason Cash Reserve Trust
(a money market fund), provided these funds are eligible for sale in
your state of residence. You can request an exchange in writing or by
phone. Be sure to read the current prospectus for any fund into which
you are exchanging.
There is currently no fee for exchanges; however, you may be subject
to a sales charge when exchanging into a fund that has one. In
addition, an exchange of the fund's shares will be treated as a sale
of the shares and any gain on the transaction may be subject to tax.
Each fund reserves the right to:
- terminate or limit the exchange privilege of any shareholder
who makes more than four exchanges from the fund in one
calendar year
- terminate or modify the exchange privilege after 60 days'
notice to shareholders
18
<PAGE>
[GRAPHIC APPEARS HERE]
DIVIDENDS AND TAXES
--------------------------------------------------------------------------
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 distributes substantially all net capital gain (the excess
of net long-term capital gain over net short-term capital loss) and
any net realized gains from foreign currency transactions after the
end of the taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to
avoid imposition of a federal excise tax.
Your dividends and distributions will be automatically reinvested in
the same class of shares of the distributing fund. If you wish to
receive dividends and/or distributions in cash, you must notify the
fund at least 10 days before the next dividend or distribution is to
be paid. You may also request that your dividends and distributions
be reinvested in the same class of shares of another fund.
If the postal or other delivery service is unable to deliver your
check, your distribution option will automatically be converted to
having all dividends and distributions reinvested in fund shares. No
interest will accrue on amounts represented by uncashed distribution
or redemption checks.
Fund dividends and distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in
cash or reinvested in additional shares. Dividends of net investment
income and any net short-term capital gains will be taxable as
ordinary income. Distributions of a fund's net capital gain will be
taxable as long-term capital gain, regardless of how long you have
held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or
loss, depending on whether the proceeds are more or less than the
cost of your shares.
A tax statement is sent to each investor at the end of each year
detailing the tax status of your distributions.
Each fund will withhold 31% of all dividends, capital gains
distributions and redemption proceeds payable to individuals and
certain other non-corporate shareholders who do not provide the fund
with a valid taxpayer identification number. Each fund will also
withhold 31% of all dividends and capital gain distributions payable
to such shareholders who are otherwise subject to backup withholding.
Because each investor's tax situation is different, please consult
your tax advisor about federal, state and local tax considerations.
Bartlett Capital Trust 19
<PAGE>
[GRAPHIC APPEARS HERE]
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
The following financial highlights tables are intended to help you
understand each fund's financial performance for the past 5 years.
Total return represents the rate that an investor would have earned
(or lost) on an investment in a fund, assuming reinvestment of all
dividends and distributions. This information has been audited by the
funds' independent accountants, PricewaterhouseCoopers LLP, whose
report, along with the funds' financial statements, is incorporated
by reference into the Statement of Additional Information (see back
cover) and is included in the annual report. The annual report is
available upon request by calling toll-free 800-800-3609. As of the
date of this prospectus, Class Y shares of Financial Services Fund
has not commenced operations.
