August 19, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.
20549
Artisan Funds, Inc.
1933 Act Registration No. 33-88316
1040 Act Registration No. 811-8932
Ladies and Gentleman:
On behalf of Artisan Funds, Inc. (the "Fund") we are enclosing for electronic
filing under the Securities Act of 1933 and the Investment Company Act of 1940 a
copy of a registration statement (including each exhibit being filed) which is
post-effective amendment no.4 to the Fund's registration statement under the
Securities Act of 1933, and which is also amendment no. 6 to its registration
under the Investment Company Act of 1940.
The filing is being made pursuant to rule 485(b) under the Securities Act of
1933 with a stated effective date of August 19, 1996. We have advised the
Fund in connection with the preparation of this amendment, and in that
connection, we have reviewed the amendment. In accordance with Rule
485(b)(4), we confirm that in our judgment the amendment does not contain
any disclosure that would render the amendment ineligible to become
effective pursuant to Rule 485(b).
Very truly yours,
/s/ Janet D. Olsen
Janet D. Olsen
Enclosures
Copies to: John Blaser
Stephen T. O'Hearn
As filed with the Securities and Exchange Commission on August 19, 1996
1933 Act Reg. No. 33-88316
1940 Act File No. 811-8932
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 4 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[ ]
AMENDMENT NO. 6 [X]
Artisan Funds, Inc.
(Registrant)
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
Telephone Number: (414) 390-6100
Andrew A. Ziegler Janet D. Olsen
Artisan Funds, Inc. Bell, Boyd & Lloyd
1000 North Water Street, #1770 Three First National Plaza, #3300
Milwaukee, Wisconsin 53202 Chicago, Illinois 60602
(Agents for Service)
Amending Parts A, B, and C and filing Exhibits.
It is proposed that this filing will become effective:
immediately upon filing pursuant to rule 485(b)
X on August 19, 1996 pursuant to rule 485(b)
60 days after filing pursuant to rule 485(a)(1)
on pursuant to rule 485(a)(1)
-----------------
75 days after filing pursuant to rule 485(a)(2)
on pursuant to rule 485(a)(2)
-----------------
Registrant has previously elected to register an indefinite number of its shares
of common stock of the series Artisan Small Cap Fund and Artisan International
Fund pursuant to Rule 24f-2. Registrant expects to file its Rule 24f-2 Notice
for the fiscal year ended June 30, 1996 on or before August 29, 1996.
ARTISAN FUNDS, INC.
Cross-reference sheet pursuant to rule 495(a) of Regulation C
Item Location or Caption
PART A (PROSPECTUS) - ARTISAN SMALL CAP FUND
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Expenses and Performance - Financial Highlights
(b) Not applicable
(c)-(d) Expenses and Performance - Performance
4(a)(i) Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices, and Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund's Investment Philosophy; Securities, Investment
Practices and Risks
5(a) Organization
(b) Organization; Management; The Fund in Detail -
Expenses; Expenses and Performance - Expenses; How to
Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact Us
(f) Expenses and Performance - Expenses; The Fund in
Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
6(a) Organization; How to Buy Shares; How to Sell Shares
(b)-(d) Not applicable
(e) Doing Business with the Fund; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; How to Contact Us
(f)-(g) Dividends, Capital Gains, and Taxes
Item Location or Caption
7 Doing Business with the Fund; How to Buy Shares;
Shareholder and Account Policies - Purchases
(a) Not applicable
(b) How to Buy Shares; Shareholder and Account Policies -
Share Price
(c) Not applicable
(d) How to Buy Shares
(e)-(f) Not applicable
8(a) Doing Business with the Fund; How to Sell
Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
PART A (PROSPECTUS) - ARTISAN INTERNATIONAL FUND
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Expenses and Performance - Financial Highlights
(b) Not applicable
(c)-(d) Expenses and Performance - Performance
4(a)(i) Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices, and Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund's Investment Philosophy; Securities, Investment
Practices and Risks
5(a) Organization
(b) Organization; Management; The Fund in Detail -
Expenses; Expenses and Performance - Expenses; How to
Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact Us
Item Location or Caption
(f) Expenses and Performance - Expenses; The Fund in
Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
6(a) Organization; How to Buy Shares; How to Sell Shares
(b)-(d) Not applicable
(e) Doing Business with the Fund; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; How to Contact Us
(f)-(g) Dividends, Capital Gains, and Taxes
7 Doing Business with the Fund; How to Buy Shares;
Shareholder and Account Policies - Purchases
(a) Not applicable
(b) How to Buy Shares; Shareholder and Account Policies -
Share Price
(c) Not applicable
(d) How to Buy Shares
(e)-(f) Not applicable
8(a) Doing Business with the Fund; How to Sell
Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN SMALL CAP
FUND
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
Item Location or Caption
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Financial Statements
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN INTERNATIONAL FUND
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
Item Location or Caption
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Financial Statements
- -------------------------------------
Artisan Funds
Artisan Small Cap Fund
Prospectus
August 19, 1996
Investment Management Practiced with Intelligence and Discipline is An Art
ARTISAN
SMALL CAP
FUND
A No-Load Fund
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Fund invests
and the services available to shareholders.
A Statement of Additional Information dated the date of this prospectus has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement of
Additional Information is available free upon request by calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRO-SPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ARTISAN SMALL CAP FUND invests for maximum long-term capital growth. The Fund
invests primarily in the common stocks of small companies whose outstanding
shares have an aggregate market value of less than $1 billion.
PROSPECTUS
AUGUST 19, 1996
ARTISAN FUNDS, INC.
1000 NORTH WATER STREET, SUITE 1770
MILWAUKEE, WISCONSIN 53202
CONTENTS
THE FUND AT A GLANCE 4 GOAL, STRATEGY, MANAGEMENT, WHO MAY
WANT TO INVEST, AND RISKS AND RETURNS
EXPENSES AND PERFORMANCE 5 EXPENSES, FINANCIAL HIGHLIGHTS AND
PERFORMANCE
YOUR ACCOUNT 6 DOING BUSINESS WITH THE FUND AND WHO
IS ELIGIBLE TO INVEST
7 WAYS TO SET UP YOUR ACCOUNT
8 HOW TO BUY SHARES, MINIMUM INVESTMENTS
AND AUTOMATIC INVESTMENT PLAN
10 HOW TO SELL SHARES
SHAREHOLDER AND ACCOUNT 12 STATEMENTS AND REPORTS, SHARE PRICE AND
POLICIES PURCHASES
13 REDEMPTIONS, ACCOUNT REGISTRATION AND
TELEPHONE TRANSACTIONS
DIVIDENDS, CAPITAL GAINS, 15 DISTRIBUTION OPTIONS AND TAXES
AND TAXES
16 FOREIGN INCOME TAXES AND UNDERSTANDING
DISTRIBUTIONS
THE FUND IN DETAIL 17 ORGANIZATION AND MANAGEMENT
18 EXPENSES AND THE FUND'S INVESTMENT
PHILOSOPHY
20 SECURITIES, INVESTMENT PRACTICES AND
RISKS; EQUITY SECURITIES
21 FOREIGN SECURITIES and DEBT SECURITIES
22 CONVERTIBLE SECURITIES AND MANAGING
INVESTMENT EXPOSURE
24 ILLIQUID AND RESTRICTED SECURITIES,
DIVERSIFICATION, LENDING PORTFOLIO
SECURITIES; REPURCHASE AGREEMENTS;
WHEN-ISSUED AND DELAYED-DELIVERY
SECURITIES AND BORROWING
25 OTHER INVESTMENT COMPANIES AND
PORTFOLIO TURNOVER
THE FUND AT A GLANCE
GOAL
ARTISAN SMALL CAP FUND (THE "FUND") INVESTS FOR MAXIMUM LONG-TERM CAPITAL
GROWTH.
STRATEGY
THE FUND INVESTS PRIMARILY IN THE COMMON STOCKS OF SMALL COMPANIES WHOSE
OUTSTANDING SHARES HAVE AN AGGREGATE MARKET VALUE OF LESS THAN $1 BILLION. It
looks for well-managed companies with sustainable growth prospects whose
securities are undervalued either because they lack recognition or are out of
favor based on short-term factors.
Because the Fund seeks to invest in companies that are characterized by sparse
Wall Street research coverage, the Fund uses its own detailed research process
to identify investment opportunities. For example, the quality of management is
evaluated by face-to-face meetings. In addition, a company's competitive
position is analyzed carefully, as are the company's growth history and
prospects. Fund management also estimates the intrinsic value of prospective
investments to identify those which are undervalued.
The emphasis on fundamental analysis of stock valuation relative to growth
prospects sets the Fund apart from pure "growth" or "value" funds. The Fund's
style is often characterized as "growth at a price" or "growth/value blend."
MANAGEMENT: Artisan Partners Limited Partnership ("Artisan Partners"), located
in Milwaukee, Wisconsin and San Francisco, California, selects investments for
the Fund. Carlene Murphy Ziegler and Millie Adams Hurwitz are the portfolio
managers and are responsible for the day-to-day management of the Fund. Ms.
Ziegler and Ms. Hurwitz make all investment decisions with the assistance of a
team of Artisan Partners investment research and trading professionals.
WHO MAY WANT TO INVEST
Artisan Small Cap Fund is designed for investors who want maximum long-term
capital growth rather than income and who have the long-term investment outlook
needed for investing in the stocks of small companies.
RISKS AND RETURNS
Historically, stocks have shown greater growth than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market or economic news. In addition, the stocks of small companies
often involve more volatility than the stocks of larger companies. The Fund
does not pursue income and is not by itself a balanced investment plan.
The Fund will seek to limit risk by selecting companies with experienced
management, positive cash flows and sustainable growth prospects and
diversifying its holdings, to avoid concentration in any one stock or industry.
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on Artisan Partners' skill in selecting individual
stocks, as well as general market and economic conditions. When you sell your
shares, they may be worth more or less than you paid for them.
See "Securities, Investment Practices and Risks" on page 20 for the types of
investments the Fund may make, and "Your Account" on page 8 for how to buy
and redeem shares.
WHO MAY INVEST
The Fund is closed to new investors. The board decided that limiting the
Fund's size was in the best interests of shareholders because it allows
Artisan Partners to concentrate the Fund's investments in a manageable number
of small companies without taking too large a position in any single company.
See "Who Is Eligible to Invest" on page 6 to determine if you are eligible to
invest in the Fund.
EXPENSES AND PERFORMANCE
EXPENSES
Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.
Maximum sales charge on purchases
and reinvested dividends..................... NONE
Deferred sales charge on redemptions......... NONE
Redemption fee............................... NONE
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS). The
Fund pays its own operating expenses, including a management fee to Artisan
Partners. The Fund also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and reports. The
Fund's expenses are factored into its share price or dividends, are subtracted
from the share price daily, and are not charged directly to shareholder
accounts.
The following are historical expenses and are expressed as percentages of the
Fund's average net assets:
Management fee 1.00%
12b-1 fee None
Other expenses(a) 0.52%
-----
Total operating expenses 1.52%
=====
(a) A shareholder requesting payment of redemption proceeds by wire must pay the
cost of the wire (currently $5).
The purpose of the expense table is to help you understand the costs and
expenses associated with investing in the Fund.
UNDERSTANDING
EXPENSES
Operating a mutual fund requires paying for portfolio management, shareholder
statements, tax reporting, and other services. These costs are paid from the
Fund's assets; any quoted share price or return is after expenses.
EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and
that its operating expenses are exactly as shown in the column to the left. For
every $1,000 you invested, here's how much you would have paid in total expenses
if you closed your account after the number of years indicated:
After 1 year........... $ 15.96
After 3 years.......... $ 49.53
After 5 years.......... $ 85.42
After 10 years......... $186.40
This example illustrates the effect of expenses, but is not meant to suggest
actual or expected costs or returns, all of which may be more or less than those
shown in the example. Because the Fund is new, the above amounts are estimates.
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in the Fund throughout
the fiscal year ended June 30, 1996 and the period March 28, 1995 (the
commencement of operations) through June 30, 1995. This information was audited
by Price Waterhouse LLP, independent accountants. Their unqualified report is
included in the Fund's annual report to shareholders.
1996 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
LESS DISTRIBUTIONS
Total distributions ........................ (0.10)
------ ------
Net asset value, end of period............... $14.67 $11.52
====== ======
Total return................................. 28.30% 15.20%**
RATIOS/SUPPLEMENTAL DATA:
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%
+ From the commencement of operations (March 28, 1995) through June 30, 1995.
* Annualized
** Not Annualized
EXPENSES AND PERFORMANCE - CONTINUED
PERFORMANCE
Mutual fund performance is commonly measured as TOTAL RETURN. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. TOTAL RETURN reflects the Fund's
performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a
hypothetical rate of return that, if achieved annually, would have produced the
same total return if performance had been constant over the entire period.
Average annual total return smoothes out variations in performance; it is not
the same as actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of
income taxes paid by shareholders. The Fund may sometimes show its performance
compared to certain performance rankings, averages or stock indexes (described
more fully in the Statement of Additional Information).
YOUR ACCOUNT
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service 7 days a week, 24 hours a day.
To reach the Fund, call 1-800-344-1770.
WHO IS ELIGIBLE TO INVEST?
The Fund is closed to new investors. If you were a shareholder of the Fund when
it closed on February 27, 1996, you may make additional investments in the Fund
and reinvest your dividends and capital gain distributions, even though the Fund
has closed.
You may open a new account only if:
- - you are already a shareholder (in your own name or as beneficial owner of
shares held in someone else's name);
- - your business or other organization is already a shareholder of the Fund
and you are opening an account for an employee benefit plan sponsored by that
organization or an affiliated organization;
- - you are transferring or doing a "rollover" into a Fund IRA from an employee
benefit plan through which you held shares of the Fund (if your plan doesn't
qualify for rollovers you may still open a new account with all or part of the
proceeds of a distribution from the plan);
- - you are an employee benefit plan sponsored by an institution that also
sponsors (or is an affiliate of an institution that sponsors) another employee
benefit plan account that was a shareholder of the Fund at February 27, 1996;
- - you are a director or officer of Artisan Funds, Inc., or a partner or
employee of Artisan Partners, or a member of the immediate family of any of
those people;
- - you are a client of Artisan Partners or you have an existing business
relationship with Artisan Partners and, in the judgment of Artisan Partners,
your investment in the Fund would not adversely affect Artisan Partners'
ability to manage the Fund effectively; or
- - you are a client of a financial adviser or planner who had at least $1
million of client assets invested with the Fund as of February 27, 1996.
You may continue to add to your existing account(s) through the reinvestment of
dividends and distributions from the Fund, and through the purchase of
additional Fund shares. An employee benefit plan which is a Fund shareholder
may continue to buy shares in the ordinary course of the plan's operations, even
for new plan participants. An eligible financial adviser or planner may
continue to buy shares for existing and new clients.
The Fund does not intend to resume sales of shares to new investors. Call us at
1-800-344-1770 if you have questions about your ability to invest.
WAYS TO SET UP YOUR ACCOUNT
- ---------------------------
INDIVIDUAL OR JOINT OWNERSHIP
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners.
RETIREMENT
To defer taxes on your retirement savings
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible.
RETIREMENT ACCOUNTS REQUIRE SPECIAL APPLICATIONS WHICH MAY BE OBTAINED
BY CALLING 1-800-344-1770.
- - INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2,000 per tax year.
- - ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to $22,500 per year for themselves and any eligible employees.
- - OTHER RETIREMENT PLANS - The Fund may be used as an investment in other
kinds of retirement plans, including Keogh or corporate profit sharing and
money purchase plans, 403(b) plans and 401(k) plans. All of these accounts
need to be established by the trustee of the plan. The Fund does not offer
prototypes of these plans.
An IRA disclosure statement is delivered in advance of opening any IRA account
and contains information unique to retirement accounts. It also contains a
summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
To invest for a minor's education or other future needs
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
For money being invested by a trust, employee benefit plan, or profit-sharing
plan
The trust or plan must be established before an account can be opened. The date
of the trust or plan should be included on the new account application.
BUSINESS OR ORGANIZATION
For investment needs of corporations, associations, partnerships, institutions
or other groups
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
YOUR ACCOUNT - CONTINUED
HOW TO BUY SHARES
If you are eligible to open a new account, you may do so by:
- - mailing in an application with a check for $1,000 or more, or
- - exchanging $1,000 or more from your existing account with Artisan
International Fund, another series of Artisan Funds. For more details, see
"Telephone Exchange Plan" on page 14.
AFTER YOUR ACCOUNT IS OPEN, YOU MAY ADD TO IT BY:
- - mailing a check or money order along with the form at the bottom of your
account statement, or a letter (the Fund does not accept third-party checks)
- - moving money from your bank account by telephone provided you have elected
this privilege on your new account application;
- - moving an investment from Artisan International Fund to the Fund by
telephone provided you have elected this privilege;
- - wiring money from your bank; or
- - making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for shares is the net asset value per share next
calculated after your investment is received and accepted. An order is
considered received when the application (for a new account) or information
identifying the account and the money are received. See "Shareholder and
Account Policies" on page 12 for information about share price. The Fund does
not issue share certificates.
MINIMUM INVESTMENTS
- -------------------
TO OPEN AN ACCOUNT $1,000
TO ADD TO AN ACCOUNT $ 50
MINIMUM BALANCE $ 500
The initial minimum investment will be waived if you participate in the
Automatic Investment Plan. Because it is very expensive for the Fund to
maintain small accounts (and that cost is borne by all shareholders), the Fund
reserves the right to close your account if the value is less than $500 (or
$1,000 if you discontinued the Automatic Investment Plan before your account
reached $1,000). Before closing a small account, the Fund will notify you and
allow you at least 30 days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to make regular,
systematic investments into your Fund. Through the Automatic Investment Plan,
you purchase shares by transferring money (minimum of $50 per transaction) from
your designated checking or savings account. Your automatic investment in the
Fund will be processed monthly on a draft date designated by you, between the
3rd and 28th of the month only. The draft will be made ON OR ABOUT, possibly
earlier or later than, the date requested due to the processing complexities
associated with weekends, holidays, etc. Artisan Funds will NOT be responsible
for non-sufficient funds fees.
HOW TO BUY SHARES
- -----------------
MAIL
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - Complete and sign the new - Make your check or money order
account application. Make your payable to "Artisan Funds" or
check or money order payable to "Artisan Small Cap Fund." Put
"Artisan Funds" or "Artisan your account number on your
Small Cap Fund." Third-party check.
checks will not be accepted.
Mail check and form at the bottom
Mail to the address on the new of your account statement (or a
account application. FOR letter) to the address on your
OVERNIGHT DELIVERY: account statement. For
Artisan Funds OVERNIGHT DELIVERY:
c/o Boston Financial Data Services Artisan Funds
2 Heritage Drive c/o Boston Financial Data Services
Quincy, MA 02171 2 Heritage Drive
Quincy, MA 02171
PHONE 1-800-344-1770
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - You may not open a new account - If you did not elect the
by phone except by exchange of telephone transaction option on
$1,000 or more from your your new account application,
identically registered Artisan for the Fund or for Artisan
International Fund account. International Fund, complete
the shareholder options form
to make investments by phone
from $50 to $25,000 into your
- - You may establish the telephone account and to participate in the
transaction option when you telephone exchange plan.
open an account by electing the
option on your new account - All telephone trades must be
application. placed between 7:00 a.m. and 3:00
p.m. Central time on days the
NYSE is open for trading.
WIRE
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - Call 1-800-344-1770 for - Call 1-800-344-1770 for
instructions on opening an instructions on adding to an
account by wire. account by wire.
AUTOMATIC INVESTMENT PLAN
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - If you sign up for the Automatic - Sign up for the Automatic
Investment Plan when you open Investment Plan on the
your account, the minimum shareholder options form or call
initial investment will be 1-800-344-1770 for instructions
waived. on how to add to your existing
account.
- - Complete and sign the
Automatic Investment
Plan section of the
new account application.
YOUR ACCOUNT - CONTINUED
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
net asset value per share (share price) calculated after your order is received
and accepted. See "Shareholder and Account Policies" on page 12 for more
information about share price.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA account, your request must be made in
writing. If you need an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- - each owner's name and address,
- - the Fund's name,
- - your account number,
- - the dollar amount or number of shares to be redeemed, and
- - the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
CERTAIN REDEMPTION REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to
protect you and the Fund from fraud. Your request must be made in writing and
include a signature guarantee if any of the following situations applies:
- - you wish to redeem more than $25,000 worth of shares;
- - if you add/change your name or add/remove an owner on your account;
- - if you add/change the beneficiary on your account;
- - the check is being mailed to an address different than one on your account
(record address);
- - the check is being made payable to someone other than the account owner;
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account; or
- - you have changed the address on the account by phone within the last 60
days.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment plan, payment of
redemption proceeds may be delayed until the Fund is reasonably certain that
payment for the shares has been collected, which may take as long as 15 days.
HOW TO SELL SHARES SPECIAL REQUIREMENTS
- -----------------------------------------------------------------
NOTE: Some redemptions require signature guarantees. See page 10.
