ARTISAN SMALL CAP FUND
QUARTERLY UPDATE APRIL 1998
Thank you for investing in the Artisan Small Cap Fund. We are pleased to present
this update for the year's first quarter.
Following the fourth quarter's turbulence and weakness, small-caps surged in the
first quarter, with the NASDAQ reaching record highs and the Russell 2000, our
benchmark index, rising 10.1%. While the Fund's return of 7.4% lagged the index,
it was a healthy gain by historical norms.
As a special note, the Fund celebrated its third anniversary on March 28. Since
the Fund's inception, its average annual total return is 24.9%. <F1>
We look forward to helping you meet your investment goals in the years ahead.
Thank you for your confidence.
<LOGO>
Artisan Funds
<PAGE>
FIRST QUARTER OVERVIEW
----------------------
Given the volatile fourth quarter and the market's high valuations, we chose to
enter 1998 with a cautious stance. Our focus was to add more companies with
consistent, predictable earnings, and those selling at sizeable discounts to the
intrinsic value of their assets. Each of the following investment profiles -
which are all new additions to the Fund this quarter - reflects this thinking.
Our caution was not shared by the market, as the rebound in Asian markets gave
many investors the confidence to move into aggressive market areas. Reminiscent
of the first half of 1996, the highly-valued, high-growth momentum stocks
chalked up wonderful gains.
We believe this enthusiasm may be short-lived. The Asian slowdown is still in
its early stages, and earnings growth has yet to show the slowdown we fully
expect. In '96, those same momentum stocks that soared in the first half went on
AVERAGE ANNUAL RETURNS <F1>
3/28/95 (INCEPTION) TO 3/31/98
------------------------------
ARTISAN SMALL CAP FUND 24.9%
RUSSELL 2000 INDEX 24.4%
LIPPER SMALL CAP FUND INDEX 21.8%
<PAGE>
FIRST QUARTER OVERVIEW (continued)
----------------------
to collapse in the second half. While we're not predicting a repeat of that
performance, we do believe our continuing restraint will serve us well.
Our goal, after all, is to participate in upward markets and, importantly,
to hold onto our gains when markets turn down.
1
INVESTMENT PROFILE
------------------
GENERAL COMMUNICATION
GENERAL COMMUNICATION is the leading provider of telecommunication services in
Alaska. It has a 50% market share in long distance services and, through a
series of acquisitions, 60% of the cable TV market.
The company is now building the infrastructure to offer local telephone service.
We believe the expenses involved are masking the company's considerable earnings
power. In mid-1999, when this project should be
TOP 10 HOLDINGS <F3>
- -------------------------------------------------------------------------------
Company %
- -------------------------------------------------------------------------------
SHOWBIZ PIZZA TIME...Chuck E. Cheese restaurants 2.8%
ATL ULTRASOUND...Diagnostic medical ultrasound systems 2.8%
BORG-WARNER SECURITY...Physical and electronic security services 2.6%
GENERAL CABLE...Electrical wire and cable products 2.3%
PENN TREATY...Long-term care insurance 2.2%
HEALTHCARE FINANCIAL...Specialty finance for health care providers 2.1%
ITI TECHNOLOGIES...Wireless home security systems 2.1%
OSHKOSH B'GOSH...Children's clothing manufacturer 2.1%
PARK OHIO INDUSTRIES...Industrial parts manufacturer 2.0%
SPSS, INC...Statistical software 1.9%
- -------------------------------------------------------------------------------
TOTAL 22.9%
===============================================================================
<PAGE>
INVESTMENT PROFILE (continued)
------------------
GENERAL COMMUNICATION
completed, we expect cash flow generated by the business to increase
significantly.
In addition to this compelling estimated value, we were very impressed with
management when we met them. Another plus is the influence of MCI, which owns
20% of General Communication's stock. <F2>
2
INVESTMENT PROFILE
------------------
TOKHEIM
Next time you fill your tank, check to see if the pump or pay-at-pump terminal
is by TOKHEIM. This company manufactures systems for petroleum dispensing and
automated payment. It also makes the payment systems for mini-marts and
restaurants at gas stations.
In the U.S., only 25% of gas stations have adopted card-swipe terminals. So the
growth potential is still ahead. The same holds true for the global market, and
there's little competition. Tokheim has captured 20% of worldwide market share
and ranks #2 in the U.S. market.
The management team, in place since 1992, has dramatically improved efficiencies
and expanded margins. Our earnings projections: 50% for the next two years and
20% thereafter for quite a while. <F2>
<PAGE>
3
INVESTMENT PROFILE
------------------
MAXXIM MEDICAL
MAXXIM MEDICAL (Maxxim) manufactures and distributes disposable medical
products. Its major product is custom procedure trays. From gowns and gloves to
scalpels and sutures, these trays are tailored to specific surgical procedures.
Hospitals prefer to purchase these trays because they provide greater
efficiencies and more accurate allocation of charges.
