ARTISAN
INTERNATIONAL
FUND
A NO-LOAD FUND
INTERNATIONAL INSTITUTIONAL SHARES
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.
Artisan International Fund offers two classes of shares. International
Institutional Shares are offered by this prospectus to institutional investors
including, but not limited to, employee benefit plans, endowments, foundations,
trusts and corporations able to meet the high minimum investment requirement.
Minimum initial investment: $2,000,000
Minimum subsequent investments: $ 100,000
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-
800-399-1770.
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 Funds, Inc.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
PROSPECTUS MARCH 22, 1997
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Table of Contents
PAGE
The Fund at a Glance.........................................................1
Goal....................................................................1
Strategy................................................................1
Management..............................................................1
Who May Want to Invest..................................................1
International Institutional Shares......................................1
Risks and Returns.......................................................2
Expenses.....................................................................2
Shareholder transaction expenses........................................2
Annual Fund operating expenses..........................................3
Financial Highlights.........................................................4
Performance..................................................................5
Purchasing and Redeeming Shares..............................................5
Doing Business with Artisan Funds.......................................5
Who May Invest..........................................................5
How to Invest...........................................................6
How to Redeem Shares....................................................7
Statements and Reports.......................................................9
Net Asset Value..............................................................9
Dividends, Capital Gains and Taxes..........................................10
Distribution Options...................................................10
Taxes..................................................................10
Foreign Income Taxes........................................................11
The Fund in Detail..........................................................11
Organization...........................................................11
Management.............................................................12
Expenses...............................................................13
The Fund's Investment Philosophy............................................14
Securities, Investment Practices and Risks.............................15
Equity Securities......................................................15
Foreign Securities.....................................................16
Debt Securities........................................................17
Convertible Securities.................................................17
Managing Investment Exposure...........................................18
Currency Exchange Transactions....................................18
Options and Futures...............................................19
Illiquid and Restricted Securities.....................................19
Diversification........................................................19
Lending Portfolio Securities; Repurchase Agreements;
When-Issued and Delayed-Delivery Securities.......................20
Borrowing..............................................................20
Other Investment Companies.............................................20
Portfolio Turnover.....................................................21
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THE FUND AT A GLANCE
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GOAL. Artisan International Fund (the "Fund"), a series of Artisan
Funds, Inc. ("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. International Institutional Shares are designed
for institutional investors who are able to meet the high minimum investment
requirements, 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. To reduce costs, International Institutional Shares are not
qualified in all states. To find out if International Institutional Shares are
qualified, or can be qualified, in your state, call 1-800-399-1770 before
sending an application to open a new account. See "Purchasing and Redeeming
Shares."
INTERNATIONAL INSTITUTIONAL SHARES. This prospectus offers International
Institutional Shares. To maintain lower operating expenses that benefit all
holders of International Institutional Shares, the minimum initial investment in
International Institutional Shares is $2 million. Subsequent investments must
be $100,000 or greater. Artisan Funds reserves the right to redeem any account
which has a value of less than $2 million and send the proceeds of that
redemption to the shareholder, unless the reduction in value was due solely to
market depreciation.
<PAGE 1>
RISKS AND RETURNS. The Fund is generally 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" for more information on
the types of investments the Fund may make, and "Purchasing and Redeeming
Shares" for information on how to buy and redeem shares.
EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES. As shown below, there are no transaction
charges when you buy or sell International Institutional Shares:
Maximum sales charge on purchases and
reinvested dividends NONE
Deferred sales charge on redemptions NONE
Redemption fee NONE
<PAGE 2>
ANNUAL FUND OPERATING EXPENSES. The Fund expects to incur the following
expenses attributable to International Institutional Shares (expressed as
percentages of average net assets) during its first full fiscal year ending June
30, 1998:
Management fee 1.00%
12b-1 fee None
Other expenses <F11> 0.25%
-----
Total operating expenses <F11> 1.25%
=====
_______
<F11> Estimated.
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (i) the Fund's annual return is 5% and its operating expenses are
exactly as shown above and (ii) redemption at the end of each period:
After 1 year $13.13
After 3 years $40.84
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. The purpose of the expense tables and the example is to
help an investor understand the costs and expenses associated with investing
in International Institutional Shares. Although information such as that shown
in the example is useful in reviewing the expenses of the Fund and in providing
a basis for comparison of those expenses with the expenses of other mutual
funds, it should not be used for comparison with other investments using
different assumptions or time periods.
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FINANCIAL HIGHLIGHTS
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THE INFORMATION BELOW SHOWS THE RESULTS OF AN INVESTMENT IN THE
INTERNATIONAL SHARES (NOT THE INTERNATIONAL INSTITUTIONAL SHARES) OF THE FUND
throughout the period December 28, 1995 (the commencement of operations) through
June 30, 1996 and the period July 1, 1996 through December 31, 1996. Because
International Institutional Shares have not previously been issued, similar
information does not exist for them. The information for the period ended June
30, 1996 was audited by Price Waterhouse LLP, independent accountants; the
information for the period ended December 31, 1996 is unaudited. The
unqualified report of Price Waterhouse LLP on the financial statements for the
period ended June 30, 1996 is included in the Fund's annual report to
shareholders.