VALUE INTERNATIONAL FUND
<TABLE>
Income from Investment Operations
---------------------------------
<S> <C> <C> <C>
Net
Realized &
Net Asset Unrealized
For the Value , Net Gain
Years Ended Beginning Investment (Loss) On
Dec. 31, of Year Income Investments
Class Y Shares:
1998 $ 12.33 $ (0.37)(b) $ 0.04
1997(a) 15.27 (0.11)(b) (1.21)
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the Total From From Net From Net Net Asset
Years Ended Investment Investment Realized Total Value,
Dec. 31, Operations Income Gains Distributions End of Year
Class Y Shares:
1998 $ (0.33) $ (0.16) $ (0.38) $ (0.54) $ 11.46
1997(a) (1.32) (0.24) (1.38) (1.62) 12.33
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
-------------------------------------------------------------------------------------------------------
Net Investment
Expenses to Income (Loss)
For the Average Net to Average Portfolio Net Assets,
Years Ended Total Return Assets Net Assets Turnover Rate End of Year
Dec. 31, (%)(f) (%) (%) (%) (Thousands -- $)
- --------------------- --------------------- -------------------- ----------------------- ----- ----------------
Class Y Shares:
1998 (2.65) 1.47(b) .61(b) 27 5,410
1997(a) (8.38) 1.44(b,g) (.75)(b,g) 44(g) 13,084
</TABLE>
20
<PAGE>
BASIC VALUE FUND
<TABLE>
<S> <C> <C> <C>
Income from Investment Operations
---------------------------------
Net
Realized &
Net Asset Unrealized
For the Value, Net Gain
Years Ended Beginning Investment (Loss) On
Dec. 31, of Year Income Investments
Class Y Shares:
1998 $ 18.87 $ 0.25(c) $ 0.47
1997(a) 21.92 0.18(c) 1.94
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the Total From From Net From Net Net Asset
Years Ended Investment Investment Realized Total Value,
Dec. 31, Operations Income Gains Distributions End of Year
Class Y Shares:
1998 $ 0.72 $ (0.13) $ (1.15) $ (1.28) $ 18.31
1997(a) 2.12 (.23) (4.94) (5.17) 18.87
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
---------------------------------------------------------------------------------------------------
Net Investment
Expenses to Income (Loss)
For the Average Net to Average Portfolio Net Assets,
Years Ended Total Return Assets Net Assets Turnover Rate End of Year
Dec. 31, (%)(f) (%) (%) (%) (Thousands -- $)
- --------------------- -------- -------------------- ------------------- ----- ----------------
Class Y Shares:
1998 3.99 .82(c) 1.31 (c) 28 2,396
1997(a) 10.97 .86(c,g) 1.51 (c,g) 42(g) 2,387
</TABLE>
EUROPE FUND
<TABLE>
<S> <C> <C> <C>
Income from Investment Operations
---------------------------------
Net
Realized &
Net Asset Unrealized
For the Value, Net Gain
Years Ended Beginning Investment (Loss) On
Dec. 31, of Year Income Investments
Class Y Shaes:
1998 $ 21.01 $ 0.22(d) $ 8.37
1997(e) 25.61 (.04)(d) 1.27
<S> <C> <C> <C> <C> <C>
Distributions
-------------
For the Total From From Net From Net Net Asset
Years Ended Investment Investment Realized Total Value,
Dec. 31, Operations Income Gains Distributions End of Year
Class Y Shaes:
1998 $ 8.59 $ (.51) $ (4.31) $ (4.82) $ 24.78
1997 (e) 1.23 -- (5.83) (5.83) 21.01
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
-------------------------------------------------------------------------------------------------------
Net Investment
Expenses to Income (Loss)
For the Average Net to Average Portfolio Net Assets,
Years Ended Total Return Assets Net Assets Turnover Rate End of Year
Dec. 31, (%)(f) (%) (%) (%) (Thousands -- $)
- --------------------- ------ ----------------- ------------------ ------ ----------------
Class Y Shares:
1998 42.5 1.55(d) 1.31(d) 103 247
1997(e) 4.9(h) 1.31(d,g) (.60)(d,g) 123 8,025
</TABLE>
(a) August 15, 1997 (commencement of sale of Class Y) to December 31, 1997.
(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: 1998, 1.61% and 1997, 1.59%.
(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 would have been: 1998, 0.94% and 1997, 0.96%.
(d) Net of fees waived pursuant to a voluntary expense limitation of 1.50 until
April 30, 1998 and 1.60% until May 1, 2000. If no fees had been waived,
the annualized ratio of expenses to average daily net assets would have
been: 1998, 1.63% and 1997, 1.49%.
(e) August 21, 1997 (commencement of sale of Class Y) to December 31, 1997.
(f) Not annualized
(g) Annualized
(h) Prior to July 21, 1997, total return for Worldwide Value Fund, a closed-end
fund, was calculated using market value per share.
Bartlett Capital Trust 21
<PAGE>
Bartlett Capital Trust
------------------------------------------------------------------
The following additional information about the funds is available upon
request and without charge:
Statement of Additional Information (SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by
reference into (is considered part of) the prospectus. The SAI
provides additional details about each fund and its policies.
Annual and Semiannual Reports - additional information about each
fund's investments is available in the funds' annual and semiannual
reports to shareholders. These reports provide detailed information
about each fund's portfolio holdings and operating results.