The company also produces non-latex disposable gloves. In response to the
growing incidence of allergic reactions to latex, this market - of which Maxxim
has captured 60% - is now booming. In fact, the company is increasing capacity
to keep up with demand. <F2>
DIVERSIFIED BY INDUSTRY <4>
- -------------------------------------------------------------------------------
INDUSTRY % INDUSTRY %
- ----------------------------------- --------------------------------------
CONSUMER STAPLES 4.0 MEDICAL DEVICES 6.0
CONSUMER CYCLICALS 4.9 BASIC INDUSTRY 1.3
CONSUMER SERVICES 2.1 BUSINESS SERVICES 4.1
RETAILING 4.0 CAPITAL SPENDING 11.4
RESTAURANTS/HOTELS 10.1 PAPER/PACKAGING 4.4
ENERGY 10.0 TRANSPORTATION 5.2
BANKS/S&LS 5.6 COMPUTER RELATED 2.2
INSURANCE 2.2 ELECTRONICS 7.2
OTHER FINANCIAL 5.3 SOFTWARE/
BIOTECH/ TELECOMMUNICATIONS 5.3
PHARMACEUTICAL 1.9 UTILITIES 2.5
REITS/PROPERTY 0.3
- -------------------------------------------------------------------------------
TOTAL 100.0%
===============================================================================
<PAGE>
OUR VIEW OF THE MARKET
----------------------
LOOKING FORWARD
We went into 1998's first quarter with a cautious stance. We expected several
factors - lower demand from Asia, price competition from imports and rising
wages domestically - to slow the economy and return earnings growth to more
normal levels.
In anticipation, we focused the portfolio on companies with consistent and
seemingly predictable earnings growth...meaningful earnings flowing from factors
within their own control...and stocks priced at significant discounts to the
intrinsic value of their assets.
To our surprise, economic growth remained robust - a fact reflected in a strong
stock market, especially among the more speculative portions of the small-cap
segment. In comparison, our returns were muted.
Nonetheless, we're sticking to our guns. We believe our cautious stance will
soon prove its merit and serve us well over the rest of the year. We'll continue
to favor companies with limited dependence on Asia...good insulation from a
domestic slowdown...and potentially sizeable earnings gains from acquisitions,
innovations or cost reductions.
An example from our portfolio is ShowBiz Pizza Time. It reinvigorated sales and
earnings by remodeling its restaurants and enhancing
continued on following panel
<PAGE>
OUR VIEW OF THE MARKET (continued)
----------------------
their entertainment value. Also, Borg-Warner Security has a very predictable
business and sells at a big discount to its intrinsic value. And at OshKosh
B'Gosh, a cost reduction program is producing significant earnings gains.
Looking out, we believe the Asian slowdown is still in its early stages, and
will have the greatest negative effect on large-cap companies, which derive more
of their revenues and earnings from overseas.
About 10% of our holdings are in energy, and weakness in oil stocks through much
of the quarter was a drag. But we regarded the price decline as temporary; and
recent action by OPEC suggests a near-term return to more balanced markets. Our
positive long-term thesis on energy stocks remains intact.
As always, we urge you to join us in looking beyond events of the moment -
either good or bad - and to think of the Artisan Small Cap Fund as a core long-
term holding.
FUND STATISTICS <F5>
--------------------
NUMBER OF HOLDINGS 72
MEDIAN MARKET CAP $376 million
MEDIAN GROWTH RATE 26%
MEDIAN P/E 1998E 18.2x
MEDIAN PRICE/INTRINSIC VALUE 1998E 77%
EQUITY DIVIDEND YIELD 0.2%
<PAGE>
FOOTNOTES
---------
<F1> THE ARTISAN SMALL CAP FUND HAD AN AVERAGE ANNUAL TOTAL RETURN OF 16.9% FOR
THE YEAR ENDED MARCH 31, 1998, AND 24.9% FOR THE PERIOD FROM INCEPTION ON
MARCH 28, 1995 THROUGH MARCH 31, 1998. PER FORMANCE DATA CONTAINED HEREIN
REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES IN
THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. THE RUSSELL 2000 AND THE S&P 500 ARE UNMANAGED INDEXES OF COMMON
STOCKS WITH DIVIDENDS REINVESTED. THE S&P 500 IS A MARKET-WEIGHTED AVERAGE
OF 500 LARGE COMPANIES. THE RUSSELL 2000 IS AN UNWEIGHTED INDEX OF 2000
SMALL COMPANIES. THE LIPPER SMALL CAP FUND INDEX REFLECTS THE NET ASSET
VALUE WEIGHTED RETURN OF THE 30 LARGEST SMALL-CAP FUNDS.
<F2> PORTFOLIO PROFILES ARE FOR ILLUSTRATION ONLY AND ARE NOT INTENDED AS
RECOMMENDATIONS OF INDIVIDUAL STOCKS. THE PROFILES PRESENT INFORMATION
ABOUT THE COMPANIES BELIEVED TO BE ACCURATE, AND THE VIEWS OF THE PORTFOLIO
MANAGERS, AS OF APRIL 1, 1998. THAT INFORM ATION AND THOSE VIEWS MAY CHANGE
AND THE FUND DISCLAIMS ANY OBLIGATION TO ADVISE SHAREHOLDERS OF ANY SUCH
CHANGES.
<F3> AS A PERCENTAGE OF TOTAL NET ASSETS AS OF MARCH 31, 1998.
<F4> AS A PERCENTAGE OF PORTFOLIO EQUITIES AS OF MARCH 31, 1998.
<F5> FUND STATISTICS ARE AS OF MARCH 31, 1998.
