As filed with the Securities and Exchange Commission on February 27, 1998
1933 Act Reg. No. 33-88316
1940 Act File No. 811-8932
- -------------------------------------------------------------------------
Washington, D.C. 20549
FORM N-1A
-----------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [X]
Artisan Funds, Inc.
(Registrant)
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
Telephone Number: (414) 390-6100
Andrew A. Ziegler Janet D. Olsen
Artisan Funds, Inc. Bell, Boyd & Lloyd
1000 North Water Street, #1770 Three First National Plaza, #3300
Milwaukee, Wisconsin 53202 Chicago, Illinois 60602
(Agents for Service)
------------------------
Amending Parts A, B, and C and filing Exhibits.
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to rule 485(b)
X on February 27, 1998 pursuant to rule 485(b)
--
__ 60 days after filing pursuant to rule 485(a)(1)
__ on _________________ pursuant to rule 485(a)(1)
__ 75 days after filing pursuant to rule 485(a)(2)
__ on _________________ pursuant to rule 485(a)(2)
<PAGE>
ARTISAN FUNDS, INC.
Cross-reference sheet pursuant to rule 495(a) of Regulation C
PART A
Item Location or Caption
- ---- -------------------
PART A (PROSPECTUS) - ARTISAN SMALL CAP FUND
- --------------------------------------------
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Expenses and Performance - Financial Highlights
(b) Not applicable
(c)-(d) Expenses and Performance - Performance
4(a)(i) Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices, and
Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund's Investment Philosophy; Securities, Investment
Practices and Risks
5(a) Organization
(b) Organization; Management; The Fund in Detail -
Expenses; Expenses and Performance - Expenses; How to
Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact
Us
<PAGE>
(f) Expenses and Performance - Expenses; The Fund in
Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
- The information called for by item 5A is included in
registrant's annual report to shareholders
6(a) Organization; How to Buy Shares; How to Sell Shares
(b)-(d) Not applicable
(e) Doing Business with the Fund; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; How to Contact Us
(f)-(g) Dividends, Capital Gains and Taxes
7 Doing Business with the Fund; How to Buy Shares;
Shareholder and Account Policies - Purchases
(a) Not applicable
(b) How to Buy Shares; Shareholder and Account Policies -
Share Price
(c) Not applicable
(d) How to Buy Shares
(e)-(f) Not applicable
8(a) Doing Business with the Fund; How to Sell
Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
<PAGE>
PART A (PROSPECTUS) - ARTISAN INTERNATIONAL FUND
- ------------------------------------------------
ARTISAN INTERNATIONAL SHARES
----------------------------
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Expenses and Performance - Financial Highlights
(b) Not applicable
(c)-(d) Expenses and Performance - Performance
4(a)(i) Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices, and
Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund's Investment Philosophy; Securities, Investment
Practices and Risks
5(a) Organization
(b) Organization; Management; The Fund in Detail -
Expenses; Expenses and Performance - Expenses; How to
Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact
Us
(f) Expenses and Performance - Expenses; The Fund in
Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
6(a) Organization; How to Buy Shares; How to Sell Shares
(b)-(d ) Not applicable
(e) Doing Business with the Fund; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; How to Contact Us
(f)-(g) Dividends, Capital Gains and Taxes
7 Doing Business with the Fund; How to Buy Shares;
Shareholder and Account Policies - Purchases
(a) Not applicable
(b) How to Buy Shares; Shareholder and Account Policies -
Share Price
(c) Not applicable
(d) How to Buy Shares
(e)-(f) Not applicable
<PAGE>
8(a) Doing Business with the Fund; How to Sell
Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
PART A (PROSPECTUS) - ARTISAN INTERNATIONAL FUND
- ------------------------------------------------
ARTISAN INTERNATIONAL INSTITUTIONAL SHARES
------------------------------------------
1(a)-(b) Front cover
2(a) Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Financial Highlights
(b) Not applicable
(c)-(d) Performance
4(a)(i) The Fund in Detail - Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices and Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund in Detail - The Fund's Investment Philosophy;
Securities, Investment Practices and Risks
5(a) The Fund in Detail - Organization
(b) The Fund in Detail - Organization; The Fund in Detail -
Management;
Expenses; The Fund in Detail - Expenses; Purchasing and
Redeeming Shares - Doing Business with Artisan Funds
(c) The Fund in Detail - Organization; The Fund in Detail -
Management
(d) Not applicable
(e) Purchasing and Redeeming Shares - How to Invest; Purchasing and
Redeeming Shares - How to Redeem Shares
(f) Expenses; The Fund in Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
6(a) The Fund in Detail - Organization; Purchasing
and Redeeming Shares - How to Invest; Purchasing
and Redeeming Shares - How to Redeem Shares
(b)-(d) Not applicable
(e) Purchasing and Redeeming Shares - How to Invest;
Purchasing and Redeeming Shares - How to Redeem Shares;
Statements and Reports
(f)-(g) Dividends, Capital Gains and Taxes
(h) Front Cover; The Fund at a Glance - International Institutional
Shares
7 Purchasing and Redeeming Shares - Who May Invest;
Purchasing and Redeeming Shares - How to Invest
(a) Not applicable
<PAGE>
(b) Purchasing and Redeeming Shares - How to Invest; Net Asset Value
(c) Not applicable
(d) Purchasing and Redeeming Shares - Who May Invest
(e)-(f) Not applicable
8(a) Purchasing and Redeeming Shares - Doing Business with the Fund;
Purchasing and Redeeming Shares - How to Redeem Shares;
(b) Purchasing and Redeeming Shares - How to Redeem Shares
(c)-(d) Purchasing and Redeeming Shares - How to Redeem Shares
9 Not applicable
<PAGE>
PART A (PROSPECTUS) - ARTISAN MID CAP FUND
- ------------------------------------------
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Not applicable
(b) Not applicable
(c) Expenses and Performance - Performance
(d) Not applicable
4(a)(i) The Fund in Detail - Organization
(ii) The Fund at a Glance; The Fund in Detail - The Fund's Investment
Philosophy; The Fund in Detail - Securities, Investment
Practices, and Risks
(b) The Fund in Detail - Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest; The Fund in Detail -
The Fund's Investment Philosophy; The Fund in Detail -
Securities; Investment Practice and Risks
5(a) The Fund in Detail - Organization
(b) The Fund in Detail - Organization; The Fund in Detail - Management;
The Fund in Detail - Expenses; Expenses and Performance -
Expenses; Your Account - Doing Business with the Fund
(c) The Fund in Detail - Organization; The Fund in Detail - Management
(d) Not applicable
(e) Your Account - How to Buy Shares; Your Account - How to Sell
Shares; Your Account - Doing Business with the Fund
(f) Expenses and Performance - Expenses; The Fund in Detail - Expenses
(g) Not applicable
5A Not applicable
6(a) The Fund in Detail - Organization; Your Account - How to Buy
Shares; Your Account - How to Sell Shares
(b)-(d) Not applicable
(e) Your Account - Doing Business with the Fund; Your Account - How to
Buy Shares; Your Account - How to Sell Shares; Shareholder and
Account Policies - Statements and Reports
(f)-(g) Dividends, Capital Gains, and Taxes
7 Your Account - Doing Business with the Fund; Your Account - How to
Buy Shares; Shareholder and Account Policies - Purchases
(a) Not applicable
<PAGE>
(b) Your Account - How to Buy Shares; Shareholder and Account Policies
- Share Price
(c) Not applicable
(d) Your Account - How to Buy Shares
(e)-(f) Not applicable
8(a) Your Account - Doing Business with the Fund; Your Account - How to
Sell Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
<PAGE>
PART A (PROSPECTUS) - ARTISAN SMALL CAP VALUE FUND
1(a)-(b) Front cover
2(a) Expenses and Performance - Expenses
(b)-(c) Contents; The Fund at a Glance
3(a) Expenses and Performance - Financial Highlights
(b) Not applicable
(c)-(d) Expenses and Performance - Performance
4(a)(i) Organization
(ii) The Fund at a Glance; The Fund's Investment Philosophy;
Securities, Investment Practices, and
Risks
(b) Securities, Investment Practices and Risks
(c) The Fund at a Glance - Who May Want to Invest;
The Fund's Investment Philosophy; Securities, Investment
Practices and Risks
5(a) Organization
(b) Organization; Management; The Fund in Detail -
Expenses; Expenses and Performance - Expenses; How to
Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact
Us
(f) Expenses and Performance - Expenses; The Fund in
Detail - Expenses
(g) Not applicable
5A Not applicable [included in annual report to shareholders]
- The information called for by item 5A is included in
registrant's annual report to shareholders
6(a) Organization; How to Buy Shares; How to Sell Shares
(b)-(d) Not applicable
(e) Doing Business with the Fund; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; How to Contact Us
(f)-(g) Dividends, Capital Gains and Taxes
7 Doing Business with the Fund; How to Buy Shares;
Shareholder and Account Policies - Purchases
(a) Not applicable
(b) How to Buy Shares; Shareholder and Account Policies -
Share Price
(c) Not applicable
(d) How to Buy Shares
<PAGE>
(e)-(f) Not applicable
8(a) Doing Business with the Fund; How to Sell
Shares; Shareholder and Account Policies - Redemptions
(b) Shareholder and Account Policies - Purchases
(c)-(d) Shareholder and Account Policies - Redemptions
9 Not applicable
<PAGE>
PART B
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN SMALL CAP FUND
- ---------------------------------------------------------------------
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Financial Statements
<PAGE>
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN INTERNATIONAL FUND
- -------------------------------------------------------------------------
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Financial Statements
<PAGE>
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN MID CAP FUND
- -------------------------------------------------------------------
Item Location or Caption
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment Techniques and
Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Not applicable
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Not applicable
<PAGE>
PART B (STATEMENT OF ADDITIONAL INFORMATION) - ARTISAN SMALL CAP VALUE FUND
10 Front cover
11 Front cover
12 Part A - Organization
13(a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14(a)-(b) Directors and Officers
(c) Not applicable
15(a)-(b) Not applicable
(c) Directors and Officers
16(a)(i) Investment Adviser
(ii) Directors and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Accountants
(i) Not applicable
17(a) Portfolio Transactions
(b) Not applicable
(c)-(d) Portfolio Transactions
(e) Not applicable
18(a) The Fund
(b) Not applicable
19(a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 Not applicable
22(a) Not applicable
(b) Performance Information
23 Financial Statements
<PAGE>
xxxxx
ARTISAN SMALL CAP FUND
PROSPECTUS
OCTOBER 28, 1997
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
<PAGE>
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Fund invests and
the services available to shareholders.
A Statement of Additional Information dated the date of this prospectus has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement of
Additional Information is available free upon request by calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRO-SPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
ARTISAN
SMALL CAP
FUND
A NO-LOAD FUND
ARTISAN SMALL CAP FUND invests for maximum long-term capital growth. The Fund
invests primarily in the common stocks of small companies whose outstanding
shares have an aggregate market value of less than $1 billion.
PROSPECTUS
OCTOBER 28, 1997
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
<PAGE>
CONTENTS
THE FUND AT A GLANCE 3 GOAL; STRATEGY; MANAGEMENT;
WHO MAY WANT TO INVEST; RISKS
AND RETURNS
EXPENSES AND PERFORMANCE 4 EXPENSES; FINANCIAL HIGHLIGHTS
YOUR ACCOUNT 5 PERFORMANCE; DOING BUSINESS WITH THE FUND;
WHO IS ELIGIBLE TO INVEST
6 WAYS TO SET UP YOUR ACCOUNT
7 HOW TO BUY SHARES; MINIMUM INVESTMENTS;
AUTOMATIC INVESTMENT PLAN
9 HOW TO SELL SHARES
SHAREHOLDER AND ACCOUNT 11 STATEMENTS AND REPORTS; SHARE
POLICIES PRICE; PURCHASES
12 REDEMPTIONS; ACCOUNT REGISTRATION;
TELEPHONE TRANSACTIONS
13 TELEPHONE EXCHANGE PLAN
DIVIDENDS, CAPITAL GAINS 14 DISTRIBUTION OPTIONS; TAXES
AND TAXES
THE FUND IN DETAIL 16 ORGANIZATION; MANAGEMENT
17 EXPENSES; THE FUND'S INVESTMENT
PHILOSOPHY
19 SECURITIES, INVESTMENT PRACTICES AND RISKS;
EQUITY SECURITIES
20 FOREIGN SECURITIES
21 DEBT SECURITIES; CONVERTIBLE SECURITIES;
MANAGING INVESTMENT EXPOSURE
22 CURRENCY EXCHANGE TRANSACTIONS; OPTIONS AND
FUTURES
23 ILLIQUID AND RESTRICTED SECURITIES;
DIVERSIFICATION; LENDING PORTFOLIO
SECURITIES; REPURCHASE AGREEMENTS; WHEN-
ISSUED AND DELAYED-DELIVERY SECURITIES;
BORROWING
24 OTHER INVESTMENT COMPANIES;
PORTFOLIO TURNOVER
<PAGE> 2
THE FUND AT A GLANCE
GOAL
ARTISAN SMALL CAP FUND (THE "FUND"), ONE OF THE SERIES OF FUNDS OF ARTISAN
FUNDS, INVESTS FOR MAXIMUM LONG-TERM CAPITAL GROWTH.
STRATEGY
THE FUND INVESTS PRIMARILY IN THE COMMON STOCKS OF SMALL COMPANIES WHOSE
OUTSTANDING SHARES HAVE AN AGGREGATE MARKET VALUE OF LESS THAN $1 BILLION. It
looks for well-managed companies with sustainable growth prospects whose
securities are undervalued either because they lack recognition or are out of
favor based on short-term factors.
Because the Fund seeks to invest in companies that are characterized by sparse
Wall Street research coverage, the Fund uses its own detailed research process
to identify investment opportunities. For example, the quality of management is
evaluated by face-to-face meetings. In addition, a company's competitive
position is analyzed carefully, as are the company's growth history and
prospects. Fund management also estimates the intrinsic value of prospective
investments to identify those which are undervalued.The emphasis on fundamental
analysis of stock valuation relative to growth prospects sets the Fund apart
from pure "growth" or "value" funds. The Fund's style is often characterized
as "growth at a price" or "growth/value blend."
MANAGEMENT
Artisan Partners Limited Partnership ("Artisan Partners"), located in
Milwaukee, Wisconsin, San Francisco, California and Atlanta, Georgia selects
investments for the Fund. Carlene Murphy Ziegler and Millie Adams Hurwitz are
the portfolio managers and are responsible for the day-to-day management of the
Fund. Ms. Ziegler and Ms. Hurwitz make all investment decisions with the
assistance of a team of Artisan Partners investment research and trading
professionals.
WHO MAY WANT TO INVEST
Artisan Small Cap Fund is designed for investors who want maximum long-term
capital growth rather than income and who have the long-term investment outlook
needed for investing in the stocks of small companies.
RISKS AND RETURNS
Historically, stocks have shown greater growth than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market or economic news. In addition, the stocks of small companies
often involve more volatility than the stocks of larger companies. The Fund does
not pursue income and is not by itself a balanced investment plan.
The Fund 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 stock or industry.
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on Artisan Partners' skill in selecting individual
stocks, as well as general market and economic conditions. When you sell your
shares, they may be worth more or less than you paid for them.
See "Securities, Investment Practices and Risks" on page 19 for the types of
investments the Fund may make and "Your Account" on page 5 for how to buy and
redeem shares.
- -------------------------------------------------------------------------------
WHO MAY INVEST
The Fund is closed to new investors. The board decided that limiting the Fund's
size was in the best interests of shareholders because it allows Artisan
Partners to concentrate the Fund's investments in a manageable number of small
companies without taking too large a position in any single company. See "Who
Is Eligible to Invest" on page 5 to determine if you are eligible to invest in
the Fund.
- --------------------------------------------------------------------------------
<PAGE> 3
EXPENSES AND PERFORMANCE
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares
of the Fund.
Maximum sales charge on purchases
and reinvested dividends......................NONE
Deferred sales charge on redemptions..........NONE
Redemption fee <F1>...........................NONE
Exchange fee..................................NONE
<F1> A shareholder requesting payment of redemption proceeds by wire must pay
the cost of the wire (currently $5).
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS). The Fund
pays its own operating expenses, including a management fee to Artisan Partners.
The Fund also incurs other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and reports. The Fund's expenses
are factored into its share price daily, and are not charged directly to
shareholder accounts.
The following are historical expenses and are expressed as percentages of the
Fund's average net assets:
Management fee............................... 1.00%
12b-1 fee..................................... NONE
Other expenses............................... 0.41%
-----
Total operating expenses..................... 1.41%
=====
The purpose of the expense table is to help you understand the costs and
expenses associated with investing in the Fund.
- -------------------------------------------------------------------------------
UNDERSTANDING EXPENSES
Operating a mutual fund requires paying for portfolio management, shareholder
statements, tax reporting and other services. These costs are paid from the
Fund's assets; any quoted share price or return is after expenses.
- -------------------------------------------------------------------------------
EXAMPLE: Let's say, hypotheti cally, that the Fund's annual re turn is 5% and
that its operat ing expenses are exactly as shown above. For every $1,000 you
invested, here's how much you would have paid in total expenses if you closed
your account after the number of years indicated:
After 1 year.................................. $ 15
After 3 years................................. $ 46
After 5 years................................. $ 79
After 10 years................................ $174
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.
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in the Fund through the
end of the fiscal period indicated. This information was audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is included in
the Fund's annual report to shareholders for the fiscal year ended June 30,
1997.
1997 1996 1995<F2>
------ ---- ----
Net asset value,
beginning of period $14.67 $11.52 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment (loss) (0.04) (0.07) (0.01)
Net realized and unrealized
gains on securities 1.55 3.32 1.53
---- ---- ----
Total from investment
operations 1.51 3.25 1.52
LESS DISTRIBUTIONS
Total distributions (1.07) (0.10)
------ ------ ------
Net asset value,
end of period $15.11 $14.67 $11.52
====== ====== ======
Total return 11.3% 28.3% 15.2%<F4>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (millions) $267.8 $400.0 $99.3
Ratio of expenses to
average net assets 1.41% 1.52% 2.00%<F3>
Ratio of net investment
income to average
net assets (0.73)% (0.75%) (0.59%)<F3>
Portfolio turnover rate 87.18% 105.19% 9.28% <F4>
Average
commission rate $0.0527
<F2> From the commencement of operations
(March 28, 1995) through June 30, 1995.
<F3> Annualized
<F4> Not Annualized
<PAGE> 4
EXPENSES AND PERFORMANCE - CONTINUED
PERFORMANCE
Mutual fund performance is commonly measured as total return. TOTAL RETURN is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's performance
over a stated period of time. An aVERAGE ANNUAL TOTAL RETURN is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total return smoothes out variations in performance; it is not the same as
actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of income
taxes paid by shareholders. The Fund may sometimes show its performance compared
to certain performance rankings, averages or stock indexes (described more fully
in the Statement of Additional Information).
More information about the Fund's investment performance is included in its
annual report to shareholders, a copy of which may be obtained without charge
by calling 1-800-344-1770.
---------------------------------
YOUR ACCOUNT
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service during extended business hours. To
reach the Fund, call 1-800-344-1770.
WHO IS ELIGIBLE TO INVEST?
The Fund is closed to new investors. If you were a shareholder of the Fund when
it closed on February 27, 1996, you may make additional investments in the Fund
and reinvest your dividends and capital gain distributions, even though the Fund
has closed.
You may open a new account only if:
- - you are already a shareholder (in your own name or as beneficial owner of
shares held in someone else's name);
- - your business or other organization is already a shareholder of the Fund and
you are opening an account for an employee benefit plan sponsored by that
organization or an affiliated organization;
- - you are transferring or doing a "rollover" into a Fund IRA from an employee
benefit plan through which you held shares of the Fund (if your plan doesn't
qualify for rollovers you may still open a new account with all or part of the
proceeds of a distribution from the plan);
- - you are an employee benefit plan sponsored by an institution that also
sponsors (or is an affiliate of an institution that sponsors) another employee
benefit plan account that was a shareholder of the Fund at February 27, 1996;
- - you are a director or officer of Artisan Funds, Inc. ("Artisan Funds"), or a
partner or employee of Artisan Partners, or a member of the immediate family
of any of those people;
- - you are a client of Artisan Partners or you have an existing business
relationship with Artisan Partners and, in the judgment of Artisan Partners,
your investment in the Fund would not adversely affect Artisan Partners'
ability to manage the Fund effectively; or
- - you are a client of a financial adviser or planner who had at least $1 million
of client assets invested with the Fund on or before February 27, 1996, or at
the time of your application.
You may continue to add to your existing account(s) through the reinvestment of
dividends and distributions from the Fund, and through the purchase of
additional Fund shares. An employee benefit plan which is a Fund shareholder may
continue to buy shares in the ordinary course of the plan's operations, even for
new plan participants. An eligible financial adviser or planner may continue to
buy shares for existing and new clients.
The Fund does not intend to resume sales of shares to new investors. Call us at
1-800-344-1770 if you have questions about your ability to invest.
<PAGE> 5
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT OWNERSHIP
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or more
owners.
- --------------------------------------------------------------------------------
RETIREMENT
TO DEFER TAXES ON YOUR RETIREMENT SAVINGS
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible. RETIREMENT
ACCOUNTS REQUIRE SPECIAL APPLICATIONS WHICH MAY BE OBTAINED BY CALLING 1-800-
344-1770.
- - INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2,000 per tax year. If your
spouse has less than $2,000 in earned income, he or she may still contribute
up to $2,000 in an IRA, so long as you and your spouse's combined earned
income is at least $4,000.
- - ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to 15% of the first $160,000 of compensation per year for themselves and any
eligible employees.
- - OTHER RETIREMENT PLANS - The Fund may be used as an investment in other kinds
of retirement plans, including Keogh or corporate profit sharing and money
purchase plans, 403(b) plans and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. The Fund does not offer prototypes
of these plans.
- --------------------------------------------------------------------------------
An IRA disclosure statement is delivered in advance of opening any IRA account
and contains information unique to retirement accounts. It also contains a
summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
TO INVEST FOR A MINOR'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
- --------------------------------------------------------------------------------
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
FOR MONEY BEING INVESTED BY A TRUST, EMPLOYEE BENEFIT PLAN, OR PROFIT-SHARING
PLAN
The trust or plan must be established before an account can be opened. The date
of the trust or plan should be included on the new account application.
- --------------------------------------------------------------------------------
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, INSTITUTIONS
OR OTHER GROUPS
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
<PAGE> 6
YOUR ACCOUNT - CONTINUED
HOW TO BUY SHARES
If you are eligible to open a new account, you may do so by:
- - mailing in an application with a check for $1,000 or more, or
- - exchanging $1,000 or more from your existing account with another of the
Artisan Funds. For more details, see "Telephone Exchange Plan" on page 13.
AFTER YOUR ACCOUNT IS OPEN, YOU MAY ADD TO IT BY:
- - mailing a check or money order along with the form at the bottom of your
account statement, or a letter (the Fund does not accept third-party checks)
- - moving money from your bank account by telephone provided you have elected
this privilege on your new account application;
- - moving an investment from another of the Artisan Funds to the Fund by
telephone provided you have elected this privilege;
- - wiring money from your bank; or
- - making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for shares is the net asset value per share next
calculated after your investment is received. An order is considered received
when the application (for a new account) or information identifying the account
and the money are received and accepted by the Fund or certain authorized
agents, who may impose fees for their services. See "Shareholder and Account
Policies' on page 11 for information about share price and transactions with
certain financial services companies and broker-dealers. The Fund does not issue
share certificates.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $1,000
TO ADD TO AN ACCOUNT $ 50
MINIMUM BALANCE $ 500
The initial minimum investment will be waived if you participate in the
Automatic Investment Plan. Because it is very expensive for the Fund to maintain
small accounts (and that cost is borne by all shareholders), the Fund reserves
the right to close your account if the value is less than $500 (or $1,000 if you
discontinued the Automatic Investment Plan before your account reached $1,000).
Before closing a small account, the Fund will notify you and allow you at least
30 days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to make regular,
systematic investments into your Fund. Through the Automatic Investment Plan,
you purchase shares by transferring money (minimum of $50 per transaction) from
your designated checking or savings account. Your automatic investment in the
Fund will be processed monthly on a draft date designated by you, between the
3rd and 28th of the month only. The draft will be made on or about, possibly
earlier or later than, the date requested due to the processing complexities
associated with weekends, holidays, etc. Artisan Funds will not be responsible
for non-sufficient funds fees.
<PAGE> 7
HOW TO BUY SHARES
MAIL
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - Complete and sign the new account application. Make your check or money order
payable to "Artisan Funds" or "Artisan Small Cap Fund." Third-party checks
will not be accepted.
Mail to the address on the new account application. FOR OVERNIGHT DELIVERY:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
TO ADD TO AN ACCOUNT:
- Make your check or money order payable to "Artisan Funds" or "Artisan
Small Cap Fund.' Put your account number on your check.
Mail your check and form at the bottom of your account statement (or a
letter) to the address on your account statement. FOR OVERNIGHT DELIVERY:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
- ----------------------------------------------------------------------------
PHONE 1-800-344-1770
- ----------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - You may not open a new account by phone except by exchange of $1,000 or more
from your identically registered account with another Artisan Fund.
- - You may establish the telephone transaction option when you open an account
by electing the option on your new account application.
TO ADD TO AN ACCOUNT:
- - If you did not elect the telephone transaction option on your new account
application for the Fund or for another of the Artisan Funds, complete the
shareholder options form to make investments by phone from $50 to $25,000
into your account and to participate in the telephone exchange plan.
- - All telephone trades must be placed between 7:00 a.m. and 3:00 p.m. Central
time on days the NYSE is open for trading.
- ----------------------------------------------------------------------------
WIRE
- ----------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on opening an account by wire.
TO ADD TO AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on adding to an account by wire.
- ----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
- ----------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - If you sign up for the Automatic Investment Plan when you open your account,
the minimum initial investment will be waived.
- - Complete and sign the Automatic Investment Plan section of the new account
application.
TO ADD TO AN ACCOUNT:
- - Sign up for the Automatic Investment Plan on the shareholder options form or
call 1-800-344-1770 for instructions on how to add to your existing account.
<PAGE> 8
YOUR ACCOUNT - CONTINUED
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next net
asset value per share (share price) calculated after your order is received and
accepted by the Fund or its authorized agent. See "Shareholder and Account
Policies' on page 11 for more information about share price and transactions
with certain financial services companies and broker-dealers.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA account, your request must be made in
writing. If you need an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- - each owner's name and address,
- - the Fund's name,
- - your account number,
- - the dollar amount or number of shares to be redeemed, and
- - the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
CERTAIN REDEMPTION REQUESTS AND ACCOUNT CHANGES MUST INCLUDE A
SIGNATURE GUARANTEE, designed to protect you and the Fund from fraud. Your
request must be made in writing and include a signature guarantee if any of the
following situations applies:
- - you wish to redeem more than $25,000 worth of shares;
- - if you add/change your name or add/remove an owner on your account;
- - if you add/change the beneficiary on your account;
- - the check is being mailed to an address different than one on your account
(record address);
- - the check is being made payable to someone other than the account owner;
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account; or
- - you have changed the address on the account by phone within the last 60
days.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment plan, payment of
redemption proceeds may be delayed until the Fund is reasonably certain that
payment for the shares has been collected, which may take as long as 15 days.
<PAGE> 9
HOW TO SELL SHARES SPECIAL REQUIREMENTS
- --------------------------------------------------------------------------------
NOTE: SOME REDEMPTIONS REQUIRE SIGNATURE GUARANTEES. SEE PAGE 9.
MAIL
- --------------------------------------------------------------------------------
Individual, Joint Owners, Sole - The letter of instruction must be signed
Proprietorships, UGMA, UTMA by all persons required to sign for
transactions (usually, all owners of the
account) exactly as their names appear on the
account.
Trust - The letter of instruction must include the
signatures of all trustees.
All Others - Call 1-800-344-1770 for instructions.
- --------------------------------------------------------------------------------
PHONE 1-800-344-1770
- --------------------------------------------------------------------------------
All account types except IRAs - You automatically have the telephone
redemption option (which allows you to redeem
at least $500 and up to $25,000 worth of
shares per day by phone) unless you declined
it on your new account application. If you
declined the telephone redemption option,
call 1-800-344-1770 for instructions on how
to add it.
- All telephone trades must be placed between
7:00 a.m. and 3:00 p.m. Central time on days
the NYSE is open for trading.
- --------------------------------------------------------------------------------
WIRE
- --------------------------------------------------------------------------------
All account types except IRAs - We will transmit payment by wire for a fee
(currently $5.00) to a pre-authorized bank
account. Usually, the funds will arrive at
your bank the next business day.
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- --------------------------------------------------------------------------------
All account types except IRAs - Sign up for systematic withdrawals
(distributions from your account at regular
intervals in specified dollar amounts of at
least $50) by calling 1-800-344-1770 for
instructions on how to add this option.
- You must have at least $5,000 in your account
before you are eligible to sign up for this
option. If the amount in your account is not
sufficient to meet a withdrawal, the
remaining amount in the account will be
redeemed.
<PAGE> 10
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- - Confirmation statements (after every transaction in your account or change in
your account registration);
- - Account statements (quarterly);
- - Annual and semi-annual reports with financial statements; and
- - Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for
tax purposes.
If you need copies of current or preceding year statements call 1-800-344-1770.
Copies of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange ("NYSE") is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to
sell one share) are the same and represent the Fund's net asset value per share
calculated at the next Closing Time after receipt of your purchase or redemption
order by the Fund or a broker-dealer or financial services company authorized by
the Fund to accept purchase and redemption orders on its behalf. Closing Time is
the time of the close of regular session trading on the NYSE, which is usually
3:00 p.m. Central time but is sometimes earlier.
THE FUND'S NET ASSET VALUE PER SHARE is the value of a single share, and is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities and then dividing the result by the number
of shares outstanding.
Fund securities and assets are valued primarily on the basis of market
quotations from the primary market in which they are traded or, if quotations
are not readily available, by a method that the board of directors believes
accurately reflects a fair value. Values of foreign securities are translated
from the local currency into U.S. dollars using current exchange rates.
PURCHASES
- - All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks.
- - The Fund does not accept cash, credit cards or third-party checks.
- - If your check or telephone purchase order does not clear, your purchase will
be cancelled and you will be liable for any losses or fees the Fund or its
transfer agent incurs.
- - Your ability to make automatic investments and telephone purchases may be
immediately terminated if any item is unpaid by your financial institution.
- - THE FUND RESERVES THE RIGHT TO reject any purchase order. For example, a
purchase order may be refused if, in Artisan Partners' opinion, it is so
large that it would disrupt management of the Fund, or if the order is from a
person who is not eligible to invest.