To request the SAI or any reports to shareholders, or to obtain
more information:
- call toll-free 800-800-3609
- visit us on the Internet via http://www.leggmason.com
- write to us at: Bartlett Mutual Funds
c/o LMFP
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the funds, including the SAI, can be reviewed and
copied at the SEC's public reference room in Washington, DC (phone
1-800-SEC-0330). Reports and other information about the funds are
available on the SEC's Internet site at http://www.sec.gov. Investors
may also write to: SEC, Public Reference Section, Washington, DC
20549-6009. A fee will be charged for making copies.
<PAGE>
BAR-002 SEC file number 811-03613
BARTLETT CAPITAL TRUST:
Bartlett Value International Fund
Bartlett Basic Value Fund
Bartlett Europe Fund
Bartlett Financial Services Fund
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectuses for Bartlett Capital Trust dated
May 1, 1999, 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.
The funds' annual report is incorporated by reference into this Statement of
Additional Information. A copy of either the Prospectuses or the annual report
can be obtained without charge by writing to or 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
<TABLE>
<CAPTION>
<S> <C>
PAGE
Description of the Funds 3
Fund Policies 3
Investment Strategies and Risks 6
Management of the Funds 24
Investment Adviser/Sub-Advisers 29
The Funds' Distributor 32
Portfolio Transactions and Brokerage 34
Determination of Share Price 35
Additional Purchase and Redemption Information 36
Additional Tax Information 37
Tax-Deferred Retirement Plans 41
Investment Performance 42
Description of the Trust 46
The Funds' Custodian and Transfer and Dividend-Disbursing Agent 46
The Trust's Legal Counsel 46
The Trust's Independent Accountants 46
Financial Statements 47
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by a fund or its distributor. The Prospectuses
and this Statement of Additional Information do not constitute offerings by the
funds or by the distributor in any jurisdiction in which such offering may not
lawfully be made.
- --------------------------------------------------------------------------------
2
<PAGE>
DESCRIPTION OF THE FUNDS
Bartlett Capital Trust ("Trust"), a diversified open-end investment
company, was organized as a Massachusetts business trust on October 31, 1982.
The Bartlett Basic Value Fund, Bartlett Value International Fund, Bartlett
Europe Fund and Bartlett Financial Services Fund are separate series of Bartlett
Capital Trust.
FUND POLICIES
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).
Value International, under normal circumstances, invests at least 65%
of its total assets in equity securities of non-U.S. issuers. Europe Fund, under
normal circumstances, invests at least 65% of its total assets in equity
securities of European issuers that the sub-adviser believes are undervalued and
thus may offer above-average potential for capital appreciation. Financial
Services Fund, under normal circumstances, invests at least 65% of its total
assets in equity securities of issuers in the financial services industry that
the sub-adviser believes are undervalue and thus may offer above-average
potential for capital appreciation.
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.
The investment objectives of Value International, Basic Value and
Financial Services Fund are non-fundamental. The investment objective of Europe
Fund is fundamental and may only be changed with shareholder approval.
3
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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.
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 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
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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.
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 this Statement of Additional Information.
2. OPTIONS. Basic Value will not purchase or sell puts, calls, options or
straddles except as described in this Statement of Additional Information.
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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 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.
INVESTMENT STRATEGIES AND RISKS
This section supplements the information in the Prospectuses concerning the
investments the Funds may make and the techniques they may use. Each fund,
unless otherwise stated, may employ several investment strategies, including,
but not limited to:
ILLIQUID SECURITIES
The portfolio of each fund may contain illiquid securities. Securities
may be illiquid due to contractual or legal restrictions on resale or lack of a
ready market. Illiquid securities generally include securities which cannot be
sold promptly without taking a reduced price.
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.
The limitation on a fund's net assets that may be invested in illiquid
securities is a follows:
Basic Value and Value International 10%
Europe Fund and Financial Services 15%
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RESTRICTED SECURITIES
Each fund may invest in restricted securities, which are 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. If registration is required, a fund may be obligated
to pay all or a part of the registration expense. 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. The fund may obtain a less
favorable price if adverse market conditions were to develop during this period.
Rule 144A securities will be treated as liquid to the extent they are determined
to be so. To the extent a fund is invested in Rule 144A securities, the level of
illiquidity of the fund could increase to the extent qualified buyers become
disinterested.