<LOGO>
Artisan Funds
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
1 800 344 1770
xxxxx
ARTISAN SMALL CAP VALUE FUND
QUARTERLY UPDATE APRIL 1998
We are pleased to send you this update for the Artisan Small Cap Value Fund.
During the first quarter, the Fund returned 8.8%, ahead of its benchmark, the
Russell 2000 Value Index. <F1>
Along with a review of the quarter's events, this report offers portfolio
statistics, our thinking behind some investments and our near-term outlook for
the market.
We are also delighted to let you know that Mutual Funds Magazine, in its March
issue, featured the Artisan Small Cap Value Fund as its "Undiscovered Fund."
For a copy of the article, please call us at 800-344-1770.
Thank you for your confidence.
<LOGO>
Artisan Funds
<PAGE>
FIRST QUARTER OVERVIEW
----------------------
The Artisan Small Cap Value Fund completed the first quarter of 1998 with a gain
of 8.8%. This compares to the Fund's benchmark indexes, the Russell 2000 Value
Index and the Lipper Small Cap Fund Index, which gained 8.4% and 10.7%,
respectively.<F1>
During the quarter, the U.S. equity markets surged to one record high after
another. Large-caps led the way, but small-caps - driven by rebounding
technology in March - also rode the wave.
Though some tech stocks we had hoped to buy were suddenly priced too high, we
were able to add a number of stocks that were underfollowed, misunderstood or
victims of investor over-reaction.
We are pleased to note that Devon Group - our largest holding, and a stock that
we profiled last quarter - was taken over at a very attractive premium.
INVESTMENT RETURNS <F1>
9/29/97 (INCEPTION) to 3/31/98
------------------------------
ARTISAN SMALL CAP VALUE FUND 12.2%
RUSSELL 2000 VALUE INDEX 10.7%
LIPPER SMALL CAP FUND INDEX 4.7%
<PAGE>
1
INVESTMENT PROFILE
------------------
HOST MARRIOTT SERVICES
With food and merchandise concessions at nearly 75 U.S. airports and over 90
toll-road travel plazas, HOST MARRIOTT SERVICES (Marriott) holds the #1 and #2
positions in these markets, respectively. It is also a significant factor in
sports arena concessions and an emerging presence in the food courts of shopping
malls.
Compared to conventional restaurants, the economics are compelling. Reinvestment
needs are low and - especially at airports - Marriott enjoys both captive
customers and shelter from meaningful competition. Also, having recently
renegotiated its major contracts, the company should enjoy stable cash flows for
years. And the nascent opportunity in malls is a potentially strong vehicle for
growth. <F2>
TOP 10 HOLDINGS <F3>
- -------------------------------------------------------------------------------
COMPANY %
- -------------------------------------------------------------------------------
HILB, ROGAL & HAMILTON...Insurance broker 2.7%
M&F WORLDWIDE...World's largest producer of licorice extract 2.5%
HOST MARRIOTT SERVICES...Airport/Toll Plaza food
and merchandise concessions 2.5%
STEWART INFORMATION SERVICES...Commercial and residential title insurer 2.3%
ESCO ELECTRONICS...Electronic defense system contractor 2.2%
SUPERIOR NATIONAL INSURANCE...Worker's compensation
insurance in Arizona and California 2.1%
ASSET INVESTORS...REIT focused on residential properties 2.1%
CFC INTERNATIONAL...Specialty chemical coatings 2.1%
LEXFORD RESIDENTIAL TRUST...Multi-family residence owner/operator 2.1%
DEXTER...Specialty packaged goods manufacturer 2.1%
- -------------------------------------------------------------------------------
TOTAL 22.7%
===============================================================================
<PAGE>
2
INVESTMENT PROFILE
------------------
M&F WORLDWIDE
M&F WORLDWIDE (M&F) produces 70% of the world's licorice extract, an ingredient
used chiefly in cigarettes, as well as cigars and candy.
The economics of this business are quite attractive. The need to develop
relationships with root growers, mainly overseas, creates a high barrier to
entry. Also, return on capital is high and reinvestment needs are low - so M&F
generates significant free cash.
To us, this free cash more than compensates for a couple of factors. One is low
volume growth in cigarettes. The other is that control lies with a group led by
Ronald Perelman. Because of Perelman's cavalier reputation toward shareholders,
many investors tend to shun his companies. But in this case, we believe his
interests are consistent with other shareholders', and that our average purchase
price is low relative to the real value of the business. <F2>
3
INVESTMENT PROFILE
------------------
HILB, ROGAL & HAMILTON
HILB, ROGAL & HAMILTON, a leading insurance broker, provides property and
casualty insurance to small and mid-size businesses. It also provides a full
range of ancillary services, including risk management, consulting and employee
benefits.
<PAGE>
INVESTMENT PROFILE
------------------
HILB, ROGAL & HAMILTON (continued)
Since its founding in 1982, the company has acquired 160 agencies across the
U.S. But until recently, it did little to integrate them into a true agency
network. This strategy should enable Hilb, Rogal & Hamilton to gain efficiencies
and improve margins.
We also see earnings growth from two other sources: the largely unexploited
goodwill and other intangibles from the acquisitions; and
the use of free cash to buy back shares.
