BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA
70 WEST MADISON STREET, SUITE 3300
CHICAGO, ILLINOIS 60602-4207
312 372-1121
FAX 312 372-2098
August 19, 1996
BY EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
THE ARTISAN FUNDS, INC.
FILE NO. 811-8932
1996 ANNUAL REPORT TO SHAREHOLDERS
Ladies and Gentlemen:
On behalf of The Artisan Funds, Inc. ("Artisan"), we are transmitting
herewith for electronic filing in accordance with rule 30b2-1 under the
Investment Company Act of 1940 Artisan's 1996 Annual Report to
Shareholders of Artisan Small Cap Fund and Artisan International Fund.
The report was to be mailed to shareholders on August 19, 1996.
Very truly yours,
BELL, BOYD & LLOYD
/S/Janet D. Olsen
Janet D. Olsen
JDO:bms
Enclosures
Copy to Mr. John M. Blaser
Artisan Funds
Artisan Small Cap Fund
Annual Report
June 30, 1996
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
August 19, 1996
Dear Fellow Shareholder,
We're pleased to provide you with this annual report for the Artisan Small Cap
Fund. Thank you for your interest and support.
The Artisan Small Cap Fund (the "Fund") rose 28.3% for the year ended June 30,
1996. This performance surpasses the 22.2% gain of its benchmark, the Russell
2000 index. Since its inception on March 28, 1995, the Fund has appreciated
47.8% versus a return of 33.2% for the Russell 2000.
During 1995 and the first half of 1996, the environment for small cap stocks was
quite favorable. Investor enthusiasm for smaller companies has been driven by
the superior growth potential of these firms in a relatively slow growth
economy. Unfortunately, this enthusiasm has placed unsustainably high
valuations on some small-cap stocks and, as we write this letter, the market is
in the midst of a correction erasing most of 1996's gains. We believe that
such corrections are normal and healthy. Sometimes expectations exceed reality
and the two need to be brought closer into alignment.
Comparative Quarterly Performance
Artisan Small Cap Fund Russell 2000
---------------------- -----------
3/27/95 $10,000 $10,000
6/30/95 11,460 10,880
9/30/95 12,583 11,903
12/31/95 13,212 12,117
3/31/96 13,979 12,686
6/30/96 14,705 13,295
3/28/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
------- ------- ------- -------- ------- -------
SMALL CAP 14.6% 9.8% 5.0% 5.8% 5.2%
Russell 2000 8.8% 9.4% 1.8% 4.7% 4.8%
This graph compares the results of $10,000 invested in Artisan Small Cap Fund on
March 28, 1995 (the date the Fund began operations), with the Russell 2000 stock
index. The Russell 2000 is an unmanaged index of small companies, formed by
taking the largest 3,000 companies and eliminating the largest 1,000. All
returns include reinvested dividends. Past performance does not guarantee
future results. The investment return and principal value of an investment in
the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or
less than their original cost.
OUR INVESTMENT APPROACH
Before discussing the Fund's performance during the past year, I think that it
is important to review our investment approach and goals. As you'll see, our
investment process has been the key ingredient to producing successful returns
for shareholders since the Fund's inception.
The Fund focuses on small-cap stocks that are not widely followed and evaluated
by Wall Street. Often, these stocks are inefficiently priced and investors need
to be paid a premium for taking the risk of having incomplete information. By
doing our own fundamental research, we reduce the information risk while earning
premium returns. Finding these stocks requires a lot of hard work, but there
are several places where we frequently find successful ideas:
Transactions. Often, there are small "jewels" within larger conglomerates
which, when they are free to operate on their own, are great investments.
Littelfuse is an example of this type of investment.
Industry Contacts. Some of our best ideas come from company managements,
suppliers and competitors. We always ask managements about their toughest
competitors and most reliable suppliers. For example, Silicon Valley
Bancshares is the bank-of-choice for our West Coast technology companies.
Regional Brokerage Firms. Far away from the giant New York brokerage firms,
these smaller firms only cover companies in their own backyards. Often,
they are the first to recognize new investment opportunities. We have
developed a large network of contacts at these brokerage firms.
Proffitt's, a regional department store in the Southeast, was brought to
our attention by a small Memphis-based brokerage firm.
Once we find these underfollowed companies, we perform a detailed analysis of
the industry fundamentals, financial statements and, importantly, the quality of
management. We believe that the quality of management in small companies is
often the key to ultimate success or failure. We meet with management in person
to discuss the company's goals, strategies, competitive position and control
systems.
A very important part of our research process is the determination of the
"intrinsic value" of the business. By intrinsic value, we mean the price a
strategic buyer would pay to own the entire company. We will only purchase a
stock when it sells at a substantial discount to our estimate of its intrinsic
value. This requirement minimizes the downside risk of the investment. Our
goal is to find well-run, growing companies with stock prices that do not yet
reflect all the good things that we see in them.
We recognize that small-cap investing can be volatile. Thus, we use a number of
strategies designed to control risk. In addition to our focus on stocks selling
at discounts to intrinsic value, we limit the size of individual positions to no
more than 3% of assets, avoid industry concentration, pay careful attention to
liquidity and continuously monitor and reappraise all holdings on an ongoing
basis.
The Artisan Small Cap Fund is designed as a long-term core investment that seeks
to outperform its benchmark, the Russell 2000 index, over a full market cycle.
It stays fully invested in U.S. small-cap stocks. We believe it is most
appropriately used as part of a long-term diversified portfolio.
TWELVE MONTH REVIEW
Overall, we believe our outperformance versus the Russell 2000 was attributable
to selecting stocks with superior earnings growth that are selling at reasonable
valuations. Our focus on well-managed, established companies that are still
relatively unknown to Wall Street and are selling at significant discounts to
our estimate of their intrinsic value is key to our success - especially in a
relatively speculative overall market environment.
The Fund had a number of excellent performers during the last twelve months. As
you can see in the list below, several of our holdings rose by over 50%. A few,
including Itron and Stanford Telecommunications, rose to prices that exceeded
our intrinsic value targets and, based on our sell-discipline, we decided to
take our gains and move on to more undervalued situations.
TOP 5 GAINERS TOP 5 LOSERS
- ----------------------------------- -----------------------------------
Itron 75.5% Professional Sports Care -65.3%
Stanford Telecommunications 62.7% Cornerstone -37.6%
Mecon 58.0% Creative Computer -34.2%
Lomak Petroleum 57.8% Material Sciences Corp -31.7%
Quality Dining 54.9% Colonial Data -26.7%
We also had a number of takeovers during the period including Athena
Neurosciences, Benson Eyecare, Bird Medical, Puritan Bennett, Surgical Care
Affiliates and Truck Components. Finding takeovers is not an explicit part of
our investment process. However, we find that if a small, growing company's
stock sells at a substantial discount to its intrinsic value, strategic buyers
may emerge to buy the whole business.
Our top stocks came from a wide variety of industries. A couple of our best
performing overall sectors were broadcasting, where Argyle Television,
International Family Entertainment and Young Broadcasting all rose over 30%; and
energy where Lomak Petroleum and Nuevo Energy both gained over 40%.
Interestingly, these are industries where "intrinsic value" or "private
market value" are usually more important determinants of the public market
stock prices than are the current reported earnings.
In most industries, the key to performance is delivering above-average earnings
gains. A big part of our stock selection process focuses on finding companies
with that potential. Failing to deliver those earnings increases is often
severely punished. Many of our worst performing stocks fell into that category.
One of the biggest risks in small-cap investing is that the ability to predict
the future of small companies is often cloudier than in big companies. In the
case of all of our big losers, we were simply too optimistic about their ability
to grow and thus our estimates of their intrinsic values were too high. We try
to distinguish between short-term issues that are temporarily depressing
earnings and more fundamental problems that will affect the long-term success of
a business. If we believe the problems are long-lasting, we will take our lumps
and sell the stock, even if it is selling below our initial purchase price.