Period
Period Ended
Ended 12/31/96
6/30/96<F14> (unaudited)
------------------------
Net asset value, beginning of period $10.00 $12.08
Income from investment operations:
Net investment income 0.04 (0.04)
Net realized and unrealized gains on securities
and foreign currency held 2.04 1.39
------ ------
Total from investment operations 2.08 1.35
Distributions: Net realized capital gains 0.00 (0.11)
------ ------
Net asset value, end of period $12.08 $13.32
====== ======
Total return 20.80%<F13> 11.20%<F13>
Ratios/supplemental data:
Net assets, end of period (millions) 71.5 191.6
Ratio of expenses to average net assets 2.50%<F12> 1.83%<F12>
Ratio of net investment income to average net
assets 1.60%<F12> (0.40)%<F12>
Portfolio turnover rate 57.00%<F13> 55.90%<F13>
Average commission per share $.0129
<F12> Annualized
<F13> Not Annualized
<F14> For the period from commencement of operations (December 28, 1995)
through June 30,1996.
<PAGE 4>
PERFORMANCE
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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).
The performance of the International Institutional Shares will be different
from the performance of the International Shares, because the expenses allocated
to the classes will be different. Because its expense ratio is expected to be
lower, the total return and average annual total return of the International
Institutional Shares are expected to be greater than for the International
Shares.
PURCHASING AND REDEEMING SHARES
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DOING BUSINESS WITH ARTISAN FUNDS.
Artisan Partners provides holders of the International Institutional Shares
with service from 9:00 a.m. to 4:00 p.m., Central time, on days the Fund is open
for business. To reach Artisan Partners, call 1-800-399-1770.
WHO MAY INVEST
International Institutional Shares are offered by Artisan Funds to
institutional investors, including but not limited to pension and profit-sharing
plans, other employee benefit plans, endowments, foundations, trusts and
corporations meeting the applicable minimum investment requirements. To
maintain lower operating costs, International Institutional Shares are not made
available in all states except to investors whose purchase would be eligible for
an exemption from state securities laws requiring the payment of fees to the
states. TO DETERMINE IF INTERNATIONAL INSTITUTIONAL SHARES ARE AVAILABLE FOR
PURCHASE BY YOU, OR CAN BE MADE AVAILABLE FOR PURCHASE, CALL ARTISAN PARTNERS AT
1-800-399-1770 BEFORE SENDING AN APPLICATION TO OPEN A NEW ACCOUNT.
Each account must separately meet the minimum investment requirements
applicable to International Institutional Shares. The minimum initial
investment is $2 million; subsequent investments must be $100,000 or greater.
Artisan Funds reserves the right to close your account if the value is less than
$2 million, unless the reduction in value is due solely to market
<PAGE 5>
depreciation. Before closing an account below this level, the Fund will notify
you and allow you at least 30 days to bring the value of the account up to
the minimum.
HOW TO INVEST
You may purchase International Institutional Shares of the Fund by check or
by wire. There are no sales commissions or underwriting discounts.
BY WIRE. You may pay for shares by instructing your bank to wire money to
Artisan Funds' custodian bank. Your bank may charge you a fee for sending the
wire. IF YOU ARE OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST
TELEPHONE ARTISAN PARTNERS AT 1-800-399-1770 TO REQUEST AN ACCOUNT NUMBER AND
FURNISH YOUR TAX IDENTIFICATION NUMBER. Artisan Funds will not be responsible
for the consequences of delays, including delays in the banking or Federal
Reserve wire systems. Wire transfer instructions are:
State Street Bank and Trust Company
Attn: Mutual Funds
Boston, MA 02110
Routing #0110-0002-8
Credit to Artisan International Institutional Fund 662
Deposit DDA 9905-088-2
BY CHECK. To make an initial purchase of shares by check, complete and
sign the Share Purchase Application and send it to one of the following
addresses with a check for the total purchase amount payable to "Artisan Funds":
REGULAR MAIL or OVERNIGHT DELIVERY
Artisan Funds
c/o Boston Financial Data Services
500 Victory Road
Marina Bay, 3rd Floor
N. Quincy, Massachusetts 02171
SUBSEQUENT INVESTMENTS. You may make subsequent investments by wire
transfer, using the instructions given above, or by submitting a check along
with either the stub from your Fund account confirmation statement or a note
indicating the amount of the purchase, your account number, and the name in
which your account is registered. ARTISAN FUNDS WILL NOT ACCEPT CASH, DRAFTS,
THIRD PARTY CHECKS, OR CHECKS DRAWN ON BANKS OUTSIDE OF THE UNITED STATES. If
your order to purchase International Institutional Shares of the Fund is
canceled because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of International
Institutional Shares is made at the net asset value applicable to those shares
(see "Net Asset Value") next determined after receipt by the Fund of the check
or wire transfer of funds in payment of the purchase.
<PAGE 6>
PURCHASES THROUGH DEALERS. You may purchase or redeem International
Institutional Shares of the Fund through certain investment dealers, banks or
other institutions. Any such purchase or redemption generally will not be
effective until the order or request is received by Artisan Funds' transfer
agent; it is the responsibility of the dealer to transmit your order or request
promptly. These institutions may impose charges for their services. You may
purchase or redeem International Institutional Shares directly from Artisan
Funds without imposition of any charges other than those described in this
prospectus. ARTISAN FUNDS WILL NOT ACCEPT PURCHASES THROUGH DEALERS MAINTAINING
OMNIBUS ACCOUNTS FOR THEIR CLIENTS. EACH INVESTOR MUST MEET THE MINIMUM
INVESTMENT REQUIREMENTS APPLICABLE TO INTERNATIONAL INSTITUTIONAL SHARES.