At our average cost, this stock was trading at a modest multiple of economic
earnings. <F2>
DIVERSIFICATION BY INDUSTRY <F4>
- -------------------------------------------------------------------------------
INDUSTRY % INDUSTRY %
- ------------------------------------ -------------------------------------
CONSUMER STAPLES 7.1 MEDICAL DEVICES 0.0
CONSUMER CYCLICALS 0.0 BASIC INDUSTRY 22.1
CONSUMER SERVICES 4.6 BUSINESS SERVICES 6.5
RETAILING 3.3 CAPITAL SPENDING 12.8
RESTAURANTS/HOTELS 6.0 PAPER/PACKAGING 1.7
ENERGY 7.4 TRANSPORTATION 1.8
BANKS/S&LS 0.0 COMPUTER RELATED 1.8
INSURANCE 14.4 ELECTRONICS 1.0
OTHER FINANCIAL 7.9 SOFTWARE/
BIOTECH/ TELECOMMUNICATIONS 1.6
PHARMACEUTICAL 0.0 UTILITIES 0.0
HEALTHCARE SERVICES 0.0
- -------------------------------------------------------------------------------
TOTAL 100.0%
===============================================================================
<PAGE>
OUR VIEW OF THE MARKET
----------------------
LOOKING FORWARD
The subject is earnings. Over the past few years, the market's phenomenal rise
has largely been driven by corporate earnings, with supporting roles by low
interest rates and subdued inflation.
As value-based investors, however, we feel compelled to note that corporate
earnings are now at an all-time high relative to returns on capital, equity and
other statistical measures.
Is this earnings growth sustainable? We doubt it. Rather, it seems part of a
cyclical trend - first seen in the '20s, then the '60s. History's unequivocal
lesson is that paying high multiples of record earnings has led to poor returns.
Earnings reports from the fourth quarter of 1997 point to the largest decline in
corporate profit growth in four years. But money continues to flow into the
market. Much is from individual investors conditioned to buy on market dips and
simply not trained to think in cyclical terms.
So where does all this leave investors like us, who approach the market with
prudence and a respect for fundamentals? Skeptical, but confident. After all, we
invest in stocks, not stock markets. Or, in industry parlance, we're "bottom-up"
investors, not "top-down". We're respectful of trends but not controlled by
them, aware that value has always been found - especially in small-caps - by
resourceful, independent-minded stock-pickers.
continued on following panel
<PAGE>
OUR VIEW OF THE MARKET (continued)
----------------------
Actually, in the first quarter, we invested in a number of companies that met
our criteria of low valuation, good economics and sound financial positions.
A few examples...
- - Stewart Information Systems is a leader in title insurance. Given Stewart's
strong free cash flow and high adjusted book value, we believe this stock is
generally misunderstood.
- - To us, Schnitzer Steel is cyclically out-of favor because of lower demand
from Asia. This mini-mill operator is also one of the country's largest
processors of scrap steel.
- - Our cost for Castle Energy is well below our assessment of its book value.
Consider, too, these assets are in cash or near-cash, as Castle appears to be
in a liquidation mode.
We're determined to find equally compelling values going forward.
FUND STATISTICS <F5>
--------------------
NUMBER OF HOLDINGS 70
MEDIAN MARKET CAP $204 million
WEIGHTED AVG. MARKET CAP $321 million
PRICE/BOOK VALUE 1.7x
MEDIAN P/E 1998E 13.9x
EQUITY DIVIDEND YIELD 0.9%
<PAGE>
FOOTNOTES
---------
<F1> THE ARTISAN SMALL CAP VALUE FUND HAD A TOTAL RETURN OF 12.2% FOR THE PERIOD
FROM INCEPTION ON SEPTEMBER 29,1997 THROUGH MARCH 31, 1998. PERFORMANCE
DATA CONTAINED HEREIN REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES IN THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. THE RUSSELL 2000 VALUE INDEX IS AN INDEX OF
COMMON STOCKS WITH DIVIDENDS REINVESTED,WHICH MEASURES THE PERFORMANCE OF
THOSE RUSSELL 2000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER
FORECASTED GROWTH VALUES. THE LIPPER SMALL CAP FUND INDEX REFLECTS THE NET
ASSET VALUE WEIGHTED RETURN OF THE 30 LARGEST SMALL-CAP FUNDS.
<F2> PORTFOLIO PROFILES ARE FOR ILLUSTRATION ONLY AND ARE NOT INTENDED AS
RECOMMENDATIONS OF INDIVIDUAL STOCKS. THE PROFILES PRESENT INFORMATION
ABOUT THE COMPANIES BELIEVED TO BE ACCURATE, AND THE VIEWS OF THE PORTFOLIO
MANAGERS, AS OF APRIL 1, 1998. THAT INFORM ATION AND THOSE VIEWS MAY CHANGE
AND THE FUND DISCLAIMS ANY OBLIGATION TO ADVISE SHAREHOLDERS OF ANY SUCH
CHANGES.
<F3> AS A PERCENTAGE OF TOTAL NET ASSETS AS OF MARCH 31, 1998.
<F4> AS A PERCENTAGE OF PORTFOLIO EQUITIES AS OF MARCH 31, 1998.
<F5> FUND STATISTICS ARE AS OF MARCH 31, 1998.
<LOGO>
Artisan Funds
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
1 800 344 1770
xxxxx
ARTISAN INTERNATIONAL FUND
QUARTERLY UPDATE APRIL 1998
Thank you for investing in the Artisan International Fund. We are pleased to
provide this update for the first quarter of 1998.