PORTFOLIO CHARACTERISTICS
The Fund's net assets as of June 30, 1996, were $400.0 million. The Fund
closed to new investors on February 28, 1996, after reaching $300 million in
assets. Closing the Fund allows us to continue to focus on the kind of small-
cap, out-of-the-way companies we favor.
TOP TEN HOLDINGS
- --------------------------------------
COMPANY NAME %
- ------------ ----
Libbey 2.4%
Int'l Family Entertainment 2.2%
Silicon Valley Bancshares 2.2%
Proffitt's 2.1%
Kinetic Concepts 2.1%
Sierra Health 2.1%
Syratech 2.1%
Kent Electronics 2.1%
Hardinge 2.1%
ITI Technology 2.0%
-----
TOTAL 21.4%
The Fund owned 67 stocks with a median market capitalization of $310 million.
On average, these stocks are growing 22% per year, selling at 17 times 1996
earnings and valued at 74% of our estimates of their intrinsic values.
Typically, each stock is followed by only four Wall Street analysts, despite
attractive growth and valuation characteristics. The Fund is 96.4% invested in
equities - which we consider to be fully invested.
The Fund's sector weightings remain diversified. We believe that attractive
investment candidates can be found in almost every industry, and we strive to
have some level of participation in almost every sector. Over the past twelve
months, we increased the Fund's exposure to consumer staples, health care and
services (both consumer and business). We reduced exposure to retailing,
capital spending and technology.
Our buys and sells have focused on:
. reducing economic sensitivity,
. reducing risk in the portfolio, and
. concentrating on established companies with consistent, predictable
earnings and relatively low valuations.
INDUSTRY DIVERSIFICATION
- ----------------------------------------------------------------------
SECTOR WEIGHTING SECTOR WEIGHTING
- ------ --------- ------ ---------
Consumer Staples 11.5% Healthcare Services 3.6%
Consumer Cyclicals 4.6% Medical Devices 6.7%
Consumer Services 10.1% Basic Industry 3.2%
Retailing 6.1% Business Services 6.9%
Restaurants 4.2% Capital Spending 7.7%
Energy 9.4% Transportation 1.5%
Banks/S&Ls 2.3% Computer Related 3.1%
Insurance 4.4% Electronics 8.9%
Other Financial 0.6% Software/Telecommunications 3.0%
Biotech/Pharmaceutical 2.2% Utilities 0.0%
------
TOTAL 100.0%
OUTLOOK AND STRATEGY
Over the past few months, we've become increasingly concerned by the rising
level of speculation attracted by unseasoned, start-up businesses in the stock
market. In the initial public offering (IPO) market, where companies sell their
shares to the public for the first time, investors seem to be placing
unrealistic valuations on businesses with very short track records. Some new
start-ups are selling at much higher prices than well-established companies in
the same business. And it's not just IPO's - some very rapidly growing
companies' stock prices have far outpaced the current fundamentals of the
business. The market correction that we are currently experiencing seems to be
the start of a return to reality, which would be healthy for the overall market.
For our part, we try to reduce risk by not investing in overvalued stocks in the
first place. It is possible to find and make money on well-managed, established
businesses with above-average growth potential that are still relatively unknown
to most investors. And, we believe that market corrections can provide us with
opportunities. We recently initiated a position in W.H. Brady, a leading
manufacturer of identification products such as signs and labels. We had been
interested in the company for some time but it wasn't until the recent downturn
in the market that the stock fell into an acceptable buy range based on our
intrinsic value analysis.
And, while we adhere to the sell targets arrived at through out intrinsic value
analysis, we understand that our stocks can be volatile and occasionally
difficult to trade, so we try to remain focused on the long-term prospects for
our companies.
We continue to believe that the outlook for small-cap stocks is attractive due
to their superior growth potential. The economy as a whole is growing slower
than it was last year, which highlights the better secular growth prospects of
smaller companies. We are cautious about the outlook for earnings gains for the
balance of the year, therefore our focus is on companies that we believe can do
well even in a slow economy. We are staying in close touch with our managements
and continuously reviewing all holdings in an effort to minimize negative
surprises.
As a final note, I am pleased to announce that Millie Adams Hurwitz, formerly
the senior analyst of the Artisan Small Cap Fund, has been named co-manager of
the Fund. Millie and I have worked together since the Fund's inception and
this new title reflects the significant contributions she makes in our
investment process. Together we hope to continue to find under-researched,
undiscovered gems and turn them into superior investment returns for you, our
shareholders. Thank you again for your confidence.
Sincerely,
Carlene Murphy Ziegler
Lead Portfolio Manager
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Schedule of Investments
June 30, 1996
Shares Quoted
Held Market Value
- ------ ------------
COMMON STOCKS - 96.4%
BANKS/SAVINGS AND LOANS - 2.2%
341,300 *Silicon Valley Bancshares - bank holding company
serving the high technology industry ......... $ 8,788,475
BASIC INDUSTRY - 3.1%
293,900 *NN Ball & Roller, Inc. - precision steel
balls and rollers ............................ 6,098,425
242,400 *Titanium Metals Corporation - titanium
producer ..................................... 6,272,100
-----------
12,370,525
BIOTECHNOLOGY/PHARMACEUTICAL - 2.0%
293,000 *Collaborative Clinical Research, Inc. -
pharmaceutical research....................... 3,406,125
601,000 *IBAH, Inc. - pharmaceutical research ........... 4,808,000
-----------
8,214,125
BUSINESS SERVICES - 6.7%
228,700 *Bell & Howell Holdings Company - systems and
services for information access
and dissemination ............................ 7,461,338
250,500 *CommNet Cellular, Inc. - Rocky Mountain region
cellular phone systems ....................... 7,515,000
156,000 Expeditors International of Washington,
Inc. - freight forwarder ..................... 4,836,000
188,800 *Keane, Inc. - computer programming services .... 6,962,000
-----------
26,774,338
CAPITAL SPENDING - 7.4%
205,350 Belden Inc. - electrical wire and cable
products...................................... 6,160,500
258,400 Hardinge Inc. - machine tool manufacturer ...... 8,204,200
453,650 *Holophane Corporation - highly-engineered
lighting fixtures ............................ 7,144,988
124,100 *Insilco Corporation - multi-industry: office
products, electronics and auto parts ......... 4,157,350
185,300 W.H. Brady Co. - specialty adhesives
and graphics ................................. 4,122,925
-----------
29,789,963
COMPUTER RELATED - 3.0%
267,600 *DH Technology Incorporated - specialty
printers ..................................... 6,422,400
204,800 *Micros Systems, Inc. - point-of-sale
and property management systems for
the hospitality industry ..................... 5,708,800
-----------
12,131,200
CONSUMER CYCLICALS - 4.3%
203,500 *AMRE, Inc. - home remodeling ................... 4,349,812
331,200 *D.R. Horton, Inc. - home builder ............... 3,477,600
266,100 *Southern Energy Homes, Inc. -
manufactured homes ........................... 5,721,150
203,550 *Strattec Security Corporation -
automotive locks and keys .................... 3,613,012
-----------
17,161,574
CONSUMER SERVICES - 7.9%
196,100 *Argyle Television, Inc. - TV stations .......... 4,902,500
484,125 *International Family Entertainment,
Inc. - family-oriented entertainment
programming .................................. 8,956,312
244,200 *ITI Technologies, Inc. - wireless home
security systems ............................. 8,058,600
277,300 *Servico, Inc. - hotel management ............... 4,228,825
138,900 *Young Broadcasting Inc. - TV stations .......... 5,312,925
-----------
31,459,162
CONSUMER STAPLES - 11.0%
183,900 AptarGroup, Inc. - pumps, valves and
closures for consumer packaging .............. 5,562,975
283,600 *Day Runner, Inc. - personal organizers
and planners ................................. 7,338,150
277,800 K2 Inc. - recreational and industrial
products ..................................... 7,535,325
347,900 Libbey Inc. - consumer and commercial
glassware .................................... 9,654,225
204,600 Matthews International Corporation -
bronze memorial plaques ...................... 5,626,500