GENERAL. Artisan Funds cannot accept a purchase order specifying a
particular purchase date or price per share. Each purchase order must be
accepted by an authorized officer of Artisan Funds or its transfer agent and is
not binding until accepted and entered on the books of the Fund. Once your
purchase order has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. Artisan Funds reserves the right not to accept any
purchase order that it determines not to be in the best interest of Artisan
International Fund or the Fund's shareholders.
HOW TO REDEEM SHARES
You may redeem all or any part of your International Institutional Shares
of the Fund upon your written request delivered to Artisan Funds' transfer agent
at one of the following addresses:
REGULAR MAIL or OVERNIGHT DELIVERY
Artisan Funds
c/o Boston Financial Data Services
500 Victory Road
Marina Bay, 3rd Floor
N. Quincy, Massachusetts 02171
Your redemption request must:
(1) identify the Fund and give your account number;
(2) specify the number of shares or dollar amount to be redeemed;
(3) be accompanied by a corporate or other authorization in the case of a
redemption by a corporation, trust, partnership or other entity, as
described below; and
(4) be signed in ink by duly authorized officers of the shareholder.
<PAGE 7>
EVIDENCE OF AUTHORITY. Redemption requests by a corporation,
trust, partnership or other entity must be accompanied by evidence of the
authority of the person or persons signing the redemption request to so act. In
the case of a corporation, the request must be signed in the name of the
corporation by an officer whose title must be stated, and must be accompanied by
a bylaw provision or resolution of the board of directors, certified within 60
days, authorizing the officer to so act. A redemption request from a
partnership or a trust must be signed in the name of the partnership or trust by
a general partner or a trustee and include a signature guarantee. If the
trustee is not named in the account registration, a redemption request by a
trust must also include evidence of the trustee's appointment as such (e.g., a
certified copy of the relevant portions of the trust instrument). Under certain
circumstances, before the shares can be redeemed, additional documents may be
required in order to verify the authority of the person seeking to redeem.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your redemption
order once your instructions have been received and accepted. Artisan Funds
cannot accept a redemption request that specifies a particular date or price for
redemption or any special conditions. PLEASE CALL 1-800-399-1770 IF YOU HAVE
ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE SUBMITTING YOUR
REQUEST. Artisan Funds reserves the right to require a properly completed
Application before making payment for shares redeemed.
The price at which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are received. See
"Net Asset Value." Because the redemption price you receive depends upon the net
asset value per share of the International Institutional Shares at the time of
redemption, it may be more or less than the price you originally paid for the
shares and may result in a realized capital gain or loss.
Artisan Funds will generally wire transfer the proceeds of your redemption
to the bank account designated in your purchase application. If you attempt to
redeem shares within 15 days after they have been purchased by check, Artisan
Funds may delay payment of the redemption proceeds to you until it can verify
that payment for the purchase of those shares has been (or will be) collected.
To reduce such delays, Artisan Funds recommends that your purchase be made by
Federal funds wire through your bank.
Shares in any account you maintain with Artisan Funds may be redeemed to
the extent necessary to reimburse Artisan Funds for any loss it sustains that is
caused by you (such as losses from uncollected checks or any Fund liability
under the Internal Revenue Code provisions on backup withholding relating to
your account).
<PAGE 8>
STATEMENTS AND REPORTS
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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 1-800-399-
1770.
NET ASSET VALUE
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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 net asset value per
International Institutional Share of Artisan International Fund 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 NET ASSET VALUE PER INTERNATIONAL INSTITUTIONAL SHARE is the value of a
single International Institutional Share, and is computed by adding up the
International Institutional Shares' pro rata share of the value of the Fund's
investments, cash, and other assets, subtracting the International Institutional
Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to the International Institutional Shares and then
dividing the result by the number of International Institutional 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
<PAGE 9>
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.
DIVIDENDS, CAPITAL GAINS AND TAXES
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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
Artisan Partners at 1-800-399-1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional International Institutional Shares.
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 in additional International Institutional Shares, but you will
be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
When you reinvest, the reinvestment price is the net asset value per
International Institutional 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
If your account is a tax-deferred account (for example, 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.
<PAGE 10>
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.
THE FUND IN DETAIL
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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.
Artisan Funds' charter authorizes its board of directors to issue fifty
billion full and fractional shares of capital stock, $.001 par value per share,
of which 5 million shares are designated International Institutional Shares.
Under the charter, the board of directors has the power to classify or
reclassify any unissued shares of Artisan Funds into one or more additional
series or classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of
<PAGE 11>
redemption. The board may also, without shareholder approval, increase the
number of authorized shares of the Fund.
Artisan International Fund offers a separate class of shares, referred to
in this prospectus as the International Shares, pursuant to a separate
prospectus. Shares of each class (the International Institutional Shares and
the International Shares) represent equal pro rata interests in the Fund and
accrue dividends and calculate net asset value and performance quotations in
the same manner. Because of the lower expected expense ratio of the
International Institutional Shares, the total return on International
Institutional Shares can be expected to be higher than the total return on the
International Shares. Investors may obtain information about the International
Shares by calling Artisan Funds' transfer agent at 1-800-344-1770.