During the quarter, the Artisan International Fund gained 20.2%, well ahead of
its benchmark index, the Morgan Stanley EAFE Index, which gained 14.7%. In the
nine quarters since inception, the Fund has returned 67.1%, versus a gain of
23.8% for the EAFE Index. <F1>
This update presents the facts behind the numbers, as well as our thinking
behind a few portfolio purchases and our outlook for some of the markets in
which we invest.
Thank you for your confidence.
<LOGO>
Artisan Funds
<PAGE>
FIRST QUARTER OVERVIEW
----------------------
Relative to the EAFE Index, we entered the quarter heavily overweight Europe and
underweight Asia. While markets in both regions did well, the stimuli defy
comparison.
In Europe, every market rose, with the average gain over 20% and a number of
markets surging 30% and more. As we've stated before, we believe that confluent
trends - including privatization, deregulation and the advent of a common
currency - make Europe an exceptional growth opportunity. We're confident this
thesis will continue to serve us well.
In Asia, however, market performance was highly erratic. We believe the rally in
many Asian markets was premature and excessive. Until the region's larger
nations tackle their structural problems, we see a meaningful rise in equity
values as unsustainable.
INVESTMENT RETURNS <F1>
12/28/95 (INCEPTION) to 3/31/98
-------------------------------
ARTISAN INTERNATIONAL 67.1%
EAFE INDEX 23.8%
LIPPER INTERNATIONAL FUND FUND INDEX 41.0%
<PAGE>
1
INVESTMENT PROFILE
------------------
UNIQUE INTERNATIONAL (NETHERLANDS)
UNIQUE INTERNATIONAL (Unique) is a major presence in temporary employment,
chiefly in Belgium and the Netherlands, where the proportion of temporary
workers is among the highest in Europe.
While its competitors are narrowly defined, Unique offers both specialized and
general workers in major market segments - administrative, industrial,
technical, educational and medical. It can thus offer one-stop shopping and gain
cross-sell opportunities.
Unique's profitability is well above average, and it plans to accelerate
earnings growth to at least 15%. Its strategy includes: acquisitions, expansion
of specialized services and aggressive penetration of the German market, where
temporary employment is still in its infancy. Economic, legislative and social
trends in Europe support these efforts, as does the industry's trend to
consolidation. <F2>
TOP 10 HOLDINGS <F3>
- -------------------------------------------------------------------------------
COMPANY %
- -------------------------------------------------------------------------------
COLT TELECOM...U.K. telephone service provider
for European corporations 3.5%
METRONET...Canadian high volume telephone service provider 3.1%
UNION BANK OF SWITZERLAND...Global bank in Switzerland 3.0%
NOVARTIS...Pharmaceutical firm (world's largest) in Switzerland 2.6%
CIA RIOGRANDENSE TELECOM...Brazilian telephone company 2.4%
TELECEL-COMUNICACAOES...Portuguese cellular phone service 2.3%
VEST-WOOD...Wooden door and furniture manufacturer in Denmark 2.3%
CREDIT SUISSE...Financial service/bank holding company in Switzerland 2.1%
NOKIA...International telecommunications company in Finland 2.1%
ARGENTARIA...Financial services company in Spain 2.1%
- -------------------------------------------------------------------------------
TOTAL 25.5%
===============================================================================
<PAGE>
2
INVESTMENT PROFILE
------------------
DEXIA (FRANCE)
A favorite theme of ours is the consolidation of financial institutions in
Europe. Witness DEXIA. Formed by a 1997 merger of firms in Belgium and France,
Dexia immediately assumed the role of Europe's leader in public service
financing. In France and Belgium, its respective market share is about 40% and
90%. It also has a presence in most other major European countries.
Through its expertise, client relationships and proven capacity for innovation,
Dexia intends to broaden its business base and enhance its profitability. Also,
the synergies and financial strength resulting from the merger have created
opportunities for global expansion. Dexia has already acquired two Italian
financial firms - one with strength in public service financing, the other in
asset management and retail banking. <F2>
3
INVESTMENT PROFILE
------------------
METRONET COMMUNICATIONS (CANADA)
In the world of telecommunications, METRONET COMMUNICATIONS (MetroNet) is known
as a CLEC - a competitive local exchange carrier. Targeting high-volume users in
business and government, this facilities-based telecommunications company offers
a faster, cheaper and higher quality alternative to Bell Canada.
Through rapid market penetration, we expect explosive growth - up to 30% a year
for the next five years.
<PAGE>
INVESTMENT PROFILE (continued)
-------------------
METRONET COMMUNICATIONS (CANADA)
MetroNet has the first mover advantage in this newly deregulated industry. It
should benefit greatly - and quickly - from pent-up demand. Growth should also
be fostered by customer concentration: about 90% of the largest 750 Canadian
businesses are headquartered in just 11 Canadian cities. With their new network,
MetroNet is well positioned as the highest quality, low-cost producer.