MAIL
Individual, Joint Owners, Sole - The letter of instruction must
Proprietorships, be signed by all persons
UGMA, UTMA required to sign for
transactions (usually, all
owners of the account) exactly
as their names appear on the
account.
Trust - The letter of
instruction must
include the signatures
of all trustees.
All Others - Call 1-800-344-1770 for
instructions.
PHONE 1-800-344-1770
All accounts except IRAs - You automatically have the
telephone redemption option
(which allows you to redeem at
least $500 and up to $25,000
worth of shares per day by phone)
unless you declined it on your
new account application. If you
declined the telephone redemption
option, call 1-800-344-1770 for
instructions on how to add it.
- All telephone trades must be placed
between 7:00 a.m. and 3:00 p.m.
Central time on days the NYSE is
open for trading.
WIRE
All account types except IRAs - We will transmit payment by wire
for a fee (currently $5.00) to a
pre-authorized bank account.
Usually, the funds will arrive at
your bank the next business day.
SYSTEMATIC WITHDRAWALS
All account types except IRAs - Sign up for systematic
withdrawals (distributions from
your account at regular intervals
in specified dollar amounts of at
least $50) by calling 1-800-344-
1770 for instructions on how to
add this option.
- You must have at least $5,000 in
your account before you are
eligible to sign up for this
option. If the amount in your
account is not sufficient to meet
a withdrawal, the remaining amount
in the account will be redeemed.
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- - Confirmation statements (after every transaction in your account or change
in your account registration);
- - Account statements (quarterly);
- - Annual and semi-annual reports with financial statements; and
- - Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for tax purposes.
If you need copies of current or preceding year statements call 1-800-344-1770.
Copies of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange ("NYSE") is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price
to sell one share) are the same and represent the Fund's net asset value per
share calculated at the next Closing Time after receipt of your purchase or
redemption order. Closing Time is the time of the close of regular session
trading on the NYSE, which is usually 3:00 p.m. Central time but is sometimes
earlier.
THE FUND'S NET ASSET VALUE PER SHARE is the value of a single share, and is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities and then dividing the result by the number
of shares outstanding.
Fund securities and assets are valued primarily on the basis of market
quotations from the primary market in which they are traded or, if quotations
are not readily available, by a method that the board of directors believes
accurately reflects a fair value. Values of foreign securities are translated
from the local currency into U.S. dollars using current exchange rates.
PURCHASES
- - All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks.
- - The Fund does not accept cash, credit cards or third-party checks.
- - If your check or telephone purchase order does not clear, your purchase
will be cancelled and you will be liable for any losses or fees the Fund or
its transfer agent incurs.
- - Your ability to make automatic investments and telephone purchases may be
immediately terminated if any item is unpaid by your financial institution.
- - THE FUND RESERVES THE RIGHT TO reject any purchase order. For example, a
purchase order may be refused if, in Artisan Partners' opinion, it is so large
that it would disrupt management of the Fund, or if the order is from a person
who is not eligible to invest.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with the
Fund may enter confirmed purchase orders or redemption requests on behalf of
customers on an expedited basis, including orders by phone, with payment to
follow no later than the time when the Fund's net asset value is calculated on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses. These
institutions may impose charges on their clients for their services and those
charges could constitute a significant portion of a smaller account.
Some financial institutions that maintain nominee accounts with the Fund for
their clients who own Fund shares charge an annual fee of up to .35% of the
average net assets held in such accounts for accounting, servicing and
distribution services they provide with respect to the underlying Fund shares.
Those fees are allocated between the Fund and Artisan Partners with the Fund
paying an amount not to exceed a cost approximating the transfer agency expense
that would be incurred by the Fund if the shares held in those nominee accounts
were held directly by the beneficial owners. The balance of the fee, and all
other expenses incurred in the sale and promotion of Fund shares, is paid by
Artisan Partners.
REDEMPTIONS
- - Normally, redemption proceeds will be mailed within seven days after
receipt of the request for redemption.
- - The Fund may hold payment on redemptions until it is reasonably satisfied
that it has received payment for a recent purchase made by check or by an
automatic investment or telephone purchase, which can take up to fifteen days.
- - If you make a telephone redemption, the Fund will send payment for your
redemption one of three ways: (i) by mail; (ii) by Electronic Funds Transfer
(EFT) to a pre-authorized bank account; or (iii) to your bank account by wire
transfer. The cost of the wire (currently $5.00) will be deducted from the
payment. Your bank also may impose a fee for the incoming wire. Payment by
EFT will usually arrive at your bank two banking days after your call.
Payment by wire is usually credited to your bank account on the next business
day after your call.
- - Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic withdrawal
payment, or a dividend or capital gain distribution you elected to receive in
cash) and the check is returned "undeliverable" or remains uncashed for six
months, the check will be cancelled and the proceeds will be reinvested in the
Fund at the net asset value per share on the date of cancellation. In addition,
after that six-month period, your systematic withdrawal payments will be
cancelled and future withdrawals will occur only when requested, or your cash
election will automatically be changed and future dividends and distributions
will be reinvested in your account.
ACCOUNT REGISTRATION
ADDRESS CHANGES for your account may be made by writing us a letter or by
calling us at 1-800-344-1770. The Fund will send a written confirmation of the
change to both your old and new addresses. No telephone redemptions may be made
for 60 days after a change of address by phone. During those 60 days, a
signature guarantee will be required for any written redemption request unless
your change of address was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES, PURCHASES AND
REDEMPTIONS, BY TELEPHONE. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to verify the identity of the caller. Those procedures may include
recording the call, requesting additional information and sending written
confirmation of telephone transactions. If the Fund fails to follow reasonable
procedures, the Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer investments between your
Artisan Small Cap Fund account and your Artisan International Fund account
between the hours of 7:00 a.m. and 3:00 p.m., Central time, on days the NYSE is
open for trading. Artisan International Fund is another series of Artisan
Funds.
Each exchange between accounts must be at least $1,000. The price of shares
exchanged between the Fund and Artisan International Fund is determined at the
end of that day's trading session.
Telephone exchange plan restrictions:
- - To exchange between funds, you must have an account with Artisan Small Cap
Fund and Artisan International Fund. Your accounts must be registered in the
same name, address and taxpayer identification number.
- - To open a Fund account by telephone by exchanging an investment from Artisan
International Fund, you must have previously elected the telephone
transaction option for that fund.
- - Before exchanging into Artisan International Fund, you should carefully read
its prospectus which may be obtained by calling 1-800-344-1770.
- - The exchange of shares may have tax consequences to you.
- - If your account is subject to backup withholding, you may not use the
telephone exchange plan.
- - Because excessive trading can hurt performance and shareholders, Artisan
Funds reserves the right to temporarily or permanently terminate the
telephone exchange plan of any investor who makes excessive use of the plan.
Artisan Funds also may limit the number of transfers per calendar year.
- - Artisan Funds reserves the right to terminate or modify the telephone
exchange plan at any time, but will try to give you prior notice whenever it
is able to do so.
DIVIDENDS, CAPITAL GAINS, AND TAXES
The Fund intends to distribute substantially all of its net income and net
realized capital gains to shareholders at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you want
to receive your distributions. If you later want to change your distribution
option, you may do so either by a written request or by calling us at 1-800-344-
1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your new account application, your distributions will be
reinvested automatically.
- - INCOME-ONLY OPTION. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA, and
might be subject to income tax and penalties if you are under 59 1/2 years old.
After you are 59 1/2, you may request payment of distributions in cash which
might be subject to income tax.
When you reinvest, the reinvestment price is the Fund's net asset value per
share at the close of business on the reinvestment date. The mailing of
distribution checks will usually begin on the payment date, which is usually one
week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your investment in
the Fund will be taxed. If your account is a tax-deferred account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not a tax-deferred account, however, you should
be aware of the following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and
also may be subject to state or local taxes. If you live outside the United
States, your distributions also could be taxed by the country in which you
reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
October, November or December and paid in January are taxable as if they were
received by you on December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, the Fund will send you and the
IRS a statement, called a Form 1099, showing the amount of each taxable
distribution you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares you will recognize a capital gain
or loss if there is a difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of the Fund, you will receive a confirmation statement
showing how many shares you sold and at what price. You also will receive a
year-end statement every January reporting, among other things, your average
cost basis in the shares you sold. This will allow you or your tax preparer to
determine whether a redemption resulted in a capital gain or loss and the tax
consequences of that gain or loss. However, be sure to keep your regular
account statements; the information they contain will be essential in verifying
the amount of your capital gains or losses.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS. If
you fail to comply with applicable IRS regulations including the certification
procedures described above, the IRS can require the Fund to withhold 31% of your
taxable distributions and redemptions.
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The Fund will not be
eligible to make an election to permit you to claim a foreign tax credit for
your share of such taxes because it will not meet the requirement of having more
than 50% of its assets invested in stocks or securities of foreign corporations.
However, the Fund expects such taxes to be deductible by it in computing its
taxable income.
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the Fund's net income and
any gains realized on its investments. The Fund's income from dividends and
interest and any net realized short-term gain are paid to you as DIVIDENDS.
The Fund realizes long-term capital gains whenever it sells securities held
for more than one year for a higher price than it paid for them. Net realized
long-term gains are paid to you as CAPITAL GAIN DISTRIBUTIONS.
THE FUND IN DETAIL
ORGANIZATION
Artisan Small Cap Fund is a series of Artisan Funds, Inc., ("Artisan Funds")
an open-end, management investment company which was incorporated under
Wisconsin law in 1995.
Each share of the Fund has one vote. All shares participate equally in
dividends and other distributions declared by the board of directors, and all
shares of the Fund have equal rights in the event of liquidation of the Fund.
Shares of the Fund have no preemptive, conversion or subscription rights.
THE FUND IS GOVERNED BY A BOARD OF DIRECTORS which is responsible for protecting
the interests of the shareholders of the Fund. The directors are experienced
executives and professionals who meet at regular intervals to oversee the
activities of the Fund, review contractual arrangements with companies that pro-
vide services to the Fund and review performance. A majority of directors are
not otherwise affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered investment companies
to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940 (the federal securities law that governs the regulation of investment
companies). The Fund has adopted the appropriate provisions in its bylaws and
does not expect to hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders. The Fund believes that
not holding shareholder meetings except as otherwise required reduces the Fund's
expenses and enhances shareholder return.
THE FUND MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS. These meetings may be
called to elect or remove directors, change fundamental policies, approve a
management contract, or for other purposes. The Fund will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. You are entitled to one vote for each share of the Fund that you own.
Shareholders not attending these meetings are encouraged to vote by proxy.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, 1000 North Water
Street, Suite 1770, Milwaukee, Wisconsin 53202, which selects the Fund's
investments and handles its business affairs, under the direction of the board
of directors. Artisan Partners is a limited partnership managed by its general
partner, Artisan Investment Corporation, controlled by Andrew A. Ziegler and
Carlene Murphy Ziegler.
Carlene Murphy Ziegler and Millie Adams Hurwitz are the Fund's portfolio
managers.
Ms. Ziegler also is a director and president of Artisan Funds. Prior to
founding Artisan Partners in 1995, Ms. Ziegler was a co-portfolio manager of
the Strong Common Stock Fund and Strong Opportunity Fund. From 1986 to 1991,
Ms. Ziegler was a co-portfolio manager of the SteinRoe Special Fund.
Ms. Ziegler holds B.A. and M.A. degrees from the University of Illinois and
an M.B.A. from the University of Chicago Graduate School of Business.
She also is a Chartered Financial Analyst.
Ms. Hurwitz is vice president of Artisan Funds and joined Artisan Partners
as senior analyst of Artisan Partners' small capitalization equity products
in February 1995. Ms. Hurwitz was a co-portfolio manager with Stein Roe &
Farnham Incorporated from 1992 until February 1995, and an analyst with OLC
Corporation from 1989 to 1991. Ms. Hurwitz holds a B.A. degree from
Northwestern University and a Master of Management degree in Finance
and Marketing from Kellogg Graduate School of Management at Northwestern
University.
Andrew A. Ziegler is a director and chief executive officer of Artisan Funds.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler was
president and chief operating officer of Strong/Corneliuson Capital Management,
and president of the Strong Funds; prior thereto, Mr. Ziegler was Executive
Vice President and General Counsel of Strong. From 1986 to 1990, Mr. Ziegler
was an attorney with the law firm of Godfrey & Kahn, S.C., Milwaukee, WI.
Mr. Ziegler holds a B.S. from the University of Wisconsin - Madison and a J.D.
from the University of Wisconsin Law School.
John M. Blaser is chief financial officer of Artisan Funds and acts as the
principal administrative and financial officer. Prior to joining Artisan
Partners in 1995, Mr. Blaser was Senior Vice President of Kemper
Securities, Inc. since 1993. Prior thereto, Mr. Blaser was with Price
Waterhouse. Mr. Blaser holds a B.B.A. from the University of
Wisconsin - Madison.
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, MA 02171, is the Fund's transfer and dividend disbursing agent.
State Street also serves as the Fund's custodian and accounting agent.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends.
The Fund pays a MANAGEMENT FEE to Artisan Partners for managing its investments
and business affairs. For services furnished by Artisan Partners, the Fund has
agreed to pay an annual fee of (i) 1% of its average daily net assets up to $500
million; (ii) .975 of 1% of its average daily net assets from $500 to $750
million; (iii) .950 of 1% of its average daily net assets from $750 million to
$1 billion and (iv) .925 of 1% of its average daily net assets over $1 billion.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agent, fund accountants, independent accountants and
lawyers. It also pays other expenses such as the cost of compliance with
federal and state laws, proxy solicitations, shareholder reports, taxes,
insurance premiums and the fees of directors who are not otherwise affiliated
with the Fund or Artisan Partners. Artisan Partners has undertaken to reimburse
the Fund to the extent its ordinary operating expenses (not including taxes,
interest or extraordinary expenses) exceed 2% of the Fund's average net assets
on an annual basis.
THE FUND'S INVESTMENT PHILOSOPHY
THE FUND INVESTS FOR MAXIMUM LONG-TERM CAPITAL GROWTH. THE FUND INVESTS
PRIMARILY IN THE COMMON STOCKS OF SMALL COMPANIES WHOSE OUTSTANDING SHARES HAVE
AN AGGREGATE MARKET VALUE OF LESS THAN $1 BILLION.
The strategy of many growth investors (like the Fund) is to find outstanding
companies at bargain prices. This is easier said than done since these
companies are often quickly identified and their stocks become fully valued in
the market.
The Fund's investment approach revolves around a few basic beliefs. The first
is that smaller-capitalization companies (those with a total market
capitalization of less than $1 billion) offer a very fertile investment universe
because they tend to have better growth potential and are less likely to be
broadly recognized. While "small-cap" stocks are more volatile than "large-
caps," they have been shown to outperform large-cap stocks over longer time
horizons.
A second belief is that underfollowed or under-researched stocks tend to be less
efficiently priced due to a lack of attention by other investors. Investors
need to be paid a premium for taking the risk of having incomplete information.
By doing its own research, Artisan Partners expects to reduce the information
risk and realize the premium returns.
Artisan Partners' research involves analyzing the financial statements of a
company, the fundamentals of the particular industry and, most importantly, the
quality of management. Artisan Partners believes that in small companies, the
quality of management is often the key to ultimate success or failure. Artisan
Partners meets with management in person to discuss the company's goals,
strategies, competitive position and control systems. There will always be
problems and surprises, but good management can lead a company through these
problems and emerge successful over the long-run.
The Fund further believes that the true value of a company fluctuates less over
time than the company's stock price. Accordingly, Artisan Partners attempts to
estimate the intrinsic value of the company (what the Fund would be willing to
pay to own the whole company). The Fund will purchase a company's stock only
when that stock sells at a substantial discount to its estimated intrinsic value
so as to minimize the downside risk of the investment.
Limiting downside risk is an important variable, especially when investing in
smaller-cap, less liquid stocks. In addition to intrinsic value analysis,
Artisan Partners also seeks to limit downside risk by choosing companies with
positive cash flows and sustainable growth prospects and by diversifying its
holdings to avoid concentration in any one stock or industry. Artisan Partners
continuously monitors its holdings to minimize the chance of negative surprises.
Finally, before purchasing a stock, Artisan Partners identifies the key issues
that will drive the stock price. Any new information regarding the company is
then evaluated relative to those issues. If its initial investment analysis
remains intact and the stock stays undervalued, the Fund will continue to hold
the position. The ideal holding period is forever, but that rarely happens
since a company that is undervalued will usually be recognized by other
investors. The typical holding period is about two years.
The Fund invests primarily in equity securities, including common and preferred
stocks, warrants or other similar rights and, in addition, the Fund may from
time to time have significant portions of its portfolio invested in foreign
securities. The Fund also may invest in other types of securities, such as debt
securities, and may engage in certain investment practices such as short sales
"against the box;" however, the Fund does not currently intend to commit more
than 5% of its total assets to investment practices such as short sales against
the box.
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in short-term
corporate obligations or government obligations or hold cash or cash equivalents
if Artisan Partners determines that a temporary defensive position is advisable.
See the discussion of debt securities on page 21.
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates, or
other factors that affect the value of its portfolio. These techniques include
buying and selling options, futures contracts, and options on futures contracts,
or entering into currency exchange contracts.
Although the Fund does not generally purchase securities with a view to rapid
turnover, there are no limitations on the length of time portfolio securities
must be held. Occasionally, securities purchased on a long-term basis may be
sold within a short period of time after purchase in light of a change in the
circumstances of a particular company or industry or in general market or
economic conditions.
The investment objective of the Fund may be changed by the board of directors
without shareholder approval. If there were such a change, you should consider
whether the Fund would remain an appropriate investment in light of your then
current financial position and needs. The Fund is not intended to present a
balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make and strategies Artisan Partners may employ in pursuit of the
Fund's investment objective, including information about the risks and
restrictions associated with these instrument types and investment practices.
All investment policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is included in the
Statement of Additional Information. Compliance with policies and limitations
is determined at the time of purchase of a security; the Fund is not required to
sell an investment because of a later change in circumstances.
The Fund may not buy all of these instruments or use all of these techniques to
the full extent permitted unless Artisan Partners believes that doing so will
help the Fund achieve its goal. As a shareholder, you will receive semi-annual
and annual reports detailing the Fund's holdings and describing recent
investment practices.
EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives the holder the right to vote on measures
affecting the company's organization and operations. Although common stocks
have a history of long-term growth in value, their prices tend to fluctuate in
the short term.
The Fund invests mostly in the common stock of small companies, defined for this
purpose as those companies whose outstanding common stock has a total market
value of less than $1 billion. During some periods, the securities of small
companies, as a class, have performed better than the securities of large
companies, and in some periods they have performed worse. Stocks of small
companies tend to be more volatile and less liquid than stocks of large
companies. Small, newer companies, as compared to larger companies, may have a
shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure and may have a smaller public market for their
shares.
Restrictions: Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of issuers with an aggregate common stock market
capitalization of less than $1 billion. The Fund may not acquire more than 10%
of the outstanding voting securities of any one issuer.*
* The restriction is "fundamental," which means it cannot be changed without
shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American Depository Receipts
("ADRs"), provide opportunities different from those available in the U.S.,
and risks which may be greater in some ways than in U.S. investments. ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. See the Fund's Statement of Additional
Information for more information. International investing allows you to achieve
greater diversification and to take advantage of changes in foreign economies
and market conditions. From time to time, many foreign economies have grown
faster than the U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments, although there can be no
assurance that these conditions will continue.
You should understand and consider carefully the greater risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and opportunities not
typically associated with investing in U.S. securities. These include:
fluctuations in exchange rates of foreign currencies; imposition of exchange
control regulation or currency restrictions that would prevent cash from being
brought back to the United States; less public information with respect to
issuers of securities; less governmental supervision of stock exchanges,
securities brokers and issuers of securities; different accounting, auditing
and financial reporting standards; different settlement periods and trading
practices; less liquidity and frequently greater price volatility in foreign
markets than in the United States; imposition of foreign taxes; and sometimes
less advantageous legal, operational and financial protections applicable to
foreign sub-custodial arrangements. In addition, the costs of investing in
foreign securities is higher than the cost of investing in U.S. securities.
Investing in countries outside the U.S. also involves political risk. A foreign
government might restrict investments by foreigners, expropriate assets, seize
or nationalize foreign bank deposits or other assets, establish exchange
controls or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have very negative effects on the economies and securities
markets of those countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. There also may
be a lower level of monitoring and regulation in emerging markets of traders,
insiders, and investors. Enforcement of existing regulations has been extremely
limited.
Restrictions: The Fund's investments in foreign securities (including ADRs) are
limited to not more than 25% of its total assets. The Fund does not intend to
invest more than 10% of its total assets in foreign securities.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates. In general, an increase in interest rates will decrease the value of
debt securities.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by Artisan Partners to be
of comparable quality. Securities rated BBB or Baa are considered to be medium
grade and to have speculative characteristics. Investment in non-investment
grade debt securities is speculative and involves a high degree of risk.