All shares participate equally in dividends and other distributions
declared by the board of directors (although the amounts of the dividends and
distributions of the International Institutional Shares and the International
Shares will differ because of the different expenses they may bear), 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 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.
Each share of Artisan Funds has one vote. Shareholders of the Fund and
each other series of Artisan Funds will vote in the aggregate except where
otherwise required by law and except that each Fund, and each class of Artisan
International Fund, will vote separately on matters in which the interests of
that Fund or class differ from the interests of any other Fund or class, and
will have exclusive voting rights on matters affecting only that Fund or class.
MANAGEMENT
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 Fund is managed by Artisan Partners Limited Partnership, 1000 North
Water Street, Suite 1770, Milwaukee, Wisconsin 53202, and 100 Pine Street, San
Francisco, California 94111, 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,
<PAGE 12>
Artisan Investment Corporation, which is 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, vice president of Artisan Funds, has been the portfolio
manager of Artisan International Fund since its inception. 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.
<PAGE 13>
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. Expenses of Artisan Funds are generally
allocated to Artisan International Fund and to the other series of Artisan Funds
in proportion to their relative net assets, except that expenses attributable to
a particular series or class are allocated to that series or class.
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
<PAGE 14>
determines that a temporary defensive position is advisable. See the discussion
under the heading "Securities, Investment Practices and Risks -- Debt
Securities."
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.
<PAGE 15>
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.<F15>
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.
<F15> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
<PAGE 16>
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.<F16> In addition,
under normal market conditions, the Fund will invest in at least three countries
outside the U.S.
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 by 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.
<F16> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
<PAGE 17>
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
<PAGE 18>
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.
<PAGE 19>
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.<F17>
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.<F17> 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).<F17>
<F17> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
<PAGE 20>
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.
<PAGE 21>
Artisan Funds, Inc.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100
(800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
March 22, 1997
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 supplemented March 22, 1997 (for its International
Shares), and with the prospectus of the Fund dated March 22, 1997 (for its
International Institutional Shares), and any additional supplements to the
prospectuses. Copies of the prospectuses 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-16
Performance Information......................................B-19
Directors and Officers.......................................B-23
Principal Shareholders.......................................B-26
Investment Advisory Services.................................B-26
Portfolio Transactions.......................................B-28
Purchasing and Redeeming Shares..............................B-29
Additional Tax Information...................................B-30
Custodian....................................................B-31
Independent Accountants......................................B-31
Financial Statements.........................................B-31
<PAGE 1>
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 Fund offers shares of two classes: International Shares and
International Institutional Shares. Each class is offered pursuant to a
separate prospectus. This Statement of Additional Information relates to both
classes.
INVESTMENT OBJECTIVE AND POLICIES
The discussion below supplements the description in the prospectus of the
Fund's investment objective, policies and restrictions.
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
<PAGE 2>
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
<PAGE 3>
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
<PAGE 4>
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
<PAGE 5>
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.
<PAGE 6>
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
<PAGE 7>
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 had 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
<PAGE 8>
(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 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.
<PAGE 9>
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
<PAGE 10>
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.
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 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%).
- --------------
<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.
<PAGE 11>
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.
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<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
<PAGE 12>
"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
<PAGE 13>
(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
<PAGE 14>
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 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.
<PAGE 15>
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.
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;
<PAGE 16>
(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 or were in the past required by law or regulation of
one or more states in which shares of the Fund are
<PAGE 17>
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;<F5>
(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;
- ----------------
<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.
<PAGE 18>
(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 or Average Annual Total
Return for its International Shares or its International Institutional Shares.
"Total Return" for a period is the percentage change in value during the period
of an investment in shares of that class of the 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)
<PAGE 19>
The Total Return of the Fund's International Shares for the period December
28, 1995 (commencement of operations) through June 30, 1996 was 20.8%. The
Average Annual Total Return of the International Shares for the year ended
December 31, 1996 and for the period December 28, 1995 through December 31, 1996
was 34.4% and 33.8%, respectively.
Because International Institutional Shares have not previously been issued,
similar information does not exist for them. However, Total Return and Average
Annual Total Return of the International Institutional Shares will be calculated
in the same way as for the International Shares. The performance of the
International Institutional Shares will be different from the performance of the
International Shares because the expenses allocated to the classes will be
different and their expense reimbursement or waiver arrangements may be
different. Because the expense ratio for the International Institutional Shares
is expected to be lower, the Total Return and Average Annual Total Return of the
International Institutional Shares are expected to be greater than for the
International Shares.