Consider, too, that MetroNet has a very strong management team. And because of
stock option incentives, this team is motivated to focus on enhancing
shareholder value. <F2>
REGION/COUNTRY ALLOCATION <F4>
---------------------------------------------------------
EUROPE 75.3% ASIA/PACIFIC 7.7%
--------------------------- ------------------------
UNITED KINGDOM 13.6 HONG KONG 6.3
NETHERLANDS 9.6 JAPAN 0.6
SWITZERLAND 9.6 THAILAND 0.4
DENMARK 7.5 PHILIPPINES 0.3
GERMANY 7.3 INDONESIA 0.1
ITALY 6.2
SPAIN 4.5 LATIN AMERICA 10.0%
FRANCE 4.3 ------------------------
PORTUGAL 3.9 BRAZIL 6.1
FINLAND 3.5 MEXICO 3.9
SWEDEN 2.7
NORWAY 1.8 NORTH AMERICA 4.1%
AUSTRIA 0.6 ------------------------
BERMUDA 1.0 CANADA 3.1
HUNGARY 0.2
CASH 2.9%
------------------------
<PAGE>
OUR VIEW OF THE MARKET
----------------------
LOOKING FORWARD
"The amount of restructuring and the focus on improving profitability is unlike
anything that has been seen in Europe for 50 years."
Mark Yockey
Smart Money, April 1998
During the second quarter, we expect our relative emphasis in the major regions
to remain unchanged. As reflected in the quote above, Europe continues to be by
far our most significant commitment. And until the nations of Asia resolve their
economic problems, we intend to maintain our underweight positions.
That said, let's look ahead by looking back at recent international performance.
In the fourth quarter of 1997, the EAFE Index fell 7.8%; in the first quarter of
1998, it rose 14.7%. Does this volatility hold special meaning for us? We
believe it does - in the sense that neither quarter would qualify as "normal"
compared to the general behavior of U.S. markets. <F1>
The greater volatility abroad stems from variables that may include: immature
capital markets, different accounting practices, weaker currencies, less
liquidity and political instability. The fact is, Americans who invest abroad
must accept greater volatility; it's the trade-off for greater growth potential.
In addition to greater growth potential, there are other compelling reasons to
invest internationally.
continued on following panel
<PAGE>
OUR VIEW OF THE MARKET (continued)
----------------------
- - About two-thirds of global equity opportunities are now in foreign markets.
- - A nation's stock market typically reflects its economic growth rate. Many
foreign economies are growing much faster than ours.
- - U.S. and foreign business cycles differ, as do investment opportunities.
A mature industry here may well be a growth industry elsewhere.
- - Limited, poorly disseminated research and lack of broadly based equity
ownership can make foreign markets less efficient. So they're fertile ground
for resourceful stock pickers.
- - Foreign markets tend not to move in tandem with our own. Thus, an
international component in a broadly diversified portfolio can help to lower
overall risk while enhancing return potential.
For all these reasons, an international commitment has merit for long-term
investors.
FUND STATISTICS <F5>
--------------------
NUMBER OF HOLDINGS 91
WEIGHTED AVERAGE MARKET CAP $11.5 billion
WEIGHTED AVERAGE GROWTH RATE 20%
WEIGHTED AVERAGE P/E 1998E 19.8x
<PAGE>
FOOTNOTES
---------
<F1> THE ARTISAN INTERNATIONAL FUND HAD AN AVERAGE ANNUAL TOTAL RETURN OF 18.1%
FOR THE YEAR ENDED MARCH 31, 1998, AND 25.5% FOR THE PERIOD FROM INCEPTION
ON DECEMBER 28, 1995 THROUGH MARCH 31, 1998. PERFORMANCE DATA CONTAINED
HEREIN REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES IN THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. THE MORGAN STANLEY EAFE INDEX IS UNMANAGED AND INCLUDES NET
REINVESTED DIVIDENDS FOR COMPANIES THROUGHOUT THE WORLD, EXCLUDING THE
U.S. AND CANADA, IN PROPORTION TO WORLD STOCK MARKET CAPITALIZATION. THE
LIPPER INTERNATIONAL FUND INDEX REFLECTS THE NET ASSET VALUE WEIGHTED
RETURN OF THE THIRTY LARGEST INTERNATIONAL FUNDS. INTERNATIONAL
INVESTMENTS INVOLVE SPECIAL RISK CONSIDERATIONS, WHICH ARE DISCUSSED IN
THE PROSPECTUS.
<F2> PORTFOLIO PROFILES ARE FOR ILLUSTRATION ONLY AND ARE NOT INTENDED AS
RECOMMENDATIONS OF INDIVIDUAL STOCKS. THE PROFILES PRESENT INFORMATION
ABOUT THE COMPANIES BELIEVED TO BE ACCURATE, AND THE VIEWS OF THE
PORTFOLIO MANAGER, AS OF APRIL 1, 1998. THAT INFORMATION AND THOSE VIEWS
MAY CHANGE AND THE FUND DISCLAIMS ANY OBLIGATION TO ADVISE SHAREHOLDERS OF
ANY SUCH CHANGES.
<F3> AS A PERCENTAGE OF TOTAL NET ASSETS AS OF MARCH 31, 1998.
<F4> AS A PERCENTAGE OF PORTFOLIO ASSETS AS OF MARCH 31, 1998.
<F5> FUND STATISTICS ARE AS OF MARCH 31, 1998.
<LOGO>
Artisan Funds
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
1 800 344 1770
xxxxx
ARTISAN MID CAP FUND
QUARTERLY UPDATE APRIL 1998
Thank you for investing in the Artisan Mid Cap Fund. We are pleased to send your
update for the first quarter of 1998.