370,000 *Syratech Corporation - silver flatware
and giftware ................................. 8,325,000
-----------
44,042,175
ELECTRONICS - 8.6%
214,270 *CP Clare Corporation - electronic
relay switches ............................... 5,517,452
245,900 Dallas Semiconductor Corporation - electronic
components and subsystems .................... 4,456,938
272,300 *Kent Electronics Corporation - electronic
component distributor ........................ 8,305,150
166,300 *Littelfuse, Inc. - circuit protection
devices ...................................... 6,236,250
133,800 *Marshall Industries - electronic
component distributor ........................ 3,930,375
349,250 Methode Electronics, Inc. - electronic
interconnect devices ......................... 5,937,250
-----------
34,383,415
ENERGY SERVICES - 4.3%
159,700 Camco International Inc. - oilfield
service equipment ............................ 5,409,838
305,300 *Oceaneering International, Inc. -
underwater vehicles for offshore drilling .... 4,617,663
207,700 Production Operators Corp - gas
compression services ......................... 7,009,875
-----------
17,037,376
EXPLORATION/PRODUCTION - 4.8%
431,000 *Cairn Energy USA, Inc. - oil and
gas exploration .............................. 6,195,625
428,400 Lomak Petroleum, Inc. - oil and
gas exploration .............................. 6,104,700
214,250 *Nuevo Energy Company - oil and
gas exploration .............................. 6,909,562
-----------
19,209,887
HEALTHCARE SERVICES - 3.5%
243,600 *Housecall Medical Resources, Inc. -
health care temporary staffing ............... 4,658,850
52,900 *MECON, Inc. - management systems and consulting
for the hospital industry .................... 1,196,863
264,700 *Sierra Health Services, Inc. - Nevada based
managed care provider ........................ 8,338,050
-----------
14,193,763
INSURANCE - 3.2%
275,100 *Amerin Corporation - private mortgage
insurance .................................... 7,358,925
144,000 Capital Re Corporation - financial
guaranty reinsurance ......................... 5,292,000
-----------
12,650,925
MEDICAL DEVICES/SUPPLIES - 6.5%
543,400 Kinetic Concepts, Inc. - specialty
hospital beds ................................ 8,422,700
195,300 *Patterson Dental Company - dental
supply distributor ........................... 7,079,625
224,100 *Respironics, Inc. - breathing-related
medical devices .............................. 4,145,850
303,600 Vital Signs, Inc. - anesthesia and
respiratory medical products ................. 6,223,800
-----------
25,871,975
RESTAURANTS - 4.0%
318,650 *Daka International, Inc. - Fuddruckers
restaurants and food service management ...... 7,488,275
253,100 Morrison Health Care, Inc. - food service
to health care institutions .................. 3,543,400
153,600 *Quality Dining, Inc. - franchisee of
Burger King, Chili's and Bruegger's Bagels ... 5,030,400
-----------
16,062,075
RETAILING - 6.8%
1,137,300 *Bernard Chaus, Inc. - women's apparel
manufacturer ................................. 3,696,225
253,500 *Marisa Christina, Incorporated - women's
apparel manufacturer ......................... 5,070,000
238,400 *Proffitt's, Inc. - regional department
stores in the southeast ...................... 8,463,200
223,600 *Seattle Filmworks, Inc. - mail-order
film processor ............................... 3,633,500
368,100 *Zale Corporation - fine jewelry retailer ....... 6,211,688
-----------
27,074,613
SOFTWARE/TELECOMMUNICATIONS - 2.9%
299,400 *7th Level, Inc. - educational/entertainment
interactive software ......................... 3,854,775
102,900 *Colonial Data Technologies Corp. -
caller-ID systems ............................ 1,530,637
652,900 *Data Broadcasting Corporation - wireless
distributor of financial and business
information .................................. 6,284,162
-----------
11,669,574
SPECIALTY FINANCE - 0.7%
86,100 *Imperial Credit Industries, Inc. - specialty
finance company .............................. 2,604,525
TRANSPORTATION RELATED - 1.4%
180,800 *Midwest Express Holdings, Inc. - airline based
in Milwaukee, WI ............................. 5,785,600
FOREIGN SECURITIES - 2.1%
BERMUDA - 1.1%
INSURANCE
144,700 RenaissanceRe Holdings Ltd. (U.S. dollar traded on NASDAQ) -
Property catastrophe reinsurance 4,449,525
CANADA - 1.0%
CONSUMER SERVICES
440,900 *Livent Inc. (U.S. dollar traded on NASDAQ) -
producer of theatrical productions ........... 3,968,100
-----------
Total foreign securities 8,417,625
-----------
Total common stocks (Cost $343,029,780) ........ $385,692,890
SHORT TERM INVESTMENTS - 5.3%
$21,015,000 Investment in repurchase agreement (U.S.
Treasury obligations) in a joint trading
pool at 4.75% dated 6/28/96 due
7/1/96 (Cost $21,015,000) ....................... $ 21,015,000
-----------
Total investments - 101.7%
(Cost $364,044,780) ............................ 406,707,890
Other assets less liabilities - (1.7)% .......... (6,707,301)
-----------
Net assets (**) ................................. $400,000,589
===========
* Non-income producing securities
** Percentages for the various classifications relate to net assets
The accompanying notes are an integral part of the financial statements.
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Statement of Assets and Liabilities
June 30, 1996
ASSETS:
Investments in securities, at value (cost $364,044,780) ..... $ 406,707,890
Cash ........................................................ 522
Receivable from investments sold ............................ 632,580
Receivable from fund shares sold ............................ 234,317
Accrued interest ............................................ 8,319
Accrued dividends ........................................... 66,821
Organizational costs ........................................ 52,248
------------
Total assets .............................................. 407,702,697
LIABILITIES:
Payable for investments purchased ........................... 7,470,689
Payable for organizational costs ............................ 52,248
Payable for operating expenses .............................. 179,171
------------
Total liabilities ......................................... 7,702,108
------------
Net assets ................................................ $400,000,589
============
NET ASSETS CONSIST OF THE FOLLOWING:
Fund shares issued and outstanding .......................... $335,711,272
Net unrealized appreciation on investments .................. 42,663,110
Accumulated undistributed net realized gains on investments . 21,626,207
------------
$400,000,589
============
NET ASSET VALUE PER SHARE
Net asset value, offering price and redemption price per share
($0.01 par value, 5,000,000,000 shares authorized,
[$ 400,000,589/ 27,259,873 shares outstanding]) ........... $14.67
======
The accompanying notes are an integral part of the financial statements.
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Statement of Operations
For the Year Ended June 30, 1996
INVESTMENT INCOME:
Interest ............................................. $ 830,428
Dividends ............................................ 1,233,626
------------
Total investment income ............................ 2,064,054
EXPENSES:
Advisory fees ........................................ 2,734,855
Transfer agent fees .................................. 866,401
Registration fees .................................... 162,797
Shareholder communications ........................... 101,774
Custodian fees ....................................... 79,565
Professional fees .................................... 52,001
Accounting fees ...................................... 39,556
Insurance ............................................ 21,660
Directors' fees ...................................... 15,000
Organizational costs ................................. 14,461
Other operating expenses ............................. 5,384
------------
Total expenses ..................................... 4,093,454
------------
Net investment loss ................................ (2,029,400)
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Net realized gain on investments ..................... 27,026,370
Net increase in unrealized appreciation
on investments ..................................... 36,295,167
------------
Net gain on investments .............................. 63,321,537
------------
Net increase in net assets resulting
from operations .................................. $61,292,137
===========
The accompanying notes are an integral part of the financial statements.