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's International Shares or International Institutional Shares 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's International Shares or International
Institutional Shares 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:
<PAGE 20>
Atlanta Constitution Mutual Fund Letter
Barron's Mutual Fund News Service
Boston Herald Mutual Fund Values
Business Week Morningstar Publications
Chicago Tribune Newsweek
Chicago Sun-Times The New York Times
Cleveland Plain Dealer No-Load Fund Investor
CNBC Outstanding Investor Digest
CNN Pension World
Crain's Chicago Pensions and Investments
Business Personal Investor
Consumer Reports Jane Bryant Quinn (syndicated
Consumer Digest column)
Financial World Louis Rukeyser's Mutual Fund
Forbes The San Francisco Chronicle
Fortune Smart Money
Fund Action Stranger's Investment Adviser
Investor's Business Daily 13D Opportunities Report
Kiplinger's Personal Time
Finance Magazine United Mutual Fund Selector
Knight-Ridder USA Today
Los Angeles Times U.S. News and World Report
Milwaukee Business Journal The Wall Street Journal
Milwaukee Journal Sentinel Working Woman
Money 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:
<PAGE 21>
Dow-Jones Industrial Average New York Stock Exchange
Standard & Poor's 500 Stock Index Composite Index
Standard & Poor's 400 Industrial American Stock Exchange
Standard & Poor's Mid-Cap 400 Index Composite Index
Wilshire 5000 NASDAQ Composite
(These indexes are widely recognized NASDAQ Industrials
indicators of general U.S. stock market (These indexes generally
results.) 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's International Shares or International
Institutional Shares 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
<PAGE 22>
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 Pruden-
tial 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.
Positions Held Principal Occupations during
Name and Age with Registrant Past 5 Years
- ------------- ----------------- ----------------------------
Andrew A. Ziegler Director, Chairman of the Managing Partner of Artisan
(39) Board and Chief Executive Partners; prior to founding
Officer 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.
<PAGE 23>
Positions Held Principal Occupations during
Name and Age with Registrant Past 5 Years
- -------------- ----------------- -----------------------------
Carlene Murphy Ziegler Director and President Managing Partner of Artisan
(40) 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 firm
(53) Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, S.C.,
Milwaukee, WI.
Thomas R. Hefty Director President of United Wisconsin
(49) 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 executive
(56) 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 officer of
(40) Officer, Treasurer Artisan Partners; prior to
and Secretary joining Artisan Partners, senior
vice president with Kemper
Securities, Inc. since 1993;
prior thereto, with Price
Waterhouse.
<PAGE 24>
Positions Held Principal Occupations during
Name and Age with Registrant Past 5 Years
- -------------- ----------------- ------------------------------
Mark L. Yockey Vice President Partner of Artisan
(40) 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 Artisan
Reinhardt Partners; prior to joining
(32) 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
(34) Artisan Small Cap 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, Mr. Yockey, Ms. Voss-
Reinhardt and Ms. Hurwitz 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 (comprised of the Fund and Artisan Small Cap Fund) during the fiscal year
ended June 30, 1996 to each of the directors of Artisan Funds.
<PAGE 25>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM ARTISAN
COMPENSATION ACCRUED ANNUAL INTERNATIONAL
FROM ARTISAN AS PART OF BENEFITS FUND AND FUND
INTERNATIONAL FUND UPON COMPLEX PAID
NAME OF DIRECTOR FUND EXPENSES RETIREMENT TO DIRECTORS
- ---------------- ------------- ------------ ------------ --------------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy 0 0 0 0
Ziegler
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 January 1, 1997, 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 January 1, 1997 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 or 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.
<PAGE 26>
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, 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.
<PAGE 27>
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
<PAGE 28>
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" in the International
Shares prospectus and "Purchasing and Redeeming Shares" in the International
Institutional Shares prospectus. All of that information is incorporated herein
by reference.
International 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
International Shares of the Fund 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. That portion
of the fee paid by the Fund is allocated to the International Shares. The
balance of those fees is paid by Artisan Partners.
NET ASSET VALUE. The net asset value of the shares of each class 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 each class of shares the Fund is determined by
dividing the value of that class's pro rata portion of all the Fund's securities
and other assets, subtracting that class's pro rata portion of the Fund's
liabilities and any liabilities specifically allocated to that class, by the
number of shares of that class 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
<PAGE 29>
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 transactions in securities 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
taxes, 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
<PAGE 30>
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
AUDITED 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
<PAGE 31>
number on cover page of this Statement of Additional Information. The
"Financial Highlights" included in the annual report relate to the Fund's
International Shares.
INTERIM UNAUDITED FINANCIAL STATEMENTS. Immediately following are interim
unaudited financial statements of the Fund at and for the period ended December
31, 1996. The "Financial Highlights" included in these interim unaudited
financial statements relate to the Fund's International Shares. The interim
unaudited financial statements reflect all adjustments (all of which are of a
normal, recurring nature) which are, in the opinion of Artisan Funds'
management, necessary to a fair statement of the results for the interim periods
presented.
<PAGE 32>
<TABLE>
ARTISAN INTERNATIONAL FUND
(A SERIES OF ARTISAN FUNDS, INC.)