Lower-rated debt securities (commonly called "junk bonds") are often considered
speculative and involve greater risk of default or price changes due to changes
in the issuer's credit-worthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty.
Debt securities in which the Fund may invest in the ordinary course of business,
include intermediate to long-term debt securities issued by corporations or
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. For more information, see the discussion of debt securities
in the Statement of Additional Information.
Restrictions: The Fund intends to be substantially fully invested in equity
securities in ordinary circumstances. Except when a defensive posture is
considered advisable, the Fund's investments in debt securities will not exceed
35% of the Fund's assets, without regard to their ratings. Investments in debt
securities in excess of 35% of the Fund's assets will be restricted to
investment grade debt securities. The Fund does not intend to invest more than
5% of its net assets in securities rated below investment grade.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (securities convertible into
underlying equity securities). In determining whether to purchase a convertible
security, Artisan Partners will consider the same criteria that would be
considered in purchasing the underlying stock. Although convertible securities
purchased by the Fund are frequently rated investment grade, the Fund also may
purchase unrated securities or securities rated below investment grade if the
securities meet Artisan Partners' other investment criteria.
Restrictions: The Fund does not intend to invest more than 5% of its net assets
in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of its portfolio. These techniques include buying
and selling derivative securities such as options, futures contracts or options
on futures contracts, or entering into currency exchange contracts. INVESTMENTS
IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT RISKS AND MAY INCREASE THE
VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation, although there is no limitation on
the percentage of assets that can be committed to derivative securities. In
addition, particular types of derivative securities are subject to certain
limitations and restrictions described in the Statement of Additional
Information under the heading "Investment Techniques -- Managing Investment
Exposure."
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through a forward
currency exchange contract ("forward contract"). A forward contract is an
agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into with banks and broker-dealers, are
not exchange-traded and are usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different countries
in which the Fund may invest and serve as hedges against possible variations in
the exchange rate between these currencies. The Fund's currency transactions
are limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving either
specific transactions or actual or anticipated positions. Transaction hedging
is the purchase or sale of a forward contract with respect to a specific
receivable or payable of the Fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to an actual or anticipated portfolio security position
denominated or quoted in a particular currency. The Fund may engage in
portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denominated
in such currency. When the Fund owns or anticipates owning securities in
countries whose currencies are linked, Artisan Partners may aggregate such
positions as to the currency hedged. Although forward contracts may be used to
protect the Fund from adverse currency movements, the use of such hedges may
reduce or eliminate the potentially positive effect of currency reevaluations on
the Fund's total return.
OPTIONS AND FUTURES. The Fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of its portfolio, to provide
an efficient means of regulating its exposure to the equity markets or as a
hedge against changes in prevailing levels of currency exchange rates. The Fund
may write covered call options and purchase put and call options on foreign
currencies, securities and stock indices. Futures contracts and options can be
highly volatile and are subject to price movements in underlying securities.
The Fund's attempt to use such investments for hedging purposes may not be
successful and could result in reduction of the Fund's total return. In
addition, the loss from investing in futures transactions is potentially
unlimited and the Fund may be unable to control losses by closing its position
if a liquid secondary market does not exist.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price. Other
securities, such as securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of these securities are
often referred to as Rule 144A securities. Difficulty in selling securities may
result in delays or a loss or may be costly to the Fund. A Rule 144A security
may be treated as liquid if the board of directors of the Fund so determines
based on an analysis of relevant information including trading activity and
availability of reliable price information.
Restrictions: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing. This
may include limiting the amount of money invested in any one company, or on a
broader scale, limiting the amount invested in any one industry or country.
Restrictions: With respect to 75% of its total assets, the Fund may not invest
more than 5% of its total assets in the securities of any one issuer. The Fund
may not invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.*
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS;
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and banks
and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses or delays in the event of bankruptcy of the
seller of a repurchase agreement.
The Fund may invest also in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities are established
at the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. The Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if it is deemed advisable for investment reasons.
Restrictions. The Fund may not lend securities if, as a result, the aggregate
value of all securities loaned would exceed one-third of its total assets.* The
Fund does not currently intend to loan more than 5% of its net assets or to have
commitments to purchase when-issued securities in excess of 5% of its net
assets.
BORROWING
Artisan Funds maintains a line of credit with a major bank to permit borrowing
by the Fund on a temporary basis. The Fund will not purchase securities when
total borrowings by the Fund are greater than 5% of its net asset value.
Restrictions. The Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate borrowings at any
one time may not exceed 33 1/3% of its total assets (at market).*
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a premium
above the value of the issuer's portfolio securities and is subject to market
availability. In the case of a purchase of shares of such a company in a public
offering, the purchase price may include an underwriting spread. The Fund does
not intend to invest in other investment companies unless, in the judgment of
Artisan Partners, the potential benefits of such investment justify the payment
of any applicable premium or sales charge. As a shareholder in an investment
company, the Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own management fees and other expenses.
Restrictions. The Fund generally may invest up to 10% of its assets in shares
of other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in
another investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.
PORTFOLIO TURNOVER
During normal market conditions, it is anticipated that the Fund's portfolio
turnover rate generally will be between 75% and 100%, but may vary significantly
from year to year. Flexibility of investment and emphasis on long-term capital
appreciation may involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a balanced investment
position. A higher rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and losses. Portfolio
turnover in excess of 100% is considered to be high.
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
- -------------------------------------
ARTISAN FUNDS
ARTISAN INTERNATIONAL FUND
PROSPECTUS
AUGUST 19, 1996
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
Please read this prospectus before investing and keep it on file for future
reference. It contains important information, including how the Fund invests and
the services available to shareholders.
A Statement of Additional Information dated the date of this prospectus has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement of
Additional Information is available free upon request by calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
ARTISAN
INTERNATIONAL FUND
A No-Load Fund
ARTISAN INTERNATIONAL FUND invests for maximum long-term capital growth. The
Fund seeks to achieve its objective by investing primarily in the stocks of
foreign companies.
PROSPECTUS
AUGUST 19, 1996
ARTISAN FUNDS, INC.
1000 NORTH WATER STREET, SUITE 1770
MILWAUKEE, WISCONSIN 53202
CONTENTS
- --------
The Fund at a Glance 4 Goal, Strategy, Management, Who
May Want to Invest, and Risks and
Returns
Expenses and Performance 5 Expenses
6 Financial Highlights and
Performance
Your Account 7 Doing Business with the Fund,
How to Buy Shares, Minimum
Investments and Automatic
Investment Plan
8 Ways to Set up Your Account
10 How to Sell Shares
Shareholder and Account 12 Statements and Reports,
Policies Share Price
and Purchases
13 Redemptions and Account
Registration
14 Telephone Transactions and
Telephone Exchange Plan
Dividends, Capital Gains 15 Distribution Options and Taxes
and Taxes
16 Foreign Income Taxes and
Understanding Distributions
The Fund in Detail 17 Organization and Management
18 Expenses and The Fund's
Investment Philosophy
19 Securities, Investment Practices
and Risks
20 Equity Securities and
Foreign Securities
21 Debt Securities, Convertible
Securities and Managing
Investment Exposure
23 Illiquid and Restricted Securities,
Diversification, Lending Portfolio
Securities; Repurchase Agreements;
When-Issued and Delayed-Delivery
Securities, Borrowing and Other
Investment Companies
24 Portfolio Turnover
THE FUND AT A GLANCE
- --------------------
GOAL
Artisan International Fund (the "Fund"), one of the series of funds of Artisan
Funds, invests for maximum long-term capital growth.
STRATEGY
The Fund generally invests in the stocks of foreign companies and uses its own
detailed research process to identify investment opportunities. The Fund's
research method is both "top-down" and "bottom-up." That means that country
selection and stock selection are equally important parts of the investment
process.
Country selection involves identifying the regions and countries of the world
which are enjoying improving or rapid economic growth. The Fund avoids countries
that, while showing favorable economic growth, appear to have overvalued
markets. Economic growth is determined principally from the standpoint of gross
domestic product growth, corporate profitability, current account and currency
issues, interest rates, and social changes.
Having identified favorable areas of the world for growth, the Fund seeks out
the stocks of companies best positioned to capitalize on that growth. In this
process, the Fund emphasizes well-managed companies with dominant or increasing
market share in strong industries. It focuses on companies with above-average
financial characteristics and accelerating earnings per share. The Fund also
analyzes relative valuations using a variety of criteria such as price-to-
earnings ratios and avoids stocks that are trading at unsustainable or unusually
high valuations.
MANAGEMENT: Artisan Partners Limited Partnership ("Artisan Partners"), located
in Milwaukee, Wisconsin and San Francisco, California, selects investments for
the Fund. Mark Yockey, vice president of Artisan Funds, is the portfolio manager
and is primarily responsible for the day-to-day management of the Fund. He makes
all investment decisions with the assistance of a team of Artisan Partners
investment research and trading professionals.
WHO MAY WANT TO INVEST
Artisan International Fund is designed for investors who want maximum long-term
capital growth rather than income and who have the long-term investment outlook
needed for investing in the stocks of foreign companies.
RISKS AND RETURNS
The Fund intends to be substantially fully invested in foreign equity securities
in ordinary circumstances. The Fund also may invest in other types of equity
securities and debt securities. The Fund may invest without limit in short-term
corporate obligations or government obligations (U.S. or foreign) or hold cash
or cash equivalents if Artisan Partners determines that a temporary defensive
position is advisable.
The Fund may invest in derivative securities which may involve significant risks
and may increase the volatility of the Fund.
Historically, stocks have shown greater growth than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market or economic news. Investing in foreign securities involves
certain risks not typically associated with investing in U.S. securities,
including fluctuation of exchange rates of foreign currencies, differences in
accounting and financial reporting standards, differences in settlement and
trading practices, less liquidity in some markets and generally higher
transaction costs. The Fund does not pursue income and is not by itself a
balanced investment plan.
The Fund seeks to limit risk by selecting companies with experienced management,
positive cash flows and sustainable growth prospects and diversifying its
holdings, to avoid concentration in any one country, industry or stock. The Fund
also uses various techniques to increase or decrease its exposure to the effects
of possible changes in security prices, currency exchange rates or other factors
that affect the value of
its portfolio.
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on Artisan Partners' skill in selecting individual
stocks, as well as general market and economic conditions in the countries in
which the Fund is invested. When you sell your shares, they may be worth more or
less than you paid for them.
See "Securities, Investment Practices and Risks" on page 19 for more
information on the types of investments the Fund may make, and "Your Account"
on page 7 for information on how to buy and redeem shares.
EXPENSES AND PERFORMANCE
- ------------------------
EXPENSES
Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.
Maximum sales charge on purchases
and reinvested dividends.................. NONE
Deferred sales charge on redemptions...... NONE
Redemption fee............................ NONE
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS). The Fund
pays its own operating expenses, including a management fee to Artisan Partners.
The Fund also incurs other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and reports. The Fund's expenses
are factored into its share price or dividends, are subtracted from the share
price daily, and are not charged directly to shareholder accounts.
The Fund expects to incur the following expenses during its first full fiscal
year ending June 30, 1997:
Management fee............................ 1.00%
12b-1 fee................................. NONE
Other expenses (a)....................... .72%
-----
Total operating expenses.................. 1.72%
=====
(a) Estimated based on the expenses the Fund expects to incur in the fiscal year
ending June 30, 1997. A shareholder requesting payment of redemption proceeds by
wire must pay the cost of the wire (currently $5.00).
Artisan Partners has undertaken to reimburse the Fund for any ordinary operating
expenses in excess of 2.50% of average net assets annually. The purpose of the
expense table is to help an investor understand the costs and expenses
associated with investing in the Fund.
EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and that
its operating expenses are exactly as shown in the column to the left. For every
$1,000 you invested, here's how much you would have paid in total expenses if
you closed your account after the number of years indicated:
After 1 year........... $18.06
After 3 years.......... $55.93
This example illustrates the effect of expenses, but is not meant to suggest
actual or expected costs or returns, all of which may be more or less than those
shown in the example. Because the Fund is new, the above amounts are estimates.
UNDERSTANDING EXPENSES
Operating a mutual fund requires paying for portfolio management, shareholder
statements, tax reporting and other services. These costs are paid from the
Fund's assets; any quoted share price or return is after expenses.
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in the Fund throughout
the period December 28, 1995 (the commencement of operations) through June 30,
1996. This information was audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's annual report to
shareholders.
Net asset value, commencement of
operations .................................. $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................................... 20.80%**
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets .................................. 2.50%*
Ratio of net investment income
to average net assets ....................... 2.40%*
Portfolio turnover rate........................ 57.00%
* Annualized
** Not Annualized
PERFORMANCE
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's performance
over a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total return smoothes out variations in performance; it is not the same as
actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of income
taxes paid by shareholders. The Fund may sometimes show its performance compared
to certain performance rankings, averages or stock indexes (described more fully
in the Statement of Additional Information).
YOUR ACCOUNT
- ------------
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service 7 days a week, 24 hours a day.
To reach the Fund, call 1-800-344-1770.
HOW TO BUY SHARES
You can open a new account by
- - mailing in an application with a check for $1,000 or more, or
- - exchanging $1,000 or more from your existing account with Artisan Small Cap
Fund, another series of Artisan Funds. For more details, see "Telephone
Exchange Plan" on page 14.
After your account is open, you may add to it by:
- - mailing a check or money order along with either the form at the bottom of
your account statement, or a letter of instruction (the Fund does not accept
third-party checks);
- - moving money from your bank account by telephone provided you have elected
this privilege on your new account application;
- - moving an investment from Artisan Small Cap Fund to the Fund by telephone
provided you have elected this privilege;
- - wiring money from your bank; or
- - making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for shares is the net asset value per share next
calculated after your investment is received and accepted. An order is
considered received when the application (for a new account) or information
identifying the account and the money are received. See "Shareholder and
Account Policies' on page 12 for information about share price. The Fund does
not issue share certificates.
MINIMUM INVESTMENTS
- -------------------
To open an account $ 1,000
To add to an account $ 50
Minimum balance $ 500
The initial minimum investment will be waived if you participate in the
Automatic Investment Plan. Because it is very expensive for the Fund to maintain
small accounts (and that cost is borne by all shareholders), the Fund reserves
the right to close your account if the value is less than $500 (or $1,000 if you
discontinued the Automatic Investment Plan before your account reached $1,000).
Before closing a small account, the Fund will notify you and allow you at least
30 days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to make regular,
systematic investments into your Fund. Through the Automatic Investment Plan,
you purchase shares by transferring money (minimum of $50 per transaction) from
your designated checking or savings account. Your automatic investment in the
Fund will be processed monthly on a draft date designated by you, between the
3rd and 28th of the month only. The draft will be made ON OR ABOUT, possibly
earlier or later than, the date requested due to the processing complexities
associated with weekends, holidays, etc. Artisan Funds will NOT be responsible
for non-sufficient funds fees.
WAYS TO SET UP YOUR ACCOUNT
- ---------------------------
INDIVIDUAL OR JOINT OWNERSHIP
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or more
owners.
RETIREMENT
To defer taxes on your retirement savings
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible. RETIREMENT
ACCOUNTS REQUIRE SPECIAL APPLICATIONS WHICH MAY BE OBTAINED BY CALLING 1-800-
344-1770.
- -INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year.
- -ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- -SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to $22,500 per year for themselves and any eligible employees.
- -OTHER RETIREMENT PLANS - The Fund may be used as an investment in other kinds
of retirement plans, including Keogh or corporate profit sharing and money
purchase plans, 403(b) plans and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. The Fund does not offer prototypes
of these plans.
An IRA disclosure statement is delivered in advance of opening any IRA account
and contains information unique to retirement accounts. It also contains a
summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
To invest for a minor's education or other future needs
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
For money being invested by a trust, employee benefit plan, or profit-sharing
plan
The trust or plan must be established before an account can be opened. The date
of the trust or plan should be included on the new account application.
BUSINESS OR ORGANIZATION
For investment needs of corporations, associations, partnerships, institutions
or other groups
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
HOW TO BUY SHARES
- -----------------
MAIL
TO OPEN AN ACCOUNT:
- - Complete and sign the new account application. Make your check or money order
payable to "Artisan Funds" or "Artisan International Fund.' Third-party
checks will not be accepted.
Mail to the address on the new account application. FOR OVERNIGHT DELIVERY
USE:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
TO ADD TO AN ACCOUNT:
- - Make your check or money order payable to "Artisan Funds" or "Artisan
International Fund." Put your account number on your check.
Mail check and either the form at the bottom of your account statement, or a
letter of instruction to the address on your account statement. FOR OVERNIGHT
DELIVERY USE:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
PHONE 1-800-344-1770
TO OPEN AN ACCOUNT:
- - You may not open a new account by telephone, except by exchange of at least
$1,000 or more from your identically registered account with Artisan Small Cap
Fund.
- - You may establish the telephone transaction option when you open an account by
electing the option on your new account application.
TO ADD TO AN ACCOUNT:
- - If you did not elect the telephone transaction option on your new account
application for the Fund or for Artisan Small Cap Fund, complete the
shareholder options form to make investments by phone from $50 to $25,000 into
your account and to participate in the telephone exchange plan.
- - All telephone trades must be placed between 7:00 a.m. and 3:00 p.m. Central
time on days the NYSE is open for trading.
WIRE
TO OPEN AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on opening an account by wire.
TO ADD TO AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on adding to an account by wire.
AUTOMATIC INVESTMENT PLAN
TO OPEN AN ACCOUNT:
- - If you sign up for the Automatic Investment Plan when you open your account,
the minimum initial investment will be waived.
- - Complete and sign the Automatic Investment Plan section of the new account
application.
TO ADD TO AN ACCOUNT:
- - Sign up for the Automatic Investment plan on the shareholder options form or
call 1-800-344-1770 for instructions on how to add to your existing account.
YOUR ACCOUNT - CONTINUED
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next net
asset value per share (share price) calculated after your order is received and
accepted. See "Shareholder and Account Policies" on page 12 for more
information about share price.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA account, your request must be made in
writing. If you need an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- - each owner's name and address,
- - the Fund's name,
- - your account number,
- - the dollar amount or number of shares to be redeemed, and
- - the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
CERTAIN REDEMPTION REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to
protect you and the Fund from fraud. Your request must be made in writing and
include a signature guarantee if any of the following situations applies:
- - you wish to redeem more than $25,000 worth of shares;
- - if you add/change your name or add/remove an owner on your account;
- - if you add/change the beneficiary on your account;
- - the check is being mailed to an address different than one on your account
(record address);
- - the check is being made payable to someone other than the account owner;
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account; or
- - if you have changed the address on the account by phone within the last 60
days.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment plan, payment of
redemption proceeds may be delayed until the Fund is reasonably certain that
payment for the shares has been collected, which may take as long as 15 days.
HOW TO SELL SHARES SPECIAL REQUIREMENTS
- ------------------ --------------------
NOTE: Some redemptions require signature guarantees. See page 10.
MAIL
Individual, Joint Owners,
Sole Proprietorships,
UGMA, UTMA - The letter of instruction must be signed by all persons
required to sign for transactions (usually, all owners
of the account) exactly as their names appear on the
account.
Trust - The letter of instruction must include the signatures of
all trustees.
All Others - Call 1-800-344-1770 for instructions.
PHONE 1-800-344-1770
All accounts
except IRAs - You automatically have the telephone redemption option
(which allows you to redeem at least $500 and up to
$25,000 worth of shares per day by phone) unless you
declined it on your new account application. If you
declined the telephone redemption option, call 1-800-
344-1770 for instructions on how to add it.
- All telephone trades must be placed between 7:00 a.m.
and 3:00 p.m. Central time on days the NYSE is open for
trading.
WIRE
All account types
except IRAs - We will transmit payment by wire for a fee (currently
$5.00) to a pre-authorized bank account. Usually, the
funds will arrive at your bank the next business day.
SYSTEMATIC WITHDRAWALS
All account types
except IRAs - Sign up for systematic withdrawals (distributions from
your account at regular intervals in specified dollar
amounts of at least $50) by calling 1-800-344-1770 for
instructions on how to add this option.
- You must have at least $5,000 in your account before you
are eligible to sign up for this option. If the amount
in your account is not sufficient to meet a withdrawal,
the remaining amount in the account will be redeemed.
SHAREHOLDER AND ACCOUNT POLICIES
- --------------------------------
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- - Confirmation statements (after every transaction in your account or change in
your account registration);
- - Account statements (quarterly);
- - Annual and semi-annual reports with financial statements; and
- - Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for tax purposes.
If you need copies of current or preceding year statements call 1-800-344-1770.
Copies of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange ("NYSE") is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to
sell one share) are the same and represent the Fund's net asset value per share
calculated at the next Closing Time after receipt of your purchase or redemption
order. Closing Time is the time of the close of regular session trading on the
NYSE, which is usually 3:00 p.m. Central time but is sometimes earlier.
THE FUND'S NET ASSET VALUE PER SHARE is the value of a single share, and is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities and then dividing the result by the number
of shares outstanding.
Fund securities and assets are valued primarily on the basis of market
quotations from the primary market in which they are traded or, if quotations
are not readily available, by a method that the board of directors believes
accurately reflects a fair value. Values of foreign securities are translated
from the local currency into U.S. dollars using current exchange rates.