THE FUND MAY AUTHORIZE from time to time certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share
purchase and redemption orders on the Fund's behalf. For purchase orders placed
through an authorized agent, a shareholder will pay the Fund's net asset value
per share next computed after the receipt by the authorized agent of such
purchase order, plus any applicable transaction charge imposed by
<PAGE> 11
the agent. For redemption orders placed through an authorized agent, a
shareholder will receive redemption proceeds which reflect the net asset value
per share next computed after the receipt by the authorized agent of the
redemption order, less any redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company may
not charge any transaction fees directly to investors in the Fund. However, for
accounting and shareholder services provided by such company with respect to
Fund shares held by that company for its customers, the company may charge a fee
(currently up to 0.35%) of the annual average value of those accounts. The Fund
pays a portion of those fees not to exceed the estimated fees and expenses that
the Fund would pay to its own transfer agent if the shares of the Fund held by
such customers of the company were registered directly in their names on the
books of the Fund's transfer agent. The balance of those fees is paid by Artisan
Partners.
REDEMPTIONS
- - Normally, redemption proceeds will be mailed within seven days after receipt
of the request for redemption.
- - The Fund may hold payment on redemptions until it is reasonably satisfied
that it has received payment for a recent purchase made by check or by an
automatic investment or telephone purchase, which can take up to fifteen
days.
- - If you make a telephone redemption, the Fund will send payment for your
redemption one of three ways: (i) by mail; (ii) by Electronic Funds Transfer
(EFT) to a pre-authorized bank account; or (iii) to your bank account by wire
transfer. The cost of the wire (currently $5.00) will be deducted from the
payment. Your bank also may impose a fee for the incoming wire. Payment by
EFT will usually arrive at your bank two banking days after your call.
Payment by wire is usually credited to your bank account on the next business
day after your call.
- - Redemptions may be suspended or pay ment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic withdrawal
payment, or a dividend or capital gain distribution you elected to receive in
cash) and the check is returned "undeliverable" or remains uncashed for six
months, the check will be cancelled and the proceeds will be reinvested in the
Fund at the net asset value per share on the date of cancellation. In addition,
after that six-month period, your systematic withdrawal payments will be
cancelled and future withdrawals will occur only when requested, or your cash
election will automatically be changed and future dividends and distributions
will be reinvested in your account.
ACCOUNT REGISTRATION
ADDRESS CHANGES for your account may be made by writing us a letter or by
calling us at 1-800-344-1770. The Fund will send a written confirmation of the
change to both your old and new addresses. No telephone redemptions may be made
for 60 days after a change of address by phone. During those 60 days, a
signature guarantee will be required for any written redemption request unless
your change of address was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES, PURCHASES AND
REDEMPTIONS, BY TELEPHONE. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to
<PAGE> 12
verify the identity of the caller. Those procedures may include recording the
call, requesting additional information and sending written confirmation of
telephone transactions. If the Fund fails to follow reasonable procedures, the
Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer investments among the
Artisan Funds between the hours of 7:00 a.m. and 3:00 p.m., Central time, on
days the NYSE is open for trading. The Fund is closed to new investors. You will
be able to use the exchange plan to open a new Fund account only if you are
eligible to open a new account directly. See page 5 for information on
eligibility to invest.
Each exchange between accounts must be at least $1,000. The price of shares
exchanged between the Artisan Funds is determined at the end of that day's
trading session.
Telephone exchange plan restrictions:
- - To exchange between funds, both accounts must be registered in the same name,
address and taxpayer identification number.
- - To open a Fund account by telephone exchange from another Artisan Fund,
you must have previously elected the telephone transaction option for the
fund from which the exchange will be made.
- - Before exchanging into another Artisan Fund, you should carefully read its
prospectus which may be obtained by calling 1-800-344-1770.
- - The exchange of shares may have tax consequences to you.
- - If your account is subject to backup withholding, you may not use the
telephone exchange plan.
- - Because excessive trading can hurt performance and shareholders, Artisan
Funds reserves the right to temporarily or permanently terminate the
telephone exchange plan of any investor who makes excessive use of the plan.
Artisan Funds also may limit the number of transfers per calendar year.
- - Artisan Funds reserves the right to terminate or modify the telephone
exchange plan at any time, but will try to give you prior notice whenever it
is able to do so.
- - The exchange plan does not apply to Artisan International Institutional
Shares, a class of shares of Artisan International Fund available only to
certain institutional investors.
<PAGE> 13
DIVIDENDS, CAPITAL GAINS, AND TAXES
The Fund intends to distribute substantially all of its net income and net
realized capital gains to sharehold ers at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you want
to receive your distributions. If you later want to change your distribution
option, you may do so either by a written request or by calling us at 1-800-344-
1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your new account application, your distributions will be
reinvested automatically.
- - INCOME-ONLY OPTION. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
For IRA accounts, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA, and
might be subject to income tax and penalties if you are under 59 1/2 years old.
After you are 59 1/2, you may request payment of distributions in cash which
might be subject to income tax.
When you reinvest, the reinvestment price is the Fund's net asset value per
share at the close of business on the reinvestment date. The mailing of
distribution checks will usually begin on the payment date, which is usually one
week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your investment in
the Fund will be taxed. If your account is a tax-deferred account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not a tax-deferred account, however, you should be
aware of the following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and
also may be subject to state or local taxes. If you are a U.S. citizen residing
outside the United States, your distributions also could be taxed by the
country in which you reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
October, November or December and paid in January are taxable as if they were
received by you on December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, the Fund will send you and the
IRS a statement, called a Form 1099, showing the amount of each taxable
distribution you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares you will recognize a capital gain
or loss if there is a difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of the Fund, you will receive a confirmation statement
showing how many shares you sold and at what price. You also will receive a
year-end statement every January reporting, among other things, your average
cost basis in the shares you sold. This will allow you or your tax preparer to
determine whether a redemption resulted in a capital gain or loss and the tax
consequences of that gain or loss. However,
<PAGE> 15
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.
To invest you must be a U.S. citizen (or a non-citizen domiciled in the U.S.)
with a Social Security or taxpayer identification number. When you sign your
account application, you will be asked to certify that your Social Security or
taxpayer identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you fail to comply with
applicable IRS regulations including the certification procedures described
above, the IRS can require the Fund to withhold 31% of your taxable
distributions and redemptions.
FOREIGN INCOME TAXES. Investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes withheld at the source.
The Fund will not be eligible to make an election to permit you to claim a
foreign tax credit for your share of such taxes because it will not meet the
requirement of having more than 50% of its assets invested in stocks or
securities of foreign corporations. However, the Fund expects such taxes to be
deductible by it in computing its taxable income.
- --------------------------------------------------------------------------------
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the Fund's net income and
any gains realized on its investments. The Fund's income from dividends and
interest and any net realized short-term gain are paid to you as DIVIDENDS. The
Fund's net realized long-term gains are paid to you as CAPITAL GAIN
DISTRIBUTIONS.
- --------------------------------------------------------------------------------
<PAGE> 15
THE FUND IN DETAIL
ORGANIZATION
Artisan Small Cap Fund is a series of Artisan Funds, Inc. ("Artisan Funds"),
an open-end, management investment company which was incorporated under
Wisconsin law in 1995.
Artisan Funds' charter authorizes its board of directors to issue fifty billion
full and fractional shares of capital stock, $.01 par value per share, of which
5 billion shares are designated Artisan Small Cap Fund. 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 redemption. The board may also, without shareholder approval,
increase the number of authorized shares of the Fund.
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.
All shares participate equally in dividends and other distributions declared by
the board of directors, and all shares of the Fund have equal rights in the
event of liquidation of the Fund. Shares of the Fund have no preemptive,
conversion or subscription rights.
THE FUND IS GOVERNED BY A BOARD OF DIRECTORS which is responsible for protecting
the interests of the shareholders of the Fund. The directors are experienced
executives and professionals who meet at regular intervals to oversee the
activities of the Fund, review contractual arrangements with companies that
provide services to the Fund and review performance. A majority of directors are
not otherwise affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered investment companies
to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940 (the federal securities law that governs the regulation of investment
companies). The Fund has adopted the appropriate provisions in its bylaws and
does not expect to hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders. The Fund believes that
not holding shareholder meetings except as otherwise required reduces the Fund's
expenses and enhances shareholder return.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, which selects the
Fund's investments and handles its business affairs, under the direction of the
board of directors. Artisan Partners is a limited partnership
managed by its general partner, Artisan Investment Corporation, controlled by
Andrew A. Ziegler and Carlene Murphy Ziegler.
Carlene Murphy Ziegler and Millie Adams Hurwitz are the Fund's portfolio
managers.
Ms. Ziegler also is a director and president of Artisan Funds. Prior to founding
Artisan Partners in 1995, Ms. Ziegler was a co-portfolio manager of the Strong
Common Stock Fund and Strong Opportunity Fund. From 1986 to 1991, Ms. Ziegler
was a co-portfolio manager of the SteinRoe Special Fund. Ms. Ziegler holds B.A.
and M.A. degrees from the University of Illinois and an M.B.A. from the
University of Chicago Graduate School of Business. She also is a Chartered
Financial Analyst.
<PAGE> 16
Ms. Hurwitz is a Vice President of Artisan Funds and joined Artisan Partners as
senior analyst of Artisan Partners' small capitalization equity products in
February 1995. Ms. Hurwitz was a co-portfolio manager with Stein Roe & Farnham
Incorporated from 1992 until February 1995, and an analyst with OLC Corporation
from 1989 to 1991. Ms. Hurwitz holds a B.A. degree from Northwestern University
and a Master of Management degree in Finance and Marketing from Kellogg Graduate
School of Management at Northwestern University.
Andrew A. Ziegler is a director and chief executive officer of Artisan Funds.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler was
president and chief operating officer of Strong/Corneliuson Capital Management,
and president of the Strong Funds; prior thereto, Mr. Ziegler was Executive Vice
President and General Counsel of Strong. From 1986 to 1990, Mr. Ziegler was an
attorney with the law firm of Godfrey & Kahn, S.C., Milwaukee, WI. Mr. Ziegler
holds a B.S. from the University of Wisconsin - Madison and a J.D. from the
University of Wisconsin Law School.
John M. Blaser is chief financial officer of Artisan Funds and acts as the
principal administrative and financial officer. Prior to joining Artisan
Partners in 1995, Mr. Blaser was Senior Vice President of Kemper Securities,
Inc. since 1993. Prior thereto, Mr. Blaser was with Price Waterhouse. Mr. Blaser
holds a B.B.A. from the University of Wisconsin - Madison.
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, MA 02171, is the Fund's transfer and dividend disbursing agent.
State Street also serves as the Fund's custodian and accounting agent.
The address of Artisan Partners is 1000 North Water Street, Suite 1770,
Milwaukee, Wisconsin 53202. Artisan Partners also has offices in San Francisco,
California and Atlanta, Georgia.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends.
The Fund pays a MANAGEMENT FEE to Artisan Partners for managing its investments
and business affairs. For services furnished by Artisan Partners, the Fund has
agreed to pay an annual fee of (i) 1% of its average daily net assets up to $500
million; (ii) .975 of 1% of its average daily net assets from $500 to $750
million; (iii) .950 of 1% of its average daily net assets from $750 million to
$1 billion and (iv) .925 of 1% of its average daily net assets over $1 billion.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agent, fund accountants, independent accountants and
lawyers. It also pays other expenses such as the cost of compliance with federal
and state laws, proxy solicitations, shareholder reports, taxes, insurance
premiums and the fees of directors who are not otherwise affiliated with the
Fund or Artisan Partners.
THE FUND'S INVESTMENT PHILOSOPHY
THE FUND INVESTS FOR MAXIMUM LONG-TERM CAPITAL GROWTH. THE FUND INVESTS
PRIMARILY IN THE COMMON STOCKS OF SMALL COMPANIES WHOSE OUTSTANDING SHARES HAVE
AN AGGREGATE MARKET VALUE OF LESS THAN $1 BILLION.
The strategy of many growth investors (like the Fund) is to find outstanding
companies at bargain prices. This is easier said than
<PAGE> 17
done since these companies are often quickly identified and their stocks become
fully valued in the market.
The Fund's investment approach revolves around a few basic beliefs. The first is
that smaller-capitalization companies (those with a total market capitalization
of less than $1 billion) offer a very fertile investment universe because they
tend to have better growth potential and are less likely to be broadly
recognized. While "small-cap" stocks are more volatile than "large-caps,"
they have been shown to outperform large-cap stocks over longer time horizons.
A second belief is that underfollowed or under-researched stocks tend to be less
efficiently priced due to a lack of attention by other investors. Investors need
to be paid a premium for taking the risk of having incomplete information. By
doing its own research, Artisan Partners expects to reduce the information risk
and realize the premium returns.
Artisan Partners' research involves analyzing the financial statements of a
company, the fundamentals of the particular industry and, most importantly, the
quality of management. Artisan Partners believes that in small companies, the
quality of management is often the key to ultimate success or failure. Artisan
Partners meets with management in person to discuss the company's goals,
strategies, competitive position and control systems. There will always be
problems and surprises, but good management can lead a company through these
problems and emerge successful over the long-run.
The Fund further believes that the true value of a company fluctuates less over
time than the company's stock price. Accordingly, Artisan Partners attempts to
estimate the intrinsic value of the company (what the Fund would be willing to
pay to own the whole company). The Fund will purchase a company's stock only
when that stock sells at a substantial discount to its estimated intrinsic value
so as to minimize the downside risk of the investment.
Limiting downside risk is an important variable, especially when investing in
smaller-cap, less liquid stocks. In addition to intrinsic value analysis,
Artisan Partners also seeks to limit downside risk by choosing companies with
positive cash flows and sustainable growth prospects and by diversifying its
holdings to avoid concentration in any one stock or industry. Artisan Partners
continuously monitors its holdings to minimize the chance of negative surprises.
Finally, before purchasing a stock, Artisan Partners identifies the key issues
that will drive the stock price. Any new information regarding the company is
then evaluated relative to those issues. If its initial investment analysis
remains intact and the stock stays undervalued, the Fund will continue to hold
the position. The ideal holding period is forever, but that rarely happens since
a company that is undervalued will usually be recognized by other investors. The
typical holding period is about two years.
The Fund invests primarily in equity securities, including common and preferred
stocks, warrants or other similar rights and, in addition, the Fund may from
time to time have significant portions of its portfolio invested in foreign
securities. The Fund also may invest in other types of securities, such as debt
securities, and may engage in certain investment practices such as short sales
"against the box"; however, the Fund does not currently intend to commit more
than 5% of its total assets to such securities or investment practices.
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in short-term
corporate obligations or government obligations or hold cash
<PAGE> 18
or cash equivalents if Artisan Partners determines that a temporary defensive
position is advisable. See the discussion of debt securities on page 21.
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates, or
other factors that affect the value of its portfolio. These techniques include
buying and selling options, futures contracts and options on futures contracts,
or entering into currency exchange contracts.
Although the Fund does not generally purchase securities with a view to rapid
turnover, there are no limitations on the length of time portfolio securities
must be held. Occasionally, securities purchased on a long-term basis may be
sold within a short period of time after purchase in light of a change in the
circumstances of a particular company or industry or in general market or
economic conditions.
The investment objective of the Fund may be changed by the board of directors
without shareholder approval. If there were such a change, you should consider
whether the Fund would remain an appropriate invest ment in light of your then
current financial position and needs. The Fund is not intended to present a
balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make and strategies Artisan Partners may employ in pursuit of the
Fund's investment objective, including information about the risks and
restrictions associated with these instrument types and investment practices.
All investment policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is included in the
Statement of Additional Information. Compliance with policies and limitations is
determined at the time of purchase of a security; the Fund is not required to
sell an investment because of a later change in circumstances.
The Fund may not buy all of these instruments or use all of these techniques to
the full extent permitted unless Artisan Partners believes that doing so will
help the Fund achieve its goal. As a shareholder, you will receive semi-annual
and annual reports detailing the Fund's holdings and describing recent
investment practices.
EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives the holder the right to vote on measures
affecting the company's organization and operations. Although common stocks have
a history of long-term growth in value, their prices tend to fluctuate in the
short term.
The Fund invests mostly in the common stock of small companies, defined for this
purpose as those companies whose outstanding common stock has a total market
value of less than $1 billion. During some periods, the securities of small
companies, as a class, have performed better than the securities of large
companies, and in some periods they have performed worse. Stocks of small
companies tend to be more volatile and less liquid than stocks of large
companies. Small, newer companies, as compared to larger companies, may have a
shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure and may have a smaller public market for their
shares.
<PAGE> 19
RESTRICTIONS: Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of issuers with an aggregate common stock market
capitalization of less than $1 billion. The Fund may not acquire more than 10%
of the outstanding voting securities of any one issuer.<F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American Depository Receipts
("ADRs"), provide opportunities different from those available in the U.S.,
and risks which may be greater in some ways than in U.S. investments. ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. See the Fund's Statement of Additional
Information for more information. International investing allows you to achieve
greater diversification and to take advantage of changes in foreign economies
and market conditions. From time to time, many foreign economies have grown
faster than the U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments, although there can be no
assurance that these conditions will continue.
You should understand and consider carefully the greater risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and opportunities not
typically associated with investing in U.S. securities. These risks include:
fluctuations in exchange rates of foreign currencies; imposition of exchange
control regulation or currency restrictions that would prevent cash from being
transferred 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;
and sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. In addition, the costs of
investing in foreign securities is higher than the cost of investing in U.S.
securities.
Investing in countries outside the U.S. also involves political risk. A foreign
government might restrict investments by foreigners, expropriate assets, seize
or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have very negative effects on the economies and securities
markets of those countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States.
Emerging markets may be subject to a lower level of monitoring and regulation of
traders, insiders and investors.
RESTRICTIONS: The Fund's investments in foreign securities (including ADRs) are
limited to not more than 25% of its total assets. The
<PAGE> 20
Fund does not intend to invest more than 10% of its total assets in foreign
securities.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates. In general, an increase in interest rates will decrease the value of debt
securities.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's
Investors Services, Inc. ("Moody's") or, if unrated, determined by Artisan
Partners to be of comparable quality. Securities rated BBB or Baa are considered
to be medium grade and to have speculative characteristics. Investment in non-
investment grade debt securities is speculative and involves a high degree of
risk.
Lower-rated debt securities (commonly called "junk bonds") are often
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty.
Debt securities in which the Fund may invest in the ordinary course of business
include intermediate to long-term debt securities issued by corporations or
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. For more information, see the discussion of debt securities
in the Statement of Additional Information.
RESTRICTIONS: The Fund intends to be substantially fully invested in equity
securities in ordinary circumstances. Except when a defensive posture is
considered advisable, the Fund's investments in debt securities will not exceed
35% of the Fund's assets, without regard to their ratings. Investments in debt
securities in excess of 35% of the Fund's assets will be restricted to
investment grade debt securities. The Fund does not in tend to invest more than
5% of its net as sets in securities rated below investment grade.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (securities convertible into
underlying equity securities). In determining whether to purchase a convertible
security, Artisan Partners will consider the same criteria that would be
considered in purchasing the underlying stock. Although convertible securities
purchased by the Fund are frequently rated investment grade, the Fund also may
purchase unrated securities or securities rated below investment grade if the
securities meet Artisan Partners' other investment criteria.
RESTRICTIONS: The Fund does not intend to invest more than 5% of its net assets
in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of its portfolio. These techniques include buying
and selling derivative securities such as options, futures contracts or options
on futures contracts or entering into currency exchange contracts. INVESTMENTS
IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT RISKS AND MAY INCREASE THE
VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incor-
<PAGE> 21
rectly or employs a strategy that does not correlate well with the Fund's
investments or if the counterparty to the transaction does not perform as
promised, the transaction could result in a loss. Use of these techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. These techniques are used by the
Fund for hedging, risk management or portfolio management purposes and not for
speculation, although there is no limitation on the percentage of assets that
can be committed to derivative securities. In addition, particular types of
derivative securities are subject to certain limitations and restrictions
described in the Statement of Additional Information under the heading
"Investment Techniques - Managing Investment Exposure."
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be conducted
either on a spot (i.e., cash) basis at the spot rate for purchasing or selling
currency prevailing in the foreign exchange market or through a forward currency
exchange contract ("forward contract"). A forward contract is an agreement to
purchase or sell a specified currency at a specified future date (or within a
specified time period) and price set at the time of the contract. Forward
contracts are usually entered into with banks and broker-dealers, are not
exchange-traded and are usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different countries
in which the Fund may invest and serve as hedges against possible variations in
the exchange rate between these currencies. The Fund's currency transactions are
limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving either specific
transactions or actual or anticipated positions. Transaction hedging is the
purchase or sale of a forward contract with respect to a specific receivable or
payable of the Fund accruing in connection with the purchase or sale of
portfolio securities. Portfolio hedging is the use of a forward contract with
respect to an actual or anticipated portfolio security position denominated or
quoted in a particular currency. The Fund may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating actual
or anticipated positions in securities denominated in such currency. When the
Fund owns or anticipates owning securities in countries whose currencies are
linked, Artisan Partners may aggregate such positions as to the currency hedged.
Although forward contracts may be used to protect the Fund from adverse currency
movements, the use of such hedges may reduce or eliminate the potentially
positive effect of currency reevaluations on the Fund's total return.
OPTIONS AND FUTURES. The Fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of its portfolio, to provide
an efficient means of regulating its exposure to the equity markets or as a
hedge against changes in prevailing levels of currency exchange rates. The Fund
may write covered call options and purchase put and call options on foreign
currencies, securities and stock indices. Futures contracts and options can be
highly volatile and are subject to price movements in underlying securities. The
Fund's attempt to use such investments for hedging purposes may not be
successful and could result in reduction of the Fund's total return. In
addition, the loss from investing in futures transactions is potentially
unlimited and the Fund may be unable to control losses by closing its position
if a liquid secondary market does not exist.
<PAGE> 22
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price. Other
securities, such as securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of these securities are
often referred to as Rule 144A securities. Difficulty in selling securities may
result in delays or a loss or may be costly to the Fund. A Rule 144A security
may be treated as liquid if the board of directors of the Fund so determines
based on an analysis of relevant information including trading activity and
availability of reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing. This
may include limiting the amount of money invested in any one company or, on a
broader scale, limiting the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the Fund may not invest
more than 5% of its total assets in the securities of any one issuer. The Fund
may not invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.<F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-ISSUED AND DELAYED-
DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and banks
and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses or delays in the event of bankruptcy of the
seller of a repurchase agreement.
The Fund may invest also in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities are established
at the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. The Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if it is deemed advisable for investment reasons.
RESTRICTIONS: The Fund may not lend securities if, as a result, the aggregate
value of all securities loaned would exceed one-third of its total assets.<F5>
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).<F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
<PAGE> 23
OTHER 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> 24
ARTISAN FUNDS
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
ARTISAN FUNDS
Bulk Rate
U.S. Postage
PAID
Milwaukee, WI
Permit No. 2855
xxxxx
ARTISAN INTERNATIONAL FUND
PROSPECTUS
OCTOBER 28, 1997
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
<PAGE>
Please read this prospectus before investing and keep it on file for future
reference. It contains important information, including how the Fund invests and
the services available to shareholders.
A Statement of Additional Information dated the date of this prospectus has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement of
Additional Information is available free upon request by calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRO-SPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
ARTISAN
INTERNATIONAL
FUND
A NO-LOAD FUND
ARTISAN INTERNATIONAL FUND invests for maximum long-term capital growth. The
Fund seeks to achieve its objective by investing primarily in the stocks of
foreign companies.
PROSPECTUS
OCTOBER 28, 1997
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
<PAGE>
CONTENTS
THE FUND AT A GLANCE 3 GOAL; STRATEGY; MANAGEMENT;
WHO MAY WANT TO INVEST;
RISKS AND RETURNS
EXPENSES AND PERFORMANCE 4 EXPENSES
5 FINANCIAL HIGHLIGHTS; PERFORMANCE
YOUR ACCOUNT 6 DOING BUSINESS WITH THE FUND;
HOW TO BUY SHARES; MINIMUM INVESTMENTS;
AUTOMATIC INVESTMENT PLAN
7 WAYS TO SET UP YOUR ACCOUNT
8 HOW TO BUY SHARES
9 HOW TO SELL SHARES
SHAREHOLDER AND ACCOUNT 11 STATEMENTS AND REPORTS;
POLICIES SHAREPRICE; PURCHASES
12 REDEMPTIONS; ACCOUNT REGISTRATION
13 TELEPHONE TRANSACTIONS;
TELEPHONE EXCHANGE PLAN
DIVIDENDS, CAPITAL GAINS 14 DISTRIBUTION OPTIONS; TAXES
AND TAXES
15 FOREIGN INCOME TAXES
THE FUND IN DETAIL 16 ORGANIZATION
17 MANAGEMENT; EXPENSES
18 THE FUND'S INVESTMENT PHILOSOPHY
19 SECURITIES, INVESTMENT PRACTICES
AND RISKS; EQUITY SECURITIES;
FOREIGN SECURITIES
20 DEBT SECURITIES
21 CONVERTIBLE SECURITIES AND MANAGING INVESTMENT
EXPOSURE
22 ILLIQUID AND RESTRICTED SECURITIES;
DIVERSIFICATION; LENDING PORTFOLIO
DELAYED-DELIVERY SECURITIES
23 BORROWING; OTHER INVESTMENT COMPANIES; PORTFOLIO
TURNOVER
<PAGE> 2
THE FUND AT A GLANCE
GOAL
Artisan International Fund (the "Fund"), one of the series of funds of Artisan
Funds, invests for maximum long-term capital growth.
STRATEGY
The Fund generally invests in the stocks of foreign companies and uses its own
detailed research process to identify investment opportunities. The Fund's
research method is both "top-down" and "bottom-up." That means that country
selection and stock selection are equally important parts of the investment
process.
Country selection involves identifying the regions and countries of the world
which are enjoying improving or rapid economic growth. The Fund avoids countries
that, while showing favorable economic growth, appear to have overvalued
markets. Economic growth is determined principally from the standpoint of gross
domestic product growth, corporate profitability, current account and currency
issues, interest rates and social changes.
Having identified favorable areas of the world for growth, the Fund seeks out
the stocks of companies best positioned to capitalize on that growth. In this
process, the Fund emphasizes well-managed companies with dominant or increasing
market share in strong industries. It focuses on companies with above-average
financial characteristics and accelerating earnings per share. The Fund also
analyzes relative valuations using a variety of criteria such as price-to-
earnings ratios and avoids stocks that are trading at unsustainable or unusually
high valuations.
MANAGEMENT
Artisan Partners Limited Partnership ("Artisan Partners"), located in
Milwaukee, Wisconsin, San Francisco, California and Atlanta, Georgia, 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
The Fund offers two classes of shares: Artisan International Shares
("International Shares") and Artisan International Institutional Shares
("Institutional Shares"). This prospectus describes International Shares.
Institutional Shares are offered to certain institutional investors by a
separate prospectus. See "Organization" on page 18 for more information.
The Fund is designed for investors who want maximum long-term capital growth
rather than income and who have the long-term investment outlook needed for
investing in the stocks of foreign companies.
RISKS AND RETURNS
The Fund intends to be substantially fully invested in foreign equity securities
in ordinary circumstances. The Fund also may invest in other types of equity
securities and debt securities. The Fund may invest without limit in short-term
corporate obligations or government obligations (U.S. or foreign) or hold cash
or cash equivalents if Artisan Partners determines that a temporary defensive
position is advisable.
The Fund may invest in derivative securities which may involve significant risks
and may increase the volatility of the Fund.
Historically, stocks have shown greater growth than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market or economic news. Investing in foreign securities involves
certain risks not typically associated with investing in U.S. securities,
including fluctuation of exchange rates of foreign currencies, differences in
accounting and financial reporting standards, differences in settle-
<PAGE> 3
ment and trading practices, less liquidity in some markets and generally higher
transaction costs. The Fund does not pursue income and is not by itself a
balanced investment plan.
The Fund seeks to limit risk by selecting companies with experienced management,
positive cash flows and sustainable growth prospects and diversifying its
holdings to avoid concentration in any one country, industry or stock. The Fund
also uses various techniques to increase or decrease its exposure to the effects
of possible changes in security prices, currency exchange rates or other factors
that affect the value of its portfolio.
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on Artisan Partners' skill in selecting individual
stocks, as well as general market and economic conditions in the countries in
which the Fund is invested. When you sell your shares, they may be worth more or
less than you paid for them.
See "Securities, Investment Practices and Risks" on page 19 for more
information on the types of investments the Fund may make and "Your Account"
on page 6 for information on how to buy and redeem shares.
-----------------------------
EXPENSES AND PERFORMANCE
EXPENSES
Shareholder transaction expenses are charges you pay when you buy or sell
International Shares of the Fund.
Maximum sales charge on purchases
and reinvested dividends................. NONE
Deferred sales charge on redemptions..... NONE
Redemption fee <F1>...................... NONE
Exchange fee............................. NONE
<F1> A shareholder requesting payment of redemption proceeds by wire must pay
the cost of the wire (currently $5.00).
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS). The Fund
pays its own operating expenses, including a management fee to Artisan Partners.
The Fund also incurs other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and reports. The Fund's expenses
are factored into its share price daily, and are not charged directly to
shareholder accounts.
The following are historical expenses and are expressed as percentages of
average net assets:
Management fee................1.00%
12b-1 fee......................NONE
Other expenses................0.61%
Total operating expenses......1.61%
=====
The purpose of the expense table is to help an investor understand the costs and
expenses associated with investing in the Fund.
EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and that
its operating expenses are exactly as shown in the column to the left. For every
$1,000 you invested in International Shares, here's how much you would have paid
in total expenses if you closed your account after the number of years
indicated:
After 1 year...... $ 17
After 3 years..... $ 52
After 5 years..... $ 90
After 10 years.... $197
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.
- -------------------------------------------------------------------------------
UNDERSTANDING EXPENSES
Operating a mutual fund requires paying for portfolio management, shareholder
statements, tax reporting and other services. These costs are paid from the
Fund's assets; any quoted share price or return is after expenses.
- -------------------------------------------------------------------------------
<PAGE> 4
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in International Shares
through each of the periods indicated. This information was audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is included in
the Fund's annual report to shareholders for the fiscal year ended June 30,
1997.
1997 1998 <F4>
---- ----
Net asset value, beginning
of period $12.08 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.07 0.04
Net realized and unrealized
gains (losses) on securities
and foreign currency held 2.44 2.04
---- ----
Total from investment
operations 2.51 2.08
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Net investment income (0.02)
Net realized gains on
investment transactions (0.09)
Total distributions (0.11)
Net asset value, end of period $14.48 $12.08
====== ======
Total return 21.0% 20.8% <F3>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions) $449.2 $71.5
Ratio of expenses to average
net assets 1.61% 2.50% <F2>
Ratio of net investment income
to average net assets 1.07% 1.60% <F2>
Portfolio turnover rate 103.66% 57.00% <F2>
Average commission rate $0.0016
<F2> Annualized
<F3> Not Annualized
<F4> For the period from commencement of operations
(December 28, 1995) through June 30, 1996.