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Statement of Changes in Net Assets
For the period
For the year March 28,1995
ended through
June 30, 1996 June 30, 1995
------------- ---------------
OPERATIONS:
Net investment loss..................... $ (2,029,400) $ (56,274)
Net realized gain (loss) on investments. 27,026,370 (425,957)
Net increase in unrealized appreciation
on investments........................ 36,295,167 6,367,943
------------ -----------
Net increase in net assets resulting
from operations.................... 61,292,137 5,885,712
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Distributions from net realized gains
on investment transactions............ (2,110,073)
FUND SHARE ACTIVITIES:
Proceeds from shares issued (25,268,039
and 8,717,000 shares respectively).... 327,727,662 94,523,183
Net asset value of shares issued in
reinvestment of distributions from net
realized gains (155,258 shares)....... 2,046,303
Cost of shares redeemed (6,778,168 and
112,256 shares respectively).......... (88,224,291) (1,240,044)
------------ -----------
Net increase in net assets resulting
from fund share activities.......... 241,549,674 93,283,139
------------ -----------
Net increase in net assets............ 300,731,738 99,168,851
Net assets at the beginning of
the period............................ 99,268,851 100,000
------------ -----------
Net assets at the end of the period..... $400,000,589 $ 99,268,851
============ ============
The accompanying notes are an integral part of the financial statements.
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Financial Highlights
For a Share Outstanding throughout the Period
For the year For the period
ended ended
June 30, 1996 June 30, 1995***
------------- ----------------
Net asset value, beginning of period.... $ 11.52 $10.00
Income from investment operations:
Net investment loss..................... (0.07) (0.01)
Net realized and unrealized gains
on securities.......................... 3.32 1.53
Total from investment operations..... 3.25 1.52
Distributions:
Net realized capital gains.............. (0.10)
-------- ------
Net asset value, end of period.......... $ 14.67 $11.52
======= ======
Total return............................ 28.3% 15.2%**
Ratios/supplemental data:
Net assets, end of period (millions).... $400.0 $99.3
Ratio of expenses to average net assets. 1.52% 2.00%*
Ratio of net investment income to
average net assets..................... (0.75%) (0.59%)*
Portfolio turnover rate 105.19% 9.28%
* Annualized
** Not annualized
*** For the period from commencement of operations (March 28, 1995) through
June 30, 1995
The accompanying notes are an integral part of the financial statements.
ARTISAN SMALL CAP FUND
(A Series of Artisan Funds, Inc.)
Notes to Financial Statements
June 30, 1996
(1) Organization:
Artisan Small Cap Fund (the "Fund") is a series of Artisan Funds, Inc.
which was incorporated on January 5, 1995, as a Wisconsin corporation and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund commenced
operations on March 28, 1995.
(2) Summary of significant accounting policies:
(a) Security valuation - Each security is valued at the latest sales price
reported by the principal security exchange on which the issue is traded,
or if no sale is reported, the last sales price reported from previous
trading activities. Securities for which prices are not readily
available or which management believes that the last sales price is not
reflective of the fair value of the security are valued at fair value as
determined in good faith under consistently applied procedures established
by and under the general supervision of the Board of Directors. Short-term
investments maturing within sixty days of their purchase date are valued at
amortized cost which approximates market.
(b) Income taxes - No provision has been made for federal income taxes
since the Fund intends to 1) distribute substantially all of its taxable
income as well as realized gains from the sale of investment securities to
its shareholders and 2) comply with all provisions of the Internal Revenue
Code applicable to regulated investment companies.
(c) Portfolio transactions - Security and shareholder transactions are
recorded no later than the first business day after the trade date. Net
realized gains and losses on common stocks are computed on the specific
identification basis.
(d) Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
may differ from those estimates.
(e) Other - Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is reported on the accrual basis.
(3) Transactions with affiliates:
Artisan Partners Limited Partnership (the "Adviser"), with which certain
officers and directors of the Fund are affiliated, provides investment
advisory and administrative services to the Fund. In exchange for these
services, the Fund pays a monthly management fee to the Adviser as follows:
Average Daily Net Asset Value Annual Rate
---------------------------- -----------
Less than $500 million 1.000%
$500 million to $750 million 0.975%
$750 million to $1 billion 0.950%
Greater than $1 billion 0.925%
The Fund also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and reports. The
Adviser has undertaken to reimburse the Fund for any ordinary operating
expenses in excess of 2.00% of average daily net assets annually.
(4) Organization costs and prepaid registration expenses:
Organization costs are amortized over sixty months. These expenses were paid
by the Adviser which will be reimbursed by the Fund over the same time
period. The proceeds of any redemption of the initial shares by the original
shareholders will be reduced by a pro-rata portion of any unamortized
expenses at the time of redemption. Registration expenses of the Fund are
amortized over twelve months.
(5) Line of Credit Arrangement:
Artisan Funds, Inc. is party to a line of credit agreement under which the
Fund may borrow 10% of net assets up to a maximum of $20 million. The use of
the line of credit is generally restricted to temporary borrowing for
extraordinary or emergency purposes. The fund made no borrowing under the
line of credit during the year ended June 30, 1996.
(6) Investment transactions:
For the year ended June 30, 1996, the cost of purchases and the proceeds from
the sales of investment securities (excluding short-term securities) were
$503,762,088 and $272,016,027, respectively.
(7) Income tax information:
Aggregate gross unrealized appreciation (depreciation) on investments as of
June 30, 1996, based on investment cost of $363,795,622 for federal tax
purposes, is as follows:
Aggregate gross unrealized appreciation on investments $49,586,592
Aggregate gross unrealized depreciation on investments (7,105,297)
-----------
Net unrealized appreciation $42,481,295
===========
100 East Wisconsin Avenue Telephone 414 276-9500
Suite 1500
Milwaukee, WI 53202
Price Waterhouse, LLP
Report of Independent Accountants
To the Board of Directors and Shareholders of Artisan Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Artisan Small Cap Fund (a series
of Artisan Funds, Inc., hereafter referred to as the "Fund") at June 30, 1996,
the results of its operations for the year then ended, and the changes in its
net assets and the financial highlights for the year ended and for the period
March 28, 1995 (commencement of operations) through June 30, 1995, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit excludes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit, which
included confirmation of securities at June 30, 1996 by correspondence with
the custodian, provides a reasonable basis for opinion expressed above.
/s/ Price Waterhouse
July 30, 1996
- ---------------
ARTISAN INTERNATIONAL FUND
ANNUAL REPORT
JUNE 30, 1996
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
Dear Fellow Shareholder,
Thank you for your investment in the Artisan International Fund. We are pleased
to send you this report detailing the Fund's successful first six months and our
outlook for the future.
The Artisan International Fund (the "Fund") gained 20.8% in the first six
months of 1996, easily outdistancing its benchmarks, the Morgan Stanley EAFE
index and the Lipper International Fund index, which gained 4.5% and 8.5%,
respectively. We are very pleased with this performance, particularly because
it was achieved with a well-diversified portfolio. That is, it was NOT the
result of a single big country or market allocation.