Basic Value and Value International do not intend to invest more than
5% of their net assets in restricted securities.
OPTION TRANSACTIONS (FOR VALUE INTERNATIONAL, BASIC VALUE AND EUROPE FUND ONLY)
Bartlett & Co. does not use derivatives or hedge currencies in Value
International.
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.
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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 (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.
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). However, the SEC considers over-the-counter options to be illiquid.
Therefore, 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 by the fund, together with the
value of other illiquid securities to exceed 10% (15% for Europe Fund) of its
net assets.
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.
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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 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
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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 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.
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 option 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.
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CONCENTRATION
Financial Services Fund will not invest more than 25% or more of its
total assets in a particular industry other than the financial services
industry.
FORWARD CONTRACTS
A fund may wish to lock in the U.S. dollar value of a 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. To do this, a fund may enter into a forward contract.
Which involves an obligation to purchase or sell a specified 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.
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 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. No fund
will engage n foreign currency transactions for speculative purposes.
REPURCHASE AGREEMENTS
Each fund may enter into repurchase agreements. In a repurchase
agreement transaction, 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.
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.
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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.
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.
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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 (FOR BASIC VALUE ONLY)
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 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 (FOR BASIC VALUE AND VALUE INTERNATIONAL ONLY)
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."
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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.
SECURITIES IN THE FINANCIAL SERVICES INDUSTRY (FOR FINANCIAL SERVICES ONLY)
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
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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.
ADRS AND EDRS
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and other similar securities convertible into securities of foreign
companies provide a means for investing directly 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.
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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 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.
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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.
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
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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 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.
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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 (FOR BASIC VALUE AND VALUE INTERNATIONAL ONLY)
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 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 (FOR BASIC VALUE AND VALUE
INTERNATIONAL ONLY)
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.
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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 (FOR BASIC VALUE ONLY)
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.
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.
LOANS OF PORTFOLIO SECURITIES
Each fund may make short- and long-term loans of their portfolio
securities. Under an authorized lending policy, 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 a risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral.
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No loans will be made if, as a result, the aggregate amount of such
loans would exceed 25% of a fund's total assets.
INVESTMENT COMPANIES
Each fund is permitted to invest in other investment companies. A fund
will not:
(a) invest more than 10% of its total assets in securities of other investment
companies; (b) invest more than 5% of its total assets in securities of any
investment company; and (c) purchase more than 3% of the outstanding voting
stock of any investment company.
If a fund acquires securities of another investment company, you 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 have portfolios consisting of at least 70% 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 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.
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
21
<PAGE>
Moody's) are regarded as having extremely poor prospects of ever attaining any
real investment standing 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.
22
<PAGE>
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.
23
<PAGE>
PORTFOLIO TURNOVER
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.
MANAGEMENT OF THE FUNDS
The Trust's officers are responsible for the operation of the Trust
under the direction of the Board of Trustees. The officers and trustees, their
dates of birth 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> <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)
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
36 East Fourth Street Beteilingungsgesellschaft (German investment
Cincinnati, Ohio 45202 company); Director of Profirent 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
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
24
<PAGE>
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
companies 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/
Baltimore, MD 21202 Director/Trustee 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> <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
James A. Miller Vice President Senior Portfolio Manager, President and a
3/13/49 Director of Bartlett & Co.
36 East Fourth Street
25
<PAGE>
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
</TABLE>
For the year ended December 31, 1998, the Trustees of the Trust received the
following compensation. None of the Bartlett funds has any retirement plan for
its trustees or officers.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION REGISTRANT AND TRUST COMPLEX (C)
NAME OF PERSON, POSITION FROM TRUST PAID TO TRUSTEES
<S> <C> <C>
Lorrence T. Kellar,
Chairman of the Board and Trustee $9,750 $9,750
Alan R. Schriber (a)
Trustee $8,250 $8,250
William P. Sheehan,
Trustee $9,750 $9,750
Prinz Wolfgang E. Ysenburg
Trustee $9,750 $9,750
A. John W. Campbell
Trustee $8,250 $8,250
Henri Deegenaar
Trustee $9,750 $9,750
Ian F. H. Grant
Trustee $8,250 $8,250
Edmund J. Cashman, Jr. (b) None None
Trustee
Edward A. Taber, III None None
President and Trustee
</TABLE>
26
<PAGE>
(a) Alan Schriber resigned as a trustee on March 2, 1999.
