STATEMENT OF ADDITIONAL INFORMATION
December 27, 1995
SUPPLEMENTED JANUARY 4, 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 December 27, 1995 and any supplement to the prospectus. That
prospectus can be obtained without charge by calling or writing to the Fund.
TABLE OF CONTENTS
Information about the Fund..............................................2
Investment Objective and Policies.......................................2
Investment Techniques and Risks.........................................2
Investment Restrictions................................................13
Performance Information................................................16
Directors and Officers.................................................19
Investment Advisory Services...........................................21
Portfolio Transactions.................................................22
Purchasing and Redeeming Shares........................................23
Additional Tax Information.............................................24
Custodian..............................................................25
Independent Accountants................................................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 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 cash, Treasury
bills, or other higher-grade short-term obligations 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<F9>
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.
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,'<F10> would exceed 5% of the Fund's total assets.
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) cash or cash equivalents (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 cash or cash
equivalents (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,
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<F11> 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.
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.
(Such securities are hereinafter referred to as "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.
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, liquid assets (cash, U.S. Government securities or other
"high-grade" debt obligations) 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
Subject to restriction (4) under "Investment Restrictions" in this
statement of additional information, the Fund may establish and maintain 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.
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 "Dividend,
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, <F12> 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;<F13>
(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. 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;<F14>
(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:
ERV = P(l+T)n
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 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 Mutual Fund Letter
Barron's Mutual Fund News
Boston Herald Service
Business Week Mutual Fund Values
Chicago Tribune Morningstar Publications
Chicago Sun-Times Newsweek
Cleveland Plain Dealer The New York Times
CNBC No-Load Fund Investor
CNN Outstanding Investor Digest
Crain's Chicago Business Pension World
Consumer Reports Pensions and Investments
Consumer Digest Personal Investor
Financial World Jane Bryant Quinn
Forbes (syndicated column)
Fortune Louis Rukeyser's Mutual Fund
Fund Action The San Francisco Chronicle
Investor's Business Smart Money
Daily Stranger's Investment Adviser
Kiplinger's Personal 13D Opportunities
Finance Magazine Report
Knight-Ridder Time
Los Angeles Times United Mutual Fund Selector
Milwaukee Business USA Today
Journal Milwaukee U.S. News and World Report
Journal Sentinel The Wall Street Journal
Money 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 New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange
Standard & Poor's 400 Industrials Composite Index
Standard & Poor's Mid-Cap 400 Index NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally
recognized indicators of general reflect the performance
U.S. stock market results.) 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 the Fund and their principal business
occupations during at least the last five (5) years, are shown below.
<F15> Directors deemed to be "interested persons" of the Fund for
purposes of the 1940 Act.
Positions Held Principal
Name and Age with Registrant Occupations during
- ------------ --------------- Past 5 Years
=================
Andrew A. Director, Chairman of Managing Partner
Ziegler<F15> the Board and Chief of Artisan
(37) Executive Officer Partners; prior to
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 Director and Managing Partner
Ziegler<F15> President of Artisan
(39) 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
(52) firm Reinhart,
Boerner, Van
Deuren, Norris &
Rieselbach, S.C.,
Milwaukee, WI.
Thomas R. Hefty Director President of
(48) United 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
(55) chief 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 Chief financial
(38) Officer, Treasurer officer of Artisan
and Secretary 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 Partner of Artisan
(39) 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 Voss- Vice President Equity trader for
Reinhardt Artisan Partners;
(31) prior to joining
Artisan Partners,
equity trader with
Northwestern
Mutual since
January 1989,
prior thereto,
sales associate
with Dean Witter
Reynolds.
The address of Mr. Ziegler, Ms. Ziegler, Mr. Blaser, Mr. Yockey 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 Executive Committee held one meeting
during the fiscal year ended June 30, 1995.
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 expected to be paid by
Artisan Funds during the fiscal year ending June 30, 1996 to each of the
directors of Artisan Funds.
TOTAL
COMPENSATION
PENSION OR FROM ARTISAN
AGGREGATE RETIREMENT INTERNATIONAL
COMPENSATION BENEFITS ESTIMATED FUND AND
FROM ARTISAN ACCRUED ANNUAL FUND COMPLEX
INTERNATIONAL AS PART OF FUND BENEFITS UPON PAID TO
NAME OF DIRECTOR 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
No shares of the Fund were outstanding on the date of this Statement
of Additional Information. However, prior to the commencement of public
offering of shares of the Fund, Artisan Partners or one or more of its
principals, will purchase shares of the Fund at an initial price of $10.00 per
share.
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. The rate of fees
paid to Artisan Partners is higher than that paid by other mutual funds
reflecting the higher costs involved in actively managing an "overseas"
portfolio. Artisan Partners has undertaken to reimburse the Fund for certain
expenses, as described in the prospectus.
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, 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, 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, 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, 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, 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, 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.
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
The Artisan Funds intends for the Fund to qualify and 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.
<F9> 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.
<F10> 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.
<F11> 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).
<F12> A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase the securities
at the same price plus an amount representing interest at an agreed-upon
interest rate, within a specified time, usually less that one week, but, on
occasion, at a later time. Repurchase agreements entered into by the Fund will
be fully collateralized and will be market-to-market daily. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the collateral 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.
<F13> The Fund will not purchase securities when total borrowings by
the Fund are greater than 5% of its net asset value.
<F14> As long as Fund shares are offered for sale in California, the
Fund will not acquire or retain the shares of other open-end investment
companies.