Comparative Quarterly Performance
Artisan Lipper
International International
Fund Equiy Index EAFE
---- ----------- -----
12/28/95 $10,000 $10,000 $10,000
3/31/96 10,910 10,440 10,290
6/30/96 12,077 10,847 10,455
12/28/95 3/31/96 6/30/96
-------- ------- -------
INTERNATIONAL FUND 9.1% 10.7%
Lipper Index 4.4% 3.9%
EAFE 2.9% 1.6%
This graph compares the results of $10,000 invested in Artisan International
Fund on December 28, 1995 (the date the Fund began operations), with Morgan
Stanley's Europe, Australasia and Far East (EAFE) index. EAFE is an unmanaged
index of companies throughout the world in proportion to world stock market
capitalization, excluding the U.S. and Canada. The Lipper International Fund
Index reflects the net asset value weighted return of the 30 largest
international equity funds. All returns include reinvested dividends. Past
performance does not guarantee future results. The investment return and
principal value of an investment in the Fund will fluctuate so that Fund shares,
when redeemed, may be worth more or less than their original cost. The Fund had
a total return of 20.8% from inception on December 28, 1995, through June 30,
1996.
OUR INVESTMENT APPROACH
Before discussing the Fund's performance in more detail, I want to briefly
review our investment approach because our basic strategy is the foundation for
our strong results.
The Artisan International Fund invests in a broadly-diversified portfolio of
international stocks. The Fund concentrates on the stocks of developed
countries with accelerating growth prospects. It will have some emerging market
holdings, but these will be relatively modest and are not the central focus of
the Fund's investment strategy.
The Fund's style is often characterized as "top-down and bottom-up," meaning
that country selection and stock selection are both important parts of the
investment process. Our approach has three basic steps:
Country Allocation. Our first step involves searching for countries
and regions of the world that will provide a good environment for
growth. For example, we look for countries where economic development
is accelerating (in our present portfolio, our investments in the
Philippines and Hong Kong would fall into this category) or where
economies are becoming more competitive or benefiting from economic
stimulus (for example, the Scandinavian countries).
Stock Selection. Having identified favorable areas of the world for
growth, we then look for companies that can capitalize on that growth
and whose stocks are selling at attractive prices relative to their
local markets. Our portfolio management team travels widely, meeting
with company managements and spending time on fundamental research.
We emphasize companies in good financial condition with strong market
shares that are managed with competence and integrity.
Portfolio Management. Stock picking isn't the whole story, however.
Recognizing that international markets can be volatile, our team makes
a concerted effort to manage risk. To this end, the portfolio is
broadly-diversified among different stocks, industries and regions of
the world. While this diversification cannot eliminate market risk,
it should cushion the impact of a decline in any one country in the
overall portfolio. We also monitor the size of individual positions,
trading liquidity, emerging market exposure and country exposure as
part of the portfolio management process.
Finally, we believe that the Fund should be viewed as a long-term investment by
shareholders. Foreign markets can be quite volatile; therefore, the Fund may
experience wide performance swings on a short-term basis. While we manage the
Fund to try to dampen this volatility, we cannot eliminate it. Accordingly, we
encourage our shareholders to use the Fund as part of a diversified investment
portfolio and, of course, only if one is able to accept the possibility of
short-term capital losses.
FIRST HALF REVIEW
The Fund's solid performance in the first half of the year was attributable both
to good country allocations and to astute stock picking. Our country
allocations were relatively stable during the entire period. The Fund benefited
from "underweight" positions (versus the EAFE index and its peers) in Japan
and the U.K., which were lackluster performers in dollar terms. "Overweight"
positions in Mexico and several non-Japan Pacific region markets performed well.
The Fund also maintained significant positions in several Scandinavian
countries, which should continue to benefit from governmental economic stimulus
during the remainder of the year.
REGION/COUNTRY ALLOCATION*
- ---------------------------------------------------------------------
REGION/COUNTRY WEIGHTING REGION/COUNTRY WEIGHTING
- -------------- --------- -------------- ---------
Sweden 10.1% Japan 16.0%
United Kingdom 8.0% Indonesia 7.7%
Spain 6.6% Hong Kong 4.9%
Germany 5.8% Philippines 4.3%
Denmark 5.2% Singapore 0.9%
France 5.1% Thailand 0.9%
Norway 3.7% India 0.8%
Finland 3.7% Korea 0.8%
Portugal 2.2% Australia 0.5%
Switzerland 2.0% New Zealand 0.4%
Italy 1.9% -----
Netherlands 0.6% Asia/Pacific 37.2%
Croatia 0.5%
Hungary 0.4% Mexico 5.0%
Ireland 0.4% Brazil 1.1%
----- -----
Europe 56.2% Latin America 6.1%
-----
Cash 2.4%
* Percentages for the various classifications relate to net assets.
Stock selection was also important in the first half of the year. Three of the
Fund's profitable positions, The Pizza PLC, First Pacific Bank and Bulgari are
typical of stocks we like to have in the Fund.
The Pizza PLC is the dominant franchise in Thailand's growing fast food market
as higher incomes lead people to seek convenience over price. First Pacific
Bank focuses on residential mortgages for apartment purchases. Its parent
company is the largest manager of real estate in Hong Kong, which gives this
relatively small bank easy access to a huge market. Bulgari, an Italian luxury
goods retailer with strong "brand awareness", is benefiting from its customer
segmentation expertise by aggressively expanding distribution into new markets.
The Fund held far fewer losing positions over the last six months. Three of the
stocks among the bottom ten were from Indonesia and were negatively impacted by
political uncertainty.
TOP 10 GAINERS TOP 10 LOSERS
- ----------------------------------- -----------------------------------
SECURITY COUNTRY % SECURITY COUNTRY %
- -------- ------- ------- -------- ------- ------
Pliva GDR Croatia 109.8% Nycomed AS Norway -28.4%
Smit
Internationale
NV Netherlands 43.4% Semen Cibinong Indonesia -15.1%
Bank Nisp Indonesia 41.2% Pakuwon Jati Indonesia -14.7%
Want-Want Singapore 37.5% Jarvis Porter United
Group PLC Kingdom -14.7%
Dassalt Systemes France 36.6% Bankard, Inc. Philippines -12.6%
Biota Holdings Australia 36.1% Liechtenstein
Global Trust Switzerland -7.8%
The Pizza PLC Thailand 34.7% Christian Dior France -7.3%
Neurosearch Denmark 33.7% Nisho Rent All Japan -6.6%
First Pacific
Bank Hong Kong 30.3% Mayora Indah Indonesia -5.8%
Bulgari Italy 28.8% Union Financiere
de France
Banque SA France -4.3%
Notably, the Fund's top ten performing stocks came from ten different countries
located in many regions of the world. In our view, performance contributions
from companies in a variety of countries are reassuring, because it means that
the Fund is not dependent on large, concentrated country bets for performance.
While all international managers have to determine which countries to emphasize
or avoid, we prefer to stay broadly-diversified among geographic regions, and
let our stock picking carry much of the load. As of June 30, 1996, the Fund
owned stocks in 27 different countries. This broad diversification partially
insulates the Fund from volatility in any individual market.
PORTFOLIO CHARACTERISTICS
Net assets in the Fund on June 30, 1996, were $72.4 million (and as we write
this letter, the net assets approximate $110 million. The median market cap
of the Fund's holdings was $582 million, reflecting our ability to own
significant positions in smaller stocks while the Fund itself is relatively
small. The Fund has a median growth rate of 17% and a median price-to-earnings
ratio of 14.4. We believe this excellent growth rate at a relatively modest P/E
ratio demonstrates our continued attention to valuation as well as growth
potential. We are 98.5% invested in equities, which we consider to be fully-
invested. We did no currency hedging during the first half of the year,
although the Fund may hedge occasionally for defensive purposes.