PERFORMANCE
Mutual fund performance is commonly measured as TOTAL RETURN. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's performance
over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total return smoothes out variations in performance; it is not the same as
actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of income
taxes paid by shareholders. The Fund may sometimes show its performance compared
to certain performance rankings, averages or stock indexes (described more fully
in the Statement of Additional Information).
More information about the Fund's investment performance is included in its
annual report to shareholders, a copy of which may be obtained without charge by
calling 1-800-344-1770.
<PAGE> 5
YOUR ACCOUNT
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service during extended business hours. To
reach the Fund, call 1-800-344-1770.
HOW TO BUY SHARES
You can open a new account by:
- - mailing in an application with a check for $1,000 or more, or
- - exchanging $1,000 or more from your existing account with another of the
Artisan Funds. For more details, see "Telephone Exchange Plan" on page 13.
After your account is open, you may add to it by:
- - mailing a check or money order along with either the form at the bottom of
your account statement, or a letter of instruction (the Fund does not accept
third-party checks);
- - moving money from your bank account by telephone provided you have elected
this privilege on your new account application;
- - moving an investment from another of the Artisan Funds by telephone provided
you have elected this privilege;
- - wiring money from your bank; or
- - making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for International Shares is the net asset value per
share next calculated after your investment is received. An order is considered
received when the application (for a new account) or information identifying the
account and the money are received and accepted by the Fund or certain
authorized agents, who may impose fees for their services. See "Shareholder and
Account Policies' on page 11 for information about share price and transactions
with certain financial services companies and broker-dealers. The Fund does not
issue share certificates.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $1,000
TO ADD TO AN ACCOUNT $50
MINIMUM BALANCE $500
The initial minimum investment will be waived if you participate in the
Automatic Investment Plan. Because it is very expensive for the Fund to maintain
small accounts (and that cost is borne by all shareholders), the Fund reserves
the right to close your account if the value is less than $500 (or $1,000 if you
discontinued the Automatic Investment Plan before your account reached $1,000).
Before closing a small account, the Fund will notify you and allow you at least
30 days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to make regular,
systematic investments into your Fund account. Through the Automatic Investment
Plan, you purchase shares by transferring money (minimum of $50 per transaction)
from your designated checking or savings account. Your automatic investment into
your Fund account will be processed monthly on a draft date designated by you,
between the 3rd and 28th of the month only. The draft will be made on or about,
possibly earlier or later than, the date requested due to the processing
complexities associated with weekends, holidays, etc. Artisan Funds will not be
responsible for non-sufficient funds fees.
<PAGE> 6
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT OWNERSHIP
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or more
owners.
- -------------------------------------------------------------------------------
RETIREMENT
TO DEFER TAXES ON YOUR RETIREMENT SAVINGS
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible. RETIREMENT
ACCOUNTS REQUIRE SPECIAL APPLICATIONS WHICH MAY BE OBTAINED BY CALLING 1-800-
344-1770.
- - INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. If your spouse
has less than $2,000 in earned income, he or she may still contribute up to
$2,000 in an IRA, so long as you and your spouse's combined earned income is
at least $4,000.
- - ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to 15% of the first $160,000 of compensation per year for themselves and any
eligible employees.
- - OTHER RETIREMENT PLANS - The Fund may be used as an investment in other kinds
of retirement plans, including Keogh or corporate profit sharing and money
purchase plans, 403(b) plans and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. The Fund does not offer prototypes
of these plans.
An IRA disclosure statement is delivered in advance of opening any IRA account
and contains information unique to retirement accounts. It also contains a
summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
- -------------------------------------------------------------------------------
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
TO INVEST FOR A MINOR'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
- -------------------------------------------------------------------------------
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
FOR MONEY BEING INVESTED BY A TRUST, EMPLOYEE BENEFIT PLAN, OR PROFIT-SHARING
PLAN
The trust or plan must be established before an account can be opened. The date
of the trust or plan should be included on the new account application.
- -------------------------------------------------------------------------------
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, INSTITUTIONS
OR OTHER GROUPS
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
<PAGE> 7
HOW TO BUY SHARES
MAIL
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - Complete and sign the new account application. Make your check or money order
payable to "Artisan Funds" or "Artisan International Fund." Third-party
checks will not be accepted.
Mail to the address on the new account application. FOR OVERNIGHT DELIVERY
USE:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
TO ADD TO AN ACCOUNT:
- - Make your check or money order payable to "Artisan Funds" or "Artisan
International Fund." Put your account number on your check.
Mail your check and either the form at the bottom of your account statement,
or a letter of instruction to the address on your account statement. FOR
OVERNIGHT DELIVERY USE:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
- -------------------------------------------------------------------------------
PHONE 1-800-344-1770
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - You may not open a new account by telephone, except by exchange of at least
$1,000 or more from your identically registered account with another Artisan
Fund.
- - You may establish the telephone transaction option when you open an account
by electing the option on your new account application.
TO ADD TO AN ACCOUNT:
- - If you did not elect the telephone transaction option on your new account
application for the Fund or for another of the Artisan Funds, complete the
shareholder options form to make investments by phone from $50 to $25,000
into your account and to participate in the telephone exchange plan.
- - All telephone trades must be placed between 7:00 a.m. and 3:00 p.m. Central
time on days the NYSE is open for trading.
- -------------------------------------------------------------------------------
WIRE
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on opening an account by wire.
TO ADD TO AN ACCOUNT:
- - Call 1-800-344-1770 for instructions on adding to an account by wire.
- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
- - If you sign up for the Automatic Investment Plan when you open your account,
the minimum initial investment will be waived.
- - Complete and sign the Automatic Investment Plan section of the new account
application.
TO ADD TO AN ACCOUNT:
- - Sign up for the Automatic Investment Plan on the shareholder options form or
call 1-800-344-1770 for instructions on how to add to your existing account.
<PAGE> 8
YOUR ACCOUNT - CONTINUED
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your International Shares will be sold
at the next net asset value per share (share price) calculated after your order
is received and accepted by the Fund or its authorized agent. See "Share holder
and Account Policies' on page 11 for information about share price and
transactions with certain financial services companies and broker-dealers.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA account, your request must be made in
writing. If you need an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- - each owner's name and address,
- - the Fund's name,
- - your account number,
- - the dollar amount or number of shares to be redeemed, and
- - the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
CERTAIN REDEMPTION REQUESTS AND ACCOUNT CHANGES MUST INCLUDE A SIGNATURE
GUARANTEE, designed to protect you and the Fund from fraud. Your request
must be made in writing and include a signature guarantee if any of the
following situations applies:
- - you wish to redeem more than $25,000 worth of shares;
- - if you add/change your name or add/remove an owner on your account;
- - if you add/change the beneficiary on your account;
- - the check is being mailed to an address different than the one on your
account (record address);
- - the check is being made payable to someone other than the account owner;
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account; or
- - if you have changed the address on the account by phone within the last 60
days.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment plan, payment of
redemption proceeds may be delayed until the Fund is reasonably certain that
payment for the shares has been collected, which may take as long as 15 days.
<PAGE> 9
- -------------------------------------------------------------------------------
HOW TO SELL SHARES SPECIAL REQUIREMENTS
NOTE: SOME REDEMPTIONS REQUIRE SIGNATURE GUARANTEES. SEE PAGE 9.
- -------------------------------------------------------------------------------
MAIL
- -------------------------------------------------------------------------------
Individual, Joint Owners, Sole - The letter of instruction must be signed
Proprietorships, by all persons required to sign for
UGMA, UTMA transactions (usually, all owners of the
account) exactly as their names appear
on the account.
Trust - The letter of instruction must include
the signatures of all trustees.
All Others - Call 1-800-344-1770 for instructions.
- -------------------------------------------------------------------------------
PHONE 1-800-344-1770
- -------------------------------------------------------------------------------
All account types except IRAs - You automatically have the telephone
redemption option (which allows you to
redeem at least $500 and up to $25,000
worth of shares per day by phone)
unless you declined it on your new
account application. If you declined the
telephone redemption option, call
1-800-344-1770 for instructions on how to
add it.
- All telephone trades must be placed
between 7:00 a.m. and 3:00 p.m. Central
time on days the NYSE is open for
trading.
- -------------------------------------------------------------------------------
WIRE
- -------------------------------------------------------------------------------
All account types except IRAs - We will transmit payment by wire for a
fee (currently $5.00) to a pre-
authorized bank account. Usually, the
funds will arrive at your bank the next
business day.
- -------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- -------------------------------------------------------------------------------
All account types except IRAs - Sign up for systematic withdrawals
(distributions from your account at
regular intervals in specified dollar
amounts of at least $50) by calling
1-800-344-1770 for instructions on how
to add this option.
- You must have at least $5,000 in your
account before you are eligible to sign
up for this option. If the amount in your
account is not sufficient to meet a
withdrawal, the remaining amount in the
account will be redeemed.
<PAGE> 10
- -------------------------------------------------------------------------------
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- - Confirmation statements (after every transaction in your account or change in
your account registration);
- - Account statements (quarterly);
- - Annual and semi-annual reports with financial statements; and
- - Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for tax purposes.
If you need copies of current or preceding year statements call 1-800-344-1770.
Copies of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange ("NYSE") is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to
sell one share) are the same and represent the net asset value per International
Share calculated at the next Closing Time after receipt of your purchase or
redemption order by the Fund or a broker-dealer or financial services company
authorized by the Fund to accept purchase and redemption orders on its behalf.
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 SHARE is the value of a single
International Share, and is computed by adding up the value of the International
Shares' pro rata portion of the value of the Fund's investments, cash, and other
assets, subtracting the International Shares' pro rata portion of the Fund's
liabilities and then dividing the result by the number of International 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 many foreign securities exchanges and over-the-counter
markets is normally completed at various times before the close of business on
each day on which the NYSE is open. Trading of these securities may not take
place on every NYSE business day. In addition, trading may take place in various
foreign markets on Saturdays or on other days when the NYSE is not open and on
which the Fund's net asset value is not calculated. Therefore, such calculation
does not take place contemporaneously with the determination of the prices of
many of the portfolio securities used in such calculation and the value of the
Fund's portfolio may be significantly affected on days when shares may not be
purchased or redeemed.
PURCHASES
- - All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks.
- - The Fund does not accept cash, credit cards or third-party checks.
- - If your check or telephone purchase order does not clear, your purchase will
be canceled and you will be liable for any losses or fees the Fund or its
transfer agent incurs.
- - Your ability to make automatic investments and telephone purchases may be
<PAGE> 11
immediately terminated if any item is unpaid by your financial institution.
- - THE FUND RESERVES THE RIGHT to reject any purchase order. For example, a
purchase order may be refused if, in Artisan Partners' opinion, it is so
large that it would disrupt management of the Fund.
THE FUND MAY AUTHORIZE from time to time certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share
purchase and redemption orders on the Fund's behalf. For purchase orders placed
through an authorized agent, a shareholder will pay the net asset value per
International Share next computed after the receipt by the authorized agent of
such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the net asset value per share
next computed after the receipt by the authorized agent of the redemption order,
less any redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company may
not charge any transaction fees directly to investors in the Fund. However, for
accounting and shareholder services provided by such company with respect to
Fund shares held by that company for its customers, the company may charge a fee
(currently up to 0.35%) of the annual average value of those accounts. The Fund
pays a portion of those fees not to exceed the estimated fees and expenses that
the Fund would pay to its own transfer agent if the shares of the Fund held by
such customers of the company were registered directly in their names on the
books of the Fund's transfer agent. The balance of those fees is paid by Artisan
Partners.
REDEMPTION
- - Normally, redemption proceeds will be mailed within seven business days after
receipt of the request for redemption.
- - The Fund may hold payment on redemptions until it is reasonably satisfied
that it has received payment for a recent purchase made by check or by an
automatic investment or telephone purchase, which can take up to fifteen
days.
- - If you make a telephone redemption, the Fund will send payment for your
redemption one of three ways: (i) by mail; (ii) by Electronic Funds Transfer
(EFT) to a pre-authorized bank account; or (iii) to your bank account by wire
transfer. The cost of the wire (currently $5.00) will be deducted from the
payment. Your bank also may impose a fee for the incoming wire. Payment by
EFT will usually arrive at your bank two banking days after your call.
Payment by wire is usually credited to your bank account on the next business
day after your call.
- - Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic withdrawal
payment, or a dividend or capital gain distribution you elected to receive in
cash) and the check is returned "undeliverable" or remains uncashed for six
months, the check will be canceled and the proceeds will be reinvested in the
Fund at the net asset value per International Share on the date of cancellation.
In addition, after that six-month period, your systematic withdrawal payments
will be canceled and future withdrawals will occur only when requested, or your
cash election will automatically be changed and future dividends and
distributions will be reinvested in your account.
ACCOUNT REGISTRATION
Address changes for your account may be made by writing us a letter or by
calling us at 1-800-344-1770. The Fund will send a written confirmation of the
change to both
<PAGE> 12
your old and new addresses. No telephone redemptions may be made
for 60 days after a change of address by phone. During those 60 days, a
signature guarantee will be required for any written redemption request unless
your change of address was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES, PURCHASES AND
REDEMPTIONS, BY TELEPHONE. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to verify the identity of the caller. Those procedures may include
recording the call, requesting additional information and sending written
confirmation of telephone transactions. If the Fund fails to follow reasonable
procedures, the Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer investments among the
Artisan Funds between the hours of 7:00 a.m. and 3:00 p.m., Central time on days
the NYSE is open for trading. The exchange plan does not apply to Artisan
International Institutional Shares.
Each exchange between accounts must be at least $1,000. The price of shares
exchanged between Artisan Funds is determined at the end of that day's trading
session.
Telephone exchange plan restrictions:
- - To exchange between funds, both accounts must be registered in the same name,
address and taxpayer identification number.
- - To open a Fund account by telephone exchange from another of the Artisan
Funds, you must have previously elected the telephone transaction option for
that fund.
- - Before exchanging into another Artisan Fund, you should carefully read its
prospectus which may be obtained by calling 1-800-344-1770.
- - The exchange of shares may have tax consequences to you.
- - If your account is subject to backup withholding, you may not use the
telephone exchange plan.
- - Because excessive trading can hurt performance and shareholders, Artisan
Funds reserves the right to temporarily or permanently terminate the
telephone exchange plan of any investor who makes excessive use of the plan.
Artisan Funds also may limit the number of transfers per calendar year.
- - Artisan Funds reserves the right to terminate or modify the telephone
exchange plan at any time, but will try to give you prior notice whenever it
is able to do so.
- - From time to time, one or more of the Artisan Funds may be closed to new
investors. You may use the exchange plan to purchase shares of a closed fund
only if you are eligible to make an investment in that fund, as described in
the prospectus of that fund.
<PAGE> 13
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund intends to distribute substantially all of its net income and net
realized capital gains to shareholders at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you want
to receive your distributions. If you later want to change your distribution
option, you may do so either by a written request or by calling us at 1-800-344-
1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional International 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, but you will be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
For IRA accounts, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA and might
be subject to income tax and penalties if you are under 59 1/2 years old. After
you are 59 1/2, you may request payment of distributions in cash which might be
subject to income tax.
When you reinvest, the reinvestment price is the net asset value per
International Share at the close of business on the reinvestment date. The
mailing of distribution checks will usually begin on the payment date, which is
usually one week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your investment in
the Fund will be taxed. If your account is a tax-deferred account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not a tax-deferred account, however, you should be
aware of the following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax and also
may be subject to state or local taxes. If you are a U.S. citizen residing
outside the United States, your distributions also could be taxed by the country
in which you reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
October, November or December and paid in January are taxable as if they were
received by you on December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; mid-term capital gain distributions are
taxed as mid-term capital gains; and 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 International Shares, 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
<PAGE> 14
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.
To invest you must be a U.S. citizen (or a non-citizen domiciled in the U.S.)
with a Social Security or taxpayer identification number. When you sign your
account application, you will be asked to certify that your Social Security or
taxpayer identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you fail to comply with
applicable IRS regulations including the certification procedures described
above, the IRS can require the Fund to withhold 31% of your taxable
distributions and redemptions.
FOREIGN INCOME TAXES.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. If the Fund pays non-
refundable taxes to foreign governments during the year, the taxes will reduce
the Fund's dividend but will be included in your taxable income. You may be able
to claim an offsetting credit or deduction on your tax return for your share of
foreign taxes paid by the Fund. You will receive this information as part of
your Form 1099.
- -------------------------------------------------------------------------------
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the Fund's net income and
any gains realized on its investments. The Fund's income from dividends and
interest and any net realized short-term gain are paid to you as DIVIDENDS. The
Fund's net realized long-term gains are paid to you as CAPITAL GAIN
DISTRIBUTIONS.
- -------------------------------------------------------------------------------
<PAGE> 15
THE FUND IN DETAIL
ORGANIZATION
Artisan International Fund is a series of Artisan Funds, Inc. ("Artisan
Funds"), an open-end, management investment company which was incorporated
under Wisconsin law in 1995.
Artisan Funds' charter authorizes its board of directors to issue fifty billion
full and fractional shares of capital stock, $.01 par value per share, of which
5 billion shares are designated International 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 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 designated Artisan
International Institutional Shares ("Institutional Shares"), pursuant to a
separate prospectus. Institutional Shares are offered to institutional investors
with a minimum initial investment of $2 million. That very high minimum initial
investment results in Institutional Shares having lower operating expenses than
International Shares. Shares of each class (Institutional Shares and
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 higher expected expense ratio of International Shares,
the total return on International Shares can be expected to be lower than the
total return on Institutional Shares. Investors may obtain information about
Institutional Shares by calling Artisan Partners at 1-800-399-1770.
All shares participate equally in dividends and other distributions declared by
the board of directors (although the amounts of the dividends and distributions
of International Shares and Institutional 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.
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.
ARTISAN FUNDS IS GOVERNED BY A BOARD OF DIRECTORS which is responsible for
protecting the interests of the shareholders of the Fund. The directors are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Fund, review contractual arrangements with
companies that provide services to the Fund and review performance. A majority
of directors are not otherwise affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered investment companies
to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940 (the federal securities law that governs the regulation of investment
companies). The Fund has adopted the appropriate provisions in its bylaws and
does not expect to hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders. The Fund believes that
not holding shareholder meetings except as otherwise required reduces the Fund's
expenses and enhances shareholder return.
<PAGE> 16
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, which selects the
Fund's investments and handles its business affairs, under the direction of the
board of directors. Artisan Partners is a limited partnership managed by its
general partner, Artisan Investment Corporation, controlled by Andrew A.
Ziegler and Carlene Murphy Ziegler.
Andrew A. Ziegler is a director and chief executive officer of Artisan Funds.
Immediately prior to founding Artisan Partners in 1995, Mr. Ziegler was
president and chief operating officer of Strong/Corneliuson Capital Management
and president of the Strong Funds; prior thereto, Mr. Ziegler was Executive Vice
President and General Counsel of Strong. From 1986 to 1990, Mr. Ziegler was an
attorney with the law firm of Godfrey & Kahn, S.C., Milwaukee, WI. Mr. Ziegler
holds a B.S. from the University of Wisconsin - Madison and a J.D. from the
University of Wisconsin Law School.
Carlene Murphy Ziegler is a director and president of Artisan Funds and the
portfolio manager of Artisan Small Cap Fund, another series of Artisan Funds.
Prior to founding Artisan Partners in 1995, Ms. Ziegler was a co-portfolio
manager of the Strong Common Stock Fund and Strong Opportunity Fund. From 1986
to 1991, Ms. Ziegler was a co-portfolio manager of the SteinRoe Special Fund.
Ms. Ziegler holds B.A. and M.A. degrees from the University of Illinois and an
M.B.A. from the University of Chicago Graduate School of Business. She also is a
Chartered Financial Analyst.
Mark L. Yockey is a vice president of Artisan Funds and the portfolio manager of
Artisan International Fund. Prior to joining Artisan Partners in 1995, Mr.
Yockey was portfolio manager of the United International Growth Fund and vice
president of Waddell & Reed since January 1990. Prior thereto, Mr. Yockey was an
equity analyst for Waddell & Reed. Mr. Yockey holds a B.A. degree and an M.B.A.
from Michigan State University. He is also a Chartered Financial Analyst.
John M. Blaser is chief financial officer of Artisan Funds and acts as the
principal administrative and financial officer. Prior to joining Artisan
Partners in 1995, Mr. Blaser was Senior Vice President of Kemper Securities,
Inc. since 1993. Prior thereto, Mr. Blaser was with Price Waterhouse. Mr. Blaser
holds a B.B.A. from the University of Wisconsin - Madison.
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, MA 02171, is the Fund's transfer and dividend disbursing agent.
State Street also serves as the Fund's custodian and accounting agent.
The address of Artisan Partners is 1000 North Water Street, Suite 1770,
Milwaukee, Wisconsin 53202. Artisan Partners also has offices in San Francisco,
California and Atlanta, Georgia.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends.
The Fund pays a MANAGEMENT FEE to Artisan Partners for managing its investments
and business affairs. For services furnished by Artisan Partners, the Fund has
agreed to pay an annual fee of (i) 1% of its average daily net assets up to $500
million; (ii) .975 of 1% of its average daily net assets from $500 to $750
million; (iii) .950 of 1% of its average daily net assets from $750 million to
$1 billion and (iv) .925 of 1% of its average daily net assets over $1 billion.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agent, fund accountants, indepen-
<PAGE> 17
dent 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 Interna tional 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 determines that a temporary
defensive position is advisable. See the discussion of debt securities on page
20.
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
<PAGE> 18
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 invest ment in light of your then current financial position and
needs. The Fund is not intended to present a balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make and strategies Artisan Partners may employ in pursuit of the
Fund's investment objective, including information about the risks and
restrictions associated with these instrument types and investment practices.
All investment policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is included in the
Statement of Additional Information. Compliance with policies and limitations is
determined at the time of purchase of a security; the Fund is not required to
sell an investment because of a later change in circumstances.
The Fund may not buy all of these instruments or use all of these techniques to
the full extent permitted unless Artisan Partners believes that doing so will
help the Fund achieve its goal. As a shareholder, you will receive semi-annual
and annual reports detailing the Fund's holdings and describing recent
investment practices.
EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives the holder the right to vote on measures
affecting the company's organization and operations. The equity securities in
which the Fund invests may include preferred stocks, including preferred stocks
convertible into common stocks. Although common stocks and other equity
securities have a history of long-term growth in value, their prices tend to
fluctuate in the short term.
The Fund invests mostly in the common stock (or the equivalent of common stock
under the applicable foreign law) of foreign companies.
RESTRICTIONS: The Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. <F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American Depository Receipts
("ADRs"), provide opportunities different from those available in the U.S.,
and risks which may be greater in some ways than in U.S. investments. ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. See the Fund's Statement of Additional
Information for more information.
You should understand and consider carefully the greater risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and opportunities not
typically associated with investing in U.S. securities. These risks include:
fluctuations in exchange rates of foreign currencies; imposition of exchange
control regulation or
<PAGE> 19
currency restrictions that would prevent cash from being transferred 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;
and sometimes less advantageous legal, operational and financial protections
applicable to foreign sub-custodial arrangements. In addition, the costs of
investing in foreign securities is higher than the cost of investing in U.S.
securities.
Investing in countries outside the U.S. also involves political risk. A foreign
government might restrict investments by foreigners, expropriate assets, seize
or nationalize foreign bank deposits or other assets, establish exchange
controls or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have very negative effects on the economies and securities
markets of those countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. Emerging markets
may be subject to a lower level of monitoring and regulation of traders,
insiders and investors.
RESTRICTIONS: Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of foreign issuers. At August 31, 1997 the Fund
had investments in 23 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 of Standard & Poor's Corporation ("S&P") or Moody's
Investors Services, Inc. ("Moody's") or, if unrated, determined by Artisan
Partners to be of comparable quality. Securities rated BBB or Baa are considered
to be medium grade and to have speculative characteristics. Investment in non-
investment grade debt securities is speculative and involves a high degree of
risk.
Lower-rated debt securities (commonly called "junk bonds") are considered
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. 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
<PAGE> 20
in ordinary circumstances. Except when a defensive posture is
considered advisable, the Fund's investments in debt securities will not exceed
35% of the Fund's assets, without regard to their ratings. Investments in debt
securities in excess of 35% of the Fund's assets will be restricted to
investment grade debt securities. The Fund does not intend to invest more than
5% of its net assets in securities rated below investment grade.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (securities convertible into
underlying equity securities). In determining whether to purchase a convertible
security, Artisan Partners will consider the same criteria that would be
considered in purchasing the underlying stock. Although convertible securities
purchased by the Fund are frequently rated investment grade, the Fund also may
purchase unrated securities or securities rated below investment grade if the
securities meet Artisan Partners' other investment criteria.
RESTRICTIONS: The Fund does not intend to invest more than 5% of its net assets
in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of its portfolio. These techniques include buying
and selling derivative securities such as options, futures contracts or options
on futures contracts or entering into currency exchange contracts. INVESTMENTS
IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT RISKS AND MAY INCREASE THE
VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation, although there is no limitation on
the percentage of assets that can be committed to derivative securities. In
addition, particular types of derivative securities are subject to certain
limitations and restrictions described in the Statement of Additional
Information under the heading "Investment Techniques - Managing Investment
Exposure."
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be conducted
either on a spot (i.e., cash) basis at the spot rate for purchasing or selling
currency prevailing in the foreign exchange market or through a forward currency
exchange contract ("forward contract"). A forward contract is an agreement to
purchase or sell a specified currency at a specified future date (or within a
specified time period) and price set at the time of the contract. Forward
contracts are usually entered into with banks and broker-dealers, are not
exchange-traded and are usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different countries
in which the Fund may invest and serve as hedges against possible variations in
the exchange rate between these currencies. The Fund's currency transactions are
limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving either specific
transactions or actual or anticipated positions. Transaction hedging is
<PAGE> 21
the purchase or sale of a forward contract with respect to a specific
receivable or payable of the Fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to an actual or anticipated portfolio security position
denominated or quoted in a particular currency. The Fund may engage in
portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denominated
in such currency. When the Fund owns or anticipates owning securities in
countries whose currencies are linked, Artisan Partners may aggregate such
positions as to the currency hedged. Although forward contracts may be used
to protect the Fund from adverse currency movements, the use of such hedges
may reduce or eliminate the potentially positive effect of currency
revaluations on the Fund's total return.
OPTIONS AND FUTURES. The Fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of its portfolio, to provide
an efficient means of regulating its exposure to the equity markets or as a
hedge against changes in prevailing levels of currency exchange rates. The Fund
may write covered call options and purchase put and call options on foreign
currencies, securities and stock indices. Futures contracts and options can be
highly volatile and are subject to price movements in underlying securities. The
Fund's attempt to use such investments for hedging purposes may not be
successful and could result in a loss. In addition, the loss from investing in
futures transactions is potentially unlimited and the Fund may be unable to
control losses by closing its position if a liquid secondary market does not
exist.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price. Other
securities, such as securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of these securities are
often referred to as Rule 144A securities. Difficulty in selling securities may
result in delays or a loss or may be costly to the Fund. A Rule 144A security
may be treated as liquid if the board of directors of the Fund so determines
based on an analysis of relevant information including trading activity and
availability of reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing. This
may include limiting the amount of money invested in any one company or, on a
broader scale, limiting the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the Fund may not invest
more than 5% of its total assets in the securities of any one issuer. The Fund
may not invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.* <F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-ISSUED AND DELAYED-
DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and banks
and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses
<PAGE> 22
or delays in the event of bankruptcy of the seller of a repurchase agreement.
The Fund may also invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these securities are
established at the time the Fund enters into the commitment, the securities
may be delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such commitments only
with the intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for investment
reasons.
RESTRICTIONS: The Fund may not lend securities if, as a result, the aggregate
value of all securities loaned would exceed one-third of its total assets.* The
Fund does not currently intend to loan more than 5% of its net assets or to have
commitments to purchase when-issued securities in excess of 5% of its net
assets.
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). <F5>
<F5> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
OTHER INVESTMENT COMPANIES
Investment in another investment company may involve the payment of a premium
above the value of the issuer's portfolio securities
<PAGE> 23
and is subject to market availability. In the case of a purchase of shares of
such a company in a public offering, the purchase price may include an
underwriting spread. The Fund does not intend to invest in other investment
companies unless, in the judgment of Artisan Partners, the potential benefits
of such investment justify the payment of any applicable premium or sales
charge. As a shareholder in an investment company, the Fund would bear its
ratable share of that investment company's expenses, including its advisory
and administration fees. At the same time the Fund would continue to pay its
own management fees and other expenses.
RESTRICTIONS: The Fund generally may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in
another investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.
PORTFOLIO TURNOVER
During normal market conditions, it is anticipated that the Fund's portfolio
turnover rate generally will be between 75% and 100%, but may vary significantly
from year to year. Flexibility of investment and emphasis on long-term capital
appreciation may involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a balanced investment
position. A higher rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and losses. Portfolio
turnover in excess of 100% is considered to be high.
ARTISAN FUNDS
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
ARTISAN FUNDS
Bulk Rate
U.S. Postage
PAID
Milwaukee, WI
Permit No. 2855
xxxxx
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 OCTOBER 28, 1997
<PAGE>
Table of Contents
-----------------
PAGE
----
The Fund at a Glance......................................................1
Goal.................................................................1
Strategy.............................................................1
Management...........................................................1
Who May Want to Invest...............................................1
Risks and Returns....................................................2
Expenses..................................................................1
Shareholder transaction expenses.....................................1
Annual Fund operating expenses.......................................1
Financial Highlights......................................................2
Performance...............................................................4
Your Account..............................................................4
Doing Business with Artisan Funds....................................4
Who May Invest.......................................................5
How to Buy Shares....................................................6
How to Sell Shares ..................................................8
Statements and Reports...................................................10
Share Price..............................................................10
Dividends, Capital Gains and Taxes.......................................12
Distribution Options................................................12
Taxes...............................................................12
Foreign Income Taxes.....................................................14
The Fund in Detail.......................................................14
Organization........................................................14
Management..........................................................16
Expenses............................................................17
The Fund's Investment Philosophy.........................................18
Securities, Investment Practices and Risks..........................20
Equity Securities...................................................21
Foreign Securities..................................................21
Debt Securities.....................................................23
Convertible Securities..............................................24
Managing Investment Exposure........................................24
Currency Exchange Transactions.................................25
Options and Futures............................................26
Illiquid and Restricted Securities..................................26
Diversification.....................................................27
Lending Portfolio Securities; Repurchase Agreements;
When-Issued and Delayed-Delivery Securities....................27
Borrowing...........................................................28
Other Investment Companies..........................................28
Portfolio Turnover..................................................29
<PAGE>
THE FUND AT A GLANCE
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, San Francisco, California and Atlanta, Georgia,
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. The Fund offers two classes of shares, Artisan
International Shares ("International Shares") and Artisan International
Institutional Shares ("Institutional Shares"). International Shares are
offered to retail investors through a separate prospectus. This prospectus
describes Institutional Shares. To maintain lower operating expenses that
benefit all holders of Institutional Shares, the minimum initial investment
in 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.