(b) Interested Person
(c) The Trust complex consists solely of Bartlett Capital Trust.
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, William P. Sheehan, Prinz Wolfgang E. Ysenburg,
A. John W. Campbell, Henri Deegenaar and Ian F. H. Grant. As of April 30, 1999,
no trustee or officer beneficially owned more than 1% of the shares outstanding
of any Fund. Purchases of Class A shares made by officers and trustees are not
subject to a sales charge.
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 March 31, 1999:
Bartlett Value International Fund:
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS C CLASS Y
<S> <C> <C>
Legg Mason Trust Co. TTEE St. Mary's Hospital Pension Plan and Trust 15.63%
P.O. Box 1476
Baltimore, MD 21203
FirstCinco Pt 27.24%
P.O. Box 640229
Cincinnati, Ohio 45264
Debra Hardy-Hauens & Terry Lieman TTEES 5.76%
Capitol Associates, Inc.
426 C Street NE
Washington, DC
Clark Schaefer Hackett & Co 8.45%
Profit Sharing Retirement Plan
105 E. 4th Street Ste 16
Cincinnati, Ohio 45202
Cincinnati Cardiology Inc. 6.04%
EMP Profit Sharing Plan
8000 5 Mile Road
Cincinnati, Ohio 45230-2163
Cincinnati Cardiology Inc. 5.68%
Pension Trust
800 5 Mile Road
27
<PAGE>
Cincinnati, Ohio 45230-2163
Graves Gilbert Clinic PSC 7.58%
Pension and Profit Sharing Fund
201 Park Street
Bowling Green, KY 42101-1708
Bartlett Basic Value Fund:
NAME AND ADDRESS CLASS C CLASS Y
Crew Et. Al. TTEES 9.02%
Bacar Constructors Inc.
401K Retirement Plan
912 8th Avenue South
Nashville, TN 37203-4701
LMWW Custodian FBO George S. Goodman Ira
319 Willow Oak Circle
Baltimore, MD 21208
Clark Schaefer Hackett & Co. 46.59%
Profit Sharing Retirement Plan
with 401k provisions
105 E. 4th Street Ste 16
Cincinnati, Ohio 45202
Kevin M Reid Do Inc. 20.98%
Defined Contribution
1259 Timberwyck Ct
Dayton, OH 45458
Robert A. Schriber MD Inc 10.81%
Profit Sharing Plan
1430 First National Building
130 E 2nd St
Dayton, OH 45402
George D. Waissbluth 7.37%
Greater Cin Gastroenterology Assoc Inc. Pen/Profit Sharing Plan
2925 Vernon Place
Cincinnati, Ohio 45219
Bartlett Europe Fund:
NAME AND ADDRESS CLASS A CLASS Y
James B. Hochman TTEE 9.99%
Hochman and Roach Co. PSP
8795 Frederick Pike
Dayton, Ohio 45414-1214
28
<PAGE>
Charles Scwab & Co 17.30%
ADP Proxy Services
101 Montgomery Street
San Francisco, CA 94104
Hartford Research Group Inc. 20.00%
P/S Plan
10550 Montgomery Road
Cincinnati, Ohio 45242
Lou Spitz TTEE 38.77%
Cincinnati Cntr. Psychoanalysis
Pension and Profit Sharing
3001 Highland Ave.
Cincinnati, Ohio 45219-2315
H. C. Murrer & D. L. Murrer TTEES 17.33%
The MMC Inc. Cash/Deferral PSP
Cincinnati, Ohio
Margaret Y. Outmette TTEE 7.57%
Sarah Elizabeth Lichtenstein Trust
601 Stanley Avenue
Cincinnati, Ohio 45226
Bartlett Financial Services Fund:
NAME AND ADDRESS CLASS A CLASS C
Neuberger Berman LLC 52.93%
55 Water Street
New York, NY 10041-0001
Kinco & Co. 5.13%
c/o Republic National Bank
1 Hanson Place
Brooklyn, NY 11243
</TABLE>
INVESTMENT ADVISER/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, by a majority of Value International's and Basic Value's
outstanding shares on July 15, 1997 and by
29
<PAGE>
vote of the sole shareholder of Financial Services Fund on October 30, 1998.