INDUSTRY DIVERSIFICATION
- -------------------------------------------------------------------------------
SECTOR WEIGHTING SECTOR WEIGHTING
- ------- --------- ------- ---------
Banking 15.0% Multi-Industry 9.1%
Broadcast/Publishing 6.8% Other Financial 6.5%
Business/Public Services 5.4% Retailing 12.8%
Construction/Housing 5.8% Software 5.4%
Consumer Cyclicals 2.7% Telecommunications/Technology 8.3%
Consumer Services 2.0% Transportation/Distribution 2.8%
Food/Restaurants 5.8% Utilities 1.1%
Health Care Services 10.5% -------
TOTAL 100.0%
Our industry weightings remain broadly diversified. Currently, we have an
emphasis in the banking sector because we expect global inflation to be
relatively tame and interest rates to remain at low levels for some time,
particularly in Europe. Retailing continues to be important to the Fund because
it is where we find growth at reasonable prices in a variety of countries. In
addition, the Fund has a growing emphasis on companies that provide temporary
labor and corporate services to firms seeking to reduce costs. Our top ten
holdings also reflect our commitment to diversification - no single stock is
more than 3% of the portfolio.
TOP TEN HOLDINGS
- --------------------------------------
COMPANY NAME COUNTRY %
- ------------- ------- ----
Sondagsavisen (Denmark) 2.8%
TT Tieto (Finland) 2.2%
Sonae Investments (Portugal) 2.2%
Argentaria (Spain) 2.1%
Marseille Kliniken (Germany) 2.1%
Circle K (Japan) 2.0%
Autobacs Seven (Japan) 2.0%
SE-Banken (Sweden) 1.9%
Xebio (Japan) 1.8%
Bankard Inc. (Philippines) 1.7%
------
TOTAL 20.8%
OUTLOOK AND STRATEGY
The Artisan International Fund produced strong performance during the first half
of the year, and we remain optimistic about the balance of 1996. We believe
many international markets continue to be bargains compared to the U.S. market,
which is near its all-time high. We are having no problems finding attractively-
valued stocks to buy in the international markets.
Going forward, we do not anticipate major country allocation shifts. We will
continue to underweight Japan, while not avoiding it entirely. In Japan, we are
primarily concentrating on the pharmaceutical sector, as well as the retail
sector, which is benefiting from the stimulus being applied to the domestic
economy. Mexico has been a good market this year. We will continue to invest
there - primarily in financial services companies and firms specializing in
infrastructure improvements that are expected to benefit from increased public
works spending. Most of Europe looks attractive to us - we will remain
overweighted in Scandinavia in particular. As always, our emphasis will be in
finding high-quality, growth stocks at attractive relative valuations.
Thank you again for your investment in the Artisan International Fund and your
confidence going forward. We are very excited about the prospects for the
international markets in the years ahead and are glad you have chosen to invest
with us.
Sincerely,
/s/ Mark L. Yockey
Mark L. Yockey
Portfolio Manager
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
Shares Industry Quoted
Held Classification Market Value
------ -------------- ------------
COMMON AND PREFERRED
STOCKS - 99.5%
AUSTRALIA - 0.5%
90,000 Biota Holdings - Biotechnology research ..... (8) $ 345,855
BRAZIL - 1.1%
230,000 *Celesc PNB - Electric utility .............. (15) 215,296
5,600,000 *Telemig PNB - Telecommunication services ... (13) 577,232
----------
792,528
CROATIA - 0.5%
5,000 *Pliva GDR - Pharmaceutical research
services .................................. (8) 196,250
15,000 *Zagrebacka Banka GDR - Banking and
financial services ........................ (1) 171,000
----------
367,250
DENMARK - 5.2%
5,000 Falck - Home security systems ............... (5) 1,083,895
15,000 *Neurosearch - Pharmaceutical
research services ......................... (8) 591,448
17,000 Sondagsavisen - Newspaper publisher ......... (2) 2,031,237
----------
3,706,580
FINLAND - 3.7%
40,000 Aamulehti II - Newspaper publisher .......... (2) 1,079,541
32,700 TT Tieto Oy - Computer data services ....... (12) 1,567,363
----------
2,646,904
FRANCE - 5.1%
15,000 Credit Local De France - Banking ............ (1) 1,221,907
10,000 *Dassault Systemes - Computer software design (12) 313,399
2,500 Fininfo - Computer software ................ (12) 261,004
4,000 Roussel Uclaf - Pharmaceuticals ............. (8) 960,417
10,000 Union Financiere de France Banque SA -
Investment management services ........... (10) 855,432
----------
3,612,159
GERMANY - 5.8%
30,000 Deutsche Pfandbrief Bank AG -
Mortgage banking ......................... (1) 1,187,767
20,000 Hornbach Baumarkt AG - Home
improvement and garden stores ............ (11) 907,596
500 Marschollek, Lautenschlaeger and
Partner (MLP) AG NV Pfd -
Life insurance ........................... (10) 526,143
41,889 Marseille-Kliniken AG - Health care services .(8) 1,501,447
----------
4,122,953
HONG KONG - 4.9%
10,000 Asia Satellite - Satellite provider ........ (13) 297,500
224,800 Dah Sing Financial Holdings - Banking and
financial services ........................ (1) 681,010
1,100,000 FPB Bank Holding - Banking .................. (1) 390,786
700,000 Goldlion Holdings - Men's apparel
manufacturer ............................. (11) 601,359
2,250,000 Guangzhou Investment - Manufacturing
conglomerate .............................. (9) 566,802
24,800 *HSBC Holdings - Banking and financial services (1) 374,845
750,000 JCG Holdings - Banking services ............. (1) 610,402
----------
3,522,704
HUNGARY - 0.4%
47,750 *Cofinec SA - Producer of printed
packing material .......................... (3) 257,850
INDIA - 0.8%
185,000 *Calcutta Electric Supply Company
GDR - Power transmission ................. (15) 564,250
INDONESIA - 7.7%
527,500 Anwar Sierad - Poultry food producer ........ (7) 498,604
140,000 Bank Rama - Banking services ................ (1) 94,496
719,000 Bank Nisp - Banking services ................ (1) 664,168
210,500 Bunas Finance - Capital goods financer ..... (10) 165,054
1,200,000 Mayora Indah - Diversified food processor ... (7) 670,247
25,000 Sari Husada - Dairy products producer ....... (7) 154,672
525,000 Semen Cibinong - Cement producer ............ (4) 1,161,654
2,500,000 Sona Topas - Duty free retailing ............ (6) 859,291
325,000 Steady Safe - Urban transportation
services ................................. (14) 467,777
299,700 Tigaraksa Satria - Consumer products
distributor .............................. (14) 772,589
----------
5,508,552
IRELAND - 0.4%
45,000 Bank of Ireland - Banking and
financial services ........................ (1) 306,573
----------
ITALY - 1.9%
40,000 Bulgari - Luxury goods ..................... (11) 640,000
75,000 *Mediolanum - Insurance company ............. (10) 746,939
----------
1,386,939
JAPAN - 16.0%
15,000 Autobacs Seven - Auto parts retailer ....... (11) 1,453,847
28,000 Circle K Japan - Convenience stores ........ (11) 1,454,213
60 DDI - Telecommunications
equipment and software ................... (13) 524,482
40,000 Japan Maintenance - Building maintenance .... (3) 969,231
10,000 Nihon Kaiheiki Industry - Industrial
switch manufacturer ....................... (5) 164,586
16,000 Nishio Rent All - Construction
equipment rental .......................... (4) 383,304
24,000 Promise - Consumer lending.................. (10) 1,185,023
35,000 Sankyo Co. Ltd. - Pharmaceuticals ........... (8) 908,883
35,200 Sanyo Pax - Consumer product packaging
manufacturer .............................. (7) 772,459
25,000 Shaddy - Merchandise wholesaler ............ (11) 493,759
20,000 TDK Corporation - Electrical machinery ..... (13) 1,195,995
46,000 Teikoku Hormone - Pharmaceuticals ........... (8) 651,945
34,700 Xebio - Sporting goods and casual
menswear retailer ........................ (11) 1,304,046
----------
11,461,773
KOREA - 0.8%
30,000 Keumkang Development - Retail
and hotel operator ........................ (6) 543,639