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,
Institutional Shares are not available for sale in all states. To find out if
Institutional Shares are available, or can be made available, in your state,
call 1-
<PAGE>
800-399-1770 before sending an application to open a new account. See
"Purchasing and Redeeming Shares."
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.
<PAGE>
EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES. As shown below, there are no transaction
charges when you buy or sell Institutional Shares:
Maximum sales charge on purchases and NONE
reinvested dividends
Deferred sales charge on redemptions NONE
Redemption fee <F1> NONE
Exchange fee NONE
<F1> A shareholder requesting payment of redemption proceeds by wire
must pay the cost of the wire (currently $5.00).
ANNUAL FUND OPERATING EXPENSES. The Fund expects to incur the following
expenses attributable to 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 <F2> 0.25%
Total operating expenses <F2> 1.25%
=====
<F2> 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
After 3 years $40
This example illustrates the effect of expenses, but is not meant to suggest
actual or expected costs or returns, all of which may be more or less than those
shown in the example. The purpose of the expense tables and the example is to
help an investor understand the costs and expenses associated with investing in
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.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information below shows the results of an investment in International
Shares (not Institutional Shares) through each of the periods indicated.
Because Institutional Shares have not previously been issued, similar
information does not exist for them. This information was audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is included
in the Fund's annual report to shareholders for the fiscal year ended June 30,
1997.
Year Period
Ended Ended
6/30/97 6/30/96 <F5>
------- -------
Net asset value, beginning of period $12.08 $10.00
Income from investment operations:
Net investment income 0.07 0.04
Net realized and unrealized gains on
securities and foreign currency held 2.44 2.04
---- ----
Total from investment operations 2.51 2.08
Less Distributions:
Total distributions (0.11) 0.00
---- ----
Net asset value, end of period $14.48 $12.08
====== ======
Total return 20.90% 20.80%<F4>
Ratios/supplemental data:
Net assets, end of period (millions) $449.2 $71.5
Ratio of expenses to average net assets 1.61% 2.50%<F3>
Ratio of net investment income to average
net assets 1.07% 1.60%<F3>
Portfolio turnover rate 103.66% 57.00%<F4>
Average commission per share $0.0016 N/A
<F3> Annualized
<F4> Not Annualized
<F5> For the period from commencement of operations (December 28, 1995) through
June 30, 1996.
<PAGE>
PERFORMANCE
- --------------------------------------------------------------------------------
Mutual fund performance is commonly measured as TOTAL RETURN. Total return
is the change in value of an investment over a given period, assuming
reinvestment of any dividends and capital gains. Total return reflects the
Fund's performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN
is a hypothetical rate of return that, if achieved annually, would have produced
the same total return if performance had been constant over the entire period.
Average annual total return smoothes out variations in performance; it is not
the same as actual year-by-year results.
Total return and average annual total return are based on past results and
are not a prediction of future performance. They do not include the effect of
income taxes paid by shareholders. The Fund may sometimes show its performance
compared to certain performance rankings, averages or stock indexes (described
more fully in the Statement of Additional Information).
The performance of Institutional Shares will be different from the
performance of 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 Institutional Shares are
expected to be greater than for International Shares.
Information about the investment performance of the Fund relating to
International Shares is included in the Fund's annual report to shareholders, a
copy of which may be obtained without charge by calling Artisan Partners at 1-
800-399-1770.
YOUR ACCOUNT
- --------------------------------------------------------------------------------
DOING BUSINESS WITH ARTISAN FUNDS
Artisan Partners provides holders of 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
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, 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
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 Institutional Shares. The minimum initial investment is $2
million; subsequent investments must
<PAGE>
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 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 BUY SHARES
You may purchase Institutional Shares by check , wire or exchange. 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 the following address 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
BY EXCHANGE. You may purchase International Shares by exchanging $1,000 or
more from your existing account with another of the Artisan Funds.
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
<PAGE>
STATES. If your order to purchase Institutional Shares 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 Institutional Shares
is made at the net asset value applicable to Institutional Shares (see "Share
Price") next determined after receipt by the Fund of the check or wire transfer
of funds in payment of the purchase.
PURCHASES THROUGH DEALERS. You may purchase or redeem Institutional Shares
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 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 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 the Fund or
the Fund's shareholders.
HOW TO SELL SHARES
You may redeem all or any part of your Institutional Shares 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;
<PAGE>
(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.
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
"Share Price." Because the redemption price you receive depends upon the net
asset value per share of 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>
STATEMENTS AND REPORTS
- --------------------------------------------------------------------------------
Statements and reports that the Fund sends to you include:
- Confirmation statements (after every transaction in your account or
change in your account registration);
- Account statements (quarterly);
- Annual and semi-annual reports with financial statements; and
- Year-end tax statements.
We recommend that you keep each quarterly account statement and,
especially, each calendar year-end statement with your other important financial
papers since you may need to refer to them at a later date for tax purposes.
If you need copies of current or preceding year statements call 1-800-399-
1770.
SHARE PRICE
- --------------------------------------------------------------------------------
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange
("NYSE") is open. THE OFFERING PRICE (price to buy one share) and REDEMPTION
PRICE (price to sell one share) are the same and represent the net asset value
per Institutional Share calculated at the next Closing Time after receipt of
your purchase or redemption order. Closing Time is the time of the close of
regular session trading on the NYSE, which is usually 3:00 p.m. Central time but
is sometimes earlier.
THE NET ASSET VALUE PER INSTITUTIONAL SHARE is the value of a single
Institutional Share, and is computed by adding up the Institutional Shares' pro
rata share of the value of the Fund's investments, cash, and other assets,
subtracting the Institutional Shares' pro rata share of the Fund's liabilities
and the liabilities specifically allocated to Institutional Shares and then
dividing the result by the number of 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 prices of many of the portfolio securities used in such calculation and the
value of the Fund's
<PAGE>
portfolio may be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------
The Fund intends to distribute substantially all of its net income and net
realized capital gains to shareholders at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you
want to receive your distributions. If you later want to change your
distribution option, you may do so either by a written request or by calling
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 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 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
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
- --------------------------------------------------------------------------
As with any investement, you should consider how the return on your
investment in the Fund will be taxed. If your account is a tax-deferred account
(for example, an 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 Institutional Shares. However,
distributions declared in October, November or December and paid in January are
taxable as if they were received by you on December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; mid-term capital gain distributions are
taxed as mid-term capital gains; and long-term capital gain distributions are
taxed as long-term capital gains.
<PAGE>
Every January, the Fund will send you and the IRS 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
- --------------------------------------------------------------------------------
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, $.01 par value per share,
of which 5 billion shares are designated Artisan 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 redemption. The board may also,
without shareholder approval, increase the number of authorized shares of the
Fund.
<PAGE>
Artisan International Fund offers another separate class of shares,
referred to in this prospectus as the International Shares, pursuant to a
separate prospectus. Shares of each class (the 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 Institutional Shares,
the total return on Institutional Shares can be expected to be higher than the
total return on International Shares. Investors may obtain information about
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 Institutional Shares and 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.
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.
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.
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.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, which selects
the Fund's investments and handles its business affairs, under the direction of
the board of directors. Artisan Partners is a limited partnership managed by
its general partner, Artisan Investment Corporation, 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
<PAGE>
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.
The address of Artisan Partners is 1000 North Water Street, Suite 1770,
Milwaukee, Wisconsin 53202. Artisan Partners also has offices in San Francisco,
California and Atlanta, Georgia.
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>
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 such securities or investment practices.
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>
determines that a temporary defensive position is advisable. See the discussion
under the heading "Securities, Investment Practices and Risk--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>
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. <F6>
<F6> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American Depository Receipts
("ADRs"), provide opportunities different from those available in the U.S.,
and risks which may be greater in some ways than in U.S. investments. ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. See the Fund's Statement of Additional
Information for more information.
You should understand and consider carefully the greater risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and opportunities not
typically associated with investing in U.S. securities. These risks include:
fluctuations in exchange rates of foreign currencies; imposition of exchange
control regulation or currency restrictions that would prevent cash from being
transferred 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; and sometimes less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements. In addition,
the costs of investing in foreign securities is higher than the cost of
investing in U.S. securities.
Investing in countries outside the U.S. also involves political risk. A
foreign government might restrict investments by foreigners, expropriate assets,
seize or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have very negative effects on the economies and securities
markets of those countries.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent
<PAGE>
than in the United States. Emerging markets may be subject to a lower level
of monitoring and regulation of traders, insiders and investors.
RESTRICTIONS: Under normal circumstances, the Fund will invest at least
65% of its total assets in securities of foreign issuers. At August 31, 1997
the Fund had investments in 23 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.
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.
<PAGE>
RESTRICTIONS: The Fund does not intend to invest more than 5% of its net
assets in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to
the effects of possible changes in security prices, currency exchange rates or
other factors that affect the value of its portfolio. These techniques include
buying and selling derivative securities such as options, futures contracts, or
options on futures contracts or entering into currency exchange contracts.
INVESTMENTS IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT RISKS AND MAY INCREASE
THE VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation, although there is no limitation on
the percentage of assets that can be committed to derivative securities. In
addition, particular types of derivative securities are subject to certain
limitations and restrictions described in the Statement of Additional
Information under the heading "Investment Techniques -- Managing Investment
Exposure."
Currency Exchange Transactions. A currency exchange transaction may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market or through a
forward currency exchange contract ("forward contract"). A forward contract
is an agreement to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time
of the contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange-traded and are usually for less than one
year, but may be renewed.
Currency exchange transactions may involve currencies of the different
countries in which the Fund may invest and serve as hedges against possible
variations in the exchange rate between these currencies. The Fund's currency
transactions are limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving
either specific transactions or actual or anticipated positions. Transaction
hedging is the purchase or sale of a forward contract with respect to a specific
receivable or payable of the Fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to an actual or anticipated portfolio security position
denominated or quoted in a particular currency. The Fund may engage in
portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denominated
in such currency. When the Fund owns or anticipates owning securities in
countries whose currencies are linked, Artisan Partners may aggregate such
positions as to the currency hedged. Although forward contracts may be used to
protect the Fund from adverse currency movements, the use of such hedges may
<PAGE>
reduce or eliminate the potentially positive effect of currency revaluations on
the Fund's total return.
Options and Futures. The Fund may enter into stock index or currency
futures contracts (or options thereon) to hedge a portion of its portfolio,
to provide an efficient means of regulating its exposure to the equity markets
or as a hedge against changes in prevailing levels of currency exchange rates.
The Fund may write covered call options and purchase put and call options on
foreign currencies, securities and stock indices. Futures contracts and
options can be highly volatile and are subject to price movements in
underlying securities. The Fund's attempt to use such investments for hedging
purposes may not be successful and could result in a loss. In addition, the
loss from investing in futures transactions is potentially unlimited and the
Fund may be unable to control losses by closing its position if a liquid
secondary market does not exist.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid,
which means that they may be difficult to sell promptly at an acceptable price.
Other securities, such as securities acquired in private placements, may be sold
only in compliance with certain legal restrictions. Certain of these securities
are often referred to as Rule 144A securities. Difficulty in selling securities
may result in delays or a loss or may be costly to the Fund. A Rule 144A
security may be treated as liquid if the board of directors of the Fund so
determines based on an analysis of relevant information including trading
activity and availability of reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing.
This may include limiting the amount of money invested in any one company or, on
a broader scale, limiting the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the Fund may not
invest more than 5% of its total assets in the securities of any one issuer.
The Fund may not invest more than 25% of its total assets in any one industry.
These limitations do not apply to U.S. government securities. <F7>
<F7> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-ISSUED AND DELAYED-
DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and
banks and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses or delays in the event of bankruptcy of the
seller of a repurchase agreement. The Fund may also invest in securities
purchased on a when-issued or delayed-delivery basis. Although the payment
terms of these securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. The Fund will make
such commitments only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is deemed advisable for
investment reasons.
RESTRICTIONS: The Fund may not lend securities if, as a result, the
aggregate value of all securities loaned would exceed one-third of its total
assets. <F8> 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.
<F8> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
BORROWING
Artisan Funds maintains a line of credit with a major bank to permit
borrowing by the Fund on a temporary basis. The Fund will not purchase
securities when total borrowings by the Fund are greater than 5% of its net
asset value.
RESTRICTIONS: The Fund may not borrow money, except as a temporary measure
for extraordinary or emergency purposes, and then the aggregate borrowings at
any one time may not exceed 33 1/3% of its total assets (at market).<F9>
<F9> The restriction is "fundamental" which means it cannot be changed without
shareholder approval.
OTHER 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
<PAGE>
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>
xxxxx
ARTISAN MID CAP FUND
Supplement dated February 27, 1998 to Prospectus dated October 28, 1997
[insert on page 5 below "Expenses and Performance -- Understanding Expenses"]
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in the Fund for the
period from commencement of operations on June 27, 1997 through June 30,
1997 and for the six months ended December 31, 1997.
Six Months Fiscal Period
Ended Ended
December 31, June 30,
1997* 1997****
----------- -----------
Net asset value,
beginning of period $10.00 $10.00
Income from investment
operations:
Net investment loss (.02) -
Net realized and unrealized
gains on securities 2.82 -
----------- -----------
Total from investment
operations 2.80 -
Distributions paid to shareholders:
Net realized gains on investment
transactions (.79) -
Net asset value, end of period $12.01 $10.00
----------- -----------
Total return** 28.1% 0.0%
Ratios/supplemental data:
Net assets, end of period
(millions) $9.7 $1.8
Ratio of expenses to average
net assets*** 2.00% 0.00%
Ratio of net investment loss to
average net assets*** (0.46)% 0.00%
Portfolio turnover rate** 90.06% 0.00%
Average commission rate
per share $0.04828 $0.0000
________________________
* Unaudited.
** Not annualized.
*** Annualized. The ratios of expenses to average net assets and net
investment loss to average net assets include fees waived by the Adviser.
Absent fees waived by the Adviser, the ratios of expenses to average net
assets and net investment loss to average net assets would have been 3.86%
and (2.32%), respectively.
**** For the period from commencement of operations (June 27, 1997) through
June 30, 1997.
<PAGE>
ARTISAN MID CAP FUND
PROSPECTUS
OCTOBER 28, 1997
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
Please read this prospectus before investing and keep it on
file for future reference. It contains important
information, including how the Fund invests and the services
available to shareholders.
A Statement of Additional Information dated the date of this
prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference (is
legally considered a part of this prospectus). The Statement
of Additional Information is available free upon request by
calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
ARTISAN
MID CAP
FUND
A NO-LOAD FUND
ARTISAN MID CAP FUND invests for maximum long-term capital
growth. The Fund invests primarily in the common stocks of
medium-sized companies.
PROSPECTUS
OCTOBER 28, 1997
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
<PAGE>
CONTENTS
THE FUND AT A GLANCE 3 GOAL; STRATEGY; MANAGEMENT;
WHO MAY WANT TO INVEST;
RISKS AND RETURNS
EXPENSES AND PERFORMANCE 4 EXPENSES; FINANCIAL
HIGHLIGHTS
YOUR ACCOUNT 5 PERFORMANCE; DOING BUSINESS
WITH THE FUND; HOW
TO BUY SHARES; MINIMUM
INVESTMENTS
6 WAYS TO SST UP YOUR ACCOUNT
8 AUTOMATIC INVESTMENT PLAN;
HOW TO SELL SHARES;
SHAREHOLDER AND ACCOUNT 10 STATEMENTS AND REPORTS;
POLICIES SHARE PRICE; PURCHASES
11 REDEMPTIONS; ACCOUNT
REGISTRATION
12 TELEPHONE TRANSACTIONS;
TELEPHONE EXCHANGE PLAN
DIVIDENDS, CAPITAL GAINS 13 DISTRIBUTION OPTIONS; TAXES
AND TAXES
THE FUND IN DETAIL 15 ORGANIZATION; MANAGEMENT
16 EXPENSES; THE FUND'S
INVESTMENT PHILOSOPHY
18 SECURITIES, INVESTMENT
PRACTICES AND RISKS; EQUITY
SECURITIES
19 FOREIGN SECURITIES
20 DEBT SECURITIES; CONVERTIBLE
SECURITIES; MANAGING
INVESTMENT EXPOSURE
22 ILLIQUID AND RESTRICTED
SECURITIES; DIVERSIFICATION;
LENDING PORTFOLIO
SECURITIES; PURCHASE
AGREEMENTS; WHEN-ISSUED AND
DELAYED-DELIVERY SECURITIES;
BORROWING
23 OTHER INVESTMENT COMPANIES;
PORTFOLIO TURNOVER
<PAGE> 2
THE FUND AT A GLANCE
GOAL
ARTISAN MID CAP FUND (THE "FUND"), ONE OF THE SERIES OF
FUNDS OF ARTISAN FUNDS, INVESTS FOR MAXIMUM LONG-TERM
CAPITAL GROWTH.
STRATEGY
THE FUND INVESTS PRIMARILY IN THE COMMON STOCKS OF MEDIUM-
SIZED COMPANIES. Medium-sized companies are those whose
market capitalizations fall within the range of companies in
the S&P MidCap 400 Index (the "MidCap Index"). As of
September 30, 1997, the MidCap Index included companies with
capitalizations between approximately $250 million and $12
billion. The market capitalization range in which the Fund
invests will change as the range of the companies included
in the MidCap Index changes. The Fund looks for companies
that have or are developing identifiable "franchise
characteristics" and whose securities are undervalued
because they lack recognition or are out of favor based on
short-term factors.
In seeking companies that have franchise characteristics,
the Fund focuses on companies that have some form of
sustainable competitive advantage such as a proprietary
technology or dominant market share. The Fund also
emphasizes companies that are experiencing or expect to
experience real growth in the demand for their goods or
services. Fund management estimates the intrinsic value of
prospective investments to identify those which are
undervalued.
The Fund's management believes that medium-sized companies
are an attractive investment universe because these
companies are still small enough to provide real growth
opportunities significantly above that of the general U.S.
economy, but are typically mature enough to have experienced
management and multiple product lines and large enough to
have liquid trading markets, thus mitigating risk. Medium-
sized companies also typically have less Wall Street
research coverage than large companies, and are more likely
to be priced inefficiently.
MANAGEMENT
Artisan Partners Limited Partnership ("Artisan Partners"),
based in Milwaukee, Wisconsin, selects investments for the
Fund. Andrew C. Stephens is the portfolio manager and is
responsible for the day-to-day management of the Fund. Mr.
Stephens makes all investment decisions with the assistance
of a team of Artisan Partners investment research and
trading professionals.
WHO MAY WANT TO INVEST
Artisan Mid Cap Fund is designed for patient investors who
can afford to maintain their investments over a relatively
long period of time, and who are seeking a fund which is
relatively aggressive. The Fund involves risk and is not an
appropriate investment for conservative investors who are
seeking preservation of capital or income.
RISKS AND RETURNS
Historically, stocks have shown greater growth than other
types of securities. In the short term, however, stock
prices may fluctuate widely in response to company, market
or economic news. In addition, the stocks of medium-sized
companies often involve more volatility than the stocks of
larger companies.
The value of the Fund's investments and the return it
generates vary from day to day. Performance depends on
Artisan Partners' skill in selecting individual stocks, as
well as general market and economic conditions. When you
sell your shares, they may be worth more or less than you
paid for them.
See "Securities, Investment Practices and Risks" on page 18
for the types of investments the Fund may make and "Your
Account" on page 15 for how to buy and redeem shares.
<PAGE> 3
EXPENSES AND PERFORMANCE
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when
you buy or sell shares of the Fund.
Maximum sales charge on purchases
and reinvested dividends .................. NONE
Deferred sales charge on redemptions ...... NONE
Redemption fee <F1>........................ NONE
Exchange fee .............................. NONE
<F1> A shareholder requesting payment of redemption proceeds
by wire must pay the cost of the wire (currently $5).
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS). The Fund pays its own operating expenses,
including a management fee to Artisan Partners. The Fund
also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements
and reports. The Fund's expenses are factored into its share
price daily, and are not charged directly to shareholder
accounts.
The Fund expects to incur the following expenses in its
first full fiscal year ending June 30, 1998:
Management fee ............................ 1.00%
12b-1 fee ................................. None
Other expenses
(after reimbursement)...................... 1.00%
-----
Total operating expenses .................. 2.00%
=====
Artisan Partners has undertaken to reimburse the Fund for
any ordinary operating expenses in excess of 2.0% of average
net assets over each fiscal year. Absent reimbursement,
"Other expenses" would have been estimated to be 1.85%. The
purpose of the expense table is to help you understand the
costs and expenses associated with investing in the Fund.
UNDERSTANDING EXPENSES
Operating a mutual fund requires paying for portfolio
management, shareholder statements, tax reporting and other
services. These costs are paid from the Fund's assets; any
quoted share price or return is after expenses.
EXAMPLE: Let's say, hypothetically, that the Fund's annual
return is 5% and that its operating expenses are exactly as
shown in the column to the left. For every $1,000 you
invested, here's how much you would have paid in total
expenses if you closed your account after the number of
years indicated:
After 1 year ............................. $21
After 3 years ............................ $65
This example illustrates the effect of expenses, but is not
meant to suggest actual or expected costs or returns, all of
which may be more or less than those shown in the example.
Because the Fund is new, the above amounts are estimates.
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in
the Fund from June 27, 1997 (commencement of operations)
through June 30, 1997. This information was audited by
Price Waterhouse LLP, independent accountants. Their
unqualified report is included in the Fund's annual report
to shareholders for the fiscal year ended June 30, 1997.
Period end
June 30, 1997 <F4>
Net asset value,
beginning of period $10.00
------
Net asset value, end of period $10.00
======
Total Return 0.00% <F3>
Ratios/supplemental data:
Net assets,
end of period (millions) $1.8
Ratio of expenses to
average net assets 0.00% <F2>
Ratio of net investment income
to average net assets (0.00) <F2>
Portfolio turnover rate 0.00%
Average commission rate $0.000
<F2> Annualized
<F3> Not Annualized
<F4> For the period from commencement of operations (June 27, 1997)
through June 30, 1997
<PAGE> 4
EXPENSES AND PERFORMANCE - CONTINUED
PERFORMANCE
Mutual fund performance is commonly measured as total
return. TOTAL RETURN is the change in value of an investment
over a given period, assuming reinvestment of any dividend
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).
More information about the Fund's investment performance is
included in its annual report to shareholders, a copy of
which may be obtained without charge by calling 1-800-344-
1770.
------------------------------------------------------------
YOUR ACCOUNT
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service during extended
business hours. To reach the Fund, call 1-800-344-1770.
HOW TO BUY SHARES
You can open a new account by:
- mailing in an application with a check for $1,000 or more, or
- exchanging $1,000 or more from your existing account with
another of the Artisan Funds. For more details, see
"Telephone Exchange Plan" on page 12.
AFTER YOUR ACCOUNT IS OPEN, YOU MAY ADD TO IT BY:
- mailing a check or money order along with the form at the
bottom of your account statement, or a letter (the Fund
does not accept third-party checks);
- moving money from your bank account by telephone, provided
you have elected this privilege on your new account
application;
- moving an investment from another of the Artisan Funds to
the Fund by telephone, provided you have elected this
privilege;
- wiring money from your bank; or
- making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales
commissions of any kind. The price you pay for shares is the
net asset value per share next calculated after your
investment is received. An order is considered received when
the application (for a new account) or information
identifying the account and the money are received and
accepted by the Fund or certain authorized agents, who may
impose fees for their services. See "Shareholder and Account
Policies" on page 10 for information about share price and
transactions with certain financial services companies and
broker-dealers. The Fund does not issue share certificates.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $1,000
TO ADD TO AN ACCOUNT $ 50
MINIMUM BALANCE $ 500
The initial minimum investment will be waived if you
participate in the Automatic Investment Plan. Because it is
very expensive for the Fund to maintain small accounts (and
that cost is
<PAGE > 5
-----------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT OWNERSHIP
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts
can have two or more owners.
------------------------------------------------------------
RETIREMENT
TO DEFER TAXES ON YOUR RETIREMENT SAVINGS
Retirement plans allow individuals to defer taxes on
investment income and capital gains. Contributions to these
accounts may be tax deductible. RETIREMENT ACCOUNTS REQUIRE
SPECIAL APPLICATIONS WHICH MAY BE OBTAINED BY CALLING 1-800-
344-1770.
- INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of
legal age and under 70 1/2 with earned income to invest up
to $2,000 per tax year. If you or your spouse has less than
$2,000 in earned income, he or she may still contribute up
to $2,000 in an IRA, so long as you and your spouse's
combined earned income is at least $4,000.
- ROLLOVER IRAS retain special tax advantages for certain
distributions from employer-sponsored retirement plans.
- SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small
business owners or those with self-employment income to
make tax-deductible contributions of up to 15% of the
first $160,000 of compensation per year for themselves and
any eligible employees.
- OTHER RETIREMENT PLANS - The Fund may be used as an
investment in other kinds of retirement plans, including
Keogh or corporate profit sharing and money purchase
plans, 403(b) plans and 401(k) plans. All of these accounts
need to be established by the trustee of the plan. The
Fund does not offer prototypes of these plans.
An IRA disclosure statement is delivered in advance of
opening any IRA account and contains information unique to
retirement accounts. It also contains a summary of the
custodian fees which may be incurred for set-up and
maintenance of an IRA account.
------------------------------------------------------------
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
TO INVEST FOR A MINOR'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a
minor. The account application should include the child's
social security number.
------------------------------------------------------------
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
FOR MONEY BEING INVESTED BY A TRUST, EMPLOYEE BENEFIT PLAN,
OR PROFIT-SHARING PLAN
The trust or plan must be established before an account can
be opened. The date of the trust or plan should be included
on the new account application.
------------------------------------------------------------
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS,
PARTNERSHIPS, INSTITUTIONS OR OTHER GROUPS
You will need to send a certified corporate resolution
(indicating which officers are authorized to act) with your
application.
<PAGE > 6
HOW TO BUY SHARES
MAIL
------------------------------------------------------------
TO OPEN AN ACCOUNT:
- Complete and sign the new account application. Make your
check or money order payable to "Artisan Funds" or "Artisan
Mid Cap Fund." Third-party checks will not be accepted.
Mail to the address on the new account application.
FOR OVERNIGHT DELIVERY:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
TO ADD TO AN ACCOUNT:
- Make your check or money order payable to "Artisan Funds"
or "Artisan Mid Cap Fund." Put your account number on
your check.
Mail your check and the form at the bottom of your account
statement (or a letter) to the address on your account
statement.
FOR OVERNIGHT DELIVERY:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
------------------------------------------------------------
PHONE 1-800-344-1770
------------------------------------------------------------
TO OPEN AN ACCOUNT:
- You may not open a new account by phone, except by
exchange of $1,000 or more from your identically
registered account in another of the Artisan Funds.
- You may establish the telephone transaction option when
you open an account by electing the option on your new
account application.
TO ADD TO AN ACCOUNT:
- If you did not elect the telephone transaction option on
your new account application for the Fund or for another
of the Artisan Funds, complete the shareholder options
form to make investments by phone from $50 to $25,000 into
your account and to participate in the telephone exchange
plan.
- All telephone trades must be placed between 7:00 a.m. and
3:00 p.m. Central time on days the NYSE is open for
trading.
------------------------------------------------------------
WIRE
------------------------------------------------------------
TO OPEN AN ACCOUNT:
- Call 1-800-344-1770 for instructions on opening an account
by wire.
TO ADD TO AN ACCOUNT:
- Call 1-800-344-1770 for instructions on adding to an
account by wire.
------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
------------------------------------------------------------
TO OPEN AN ACCOUNT:
- If you sign up for the Automatic Investment Plan when you
open your account, the minimum initial investment will be
waived.
- Complete and sign the Automatic Investment Plan section of
the new account application.
TO ADD TO AN ACCOUNT:
- Sign up for the Automatic Investment Plan on the shareholder
ptions form or call 1-800-344-1770 for instructions on how
to add to your existing account.
<PAGE> 7
YOUR ACCOUNT - CONTINUED
borne by all shareholders), the Fund reserves the right to
close your account if the value is less than $500 (or $1,000
if you discontinued the Automatic Investment Plan before
your account reached $1,000). Before closing a small
account, the Fund will notify you and allow you at least 30
days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to
make regular, systematic investments into your Fund. Through
the Automatic Investment Plan, you purchase shares by
transferring money (minimum of $50 per transaction) from
your designated checking or savings account. Your automatic
investment in the Fund will be processed monthly on a draft
date designated by you, between the 3rd and 28th of the
month only. The draft will be made on or about (possibly
earlier or later than) the date requested due to the
processing complexities associated with weekends, holidays,
etc. Artisan Funds will not be responsible for non-
sufficient funds fees.
HOW TO SELL SHARES
You can arrange to take money out of your account at any
time by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value per share
(share price) calculated after your order is received and
accepted by the Fund or its authorized agent. See
"Shareholder and Account Policies" on page 10 for more
information about share price and transactions with certain
financial services companies and broker-dealers.
To sell shares in a regular (non-IRA) account, you may use
any of the methods described here. To sell shares in an IRA
account, your request must be made in writing. If you need
an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- each owner's name and address,
- the Fund's name,
- your account number,
- the dollar amount or number of shares to be redeemed, and
- the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
Certain redemption requests and account changes must include
a signature guarantee, designed to protect you and the Fund
from fraud. Your request must be made in writing and include
a signature guarantee if any of the following situations
applies:
- you wish to redeem more than $25,000 worth of shares;
- if you add/change your name or add/remove an owner on your
account;
- if you add/change the beneficiary on your account;
- the check is being mailed to an address different than one
on your account (record address);
- the check is being made payable to someone other than the
account owner;
- when you add the telephone redemption option to your
existing account;
- if you transfer the ownership of your account; or
<PAGE> 8
HOW TO SELL SHARES SPECIAL REQUIREMENTS
NOTE: SOME REDEMPTIONS REQUIRE SIGNATURE GUARANTEES. SEE
PAGE 8.
------------------------------------------------------------
MAIL
------------------------------------------------------------
Individual, Joint Owners, Sole - The letter of instruction
Proprietorships,UGMA, UTMA must be signed by all
persons required to
sign for transactions
(usually, all owners of the
account) exactly as
their names appear
on the account.
Trust - The letter of instruction
must include the signatures
of all trustees.