The Artisan Mid Cap Fund completed the quarter with a gain of 14.8%, ahead of
both its benchmark indexes, the S&P 400 and the Lipper Mid Cap Fund Index, which
returned 10.7% and 12.7%, respectively.
Since inception, the Fund's return of 47.1% also outpaces both indexes, which
gained 28.3% and 22.9%, respectively. <F1>
This update offers our view of the quarter's events, a look into our thinking
process behind some recent investments and our outlook for the market and
economy.
<LOGO>
Artisan Funds
<PAGE>
FIRST QUARTER OVERVIEW
----------------------
After the volatile fourth quarter, we entered 1998 with a posture of restraint.
We maintained this strategy through the quarter, even as the market was driven
to record highs by mutual fund cash flows and the return of investors who'd been
spooked by Asia's turbulence in the fall.
We attribute some of our outperformance to investments we made in late fall,
when Asian problems caused many quality growth stocks to tumble. We added
Sanmina and Aspen Technology, for instance, which surged in the first quarter by
about 25% and 50%, respectively.
Then, in January, we added some cable and media stocks - Sinclair Broadcasting,
for one - that rose much faster than we had expected. And Shaw Industries, a
large position, roared ahead about 50% on good news.
We think it's prudent to assume that Asia's downturn will persist, and that U.S.
corporate earnings growth
INVESTMENT RETURNS <F1>
-----------------------
6/27/97 (INCEPTION) TO 3/31/98
ARTISAN MID CAP FUND 47.1%
S&P 400 INDEX 28.3%
LIPPER MID CAP FUND INDEX 22.9%
<PAGE>
FIRST QUARTER OVERVIEW (continued)
----------------------
will slow. Given that, we'll continue to be cautious - focusing on growing,
"franchise" companies where we see intrinsic value, taking profits where we can
and avoiding stocks that have had big run-ups.
1
INVESTMENT PROFILE
------------------
APARTMENT INVESTORS & MANAGEMENT
APARTMENT INVESTORS & MANAGEMENT (AIMCO) is the nation's largest consolidator of
middle-tier apartments. It owns over 400,000 units throughout the U.S., chiefly
in garden-style complexes.
AIMCO has built this franchise by leveraging an investment trend. In the '70s
and '80s, apartment construction boomed, much of it financed by limited
partnerships spawned by favorable tax laws. Though this
TOP 10 HOLDINGS <F3>
- -------------------------------------------------------------------------------
COMPANY %
- -------------------------------------------------------------------------------
QUORUM HEALTH GROUP...Suburban hospital holding company 3.5%
APARTMENT INVESTORS...Apartment complex management 3.1%
THERMO ELECTRON...Develops and commercializes technology 2.9%
FRANCHISE FINANCE...Buys and finances chain restaurant real estate 2.9%
AMERICAN POWER CONVERSION...Un-interruptible power supplies 2.6%
FORTUNE BRANDS...Owns Master Lock, Moen, Titleist and other brands 2.6%
LORAL SPACE AND COMMUNICATIONS...Satellite manufacturer and operator 2.5%
LIBERTY MEDIA...Cable television programming 2.4%
MINERALS TECHNOLOGY...Specialty chemicals for paper making 2.4%
EQUITY OFFICE PROPERTIES...REIT focusing on Class 'A' office space 2.4%
- -------------------------------------------------------------------------------
TOTAL 27.3%
===============================================================================
<PAGE>
INVESTMENT PROFILE (continued)
------------------
APARTMENT INVESTORS & MANAGEMENT
type of investment is now much less attractive, the partnership shares tend to
be fairly illiquid. So AIMCO - using its tax-advantaged status as a REIT - acts
as a buyer of last resort.
As AIMCO continues to grow its portfolio, it realizes significant economies of
scale - in financing costs, insurance and energy, for example - which helps it
to achieve very attractive, consistent returns, with good visibility of
earnings. We project annual growth at 12-14%, of which 6.5% is paid as a
dividend. And at 10 times our 1998 estimate, AIMCO stock is cheap relative to
other REITs.<F2>
2
INVESTMENT PROFILE
------------------
SYBRON
If you have a child who needs orthodonture, the wires, bands and other
therapeutic supplies may well be made and marketed by Sybron. With annual sales
approaching $1 billion, SYBRON is the dominant firm in this market.
Acquisitions have fueled much of the company's growth. It typically buys firms
with sales of $5-50 million, then maximizes their potential through its
extensive distribution network. If integrated properly, the earnings ability of
these acquisitions increases rapidly. Management also runs a decentralized
business...a low-cost, high efficiency structure in which a bare-bones corporate
team supports the operating units with services such as finance, administration
and human resources.