MEXICO - 5.0%
25,000 *Carso Grupo A1 - Multi-industry
conglomerate .............................. (9) 177,324
90,000 *Empresas (ICA) Socidad Controladora -
Commercial construction ................... (4) 1,248,750
350,000 Grupo Financiero Banamex Accival - Banking
services .................................. (1) 727,225
200,000 *Grupo Financeiro Inbursa S.A. DE
C.V. - Banking services ................... (1) 827,950
69,000 Sigma BCP - Food products ................... (7) 614,041
----------
3,595,290
NETHERLANDS - 0.6%
8,250 *Smit Internationale NV - Maritime
services ................................. (14) 445,031
NEW ZEALAND - 0.4%
21,000 *Tranz Rail Holdings - Railway
transportation ........................... (14) 291,375
NORWAY - 3.7%
52,500 Ark ASA - Computer equipment retailer ...... (13) 991,085
85,000 Fokus Bank - Regional bank .................. (1) 463,701
25,000 Merkantildata - Information technology
provider ................................. (13) 312,062
25,000 *Nycomed AS - Medical imaging products and
pharmaceutical research ................... (8) 360,219
40,000 Schibsted AS - Newspaper publisher .......... (2) 517,791
----------
2,644,858
PHILIPPINES - 4.3%
2,750,000 *Bankard, Inc. - Credit card provider ....... (10) 1,154,580
10,000,000 Engineering Equipment, Inc. -
Industrial construction ................... (4) 877,863
3,000,000 House of Investments, Inc. -
Multi-industry conglomerate ............... (9) 1,053,435
----------
3,085,878
PORTUGAL - 2.2%
60,000 Sonae Investimentos - SGPS -
Multi-industry conglomerate ............... (9) 1,560,383
SINGAPORE - 0.9%
90,000 Jardine Matheson Holdings LTD -
Multi-industry conglomerate ............... (9) 661,500
SPAIN - 6.6%
35,000 Argentaria - Banking and financial
services .................................. (1) 1,528,456
16,012 Conservera Campofrio SA - Food producer ..... (7) 605,430
8,500 Corporacion Financiera Alba, S.A. -
Multi-industry conglomerate ............... (9) 707,863
6,000 Fomento Construcciones y Contratas -
Multi-industry conglomerate ............... (4) 496,856
50,392 Omsa Alimentacion, S.A. - Food producer ..... (7) 170,066
65,000 Telefonica de Espana, S.A. -
Telecommunication services ............... (13) 1,198,391
----------
4,707,062
SWEDEN - 10.1%
16,000 Astra - Pharmaceutical research services .... (8) 708,146
45,000 Caran AB Class B - Aerospace software ...... (12) 547,197
50,000 *Enator - Computer software design .......... (12) 1,151,795
40,000 Kinnevik - Multi-industry conglomerate ...... (9) 1,214,483
30,000 Marieberg Tidings - Newspaper publisher ..... (2) 752,255
175,000 Skandinaviska Enskilda Banken -
Commercial and investment banking ......... (1) 1,401,036
25,000 Tryckindustri AB - Printing and publishing .. (2) 462,606
16,000 WM-Data Nordic AB - Administrative support
services .................................. (3) 1,015,090
----------
7,252,608
SWITZERLAND - 2.0%
1,500 Adia SA - Employment services ............... (3) 376,740
1,500 SMH - Schweizerische Gesellschaft - watch
manufacturer ............................. (11) 1,043,833
----------
1,420,573
THAILAND - 0.9%
110,000 The Pizza PLC - Fast food restaurant ........ (7) 628,324
UNITED KINGDOM - 8.0%
325,000 The Corporate Services Group PLC -
Employment services ....................... (3) 913,574
125,000 Ethical Holdings - Pharmaceuticals .......... (8) 1,218,750
50,000 Filofax Group PLC - Stationery supplies and
personal organizers ....................... (5) 205,001
25,000 Jarvis Porter Group PLC - Printer ........... (3) 95,123
190,000 *Pet City Holdings - Pets and pet
supply retailer .......................... (11) 1,180,308
65,000 Reckitt & Colman - Household goods
manufacturer .............................. (5) 684,423
150,000 Tomkins PLC - Multi-industry conglomerate ... (9) 561,423
225,000 Vodafone Group PLC - Mobile
telecommunications ....................... (13) 836,892
----------
5,695,494
----------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $67,414,509) ............................... $71,134,885
SHORT TERM INVESTMENTS - 2.4%
$1,744,000 Investment in repurchase agreement
(U.S. Treasury obligations) in a
joint trading pool at 4.75% dated
6/28/96 due 7/1/96 (Cost $1,744,000) ........... $ 1,744,000
----------
TOTAL INVESTMENTS - 101.9%
(Cost $69,158,509) ............................... $72,878,885
-----------
Other assets less liabilities - (1.9%) ........... (1,367,187)
-----------
NET ASSETS (**) .... ........................ $71,511,698
==========
* Non-income producing securities
** Percentages for the various classifications relate to net assets
The accompanying notes to financial statements are an integral part of this
schedule.
PORTFOLIO DIVERSIFICATION
BY INDUSTRY
Industry Market Percent of
Classification Value Total Net Assets
-------------- ----- ----------------
Banking (1) $10,651,322 14.9%
Broadcast/Publishing (2) 4,843,430 6.8
Business & Public Services (3) 3,832,609 5.3
Construction/Housing (4) 4,168,427 5.8
Consumer Cyclicals (5) 1,932,904 2.7
Consumer Services (6) 1,402,930 2.0
Food/Restaurants (7) 4,113,843 5.7
Health Care Services (8) 7,443,360 10.4
Multi-Industry (9) 6,503,213 9.1
Special Financial (10) 4,633,171 6.5
Retailing (11) 9,078,961 12.7
Software (12) 3,840,758 5.4
Telecommunication/Technology (13) 5,933,639 8.3
Transportation/Distribution (14) 1,976,772 2.8
Utilities (15) 779,546 1.1
----------- ------
Total common and preferred stocks 71,134,885 99.5
Total short term investments 1,744,000 2.4
----------- ------
Total investments 72,878,885 101.9
Other assets in excess of liabilities (1,367,187) (1.9)
----------- ------
Net assets $71,511,698 100.0%
=========== ======
The accompanying notes are an integral part of the financial statements.
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
ASSETS:
Investments in securities, at value (cost $69,158,509) ... $72,878,885
Foreign currency (cost $2,028,051) ....................... 2,033,390
Cash ..................................................... 524
Receivable for investments sold .......................... 1,940,263
Receivable from foreign currency sold .................... 4,008,217
Receivable from fund shares sold ......................... 262,889
Interest receivable ...................................... 690
Dividends receivable ..................................... 273,165
Prepaid registration expenses ............................ 17,960
Organizational costs ..................................... 32,940
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Total assets .......................................... 81,448,923
LIABILITIES:
Payable for investments purchased ........................ 5,763,184
Payable for foreign currency purchased ................... 4,014,759
Payable for withholding tax liability .................... 36,995
Payable for registration expenses ........................ 17,960
Payable for organizational costs ......................... 32,940
Payable for operating expenses ........................... 71,387
----------
Total liabilities ..................................... 9,937,225
----------
Net assets ............................................ $71,511,698
==========
NET ASSETS CONSIST OF THE FOLLOWING:
Fund shares issued and outstanding ....................... $66,518,353
Net unrealized appreciation on investments
and foreign currency transactions ..................... 3,708,410
Accumulated undistributed net investment income .......... 237,011
Accumulated undistributed net realized gain on
sales of investments and foreign
currency transactions ................................. 1,047,924
----------
$71,511,698
===========
NET ASSET VALUE PER SHARE
Net asset value, offering price and redemption
price per share ($0.01 par value, 5,000,000,000
shares authorized, [$71,511,698/5,921,803
shares outstanding]) .................................. $12.08
======
The accompanying notes are an integral part of the statements.