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
UNAUDITED
<CAPTION>
Shares Industry Quoted Country
Held Classification Market Value Total
- ------------------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS - 98.6%
BRAZIL - 0.6%
<C> <S> <C> <C> <C>
10,050,000 <F1> Telemig PNB - Telecommunication services (14) 1,242,830 1,242,830
DENMARK - 5.2%
7,000 <F1> Falck - Home security systems (6) 2,091,397
10,000 InWear Group AS - Apparel manufacturer and retailer (12) 436,274
6,588 NESA AS - Electrical utility (16) 1,845,284
40,000 <F1> Neurosearch - Pharmaceuticals (9) 1,783,187
39,550 <F1> Scanbox Danmark - Music and video producer (7) 1,879,880
8,820 <F1> Sondagsavisen - Newspaper publisher (2) 1,871,562 9,907,584
FINLAND - 3.3%
80,000 Aamulehti II - Newspaper publisher (2) 2,434,783
30,000 <F1> TT Tieto Oy - Computer data services (13) 2,519,348
140,000 Talentum Oy - Information technology publisher (2) 1,278,261 6,232,392
FRANCE - 8.3%
30,000 CLF-Dexia France - Banking (1) 2,613,472
32,000 Compagnie Generale des Eaux - Water and waste utility (16) 3,965,693
4,776 Damart SA - Thermal apparel manufacturer (12) 3,820,064
12,000 Roussel Uclaf - Pharmaceuticals (9) 3,531,657
18,000 <F1> Union Financiere de France Banque SA - Investment
management services (11) 1,942,758 15,873,644
GERMANY - 4.4%
70,000 Deutsche Pfandbrief Bank AG - Banking services (1) 3,160,190
15,000 Escada AG - Men's and women's apparel retailer (12) 2,466,207
126,667 <F1> Marseille-Kliniken AG - Health care services (9) 2,741,104 8,367,501
HONG KONG - 10.6%
300,000 Cheung Kong (Holdings) Ltd. - Real estate development (5) 2,666,624
1,200,000 <F1> Cheung Kong Infrastructure Holdings -
Public infrastructure construction (5) 3,180,555
2,500,000 <F1> Donfang Electrical Machinery Company Ltd. -
electrical generators (4) 872,713
8,000,000 Guangzhou Investment - Manufacturing conglomerate (10) 3,827,009
390,000 Guoco Group Ltd. - Banking and financial services (1) 2,183,334
110,915 HSBC Holdings - Banking and financial services (1) 2,373,319
2,562,000 JCG Holdings - Banking services (1) 2,500,886
600,000 Wing Hang Bank Ltd. - Banking services (1) 2,722,865 20,327,305
INDONESIA - 4.8%
921,500 Bank Nisp - Banking services (1) 1,043,612
1,600,000 Mayora Indah - Diversified food producer (8) 745,131
250,000 PT Modern Photo Film Company - Photographic
equipment and supplies (12) 793,819
1,050,000 Semen Cibinong - Cement producer (5) 2,956,181
3,005,000 Sona Topas - Duty free retailing (7) 1,272,227
1,128,833 Steady Safe - Urban transportation services (15) 1,445,690
674,700 Tigaraksa Satria - Consumer products distributor (15) 942,638 9,199,298
IRELAND - 0.8%
176,724 Bank of Ireland - Banking and financial services (1) 1,611,210 1,611,210
JAPAN - 7.0%
25,000 Autobacs Seven - Auto parts retailer (12) 1,767,982
150,000 Banyu Pharmaceutical Co Ltd - Pharmaceuticals (9) 2,098,264
55,000 Circle K Japan - Convenience stores (12) 2,374,579
12,500 Japan Maintenance - Building maintenance (3) 188,887
50,000 Promise - Consumer lending (11) 2,460,927
100,000 Sankyo Co. Ltd. - Pharmaceuticals (9) 2,832,225
200 Sanyo Pax - Consumer products and food packaging (8) 3,471
60,000 Xebio - Sporting goods and casual menswear retailer (12) 1,787,410 13,513,745
KOREA - 1.6%
59,300 Hana Bank - Banking services (1) 896,913
115,000 <F1> Keumkang Development - Retail stores and hotel operator (7) 1,891,716
12,550 Tong Yang Confectionery - Snack food producer (8) 276,249 3,064,878
MEXICO - 5.7%
250,000 Grupo Carso A1 - Multi-industry conglomerate (10) 1,324,314
250,000 <F1> Empresas (ICA) Sociadad Controladora S.A. de C.V.
- Commercial construction (5) 3,656,250
700,000 Grupo Financiero Banamex Accival - Banking services (1) 1,477,896
653,489 Grupo Financiero Inbursa S.A. de C.V. - Banking services (1) 2,233,086
100,000 Sigma BCP - Food producer (8) 893,039
4,295,000 <F1> Seguros Comercial America - Insurance (11) 1,282,171 10,866,756
MALAYSIA - 0.8%
500,000 Berjaya Leisure Berhad - Gaming activities (7) 756,286
150,00 MNI Holdings BHD - Mining and metal products (5) 778,064 1,534,350
NETHERLANDS - 1.2%
110,000 <F1> Boskalis Westminster N.V. - Environmental construction
services (5) 2,229,945 2,229,945
NORWAY - 9.5%
400,000 Ark ASA - Computer equipment retailer (14) 2,793,686
80,000 Blom ASA - Geographical surveying (3) 2,228,741
360,000 Fokus Bank - Regional bank (1) 2,452,857
67,500 Merkantildata - Information technology provider (14) 1,225,730
400,000 Radio P4 - Radio stations (2) 3,600,751
255,000 Schibsted AS - Newspaper publisher (2) 4,650,324
40,000 <F1> Tandberg Data AS - Computer peripheral equipment
(14) 1,235,430 18,187,519
PHILIPPINES - 2.3%
7,306,000 <F1> Bankard, Inc. - Credit card provider (11) 2,611,270
24,000,000 Engineering Equipment, Inc. - Industrial construction (5) 1,587,833
1,181,000 RFM Corporation - Food products (8) 202,072 4,401,175
PORTUGAL - 4.0%
128,600 Portugal Telecom SA - Telecommunication services (14) 3,665,992
125,000 Sonae Investimentos - SGPS - Multi-industry conglomerate (10) 3,958,401 7,624,393
SPAIN - 2.5%
125,000 Banco Central Hispanoamericano, S.A. - Banking services (1) 3,211,053
16,600 Corporacion Financiera Alba, S.A. - Multi-industry