Trading in securities on European and Far Eastern securities exchanges and over-
the-counter markets is normally completed at various times before the close of
business on each day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading may take place
in various foreign markets on Saturdays or on other days when the NYSE is not
open and on which the Fund's net asset value is not calculated. Therefore, such
calculation does not take place contemporaneously with the determination of the
prices of many of the portfolio securities used in such calculation and the
value of the Fund's portfolio may be significantly affected on days when shares
of the Fund may not be purchased or redeemed.
PURCHASES
- - All of your purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks.
- - The Fund does not accept cash, credit cards or third-party checks.
- - If your check or telephone purchase order does not clear, your purchase will
be cancelled and you will be liable for any losses or fees the Fund or its
transfer agent incurs.
- - Your ability to make automatic investments and telephone purchases may be
immediately terminated if any item is unpaid by your financial institution.
- - THE FUND RESERVES THE RIGHT to reject any purchase order. For example, a
purchase order may be refused if, in Artisan Partners' opinion, it is so large
that it would disrupt management of the Fund.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with the
Fund may enter confirmed purchase orders or redemption requests on behalf of
customers on an expedited basis, including orders by phone, with payment to
follow no later than the time when the Fund's net asset value is calculated on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses. These
institutions may impose charges on their clients for their services and those
charges could constitute a significant portion of a smaller account.
Some financial institutions that maintain nominee accounts with the Fund for
their clients who own Fund shares charge an annual fee of .35% of the average
net assets held in such accounts for accounting, servicing and distribution
services they provide with respect to the underlying Fund shares. Those fees are
allocated between the Fund and Artisan Partners with the Fund paying an amount
not to exceed a cost approximating the transfer agency expense that would be
incurred by the Fund if the shares held in those nominee accounts were held
directly by the beneficial owners. The balance of the fee, and all other
expenses incurred in the sale and promotion of Fund shares, is paid by Artisan
Partners.
REDEMPTIONS
- - Normally, redemption proceeds will be mailed within seven business days after
receipt of the request for redemption.
- - The Fund may hold payment on redemptions until it is reasonably satisfied that
it has received payment for a recent purchase made by check or by an automatic
investment or telephone purchase, which can take up to fifteen days.
- - If you make a telephone redemption, the Fund will send payment for your
redemption one of three ways: (i) by mail; (ii) by Electronic Funds Transfer
(EFT) to a pre-authorized bank account; or (iii) to your bank account by wire
transfer. The cost of the wire (currently $5.00) will be deducted from the
payment. Your bank also may impose a fee for the incoming wire. Payment by EFT
will usually arrive at your bank two banking days after your call. Payment by
wire is usually credited to your bank account on the next business day after
your call.
- - Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic withdrawal
payment, or a dividend or capital gain distribution you elected to receive in
cash) and the check is returned "undeliverable" or remains uncashed for six
months, the check will be cancelled and the proceeds will be reinvested in the
Fund at the net asset value per share on the date of cancellation. In addition,
after that six-month period, your systematic withdrawal payments will be
cancelled and future withdrawals will occur only when requested, or your cash
election will automatically be changed and future dividends and distributions
will be reinvested in your account.
ACCOUNT REGISTRATION
ADDRESS CHANGES for your account may be made by writing us a letter or by
calling us at 1-800-344-1770. The Fund will send a written confirmation of the
change to both your old and new addresses. No telephone redemptions may be made
for 60 days after a change of address by phone. During those 60 days, a
signature guarantee will be required for any written redemption request unless
your change of address was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES, PURCHASES AND
REDEMPTIONS, BY TELEPHONE. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to verify the identity of the caller. Those procedures may include
recording the call, requesting additional information and sending written
confirmation of telephone transactions. If the Fund fails to follow reasonable
procedures, the Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer investments between your
Artisan Small Cap Fund account and your Artisan International Fund account
between the hours of 7:00 a.m. and 3:00 p.m., Central time on days the NYSE is
open for trading. Artisan Small Cap Fund is another series of Artisan Funds.
Each exchange between accounts must be at least $1,000. The price of shares
exchanged between Artisan Small Cap Fund and the Fund is determined at the end
of that day's trading session.
Telephone exchange plan restrictions:
- - To exchange between funds, you must have an account with Artisan Small Cap
Fund and Artisan International Fund. Your accounts must be registered in the
same name, address and taxpayer identification number.
- - To open a Fund account by telephone by exchanging an investment from Artisan
Small Cap Fund, you must have previously elected the telephone transaction
option for that fund.
- - Because Artisan Small Cap Fund is closed to new investors, you may not open an
account with that fund unless you meet the eligibility requirements identified
in the Artisan Small Cap Fund prospectus.
- - Before exchanging into Artisan Small Cap Fund, you should carefully read its
prospectus which may be obtained by calling 1-800-344-1770.
- - The exchange of shares may have tax consequences to you.
- - If your account is subject to backup withholding, you may not use the
telephone exchange plan.
- - Because excessive trading can hurt performance and shareholders, Artisan Funds
reserves the right to temporarily or permanently terminate the telephone
exchange plan of any investor who makes excessive use of the plan. Artisan
Funds also may limit the number of transfers per calendar year.
- - Artisan Funds reserves the right to terminate or modify the telephone exchange
plan at any time, but will try to give you prior notice whenever it is able to
do so.
DIVIDENDS, CAPITAL GAINS AND TAXES
- ----------------------------------
The Fund intends to distribute substantially all of its net income and net
realized capital gains to shareholders at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you want
to receive your distributions. If you later want to change your distribution
option, you may do so either by a written request or by calling us at 1-800-344-
1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your new account application, your distributions will be
reinvested automatically.
- - INCOME-ONLY OPTION. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA and might
be subject to income tax and penalties if you are under 59 1/2 years old. After
you are 59 1/2, you may request payment of distributions in cash which might be
subject to income tax.
When you reinvest, the reinvestment price is the Fund's net asset value per
share at the close of business on the reinvestment date. The mailing of
distribution checks will usually begin on the payment date, which is usually one
week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your investment in
the Fund will be taxed. If your account is a tax-deferred account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not a tax-deferred account, however, you should be
aware of the following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax and also
may be subject to state or local taxes. If you live outside the United States,
your distributions also could be taxed by the country in which you reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
October, November or December and paid in January are taxable as if they were
received by you on December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, the Fund will send you and the
IRS a statement, called a Form 1099, showing the amount of each taxable
distribution you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares you will recognize a capital gain
or loss if there is a difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of the Fund, you will receive a confirmation statement
showing how many shares you sold and at what price. You also will receive a
year-end statement every January reporting, among other things, your average
cost basis in the shares you sold. This will allow you or your tax preparer to
determine whether a redemption resulted in a capital gain or loss and the tax
consequences of that gain or loss. However, be sure to keep your regular account
statements; the information they contain will be essential in verifying the
amount of your capital gains or losses.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS. If
you fail to comply with applicable IRS regulations including the certification
procedures described above, the IRS can require the Fund to withhold 31% of your
taxable distributions and redemptions.
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. If the Fund pays non-
refundable taxes to foreign governments during the year, the taxes will reduce
the Fund's dividend but will be included in your taxable income. You may be able
to claim an offsetting credit or deduction on your tax return for your share of
foreign taxes paid by the Fund. You will receive this information as part of
your Form 1099.
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the Fund's net income and
any gains realized on its investments. The Fund's income from dividends and
interest and any net realized short-term gain are paid to you as DIVIDENDS. The
Fund realizes long-term capital gains whenever it sells securities held for more
than one year for a higher price than it paid for them. Net realized long-term
gains are paid to you as CAPITAL GAIN DISTRIBUTIONS.
THE FUND IN DETAIL
- ------------------
ORGANIZATION
Artisan International Fund is a series of Artisan Funds, Inc. ("Artisan
Funds"), an open-end, management investment company which was incorporated
under Wisconsin law in 1995.
Each share of the Fund has one vote. All shares participate equally in dividends
and other distributions declared by the board of directors, and all shares of
the Fund have equal rights in the event of liquidation of the Fund. Shares of
the Fund have no preemptive, conversion or subscription rights.
ARTISAN FUNDS IS GOVERNED BY A BOARD OF DIRECTORS which is responsible for
protecting the interests of the shareholders of the Fund. The directors are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Fund, review contractual arrangements with
companies that provide services to the Fund and review performance. A majority
of directors are not otherwise affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered investment companies
to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940 (the federal securities law that governs the regulation of investment
companies). The Fund has adopted the appropriate provisions in its bylaws and
does not expect to hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders. The Fund believes that
not holding shareholder meetings except as otherwise required reduces the Fund's
expenses and enhances shareholder return.
THE FUND MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS. These meetings may be called
to elect or remove directors, change fundamental policies, approve a management
contract or for other purposes. The Fund will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on. You
are entitled to one vote for each share of the Fund that you own. Shareholders
not attending these meetings are encouraged to vote by proxy.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, 1000 North Water
Street, Suite 1770, Milwaukee, Wisconsin 53202, which selects the Fund's
investments and handles its business affairs, under the direction of the board
of directors. Artisan Partners is a limited partnership managed by its general
partner, Artisan Investment Corporation, controlled by Andrew A. Ziegler and
Carlene Murphy Ziegler.
Andrew A. Ziegler is a director and chief executive officer of Artisan Funds.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler was
president and chief operating officer of Strong/ Corneliuson Capital Management
and president of the Strong Funds; prior thereto, Mr. Ziegler was Executive Vice
President and General Counsel of Strong. From 1986 to 1990, Mr. Ziegler was an
attorney with the law firm of Godfrey & Kahn, S.C., Milwaukee, WI. Mr. Ziegler
holds a B.S. from the University of Wisconsin - Madison and a J.D. from the
University of Wisconsin Law School.
Carlene Murphy Ziegler is a director and president of Artisan Funds and the
portfolio manager of Artisan Small Cap Fund, another series of Artisan Funds.
Prior to founding Artisan Partners in 1995, Ms. Ziegler was a co-portfolio
manager of the Strong Common Stock Fund and Strong Opportunity Fund. From 1986
to 1991, Ms. Ziegler was a co-portfolio manager of the SteinRoe Special Fund.
Ms. Ziegler holds B.A. and M.A. degrees from the University of Illinois and an
M.B.A. from the University of Chicago Graduate School of Business. She also is a
Chartered Financial Analyst.
Mark L. Yockey is a vice president of Artisan Funds and the portfolio manager of
Artisan International Fund. Prior to joining Artisan Partners in 1995, Mr.
Yockey was portfolio manager of the United International Growth Fund and vice
president of Waddell & Reed since January 1990. Prior thereto, Mr. Yockey was an
equity analyst for Waddell & Reed. Mr. Yockey holds a B.A. degree and an M.B.A.
from Michigan State University. He is also a Chartered Financial Analyst.
John M. Blaser is chief financial officer of Artisan Funds and acts as the
principal administrative and financial officer. Prior to joining Artisan
Partners in 1995, Mr. Blaser was Senior Vice President of Kemper Securities,
Inc. since 1993. Prior thereto, Mr. Blaser was with Price Waterhouse. Mr. Blaser
holds a B.B.A. from the University of Wisconsin - Madison.
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, MA 02171, is the Fund's transfer and dividend disbursing agent.
State Street also serves as the Fund's custodian and accounting agent.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends.
The Fund pays a MANAGEMENT FEE to Artisan Partners for managing its investments
and business affairs. For services furnished by Artisan Partners, the Fund has
agreed to pay an annual fee of (i) 1% of its average daily net assets up to $500
million; (ii) .975 of 1% of its average daily net assets from $500 to $750
million; (iii) .950 of 1% of its average daily net assets from $750 million to
$1 billion and (iv) .925 of 1% of its average daily net assets over $1 billion.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agent, fund accountants, independent accountants and
lawyers. It also pays other expenses such as the cost of compliance with federal
and state laws, proxy solicitations, shareholder reports, taxes, insurance
premiums and the fees of directors who are not otherwise affiliated with the
Fund or Artisan Partners.
THE FUND'S INVESTMENT PHILOSOPHY
THE FUND INVESTS FOR MAXIMUM LONG-TERM CAPITAL GROWTH. THE FUND GENERALLY
INVESTS IN THE STOCKS OF FOREIGN COMPANIES AND USES ITS OWN DETAILED RESEARCH
PROCESS TO IDENTIFY INVESTMENT OPPORTUNITIES. The Fund's research method is both
"top-down" and "bottom-up." That means that country selection and stock
selection are equally important parts of the investment process.
Country selection involves an evaluation of the regions and countries of the
world in an effort to determine which are enjoying improving or rapid economic
growth. The Fund avoids countries that, while showing favorable economic growth,
appear to have overvalued markets. Economic growth is determined principally
from the standpoint of gross domestic product growth, corporate profitability,
current account and currency issues, interest rates and social changes.
Having identified favorable areas of the world for growth, the Fund seeks out
the stocks of companies best positioned to capitalize on that growth. In this
process, the Fund emphasizes well-managed companies with dominant or increasing
market share in strong industries. It focuses on companies with above-average
financial characteristics and increasing earnings per share. The Fund also
analyzes relative valuations using a variety of criteria such as price-to-
earnings ratios and avoids stocks that are trading at unsustainable or unusually
high valuations.
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of similar U.S.
investments, although there can be no assurance that these conditions will
continue.
The Fund also may invest in other types of equity securities and in debt
securities, and may engage in certain investment practices such as short sales
"against the box;" however, the Fund does not currently intend to commit more
than 5% of its total assets to investment practices such as short sales against
the box.
The Fund intends to be substantially fully invested in foreign equity securities
in ordinary circumstances, although the Fund may invest without limit in short-
term corporate obligations or government obligations (U.S. or foreign) or hold
cash or cash equivalents if Artisan Partners determines that a temporary
defensive position is advisable. See the discussion of debt securities on page
21.
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates, or
other factors that affect the value of its portfolio. These techniques include
buying and selling options, futures contracts, and options on futures contracts
or entering into currency exchange contracts.
Although the Fund does not generally purchase securities with a view to rapid
turnover, there are no limitations on the length of time portfolio securities
must be held. Occasionally, securities purchased on a long-term basis may be
sold within a short period of time after purchase in light of a change in the
circumstances of a particular company or industry or in general market or
economic conditions.
The investment objective of the Fund may be changed by the board of directors
without shareholder approval, upon 30 days prior written notice to shareholders.
If there were such a change, you should consider whether the Fund would remain
an appropriate investment in light of your then current financial position and
needs. The Fund is not intended to present a balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make and strategies Artisan Partners may employ in pursuit of the
Fund's investment objective, including information about the risks and
restrictions associated with these instrument types and investment practices.
All investment policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is included in the
Statement of Additional Information. Compliance with policies and limitations is
determined at the time of purchase of a security; the Fund is not required to
sell an investment because of a later change in circumstances.
The Fund may not buy all of these instruments or use all of these techniques to
the full extent permitted unless Artisan Partners believes that doing so will
help the Fund achieve its goal. As a shareholder, you will receive semi-annual
and annual reports detailing the Fund's holdings and describing recent
investment practices.
EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives the holder the right to vote on measures
affecting the company's organization and operations. The equity securities in
which the Fund invests may include preferred stocks, including preferred stocks
convertible into common stocks. Although common stocks and other equity
securities have a history of long-term growth in value, their prices tend to
fluctuate in the short term.
The Fund invests mostly in the common stock (or the equivalent of common stock
under the applicable foreign law) of foreign companies.
RESTRICTIONS: The Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer.*
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American Depository Receipts
("ADRs"), provide opportunities different from those available in the U.S.,
and risks which may be greater in some ways than in U.S. investments. ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. See the Fund's Statement of Additional
Information for more information.
You should understand and consider carefully the greater risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and opportunities not
typically associated with investing in U.S. securities. These include:
fluctuations in exchange rates of foreign currencies; imposition of exchange
control regulation or currency restrictions that would prevent cash from being
brought back to the United States; less public information with respect to
issuers of securities; less governmental supervision of stock exchanges,
securities brokers and issuers of securities; different accounting, auditing and
financial reporting standards; different settlement periods and trading
practices; less liquidity and frequently greater price volatility in foreign
markets than in the United States; imposition of foreign taxes; and sometimes
less advantageous legal, operational, and financial protections applicable to
foreign sub-custodial arrangements. In addition, the costs of investing in
foreign securities is higher than the cost of investing in U.S. securities.
Investing in countries outside the U.S. also involves political risk. A foreign
government might restrict investments by foreigners, expropriate assets, seize
or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have very negative effects on the economies and securities
markets of those countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. There also may be
a lower level in emerging markets of monitoring and regulation of traders,
insiders and investors. Enforcement of existing regulations has been extremely
limited.
RESTRICTIONS: Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of foreign issuers.* In addition, under normal
market conditions, the Fund will invest in at least three countries outside the
U.S.
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Debt securities have varying degrees
of quality and varying levels of sensitivity to changes in interest rates. In
general, an increase in interest rates will decrease the value of debt
securities.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's
Investors Services, Inc. ("Moody's") or, if unrated, determined by Artisan
Partners to be of comparable quality. Securities rated BBB or Baa are considered
to be medium grade and to have speculative characteristics. Investment in non-
investment grade debt securities is speculative and involves a high degree of
risk.
Lower-rated debt securities (commonly called "junk bonds") are considered
speculative and involve greater risk of default or price changes due to changes
in the issuer's credit-worthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty.
For more information, see the discussion of debt securities in the Statement of
Additional Information.
RESTRICTIONS: The Fund intends to be substantially fully invested in equity
securities in ordinary circumstances. Except when a defensive posture is
considered advisable, the Fund's investments in debt securities will not exceed
35% of the Fund's assets, without regard to their ratings. Investments in debt
securities in excess of 35% of the Fund's assets will be restricted to
investment grade debt securities. The Fund does not intend to invest more than
5% of its net assets in securities rated below investment grade.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (securities convertible into
underlying equity securities). In determining whether to purchase a convertible
security, Artisan Partners will consider the same criteria that would be
considered in purchasing the underlying stock. Although convertible securities
purchased by the Fund are frequently rated investment grade, the Fund also may
purchase unrated securities or securities rated below investment grade if the
securities meet Artisan Partners' other investment criteria.
RESTRICTIONS: The Fund does not intend to invest more than 5% of its net assets
in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of its portfolio. These techniques include buying
and selling derivative securities such as options, futures contracts, or options
on futures contracts or entering into currency exchange contracts. INVESTMENTS
IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT RISKS AND MAY INCREASE THE
VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation, although there is no limitation on
the percentage of assets that can be committed to derivative securities. In
addition, particular types of derivative securities are subject to certain
limitations and restrictions described in the Statement of Additional
Information under the heading "Investment Techniques - Managing Investment
Exposure."
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be conducted
either on a spot (i.e., cash) basis at the spot rate for purchasing or selling
currency prevailing in the foreign exchange market or through a forward currency
exchange contract ("forward contract"). A forward contract is an agreement to
purchase or sell a specified currency at a specified future date (or within a
specified time period) and price set at the time of the contract. Forward
contracts are usually entered into with banks and broker-dealers, are not
exchange-traded and are usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different countries
in which the Fund may invest and serve as hedges against possible variations in
the exchange rate between these currencies. The Fund's currency transactions are
limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving either specific
transactions or actual or anticipated positions. Transaction hedging is the
purchase or sale of a forward contract with respect to a specific receivable or
payable of the Fund accruing in connection with the purchase or sale of
portfolio securities. Portfolio hedging is the use of a forward contract with
respect to an actual or anticipated portfolio security position denominated or
quoted in a particular currency. The Fund may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating actual
or anticipated positions in securities denominated in such currency. When the
Fund owns or anticipates owning securities in countries whose currencies are
linked, Artisan Partners may aggregate such positions as to the currency hedged.
Although forward contracts may be used to protect the Fund from adverse currency
movements, the use of such hedges may reduce or eliminate the potentially
positive effect of currency revaluations on the Fund's total return.
OPTIONS AND FUTURES. The Fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of its portfolio, to provide
an efficient means of regulating its exposure to the equity markets or as a
hedge against changes in prevailing levels of currency exchange rates. The Fund
may write covered call options and purchase put and call options on foreign
currencies, securities and stock indices. Futures contracts and options can be
highly volatile and are subject to price movements in underlying securities. The
Fund's attempt to use such investments for hedging purposes may not be
successful and could result in a loss. In addition, the loss from investing in
futures transactions is potentially unlimited and the Fund may be unable to
control losses by closing its position if a liquid secondary market does not
exist.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price. Other
securities, such as securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of these securities are
often referred to as Rule 144A securities. Difficulty in selling securities may
result in delays or a loss or may be costly to the Fund. A Rule 144A security
may be treated as liquid if the board of directors of the Fund so determines
based on an analysis of relevant information including trading activity and
availability of reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing. This
may include limiting the amount of money invested in any one company or, on a
broader scale, limiting the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the Fund may not invest
more than 5% of its total assets in the securities of any one issuer. The Fund
may not invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.*
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-ISSUED AND
DELAYED-DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and banks
and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses or delays in the event of bankruptcy of the
seller of a repurchase agreement. The Fund may also invest in securities
purchased on a when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if it is deemed advisable for
investment reasons.