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(DECEMBER 28, 1995) THROUGH JUNE 30, 1996
INVESTMENT INCOME:
Interest ............................................... $ 56,582
Dividends (net of foreign taxes withheld of $76,130).... 494,060
----------
Total investment income .............................. 550,642
EXPENSES:
Advisory fees .......................................... 133,215
Transfer agent fees .................................... 61,664
Custodian fees ......................................... 42,965
Professional fees ...................................... 31,336
Registration fees ...................................... 24,292
Accounting fees ........................................ 18,816
Directors' fees ........................................ 7,500
Insurance .............................................. 3,667
Organizational costs ................................... 3,660
Shareholder communications ............................. 1,538
Other operating expenses ............................... 4,878
----------
Total expenses ...................................... 333,531
----------
Net investment income ............................... 217,111
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Net realized gain (loss) on:
Investments .......................................... 1,087,925
Foreign currency related transactions ................ (40,001)
----------
1,047,924
Net increase in unrealized appreciation (depreciation) of:
Investments .......................................... 3,720,376
Foreign currency related transactions ................ (11,966)
----------
3,708,410
Net gain on investments ................................ 4,756,334
----------
Net increase in net assets resulting from operations ... $4,973,445
==========
The accompanying notes are an integral part of the statements.
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(DECEMBER 28, 1995) THROUGH JUNE 30, 1996
OPERATIONS:
Net investment income .................................. $ 217,111
Net realized gain on investments ....................... 1,087,925
Net realized loss on foreign currency transactions ..... (40,001)
Net increase in unrealized appreciation (depreciation) on:
Investments .......................................... 3,720,376
Foreign currency related transactions ................ (11,966)
----------
Net increase in net assets resulting
from operations .................................... 4,973,445
FUND SHARE ACTIVITIES:
Proceeds from shares issued (6,080,442 shares) ......... 68,360,994
Cost of shares redeemed (158,639 shares) ............... (1,822,741)
----------
Net increase in net assets ............................. 66,538,253
----------
Net increase in net assets resulting from Fund
share activities ..................................... 66,538,253
----------
Net assets at the end of the period .................... $71,511,698
==========
The accompanying notes are an integral part of the statements.
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Period ended June 30, 1996 ***
------------------------------
Net asset value, commencement of operations
(December 28, 1995).................................. $10.00
Income from investment operations:
Net investment income................................. 0.04
Net realized and unrealized gains
on securities and foreign currency held.............. 2.04
------
Total from investment operations..................... 2.08
------
Net asset value, end of period........................ $12.08
======
Total return.......................................... 20.8%**
Ratios/supplemental data:
Net assets, end of period (millions)................. $71.5
Ratio of expenses to average net assets.............. 2.5%*
Ratio of net investment income to average net assets. 1.6%*
Portfolio turnover rate.............................. 57.0%
* Annualized
** Not annualized
*** For the period from commencement of operations (December 28, 1995) through
June 30, 1996
The accompanying notes are an integral part of the statements.
ARTISAN INTERNATIONAL FUND
(A Series of Artisan Funds, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(1) Organization:
Artisan International Fund (the "Fund") is a series of Artisan Funds,
Inc. which was incorporated on January 5, 1995, as a Wisconsin corporation
and is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund commenced
operations December 28, 1995.
(2) Summary of significant accounting policies:
(a) Security valuation - Each security is valued at the latest sales price
reported by the principal security exchange on which the issue is traded,
or if no sale is reported, the last sales price reported from previous
trading activities. Securities for which prices are not readily
available or which management believes that the last sales price is not
reflective of the fair value of the security are valued at fair value as
determined in good faith under consistently applied procedures established
by and under the general supervision of the Board of Directors. Short-term
investments maturing within sixty days of their purchase date are valued
at amortized cost which approximates market.
(b) Income taxes - No provision has been made for federal income taxes
since the Fund intends to 1) distribute substantially all of its taxable
income as well as realized gains from the sale of investment securities to
its shareholders and 2) comply with all provisions of the Internal Revenue
Code applicable to regulated investment companies.
(c) Portfolio transactions - Security and shareholder transactions are
recorded no later than the first business day after the trade date. Net
realized gains and losses on common stocks are computed on the specific
identification basis.
(d) Foreign currency translation - Values of investments and other assets
and liabilities denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated to U.S. dollars using the spot market rate of exchange
prevailing on the respective dates of such transactions. The gain or
loss resulting from changes in foreign exchange rates is included with
net realized and unrealized gain or loss from investments, as appropriate.
(e) Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual
results may differ from those estimates.
(f) Other - Dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities are recorded as soon as the
information becomes available to the Fund. Interest income is reported on
the accrual basis. Distributions to shareholders are recorded on the ex-
dividend date.
(3) Transactions with affiliates:
Artisan Partners Limited Partnership (the "Adviser"), with which certain
officers and directors of the Fund are affiliated, provides investment
advisory and administrative services to the Fund. In exchange for these
services, the Fund pays a monthly management fee to the Adviser as follows:
Average Daily Net Asset Value Annual Rate
-----------------------------------------
Less than $500 million 1.000%
$500 million to $750 million 0.975%
$750 million to $1 billion 0.950%
Greater than $1 billion 0.925%
The Fund also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and reports. The
Adviser has undertaken to reimburse the Fund for any ordinary operating
expenses in excess of 2.50% of average daily net assets annually.
(4) Organization costs and prepaid registration expenses:
Organization costs are amortized over sixty months. These expenses were paid
by the Adviser which will be reimbursed by the Fund over the same time
period. The proceeds of any redemption of the initial shares by the original
shareholder will be reduced by a pro-rata portion of any unamortized expenses
at the time of redemption. Registration expenses of the Fund are amortized
over twelve months.
(5) Line of credit arrangements:
Artisan Funds, Inc. is party to a line of credit agreement under which the
Fund may borrow 10% of net assets up to a maximum of $20 million. The use
of the line of credit is generally restricted to temporary borrowing for
extraordinary or emergency purposes. The Fund made no borrowing under the
line of credit during the year ended June 30, 1996.
(6) Investment transactions:
For the period from commencement of operations (December 28, 1995) to June
30, 1996, the cost of purchases and the proceeds from the sales investment
securities (excluding short-term securities) was $82,211,597 and $15,701,084,
respectively.
(7) Income tax information:
Aggregate gross unrealized appreciation (depreciation) on investments as of
June 30, 1996, based on investment cost of $69,363,108 for federal tax
purposes, is as follows:
Aggregate gross unrealized appreciation on investments $ 4,865,448
Aggregate gross unrealized depreciation on investments (1,122,145)
-----------
Net unrealized appreciation $ 3,743,303
===========
100 East Wisconsin Avenue Telephone 414-276-9500
Suite 1500
Milwaukee, WI 53202
Price Waterhouse, LLP
Report of Independent Accountants
To the Board of Directors and Shareholders of Artisan Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and financial highlights present fairly, in all material
respects, the financial position of Artisan International Fund (a series of
Artisan Funds, Inc., hereafter referred to as the "Fund") at June 30, 1996,
and the results of its operations, the changes in its net assets and its
financial highlights for the period December 28, 1995 (commencement of
operations) through June 30, 1996, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit excludes examining, on a test basis, evidence supporting the amounts and
disclosures in financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1996 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
July 30, 1996