conglomerate (10) 1,677,581 4,888,634
SWEDEN - 11.3%
120,000 Astra - Pharmaceuticals (9) 5,929,706
100,300 Caran AB Class B - Aerospace software (13) 1,058,901
12,575 Caran AB New Shares - Aerospace software (13) 134,602
72,500 <F1> Enator AB- Software design (13) 1,855,049
11,500 <F1> Enator AB New Shares - Software design (13) 290,034
100,000 Esselte AB - Manufacturer of office products (3) 2,214,109
190,200 Intelligent Micro Systems Data AB - Computer systems and
consulting services (14) 1,338,671
63,000 <F1> ADB-Gruppen Mandator - Information technology consulting (14) 609,686
100,000 Nordbanken AB - Banking services (1) 3,027,904
12,500 <F1> Scala International AB - Business application software (13) 1,136,380
400,000 <F1> Skandinaviska Enskilda Banken - Commercial and
investment banking services (1) 4,105,632 21,700,674
THAILAND - 2.8%
120,000 <F1> BEC World Public Company Limited - Television
broadcasting (2) 1,151,057
300,000 The Pizza PLC - Fast food restaurant franchise (8) 1,754,660
500,000 Srithai Superware PLC - Producer of consumer plastic products (6) 2,417,531 5,323,248
UNITED KINGDOM - 10.6%
300,000 <F1> Colt Telecom Group plc - Telecommunication services (14) 1,516,190
850,000 The Corporate Services Group PLC - Employment services (3) 2,511,992
30,000 <F1> Dr. Solomon's Group Plc. - Anti-virus software (13) 513,750
255,000 <F1> Ethical Holdings plc - Pharmaceuticals (9) 1,482,188
50,000 Granada Group plc - Television broadcasting and theme parks (3) 739,250
70,000 D.F.S. Furniture Company plc - Home furniture
manufacturer and retailer (6) 719,548
850,000 Storehouse PLC - Apparel and housewares retailer (12) 3,764,348
612,500 Tomkins PLC - Multi-industry conglomerate (10) 2,833,219
525,000 Vodafone Group PLC - Mobile telecommunication services (14) 2,221,604
300,000 Whitbread plc - restaurants and brewing (8) 4,044,886 20,346,975
UNITED STATES - 1.3%
112,490 <F1> PETsMart, Inc. - Pets and pet supply retailer (11) 2,460,719 2,460,719
TOTAL COMMON AND PREFERRED STOCKS (COST $173,263,861) $188,904,775
SHORT TERM INVESTMENTS - 4.0%
$7,691,000 Investment in repurchase agreement with State Street Bank and Trust
Company (U.S. Treasury obligations) in a joint trading pool at 4.82%
dated 12/31/96 due 1/2/97 $ 7,691,000
TOTAL SHORT TERM INVESTMENTS (COST $7,691,000) $ 7,691,000
-------------
TOTAL INVESTMENTS - 102.6% (COST $180,954,861) $196,595,775
Other assets less liabilities - (2.6%) (5,027,739)
------------
TOTAL NET ASSETS (<F2>) $191,568,036
============
<FN>
<F1> Non-income producing securities
Restricted Security
<F2> Percentages for the various classifications relate to total net assets
</TABLE>
ARTISAN INTERNATIONAL FUND
(A SERIES OF ARTISAN FUNDS, INC.)
PORTFOLIO DIVERSIFICATION
DECEMBER 31, 1996
UNAUDITED
Value Percent<F3>
- -------------------------------------------------------------------------------
Banking (1) $ 35,614,229 18.6%
Broadcast/Publishing (2) 14,986,738 7.8
Business & Public Services (3) 7,143,329 3.7
Capital Spending (4) 872,713 0.5
Construction/Housing (5) 17,055,452 8.9
Consumer Cyclicals (6) 5,228,476 2.7
Consumer Services (7) 5,267,132 2.8
Food/Restaurants (8) 7,919,508 4.1
Health Care Services (9) 20,398,331 10.7
Multi-Industry (10) 13,620,524 7.1
Special Financial (11) 8,297,126 4.3
Retailing (12) 20,943,629 10.9
Software (13) 7,508,064 3.9
Telecommunication/Technology (14) 15,849,819 8.3
Transportation/Distribution (15) 2,388,328 1.3
Utilities (16) 5,810,977 3.0
------------ ------
Total common and preferred stocks 188,904,775 98.6
Total short term investments 7,691,000 4.0
------------ ------
Total investments 196,595,775 102.6
Other assets in excess of liabilities (5,027,739) (2.6)
------------ ------
Net assets $191,568,036 100.0%
============ =======
<F3> Percentages for the various classifications relate to total net assets
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
DECEMBER 31, 1996
UNAUDITED
ASSETS:
Investments in securities, at value (cost $180,954,861) $196,595,775
Foreign currency (cost $2,193,788) 2,215,495
Cash 977
Receivable for investments sold 1,123,905
Receivable from foreign currency sold 7,926,639
Receivable from fund shares sold 852,494
Dividends,interest and reclaim receivable 231,707
Organizational costs 29,280
------------
Total assets 208,976,272
LIABILITIES:
Payable for investments purchased 9,340,335
Payable for foreign currency purchased 7,871,512
Payable for withholding tax liability 20,315
Payable for organizational costs 29,280
Payable for operating expenses 146,794
Total liabilities 17,408,236
------------
Total net assets $191,568,036
============
NET ASSETS CONSIST OF THE FOLLOWING:
Fund shares issued and outstanding $171,475,930
Net unrealized appreciation on investments and
foreign currency transactions 15,634,621
Accumulated undistributed net investment loss (285,310)
Accumulated undistributed net realized gain in
sales of investments and foreign currency transactions 4,742,795
------------
$191,568,036
============
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, [$191,568,036/14,381,894 shares
outstanding]) $13.32
The accompanying notes are an integral part of the statements.