RESTRICTIONS: The Fund may not lend securities if, as a result, the aggregate
value of all securities loaned would exceed one-third of its total assets.* The
Fund does not currently intend to loan more than 5% of its net assets or to have
commitments to purchase when-issued securities in excess of 5% of its net
assets.
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
BORROWING
Artisan Funds maintains a line of credit with a major bank to permit borrowing
by the Fund on a temporary basis. The Fund will not purchase securities when
total borrowings by the Fund are greater than 5% of its net asset value.
RESTRICTIONS: The Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate borrowings at any
one time may not exceed 33 1/3% of its total assets (at market).*
* The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a premium
above the value of the issuer's portfolio securities and is subject to market
availability. In the case of a purchase of shares of such a company in a public
offering, the purchase price may include an underwriting spread. The Fund does
not intend to invest in other investment companies unless, in the judgment of
Artisan Partners, the potential benefits of such investment justify the payment
of any applicable premium or sales charge. As a shareholder in an investment
company, the Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own management fees and other expenses.
RESTRICTIONS: The Fund generally may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in
another investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.
PORTFOLIO TURNOVER
During normal market conditions, it is anticipated that the Fund's portfolio
turnover rate generally will be between 75% and 100%, but may vary significantly
from year to year. Flexibility of investment and emphasis on long-term capital
appreciation may involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a balanced investment
position. A higher rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and losses. Portfolio
turnover in excess of 100% is considered to be high.
ARTISAN FUNDS
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
- -------------------------------------
Artisan Funds, Inc.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100
(800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
August 19, 1996
Artisan Small Cap Fund
Artisan Small Cap Fund (the "Fund") is a series of Artisan Funds, Inc.
("Artisan Funds"). This statement of additional information is not a
prospectus. It should be read in conjunction with the prospectus of the Fund
dated August 19, 1996 and any supplement to the prospectus. That prospectus can
be obtained without charge by calling or writing to the Fund.
TABLE OF CONTENTS
Page
Information about the Fund....................................B-2
Investment Objective and Policies.............................B-2
Investment Techniques and Risks...............................B-2
Investment Restrictions......................................B-13
Performance Information......................................B-16
Directors and Officers.......................................B-19
Principal Shareholders.......................................B-22
Investment Advisory Services.................................B-22
Portfolio Transactions.......................................B-23
Purchasing and Redeeming Shares..............................B-24
Additional Tax Information...................................B-25
Custodian....................................................B-25
Independent Accountants......................................B-25
Financial Statements.........................................B-25
INFORMATION ABOUT THE FUND
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds").
Artisan Partners Limited Partnership ("Artisan Partners") provides investment
advisory services to the Fund.
The discussion below supplements the description in the prospectus of
the Fund's investment objectives, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
Artisan Small Cap Fund invests for maximum long-term capital growth
primarily in the common stocks of small companies whose outstanding shares have
an aggregate market value of less than $1 billion. The investment objective of
the Fund may be changed by the board of directors without the approval of a
"majority of the outstanding voting securities" (as defined in the Investment
Company Act of 1940) of the Fund.
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities.
In addition, the Fund may from time to time have significant portions of its
portfolio invested in foreign securities. The Fund also may invest in any other
type of security, including debt securities.
INVESTMENT TECHNIQUES AND RISKS
Foreign Securities
The Fund may invest up to 25% of its total assets in foreign
securities (including American Depository Receipts ("ADRs")), which may entail
a greater degree of risk (including risks relating to exchange rate
fluctuations, tax provisions, or expropriation of assets) than does investment
in securities of domestic issuers. ADRs are receipts typically issued by an
American bank or trust company evidencing ownership of the underlying
securities. The Fund may invest in sponsored or unsponsored ADRs. In the case
of an unsponsored ADR, the Fund is likely to bear its proportionate share of the
expenses of the depository and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored ADR. The Fund
does not intend to invest more than 5% of its net assets in unsponsored ADRs.
With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, the Fund's investment performance
is affected by the strength or weakness of the U.S. dollar against these
currencies. For example, if the dollar falls in value relative to the Japanese
yen, the dollar value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-denominated
stock will fall. (See discussion of transaction hedging and portfolio hedging
under "Managing Investment Exposure.")
Investors should understand and consider carefully the risks involved
in foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
Debt Securities
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
Investments in debt securities by the Fund may be in those that are
within the four highest ratings categories of Standard & Poor's Corporation
("S&P") or Moody's Investors Services, Inc. ("Moody's") (generally referred to
as "investment grade") or, if unrated, deemed to be of comparable quality by
Artisan Partners. However, the Fund may invest up to 35% of its net assets in
debt securities that are rated below investment grade. The Fund does not
currently intend to invest more than 5% of its net assets in securities rated
below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Artisan Partners will consider that
fact in determining whether the Fund should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
Defensive Investments
The Fund intends to be substantially fully invested in equity
securities in ordinary circumstances, although the Fund may invest without limit
in corporate or government obligations or hold cash or cash equivalents if
Artisan Partners determines that a temporary defensive position is advisable.
Convertible Securities
Convertible securities include any corporate debt security or
preferred stock that may be converted into underlying shares of common stock.
The common stock underlying convertible securities may be issued by a different
entity than the issuer of the convertible securities. Convertible securities
entitle the holder to receive interest payments paid on corporate debt
securities or the dividend preference on a preferred stock until such time as
the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its "investment
value.' The investment value of the convertible security will typically
fluctuate inversely with changes in prevailing interest rates. However, at the
same time, the convertible security will be influenced by its "conversion
value,' which is the market value of the underlying common stock that would be
obtained if the convertible security were converted. Conversion value
fluctuates directly with the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, Artisan Partners will consider the same
criteria that would be considered in purchasing the underlying stock. Although
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet Artisan Partners' other investment
criteria. Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, Artisan Partners' own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
Managing Investment Exposure
The Fund uses various techniques to increase or decrease its exposure
to the effects of possible changes in security prices, currency exchange rates
or other factors that affect the value of its portfolio. These techniques
include buying and selling options, futures contracts, or options on futures
contracts, or entering into currency exchange contracts.
These techniques are used by Artisan Partners to adjust the risk and
return characteristics of the Fund's portfolio. If Artisan Partners judges
market conditions incorrectly or employs a strategy that does not correlate well
with the Fund's investments, or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation.
Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. Currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities. Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted in a particular
currency. Portfolio hedging allows the Fund to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that currency) so
that the U.S. dollar value of certain underlying foreign portfolio securities
can be approximately matched by an equivalent U.S. dollar liability. The Fund
may not engage in portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular currency, except that the Fund may hedge all or part of its
foreign currency exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective proxy for other
currencies. In such a case, the Fund may enter into a forward contract where
the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The Fund may not engage
in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, the Fund may either sell the portfolio security related to such
contract and make delivery of the currency, or it may retain the security and
either acquire the currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting contract with the
same currency trader obligating it to purchase on the same maturity date the
same amount of the currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly,
it may be necessary for the Fund to purchase additional currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery of the
currency. Conversely, it may be necessary to sell on the spot market some of the
currency received upon the sale of the portfolio security if its market value
exceeds the amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Because currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
Options on Securities and Indexes. The Fund may purchase and sell put
options and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may purchase
agreements, sometimes called cash puts, that may accompany the purchase of a new
issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires, the Fund realizes a capital loss equal to
the premium paid.
Prior to the earlier of exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Fund will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security or index in
relation to the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
Risks Associated with Options on Securities and Indexes. There are
several risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position. If the Fund were unable to close
out an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire and become
worthless. If the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the underlying security
until the option expired. As the writer of a covered call option on a security,
the Fund foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the
Fund, the Fund would not be able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index <F1>
at a specified price and time. A public market exists in futures contracts
covering a number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, and the New York Stock
Exchange Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes, Eurodollar
certificates of deposit, and foreign currencies). Other index and financial
instrument futures contracts are available and it is expected that additional
futures contracts will be developed and traded.
<F1> A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other techniques
could be used to reduce or increase the Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The Fund will only enter into futures contracts and futures options
that are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.
The success of any futures transaction depends on Artisan Partners
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, Artisan Partners might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on
its initial margin deposits. A futures contract held by the Fund is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
Risks Associated with Futures. There are several risks associated
with the use of futures contracts and futures options. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. In trying to increase or reduce market exposure, there can be
no guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
Limitations on Options and Futures. If other options, futures
contracts, or futures options of types other than those described herein are
traded in the future, the Fund also may use those investment vehicles, provided
the board of directors determines that their use is consistent with the Fund's
investment objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money," <F2>
would exceed 5% of the Fund's total assets.
<F2> A call option is "in-the-money' if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
When purchasing a futures contract or writing a put option on a
futures contract, the Fund must maintain with its custodian (or broker, if
legally permitted) assets (including any margin) equal to the market value of
such contract. When writing a call option on a futures contract, the Fund
similarly will maintain with its custodian assets (including any margin) equal
to the amount by which such option is in-the-money until the option expires or
is closed out by the Fund.
The Fund may not maintain open short positions in futures contracts,
call options written on futures contracts or call options written on indexes if,
in the aggregate, the market value of all such open positions exceeds the
current value of the securities in its portfolio, plus or minus unrealized gains
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For
this purpose, to the extent the Fund has written call options on specific
securities in its portfolio, the value of those securities will be deducted from
the current market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of Regulation 1.3(z), or,
with respect to positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of Regulation 1.3(z), the
aggregate initial margin and premiums required to establish such positions will
not exceed 5% of the fair market value of the assets of the Fund, after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into (in the case of an option that is in-the-money at the time of
purchase, the in the-money amount (as defined in Section 190.01(x) of the
Commission Regulations) may be excluded in computing such 5%).
As long as the Fund continues to sell its shares in certain states and
applicable state law or regulation so requires, the Fund's options and futures
transactions also will be subject to certain non-fundamental investment
restrictions set forth under "Investment Restrictions" in this statement of
additional information.
Taxation of Options and Futures. If the Fund exercises a call or put
option that it holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of the security
sold (put). For cash settlement options and futures options exercised by the
Fund, the difference between the cash received at exercise and the premium paid
is a capital gain or loss.
If a call or put option written by the Fund is exercised, the premium
is included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain
or loss. If an option written by the Fund is in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option <F3> other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
<F3> An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel- casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with
respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by the Fund
may affect the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index
futures option or short index option position and the Fund's portfolio were
deemed to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Fund's stock positions may be deemed
to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for the Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition, gains realized
on the sale or other disposition of securities held for less than three months
must be limited to less than 30% of the Fund's annual gross income. Any net
gain realized from futures (or futures options) contracts will be considered
gain from the sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive gains on
securities held less than three months, the Fund may be required to defer the
closing out of certain positions beyond the time when it would otherwise be
advantageous to do so.
The Fund intends to distribute to shareholders annually any capital
gains that have been recognized for Federal income tax purposes (including year-
end mark-to-market gains) on options and futures transactions, together with
gains on other Fund investments, to the extent such gains exceed recognized
capital losses and any net capital loss carryovers of the Fund. Shareholders
will be advised of the nature of such capital gain distributions.
Rule 144A Securities
The Fund may purchase securities that have been privately placed but
that are eligible for purchase and sale under Rule 144A under the 1933 Act
("Rule 144A securities"). That Rule permits certain qualified institutional
buyers, including investment companies that own and invest at least $100 million
in securities, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. Artisan Partners, under the supervision
of the board of directors, will consider whether Rule 144A securities are
illiquid and thus subject to the Fund's restriction of investing no more than
10% of its net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, Artisan Partners will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, Artisan Partners could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, Artisan
Partners determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Fund does not invest more than 10% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
Lending of Portfolio Securities
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
Artisan Partners' judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights. The Fund does not
currently intend to loan more than 5% of its net assets.
Repurchase Agreements
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, the Fund will enter into
repurchase agreements only with banks and dealers believed by Artisan Partners
to present minimum credit risks in accordance with guidelines approved by the
board of trustees. Artisan Partners will review and monitor the
creditworthiness of such institutions, and will consider the capitalization of
the institution, Artisan Partners' prior dealings with the institution, any
rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at
all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price,
the Fund would suffer a loss. If the financial institution which is party to
the repurchase agreement petitions for bankruptcy or otherwise becomes subject
to bankruptcy or other liquidation proceedings there may be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Artisan Partners deems it advisable for investment reasons.
The Fund does not currently intend to have commitments to purchase when-issued
securities in excess of 5% of its net assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
However, reverse repurchase agreements will be treated as borrowing and subject
to the Artisan Funds' fundamental limitation on borrowing.
At the time the Fund enters into a binding obligation to purchase
securities on a when-issued or delayed-delivery basis or enters into a reverse
repurchase agreement, assets of the Fund having a value at least as great as the
purchase price of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of the obligation.
The use of these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value fluctuation.
Short Sales
The Fund may make short sales "against the box." In a short sale, the
Fund sells a borrowed security and is required to return the identical security
to the lender. A short sale "against the box" involves the sale of a security
with respect to which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to obtain the current
market price of a security which it desires to sell but is unavailable for
settlement. The Fund does not currently intend to have commitments to make
short sales "against the box" in excess of 5% of its net assets.
Line of Credit
Artisan Funds maintains a line of credit with a bank in order to
permit borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Fund
would be subject to restriction (4) under "Investment Restrictions" in this
statement of additional information.
Portfolio Turnover
Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. At times, the Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The future turnover
rate may vary greatly from year to year. A high rate of portfolio turnover in
the Fund, if it should occur, would result in increased transaction expense,
which must be borne by the Fund. High portfolio turnover also may result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for Federal income tax purposes. (See "Dividends,
Capital Gains, and Taxes" in the prospectus, and "Additional Tax Information" in
this statement of additional information.)
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Artisan Funds has adopted the following investment restrictions which
may not be changed without the approval of the Fund's shareholders, under which
the Fund may not:
(1) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward contracts;
(3) make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations which
are publicly distributed, or from investing up to an aggregate of 15% of its
total assets (taken at market value at the time of each purchase) in parts of
issues of bonds, debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its total
assets (taken at market value at the time of such loan);
(4) borrow (including entering into reverse repurchase agreements),
except that it may (a) borrow up to 33 1/3% of its total assets, taken at market
value at the time of such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income and (b) enter into
transactions in options, futures, and options on futures;<F4>
<F4> The Fund will not purchase securities when total borrowings by the Fund are
greater than 5% of its net asset value.
(5) invest in a security if more than 25% of its total assets (taken
at market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(6) issue any senior security except to the extent permitted under
the Investment Company Act of 1940;
(7) with respect to 75% of its total assets, invest more than 5% of
its total assets, taken at market value at the time of a particular purchase, in
the securities of a single issuer, except for securities issued or guaranteed by
the Government of the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities;
(8) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer.
The Fund's investment objective is not a fundamental restriction and,
therefore, a change in the objective is not subject to shareholder approval.
However, investors in the Fund will receive written notification at least 30
days' prior to any change in the Fund's investment objective.
Non-Fundamental Restrictions
The Fund also is subject to the following non-fundamental restrictions
and policies, which may be changed by the board of directors. Many of these
restrictions are currently required by law or regulation of one or more states
in which shares of the Fund are offered for sale. If such laws or regulations
were no longer applicable, the Fund expects that certain of the following
restrictions (including restrictions (a), (d) through (g), and (i) through (k))
would be revised or eliminated, although no change in the Fund's operations
would be expected to result. The Fund may not:
(a) invest in any of the following: (i) interests in oil, gas, or
other mineral leases or exploration or development programs (except readily
marketable securities, including but not limited to master limited partnership
interests, that may represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles, spreads, or
any combination thereof if by reason thereof the value of the Fund's aggregate
investment in such securities exceed 5% of its total assets (except that the
Fund may enter into transactions in options, futures, and options on futures);
and (iii) limited partnerships in real estate unless they are readily
marketable;
(b) invest in companies for the purpose of exercising control or
management;
(c) purchase more than 3% of the stock of another investment company
or purchase stock of other investment companies equal to more than 5% of the
Fund's total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate; any such purchases are
to be made in the open market where no profit to a sponsor or dealer results
from the purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation, acquisition or
reorganization;<F5>
<F5> As long as Fund shares are offered for sale in California and applicable
California law or regulation so requires, the Fund will not acquire or
retain the shares of other open-end investment companies.
(d) purchase or hold securities of an issuer if 5% of the securities
of such issuer are owned by those officers, directors or partners of the Fund or
of its investment adviser, who each own beneficially more than 1/2 of 1% of the
securities of that issuer;
(e) purchase securities of issuers (other than issuers of Federal
agency obligations or securities issued or guaranteed by any foreign country or
asset-backed securities) that, including their predecessors or unconditional
guarantors, have been in operation for less than three years, if by reason of
such purchase the value of the Fund's investment in all such securities will
exceed 5% of its total assets (valued at time of purchase);
(f) mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection with options,
futures, and options on futures;
(g) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in warrants that are
not listed on the New York or American stock exchange;
(h) invest more than 25% of its total assets (valued at time of
purchase) in securities of foreign issuers;
(i) buy or sell an option on a security, a futures contract, or an
option on a futures contract unless the option, the futures contract, or the
option on the futures contract is offered through the facilities of a recognized
securities association or listed on a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums paid for
all put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options purchased
as closing transactions;
(k) invest more than 5% of its net assets in restricted securities,
other than securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933;
(l) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), or sell securities
short unless (i) the Fund owns or has the right to obtain securities equivalent
in kind and amount to those sold short at no added cost or (ii) the securities
sold are "when issued" or "when distributed" securities which the Fund expects
to receive in recapitalization, reorganization, or other exchange for securities
the Fund contemporaneously owns or has the right to obtain and provided that
transactions in options, futures, and options on futures are not treated as
short sales; or
(m) invest more than 10% of its net assets (taken at market value at
the time of each purchase) in illiquid securities, including repurchase
agreements maturing in more than seven days.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
n
ERV = P(l+T)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
The Fund's Total Return and Average Total Return for various periods
ended June 30, 1996 is shown below:
Average Annual
Total Return Total Return
------------ ------------
1 year 28.3% 28.3%
Life of Fund* 47.8% 36.3%
*from March 28, 1995 (commencement of operations)
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the Fund
are not necessarily indicative of future results. The Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing the Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may
be compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts or
partnerships managed by Artisan Partners Limited Partners, and other competing
investment and deposit products available from or through other financial insti-
tutions. The composition of these indexes, averages or accounts differs from
that of the Fund. Comparison of the Fund to an alternative investment should
consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes to be
accurate. The Fund also may note its mention (including performance or other
comparative rankings) in newspapers, magazines, or other media from time to
time. However, the Fund assumes no responsibility for the accuracy of such
data. Newspapers and magazines and other media which might mention the Fund
include, but are not limited to, the following:
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Milwaukee Business Journal Milwaukee Journal Sentinel
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values Morningstar Publications
Newsweek
The New York Times
No-Load Fund Investor
Outstanding Investor Digest
Pension World
Pensions and Investments
Personal Investor
Jane Bryant Quinn (syndicated column)
Louis Rukeyser's Mutual Fund
The San Francisco Chronicle
Smart Money
Stranger's Investment Adviser
13D Opportunities Report
Time
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Woman
Worth
Your Money
When a newspaper, magazine or other publication mentions the Fund,
such mention may include: (i) listings of some or all of the Fund's holdings,
(ii) descriptions of characteristics of some or all of the securities held by
the Fund, including price-earnings ratios, earnings, growth rates and other
statistical information, and comparisons of that information to similar
statistics for the securities comprising any of the indexes or averages listed
above; and (iii) descriptions of the Fund's or a portfolio manager's economic
and market outlook, generally and for the Fund.
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of the Fund may be compared to the following indexes
or averages:
Dow-Jones Industrial Average
Russell 2000 Small Stock Index
Russell Mid-Cap Stock Index
Standard & Poor's 500 Stock Index
Standard & Poor's 400 Industrials
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire 4000
Wilshire Small-Cap Index
(These indexes are widely recognized indicators
of general U.S. stock market results.)
New York Stock Exchange Composite Index
American Stock Exchange Composite Index
NASDAQ Composite
NASDAQ Industrials
(These indexes generally reflect the performance of
stocks traded in the indicated markets.)
The performance of the Fund also may be compared to the following
mutual fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company
Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds
Average; Lipper Small Company Growth Fund Index; ICD Aggressive Growth and Long
Term Growth Funds Average; ICD Aggressive Growth Fund Large Index; ICD
Aggressive Growth Fund Small Index; ICD Aggressive Growth Funds Average; ICD All
Equity Funds Average; Morningstar Growth Average; Morningstar Small-Cap Funds
Average; Morningstar Aggressive Growth Average; Morningstar U.S. Diversified
Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund Average;
Morningstar All Equity Funds Average; and Morningstar General Equity Average.