All Others - Call 1-800-344-1770
for instructions.
-------------------------------------------------------------
PHONE 1-800-344-1770
-------------------------------------------------------------
All account types except IRAs - You automatically have the
telephone redemption option
(which allows you to
redeem at least $500 and up
to $25,000 worth of shares
per day by phone) unless
you declined it on your new
account application. If
you declined the telephone
redemption option, call
1-800-344-1770 for
instructions on how to add it.
- All telephone trades
must be placed between
7:00 a.m. and 3:00 p.m.
Central time on days the
NYSE is open for trading.
------------------------------------------------------------------
WIRE
------------------------------------------------------------------
All account types except IRAs - We will transmit
payment by wire for a
funds will arrive at your
bank the next business day.
------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
------------------------------------------------------------------
All account types except IRAs - Sign up for systematic
withdrawals (distributions from
your account at regular
intervals in specified dollar
amounts of at least $50) by
calling 1-800-344-1770 for
instructions on how to
add this option.
- You must have at least $5,000
in your account before you are
eligible to sign up for this
option. If the amount in your
account is not sufficient to
meet a withdrawal, the
remaining amount in the
account will be redeemed.
<PAGE> 9
YOUR ACCOUNT - CONTINUED
- you have changed the address on the account by phone
within the last 60 days.
You should be able to obtain a signature guarantee from a
bank, broker, dealer, credit union (if authorized under
state law), securities exchange or association, clearing
agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment
plan, payment of redemption proceeds may be delayed until
the Fund is reasonably certain that payment for the shares
has been collected, which may take as long as 15 days.
------------------------------------------------------------
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- Confirmation statements (after every transaction in your
account or change in your account registration);
- Account statements (quarterly);
- Annual and semi-annual reports with financial statements;
and
- Year-end tax statements.
We recommend that you keep each quarterly account statement
and, especially, each calendar year-end statement with your
other important financial papers since you may need to refer
to them at a later date for tax purposes.
If you need copies of current or preceding year statements
call 1-800-344-1770. Copies of statements for earlier years
are available and are subject to a $10 processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock
Exchange ("NYSE") is open. THE OFFERING PRICE (price to buy
one share) and REDEMPTION PRICE (price to sell one share)
are the same and represent the Fund's net asset value per
share calculated at the next Closing Time after receipt of
your purchase or redemption order by the Fund or a broker-
dealer or financial services company authorized by the Fund
to accept purchase and redemption orders on its behalf.
Closing Time is the time of the close of regular session
trading on the NYSE, which is usually 3:00 p.m. Central time
but is sometimes earlier.
THE FUND'S NET ASSET VALUE PER SHARE is the value of a
single share, and is computed by adding up the value of the
Fund's investments, cash, and other assets, subtracting its
liabilities and then dividing the result by the number of
shares outstanding.
Fund securities and assets are valued primarily on the basis
of market quotations from the primary market in which they
are traded or, if quotations are not readily available, by a
method that the board of directors believes accurately
reflects a fair value. Values of foreign securities are
translated from the local currency into U.S. dollars using
current exchange rates.
PURCHASES
- All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
- The Fund does not accept cash, credit cards or third-party
checks.
- If your check or telephone purchase order does not clear,
your purchase will be canceled and you will be liable
for any losses or fees the Fund or its transfer agent
incurs.
- Your ability to make automatic investments and telephone
purchases may be immediately terminated if any item is
unpaid by your financial institution.
<PAGE> 10
SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED
- THE FUND RESERVES THE RIGHT TO reject any purchase order.
For example, a purchase order may be refused if, in
Artisan Partners' opinion, it is so large that it
would disrupt management of the Fund.
THE FUND MAY AUTHORIZE from time to time certain financial
services companies, broker-dealers or their designees
("authorized agents") to accept share purchase and
redemption orders on the Fund's behalf. For purchase orders
placed through an authorized agent, a shareholder will pay
the Fund's net asset value per share next computed after the
receipt by the authorized agent of such purchase order, plus
any applicable transaction charge imposed by the agent. For
redemption orders placed through an authorized agent, a
shareholder will receive redemption proceeds which reflect
the net asset value per share next computed after the
receipt by the authorized agent of the redemption order,
less any redemption fees imposed by the agent.
In some instances, an authorized agent or other financial
services company may not charge any transaction fees
directly to investors in the Fund. However, for accounting
and shareholder services provided by such company with
respect to Fund shares held by that company for its
customers, the company may charge a fee (currently up to
0.35%) of the annual average value of those accounts. The
Fund pays a portion of those fees not to exceed the
estimated fees and expenses that the Fund would pay to its
own transfer agent if the shares of the Fund held by such
customers of the company were registered directly in their
names on the books of the Fund's transfer agent. The balance
of those fees is paid by Artisan Partners.
REDEMPTIONS
- Normally, redemption proceeds will be mailed within seven
days after receipt of the request for redemption.
- The Fund may hold payment on redemptions until it is
reasonably satisfied that it has received payment for a
recent purchase made by check or by an automatic
investment or telephone purchase, which can take up to
fifteen days.
- If you make a telephone redemption, the Fund will send
payment for your redemption one of three ways: (i) by mail;
(ii) by Electronic Funds Transfer (EFT) to a pre-
authorized bank account; or (iii) to your bank account by
wire transfer. The cost of the wire (currently $5.00) will
be deducted from the payment. Your bank also may impose a
fee for the incoming wire. Payment by EFT will usually
arrive at your bank two banking days after your call.
Payment by wire is usually credited to your bank account on
the next business day after your call.
- Redemptions may be suspended or payment dates postponed on
days when the NYSE is closed (other than weekends or
holidays), when trading on the NYSE is restricted or as
permitted by the SEC.
If the Fund sends you a check (paying for a redemption,
systematic withdrawal payment, or a dividend or capital gain
distribution you elected to receive in cash) and the check
is returned "undeliverable" or remains uncashed for six
months, the check will be canceled and the proceeds will be
reinvested in the Fund at the net asset value per share on
the date of cancellation. In addition, after that six-month
period, your systematic withdrawal payments will be canceled
and future withdrawals will occur only when requested, or
your cash election will automatically be changed and future
dividends and distributions will be reinvested in your
account.
ACCOUNT REGISTRATION
ADDRESS CHANGES for your account may be made by writing us a
letter or by calling us
<PAGE> 11
at 1-800-344-1770. The Fund will send a written confirmation
of the change to both your old and new addresses. No
telephone redemptions may be made for 60 days after a change
of address by phone. During those 60 days, a signature
guarantee will be required for any written redemption
request unless your change of address was made in writing
with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES,
PURCHASES AND REDEMPTIONS, BY TELEPHONE. The Fund will not
be responsible for any losses resulting from unauthorized
transactions if it follows reasonable procedures designed to
verify the identity of the caller. Those procedures may
include recording the call, requesting additional
information and sending written confirmation of telephone
transactions. If the Fund fails to follow reasonable
procedures, the Fund may be responsible for resulting
losses.
You should verify the accuracy of telephone transactions
immediately upon receipt of your confirmation statement. If
you are unable to reach the Fund by phone (for example,
during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer
investments among the Artisan Funds between the hours of
7:00 a.m. and 3:00 p.m., Central time, on days the NYSE is
open for trading.
Each exchange between accounts must be at least $1,000. The
price of shares exchanged between the Fund and another
Artisan Fund is determined at the end of that day's trading
session.
Telephone exchange plan restrictions:
- To exchange between funds, you must have an account with
Artisan Mid Cap Fund and another Artisan Fund (which may
be opened by exchange from your Mid Cap Fund account).
Both accounts must be registered in the same name, address
and taxpayer identification number.
- To open a Fund account by telephone exchange from another
Artisan Fund, you must have previously elected the
telephone transaction option for that fund.
- Before exchanging into another Artisan Fund, you should
carefully read that fund's prospectus which may be
obtained by calling 1-800-344-1770.
- The exchange of shares may have tax consequences to you.
- If your account is subject to backup withholding, you may
not use the telephone exchange plan.
- Because excessive trading can hurt performance and
shareholders, Artisan Funds reserves the right to
temporarily or permanently terminate the telephone
exchange plan of any investor who makes excessive use of
the plan. Artisan Funds also may limit the number of
transfers per calendar year.
- Artisan Funds reserves the right to terminate or modify
the telephone exchange plan at any time, but will try to
give you prior notice whenever it is able to do so.
- From time to time, one or more of the Artisan Funds may be
closed to new investors. You may use the exchange plan
to purchase shares of a closed fund only if you are
eligible to make an investment in that fund, as described in
the prospectus of that fund.
- The exchange plan does not apply to Artisan International
Institutional Shares, a class of shares of Artisan
International Fund available only to certain
institutional investors.
<PAGE> 12
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund intends to distribute substantially all of its net
income and net realized capital gains to shareholders at
least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on YOUR NEW ACCOUNT
APPLICATION HOW YOU WANT TO RECEIVE YOUR DISTRIBUTIONS. IF
YOU LATER WANT TO CHANGE YOUR DISTRIBUTION OPTION, YOU MAY
DO SO EITHER BY A WRITTEN REQUEST OR BY CALLING US AT 1-800-
344-1770. THE FUND OFFERS THREE OPTIONS:
- REINVESTMENT OPTION. Your dividends and capital gain
distributions will be automatically reinvested in
additional shares of the Fund. If you do not indicate a
choice on your new account application, your distributions
will be reinvested automatically.
- INCOME-ONLY OPTION. Your capital gain distributions will
be automatically reinvested, but you will be sent a check
for each dividend.
- CASH OPTION. You will be sent a check for all
distributions.
For IRA accounts, all distributions are automatically
reinvested because payment of distributions in cash would be
a taxable distribution from your IRA, and might be subject
to income tax and penalties if you are under 59 1/2 years
old. After you are 59 1/2, you may request payment of
distributions in cash which might be subject to income tax.
When you reinvest, the reinvestment price is the Fund's net
asset value per share at the close of business on the
reinvestment date. The mailing of distribution checks will
usually begin on the payment date, which is usually one week
after the ex-dividend date.
TAXES
As with any investment, you should consider how the return
on your investment in the Fund will be taxed. If your
account is a tax-deferred account (for example, an IRA or an
employee benefit plan account), the following tax discussion
does not apply. If your account is not a tax-deferred
account, however, you should be aware of the following tax
rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal
income tax, and also may be subject to state or local taxes.
If you are a U.S. citizen residing 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 November or December and
paid in January to shareholders of record during the
preceding year are taxable as if they were received by you
on December 31.
For federal tax purposes, the Fund's income and short-term
capital gain distributions are taxed as dividends; mid-term
capital gain distributions are taxed as mid-term capital
gains; and 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 pre-
<PAGE> 13
parer to determine whether a redemption resulted in a
capital gain or loss and the tax consequences of that gain
or loss (although you or your tax preparer may choose an
alternative method of calculating your basis). 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.
To invest you must be a U.S. citizen (or a non-citizen
domiciled in the U.S.) with a Social Security or taxpayer
identification number. When you sign your account
application, you will be asked to certify that your Social
Security or taxpayer identification number is correct and
that you are not subject to backup withholding for failing
to report income to the IRS. If you fail to comply with
applicable IRS regulations including the certification
procedures described above, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
FOREIGN INCOME TAXES. Investment income received by the Fund
from sources within foreign countries may be subject to
foreign income taxes withheld at the source. The Fund will
not be eligible to make an election to permit you to claim a
foreign tax credit for your share of such taxes because it
will not meet the requirement of having more than 50% of its
assets invested in stocks or securities of foreign
corporations. However, the Fund expects such taxes to be
deductible by it in computing its taxable income.
------------------------------------------------------------
UNDERSTANDING DISTRIBUTIONS
As a shareholder, you are entitled to your share of the
Fund's net in come and any gains realized on its
investments. The Fund's income from dividends and interest
and any net realized short-term gain are paid to you as
DIVIDENDS. The Fund's net realized long-term gains are paid
to you as CAPITAL GAIN DISTRIBUTIONS.
------------------------------------------------------------
<PAGE> 14
THE FUND IN DETAIL
ORGANIZATION
Artisan Mid Cap Fund is a series of Artisan Funds, Inc.
("Artisan Funds"), an open-end management investment company
which was incorporated under Wisconsin law in 1995.
Artisan Funds' charter authorizes its board of directors to
issue fifty billion full and fractional shares of capital
stock, $.01 par value per share, of which 5 billion shares
are designated Artisan Mid Cap Fund. 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 redemption. The board may also,
without shareholder approval, increase the number of
authorized shares of the Fund.
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. All shares participate equally in dividends and
other distributions declared by the board of directors, and
all shares of the Fund have equal rights in the event of
liquidation of the Fund. Shares of the Fund have no
preemptive, conversion or subscription rights.
THE FUND IS GOVERNED BY A BOARD OF DIRECTORS which is
responsible for protecting the interests of the shareholders
of the Fund. The directors are experienced executives and
professionals who meet at regular intervals to oversee the
activities of the Fund, review contractual arrangements with
companies that provide services to the Fund and review
performance. A majority of directors are not otherwise
affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered
investment companies to operate without an annual meeting of
shareholders under specified circumstances if an annual
meeting is not required by the Investment Company Act of
1940 (the federal securities law that governs the regulation
of investment companies). The Fund has adopted the
appropriate provisions in its bylaws and does not expect to
hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders.
The Fund believes that not holding shareholder meetings
except as otherwise required reduces the Fund's expenses and
enhances shareholder return.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership,
which selects the Fund's investments and handles its
business affairs, under the direction of the board of
directors. Artisan Partners is a limited partnership managed
by its general partner, Artisan Investment Corporation,
controlled by Andrew A. Ziegler and Carlene Murphy Ziegler.
Andrew C. Stephens is the Fund's portfolio manager. Prior to
joining Artisan Partners in March 1997, Mr. Stephens had
been co-portfolio manager of the Strong Asset Allocation
Fund since February 1993. Mr. Stephens was also a senior
research analyst for the Strong Common Stock Fund and Strong
Opportunity Fund from September 1994 until March 1996, and
was a head trader for Strong Capital Management, Inc. before
February 1993. Mr. Stephens holds a B.S. from the University
of Wisconsin-Madison in Economics.
Andrew A. Ziegler is a director and chief executive officer
of Artisan Funds. Immediately prior to founding Artisan
<PAGE> 15
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 the president of
Artisan Funds and is co-portfolio manager of Artisan Small
Cap Fund. Prior to founding Artisan Partners in 1995, Ms.
Ziegler was a co-portfolio manager of 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.
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.
The address of Artisan Partners is 1000 North Water Street,
Suite 1770, Milwaukee, Wisconsin 53202. Artisan Partners
also has offices in San Francisco, California and Atlanta,
Georgia.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its
daily operations. Expenses paid out of the Fund's assets are
reflected in its share price or dividends.
The Fund pays a MANAGEMENT FEE to Artisan Partners for
managing its investments and business affairs. For services
furnished by Artisan Partners, the Fund has agreed to pay an
annual fee of (i) 1% of its average daily net assets up to
$500 million; (ii) .975 of 1% of its average daily net
assets from $500 to $750 million; (iii) .950 of 1% of its
average daily net assets from $750 million to $1 billion and
(iv) .925 of 1% of its average daily net assets over $1
billion.
While the management fee is a significant component of the
Fund's annual operating costs, the Fund has other expenses
as well. The Fund pays the fees of its custodian, transfer
agent, fund accountants, independent accountants and
lawyers. It also pays other expenses such as the cost of
compliance with federal and state laws, proxy solicitations,
shareholder reports, taxes, insurance premiums and the fees
of directors who are not otherwise affiliated with the Fund
or Artisan Partners.
THE FUND'S INVESTMENT PHILOSOPHY
The Fund invests for maximum long-term capital growth. The
Fund invests primarily in the common stocks of medium-sized
companies. Medium-sized companies are those whose market
capitalizations fall within the range of companies in the
S&P MidCap 400 Index (the "MidCap Index"). As of September
30, 1997, the MidCap Index included companies with
capitalizations between approximately $250 million and $12
billion. The market capitalization range in which the Fund
invests will changes as the size of the companies included
in the MidCap Index changes.
<PAGE> 16
THE FUND IN DETAIL - CONTINUED
The Fund's management believes that a share of common stock
represents an ownership interest in the company's future
cash flows. Its value is influenced by an investor's
assumptions regarding the growth, safety and predictability
of those cash flows, relative to other, often lower-risk,
investment alternatives. The Fund's management believes that
many investors misperceive the quality of common stocks
having certain characteristics. By focusing on a few basic
principles, management believes it can frequently identify
companies which are thus mispriced and will be attractive
investments.
The most basic principle the Fund follows is that dominant
franchises help protect a business from some of the effects
of competition. Companies that have some form of sustainable
competitive advantage, such as a proprietary technology or
dominant market share, should have a more predictable stream
of future cash flows. This in turn should produce higher
stock valuations over time.
The Fund also emphasizes investments in companies that are
experiencing real growth in demand for their goods and
services. Companies that can grow from the natural demand
for their products are in a much better position to leverage
new opportunities and react to marketplace changes. An
investor should normally value the predictability of their
cash flow stream more favorably.
Artisan Partners' research involves regularly screening the
mid-cap investment universe to identify companies that can
be evaluated as potential investments. Once an investment
candidate is identified, Artisan Partners defines and
researches the key investment issues relating to the
particular company by contacting Wall Street research
analysts and company management to discuss the company's
strategy, competitive position and revenue and earnings
outlook. If appropriate, Artisan Partners will then visit
the company in person.
If favorably impressed with a company's franchise
characteristics and revenue and earnings growth prospects,
Artisan Partners will then estimate its intrinsic value.
This involves assigning a value to the prospective
investment's future cash flows with reference to alternative
investments. If the company is selling at a substantial
discount to its intrinsic value, Artisan Partners will
prepare to make an investment. Before purchasing any stock,
Artisan Partners will clearly define an investment thesis
including the company's franchise characteristics, the key
investment issues, how the intrinsic value was determined
and the near-term price objectives. Any new information
regarding the company is evaluated in the context of this
investment thesis.
Limiting downside risk is an important part of the Fund's
investment process, particularly when investing in smaller
companies. In addition to its intrinsic value analysis,
Artisan Partners also seeks to limit downside risk through
broad diversification of its holdings to avoid concentration
in any one stock or industry. Artisan Partners also
continuously monitors its holdings to minimize the chance of
negative surprises.
The Fund invests primarily in equity securities, including
common and preferred stocks, warrants or other similar
rights and, in addition, the Fund may from time to time
invest in foreign securities. The Fund also may invest in
other types of securities, such as debt securities, and may
engage in certain investment practices such as short sales
"against the box"; however, the Fund does not currently
intend to commit more than 5% of its total assets to
investment practices such as short sales against the box.
The Fund intends to be substantially fully invested in
equity securities in ordinary circumstances, although the
Fund may invest without limit in short-term corporate
obligations or government obligations or hold cash
<PAGE> 17
or cash equivalents if Artisan Partners determines that a
temporary defensive position is advisable. See the
discussion of debt securities on page 20.
The Fund uses various techniques to increase or decrease its
exposure to the effects of possible changes in security
prices, currency exchange rates, or other factors that
affect the value of its portfolio. These techniques include
buying and selling options, futures contracts and options on
futures contracts, or entering into currency exchange
contracts.
Although the Fund does not generally purchase securities
with a view to rapid turnover, there are no limitations on
the length of time portfolio securities must be held.
Occasionally, securities purchased on a long-term basis may
be sold within a short period of time after purchase in
light of a change in the circumstances of a particular
company or industry or in general market or economic
conditions.
The investment objective of the Fund may be changed by the
board of directors without shareholder approval. If there
were such a change, you should consider whether the Fund
would remain an appropriate investment in light of your then
current financial position and needs. The Fund is not
intended to present a balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about
types of investments the Fund may make and strategies
Artisan Partners may employ in pursuit of the Fund's
investment objective, including information about the risks
and restrictions associated with these instrument types and
investment practices. All investment policies stated
throughout this prospectus, other than those identified as
fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is
included in the Statement of Additional Information.
Compliance with policies and limitations is determined at
the time of purchase of a security; the Fund is not required
to sell an investment because of a later change in
circumstances.
The Fund may not buy all of these instruments or use all of
these techniques to the full extent permitted unless Artisan
Partners believes that doing so will help the Fund achieve
its goal. As a shareholder, you will receive semi-annual and
annual reports detailing the Fund's holdings and describing
recent investment practices.
EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a
corporation. This ownership interest often gives the holder
the right to vote on measures affecting the company's
organization and operations. Although common stocks have a
history of long-term growth in value, their prices tend to
fluctuate in the short term.
The Fund invests mostly in the common stock of medium-sized
companies, defined for this purpose as those companies whose
outstanding common stock has a total market value of within
the range of the total market values of those companies
included in the MidCap Index, which will vary over time.
During some periods, the securities of medium-sized
companies, as a class, have performed better than the
securities of large companies, and in some periods they have
performed worse. Stocks of medium-sized companies tend to be
more volatile and less liquid than stocks of large companies
(although not as volatile and generally more liquid than
smaller companies). Compared to larger companies, may have a
shorter history of operations, may not have as great an
ability to raise additional capital, may have a less
diversified product line making them susceptible to market
pressure and may have a smaller public market for their
shares.
The Fund may also invest in preferred stocks, and in
interests in master limited partnerships and real estate
investment
<PAGE> 18
THE FUND IN DETAIL - CONTINUED
trusts ("REITs"). Preferred stocks represent an equity
interest in a corporation which, compared to common stock,
generally has a preferred return, but more limited
appreciation potential. The Fund's investments in master
limited partnerships and REITs are equity investments in
those entities.
RESTRICTIONS: Under normal circumstances, the Fund will
invest at least 65% of its total assets in securities of
issuers with an aggregate common stock market capitalization
within the range of those companies included in the S&P
MidCap 400 Stock Index. The Fund may not acquire more than
10% of the outstanding voting securities of any one issuer. <F5>
<F5> The restriction is "fundamental" which means it cannot
be changed without shareholder approval.
FOREIGN SECURITIES
Investments in foreign securities, including American
Depository Receipts ("ADRs"), provide opportunities
different from those available in the U.S., and risks which
may be greater in some ways than in U.S. investments. ADRs
are receipts typically issued by an American bank or trust
company evidencing ownership of the underlying securities.
See the Fund's Statement of Additional Information for more
information. International investing allows you to achieve
greater diversification and to take advantage of changes in
foreign economies and market conditions. From time to time,
many foreign economies have grown faster than the U.S.
economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments, although
there can be no assurance that these conditions will
continue.
You should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities, positions in which are generally denominated in
foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain risks and
opportunities not typically associated with investing in
U.S. securities. These risks include: fluctuations in
exchange rates of foreign currencies; imposition of exchange
control regulation or currency restrictions that would
prevent cash from being transferred 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; and sometimes less
advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. In
addition, the costs of investing in foreign securities is
higher than the cost of investing in U.S. securities.
Investing in countries outside the U.S. also involves
political risk. A foreign government might restrict
investments by foreigners, expropriate assets, seize or
nationalize foreign bank deposits or other assets, establish
exchange controls or enact other policies that could affect
investment in these nations. Economies in individual markets
may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments positions.
Many emerging market countries have experienced extremely
high rates of inflation for many years. That has had and may
continue to have very negative effects on the economies and
securities markets of those countries.
The securities markets of emerging countries are
substantially smaller, less developed, less liquid, and more
volatile than the secu-
<PAGE> 19
rities markets of the United States and other more developed
countries. Disclosure and regulatory standards in many
respects are less stringent than in the United States.
Emerging markets may be subject to a lower level of
monitoring and regulation of traders, insiders and
investors.
RESTRICTIONS: The Fund's investments in foreign securities
(including ADRs) are limited to not more than 25% of its
total assets. The Fund does not intend to invest more than
10% of its total assets in foreign securities.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer
to borrow money from investors. The issuer pays the investor
a fixed or variable rate of interest, and must repay the
amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to
changes in interest rates. In general, an increase in
interest rates will decrease the value of debt securities.
"Investment grade" debt securities are those rated within
the four highest ratings categories of Standard & Poor's
Corporation ("S&P") or Moody's Investors Services, Inc.
("Moody's") or, if unrated, determined by Artisan Partners
to be of comparable quality. Securities rated BBB or Baa are
considered to be medium grade and to have speculative
characteristics. Investment in non-investment grade debt
securities is speculative and involves a high degree of
risk.
Lower-rated debt securities (commonly called "junk bonds")
are often considered speculative and involve greater risk of
default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty.
Debt securities in which the Fund may invest in the ordinary
course of business include intermediate to long-term debt
securities issued by corporations or issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
For more information, see the discussion of debt securities
in the Statement of Additional Information.
RESTRICTIONS: The Fund intends to be substantially fully
invested in equity securities in ordinary circumstances.
Except when a defensive posture is considered advisable, the
Fund's investments in debt securities will not exceed 35% of
the Fund's assets, without regard to their ratings.
Investments in debt securities in excess of 35% of the
Fund's assets will be restricted to investment grade debt
securities. The Fund does not in tend to invest more than 5%
of its net as sets in securities rated below investment
grade.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities (securities
convertible into underlying equity securities). In
determining whether to purchase a convertible security,
Artisan Partners will consider the same criteria that would
be considered in purchasing the underlying stock. Although
convertible securities purchased by the Fund are frequently
rated investment grade, the Fund also may purchase unrated
securities or securities rated below investment grade if the
securities meet Artisan Partners' other investment criteria.
RESTRICTIONS: The Fund does not intend to invest more than
5% of its net assets in convertible securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its
exposure to the effects of possible changes in security
prices, currency exchange rates or other fac-
<PAGE> 20
THE FUND IN DETAIL - CONTINUED
tors that affect the value of its portfolio. These
techniques include buying and selling derivative securities
such as options, futures contracts or options on futures
contracts or entering into currency exchange contracts.
INVESTMENTS IN DERIVATIVE SECURITIES INVOLVE SIGNIFICANT
RISKS AND MAY INCREASE THE VOLATILITY OF THE FUND.
These techniques are used by Artisan Partners to adjust the
risk and return characteristics of the Fund's portfolio. If
Artisan Partners judges market conditions incorrectly or
employs a strategy that does not correlate well with the
Fund's investments or if the counterparty to the transaction
does not perform as promised, the transaction could result
in a loss. Use of these techniques may increase the
volatility of the Fund and may involve a small investment of
cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management
or portfolio management purposes and not for speculation,
although there is no limitation on the percentage of assets
that can be committed to derivative securities. In addition,
particular types of derivative securities are subject to
certain limitations and restrictions described in the
Statement of Additional Information under the heading
"Investment Techniques -- Managing Investment Exposure."
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange
transaction may be conducted either on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through a
forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a
specified currency at a specified future date (or within a
specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with
banks and broker-dealers, are not exchange-traded and are
usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the
different countries in which the Fund may invest and serve
as hedges against possible variations in the exchange rate
between these currencies. The Fund's currency transactions
are limited to TRANSACTION HEDGING and PORTFOLIO HEDGING
involving either specific transactions or actual or
anticipated positions. Transaction hedging is the purchase
or sale of a forward contract with respect to a specific
receivable or payable of the Fund accruing in connection
with the purchase or sale of portfolio securities. Portfolio
hedging is the use of a forward contract with respect to an
actual or anticipated portfolio security position
denominated or quoted in a particular currency. The Fund may
engage in portfolio hedging with respect to the currency of
a particular country in amounts approximating actual or
anticipated positions in securities denominated in such
currency. When the Fund owns or anticipates owning
securities in countries whose currencies are linked, Artisan
Partners may aggregate such positions as to the currency
hedged. Although forward contracts may be used to protect
the Fund from adverse currency movements, the use of such
hedges may reduce or eliminate the potentially positive
effect of currency reevaluations on the Fund's total return.
OPTIONS AND FUTURES. The Fund may enter into stock index or
currency futures contracts (or options thereon) to hedge a
portion of its portfolio, to provide an efficient means of
regulating its exposure to the equity markets or as a hedge
against changes in prevailing levels of currency exchange
rates. The Fund may write covered call options and purchase
put and call options on foreign currencies, securities and
stock indices. Futures contracts and options can be highly
<PAGE> 21
volatile and are subject to price movements in underlying
securities. The Fund's attempt to use such investments for
hedging purposes may not be successful and could result in
reduction of the Fund's total return. In addition, the loss
from investing in futures transactions is potentially
unlimited and the Fund may be unable to control losses by
closing its position if a liquid secondary market does not
exist.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be
illiquid, which means that they may be difficult to sell
promptly at an acceptable price. Other securities, such as
securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of
these securities are often referred to as Rule 144A
securities. Difficulty in selling securities may result in
delays or a loss or may be costly to the Fund. A Rule 144A
security may be treated as liquid if the board of directors
of the Fund so determines based on an analysis of relevant
information including trading activity and availability of
reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its
net assets in illiquid or restricted securities other than
Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks
of investing. This may include limiting the amount of money
invested in any one company or, on a broader scale, limiting
the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the
Fund may not invest more than 5% of its total assets in the
securities of any one issuer. The Fund may not invest more
than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities. <F6>
<F6> The restriction is "fundamental" which means it cannot
be changed without shareholder approval.
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-
ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to
broker-dealers and banks and may invest in repurchase
agreements as a cash management technique. A repurchase
agreement is a sale of securities to the Fund in which the
seller agrees to repurchase the securities at a higher price
within a specified time. The Fund could experience losses or
delays in the event of bankruptcy of the seller of a
repurchase agreement.
The Fund may also invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time the Fund
enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring
the securities, but may sell the securities before
settlement date if it is deemed advisable for investment
reasons.
RESTRICTIONS: The Fund may not lend securities if, as a
result, the aggregate value of all securities loaned would
exceed one-third of its total assets.* The Fund does not
currently intend to loan more than 5% of its net assets or
to have commitments to purchase when-issued securities in
excess of 5% of its net assets.
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
<PAGE> 22
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). <F7>
<F7> The restriction is "fundamental" which means it cannot
be changed without shareholder approval.
OTHER 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
growth 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> 23
ARTISAN FUNDS
C/O BOSTON FINANCIAL DATA SERVICES
P.O. BOX 8412
BOSTON, MA 02266-8412
ARTISAN FUNDS
Bulk Rate
U.S. Postage
PAID
Milwaukee, WI
Permit No. 2855
xxxxx
<PAGE>
ARTISAN SMALL CAP VALUE FUND
Supplement dated February 27, 1998 to Prospectus dated August 20, 1997
[insert on page 5 below "Expenses and Performance -- Expenses"]
FINANCIAL HIGHLIGHTS
The information below shows the results of an investment in the Fund from the
commencement of operations on September 29, 1997 through December 31, 1997.
These results have not been audited.