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.
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, 2000:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
CLASS A CLASS C CLASS Y
----------------------------------------------------------------------------
<S> <C> <C> <C>
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%
----------------------------------------------------------------------------
</TABLE>
The following table depicts the advisory fees paid by the Funds to Bartlett
for the fiscal years ended December 31, 1998, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
DECEMBER DECEMBER 31, MARCH 31, MARCH 31,
31, 1998 1997* 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value International $832,888 $1,008,933 $1,430,591 $1,215,664
------------------------------------------------------------------------------------------------------
Basic Value $827,068 $889,047 $1,468,801 $1,366,123
------------------------------------------------------------------------------------------------------
Europe Fund $674,633 $846,703 n/a n/a
------------------------------------------------------------------------------------------------------
Financial Services Fund $17,081 n/a n/a n/a
------------------------------------------------------------------------------------------------------
</TABLE>
* 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
30
<PAGE>
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.
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 years ended December 31, 1998 and 1997,
Bartlett paid $404,780 and $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.
31
<PAGE>
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. For the fiscal year ended December 31, 1998, Bartlett paid $10,249 to
Gray, Seifert.
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 FUNDS' DISTRIBUTOR
LMFP, 100 Light Street, Baltimore, Maryland, 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.
Prior to the approval of the Plans by shareholders of the funds on
April 4, 1997, none of the funds had distribution plans.
32
<PAGE>
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 and/or service fees paid
by Class A and Class C shares of each Fund for the fiscal year ended December
31, 1998 and 1997(a):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CLASS A CLASS C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value International Fund - 1998 $156,936 $33,393
- --------------------------------------------------------------------------------------------------
Value International Fund - 1997 $86,180 $1,810
- --------------------------------------------------------------------------------------------------
Basic Value Fund - 1998 $319,339 $15,639
- --------------------------------------------------------------------------------------------------
Basic Value Fund - 1997 $147,719 $168
- --------------------------------------------------------------------------------------------------
Europe Fund - 1998 $135,362 $140,204
- --------------------------------------------------------------------------------------------------
Europe Fund - 1997 $69,217 $826
- --------------------------------------------------------------------------------------------------
Financial Services Fund - 1998(b) $1,785 $12,955
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period July 18, 1997 to December 31, 1997.
(b) For the period November 16, 1998 to December 31, 1998.
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.
For the period July 21, 1997 to June 30, 1998, LMFP incurred the
following expenses with respect to Class A and Class C shares of each fund:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Value International Basic Value Europe Fund
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation to sales personnel $183,333 $315,820 $113,860
- ----------------------------------------------------------------------------------------------------------------------
Printing and mailing of prospectuses to $8,111
prospective shareholders $9,929 $17,460
- ----------------------------------------------------------------------------------------------------------------------
Advertising $1,215 $2,136 $992
- ----------------------------------------------------------------------------------------------------------------------
Other $124,755 $180,664 $286,337
- ----------------------------------------------------------------------------------------------------------------------
Total expenses $319,232 $516,080 $409,300
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing are estimated and do not include all expenses fairly allocable to
LMFP's or its affiliates' efforts to distribute Class A and Class C shares. The
figures for "Other" include allocations of overhead amounts using methods
believed by LMFP to be reasonable.
33
<PAGE>
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 $140,268,085 of brokerage transactions (on which the commissions
were $344,579) during the year ended December 31, 1998.
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.
34
<PAGE>
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Bartlett
Total Commissions Commissions Percentage
Fiscal Year Commissions Paid To As % Of All Of Portfolio
Ended Paid Bartlett Commissions Transactions
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 $700,947 $ 0 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
December 31, 1997 $ 363,662 $ 0 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
March 31, 1997 $ 284,114 $ 0 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, Financial Services Fund owned securities of
its regular broker/dealers or their parents (as defined in Rule 10b-1
promulgated under the 1940 Act) as follows: 12,000 shares of Raymond James
Financial, Inc., with a market value of $253,000.
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
35
<PAGE>
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 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 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.