The ICD Indexes reflect the unweighted average total return of the
largest twenty four funds within their respective category as calculated and
published by ICD.
The Lipper Small Company Growth Fund Index reflects the net asset
value weighted total return of the largest thirty growth funds as calculated and
published by Lipper Analytical Services, Inc. ("Lipper"), an independent service
that monitors the performance of more than 1,000 funds.
The Lipper, ICD and Morningstar averages are unweighted averages of
total return performance of mutual funds as classified, calculated and published
by these independent services that monitor the performance of mutual funds. The
Fund also may use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. The Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service.
The Fund may cite its rating, recognition or other mention by
Morningstar, Inc. ("Morningstar") or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is expressed in a
star-rating format. The risk-adjusted number is computed by subtracting a
Fund's risk score (which is a function of the Fund's monthly returns less the 3-
month Treasury bill return) from the Fund's load-adjusted total return score.
This numerical score is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35% labeled three
star, the next 22.5% labeled two star and the bottom 10% one star. A high
rating reflects either above-average returns or below-average risk, or both.
To illustrate the historical returns on various types of financial
assets, the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. The Fund also may use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by the Fund to be
accurate, illustrating the past performance of small-capitalization stocks,
large-capitalization stocks, common stocks, equity securities, growth stocks
(small-capitalization, large-capitalization, or both) and value stocks (small-
capitalization, large-capitalization, or both).
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, and their principal business
occupations during at least the last five (5) years, are shown below. Directors
deemed to be "interested persons" of Artisan Funds for purposes of the 1940 Act
are indicated with an asterisk.
Name and Age Positions Held Principal Occupations
with Registrant during Past 5 Years
- ------------------ --------------- --------------------
Andrew A. Ziegler* Director, Managing Partner of
(38) Chairman of the Board Artisan Partners; prior to
and Chief Executive Officer founding Artisan Partners,
president and chief
operating officer of
Strong/Corneliuson Capital
Management ("Strong") and
president of the Strong
Funds from 1990 to 1994;
prior thereto, attorney
with the law firm of
Godfrey & Kahn, S.C.,
Milwaukee, WI.
Carlene Murphy Ziegler* Director and President Managing Partner of
(40) Artisan Partners; prior to
founding Artisan Partners,
a co-portfolio manager of
the Strong Common Stock
Fund, Strong Opportunity
Fund and numerous
institutional small-
capitalization equity
portfolios at Strong since
March 1991; prior thereto,
a co-portfolio manager of
the SteinRoe Special Fund.
David A. Erne Director Partner of the law
(53) firm Reinhart, Boerner,
Van Deuren, Norris &
Rieselbach, S.C.,
Milwaukee, WI.
Thomas R. Hefty Director President of United
(49) Wisconsin Services, Inc.
(a provider of managed
care and specialty
business services) since
1986 and chairman of the
board and chief executive
officer since 1991; and
chairman of the board of
Blue Cross & Blue Shield
United of Wisconsin
(parent company of United
Wisconsin Services, Inc.)
since 1988 and president
since 1982.
Howard B. Witt Director President and chief
(56) executive officer of
Littelfuse, Inc. (a
manufacturer of advanced
circuit protection
devices) since 1990 and
chairman of the board of
Littelfuse since 1993;
prior thereto executive
vice president of
Littelfuse; and director
of Franklin Electric Co.,
Inc. (a manufacturer of
electronic motors) since
1994.
John M. Blaser Chief Financial Officer,
(39) Treasurer and Secretary
Chief financial officer of
Artisan Partners; prior to
joining Artisan Partners,
senior vice president with
Kemper Securities, Inc.
since 1993; prior thereto,
with Price Waterhouse.
Mark L. Yockey Vice President
(40) Partner of Artisan
Partners; prior to joining
Artisan Partners,
portfolio manager of the
United International
Growth Fund and vice
president of Waddell &
Reed (investment
management firm) since
January 1990; prior
thereto, equity analyst
for Waddell & Reed.
Sandra Jean Vice President Equity trader for Artisan
Voss-Reinhardt(32) Partners; prior to joining
Artisan Partners, equity
trader with Northwestern
Mutual since January 1989,
prior thereto, sales
associate with Dean Witter
Reynolds.
Millie Adams Hurwitz Vice President Co-portfolio manager of
(33) the Fund; prior to joining
Artisan Partners, co-
portfolio manager at Stein
Roe & Farnham Incorporated
from 1992 until 1995, and
an analyst with OLC
Corporation from 1989 to
1991.
The address of Mr. Ziegler, Ms. Ziegler, Mr. Blaser and Ms. Voss-
Reinhardt is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin 53202.
The addresses of the other directors are: Mr. Erne - 1000 N. Water Street,
Milwaukee, Wisconsin 53202; Mr. Hefty - 401 W. Michigan Street, Milwaukee,
Wisconsin 53203; and Mr. Witt - 800 E. Northwest Highway, Des Plaines, Illinois
60016.
Mr. Ziegler and Ms. Ziegler are married to each other.
Mr. Ziegler and Ms. Ziegler serve as members of the Executive
Committee of the Board of Directors. The Executive Committee, which meets
between regular meetings of the Board, is authorized to exercise all of the
powers of the Board of Directors.
The only compensation paid to directors and officers of Artisan Funds
for their services as such consists of an annual $5,000 retainer fee (per series
of Artisan Funds) paid to directors who are not interested persons of Artisan
Funds or Artisan Partners. Artisan Funds has no retirement or pension plans.
The following table sets forth compensation paid by the Fund and by
Artisan Funds, Inc. (comprised of the Fund and Artisan International Fund)
during the fiscal year ended June 30, 1996 to each of the directors of the Fund.
TOTAL
COMPENSATION
PENSION OR FROM ARTISAN
RETIREMENT ESTIMATED SMALL CAP
AGGREGATE BENEFITS ANNUAL FUND AND
COMPENSATION ACCRUED BENEFITS FUND COMPLEX
FROM ARTISAN AS PART OF UPON PAID TO
NAME OF DIRECTOR SMALL CAP FUND FUND EXPENSES RETIREMENT DIRECTORS
- ---------------- -------------- ------------- ---------- ---------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy Ziegler 0 0 0 0
David A. Erne 5,000 0 0 7,500
Thomas R. Hefty 5,000 0 0 7,500
Howard B. Witt 5,000 0 0 7,500
On August 1, 1996, the officers and directors of Artisan Funds as a
group owned less than 1% of the outstanding shares of the Fund and less than 1%
of the outstanding shares of Artisan Funds.
PRINCIPAL SHAREHOLDERS
No person was known by Artisan Funds to own of record or beneficially
5% or more of the outstanding shares of the Fund at August 1, 1996 except for
persons acting as nominees for their clients, without the power to vote or
dispose of Fund shares.
INVESTMENT ADVISORY SERVICES
Artisan Partners Limited Partnership ("Artisan Partners") provides
investment advisory services to the Fund pursuant to an Investment Advisory
Agreement dated March 27, 1995 (the "Advisory Agreement"). Artisan Partners is
a Delaware limited partnership. Artisan Investment Corporation was incorporated
on December 7, 1994 for the sole purpose of acting as general partner of Artisan
Partners. Mr. Ziegler and Ms. Ziegler, as officers of Artisan Investment
Corporation, manage Artisan Partners. The principal address of Artisan Partners
is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin 53202.
In return for its services, the Fund pays Artisan Partners a monthly
fee at the annual rate of 1% of the Fund's average daily net assets up to $500
million; .975 of 1% of average daily net assets from $500 million up to $750
million; .950 of 1% of average daily net assets from $750 million to $1 billion;
and .925 of 1% of average daily net assets over $1 billion. Artisan Partners
has undertaken to reimburse the Fund for certain expenses, as described in the
prospectus. The advisory fees paid by the Fund to Artisan Partners during the
fiscal year ended June 30, 1996 and for the period March 28, 1995 through June
30, 1995 aggregated $2,734,855 and $66,510, respectively.
The Advisory Agreement provides that Artisan Partners shall not be
liable for any loss suffered by the Fund or its shareholders as a consequence of
any act of omission in connection with investment advisory or portfolio services
under the agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of Artisan Partners in the performance of its duties or
from reckless disregard by Artisan Partners of its obligations and duties under
the Advisory Agreement.
The Advisory Agreement may be continued from year to year only so long
as the continuance is approved annually (a) by the vote of a majority of the
directors of the Fund who are not "interested persons" of the Fund or Artisan
Partners cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the board of directors or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the portfolio. The
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Carlene Murphy Ziegler and Millie Adams Hurwitz are portfolio managers
of the Fund. They make all investment decisions with the assistance of a team
of investment research and trading professionals at Artisan Partners. Ms.
Ziegler is a director and president of Artisan Funds. Andrew A. Ziegler is a
director and chief executive officer of Artisan Funds. John M. Blaser is the
chief financial officer of Artisan Funds and acts as the principal
administrative and financial officer. Sandra J. Voss-Reinhardt is a vice
president of Artisan Funds.
Prior to founding Artisan Partners in 1995, Ms. Ziegler was a
co-portfolio manager of the Strong Common Stock Fund and Strong Opportunity
Fund. From 1986 to 1991, Ms. Ziegler was a co-portfolio manager of the
SteinRoe Special Fund. Ms. Ziegler holds B.A. and M.A. degrees from the
University of Illinois and an M.B.A. from the University of Chicago Graduate
School of Business. She also is a Chartered Financial Analyst.
Millie Adams Hurwitz joined Artisan Partners in 1995 as senior analyst
of Artisan Partners' small capitalization equity products in February 1995. Ms.
Hurwitz was a co-portfolio manager at Stein Roe & Farnham Incorporated from 1992
until February 1995, and an analyst with OLC Corporation from 1989 to 1991. Ms.
Hurwitz holds a B.A. degree from Northwestern University and a Master of
Management degree in Finance and Marketing from the Kellogg Graduate School of
Management at Northwestern University.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler
was president and chief operating officer of Strong, and president of the Strong
Funds; prior thereto, he was Executive Vice President and General Counsel of
Strong. From 1986 to 1990, Mr. Ziegler was an attorney with the law firm of
Godfrey & Kahn, S.C., Milwaukee, WI. Mr. Ziegler holds a B.S. from the
University of Wisconsin - Madison and a J.D. from the University of Wisconsin
Law School.
Prior to joining Artisan Partners in 1995, Mr. Blaser was Senior Vice
President of Kemper Securities, Inc. since 1993; prior thereto, Mr. Blaser was
with Price Waterhouse. Mr. Blaser holds a B.B.A. from the University of
Wisconsin - Madison with majors in accounting and finance. He is a Certified
Public Accountant with a Personal Financial Specialist designation.
Prior to joining Artisan Partners in 1995, Ms. Voss-Reinhardt was
an equity trader with Northwestern Mutual since January 1989; prior thereto,
Ms. Voss-Reinhardt was a sales associate with Dean Witter Reynolds. Ms.
Voss-Reinhardt holds a B.A. from the University of Wisconsin - Eau Claire.
PORTFOLIO TRANSACTIONS
Artisan Partners places the orders for the purchase and sale of the
Fund's portfolio securities and options and futures contracts. Artisan
Partners' overriding objective in effecting portfolio transactions is to seek to
obtain the best combination of price and execution. The best net price, giving
effect to brokerage commissions, if any, and other transaction costs, normally
is an important factor in this decision, but a number of other judgmental
factors also may enter into the decision. These include: Artisan Partners'
knowledge of negotiated commission rates currently available and other current
transaction costs; the nature of the security being traded; the size of the
transaction; the desired timing of the trade; the activity existing and expected
in the market for the particular security; confidentiality; the execution,
clearance and settlement capabilities of the broker or dealer selected and
others which are considered; Artisan Partners' knowledge of the financial
stability of the broker or dealer selected and such other problems of any broker
or dealer. Recognizing the value of these factors, the Fund may pay a brokerage
commission in excess of that which another broker or dealer may have charged for
effecting the same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an ongoing basis by
Artisan Partners' staff while effecting portfolio transactions. The general
level of brokerage commissions paid is reviewed by Artisan Partners, and reports
are made annually to the board of directors.
With respect to issues of securities involving brokerage commissions,
when more than one broker or dealer is believed to be capable of providing the
best combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services Artisan
Partners feels are useful. In certain instances, Artisan Partners receives from
brokers and dealers products or services that are used both as investment
research and for administrative, marketing, or other non-research purposes. In
such instances, Artisan Partners makes a good faith effort to determine the
relative proportions of such products or services which may be considered as
investment research. The portion of the costs of such products or services
attributable to research usage may be defrayed by Artisan Partners (without
prior agreement or understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by Artisan Partners in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of
Artisan Partners and not all such research products or services are used in
connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer of a net basis, Artisan Partners also may
consider the part, if any, played by the broker or dealer in bringing the
security involved to Artisan Partners' attention, including investment research
related to the security and provided to the Fund.
During the fiscal year ended June 30, 1996 and the period March 28,
1995 (commencement of operations) through June 30, 1995, the Fund paid brokerage
commissions of $2,433,120 and $309,765, respectively, to brokers who furnished
research services to the Fund or Artisan Partners on purchases and sales
aggregating $775,778,115 and $92,293,148, respectively.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares," and "How to Sell Shares." All of that information
is incorporated herein by reference.
Shares of the Fund may be purchased through certain financial service
companies without incurring any transaction fee. For accounting and shareholder
servicing services provided by such a company with respect to Fund shares held
by that company for its customers, the company may charge a fee of up to 0.35%
of the annual average value of those accounts. The Fund pays a portion of those
fees not to exceed the estimated fees and expenses that the Fund would pay to
its own transfer agent if the shares of the Fund held by such customers of the
company were registered directly in their names on the books of the Fund's
transfer agent. The balance of those fees is paid by Artisan Partners.
Net Asset Value. The net asset value of the shares of the Fund is
determined as of the close of regular session trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) each day the NYSE is open
for trading. The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last Monday in May,
Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these
holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment of the board
of directors, net asset value of the Fund should be determined on any such day,
in which case the determination will be made at 3:00 p.m., Central time. The
net asset value per share of the Fund is determined by dividing the value of all
its securities and other assets, less its liabilities, by the number of shares
of the Fund outstanding.
The Fund intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Fund during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions.
The Fund reserves the right to suspend or postpone redemptions of its
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Commission, if the NYSE is closed for other than customary
weekend and holiday closings; (b) the Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Commission, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Fund and Artisan Partners each have adopted a code of ethics that,
among other things, regulates the personal security transactions of certain
officers, directors, partners and employees of the Fund and Artisan Partners.
ADDITIONAL TAX INFORMATION
Artisan Funds intends for the Fund to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
and thus not be subject to federal income taxes on amounts which it distributes
to shareholders.
CUSTODIAN
State Street Bank & Trust Company ("State Street"), 1776 Heritage
Drive, North Quincy, MA 02171, acts as custodian of the securities and other
assets of the Fund. State Street is responsible for, among other things,
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on the
Fund's investments. State Street also performs portfolio accounting services for
the Fund. State Street is not an affiliate of Artisan Partners or its
affiliates. State Street is authorized to deposit securities in securities
depositories for the use of services of sub-custodians.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 serves as the Fund's independent accountants, providing services including
(i) audit of the annual financial statements; (ii) assistance and consultation
in connection with Securities and Exchange Commission filings; and (iii) review
of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
The 1996 annual report to shareholders of the Fund, a copy of which
accompanies this Statement of Additional Information, contains financial
statements, notes thereto, supplementary information entitled "Financial
Highlights," and a report of independent accountants, all of which (but no
other part of the annual report) are incorporated herein by reference.
Additional copies of the annual report may be obtained from Artisan Funds at no
charge by writing or telephoning Artisan Funds at the address or telephone
number on cover page of this Statement of Additional Information.
- ----------------------------
Artisan Funds, Inc.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100
(800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
August 19, 1996
Artisan International Fund
Artisan International Fund (the "Fund") is a series of Artisan
Funds, Inc. ("Artisan Funds"). This statement of additional information is
not a prospectus. It should be read in conjunction with the prospectus of the
Fund dated August 19, 1996 and any supplement to the prospectus. That
prospectus can be obtained without charge by calling or writing to the Fund.
TABLE OF CONTENTS
Page
Information about the Fund...................................B-2
Investment Objective and Policies............................B-2
Investment Techniques and Risks..............................B-2
Investment Restrictions......................................B-14
Performance Information......................................B-16
Directors and Officers.......................................B-19
Principal Shareholders.......................................B-22
Investment Advisory Services.................................B-22
Portfolio Transactions.......................................B-23
Purchasing and Redeeming Shares..............................B-24
Additional Tax Information...................................B-25
Custodian....................................................B-26
Independent Accountants......................................B-26
Financial Statements.........................................B-26
INFORMATION ABOUT THE FUND
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds").
Artisan Partners Limited Partnership ("Artisan Partners") provides investment
advisory services to the Fund.
The discussion below supplements the description in the prospectus of
the Fund's investment objective, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
Artisan International Fund invests for maximum long-term capital
growth. The Fund seeks to achieve its objective by investing primarily in the
stocks of foreign companies. The investment objective of the Fund may be
changed by the board of directors without the approval of a "majority of the
outstanding voting securities" (as defined in the Investment Company Act of
1940) of the Fund.
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities,
of foreign issuers. The Fund also may invest in any other type of security,
including debt securities.
INVESTMENT TECHNIQUES AND RISKS
Foreign Securities
Under normal market conditions, the Fund invests at least 65% of its
total assets in foreign securities (including American Depository Receipts
("ADRs")), which may entail a greater degree of risk (including risks relating
to exchange rate fluctuations, tax provisions, or expropriation of assets) than
does investment in securities of domestic issuers. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying securities. The Fund may invest in sponsored or unsponsored ADRs.
In the case of an unsponsored ADR, the Fund is likely to bear its proportionate
share of the expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a sponsored ADR.
The Fund does not intend to invest more than 5% of its net assets in unsponsored
ADRs.
With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, the Fund's investment performance
is affected by the strength or weakness of the U.S. dollar against these
currencies. For example, if the dollar falls in value relative to the Japanese
yen, the dollar value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-denominated
stock will fall. (See discussion of transaction hedging and portfolio hedging
under "Managing Investment Exposure.")
Investors should understand and consider carefully the risks involved
in foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. Because U.S. and foreign
stock markets typically move in different cycles, combining international and
U.S. investments can protect an investment portfolio against the full impact of
a downturn in any single market, thus helping to enhance returns by lowering
risk.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
Debt Securities
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
Investments in debt securities by the Fund may be in those that are
within the four highest ratings categories of Standard & Poor's Corporation
("S&P") or Moody's Investors Services, Inc. ("Moody's") (generally referred
to as "investment grade") or, if unrated, deemed to be of comparable quality
by Artisan Partners. However, the Fund may invest up to 35% of its net assets
in debt securities that are rated below investment grade. The Fund does not
currently intend to invest more than 5% of its net assets in securities rated
below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Artisan Partners will consider that
fact in determining whether the Fund should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
Defensive Investments
The Fund intends to be substantially fully invested in equity
securities of non-U.S. issuers in ordinary circumstances, although the Fund may
invest without limit in corporate or government obligations (U.S. or non-U.S.)
or hold cash or cash equivalents if Artisan Partners determines that a temporary
defensive position is advisable.
Convertible Securities
Convertible securities include any corporate debt security or
preferred stock that may be converted into underlying shares of common stock.
The common stock underlying convertible securities may be issued by a different
entity than the issuer of the convertible securities. Convertible securities
entitle the holder to receive interest payments paid on corporate debt
securities or the dividend preference on a preferred stock until such time as
the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its "investment
value." The investment value of the convertible security will typically
fluctuate inversely with changes in prevailing interest rates. However, at the
same time, the convertible security will be influenced by its "conversion
value,' which is the market value of the underlying common stock that would be
obtained if the convertible security were converted. Conversion value
fluctuates directly with the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, Artisan Partners will consider the same
criteria that would be considered in purchasing the underlying stock. Although
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet Artisan Partners' other investment
criteria. Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, Artisan Partners' own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
Managing Investment Exposure
The Fund uses various techniques to increase or decrease its exposure
to the effects of possible changes in security prices, currency exchange rates
or other factors that affect the value of its portfolio. These techniques
include buying and selling options, futures contracts, or options on futures
contracts, or entering into currency exchange contracts.
These techniques are used by Artisan Partners to adjust the risk and
return characteristics of the Fund's portfolio. If Artisan Partners judges
market conditions incorrectly or employs a strategy that does not correlate well
with the Fund's investments, or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation.
Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. Currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities. Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted in a particular
currency. Portfolio hedging allows the Fund to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that currency) so
that the U.S. dollar value of certain underlying foreign portfolio securities
can be approximately matched by an equivalent U.S. dollar liability. The Fund
may not engage in portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular currency, except that the Fund may hedge all or part of its
foreign currency exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective proxy for other
currencies. In such a case, the Fund may enter into a forward contract where
the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The Fund may not engage
in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, the Fund may either sell the portfolio security related to such
contract and make delivery of the currency, or it may retain the security and
either acquire the currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting contract with the
same currency trader obligating it to purchase on the same maturity date the
same amount of the currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly,
it may be necessary for the Fund to purchase additional currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery of the
currency. Conversely, it may be necessary to sell on the spot market some of the
currency received upon the sale of the portfolio security if its market value
exceeds the amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Because currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
Options on Securities and Indexes. The Fund may purchase and sell put
options and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may purchase
agreements, sometimes called cash puts, that may accompany the purchase of a new
issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
A put option is "covered" if the Fund maintains assets with a value
equal to the exercise price in a segregated account with its custodians, or
owns on a share-for-share or equal principal amount basis a put on the same
security as the put written where the exercise price of the put held is equal
to or greater than the exercise price of the put written.
If an option written by the Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires, the Fund realizes a capital loss equal to
the premium paid.
Prior to the earlier of exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Fund will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security or index in
relation to the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
Risks Associated with Options on Securities and Indexes. There are
several risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position. If the Fund were unable to close
out an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire and become
worthless. If the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the underlying security
until the option expired. As the writer of a covered call option on a security,
the Fund foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the
Fund, the Fund would not be able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index <F6>
at a specified price and time. A public market exists in futures contracts
covering a number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, and the New York Stock
Exchange Composite Index) as well as financial instruments (including, but not
limited to: U.S. Treasury bonds, U.S. Treasury notes, Eurodollar certificates
of deposit, and foreign currencies). Other index and financial instrument
futures contracts are available and it is expected that additional futures
contracts will be developed and traded.
<F6> A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other techniques
could be used to reduce or increase the Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The Fund will only enter into futures contracts and futures options
that are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.
The success of any futures transaction depends on Artisan Partners
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, Artisan Partners might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a
futures contract is set by the exchange on which the contract is traded and may
be modified during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the futures contract,
which is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. The Fund expects to earn interest
income on its initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking-to-market." Variation margin paid or received by the Fund
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract had expired at the close of the previous day. In computing
daily net asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
Risks Associated with Futures. There are several risks associated
with the use of futures contracts and futures options. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. In trying to increase or reduce market exposure, there can be
no guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
Limitations on Options and Futures. If other options, futures
contracts, or futures options of types other than those described herein are
traded in the future, the Fund also may use those investment vehicles, provided
the board of directors determines that their use is consistent with the Fund's
investment objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money," <F7>
would exceed 5% of the Fund's total assets.
<F7> A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
When purchasing or selling a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian (or broker, if
legally permitted) assets (including any margin) equal to the market
value of such contract. When writing a call option on a futures
contract, the Fund similarly will maintain with its custodian assets (including
any margin) equal to the amount by which such option is in-the-money until
the option expires or is closed out by the Fund.
The Fund may not maintain open short positions in futures contracts,
call options written on futures contracts or call options written on indexes if,
in the aggregate, the market value of all such open positions exceeds the
current value of the securities in its portfolio, plus or minus unrealized gains
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For
this purpose, to the extent the Fund has written call options on specific
securities in its portfolio, the value of those securities will be deducted from
the current market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of Regulation 1.3(z), or,
with respect to positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of Regulation 1.3(z), the
aggregate initial margin and premiums required to establish such positions will
not exceed 5% of the fair market value of the assets of the Fund, after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into (in the case of an option that is in-the-money at the time of
purchase, the in the-money amount (as defined in Section 190.01(x) of the
Commission Regulations) may be excluded in computing such 5%).
As long as the Fund continues to sell its shares in certain states and
applicable state law or regulation so requires, the Fund's options and futures
transactions also will be subject to certain non-fundamental investment
restrictions set forth under "Investment Restrictions" in this statement of
additional information.
Taxation of Options and Futures. If the Fund exercises a call or put
option that it holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of the security
sold (put). For cash settlement options and futures options exercised by the
Fund, the difference between the cash received at exercise and the premium paid
is a capital gain or loss.
If a call or put option written by the Fund is exercised, the premium
is included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain
or loss. If an option written by the Fund is in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option <F8> other than a "qualified
covered call option,' as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
<F8> An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel- casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with
respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses
on certain positions (including options, futures and futures options positions,
the related securities and certain successor positions thereto) may be deferred
to a later taxable year. Sale of futures contracts or writing of call options
(or futures call options) or buying put options (or futures put options) that
are intended to hedge against a change in the value of securities held by the
Fund may affect the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index
futures option or short index option position and the Fund's portfolio were
deemed to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Fund's stock positions may be deemed
to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for the Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition, gains realized
on the sale or other disposition of securities held for less than three months
must be limited to less than 30% of the Fund's annual gross income. Any net
gain realized from futures (or futures options) contracts will be considered
gain from the sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive gains on
securities held less than three months, the Fund may be required to defer the
closing out of certain positions beyond the time when it would otherwise be
advantageous to do so.
The Fund intends to distribute to shareholders annually any capital
gains that have been recognized for Federal income tax purposes (including year-
end mark-to-market gains) on options and futures transactions, together with
gains on other Fund investments, to the extent such gains exceed recognized
capital losses and any net capital loss carryovers of the Fund. Shareholders
will be advised of the nature of such capital gain distributions.
Rule 144A Securities
The Fund may purchase securities that have been privately placed but
that are eligible for purchase and sale under Rule 144A under the 1933 Act
("Rule 144A securities"). That Rule permits certain qualified institutional
buyers, including investment companies that own and invest at least $100 million
in securities, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. Artisan Partners, under the supervision
of the board of directors, will consider whether Rule 144A securities are
illiquid and thus subject to the Fund's restriction of investing no more than
10% of its net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, Artisan Partners will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, Artisan Partners could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, Artisan
Partners determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Fund does not invest more than 10% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
Lending of Portfolio Securities
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
Artisan Partners' judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights. The Fund does not
currently intend to loan more than 5% of its net assets.
Repurchase Agreements
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, the Fund will enter into
repurchase agreements only with banks and dealers believed by Artisan Partners
to present minimum credit risks in accordance with guidelines approved by the
board of trustees. Artisan Partners will review and monitor the
creditworthiness of such institutions, and will consider the capitalization of
the institution, Artisan Partners prior dealings with the institution, any
rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at
all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price,
the Fund would suffer a loss. If the financial institution which is party to
the repurchase agreement petitions for bankruptcy or otherwise becomes subject
to bankruptcy or other liquidation proceedings there may be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Artisan Partners deems it advisable for investment reasons.
The Fund does not currently intend to have commitments to purchase when-issued
securities in excess of 5% of its net assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
However, reverse repurchase agreements will be treated as borrowing and subject
to the Artisan Funds' fundamental limitation on borrowing.
At the time the Fund enters into a binding obligation to purchase
securities on a when-issued or delayed-delivery basis or enters into a reverse
repurchase agreement, assets of the Fund having a value at least as great as the
purchase price of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of the obligation.
The use of these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value fluctuation.
Short Sales
The Fund may make short sales "against the box." In a short sale,
the Fund sells a borrowed security and is required to return the identical
security to the lender. A short sale "against the box" involves the sale of a
security with respect to which the Fund already owns an equivalent security in
kind and amount. A short sale "against the box" enables the Fund to obtain
the current market price of a security which it desires to sell but is
unavailable for settlement. The Fund does not currently intend to have
commitments to make short sales "against the box" in excess of 5% of its net
assets.
Line of Credit
Artisan Funds maintains a line of credit with a bank in order to
permit borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Fund
would be subject to restriction (4) under "Investment Restrictions" in this
statement of additional information.
Portfolio Turnover
Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. At times, the Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The future turnover
rate may vary greatly from year to year. A high rate of portfolio turnover in
the Fund, if it should occur, would result in increased transaction expense,
which must be borne by the Fund. High portfolio turnover also may result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for Federal income tax purposes. (See "Dividends,
Capital Gains, and Taxes" in the prospectus, and "Additional Tax Information"
in this statement of additional information.)
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Artisan Funds has adopted the following investment restrictions for
Artisan International Fund, which may not be changed without the approval of the
Fund's shareholders, under which the Fund may not:
(1) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward contracts;
(3) make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations which
are publicly distributed, or from investing up to an aggregate of 15% of its
total assets (taken at market value at the time of each purchase) in parts of
issues of bonds, debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its total
assets (taken at market value at the time of such loan);
(4) borrow (including entering into reverse repurchase agreements),
except that it may (a) borrow up to 33 1/3% of its total assets, taken at market
value at the time of such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income and (b) enter into
transactions in options, futures, and options on futures; <F9>
<F9> The Fund will not purchase securities when total borrowings by the Fund are
greater than 5% of its net asset value.
(5) invest in a security if more than 25% of its total assets (taken
at market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(6) issue any senior security except to the extent permitted under
the Investment Company Act of 1940;
(7) with respect to 75% of its total assets, invest more than 5% of
its total assets, taken at market value at the time of a particular purchase, in
the securities of a single issuer, except for securities issued or guaranteed by
the Government of the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities;
(8) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer.
The Fund's investment objective is not a fundamental restriction and,
therefore, a change in the objective is not subject to shareholder approval.
However, investors in the Fund will receive written notification at least 30
days' prior to any change in the Fund's investment objective.
Non-Fundamental Restrictions
The Fund also is subject to the following non-fundamental restrictions
and policies, which may be changed by the board of directors. Many of these
restrictions are currently required by law or regulation of one or more states
in which shares of the Fund are offered for sale. If those laws or regulations
were no longer applicable, the Fund expects that certain of the following
restrictions (including restrictions (a) and (d) through (j)) would be revised
or eliminated, although no change in the Fund's operations would be expected to
result. The Fund may not:
(a) invest in any of the following: (i) interests in oil, gas, or
other mineral leases or exploration or development programs (except readily
marketable securities, including but not limited to master limited partnership
interests, that may represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles, spreads, or
any combination thereof if by reason thereof the value of the Fund's aggregate
investment in such securities exceed 5% of its total assets (except that the
Fund may enter into transactions in options, futures, and options on futures);
and (iii) limited partnerships in real estate unless they are readily
marketable;
(b) invest in companies for the purpose of exercising control or
management;
(c) purchase more than 3% of the stock of another investment company
or purchase stock of other investment companies equal to more than 5% of the
Fund's total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate; any such purchases are
to be made in the open market where no profit to a sponsor or dealer results
from the purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation, acquisition or
reorganization; <F10>
<F10>As long as Fund shares are offered for sale in California and applicable
California law or regulation so requires, the Fund will not acquire or
retain the shares of other open-end investment companies.
(d) purchase or hold securities of an issuer if 5% of the securities
of such issuer are owned by those officers, directors or partners of the Fund or
of its investment adviser, who each own beneficially more than 1/2 of 1% of the
securities of that issuer;
(e) purchase securities of issuers (other than issuers of Federal
agency obligations or securities issued or guaranteed by any foreign country or
asset-backed securities) that, including their predecessors or unconditional
guarantors, have been in operation for less than three years, if by reason of
such purchase the value of the Fund's investment in all such securities will
exceed 5% of its total assets (valued at time of purchase);
(f) mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection with options,
futures, and options on futures;
(g) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in warrants that are
not listed on the New York or American stock exchange;
(h) buy or sell an option on a security, a futures contract, or an
option on a futures contract unless the option, the futures contract, or the
option on the futures contract is offered through the facilities of a recognized
securities association or listed on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid for
all put and call options exceed 5% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options purchased
as closing transactions;
(j) invest more than 10% of its net assets in restricted securities,
other than securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933;
(k) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), or sell securities
short unless (i) the Fund owns or has the right to obtain securities equivalent
in kind and amount to those sold short at no added cost or (ii) the securities
sold are "when issued" or "when distributed" securities which the Fund
expects to receive in recapitalization, reorganization, or other exchange for
securities the Fund contemporaneously owns or has the right to obtain and
provided that transactions in options, futures, and options on futures are not
treated as short sales; or
(l) invest more than 10% of its net assets (taken at market value at
the time of each purchase) in illiquid securities, including repurchase
agreements maturing in more than seven days.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total
Return' for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return' is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
n
ERV = P(l+T)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
The Fund's Total Return for the period December 28, 1995 (commencement
of operations) through June 30, 1996 was 20.8%. The Fund will not quote Average
Annual Total Return until it has been in operation more than 12 months.
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the Fund
are not necessarily indicative of future results. The Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing the Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may
be compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts or
partnerships managed by Artisan Partners, and other competing investment and
deposit products available from or through other financial institutions. The
composition of these indexes, averages or accounts differs from that of the
Fund. Comparison of the Fund to an alternative investment should consider
differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes to be
accurate. The Fund also may note its mention (including performance or other
comparative rankings) or mention of its officers or portfolio manager in
newspapers, magazines, or other media from time to time. However, the Fund
assumes no responsibility for the accuracy of such data. Mention of the Fund's
portfolio manager may include reference to his management of another mutual
fund, the past performance of which should not be considered an indication of
the Fund's performance. Newspapers and magazines and other media which might
mention the Fund or its officers or portfolio manager include, but are not
limited to, the following:
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Milwaukee Business Journal
Milwaukee Journal Sentinel
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values
Morningstar Publications
Newsweek
The New York Times
No-Load Fund Investor
Outstanding Investor Digest
Pension World
Pensions and Investments
Personal Investor
Jane Bryant Quinn (syndicated column)
Louis Rukeyser's Mutual Fund
The San Francisco Chronicle
Smart Money
Stranger's Investment Adviser
13D Opportunities Report
Time
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Woman
Worth
Your Money
When a newspaper, magazine or other publication mentions the Fund,
such mention may include: (i) listings of some or all of the Fund's holdings,
(ii) descriptions of characteristics of some or all of the securities held by
the Fund, including price-earnings ratios, earnings, growth rates and other
statistical information, and comparisons of that information to similar
statistics for the securities comprising any of the indexes or averages listed
above; and (iii) descriptions of the Fund's or a portfolio manager's economic
and market outlook, generally and for the Fund.
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of the Fund may be compared to the following indexes
or averages:
Dow-Jones Industrial Average
Standard & Poor's 500 Stock Index
Standard & Poor's 400 Industrials
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
(These indexes are widely recognized indicators
of general U.S. stock market results.)
New York Stock Exchange Composite Index
American Stock Exchange Composite Index
NASDAQ Composite
NASDAQ Industrials
(These indexes generally reflect the performance of
stocks traded in the indicated markets.)
EAFE Index
Financial Times-Actuaries World Index (Ex-U.S.)
Morgan Stanley Capital International World Index
(These indexes are widely recognized indicators of the international markets)
The performance of the Fund also may be compared to the following
mutual fund industry indexes or averages: Lipper International & Global Funds
Average; Lipper General Equity Funds Average; Lipper Equity Funds Average;
Lipper International Index; ICD International Equity Funds Average; ICD All
Equity Funds Average; ICD General Equity Average; ICD Global Equity Funds
Average; ICD International Equity and Global Equity Funds Average; ICD Foreign
Securities Index; Morningstar International Stock Average; Morningstar U.S.
Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund
Average; Morningstar All Equity Funds Average; and Morningstar General Equity
Average.
The ICD Indexes reflect the unweighted average total return of the
largest twenty four funds within their respective category as calculated and
published by ICD.
The Lipper International Fund index reflects the net asset value
weighted return of the ten largest international funds.
The Lipper, ICD and Morningstar averages are unweighted averages of
total return performance of mutual funds as classified, calculated and published
by these independent services that monitor the performance of mutual funds. The
Fund also may use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. The Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service.
The Fund may cite its rating, recognition or other mention by
Morningstar, Inc. ("Morningstar") or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is expressed in a
star-rating format. The risk-adjusted number is computed by subtracting a
Fund's risk score (which is a function of the Fund's monthly returns less the 3-
month Treasury bill return) from the Fund's load-adjusted total return score.
This numerical score is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35% labeled three
star, the next 22.5% labeled two star and the bottom 10% one star. A high
rating reflects either above-average returns or below-average risk, or both.
To illustrate the historical returns on various types of financial
assets, the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. The Fund also may use historical data compiled by Prudential
Securities, Inc., Morgan Stanley Capital International, or other similar sources
believed by the Fund to be accurate, illustrating the past performance of small-
capitalization stocks, large-capitalization stocks, common stocks, equity
securities, growth stocks (small-capitalization, large-capitalization, or both),
value stocks (small-capitalization, large-capitalization, or both), the U.S.
stock market generally, or the U.S. stock market compared to other stock markets
throughout the world.
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, and their principal business
occupations during at least the last five (5) years, are shown below. Directors
deemed to be "interested persons" of Artisan Funds for purposes of the 1940
Act are indicated with an asterisk.
Name and Age Positions Held Principal Occupations
with Registrant during Past 5 Years
- ------------------ --------------- --------------------
Andrew A. Ziegler* Director, Managing Partner of
(38) Chairman of the Board Artisan Partners; prior to
and Chief Executive Officer founding Artisan Partners,
president and chief
operating officer of
Strong/Corneliuson Capital
Management ("Strong") and
president of the Strong
Funds from 1990 to 1994;
prior thereto, attorney
with the law firm of
Godfrey & Kahn, S.C.,
Milwaukee, WI.
Carlene Murphy Ziegler* Director and President Managing Partner of
(40) Artisan Partners; prior to
founding Artisan Partners,
a co-portfolio manager of
the Strong Common Stock
Fund, Strong Opportunity
Fund and numerous
institutional small-
capitalization equity
portfolios at Strong since
March 1991; prior thereto,
a co-portfolio manager of
the SteinRoe Special Fund.
David A. Erne Director Partner of the law
(53) firm Reinhart, Boerner,
Van Deuren, Norris &
Rieselbach, S.C.,
Milwaukee, WI.
Thomas R. Hefty Director President of United
(49) Wisconsin Services, Inc.
(a provider of managed
care and specialty
business services) since
1986 and chairman of the
board and chief executive
officer since 1991; and
chairman of the board of
Blue Cross & Blue Shield
United of Wisconsin
(parent company of United
Wisconsin Services, Inc.)
since 1988 and president
since 1982.
Howard B. Witt Director President and chief
(56) executive officer of
Littelfuse, Inc. (a
manufacturer of advanced
circuit protection
devices) since 1990 and
chairman of the board of
Littelfuse since 1993;
prior thereto executive
vice president of
Littelfuse; and director
of Franklin Electric Co.,
Inc. (a manufacturer of
electronic motors) since
1994.
John M. Blaser Chief Financial Officer,
(39) Treasurer and Secretary
Chief financial officer of
Artisan Partners; prior to
joining Artisan Partners,
senior vice president with
Kemper Securities, Inc.
since 1993; prior thereto,
with Price Waterhouse.
Mark L. Yockey Vice President
(40) Partner of Artisan
Partners; prior to joining
Artisan Partners,
portfolio manager of the
United International
Growth Fund and vice
president of Waddell &
Reed (investment
management firm) since
January 1990; prior
thereto, equity analyst
for Waddell & Reed.
Sandra Jean Vice President Equity trader for Artisan
Voss-Reinhardt(32) Partners; prior to joining
Artisan Partners, equity
trader with Northwestern
Mutual since January 1989,
prior thereto, sales
associate with Dean Witter
Reynolds.
Millie Adams Hurwitz Vice President Co-portfolio manager of
(33) the Fund; prior to joining
Artisan Partners, co-
portfolio manager at Stein
Roe & Farnham Incorporated
from 1992 until 1995, and
an analyst with OLC
Corporation from 1989 to
1991.
The address of Mr. Ziegler, Ms. Ziegler, Mr. Blaser and Ms. Voss-
Reinhardt is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin 53202.
The addresses of the other directors are: Mr. Erne - 1000 N. Water Street,
Milwaukee, Wisconsin 53202; Mr. Hefty - 401 W. Michigan Street, Milwaukee,
Wisconsin 53203; and Mr. Witt - 800 E. Northwest Highway, Des Plaines, Illinois
60016.
Mr. Ziegler and Ms. Ziegler are married to each other.
Mr. Ziegler and Ms. Ziegler serve as members of the Executive
Committee of the Board of Directors. The Executive Committee, which meets
between regular meetings of the Board, is authorized to exercise all of the
powers of the Board of Directors.
The only compensation paid to directors and officers of Artisan Funds
for their services as such consists of an annual $5,000 retainer fee (per series
of Artisan Funds) paid to directors who are not interested persons of Artisan
Funds or Artisan Partners. Artisan Funds has no retirement or pension plans.
The following table sets forth compensation paid by the Fund and by
Artisan Funds, Inc. (comprised of the Fund and Artisan International Fund)
during the fiscal year ended June 30, 1996 to each of the directors of the Fund.