Period
Ended
December 31,
1997*
-----------
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment loss (.01)
Net realized and unrealized gains
on securities 0.32
Total from investment operations 0.31
Net asset value, end of period $10.31
Total return** 3.1%
Ratios/supplemental data:
Net assets, end of period (millions) $27.4
Ratio of expenses to average net assets*** 1.93%
Ratio of net investment loss to average net
assets*** (0.12)%
Portfolio turnover rate** 7.31%
Average commission rate $0.0526
________________________
* For the period from commencement of operations (September 29, 1997) through
December 31, 1997.
** Not annualized.
*** Annualized. The ratios of expenses to average net assets and net
investment loss to average net assets include fees waived by the Adviser.
Absent fees waived by the Adviser, the ratios of expenses to average net
assets and net investment loss to average net assets would have been 2.14%
and (0.33%), respectively.
<PAGE>
XXXXX
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Fund invests
and the services available to shareholders.
A Statement of Additional Information dated the date of this prospectus has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement of
Additional Information is available free upon request by calling 1-800-344-1770.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[LOGO] ARTISAN
SMALL CAP
VALUE FUND
A NO-LOAD FUND
ARTISAN SMALL CAP VALUE FUND invests for long-term capital growth. The Fund
invests primarily in common stocks that appear undervalued relative to earnings,
book value, cash flow or potential earnings growth, and that are issued by small
companies whose outstanding shares have an aggregate market value of less than
$1 billion.
PROSPECTUS
AUGUST 20, 1997
ARTISAN FUNDS, INC.
1000 NORTH WATER STREET, SUITE 1770
MILWAUKEE, WISCONSIN 53202
<PAGE>
CONTENTS
THE FUND AT A GLANCE 4 GOAL; STRATEGY; MANAGEMENT
5 CLOSING THE FUND; WHO MAY
WANT TO INVEST; RISKS AND
RETURNS
EXPENSES AND PERFORMANCE 6 EXPENSES; PERFORMANCE
YOUR ACCOUNT 7 DOING BUSINESS WITH THE
FUND; ELIGIBILITY TO INVEST
AFTER THE FUND IS CLOSED;
HOW TO BUY SHARES
8 WAYS TO SET UP YOUR ACCOUNT
9 MINIMUM INVESTMENTS;
AUTOMATIC INVESTMENT PLAN
11 HOW TO SELL SHARES
SHAREHOLDER AND ACCOUNT 13 STATEMENTS AND REPORTS;
POLICIES SHARE PRICE; PURCHASES
14 REDEMPTIONS; ACCOUNT
REGISTRATION; TELEPHONE
TRANSACTIONS
15 TELEPHONE EXCHANGE PLAN
DIVIDENDS, CAPITAL GAINS, 16 DISTRIBUTION OPTIONS;
AND TAXES TAXES
17 UNDERSTANDING DISTRIBUTIONS
THE FUND IN DETAIL 18 ORGANIZATION; MANAGEMENT
19 EXPENSES
20 THE FUND'S INVESTMENT
PHILOSOPHY
21 SECURITIES, INVESTMENT
PRACTICES AND RISKS; COMMON
STOCKS AND OTHER EQUITY
SECURITIES
22 FOREIGN SECURITIES; CONVERTIBLE
SECURITIES; MANAGING INVESTMENT
EXPOSURE
23 ILLIQUID AND RESTRICTED SECURITIES;
DIVERSIFICATION; LENDING PORTFOLIO
SECURITIES; REPURCHASE
AGREEMENTS; WHEN-ISSUED AND
DELAYED-DELIVERY SECURITIES;
BORROWING
24 OTHER INVESTMENT
COMPANIES; PORTFOLIO TURNOVER
3
<PAGE>
THE FUND AT A GLANCE
- --------------------
GOAL
Artisan Small Cap Value Fund (the "Fund"), one of the series of funds of
Artisan Funds, invests for long-term capital growth.
STRATEGY
The Fund invests primarily in common stocks that appear undervalued relative to
earnings, book value, cash flows or potential earnings growth, and that are
issued by small companies whose outstanding shares have an aggregate market
value of less than $1 billion. It attempts to manage investment risk in the
stocks it purchases by emphasizing investments in businesses that have positive
cash flow, strong balance sheets and business strategies that are economically
sound under ordinary circumstances. Stocks are generally sold when they
approach the Fund's estimate of their enterprise value.
Because the Fund typically invests in companies that are characterized by sparse
Wall Street research coverage, it uses its own detailed screening and research
process. Companies in which the Fund invests usually appear undervalued because
they fall into one of the following general categories:
- - The company operates in an industry category that is cyclical in nature and
is presently out of favor.
- - The company has assets which are not adequately reflected in its market
value.
- - The company has experienced problems leading to a depressed stock price, but
is undergoing or is likely to undergo some change which the Fund believes
will improve its operations.
- - The company is undiscovered or misunderstood by Wall Street analysts.
In addition to emphasizing investments in companies that are undervalued and
represent acceptable investment risks, the Fund attempts to manage portfolio
risk by diversifying its holdings to avoid concentration in any one stock or
industry sector.
MANAGEMENT
Artisan Partners Limited Partnership ("Artisan Partners"), located in
Milwaukee, Wisconsin, San Francisco, California and Atlanta, Georgia, selects
investments for the Fund. Scott C. Satterwhite, vice president of Artisan
Funds, is the portfolio manager and is 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.
Immediately prior to joining Artisan Partners, Mr. Satterwhite was the portfolio
manager of Biltmore Special Values Fund from August 1, 1993 through May 31,
1997, and throughout that period had full discretionary authority over the
selection of investments for that fund. Average annual total returns for the
Biltmore Special Values Fund for the following periods were:
6/1/96 - 5/31/97 (1 YEAR) 25.00%
6/1/94 - 5/31/97 (3 YEARS) 25.95%
8/1/93 - 5/31/97 (3 YEARS, 10 MONTHS) 19.78%
Past performance is not a guarantee of future results, and the
information shown reflects the performance of another fund managed by
Mr. Satterwhite, not the performance of the Fund. The average annual
total returns of the Biltmore Special Values Fund shown are those of
its Class A shares, and do not include the effect of the sales charges
applicable to those shares. If an investor had paid the Class A
sales charge of 4.50% on the first day of each of the above periods,
the average annual total returns for Biltmore Special Values Fund
including that sales charge would have been 19.38%, 24.03% and
18.35%, respectively. Artisan Small Cap Value Fund is a no-load
fund. The
4
<PAGE>
returns achieved by Mr. Satterwhite as portfolio manager of
the Biltmore Special Values Fund reflect the expenses of that fund and
the value of its assets; the expenses of the Fund are estimated to be
higher and the effect of those expenses may result in less favorable
performance. However, actual expenses may be higher or lower than those
estimated.
CLOSING THE FUND
The Fund intends to close to new investors when it reaches approximately $400
million in total assets. The board decided that limiting the Fund's size would
be in the best interests of shareholders because it will allow Artisan Partners
to concentrate the Fund's investments in a manageable number of small companies
without taking too large a position in any single company. For more
information, see page 7.
WHO MAY WANT TO INVEST
Artisan Small Cap Value Fund is designed for investors who want long-term
capital growth rather than income and who have the long-term investment outlook
needed for investing in stocks of small companies. The Fund involves risk and
is not an appropriate investment for conservative investors who are seeking
preservation of capital or income.
RISKS AND RETURNS
Historically, stocks have shown greater growth than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market or economic news. In addition, the stocks of small companies
often involve more volatility than the stocks of larger companies. The Fund
does not pursue income and is not by itself a balanced investment plan.
The Fund will seek to limit risk by investing in undervalued companies;
emphasizing investments in companies that have positive cash flow, strong
balance sheets, and business strategies that are economically sound under
ordinary circumstances; and diversifying its holdings to avoid concentration
in any one stock or industry sector.
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on Artisan Partners' skill in selecting individual
stocks, as well as general market and economic conditions. When you sell your
shares, they may be worth more or less than you paid for them.
See "Securities, Investment Practices and Risks" on page 21 for the types of
investments the Fund may make and "Your Account" on page 7 for how to buy and
redeem shares.
5
<PAGE>
EXPENSES AND PERFORMANCE
- ------------------------
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares
of the Fund.
Maximum sales charge on purchases
and reinvested dividends..........................NONE
Deferred sales charge on redemptions..............NONE
Redemption fee (a)................................NONE
Exchange Fee......................................NONE
(a) A shareholder requesting payment of redemption proceeds by wire must pay the
cost of the wire (currently $5).
ANNUAL FUND OPERATING EXPENSES. The Fund pays its own operating expenses,
including a management fee to Artisan Partners. The Fund also incurs other ex-
penses for services such as maintaining shareholder records and furnishing
shareholder statements and reports. The Fund's expenses are factored into its
share price or dividends, are subtracted from the share price daily, and are not
charged directly to shareholder accounts.
The Fund expects to incur the following expenses (shown as a percentage of
average net assets):
Management fee 1.00%
12b-1 fee None
Other expenses (after
reimbursement) 1.00%
-----
Total operating expenses 2.00%
=====
Artisan Partners has undertaken to reimburse the Fund for any ordinary operating
expenses in excess of 2.00% of average net assets over each fiscal year. The
purpose of the expense table is to help you understand the costs and expenses
associated with investing in the Fund. The estimate of "Other expenses" is
based on the estimated expenses the Fund expects to incur during its fiscal year
ending June 30, 1998. Without the Adviser's expense reimbursement, "Other
expenses" during that period would be estimated to be 2.12%.
EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and
that its operating expenses are exactly as shown in the column to the left. For
every $1,000 you invested, here's how much you would have paid in total expenses
if you closed your account after the number of years indicated:
After 1 year $21
After 3 years $65
This example illustrates the effect of expenses, but is not meant to suggest
actual or expected costs or returns, all of which may be more or less than those
shown in the example. Because the Fund is new, the above amounts are estimates.
PERFORMANCE
Mutual fund performance is commonly measured as total return. TOTAL RETURN is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's
performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a
hypothetical rate of return that, if achieved annually, would have produced the
same total return if performance had been constant over the entire period.
Average annual total return smoothes out variations in performance; it is not
the same as actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of
income taxes paid by shareholders. The Fund may sometimes show its performance
compared to certain performance rankings, averages or stock indexes (described
more fully in the Statement of Additional Information).
6
<PAGE>
YOUR ACCOUNT
- ------------
DOING BUSINESS WITH THE FUND
The Fund provides shareholders with service during extended business hours.
To reach the Fund, call 1-800-344-1770.
ELIGIBILITY TO INVEST AFTER THE FUND IS CLOSED
The Fund intends to close to new investors when it reaches approximately $400
million in total assets. If you are a shareholder of the Fund when it closes,
you will be able to make additional investments in the Fund and reinvest your
dividends and capital gain distributions, even after the Fund has closed.
You may open a new account after the Fund is closed only if:
- - you are already a shareholder (in your own name or as a beneficial owner of
shares held in someone else's name);
- - you are transferring or doing a "rollover" into an Artisan Funds IRA from
an employee benefit plan through which you held shares of the Fund (if your
plan doesn't qualify for rollovers you may still open a new account with all
or part of the proceeds of a distribution from the plan);
- - you are in an employee benefit plan sponsored by an institution that also
sponsors (or is an affiliate of an institute that sponsors) another employee
benefit plan account that was a shareholder of the Fund when it closed;
- - you are a director or officer of Artisan Funds, Inc., or a partner or
employee of Artisan Partners, or a member of the immediate family of any of
those people;
- - you are a client of Artisan Partners or you have an existing business
relationship with Artisan Partners and, in the judgment of Artisan Partners,
your investment in the Fund would not adversely affect Artisan Partners'
ability to manage the Fund effectively; or
- - you are a client of a financial advisor or planner who had at least
$500,000 of client assets invested in the Fund, or at least $1 million of
client assets invested in Artisan Funds, as of the date the Fund closed to
new investors.
You may continue to add to your Fund account(s) through the reinvestment of
dividends and distributions from the Fund, and through the purchase of
additional Fund shares. An employee benefit plan which is a Fund shareholder
may continue to buy shares in the ordinary course of the plan's operations even
for new plan participants. An eligible financial adviser or planner may
continue to buy shares for existing and new clients.
The Fund does not intend to resume sales of shares to new investors after it
closes, although the board of directors may decide to re-open at a later date.
Call us at 1-800-344-1770 if you have questions about your eligibility to invest
after the Fund has closed.
The Fund intends to close when it reaches approximately $400 million in total
assets, not on a designated date. SHAREHOLDERS WILL NOT BE INFORMED IN ADVANCE
OF THE DATE ON WHICH THE FUND WILL CLOSE.
HOW TO BUY SHARES
You can open a new account by:
- - mailing in an application with a check for $1,000 or more, or
- - exchanging $1,000 or more from your existing account with another of the
Artisan Funds. For more details, see "Telephone Exchange Plan" on page 15.
AFTER YOUR ACCOUNT IS OPEN, YOU MAY ADD TO IT BY:
- - mailing a check or money order along with the form at the bottom of your
account statement, or a letter (the Fund does not accept third-party checks);
7
<PAGE>
WAYS TO SET UP YOUR ACCOUNT
- -------------------------------------------------------------------------------
INDIVIDUAL OR JOINT OWNERSHIP
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners.
- -------------------------------------------------------------------------------
RETIREMENT
To defer taxes on your retirement savings
Retirement plans allow individuals to defer taxes on investment income and
capital gains. Contributions to these accounts may be tax deductible.
Retirement accounts require special applications which may be obtained by
calling 1-800-344-1770.
- - Individual Retirement Accounts (IRAs) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2,000 per tax year. If your spouse
has less than $2,000 in earned income, he or she may still contribute up to
$2,000 in an IRA, so long as you and your spouse's combined earned income
is at least $4,000.
- - Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - Simplified Employee Pension Plans (SEP-IRAs) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to 15% of the first $160,000 of compensation per year for themselves and any
eligible employees.
- - Other retirement plans - The Fund may be used as an investment in other
kinds of retirement plans, including Keogh or corporate profit sharing and
money purchase plans, 403(b) plans and 401(k) plans. All of these accounts
need to be established by the trustee of the plan. The Fund does not offer
prototypes of these plans.
An IRA disclosure statement is delivered in advance of opening any IRA account
and contains information unique to retirement accounts. It also contains a
summary of the custodian fees which may be incurred for set-up and maintenance
of an IRA account.
- -------------------------------------------------------------------------------
GIFT OR TRANSFER TO A MINOR (UGMA, UTMA)
To invest for a minor's education or other future needs
These custodial accounts provide a way to give money to a minor. The account
application should include the child's social security number.
- -------------------------------------------------------------------------------
TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN
For money being invested by a trust, employee benefit plan, or profit-sharing
plan
The trust or plan must be established before an account can be opened. The date
of the trust or plan should be included on the new account application.
- -------------------------------------------------------------------------------
BUSINESS OR ORGANIZATION
For investment needs of corporations, associations, partnerships, institutions
or other groups
You will need to send a certified corporate resolution (indicating which
officers are authorized to act) with your application.
- -------------------------------------------------------------------------------
8
<PAGE>
YOUR ACCOUNT - continued
- - moving money from your bank account by telephone, provided you have elected
this privilege on your new account application;
- - moving an investment from another Artisan Fund to the Fund by telephone,
provided you have elected this privilege;
- - wiring money from your bank; or
- - making automatic investments.
The Fund is a NO-LOAD FUND, which means you pay no sales commissions of any
kind. The price you pay for shares is the net asset value per share next
calculated after your investment is received and accepted. An order is
considered received when the application (for a new account) or information
identifying the account and the money are received. See "Shareholder and
Account Policies" on page 13 for information about share price. The Fund does
not issue share certificates.
MINIMUM INVESTMENTS
To open an account $1,000
To add to an account $ 50
Minimum balance $ 500
The initial minimum investment will be waived if you participate in the
Automatic Investment Plan. Because it is very expensive for the Fund to
maintain small accounts (and that cost is borne by all shareholders), the Fund
reserves the right to close your account if the value is less than $500 (or
$1,000 if you discontinued the Automatic Investment Plan before your account
reached $1,000). Before closing a small account, the Fund will notify you and
allow you at least 30 days to bring the value of the account up to the minimum.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is a convenient way for you to make regular,
systematic investments into your Fund. Through the Automatic Investment Plan,
you purchase shares by transferring money (minimum of $50 per transaction) from
your designated checking or savings account. Your automatic investment in the
Fund will be processed monthly on a draft date designated by you, between the
3rd and 28th of the month only. The draft will be made on or about (possibly
earlier or later than) the date requested due to the processing complexities
associated with weekends, holidays, etc. Artisan Funds will NOT be responsible
for non-sufficient funds fees.
9
<PAGE>
HOW TO BUY SHARES
MAIL
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - Complete and sign the new account - Make your check or money order
application. Make your check or payable to "Artisan Funds" or
money order payable to "Artisan "Artisan Small Cap Value Fund."
Funds" or "Artisan Small Cap Put your account number on your
Value Fund." Third-party checks check.
will not be accepted.
Mail check and form at the bottom
Mail to the address on the new of your account statement (or a
account application. FOR letter) to the address on your
OVERNIGHT DELIVERY: account statement. FOR OVERNIGHT
DELIVERY:
Artisan Funds
c/o Boston Financial Data Services Artisan Funds
2 Heritage Drive c/o Boston Financial Data Services
Quincy, MA 02171 2 Heritage Drive
Quincy, MA 02171
- -------------------------------------------------------------------------------
PHONE 1-800-344-1770
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - You may not open a new account by - If you did not elect the
phone except by exchange of $1,000 telephone transaction option on
or more from your identically your new account application,
registered account with another complete the shareholder options
Artisan Fund. form to make investments by phone
from $50 to $25,000 into your
- - You may establish the telephone account and to participate in the
transaction option when you open telephone exchange plan.
an account by electing the option
on your new account application. - All telephone trades must be
placed between 7:00 a.m. and 3:00
p.m. Central time on days the
NYSE is open for trading.
- -------------------------------------------------------------------------------
WIRE
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
- - Call 1-800-344-1770 for - Call 1-800-344-1770 for
instructions on opening an account instructions on adding to an
by wire. account by wire.
- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
- -------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
If you sign up for the Automatic - Sign up for the Automatic
Investment Plan when you open your Investment Plan on the
account, the minimum initial shareholder options form or
investment will be waived. call 1-800-344-1770 for
instructions on how to add to
Complete and sign the Automatic your existing account.
Investment Plan section of the new
account application.
10
<PAGE>
YOUR ACCOUNT - CONTINUED
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
net asset value per share (share price) calculated after your order is received
and accepted. See "Shareholder and Account Policies" on page 13 for more
information about share price.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an IRA account, your request must be made in
writing. If you need an IRA distribution form, call us at 1-800-344-1770.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
- - each owner's name and address,
- - the Fund's name,
- - your account number,
- - the dollar amount or number of shares to be redeemed, and
- - the signature of each owner as it appears on the account.
Mail your letter to:
Artisan Funds
c/o Boston Financial Data Services
P.O. Box 8412
Boston, MA 02266-8412
For overnight delivery use:
Artisan Funds
c/o Boston Financial Data Services
2 Heritage Drive
Quincy, MA 02171
CERTAIN REDEMPTION REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to
protect you and the Fund from fraud. Your request must be made in writing and
include a signature guarantee if any of the following situations applies:
- - you wish to redeem more than $25,000 worth of shares;
- - if you add/change your name or add/remove an owner on your account;
- - if you add/change the beneficiary on your account;
- - the check is being mailed to an address different than one on your account
(record address);
- - the check is being made payable to someone other than the account owner;
- - when you add the telephone redemption option to your existing account;
- - if you transfer the ownership of your account; or
- - you have changed the address on the account by phone within the last 60
days.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
When purchases are made by check or automatic investment plan, payment of
redemption proceeds may be delayed until the Fund is reasonably certain that
payment for the shares has been collected, which may take as long as 15 days.
11
<PAGE>
HOW TO SELL SHARES SPECIAL REQUIREMENTS
NOTE: Some redemptions require signature guarantees. See page 11.
- -------------------------------------------------------------------------------
MAIL
- -------------------------------------------------------------------------------
Individual, Joint Owners, Sole - The letter of instruction must
Proprietorships, be signed by all persons
UGMA, UTMA required to sign for
transactions (usually, all
owners of the account) exactly
as their names appear on the
account.
Trust - The letter of
instruction must include
the signatures of all
trustees.
All Others - Call 1-800-344-1770 for
instructions.
- -------------------------------------------------------------------------------
PHONE 1-800-344-1770
- -------------------------------------------------------------------------------
All accounts except IRAs - You automatically have the
telephone redemption option (which
allows you to redeem at least $500
and up to $25,000 worth of shares
per day by phone) unless you
declined it on your new account
application. If you declined the
telephone redemption option, call
1-800-344-1770 for instructions on
how to add it.
- All telephone trades must be
placed between 7:00 a.m. and 3:00
p.m. Central time on days the NYSE
is open for trading.
- -------------------------------------------------------------------------------
WIRE
- -------------------------------------------------------------------------------
All account types except IRAs - We will transmit payment by wire
for a fee (currently $5.00) to a
pre-authorized bank account.
Usually, the funds will arrive at
your bank the next business day.
- -------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWALS
- -------------------------------------------------------------------------------
All account types except IRAs - Sign up for systematic withdrawals
(distributions from your account
at regular intervals in specified
dollar amounts of at least $50) by
calling 1-800-344-1770 for
instructions on how to add this
option.
- You must have at least $5,000 in
your account before you are
eligible to sign up for this
option. If the amount in your
account is not sufficient to meet
a withdrawal, the remaining amount
in the account will be redeemed.
12
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
- --------------------------------
STATEMENTS AND REPORTS
Statements and reports that the Fund sends to you include:
- - Confirmation statements (after every transaction in your account or change
in your account registration);
- - Account statements (quarterly);
- - Annual and semi-annual reports with financial statements; and
- - Year-end tax statements.
We recommend that you keep each quarterly account statement and, especially,
each calendar year-end statement with your other important financial papers
since you may need to refer to them at a later date for tax purposes.
If you need copies of current or preceding year statements call 1-800-344-1770.
Copies of statements for earlier years are available and are subject to a $10
processing fee.
SHARE PRICE
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange ("NYSE") is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price
to sell one share) are the same and represent the Fund's net asset value per
share calculated at the next Closing Time after receipt of your purchase or
redemption order. Closing Time is the time of the close of regular session
trading on the NYSE, which is usually 3:00 p.m. Central time but is sometimes
earlier.
THE FUND'S NET ASSET VALUE PER SHARE is the value of a single share, and is
computed by adding up the value of the Fund's investments, cash, and other
assets, subtracting its liabilities and then dividing the result by the number
of shares outstanding.
Fund securities and assets are valued primarily on the basis of market
quotations from the primary market in which they are traded or, if quotations
are not readily available, by a method that the board of directors believes
accurately reflects a fair value. Values of foreign securities are translated
from the local currency into U.S. dollars using current exchange rates.
PURCHASES
- - All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks.
- - The Fund does not accept cash, credit cards or third-party checks.
- - If your check or telephone purchase order does not clear, your purchase will
be canceled and you will be liable for any losses or fees the Fund or its
transfer agent incurs.
- - Your ability to make automatic investments and telephone purchases may be
immediately terminated if any item is unpaid by your financial institution.
- - THE FUND RESERVES THE RIGHT TO reject any purchase order. For example, a
purchase order may be refused if, in Artisan Partners' opinion, it is so
large that it would disrupt management of the Fund.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with the
Fund may enter confirmed purchase orders or redemption requests on behalf of
customers on an expedited basis, including orders by phone, with payment to
follow no later than the time when the Fund's net asset value is calculated on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses. These
institutions may impose charges on their clients for their services and those
charges could constitute a significant portion of a smaller account.
Some financial institutions that maintain nominee accounts with the Fund for
their clients who own Fund shares charge an
13
<PAGE>
annual fee of up to .35% of the average net assets held in such accounts for
accounting, servicing and distribution services they provide with respect to
the underlying Fund shares. Those fees are allocated between the Fund and
Artisan Partners with the Fund paying an amount not to exceed a cost
approximating the transfer agency expense that would be incurred by the Fund
if the shares held in those nominee accounts were held directly by the
beneficial owners. The balance of the fee, and all other expenses incurred
in the sale and promotion of Fund shares, is paid by Artisan Partners.
REDEMPTIONS
- - Normally, redemption proceeds will be mailed within seven days after receipt
of the request for redemption.
- - The Fund may hold payment on redemptions until it is reasonably satisfied
that it has received payment for a recent purchase made by check or by an
automatic investment or telephone purchase, which can take up to fifteen
days.
- - If you make a telephone redemption, the Fund will send payment for your
redemption one of three ways: (i) by mail; (ii) by Electronic Funds
Transfer (EFT) to a pre-authorized bank account; or (iii) to your bank
account by wire transfer. The cost of the wire (currently $5.00) will be
deducted from the payment. Your bank also may impose a fee for the incoming
wire. Payment by EFT will usually arrive at your bank two banking days
after your call. Payment by wire is usually credited to your bank account
on the next business day after your call.
- - Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted or as permitted by the SEC.
If the Fund sends you a check (paying for a redemption, systematic withdrawal
payment, or a dividend or capital gain distribution you elected to receive in
cash) and the check is returned "undeliverable" or remains uncashed for six
months, the check will be canceled and the proceeds will be reinvested in the
Fund at the net asset value per share on the date of cancellation. In addition,
after that six-month period, your systematic withdrawal payments will be
canceled and future withdrawals will occur only when requested, or your cash
election will automatically be changed and future dividends and distributions
will be reinvested in your account.
ACCOUNT REGISTRATION
ADDRESS CHANGES for your account may be made by writing us a letter or by
calling us at 1-800-344-1770. The Fund will send a written confirmation of the
change to both your old and new addresses. No telephone redemptions may be made
for 60 days after a change of address by phone. During those 60 days, a
signature guarantee will be required for any written redemption request unless
your change of address was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS, INCLUDING EXCHANGES, PURCHASES AND
REDEMPTIONS, BY TELEPHONE. The Fund will not be responsible for any losses
resulting from unauthorized transactions if it follows reasonable procedures
designed to verify the identity of the caller. Those procedures may include
recording the call, requesting additional information and sending written
confirmation of telephone transactions. If the Fund fails to follow reasonable
procedures, the Fund may be responsible for resulting losses.
You should verify the accuracy of telephone transactions immediately upon
receipt of
14
<PAGE>
your confirmation statement. If you are unable to reach the Fund by
phone (for example, during periods of unusual market activity), consider placing
your order by mail.
TELEPHONE EXCHANGE PLAN
The telephone exchange plan permits you to transfer investments among the
Artisan Funds between the hours of 7:00 a.m. and 3:00 p.m., Central time,
on days the NYSE is open for trading. The exchange plan does not apply to
Artisan International Institutional Shares, a class of shares of Artisan
International Fund available only to certain institutional investors.
Artisan Small Cap Fund is closed to new investors. You may use the exchange
plan to purchase shares of Artisan Small Cap Fund only if you are eligible to
make an investment in that fund, as described in the prospectus of Artisan Small
Cap Fund. After the Fund has closed to new investors, you will be able to use
the exchange plan to open a new Fund account only if you are eligible to open a
new account directly. See page 7 for information on eligibility to invest.
Each exchange between accounts must be at least $1,000. The price of shares
exchanged among the Artisan Funds is determined at the end of that day's trading
session.
Telephone exchange plan restrictions:
- - To exchange between funds, both accounts must be registered in the same
name, address and taxpayer identification number.
- - To open a Fund account by telephone by exchanging an investment from another
of the Artisan Funds, you must have previously elected the telephone
transaction option for the fund from which the exchange will be made.
- - Before exchanging into another Artisan Fund, you should carefully read that
fund's prospectus which may be obtained by calling 1-800-344-1770.
- - The exchange of shares may have tax consequences to you.
- - If your account is subject to backup withholding, you may not use the
telephone exchange plan.
- - Because excessive trading can hurt performance and shareholders, Artisan
Funds reserves the right to temporarily or permanently terminate the
telephone exchange plan of any investor who makes excessive use of the plan.
Artisan Funds also may limit the number of transfers per calendar year.
- - Artisan Funds reserves the right to terminate or modify the telephone
exchange plan at any time, but will try to give you prior notice whenever it
is able to do so.
15
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
- ----------------------------------
The Fund intends to distribute substantially all of its net income and net
realized capital gains to shareholders at least annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your new account application how you want
to receive your distributions. If you later want to change your distribution
option, you may do so either by a written request or by calling us at 1-800-344-
1770. The Fund offers three options:
- - REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your new account application, your distributions will
be reinvested automatically.
- - INCOME-ONLY OPTION. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
- - CASH OPTION. You will be sent a check for all distributions.
FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA, and
might be subject to income tax and penalties if you are under 59 1/2 years old.
After you are 59 1/2, you may request payment of distributions in cash which
might be subject to income tax.
When you reinvest, the reinvestment price is the Fund's net asset value per
share at the close of business on the reinvestment date. The mailing of
distribution checks will usually begin on the payment date, which is usually one
week after the ex-dividend date.
TAXES
As with any investment, you should consider how the return on your investment in
the Fund will be taxed. If your account is a tax-deferred account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not a tax-deferred account, however, you should
be aware of the following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and
also may be subject to state or local taxes. If you live outside the United
States, your distributions also could be taxed by the country in which you
reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
October, November or December and paid in January to shareholders of record
during the preceding year are taxable as if they were received by you on
December 31.
For federal tax purposes, the Fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, the Fund will send you and the
IRS a statement, called a Form 1099, showing the amount of each taxable
distribution you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares you will recognize a capital gain
or loss if there is a difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of the Fund, you will receive a confirmation statement
showing how many shares you sold and at what price. You also will receive a
year-end statement every January reporting, among other things, your average
cost basis in the shares you sold. This will allow you or your tax preparer to
determine whether a redemption resulted in a capital gain or loss and the tax
16
<PAGE>
consequences of that gain or loss (although you or your tax preparer may choose
an alternative method of calculating your basis). However, be sure to keep your
regular account statements; the information they contain will be essential in
verifying the amount of your capital gains or losses.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS. If
you fail to comply with applicable IRS regulations including the certification
procedures described above, the IRS can require the Fund to withhold 31% of your
taxable distributions and redemptions.
FOREIGN INCOME TAXES. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The Fund will not be eligible to make an election to permit you to
claim a foreign tax credit for your share of such taxes because it will not meet
the requirement of having more than 50% of its assets invested in stocks or
securities of foreign corporations. However, the Fund expects such taxes to be
deductible by it in computing its taxable income.
UNDERSTANDING DISTRIBUTIONS
- -------------------------------------------------------------------------------
As a shareholder, you are entitled to your share of the Fund's net income and
any gains realized on its investments. The Fund's income from dividends and
interest and any net realized short-term gain are paid to you as DIVIDENDS.