36
<PAGE>
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 for a redemption 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 treated as a separate
corporation. In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"), a Fund must distribute annually to its shareholders at least 90% of
its investment company taxable income (generally, 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 any fund failed to qualify for
treatment as a RIC for any taxable year, (i) it would be taxed at corporate
rates on the full amount of its taxable income for that year without being able
to deduct the distributions it makes to its shareholders and (ii) the
shareholders would
37
<PAGE>
treat all those distributions, including distributions of net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss), as dividends (that is, ordinary income) to the extent of the fund's
earnings and profits. In addition, the fund would be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying for RIC treatment.
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. 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 do not qualify for the dividends-received deduction.
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 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, 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. 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
38
<PAGE>
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 gain--
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 (and 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 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.
Certain futures and foreign currency contracts in which a fund may
invest will be "section 1256 contracts". Section 1256 contracts held by a Fund
at the end of each taxable year other than section 1256 contracts that are part
of a "mixed straddle" with respect to which the fund has made an election not to
have the following rules apply, must be "marked-to-market" for federal income
tax purposes (that is,
39
<PAGE>
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, futures and forward contracts in which a Fund may invest. Section
1092 defines a "straddle" as offsetting positions with respect to actively
traded personal property; for these purposes, options, futures and forward
contracts are personal property. Under that section, 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.
The regulations under section 1092 also provide 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 (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. The foregoing will not apply,
however, to any transaction during any taxable year that otherwise would be
treated as a constructive sale if the transaction is closed within 30 days after
the end of that year and a fund holds the appreciated financial position
unhedged for 60 days after that closing (i.e., at no time during that 60 day
period is the fund's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially similar or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale , or granting an option to buy substantially identical
stock or securities.
ORIGINAL ISSUE DISCOUNT AND "PAY-IN-KIND" SECURITIES
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<PAGE>
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 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).
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<PAGE>
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 $500 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 (which excludes, for example,
certain periodic payments) 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, five and
ten year periods or for the life of the fund) 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
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.
42
<PAGE>
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 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
43
<PAGE>
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 commenced operations on November 16, 1998;
therefore no performance information is provided for this fund.
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, 1998 were (1.19)%, 14.89% and 12.09%, 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 for the periods ended March 31, 1984 through December 31, 1997. For the
year ended December 31, 1998, total returns do reflect the sales charge.
<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> <C> <C> <C> <C> <C> <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%
12/31/98 18.33 1.28 65,042 -1.19% 519.45%
</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.
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, 1998 and the period from October 6, 1989 (the
date of the initial public offering of shares) through December 31, 1998 were
(7.49)%, 4.36% and 5.82%, 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 for the periods ended March 31, 1990
through December 31, 1997. For the year ended December 31, 1998, total returns
do reflect the sales charge.
44
<PAGE>
<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> <C> <C> <C> <C> <C> <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 18,232 2.79%(c) 82.33%
12/31/98 11.50 0.58 17,708 -7.49% 68.65%
</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 Europe Fund for the
one, five and ten year periods ended December 31, 1998 were 35.09%, 19.42% and
10.72%, 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 for the periods
ended December 31, 1986 through December 31, 1997. For the year ended December
31, 1998, total returns do reflect the sales charge.
<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> <C> <C> <C> <C> <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%
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%
12/31/98 24.77 4.31 29,049 35.09% 210.10%
</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.
45
<PAGE>
DESCRIPTION OF THE TRUST
The business activities of the Trust are supervised by its Board of
Trustees. The Trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series without par value. Shares of four 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. 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. 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.
THE FUNDS' CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
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.
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.
THE TRUST'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, DC, serves as counsel to the Trust.
THE TRUST'S INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore,
Maryland, has been selected as independent public accountants for the Trust.
PricewaterhouseCoopers LLP 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.
46
<PAGE>
FINANCIAL STATEMENTS
The Statement of Net Assets as of December 31, 1998 for all four funds;
the Statements of Operations for the period ended December 31, 1998; the
Statements of Changes in Net Assets for the period ended December 31, 1998 for
all funds; the nine months ended December 31, 1997 for Basic Value and Value
International; and the year ended March 31, 1997 for Basic Value and Value
International; and the years ended December 31, 1998 and 1997 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 four
Funds, are included in the combined annual report for the year ended December
31, 1998, and are hereby incorporated by reference in this Statement of
Additional Information.
47