ARTISAN INTERNATIONAL FUND
(A SERIES OF ARTISAN FUNDS, INC.)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
INVESTMENT INCOME:
Interest $ 147,174
Dividends (net or foreign taxes
withheld of $117,489) 799,489
----------
Total investment income 926,663
Expenses:
Advisory fees 659,652
Transfer agent fees 170,097
Custodian fees 159,086
Registration fees 111,355
Professional fees 34,896
Accounting fees 27,212
Shareholder communications 21,906
Directors' fees 15,000
Organizational costs 3,660
Insurance 1,259
Other operating expenses 7,850
----------
Total expenses 1,211,973
----------
Net investment income (285,310)
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS - NET:
Net realized gain (loss) on:
Investments 5,040,320
Foreign currency related transactions (87,116)
----------
4,953,204
Net increase in unrealized appreciation of:
Investments 11,920,538
Foreign currency related transactions 5,674
----------
11,926,212
-----------
Net gain on investments 16,879,416
-----------
Net increase in net assets
resulting from operations $16,594,106
===========
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 SIX MONTHS ENDED DECEMBER 31, 1996
UNAUDITED
Six months ended Year ended
December 31, 1996 June 30, 1996 <F4>
-------------------------------------
OPERATIONS:
Net investment income $ (285,310) $ 217,111
Net realized gain on investments 5,040,320 1,087,925
Net realized loss on foreign
currency transactions (87,116) (40,001)
Net increase in unrealized appreciation
(depreciation) on:
Investments 11,920,538 3,720,376
Foreign currency related transactions 5,674 (11,966)
------------ -----------
Net increase in net assets resulting
from operations 16,594,106 4,973,445
DISTRIBUTION PAYABLE TO SHAREHOLDERS:
Distributions from net realized gains on
investment transactions
($0.1145 per share) (1,475,445) --
FUND SHARE ACTIVITIES:
Proceeds from shares issued (9,805,190
and 6,080,442 shares respectively) 121,588,888 68,360,994
Net Asset value of shares issued in
reinvestment of distributions
from net realized gains (108,517
shares) 1,411,808 --
Cost of shares redeemed (1,453,616 and
158,639 shares respectively) (18,063,019) (1,822,741)
------------ -----------
Net increase 104,937,677 66,538,253
Net assets at the beginning of
the period $ 71,511,698 --
------------ -----------
Net assets at the end of the period $191,568,036 $71,511,698
============ ===========
<F4> 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.)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
(UNAUDITED)
Six months ended Year ended
December 31, 1996 June 30, 1996<F7>
--------------------------------------
Net asset value, beginning of the period $12.08 $10.00
Income from investment operations:
Net investment income (0.04) 0.04
Net realized and unrealized gains
on securities
and foreign currency held 1.39 2.04
------- -------
Total from investment operations 1.35 2.08
Distributions: Net realized
capital gains (0.11) 0.00
------ -------
Net asset value, end of period $13.32 $12.08
====== =======
Total return 11.2%<F6> 20.8%<F6>
======= =======
Ratios/supplemental data:
Net assets, end of period (millions) $191.6 $71.5
Ratio of expenses to average
net assets 1.8%<F5> 2.5%<F5>
Ratio of net investment income
to average net assets (0.4)%<F5> 2.4%<F5>
Portfolio turnover rate 55.9%<F6> 57.0%
Average commission rate per share .0129% <F6>
<F5> Annualized
<F6> Not annualized
<F7> 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
DECEMBER 31, 1996
UNAUDITED
(1) Organization:
The 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 on 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 latest 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, 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:
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.
(5) Line of credit arrangements:
Artisan Funds, Inc. is a 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 extra ordinary or emergency purposes. The Fund made no borrowing
under the line of credit during the six month period ended
December 31,1996.
(6) Investment transactions:
For the six months ended December 31, 1996, the cost of purchases and the
proceeds from the sales investment securities (excluding short-term
securities) was $172,477,442 and $71,668,217, respectively.
(7) Income tax information:
Aggregate gross unrealized appreciation (depreciation) on investments as
of December 31, 1996, based on investment cost of $181,025,528 for
federal tax purposes, is as follows:
Aggregate gross unrealized appreciation on investments 20,700,814
Aggregate gross unrealized depreciation on investments (5,130,567)
-----------
Net unrealized appreciation $15,570,247