TOTAL
COMPENSATION
PENSION OR FROM ARTISAN
RETIREMENT ESTIMATED SMALL CAP
AGGREGATE BENEFITS ANNUAL FUND AND
COMPENSATION ACCRUED BENEFITS FUND COMPLEX
FROM ARTISAN AS PART OF UPON PAID TO
NAME OF DIRECTOR SMALL CAP FUND FUND EXPENSES RETIREMENT DIRECTORS
- ---------------- -------------- ------------- ---------- ---------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy Ziegler 0 0 0 0
David A. Erne 2,500 0 0 7,500
Thomas R. Hefty 2,500 0 0 7,500
Howard B. Witt 2,500 0 0 7,500
On August 1, 1996, the directors and officers of Artisan Funds, as a
group, owned less than 1% of the outstanding shares of the Fund and less than 1%
of the outstanding shares of Artisan Funds.
PRINCIPAL SHAREHOLDERS
No person was known by Artisan Funds to own of record or beneficially
5% or more of the outstanding shares of the Fund at August 1, 1996 except for
persons acting as nominees for their clients, without the power to vote or
dispose of Fund shares.
INVESTMENT ADVISORY SERVICES
Artisan Partners Limited Partnership ("Artisan Partners") provides
investment advisory services to the Fund pursuant to an Investment Advisory
Agreement dated December 27, 1995 (the "Advisory Agreement"). Artisan
Partners is a Delaware limited partnership. Artisan Investment Corporation was
incorporated on December 7, 1994 for the sole purpose of acting as general
partner of Artisan Partners. Mr. Ziegler and Ms. Ziegler, as officers of
Artisan Investment Corporation, manage Artisan Partners. The principal address
of Artisan Partners is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202.
In return for its services, the Fund pays Artisan Partners a monthly
fee at the annual rate of 1% of the Fund's average daily net assets up to $500
million; .975 of 1% of average daily net assets from $500 million up to $750
million; .950 of 1% of average daily net assets from $750 million to $1 billion;
and .925 of 1% of average daily net assets over $1 billion. Artisan Partners
has undertaken to reimburse the Fund for certain expenses, as described in the
prospectus. The advisory fees paid [or accrued] by the Fund to Artisan Partners
during the period December 28, 1995 (commencement of operations) through June
30, 1996 aggregated $133,215
The Advisory Agreement provides that Artisan Partners shall not be
liable for any loss suffered by the Fund or its shareholders as a consequence of
any act of omission in connection with investment advisory or portfolio services
under the agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of Artisan Partners in the performance of its duties or
from reckless disregard by Artisan Partners of its obligations and duties under
the Advisory Agreement.
The Advisory Agreement may be continued from year to year only so long
as the continuance is approved annually (a) by the vote of a majority of the
directors of the Fund who are not "interested persons" of the Fund or Artisan
Partners cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the board of directors or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the portfolio. The
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Carlene Murphy Ziegler is a director and president of Artisan Funds,
and the portfolio manager of Artisan Small Cap Fund, another series of Artisan
Funds. Andrew A. Ziegler is a director and chief executive officer of Artisan
Funds. John M. Blaser is the chief financial officer of Artisan Funds and acts
as the principal administrative and financial officer. Mark L. Yockey is vice
president of Artisan Funds. Sandra J. Voss-Reinhardt is also a vice president
of Artisan Funds.
Prior to founding Artisan Partners in 1995, Ms. Ziegler was a
co-portfolio manager of the Strong Common Stock Fund and Strong Opportunity
Fund. From 1986 to 1991, Ms. Ziegler was a co-portfolio manager of the SteinRoe
Special Fund. Ms. Ziegler holds B.A. and M.A. degrees from the University of
Illinois and an M.B.A. from the University of Chicago Graduate School of
Business. She also is a Chartered Financial Analyst.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler was
president and chief operating officer of Strong, and president of the Strong
Funds; prior thereto, he was Executive Vice President and General Counsel of
Strong. From 1986 to 1990, Mr. Ziegler was an attorney with the law firm of
Godfrey & Kahn, S.C., Milwaukee, WI. Mr. Ziegler holds a B.S. from the
University of Wisconsin - Madison and a J.D. from the University of Wisconsin
Law School.
Prior to joining Artisan Partners in 1995, Mr. Blaser was Senior Vice
President of Kemper Securities, Inc. since 1993; prior thereto, Mr. Blaser was
with Price Waterhouse LLP. Mr. Blaser holds a B.B.A. from the University of
Wisconsin - Madison with majors in accounting and finance. He is a Certified
Public Accountant with a Personal Financial Specialist designation.
Prior to joining Artisan Partners in 1995, Mr. Yockey was portfolio
manager of the United International Growth Fund and vice president of Waddell
& Reed since January 1990. Prior thereto, Mr. Yockey was an equity analyst for
Waddell & Reed. Mr. Yockey holds a B.A. degree and an M.B.A. from Michigan State
University. He is also a Chartered Financial Analyst.
Prior to joining Artisan Partners in 1995, Ms. Voss-Reinhardt was an
equity trader with Northwestern Mutual since January 1989; prior thereto, Ms.
Voss-Reinhardt was a sales associate with Dean Witter Reynolds. Ms.
Voss-Reinhardt holds a B.A. from the University of Wisconsin - Eau Claire.
PORTFOLIO TRANSACTIONS
Artisan Partners places the orders for the purchase and sale of the
Fund's portfolio securities and options and futures contracts. Artisan
Partners' overriding objective in effecting portfolio transactions is to seek to
obtain the best combination of price and execution. The best net price, giving
effect to brokerage commissions, if any, and other transaction costs, normally
is an important factor in this decision, but a number of other judgmental
factors also may enter into the decision. These include: Artisan Partners'
knowledge of negotiated commission rates currently available and other current
transaction costs; the nature of the security being traded; the size of the
transaction; the desired timing of the trade; the activity existing and expected
in the market for the particular security; confidentiality; the execution,
clearance and settlement capabilities of the broker or dealer selected and
others which are considered; Artisan Partners' knowledge of the financial
stability of the broker or dealer selected and such other problems of any broker
or dealer. Recognizing the value of these factors, the Fund may pay a brokerage
commission in excess of that which another broker or dealer may have charged for
effecting the same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an ongoing basis by
Artisan Partners' staff while effecting portfolio transactions. The general
level of brokerage commissions paid is reviewed by Artisan Partners, and reports
are made annually to the board of directors.
With respect to issues of securities involving brokerage commissions,
when more than one broker or dealer is believed to be capable of providing the
best combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services Artisan
Partners feels are useful. In certain instances, Artisan Partners receives from
brokers and dealers products or services that are used both as investment
research and for administrative, marketing, or other non-research purposes. In
such instances, Artisan Partners makes a good faith effort to determine the
relative proportions of such products or services which may be considered as
investment research. The portion of the costs of such products or services
attributable to research usage may be defrayed by Artisan Partners (without
prior agreement or understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by Artisan Partners in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of
Artisan Partners and not all such research products or services are used in
connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, Artisan Partners also may
consider the part, if any, played by the broker or dealer in bringing the
security involved to Artisan Partners' attention, including investment research
related to the security and provided to the Fund.
During the period December 28, 1995 (commencement of operations)
through June 30, 1996, the Fund paid brokerage commissions of $427,483 to
brokers who furnished research services to the Fund or Artisan Partners on
purchases and sales aggregating $97,912,681.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares," and "How to Sell Shares." All of that
information is incorporated herein by reference.
Shares of the Fund may be purchased through certain financial service
companies without incurring any transaction fee. For accounting and shareholder
servicing services provided by such a company with respect to Fund shares held
by that company for its customers, the company may charge a fee of up to 0.35%
of the annual average value of those accounts. The Fund pays a portion of those
fees not to exceed the estimated fees and expenses that the Fund would pay to
its own transfer agent if the shares of the Fund held by such customers of the
company were registered directly in their names on the books of the Fund's
transfer agent. The balance of those fees is paid by Artisan Partners.
Net Asset Value. The net asset value of the shares of the Fund is
determined as of the close of regular session trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) each day the NYSE is
open for trading. The NYSE is regularly closed on Saturdays and Sundays and on
New Year's Day, the third Monday in February, Good Friday, the last Monday in
May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these
holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment of the board
of directors, net asset value of the Fund should be determined on any such day,
in which case the determination will be made at 3:00 p.m., Central time. The
net asset value per share of the Fund is determined by dividing the value of all
its securities and other assets, less its liabilities, by the number of shares
of the Fund outstanding.
Trading in the portfolio securities of the Fund takes place in various
foreign markets on certain days (such as Saturdays or U.S. holidays) when
Artisan Funds is not open for business and the net asset value of the Fund is
not calculated. Conversely, trading in the Fund's portfolio securities may not
occur on days when Artisan Funds is open. As a result, the calculation of net
asset value does not take place contemporaneously with the determinations of the
prices of many of the Fund's portfolio securities and the value of the Fund's
portfolio may be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
The Fund intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Fund during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions.
The Fund reserves the right to suspend or postpone redemptions of its
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Commission, if the NYSE is closed for other than customary
weekend and holiday closings; (b) the Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Commission, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Fund and Artisan Partners each have adopted a code of ethics that,
among other things, regulates the personal security transactions of certain
officers, directors, partners and employees of the Fund and Artisan Partners.
ADDITIONAL TAX INFORMATION
Artisan Funds intends for the Fund to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") and thus not be subject to federal income
taxes on amounts which it distributes to shareholders.
To the extent the Fund invests in foreign securities, it may be
subject to withholding and other taxes imposed by foreign countries. Tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. Investors may be entitled to claim U.S. foreign tax credits with
respect to such taxed, subject to certain provisions and limitations contained
in the Code. Specifically, if more than 50% of the Fund's total assets at the
close of any fiscal year consist of stock or securities of foreign corporations,
the Fund may file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign income taxes
paid by them, and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate category income
for purposes of computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily benefit from
this election relating to foreign taxes. Each year, the Fund will notify
shareholders of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund, and (ii) the portion of Fund dividends which
represent income from each foreign country if the Fund qualifies to pass along
such credit.
The Fund may purchase the securities of certain foreign investment
funds or trusts called passive foreign investment companies ("PFICs"). In
addition to bearing their proportionate share of the Fund's expenses (management
fees and operating expenses), shareholders will also indirectly bear similar
expenses of PFICs. Capital gains on the sale of PFIC holdings will be deemed to
be ordinary income regardless of how long the Fund holds its investment. In
addition, the Fund may be subject to corporate income tax and an interest charge
on certain dividends and capital gains earned from PFICs, regardless of whether
such income and gains are distributed to shareholders.
In accordance with tax regulations, the Fund intends to treat PFICs as
sold on the last day of the Fund's fiscal year and recognize any gains for tax
purposes at that time; losses will not be recognized. Such gains will be
considered ordinary income which the Fund will be required to distribute even
though it has not sold the security and received cash to pay such distributions.
CUSTODIAN
State Street Bank & Trust Company ("State Street"), 1776 Heritage
Drive, North Quincy, MA 02171, acts as custodian of the securities and other
assets of the Fund. State Street is responsible for, among other things,
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on the
Fund's investments. State Street also performs portfolio accounting services for
the Fund. State Street is not an affiliate of Artisan Partners or its
affiliates. State Street is authorized to deposit securities in securities
depositories for the use of services of sub-custodians.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 serves as the Fund's independent accountants, providing services including
(i) audit of the annual financial statements; (ii) assistance and consultation
in connection with Securities and Exchange Commission filings; and (iii) review
of the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
The 1995 annual report to shareholders of the Fund, a copy of which
accompanies this Statement of Additional Information, contains financial
statements, notes thereto, supplementary information entitled "Financial
Highlights,' and a report of independent accountants, all of which (but no
other part of the annual report) are incorporated herein by reference.
Additional copies of the annual report may be obtained from Artisan Funds at no
charge by writing or telephoning Artisan Funds at the address or telephone
number on cover page of this Statement of Additional Information.
- ----------------------------
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements included in Part A of this registration
statement:
None.
(2) Financial Statements included in Part B of this amendment:
ARTISAN SMALL CAP FUND
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's annual report to shareholders for
the fiscal year ended June 30, 1996:
- Schedule of Investments at June 30, 1996
- Statement of Assets and Liabilities at June 30, 1996
- Statement of Operations for the Period Ended June 30, 1996
- Statement of Changes in Net Assets for the Year Ended
June 30, 1996 and Period Ended June 30, 1995
- Notes to Financial Statements
- Report of Independent Accountants
ARTISAN INTERNATIONAL FUND
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's annual report to shareholders for
the fiscal year ended June 30, 1996:
- Schedule of Investments at June 30, 1996
- Statement of Assets and Liabilities at June 30, 1996
- Statement of Operations for the Period Ended June 30, 1996
- Statement of Changes in Net Assets for the Period
Ended June 30, 1996
- Notes to Financial Statements
- Report of Independent Accountants
Note: the following schedules have been omitted for the following reasons:
Schedule I - The required information is presented in the
Schedules of Investments at June 30, 1996.
Schedules II, III, IV and V - the required information is
not present.
(b) Exhibits:
1.1 Amended and Restated Articles of Incorporation of the Registrant.
(a)
1.2 Articles of Amendment dated October 12, 1995. (a)
2 Bylaws, as amended. (a)
3 None
4 None (Registrant does not issue share certificates.)
5.1 Investment Advisory Agreement between the Registrant and Artisan
Partners Limited Partnership relating to Artisan Small Cap Fund.
(a)
5.2 Form of Investment Advisory Agreement between the Registrant and
Artisan Partners Limited Partnership relating to Artisan
International Fund. (a)
6 None
7 None
8 Custodian Agreement and Accounting Services Agreement between the
Registrant and State Street Bank and Trust Company. (a)
9 Transfer Agency Agreement between the Registrant and State Street
Bank and Trust Company. (a)
10.1 Opinion and Consent of Counsel dated March 8, 1995 with respect
to Artisan Small Cap Fund. (a)
10.2 Opinion and Consent of Counsel dated October 13, 1995 with
respect to Artisan International Fund. (a)
11 Consent of Independent Accountants.
12 None
13 Subscription Agreement between the Registrant and Andrew A.
Ziegler and Carlene Murphy Ziegler relating to Artisan Small Cap
Fund. (a)
14 IRA plan booklet dated March 1995. (a)
15 None
16 Schedule of computation of performance quotations. (a)
17 Financial Data Schedule.
18 Form of account application. (a)
(a) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 3 to this registration statement.
ITEM 25. Persons Controlled by or Under Common Control With Registrant.
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with, the
Registrant within the meaning of this item, The information in the prospectus
under the caption "The Fund in Detail - Organization - Management" and in the
statement of additional information under the caption "Investment Advisory
Services' is incorporated herein by reference.
ITEM 26. Number of Holders of Securities.
Number of Record Holders
Title of Series as of August 1, 1996
--------------- ------------------------
Artisan Small Cap Fund 19,729
Artisan International Fund 2,520
ITEM 27. Indemnification.
Article VIII of Registrant's Amended Articles of Incorporation
(Exhibits 1.1 and 1.2, which are incorporated herein by reference) provides that
the Registrant shall indemnify and advance expenses to its currently acting and
its former directors and officers to the fullest extent that indemnification of
directors and officers is permitted by the Wisconsin Statutes, and the Board of
Directors may by bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Wisconsin Statutes; provided however, that nothing
therein shall be construed to protect any director or officer of the Registrant
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
/R>
Insofar as indemnification for liabilities arising under the Secu-
rities Act of 1933 (the "Securities Act") may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant will not advance attorneys' fees or other expenses
incurred by the person to be indemnified unless the Registrant shall have
received an undertaking by or on behalf of such person to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification and one of the following conditions shall have occurred: (i)
such person shall provide security for his undertaking, (ii) the Registrant
shall be insured against losses arising by reason of any lawful advances, or
(iii) a majority of the disinterested, non-party directors of the Registrant, or
an independent legal counsel in a written opinion, shall have determined that
based on a review of readily available facts there is reason to believe that
such person ultimately will be found entitled to indemnification.
Registrant and its directors and officers are insured under a policy
of insurance maintained by Registrant, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors or officers. The
policy expressly excludes coverage for any director or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
ITEM 28. Business and Other Connections of Investment Adviser.
The information in each prospectus under the caption "The Fund in
Detail - Organization - Management' is incorporated herein by reference. For a
description of other business, profession, vocation or employment of a
substantial nature in which any general partner, managing general partner,
director or officer of Artisan Partners Limited Partnership has engaged
during the last two years for his account or in the capacity of director,
officer, employee, partner or trustee, see the information under the caption
"Directors and Officers" in the statement of additional information.
ITEM 29. Principal Underwriters.
None
ITEM 30. Location of Accounts and Records.
John M. Blaser
Artisan Partners Limited Partnership
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
(d) Registrant undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly
caused this amendment to the registration statement be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Milwaukee and
state of Wisconsin on August 19, 1996.
ARTISAN FUNDS, INC.
By /s/ Andrew A. Ziegler
Andrew A. Ziegler, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following person in the
capacities and on the date indicated.
Name Title Date
/s/ Andrew A. Ziegler Director, Chief Executive)
Andrew A. Ziegler Officer (principal executive)
officer) )
)
)
/s/ Carlene Murphy Ziegler Director and President )
Carlene Murphy Ziegler )
)
)
/s/ David A. Erne Director )
David A. Erne ) August 19, 1996
)
)
/s/ Thomas R. Hefty Director )
Thomas R. Hefty )
)
)
/s/ Howard B. Witt Director )
Howard B. Witt )
)
)
/s/ John M. Blaser Chief Financial Officer, )
John M. Blaser Treasurer and Secretary )
(principal financial and )
accounting officer) )
- ------------
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
----------
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
- ---------------
Index of Exhibits Filed with this Registration Statement
Exhibit Sequential
number Exhibit page
- ------- ------- ----------
11 Consent of Independent Accountants.
17 Financial Data Schedule.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 4 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated July 30, 1996, relating to the financial
statements and financial highlights appearing in the June 30, 1996 Annual
Reports of Artisan Small Cap Fund and Artisan International Fund (constituting
Artisan Funds, Inc.), which are also incorporated by reference into the
Registration Statements. We also consent to the reference to us under the
heading "Independent Accountants" in each Statement of Additional Information
and to the reference to us under the heading "Financial Highlights" in each
Prospectus.
Price Waterhouse LLP
Milwaukee, Wisconsin
August 12, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Form N-SAR and the Financial Statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000935015
<NAME> Artisan Small Cap Fund
<MULTIPLIER> 1.000
<S> <C>
<PERIOD-START> JUL-01-1995
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 364,044,780
<INVESTMENTS-AT-VALUE> 406,707,890
<RECEIVABLES> 866,897
<ASSETS-OTHER> 127,910
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 407,702,697
<PAYABLE-FOR-SECURITIES> 7,470,689
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 231,419
<TOTAL-LIABILITIES> 7,702,108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 355,711,272
<SHARES-COMMON-STOCK> 27,259,873
<SHARES-COMMON-PRIOR> 8,617,744
<ACCUMULATED-NII-CURRENT> (2,029,400)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,026,370
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,295,167
<NET-ASSETS> 400,000,589
<DIVIDEND-INCOME> 1,233,626
<INTEREST-INCOME> 830,428
<OTHER-INCOME> 0
<EXPENSES-NET> 4,093,454
<NET-INVESTMENT-INCOME> (2,029,400)
<REALIZED-GAINS-CURRENT> 27,026,370
<APPREC-INCREASE-CURRENT> 36,295,167
<NET-CHANGE-FROM-OPS> 61,292,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,110,073
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,268,039
<NUMBER-OF-SHARES-REDEEMED> 6,778,168
<SHARES-REINVESTED> 155,258
<NET-CHANGE-IN-ASSETS> 300,731,738
<ACCUMULATED-NII-PRIOR> (56,274)
<ACCUMULATED-GAINS-PRIOR> (425,957)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,734,855
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,93,454
<AVERAGE-NET-ASSETS> 269,904,246
<PER-SHARE-NAV-BEGIN> 11.52
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 3.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.1)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.67
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Form N-SAR and the Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000935015
<NAME> Artisan International Fund
<MULTIPLIER> 1.000
<S> <C>
<PERIOD-START> DEC-28-1995
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 71,186,560
<INVESTMENTS-AT-VALUE> 74,912,275
<RECEIVABLES> 6,485,224
<ASSETS-OTHER> 51,424
<OTHER-ITEMS-ASSETS> 01,424
<TOTAL-ASSETS> 81,448,923
<PAYABLE-FOR-SECURITIES> 9,777,943
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,282
<TOTAL-LIABILITIES> 9,937,225
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,518,353
<SHARES-COMMON-STOCK> 5,921,803
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 217,111
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,047,924
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,708,410
<NET-ASSETS> 71,511,698
<DIVIDEND-INCOME> 494,060
<INTEREST-INCOME> 56,582
<OTHER-INCOME> 0
<EXPENSES-NET> 333,531
<NET-INVESTMENT-INCOME> 217,111
<REALIZED-GAINS-CURRENT> 1,047,924
<APPREC-INCREASE-CURRENT> 3,708,410
<NET-CHANGE-FROM-OPS> 4,973,445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,080,442
<NUMBER-OF-SHARES-REDEEMED> 158,639
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 71,511,698
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 133,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 333,531
<AVERAGE-NET-ASSETS> 26,791,327
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 2.04
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.08
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