The Fund's net realized long-term gains are paid to you as CAPITAL GAIN
DISTRIBUTIONS.
- -------------------------------------------------------------------------------
17
<PAGE>
THE FUND IN DETAIL
- ------------------
ORGANIZATION
Artisan Small Cap Value Fund is a series of Artisan Funds, Inc. ("Artisan
Funds"), an open-end, diversified management investment company which was
incorporated under Wisconsin law in 1995.
Each share of the Fund has one vote. All shares participate equally in
dividends and other distributions declared by the board of directors, and all
shares of the Fund have equal rights in the event of liquidation of the Fund.
Shares of the Fund have no preemptive, conversion or subscription rights.
ARTISAN FUNDS IS GOVERNED BY A BOARD OF DIRECTORS which is responsible for pro-
tecting the interests of the shareholders of the Fund. The directors are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Fund, review contractual arrangements with
companies that provide services to the Fund and review performance. A majority
of directors are not otherwise affiliated with the Fund or Artisan Partners.
The Wisconsin Business Corporation Law permits registered investment companies
to operate without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the Investment Company Act
of 1940 (the federal securities law that governs the regulation of investment
companies). The Fund has adopted the appropriate provisions in its bylaws and
does not expect to hold an annual meeting in any year in which the election of
directors is not required to be acted on by shareholders. The Fund believes that
not holding shareholder meetings except as otherwise required reduces the Fund's
expenses and enhances shareholder return.
THE FUND MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS. These meetings may be
called to elect or remove directors, change fundamental policies, approve a
management contract, or for other purposes. The Fund will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. You are entitled to one vote for each share of the Fund that you own.
Shareholders not attending these meetings are encouraged to vote by proxy.
MANAGEMENT
The Fund is managed by Artisan Partners Limited Partnership, which selects the
Fund's investments and handles its business affairs, under the direction of the
board of directors. Artisan Partners is a limited partnership managed by its
general partner, Artisan Investment Corporation, controlled by Andrew A. Ziegler
and Carlene Murphy Ziegler.
Scott C. Satterwhite, vice president of Artisan Funds, is the Fund's portfolio
manager. Prior to joining Artisan Partners in June 1997, Mr. Satterwhite was
portfolio manager of the Biltmore Special Values Fund and was Senior Vice
President and Manager of Personal Trust Portfolio Management for the Personal
Financial Services Group of Wachovia Bank of North Carolina, N.A. Mr.
Satterwhite is a Chartered Financial Analyst. He has a bachelor's degree from
the University of the South and MBA from Tulane University.
Immediately prior to joining Artisan Partners, Mr. Satterwhite was the portfolio
manager of the Biltmore Special Values Fund, which he managed from August 1,
1993 through May 31, 1997, and throughout that period had full discretionary
authority over the selection of investments for that fund. Average annual total
returns for the Biltmore Special Values Fund for the following periods were:
6/1/96 - 5/31/97 (1 year) 25.00%
6/1/94 - 5/31/97 (3 years) 25.95%
8/1/93 - 5/31/97 (3 years, 10 months) 19.78%
Past performance is not a guarantee of future results, and the information shown
reflects
18
<PAGE>
the performance of another fund managed by Mr. Satterwhite, not the
performance of the Fund. The average annual total returns of the Biltmore
Special Values Fund shown are those of its Class A shares, and do not include
the effect of the sales charges applicable to those shares. If an investor
had paid the Class A sales charge of 4.50% on the first day of each of the
above periods, the average annual total returns for Biltmore Special Values
Fund including that sales charge would have been 19.38%, 24.03% and 18.35%,
respectively. The Artisan Small Cap Value Fund is a no-load fund. The
returns achieved by Mr. Satterwhite as portfolio manager of the Biltmore
Special Values Fund reflect the expenses of that fund and the value of
its assets; the expenses of the Fund are estimated to be higher and the
effect of those expenses may result in less favorable performance. However,
actual expenses may be higher or lower than those estimated.
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 the president of Artisan Funds and is
co-portfolio manager of Artisan Small Cap Fund. Prior to founding Artisan
Partners in 1995, Ms. Ziegler was a co-portfolio manager of 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.
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.
The address of Artisan Partners is 1000 North Water Street, Suite 1770,
Milwaukee, Wisconsin 53202. Artisan Partners also has offices in
San Francisco, California and Atlanta, Georgia.
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.
19
<PAGE>
The Fund in Detail - continued
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agent, fund accountants, independent accountants and
lawyers. It also pays other expenses such as the cost of compliance with
federal and state laws, proxy solicitations, shareholder reports, taxes,
insurance premiums and the fees of directors who are not otherwise affiliated
with the Fund or Artisan Partners.
THE FUND'S INVESTMENT PHILOSOPHY
Artisan Small Cap Value Fund invests for long-term capital growth.
The Fund invests primarily in common stocks that appear undervalued relative to
earnings, book value, cash flows or potential earnings growth, and that
are issued by small companies whose outstanding shares have an aggregate market
value of less than $1 billion. It attempts to manage investment risk in the
stocks it purchases by emphasizing investments in businesses that have positive
cash flow, strong balance sheets, and business strategies that are economically
sound under ordinary circumstances. Stocks are generally sold when they
approach the Fund's estimate of their enterprise value.
Because the Fund typically invests in companies that are characterized by sparse
Wall Street research coverage, it uses its own detailed screening and research
process. Companies in which the Fund invests usually appear undervalued because
they fall into one of the following general categories:
- - The company operates in an industry category that is cyclical in nature and
is presently out of favor.
- - The company has assets which are not adequately reflected in its market
value.
- - The company has experienced problems leading to a depressed stock price, but
is or is likely to undergo some change which the Fund believes will improve
its operations.
- - The company is undiscovered or misunderstood by Wall Street analysts.
In addition to emphasizing investments in companies that are undervalued and
represent acceptable investment risks, the Fund attempts to manage portfolio
risk by diversifying its holdings to avoid concentration in any one stock or
industry sector.
The Fund invests primarily in equity securities, including common and preferred
stocks, warrants and other similar rights. The Fund may from time to time
invest up to 10% of its total assets in foreign securities. The Fund also may
invest in other types of securities, such as convertible 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 those securities or practices.
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in high-
quality, short-term corporate obligations or government obligations or hold cash
or cash equivalents if Artisan Partners determines that a temporary defensive
position is advisable.
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
20
<PAGE>
turnover, there are no limitations on the length of time portfolio securities
must be held. Occasionally, securities purchased on a long-term basis may be
sold within a short period of time after purchase in light of a change in the
circumstances of a particular company or industry or in general market or
economic conditions.
The investment objective of the Fund may be changed by the board of directors
without shareholder approval. If there were such a change, you should consider
whether the Fund would remain an appropriate investment in light of your then
current financial position and needs. The Fund is not intended to present a
balanced investment program.
SECURITIES, INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make and strategies Artisan Partners may employ in pursuit of the
Fund's investment objective, including information about the risks and
restrictions associated with these instrument types and investment practices.
All investment policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of the Fund's investment restrictions is included in the
Statement of Additional Information. Compliance with policies and limitations
is determined at the time of purchase of a security; the Fund is not required to
sell an investment because of a later change in circumstances.
The Fund may not buy all of these instruments or use all of these techniques to
the full extent permitted unless Artisan Partners believes that doing so will
help the Fund achieve its goal. As a shareholder, you will receive semi-annual
and annual reports detailing the Fund's holdings and describing recent
investment practices.
COMMON STOCKS AND OTHER EQUITY SECURITIES
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives the holder the right to vote on measures
affecting the company's organization and operations. Although common stocks
have a history of long-term growth in value, their prices tend to fluctuate in
the short term.
The Fund invests mostly in the common stock of small cap companies, defined for
this purpose as those companies whose outstanding common stock has a total
market value of less than $1 billion. During some periods, the securities of
small companies, as a class, have performed better than the securities of large
companies, and in some periods they have performed worse. Stocks of small
companies tend to be more volatile and less liquid than stocks of large
companies. Compared to larger companies, small companies may have a shorter
history of operations, may not have as great an ability to raise additional
capital, may have a less diversified product line making them susceptible to
market pressure and may have a smaller public market for their shares.
The Fund may also invest in preferred stocks, and in interests in master limited
partnerships and real estate investment trusts ("REITs"). Preferred stocks
represent an equity interest in a corporation which, compared to common stock,
generally has a preferred return, but more limited appreciation potential. The
Fund's investments in master limited partnerships and REITs are the equity
investments in those entities.
RESTRICTIONS: Under normal circumstances, the Fund will invest at least 65% of
its total assets in securities of issuers with an aggregate common stock market
capitalization of less than $1 billion. The Fund may not
21
<PAGE>
The Fund in Detail - continued
acquire more than 10% of the outstanding voting securities of any one issuer.*
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. Investing in foreign securities may
present economic, market, currency fluctuation, and political risks that are
different, and in some cases greater, than investing in U.S. securities. See
the Fund's Statement of Additional Information for more information.
RESTRICTIONS: The Fund's investments in foreign securities (including ADRs) are
limited to not more than 25% of its total assets. The Fund does not intend to
invest more than 10% of its total assets in foreign securities.
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."
Futures contracts and options can be highly volatile and are subject to price
movements in underlying securities. The Fund's attempt to use such investments
for hedging purposes may not be successful and could result in reduction of the
Fund's total return. In addition, the loss from investing in futures
transactions is potentially unlimited and the Fund may be unable to control
losses by closing its position if a liquid secondary market does not exist.
- --------------------------
*The restriction is "fundamental," which means it cannot be changed without
shareholder approval.
22
<PAGE>
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by Artisan Partners to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price. Other
securities, such as securities acquired in private placements, may be sold only
in compliance with certain legal restrictions. Certain of these securities are
often referred to as Rule 144A securities. Difficulty in selling securities may
result in delays or a loss or may be costly to the Fund. A Rule 144A security
may be treated as liquid if the board of directors of the Fund so determines
based on an analysis of relevant information including trading activity and
availability of reliable price information.
RESTRICTIONS: The Fund may not invest more than 10% of its net assets in
illiquid or restricted securities other than Rule 144A securities.
DIVERSIFICATION
Diversifying the investment portfolio can reduce the risks of investing. This
may include limiting the amount of money invested in any one company or, on a
broader scale, limiting the amount invested in any one industry or country.
RESTRICTIONS: With respect to 75% of its total assets, the Fund may not invest
more than 5% of its total assets in the securities of any one issuer. The Fund
may not invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.*
LENDING PORTFOLIO SECURITIES; REPURCHASE AGREEMENTS; WHEN-ISSUED AND DELAYED-
DELIVERY SECURITIES
The Fund may make loans of its portfolio securities to broker-dealers and banks
and may invest in repurchase agreements as a cash management technique. A
repurchase agreement is a sale of securities to the Fund in which the seller
agrees to repurchase the securities at a higher price within a specified time.
The Fund could experience losses or delays in the event of bankruptcy of the
seller of a repurchase agreement.
The Fund may invest also in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities are established
at the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. The Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if it is deemed advisable for investment reasons.
RESTRICTIONS: The Fund may not lend securities if, as a result, the aggregate
value of all securities loaned would exceed one-third of its total assets.* The
Fund does not currently intend to loan more than 5% of its net assets or to have
commitments to purchase when-issued securities in excess of 5% of its net
assets.
BORROWING
Artisan Funds maintains a line of credit with a major bank to permit borrowing
by the Fund on a temporary basis. The Fund will not purchase securities when
total borrowings by the Fund are greater than 5% of its net asset value.
RESTRICTIONS: The Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate borrowings at any
one time may not exceed 33 1/3% of its total assets (at market).*
- ------------------------------
*The restriction is "fundamental," which means it cannot be changed without
shareholder approval.
23
<PAGE>
The Fund in Detail - continued
OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other 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 less than 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.
24
XXXXX
ARTISAN SMALL CAP VALUE FUND
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100 (800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
August 20, 1997
Supplemented through February 27, 1998
Artisan Small Cap Value 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 20, 1997 and any supplement to the prospectus. That
prospectus can be obtained without charge by calling or writing to the Fund
at the telephone numbers and address shown above.
TABLE OF CONTENTS
Page
----
Information about the Fund and Artisan Partners 2
Investment Objective and Policies 2
Investment Techniques and Risks 3
Investment Restrictions 17
Performance Information 19
Directors and Officers 23
Investment Advisory Services 26
Portfolio Transactions 27
Purchasing and Redeeming Shares 28
Additional Tax Information 30
Custodian 31
Independent Accountants 31
<PAGE>
INFORMATION ABOUT THE FUND AND ARTISAN PARTNERS
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds"). Artisan
Partners Limited Partnership ("Artisan Partners") provides investment
advisory services to the Fund.
Artisan Funds strives to offer distinctive, high-value-added investment
opportunities. Artisan Funds is not a "family" of indistinguishable
products devised by marketers in a financial services conglomerate.
Rather, Artisan Partners is a small partnership of investment
professionals, focused on a limited number of distinct investment
strategies, each of which is offered as a series of Artisan Funds. At the
date of this statement of additional information, those series are (in
addition to the Fund) are Artisan International Fund, Artisan Mid Cap Fund
and Artisan Small Cap Fund. The portfolio manager of each Fund is a
specialist in his or her market, with an investment process created and
refined through years of experience - an artisan. At Artisan Funds, we
believe that experienced, active managers investing in inefficient markets
can produce superior returns over time. The Artisan Funds are intended for
long-term investors who share on that belief.
The discussion below supplements the description in the prospectus of the
Fund's investment objectives, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
Artisan Small Cap Value Fund invests for long-term capital growth. 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 common stocks that appear undervalued
relative to earnings, book value, cash flows or potential earnings growth,
and that are issued by small companies whose outstanding shares have an
aggregate market value of less than $1 billion. It attempts to manage
investment risk in the stocks it purchases by emphasizing investments in
businesses that have positive cash flow, strong balance sheets, and
business strategies that are economically sound under ordinary
circumstances. Stocks are generally sold when they approach the Fund's
estimate of their enterprise value.
Because the Fund typically invests in companies that are characterized by
sparse Wall Street research coverage, it uses its own detailed screening
and research process. Companies in which the Fund invests usually appear
undervalued because they fall into one of the following general categories:
- The company operates in an industry category that is cyclical in nature
and is presently out of favor.
- The company has assets which are not adequately reflected in its market
value.
B-2
<PAGE>
- The company has experienced problems leading to a depressed stock price,
but is undergoing or is likely to undergo some change which the Fund
believes will improve its operations.
- The company is undiscovered or misunderstood by Wall Street analysts.
In addition to emphasizing investments in companies that are undervalued
and represent acceptable investment risks, the Fund attempts to manage
portfolio risk by diversifying its holdings to avoid concentration in any
one stock or industry sector.
Artisan Partners believes that there are two distinct approaches to
investing in stocks: growth and value. Artisan Small Cap Value Fund
follows a value approach. Artisan Small Cap Fund, another series of
Artisan Funds, follows a growth approach. Each of these two complementary
investment approaches has proven its merit over time, and each can play a
significant role in a well-crafted equity portfolio. For example, growth
investors look for companies with above-average rates of earnings growth,
while value investors look for companies whose stock appear temporarily
depressed; many growth investors pay a premium for stocks, while value
investors look for bargains; growth stocks tend to be more volatile than
value stocks; and growth stocks typically outperform value stocks in
strong markets, but underperform them in weak markets.
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible
securities. In addition, the Fund may from time to time invest in foreign
securities. The types of investments the Fund may make are discussed in
the following pages.
INVESTMENT TECHNIQUES AND RISKS
Foreign Securities
The Fund may invest up to 25% (but does not expect to invest more than 10%)
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
B-3
<PAGE>
to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under
"Managing Investment Exposure.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward
foreign currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically associated with
investing in U.S. securities. These considerations include: fluctuations
in exchange rates of foreign currencies; possible imposition of exchange
control regulation or currency restrictions that would prevent cash from
being brought back to the United States; less public information with
respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack of
uniform settlement periods and trading practices; less liquidity and
frequently greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls,
the adoption of foreign government restrictions, or other adverse
political, social or diplomatic developments that could affect investment
in these nations.
Debt Securities
Under normal market conditions, the Fund does not intend to invest in debt
securities other than convertible securities. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in
the Fund's portfolio as well as on market conditions. A decline in the
prevailing levels of interest rates generally increases the value of debt
securities, while an increase in rates usually reduces the value of those
securities.
Investments in debt securities by the Fund may be in those that are within
the four highest ratings categories of Standard & Poor's Corporation
("S&P") or Moody's Investors Services, Inc. ("Moody's") (generally referred
to as "investment grade") or, if unrated, deemed to be of comparable
quality by Artisan Partners. However, the Fund may invest up to 35% of its
net assets in debt securities that are rated below investment grade. The
Fund does not currently intend to invest more than 5% of its net assets in
securities rated below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to
affect the issuer's capacity to pay interest and repay principal. If the
rating of a security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security, but Artisan
Partners will consider that fact in determining whether the Fund should
continue to hold the security.
B-4
<PAGE>
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal according to the terms of the obligation and
therefore carry greater investment risk, including the possibility of
issuer default and bankruptcy.
Defensive Investments
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in
corporate or government obligations or hold cash or cash equivalents if
Artisan Partners determines that a temporary defensive position is
advisable.
Convertible Securities
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The
common stock underlying convertible securities may be issued by a different
entity than the issuer of the convertible securities. Convertible
securities entitle the holder to receive interest payments paid on
corporate debt securities or the dividend preference on a preferred stock
until such time as the convertible security matures or is redeemed or until
the holder elects to exercise the conversion privilege.
The value of convertible securities is influenced by both the yield of non-
convertible securities of comparable issuers and by the value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its
"investment value." The investment value of the convertible security will
typically fluctuate inversely with changes in prevailing interest rates.
However, at the same time, the convertible security will be influenced by
its "conversion value," which is the market value of the underlying common
stock that would be obtained if the convertible security were converted.
Conversion value fluctuates directly with the price of the underlying
common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock
upon exercise of the conversion right, while earning higher current income
than would be available if the stock were purchased directly. In
determining whether to purchase a convertible security, Artisan Partners
will consider the same criteria that would be considered in purchasing the
underlying stock. Although convertible securities purchased by the Fund
are frequently rated investment grade, the Fund also may purchase unrated
securities or securities rated below investment grade if the securities
meet Artisan Partners' other investment criteria. Convertible securities
rated below investment grade (a) tend to be more sensitive to interest rate
and economic changes, (b) may be obligations of issuers who are less
creditworthy than issuers of higher quality convertible securities, and (c)
may be more thinly traded due to such securities being less well known to
investors than either common stock or conventional debt securities. As a
result, Artisan Partners' own investment research and analysis tends to be
more important in the purchase of such securities than other factors.
B-5
<PAGE>
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, foreign exchange dealers or broker-dealers, are
not exchange traded, and are usually for less than one year, but may be
renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against
possible variations in the exchange rate between these currencies.
Currency transactions are limited to transaction hedging and portfolio
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward contracts with
respect to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to portfolio
security positions denominated or quoted in a particular currency.
Portfolio hedging allows the Fund to limit or reduce exposure in a foreign
currency by entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that
currency) so that the U.S. dollar value of certain underlying foreign
portfolio securities can be approximately matched by an equivalent U.S.
dollar liability. The Fund may not engage in portfolio hedging with
respect to the currency of a particular country to an extent greater than
the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that particular
currency, except that the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective proxy for
other currencies. In such a case, the Fund may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the
value of the securities denominated in such currency. The use of this
basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Fund. The
Fund may not engage in "speculative" currency exchange transactions.
B-6
<PAGE>
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 the Nasdaq National Market. The
Fund may purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of
B-7
<PAGE>
the option the security underlying the option (or the cash value of the
index) at a specified exercise price at any time during the term of the
option (normally not exceeding nine months). The writer of an option on
an individual security or on a foreign currency has the obligation upon
exercise of the option to deliver the underlying security or foreign
currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon
exercise, the writer of an option on an index is obligated to pay the
difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option.
(An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the call or
has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount are held in a segregated
account by its custodian) upon conversion or exchange of other securities
held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an
option purchased by the Fund expires, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from
writing the option, or, if it is more, the Fund will realize a capital
loss. If the premium received from a closing sale transaction is more than
the premium paid to purchase the option, the Fund will realize a capital
gain or, if it is less, the Fund will realize a capital loss. The
principal factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of
an option purchased or written is marked-to-market daily and is valued at
the closing price on the exchange on which it is traded or, if not traded
on an exchange or no closing price is available, at the mean between the
last bid and asked prices.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency
markets, and the options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to
achieve its
B-8
<PAGE>
objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or expected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close
out an option that it had purchased on a security, it would have to
exercise the option in order to realize any profit or the option would
expire and become worthless. If the Fund were unable to close out a
covered call option that it had written on a security, it would not be able
to sell the underlying security until the option expired. As the writer of
a covered call option on a security, the Fund foregoes, during the
option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it
has purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign
currency futures contracts. An interest rate, index or foreign currency
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index <F1> at a specified price and time. A public market
exists in futures contracts covering a number of indexes (including, but
not limited to: the Standard & Poor's 500 Index, the Value Line Composite
Index, the Russell 2000 Index, and the New York Stock Exchange Composite
Index) as well as financial instruments (including, but not limited to:
U.S. Treasury bonds, U.S. Treasury notes, Eurodollar certificates of
deposit, and foreign currencies). Other index and financial instrument
futures contracts are available and it is expected that additional futures
contracts will be developed and traded.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. The Fund might, for
example, use futures contracts to hedge against or gain exposure to
fluctuations in the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely affect
--------------------------
<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 fraction
of the value of certain specified securities, no physical delivery of
those securities is made.
B-9
<PAGE>
either the value of the Fund's securities or the price of the securities
that the Fund intends to purchase. Although other techniques could be
used to reduce or increase the Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using futures
contracts and futures options.
The Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.
The success of any futures transaction depends on Artisan Partners
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to
use futures contracts,
Artisan Partners might have taken portfolio actions in anticipation of the
same market movements with similar investment results but, presumably, at
greater transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or U.S. Government securities or other
securities acceptable to the broker ("initial margin"). The margin
required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract,
although the Fund's broker may require margin deposits in excess of the
minimum required by the exchange. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures contract held by
the Fund is valued daily at the official settlement price of the exchange
on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures
contract. This process is known as "marking-to-market." Variation margin
paid or received by the Fund does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract had expired at the
close of the previous day. In computing daily net asset value, the Fund
will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market
value of the option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(same exchange, underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price, the Fund
engaging in the transaction realizes a capital gain, or if it is more, the
Fund realizes a capital loss. Conversely, if an offsetting sale price is
more than the original purchase price, the Fund engaging
B-10
<PAGE>
in the transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be included in
these calculations.
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market exposure,
there can be no guarantee that there will be a correlation between price
movements in the futures contract and in the portfolio exposure sought. In
addition, there are significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options and
the related securities, including technical influences in futures and
futures options trading and differences between the securities market and
the securities underlying the standard contracts available for trading.
For example, in the case of index futures contracts, the composition of the
index, including the issuers and the weighting of each issue, may differ
from the composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may differ
from the financial instruments held in the Fund's portfolio. A decision as
to whether, when and how to use futures contracts involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock
price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end
of the current trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made on that
day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not limit
potential losses because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally moved
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price change
limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the
contracts discussed above are relatively new instruments without a
significant trading history. As a result, there can be no assurance that
an active secondary market will develop or continue to exist.
Limitations on Options and Futures. If other options, futures contracts,
or futures options of types other than those described herein are traded in
the future, the Fund also may use those investment vehicles, provided the
board of directors determines that their use is consistent with the Fund's
investment objective.
B-11
<PAGE>
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. The Fund currently
intends to limit its use of options and futures so that not more than 5% of
its total assets are at risk.
When purchasing 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%).
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, plus other capitalized costs of the option, 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
----------------------------
<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.
B-12
<PAGE>
purchased (put). For cash settlement options and futures options written
by the Fund, the difference between the cash paid at exercise, plus other
capitalized costs of the option, 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.
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, plus other capitalized costs of the option, 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, and non-equity options positions ("year-end
mark-to-market"). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual closing of
the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the
case of positions classified as part of a "mixed straddle," the recognition
of losses on certain positions (including options, futures and futures
options positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or buying
put options (or futures put options) that are intended to hedge against a
change in the value of securities held by the Fund may affect the holding
period of the hedged securities.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed
to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Fund's stock
---------------------
<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 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).
B-13
<PAGE>
positions may be deemed to be positions in a mixed straddle, subject to
the above-mentioned loss deferral rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for Federal income tax purposes on certain hedging strategies
with respect to appreciated securities. Under these rules taxpayers will
recognize gain, but not loss, with respect to securities if they enter
into short sales of "offsetting notional principal contracts" (as defined
by the Act) with respect to, or futures or "forward contracts" (as defined
by the Act) with respect to, the same or substantially identical property,
or if they enter into such transactions and then acquire the same or
substantially indentical property. These changes generally apply to
constructive sales after June 8, 1997. Furthermore, the Secretary of the
Treasury is authorized to promulgate regulations that will treat as
constructive sales certain transactions that have substantially the same
effect as short sales, offsetting notional principal contracts, and
futures or forward contracts to deliver the same or substantially similar
property.
In order for the Fund 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). 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 addition, for tax years
beginning before August 5, 1997, gains realized on the sale or other
disposition of securities held less than three months must be
less than 30% of the Fund's annual gross income. 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.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on the Fund or an
investor. Investors are urged to consult their own tax advisers for a
complete review of the tax ramifications of an investment in the Fund.
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
B-14
<PAGE>
restriction of investing no more than 10% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination, Artisan Partners
will consider the trading markets for the specific security, taking into
account the unregistered nature of a Rule 144A security. In addition,
Artisan Partners could consider the (1) frequency of trades and quotes, (2)
number of dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions,
Artisan Partners determined that a Rule 144A security is no longer liquid,
the Fund's holdings of illiquid securities would be reviewed to determine
what, if any, steps are required to assure that the Fund does not invest
more than 10% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Lending of Portfolio Securities
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the securities
loaned by the Fund. The Fund would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned, and
also would receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. The Fund would have the right
to call the loan and obtain the securities loaned at any time on notice of
not more than five business days. The Fund would not have the right to vote
the securities during the existence of the loan but would call the loan to
permit voting of the securities if, in Artisan Partners' judgment, a
material event requiring a shareholder vote would otherwise occur before
the loan was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses, including (a)
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access
to income during this period, and (c) expenses of enforcing its rights.
The Fund does not currently intend to loan more than 5% of its net assets.
Repurchase Agreements
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously
commits to resell that security to the bank or dealer at an agreed-upon
price, date, and market rate of interest unrelated to the coupon rate or
maturity of the purchased security. Although repurchase agreements carry
certain risks not associated with direct investments in securities, the
Fund will enter into repurchase agreements only with banks and dealers
believed by Artisan Partners to present minimum credit risks in accordance
with guidelines approved by the board of trustees. Artisan Partners will
review and monitor the creditworthiness of such institutions, and will
consider the capitalization
B-15
<PAGE>
of the institution, Artisan Partners' prior dealings with the institution,
any rating of the institution's senior long-term debt by independent
rating agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase were less than the
repurchase price, the Fund would suffer a loss. If the financial
institution which is party to the repurchase agreement petitions for
bankruptcy or otherwise becomes subject to bankruptcy or other liquidation
proceedings there may be restrictions on the Fund's ability to sell the
collateral and the Fund could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are
subject to the U.S. Bankruptcy Code, the Fund intends to comply with
provisions under such Code that would allow it immediately to resell
such collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities
may be delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such commitments only
with the intention of actually acquiring the securities, but may sell the
securities before settlement date if Artisan Partners deems it advisable
for investment reasons. The Fund does not currently intend to have
commitments to purchase when-issued securities in excess of 5% of its net
assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase
agreement in which the Fund is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon time and price.
Use of a reverse repurchase agreement may be preferable to a regular sale
and later repurchase of securities because it avoids certain market risks
and transaction costs. However, reverse repurchase agreements will be
treated as borrowing and subject to the Artisan Funds' fundamental
limitation on borrowing.
At the time the Fund enters into a binding obligation to purchase
securities on a when-issued or delayed-delivery basis or enters into a
reverse repurchase agreement, assets of the Fund having a value at least as
great as the purchase price of the securities to be purchased will be
segregated on the books of the Fund and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as
well as borrowing under a line of credit as described below, may increase
net asset value fluctuation.
Short Sales
The Fund may make short sales "against the box." In a short sale, the Fund
sells a borrowed security and is required to return the identical security
to the lender. A short sale "against the box" involves the sale of a
security with respect to which the Fund already owns an equivalent security
in kind and amount. A short sale "against the box" enables the Fund to
obtain the current market price of a security which it desires to sell but
is unavailable
B-16
<PAGE>
for settlement. The Fund does not currently intend to have
commitments to make short sales "against the box" in excess of 5% of its
net assets.
Line of Credit
Artisan Funds maintains a line of credit with a bank in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation
of portfolio securities. Any borrowings under that line of credit by the
Fund would be subject to restriction (4) under "Investment Restrictions"
in this statement of additional information.
Portfolio Turnover
Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. At times, the Fund may invest for short-term
capital appreciation. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors relating to
the desirability of holding or changing a portfolio investment. Because of
the Fund's flexibility of investment and emphasis on growth of capital, it
may have greater portfolio turnover than that of mutual funds that have
primary objectives of income or maintenance of a balanced investment
position. The future turnover rate may vary greatly from year to year. A
high rate of portfolio turnover in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by the Fund.
High portfolio turnover also may result in the realization of capital gains
or losses and, to the extent net short-term capital gains are realized,
any distributions resulting from such gains will be considered ordinary
income for Federal income tax purposes. (See "Dividends, Capital Gains,
and Taxes" in the prospectus, and "Additional Tax Information" in this
statement of additional information.)
INVESTMENT RESTRICTIONS
Fundamental Restrictions
Artisan Funds has adopted the following investment restrictions which may
not be changed without the approval of the Fund's shareholders, under which
the Fund may not:
(1) act as an underwriter of securities, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or
commodity contracts, except that it may enter into (a) futures and options
on futures and (b) forward contracts;
B-17
<PAGE>
(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>
(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:
(a) invest in companies for the purpose of exercising control or management;
-----------------------------
<F4> The Fund will not purchase securities when total borrowings by the
Fund are greater than 5% of its net asset value.
B-18
<PAGE>
(b) 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;
(c) invest more than 25% of its total assets (valued at time of purchase) in
securities of foreign issuers;
(d) 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
(e) 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.