<PAGE>
INVESTMENT PROFILE (continued)
------------------
SYBRON
We see earnings growth of 15-20% for several years. It should largely come from
a combination of further acquisitions and potentially burgeoning markets in
Europe, where Sybron already has a presence. <F2>
DIVERSIFICATION BY INDUSTRY <F4>
- -------------------------------------------------------------------------------
INDUSTRY % INDUSTRY %
- ----------------------------------- -------------------------------------
TECHNOLOGY 19.1 MATERIALS & PROCESSING 10.2
HEALTHCARE 10.2 TRANSPORTATION 4.8
CONSUMER DISCRETIONARY FINANCIAL SERVICES 2.9
& SERVICES 22.6 UTILITIES 1.7
CONSUMER STAPLES 3.2 BUSINESS SERVICES 3.0
ENERGY 5.4 REITS/PROPERTY 9.2
CONGLOMERATE 7.7
- -------------------------------------------------------------------------------
TOTAL 100.0%
===============================================================================
MARKET CAP DISTRIBUTION <F4>
------------------------------------------
MARKET CAP MID CAP FUND S&P 400
(IN $ BILLIONS) (%) (%)
------------------------------------------
$0.0 TO 0.5 0.0 0.6
0.5 TO 1.0 17.6 5.6
1.0 TO 2.0 26.9 17.0
2.0 TO 3.0 19.9 22.2
3.0 TO 4.0 7.9 16.4
4.0 TO 5.0 5.8 14.2
5.0 TO 6.0 7.6 8.3
6.0 TO 7.0 2.7 3.9
7.0 TO 8.0 3.6 2.2
8.0+ 8.0 9.6
------------------------------------------
TOTAL 100.0% 100.0%
------------------------------------------
<PAGE>
OUR VIEW OF THE MARKET
----------------------
LOOKING FORWARD
For the past few years, the strong earnings growth and relative safety of large-
caps have made them the favorite of investors. But we believe it is time to
question the staying power of their growth. After all, the factors that largely
fueled it - falling interest rates and restructuring - seem to have run their
course. And for many large-caps, the turmoil in Asia will eventually take its
toll.
For these reasons, and the following statistics, we believe that investors
seeking high real growth and attractive valuations will be drawn to the
mid-cap segment of the market.
In the fourth quarter of 1997...
- - According to Salomon Smith Barney, nearly 49% of mid-caps produced better-
than-expected earnings, versus 41.5% of large-caps. Studies by Prudential
show mid-cap earnings averaging a 15% increase over 1996's fourth quarter,
versus a 12.6% increase for large-caps.
- - We believe this shift in earnings strength partly reflects mid-caps' lower
dependence on foreign markets. Studies by Merrill Lynch show mid-caps
deriving about 15% of their sales abroad, while for large-caps the total is
closer to 25%. Thus, mid-caps are better insulated from the economic
uncertainties in Asia.
continued on following panel
<PAGE>
OUR VIEW OF THE MARKET (continued)
----------------------
- - The P/Es of mid-caps are now about 8% lower than their historic norms. And
studies by State Street Global Advisors show mid-cap P/Es are lower than the
S&P 500's by 5-9%, while the 10-12% earnings growth projections for mid-caps
exceeds the 7% projections for large-caps.
Note, too, that the mid-cap market comprises over 970 companies with combined
market capitalization of over $3 trillion. This equals 29% of total stock market
value. Thus, investing in the mid-cap segment may be relevant for those who wish
to participate fully in the stock market's potential.
For our part, we will continue our fundamental strategy: searching for mid-size
companies with franchise characteristics that bring competitive advantages;
investing only in those that are most attractively priced relative to our
estimate of their intrinsic business value. This approach has served us well,
and we believe it offers the potential for superior long-term returns.
FUND STATISTICS <F5>
--------------------
NUMBER OF HOLDINGS 62
MEDIAN MARKET CAP $2.1 billion
MEDIAN GROWTH RATE 18%
MEDIAN P/E 1998E 17.1x
MEDIAN PRICE/INTRINSIC VALUE 1998E 84%
<PAGE>
FOOTNOTES
---------
<F1> THE ARTISAN MID CAP FUND HAD A TOTAL RETURN OF 47.1% FROM INCEPTION ON JUNE
27, 1997 THROUGH MARCH 31, 1998. PERFORMANCE DATA CONTAINED HEREIN
REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES IN
THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. THE S&P 400 IS AN UNMANAGED, MARKET-WEIGHTED INDEX, WITH DIVIDENDS
REINVESTED, OF 400 MID-CAP COMPANIES. THE LIPPER MID CAP FUND INDEX
REFLECTS THE NET ASSET VALUE WEIGHTED RETURN OF THE 30 LARGEST MID-CAP
FUNDS.
<F2> PORTFOLIO PROFILES ARE FOR ILLUSTRATION ONLY AND ARE NOT INTENDED AS
RECOMMENDATIONS OF INDIVIDUAL STOCKS. THE PROFILES PRESENT INFORMATION
ABOUT THE COMPANIES BELIEVED TO BE ACCURATE, AND THE VIEWS OF THE PORTFOLIO
MANAGERS, AS OF APRIL 1, 1998. THAT INFORM ATION AND THOSE VIEWS MAY CHANGE
AND THE FUND DISCLAIMS ANY OBLIGATION TO ADVISE SHAREHOLDERS OF ANY SUCH
CHANGES.
<F3> AS A PERCENTAGE OF TOTAL NET ASSETS AS OF MARCH 31, 1998.
<F4> AS A PERCENTAGE OF PORTFOLIO EQUITIES AS OF MARCH 31, 1998.
<F5> FUND STATISTICS ARE AS OF MARCH 31, 1998.
<LOGO>
Artisan Funds
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
1 800 344 1770