(f) under normal market conditions, invest less than 65% of its total assets in
securities of issuers having aggregate common stock market capitalizations
of less than $1 billion, in each case taken at the time of investment.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return"
for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired
through reinvestment of all dividends and capital gains distributions.
"Average Annual Total Return" is the average annual compounded rate of
change in value represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(l+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
B-19
The Fund's Total Return from commencement of operations on September 29,
1997 through December 31, 1997 was 3.19%
<PAGE>
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the
Fund are not necessarily indicative of future results. The Fund's
performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information about
past performance is useful in reviewing the Fund's performance and in
providing some basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may be
compared with that of other mutual funds, indexes or averages of other
mutual funds, indexes of related financial assets or data, other accounts
or partnerships managed by Artisan Partners, and other competing investment
and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts
differs from that of the Fund. Comparison of the Fund to an alternative
investment should consider differences in features and expected
performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes
to be accurate. The Fund also may note its mention (including performance
or other comparative rankings) in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility for the
accuracy of such data. Newspapers and magazines and other media which
might mention the Fund include, but are not limited to, the following:
B-20
<PAGE>
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 Pensions and Investments
Chicago Business Personal Investor
Consumer Reports Jane Bryant Quinn
Consumer Digest (syndicated 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:
B-21
<PAGE>
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Russell 2000 Small Stock Index American Stock Exchange Composite Index
Russell Mid-Cap Stock Index NASDAQ Composite NASDAQ Industrials
Russell Mid-Cap Value Index (These indexes generally reflect the
Standard & Poor's 500 Stock Index performance of stocks traded in the
Standard & Poor's 400 Industrials indicated markets.)
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire 4000
Wilshire Small-Cap Index
Wilshire Small-Cap Value Index
(These indexes are widely
recognized indicators of general
U.S. stock market results.)
The performance of the Fund also may be compared to the following mutual
fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small
Company Growth Funds Average; Lipper General Equity Funds Average; Lipper
Equity Funds Average; Lipper Small Company Growth Fund Index; ICD
Aggressive Growth and Long Term Growth Funds Average; ICD Aggressive Growth
Fund Large Index; ICD Aggressive Growth Fund Small Index; ICD Aggressive
Growth Funds Average; ICD All Equity Funds Average; Morningstar Growth
Average; Morningstar Small-Cap Funds Average; Morningstar Aggressive Growth
Average; Morningstar U.S. Diversified Average; Morningstar Equity Fund
Average; Morningstar Hybrid Fund Average; Morningstar All Equity Funds
Average; and Morningstar General Equity Average.
The ICD Indexes reflect the unweighted average total return of the largest
twenty four funds within their respective category as calculated and
published by ICD.
The Lipper Small Company Growth Fund Index reflects the net asset value
weighted total return of the largest thirty growth funds as calculated and
published by Lipper Analytical Services, Inc. ("Lipper"), an independent
service that monitors the performance of more than 1,000 funds.
The Lipper, ICD and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated and published
by these independent services that monitor the performance of mutual funds.
The Fund also may use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another independent
service. Should Lipper or another service reclassify the Fund to a
different category or develop (and place the Fund into) a new category, the
Fund may compare its performance or ranking against other funds in the
newly assigned category, as published by the service. The Fund may compare
its performance or ranking against all funds tracked by Lipper or another
independent service.
The Fund may cite its rating, recognition or other mention by Morningstar,
Inc. ("Morningstar") or any other entity. Morningstar proprietary ratings
reflect historical risk-
B-22
<PAGE>
adjusted performance as of the date indicated. The ratings are subject to
change every month. Morningstar ratings are calculated from the fund's
three-, five-, and ten-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects fund performance below 90-day T-bill returns. Ten percent
of the funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and 10%
receive one star. A high rating reflects either above-average returns
or below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for
example, total return indexes, total return percentages, average annual
total returns and standard deviations of such returns) for the following
asset types: common stocks, small company stocks, long-term corporate
bonds, long-term government bonds, intermediate-term government bonds, U.S.
Treasury bills and Consumer Price Index. The Fund also may use historical
data compiled by Prudential Securities, Inc., or by other similar sources
believed by the Fund to be accurate, illustrating the past performance of
small-capitalization stocks, large-capitalization stocks, common stocks,
equity securities, growth stocks (small-capitalization, large-
capitalization, or both) and value stocks (small-capitalization, large-
capitalization, or both).
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, and their principal business
occupations during at least the last five (5) years, are shown below.
Directors deemed to be "interested persons" of Artisan Funds for purposes
of the 1940 Act are indicated with an asterisk.
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND AGE WITH REGISTRANT DURING THE PAST 5 YEARS
- ------------ --------------- -----------------------
Andrew A. Ziegler Director, Chairman Managing Director of Artisan
10/7/57 of the Board Partners; prior to founding
and Chief Artisan Partners, president
Executive Officer 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.
B-23
<PAGE>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND AGE WITH REGISTRANT DURING THE PAST 5 YEARS
- ------------ --------------- -----------------------
Carlene Murphy Ziegler Director and Managing Director of Artisan
6/20/56 President Partners; co-portfolio manager,
Artisan Small Cap Fund; 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 Stein Roe
Special Fund.
David A. Erne Director Partner of the law firm
5/6/43 Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, S.C.,
Milwaukee, WI.
Thomas R. Hefty Director President of United Wisconsin
6/9/47 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
5/17/40 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.
Lawrence A. Totsky Chief Financial Chief financial officer of
5/6/59 Officer, Treasurer Artisan Partners; senior vice
and Secretary president (since 1994) and director
of mutual fund administration,
Strong Capital Management, Inc.,
prior thereto.
B-24
<PAGE>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND AGE WITH REGISTRANT DURING THE PAST 5 YEARS
- ------------ --------------- -----------------------
Mark L. Yockey Vice President Portfolio manager, Artisan
6/5/56 International Fund; prior to
joining Artisan Partners in
November 1995, portfolio manager of
the United International Growth
Fund and vice president of Waddell
& Reed (investment management firm)
since January 1990; prior thereto,
equity analyst for Waddell & Reed.
Sandra Jean Vice President Equity trader for Artisan Partners;
Voss-Reinhardt prior to joining Artisan Partners,
3/6/64 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 the Fund
12/16/62 since August 1996; senior analyst
of Artisan Partners' small
capitalization equity products
since February 1995; 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.
Scott C. Satterwhite Vice President Portfolio manager, Artisan Small
7/15/57 Cap Value Fund; prior to joining
Artisan Partners in June 1997,
portfolio manager of the Biltmore
Special Values from August 1, 1993
through May 31, 1997 and Senior
Vice President and Manager of
Personal Trust Portfolio Management
for the Personal Financial Services
Group of Wachovia Bank of North
Carolina, N.A.
Andrew C. Stephens Vice President Portfolio manager, Artisan Mid Cap
10/31/63 Fund; co-manager of Strong Asset
Allocation Fund at Strong, February
1993 through March 1997, and senior
research analyst for Strong Common
Stock Fund and Strong Opportunity
Fund, September 1994 through March
1996; prior to February 1933, head
trader, Strong.
B-25
<PAGE>
The business address of the officers and directors affiliated with Artisan
Partners is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202. The addresses of the other directors are: Mr. Erne - 1000 N.
Water Street, Milwaukee, Wisconsin 53202; Mr. Hefty - 401 W. Michigan
Street, Milwaukee, Wisconsin 53203; and Mr. Witt - 800 E. Northwest
Highway, Des Plaines, Illinois 60016.
Mr. Ziegler and Ms. Ziegler are married to each other.
Mr. Ziegler and Ms. Ziegler serve as members of the Executive Committee of
the Board of Directors. The Executive Committee, which meets between
regular meetings of the Board, is authorized to exercise all of the powers
of the Board of Directors.
The only compensation paid to directors and officers of Artisan Funds for
their services as such consists of an annual $5,000 retainer fee (per
series of Artisan Funds) paid to directors who are not interested persons
of Artisan Funds or Artisan Partners. Artisan Funds has no retirement or
pension plans.
The following table sets forth compensation paid by the Fund and by Artisan
Funds, Inc. during the fiscal year ended June 30, 1997 to each of the
directors of the Fund.
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
BENEFITS ANNUAL FROM ARTISAN
AGGREGATE ACCRUED AS PART BENEFITS MID CAP FUND AND
FROM SMALL OF FUND UPON FUND COMPLEX
NAME OF DIRECTOR CAP VALUE FUND EXPENSES RETIREMENT PAID TO DIRECTORS
- ---------------- -------------- -------- ---------- -----------------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy
Ziegler 0 0 0 0
David A. Erne 0 0 0 10,000
Thomas R. Hefty 0 0 0 10,000
Howard B. Witt 0 0 0 10,000
No shares of the Fund were outstanding on the date of this Statement of
Additional Information. However, prior to the commencement of public
offering of shares of the Fund, Artisan Partners or one or more of its
principals, will purchase shares of the Fund at an initial price of $10 per
share.
INVESTMENT ADVISORY SERVICES
Artisan Partners Limited Partnership ("Artisan Partners") provides
investment advisory services to the Fund pursuant to an Investment Advisory
Agreement dated August 20, 1997 (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. Artisan Partners also has offices at 100
B-26
<PAGE>
Pine Street, Suite 3250, San Francisco, California and Five
Concourse Parkway, Suite 2120, Atlanta, Georgia 30328.
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 any ordinary
operating expenses in excess of 2.00% of average net assets over each
fiscal year.
The Advisory Agreement provides that Artisan Partners shall not be liable
for any loss suffered by the Fund or its shareholders as a consequence of
any act of omission in connection with investment advisory or portfolio
services under the agreement, except by reason of willful misfeasance, bad
faith or gross negligence on the part of Artisan Partners in the
performance of its duties or from reckless disregard by Artisan Partners of
its obligations and duties under the Advisory Agreement.
The Advisory Agreement will expire on April 30, 1999, but may be continued
from year to year thereafter 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).
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.
B-27
<PAGE>
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the
best combination of price and execution with respect to a particular
portfolio transaction for the Fund, Artisan Partners often selects a broker
or dealer that has furnished it with research products or services such as
research reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and services,
research-oriented computer software and services, and services of economic
and other consultants. Selection of brokers or dealers is not made pursuant
to an agreement or understanding with any of the brokers or dealers;
however, Artisan Partners uses internal allocation procedures to identify
those brokers or dealers who provide it with research products or services
and the amount of research products or services they provide, and endeavors
to direct sufficient commissions generated by its clients' accounts in the
aggregate, including the Fund, to such brokers or dealers to ensure the
continued receipt of research products or services Artisan Partners feels
are useful. In certain instances, Artisan Partners receives from brokers
and dealers products or services that are used both as investment research
and for administrative, marketing, or other non-research purposes. In such
instances, Artisan Partners makes a good faith effort to determine the
relative proportions of such products or services which may be considered
as investment research. The portion of the costs of such products or
services attributable to research usage may be defrayed by Artisan
Partners (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including the Fund), while the portions of the costs attributable to non-
research usage of such products or services is paid by Artisan Partners in
cash. No person acting on behalf of the Fund is authorized, in recognition
of the value of research products or services, to pay a commission in
excess of that which another broker or dealer might have charged for
effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of
Artisan Partners and not all such research products or services are used in
connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer of a net basis, Artisan Partners also
may consider the part, if any, played by the broker or dealer in bringing
the security involved to Artisan Partners' attention, including investment
research related to the security and provided to the Fund.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares," and "How to Sell Shares." All of that
information is incorporated herein by reference.
Shares of the Fund may be purchased or redeemed through certain financial
services companies some of which may charge a transaction fee. The Fund
may authorize from time to time certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share
purchase and redemption orders on the Fund's behalf. For purchase orders
placed through an authorized agent, a shareholder will pay the Fund's NAV
per share (see "Net Asset Value," below), next computed after the receipt
by the authorized agent of such purchase order
B-28
<PAGE>
plus any applicable transaction fee imposed by the agent. For redemption
orders placed through an authorized agent, a shareholder will receive
redemption proceeds with reflect the NAV per share next computed after the
receipt by the authorized agent of the redemption order, less any
redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company
may not charge any transaction fees directly to investors in the Fund.
However, for accounting and shareholder services provided by such company
with respect to Fund shares held by that company for its customers, the
company may charge a fee (currently up to 0.35%) of the annual average
value of those accounts. The Fund pays a portion of those fees not to
exceed the estimated fees and expenses that the Fund would pay to its own
transfer agent if the shares of the Fund held by such customers of the
company were registered directly in their names on the books of the Fund's
transfer agent. The balance of those fees is paid by Artisan Partners.
Net Asset Value. Share purchase and redemption orders will be priced at the
Fund's net asset value next computed after such orders are received and
accepted by: (i) the Fund; (ii) a broker-dealer or other financial
services company authorized by the Fund to accept purchase and redemption
orders on the Fund's behalf; or (iii) such authorized broker-dealer's
designee. The net asset value of the shares of the Fund is determined as
of the close of regular session trading on the New York Stock Exchange
("NYSE") (currently 3:00 p.m., Central time) each day the NYSE is open
for trading. The NYSE is regularly closed on Saturdays and Sundays
and on New Year's Day, the third Monday in January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day, Labor
Day, Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding Friday or
the following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment of
the board of directors, net asset value of the Fund should be determined
on any such day, in which case the determination will be made at 3:00 p.m.,
Central time. The net asset value per share of the Fund is determined by
dividing the value of all its securities and other assets, less its
liabilities, by the number of shares of the Fund outstanding.
The Fund intends to pay all redemptions in cash and is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Fund during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of readily marketable securities. If redemptions
were made in kind, the redeeming shareholders might incur transaction costs
in selling the securities received in the redemptions.
The Fund reserves the right to suspend or postpone redemptions of its
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Commission, if the NYSE is closed for other than
customary weekend and holiday closings; (b) the Commission has by order
permitted such suspension; or (c) an emergency, as determined by the
Commission, exists, making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable.
B-29
<PAGE>
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 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.
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the
prior calendar year is deemed paid in the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions of net long-
term capital gain will be taxable to you as long-term capital gain
regardless of the length of time you have held your shares.
You will be advised annually as to the source if distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent
of any long-term capital gain distributions you have received with
respect to those shares.
The Taxpayer Relief Act of 1997 reduced from 28% to 20% the maximum tax
rate on long-term capital gains. This reduced rate generally applies to
securities held more than 18 months and sold after July 28, 1997, and
securities held more than one year and sold between May 6, 1997 and
July 29, 1997.
The Fund may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption
proceeds. Backup withholding may be required if:
- You fail to furnish your properly certified social security
or other tax identification number;
- You fail to certify that your tax identification number is correct
or that you are not subject to backup withholding due to the
underreporting of certain income;
- The IRS informs the Fund that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. The Fund must promptly pay the IRS all
amounts withheld. Therefore, it is not usually possible for the Fund to
reimburse you for amounts withheld. You may, however, claim the amount
withheld as a credit on your federal income tax return.
B-30
<PAGE>
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 securities
in 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.
The discussion of taxation above is not intended to be a full discussion
of income tax laws and their effect on shareholders. You are encouraged
to consult your own tax advisor. The foregoing information applies to
U.S. shareholders. Foreign shareholders should consult their tax
advisors as to the tax consequences of ownership of Fund shares.
CUSTODIAN
State Street Bank & Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, MA 02171, acts as custodian of the securities and other
assets of the Fund. State Street is responsible for, among other things,
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends
on the Fund's investments. State Street also performs portfolio accounting
services for the Fund. State Street is not an affiliate of Artisan
Partners or its affiliates. State Street is authorized to deposit
securities in securities depositories for the use of services of sub-
custodians.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
serves as the Fund's independent accountants, providing services including
(i) audit of the annual financial statements; (ii) assistance and
consultation in connection with Securities and Exchange Commission filings;
and (iii) review of the annual income tax returns filed on behalf of the
Fund.
FINANCIAL STATEMENTS
The December 31, 1997 Semi-Annual Report to shareholders accompanies this
statement of additional information. The Semi-Annual Report contains
financial statements, notes thereto and supplementary information
entitled "Financial Highlights," all of which (but no other part of the
report) are incorporated herein by reference. Additional copies of the
report may be obtained from Artisan Funds at no charge by writing or
telephoning Artisan Funds at the address or telephone number on the
cover page of this statement of additional information. The unaudited
financial statements included in the Fund's Semi-Annual Report reflect
all adjustments which are, in the opinion of management, necessary to
a fair statement of the results for the interim period presented.
B-31
<PAGE>
ARTISAN SMALL CAP FUND
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100 (800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1997
Supplemented through February, 27 1998
Artisan Small Cap Fund (the "Fund") is a series of Artisan Funds, Inc.
("Artisan Funds"). This statement of additional information is not a
prospectus. It should be read in conjunction with the prospectus of the Fund
dated October 28, 1997 and any supplement to the prospectus. That prospectus
can be obtained without charge by calling or writing to the Fund.
TABLE OF CONTENTS
Page
Information about the Fund and Artisan Partners....................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-27
Purchasing and Redeeming Shares...................................B-29
Additional Tax Information........................................B-30
Custodian.........................................................B-31
Independent Accountants...........................................B-32
Financial Statements..............................................B-32
<PAGE>
INFORMATION ABOUT THE FUND AND ARTISAN PARTNERS
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds"). Artisan
Partners Limited Partnership ("Artisan Partners") provides investment advisory
services to the Fund.
Artisan Funds strives to offer distinctive, high-value-added investment
opportunities. Artisan Funds is not a "family" of indistinguishable products
devised by marketers in a financial services conglomerate. Rather, Artisan
Partners is a small partnership of investment professionals, focused on a
limited number of distinct investment strategies, each of which is offered as
a series of Artisan Funds. At the date of this statement of additional
information, those series are (in addition to the Fund) are Artisan
International Fund, Artisan Mid Cap Fund and Artisan Small Cap Value Fund.
The portfolio manager of each Fund is a specialist in his or her market, with
an investment process created and refined through years of experience - an
artisan. At Artisan Funds, we believe that experienced, active managers
investing in inefficient markets can produce superior returns over time.
The Artisan Funds are intended for long-term investors who share on that belief.
The discussion below supplements the description in the prospectus of the
Fund's investment objectives, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
Artisan Small Cap Fund invests for maximum long-term capital growth
primarily in the common stocks of small companies whose outstanding shares have
an aggregate market value of less than $1 billion. The investment objective of
the Fund may be changed by the board of directors without the approval of a
"majority of the outstanding voting securities" (as defined in the Investment
Company Act of 1940) of the Fund.
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities.
In addition, the Fund may from time to time have significant portions of its
portfolio invested in foreign securities. The Fund also may invest in any other
type of security, including debt securities.
INVESTMENT TECHNIQUES AND RISKS
Foreign Securities
The Fund may invest up to 25% of its total assets in foreign securities
(including American Depository Receipts ("ADRs")), which may entail a greater
degree of risk (including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than does investment in securities of
domestic issuers. ADRs are receipts typically issued by an American bank or
trust company evidencing ownership of the underlying securities. The Fund may
invest in sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the
Fund is likely to
B-2
<PAGE>
bear its proportionate share of the expenses of the depository
and it may have greater difficulty in receiving shareholder communications than
it would have with a sponsored ADR. The Fund does not intend to invest more
than 5% of its net assets in unsponsored ADRs.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under "Managing
Investment Exposure.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward
foreign currency exchange contracts involve certain considerations comprising
both risks and opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought back to the
United States; less public information with respect to issuers of securities;
less governmental supervision of stock exchanges, securities brokers, and
issuers of securities; lack of uniform accounting, auditing, and financial
reporting standards; lack of uniform settlement periods and trading
practices; less liquidity and frequently greater price volatility in
foreign markets than in the United States; possible imposition of foreign
taxes; possible investment in securities of companies in developing as
well as developed countries; and sometimes less advantageous legal,
operational, and financial protections applicable to foreign sub-custodial
arrangements.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
Debt Securities
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
Investments in debt securities by the Fund may be in those that are within
the four highest ratings categories of Standard & Poor's Corporation ("S&P")
or Moody's Investors Services, Inc. ("Moody's") (generally referred to as
"investment grade") or, if unrated, deemed to be of comparable quality by
Artisan Partners. However, the Fund may invest up to 35% of its net
B-3
<PAGE>
assets in debt securities that are rated below investment grade. The Fund
does not currently intend to invest more than 5% of its net assets in securities
rated below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Artisan Partners will consider that
fact in determining whether the Fund should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
Defensive Investments
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in corporate
or government obligations or hold cash or cash equivalents if Artisan Partners
determines that a temporary defensive position is advisable.
Convertible Securities
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The common
stock underlying convertible securities may be issued by a different entity than
the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege.
The value of convertible securities is influenced by both the yield of non-
convertible securities of comparable issuers and by the value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." The
investment value of the convertible security will typically fluctuate inversely
with changes in prevailing interest rates. However, at the same time, the
convertible security will be influenced by its "conversion value," which is
the market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, Artisan Partners will consider the same
criteria that would be considered in purchasing the underlying stock. Although
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet
B-4
<PAGE>
Artisan Partners' other investment criteria. Convertible securities rated
below investment grade (a) tend to be more sensitive to interest rate and
economic changes, (b) may be obligations of issuers who are less creditworthy
than issuers of higher quality convertible securities, and (c) may be more
thinly traded due to such securities being less well known to investors than
either common stock or conventional debt securities. As a result, Artisan
Partners' own investment research and analysis tends to be more important
in the purchase of such securities than other factors.
Managing Investment Exposure
The Fund uses various techniques to increase or decrease its exposure to
the effects of possible changes in security prices, currency exchange rates or
other factors that affect the value of its portfolio. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation.
CURRENCY EXCHANGE TRANSACTIONS. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. Currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities. Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted in a particular
currency. Portfolio hedging allows the Fund to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that currency) so
that the U.S. dollar value of certain underlying foreign portfolio securities
can be approximately matched by an equivalent U.S. dollar liability. The Fund
may not engage in portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular currency, except that the Fund may hedge all or part of its
foreign currency exposure through the use of a
B-5
<PAGE>
basket of currencies or a proxy currency where such currencies or currency
act as an effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign currency
to be sold exceeds the value of the securities denominated in such currency.
The use of this basket hedging technique may be more efficient and economical
than entering into separate forward contracts for each currency held in the
Fund. The Fund may not engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular currency, the
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Because currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
B-6
<PAGE>
OPTIONS ON SECURITIES AND INDEXES. The Fund may purchase and sell put
options and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may purchase
agreements, sometimes called cash puts, that may accompany the purchase of a new
issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign currency has the
obligation upon exercise of the option to deliver the underlying security or
foreign currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon exercise,
the writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price multiplied by the
specified multiplier for the index option. (An index is designed to reflect
specified facets of a particular financial or securities market, a specific
group of financial instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an option
written by the Fund is recorded
B-7
<PAGE>
as a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire and become
worthless. If the Fund were unable to close out a covered call option that
it had written on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered call option
on a security, the Fund foregoes, during the option's life, the opportunity
to profit from increases in the market value of the security covering the
call option above the sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index <F1>
at a specified price and time. A public market exists in futures contracts
covering a number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, the Russell 2000 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.
B-8
<PAGE>
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other techniques
could be used to reduce or increase the Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
The success of any futures transaction depends on Artisan Partners
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, Artisan Partners might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its custodian or broker 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 generally
set by the exchange on which the contract is traded, although the margin
requirement may be modified during the term of the contract and the Fund's
broker may require margin deposits in excess of the minimum required by the
exchange. 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
B-9
<PAGE>
nature of the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other futures
positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. In trying to increase or reduce market exposure, there can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there
are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets,
causing a given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as: variations
in speculative market demand for futures, futures options and the related
securities, including technical influences in futures and futures
options trading and differences between the securities market and the
securities underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition of the
index, including the issuers and the weighting of each issue, may differ
from the composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may differ
from the financial instruments held in the Fund's portfolio. A decision
as to whether, when and how to use futures contracts involves the exercise
of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock
price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the
B-10
<PAGE>
position during the interval of inability to close, and would continue to be
required to meet margin requirements until the position is closed. In
addition, many of the contracts discussed above are relatively new instruments
without a significant trading history. As a result, there can be no assurance
that an active secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES. If other options, futures contracts,
or futures options of types other than those described herein are traded in the
future, the Fund also may use those investment vehicles, provided the board of
directors determines that their use is consistent with the Fund's investment
objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"
<F2> would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, the Fund must maintain with its custodian (or broker, if legally
permitted) assets (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the Fund similarly
will maintain with its custodian assets (including any margin) equal to the
amount by which such option is in-the-money until the option expires or is
closed out by the Fund.
The Fund may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent the Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
within the meaning and intent of Regulation 1.3(z), the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into (in the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%).
<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.
B-11
<PAGE>
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.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with
respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses
on certain positions (including options, futures and futures options positions,
the related securities and certain successor positions thereto) may be deferred
to a later taxable year. Sale of futures contracts or writing of call options
(or futures call options) or buying put options (or futures put options) that
are intended to hedge against a
<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).
B-12
<PAGE>
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.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for Federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales
of "offsetting notional principal contracts" (as defined by the Act) with
respect to, or futures or "forward contracts" (as defined by the Act) with
respect to, the same or substantially identical property, or if they enter
into such transactions and then acquire the same or substantially identical
property. These changes generally apply to constructive sales after June 8,
1997. Furthermore, the Secretary of the Treasury is authorized to promulgate
regulations that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting notional
principal contracts, and futures or forward contracts to deliver the same
or substantially similar property.
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). 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 addition, for tax years beginning before August 5, 1997, gains
realized on the sale or other disposition of securities held less than three
months must be less than 30% of the Fund's annual gross income. 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
B-13
<PAGE>
registered for sale under the 1933 Act. Artisan Partners, under the supervision
of the board of directors, will consider whether Rule 144A securities are
illiquid and thus subject to the Fund's restriction of investing no more than
10% of its net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, Artisan Partners will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, Artisan Partners could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions,
Artisan Partners determined that a Rule 144A security is no longer liquid,
the Fund's holdings of illiquid securities would be reviewed to determine
what, if any, steps are required to assure that the Fund does not invest
more than 10% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
Artisan Partners' judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights. The Fund does not
currently intend to loan more than 5% of its net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, the Fund will enter into
repurchase agreements only with banks and dealers believed by Artisan Partners
to present minimum credit
B-14
<PAGE>
risks in accordance with guidelines approved by the board of trustees.
Artisan Partners will review and monitor the creditworthiness of such
institutions, and will consider the capitalization of the institution,
Artisan Partners' prior dealings with the institution, any rating of
the institution's senior long-term debt by independent rating agencies,
and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Artisan Partners deems it advisable for investment reasons.
The Fund does not currently intend to have commitments to purchase when-issued
securities in excess of 5% of its net assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
However, reverse repurchase agreements will be treated as borrowing and subject
to the Artisan Funds' fundamental limitation on borrowing.
At the time the Fund enters into a binding obligation to purchase
securities on a when-issued or delayed-delivery basis or enters into a reverse
repurchase agreement, assets of the Fund having a value at least as great as the
purchase price of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of the obligation.
The use of these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value fluctuation.
SHORT SALES
The Fund may make short sales "against the box." In a short sale, the
Fund sells a borrowed security and is required to return the identical security
to the lender. A short sale "against the box" involves the sale of a security
with respect to which the Fund already owns an
B-15
<PAGE>
equivalent security in kind and amount. A short sale "against the box" enables
the Fund to obtain the current market price of a security which it desires
to sell but is unavailable for settlement. The Fund does not currently
intend to have commitments to make short sales "against the box" in
excess of 5% of its net assets.
LINE OF CREDIT
Artisan Funds maintains a line of credit with a bank in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Fund
would be subject to restriction (4) under "Investment Restrictions" in
this statement of additional information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. At times, the Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The future turnover
rate may vary greatly from year to year. A high rate of portfolio turnover in
the Fund, if it should occur, would result in increased transaction expense,
which must be borne by the Fund. High portfolio turnover also may result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for Federal income tax purposes. (See "Dividends,
Capital Gains, and Taxes' in the prospectus, and "Additional Tax Information"
in this statement of additional information.)
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Artisan Funds has adopted the following investment restrictions which
may not be changed without the approval of the Fund's shareholders, under which
the Fund may not:
(1) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or
B-16
<PAGE>
interests therein), commodities, or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) forward contracts;
(3) make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations which
are publicly distributed, or from investing up to an aggregate of 15% of its
total assets (taken at market value at the time of each purchase) in parts of
issues of bonds, debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its total
assets (taken at market value at the time of such loan);
(4) borrow (including entering into reverse repurchase agreements),
except that it may (a) borrow up to 33 1/3% of its total assets, taken at market
value at the time of such borrowing, as a temporary measure for extraordinary
or emergency purposes, but not to increase portfolio income and (b) enter into
transactions in options, futures, and options on futures; <F4>
(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 were formerly
<F4> The Fund will not purchase securities when total borrowings by the Fund are
greater than 5% of its net asset value.
B-17
<PAGE>
required by law or regulation of one or more states in which shares of the
Fund are offered for sale. The Fund expects that certain of the following
restrictions (including restrictions (a), (d) through (g), and (i) through
(k)) will be revised or eliminated, although no change in the Fund's
operations is 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;
(d) purchase or hold securities of an issuer if 5% of the securities
of such issuer are owned by those officers, directors or partners of the Fund or
of its investment adviser, who each own beneficially more than 1/2 of 1% of the
securities of that issuer;
(e) purchase securities of issuers (other than issuers of Federal
agency obligations or securities issued or guaranteed by any foreign country or
asset-backed securities) that, including their predecessors or unconditional
guarantors, have been in operation for less than three years, if by reason of
such purchase the value of the Fund's investment in all such securities will
exceed 5% of its total assets (valued at time of purchase);
(f) mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection with options,
futures, and options on futures;
(g) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in warrants that are
not listed on the New York or American stock exchange;
(h) invest more than 25% of its total assets (valued at time of
purchase) in securities of foreign issuers;
B-18
<PAGE>
(i) buy or sell an option on a security, a futures contract, or an
option on a futures contract unless the option, the futures contract, or the
option on the futures contract is offered through the facilities of a recognized
securities association or listed on a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums paid for
all put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options purchased
as closing transactions;
(k) invest more than 5% of its net assets in restricted securities,
other than securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933;
(l) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), or sell securities
short unless (i) the Fund owns or has the right to obtain securities equivalent
in kind and amount to those sold short at no added cost or (ii) the securities
sold are "when issued" or "when distributed" securities which the Fund
expects to receive in recapitalization, reorganization, or other exchange for
securities the Fund contemporaneously owns or has the right to obtain and
provided that transactions in options, futures, and options on futures are not
treated as short sales; or
(m) invest more than 10% of its net assets (taken at market value at
the time of each purchase) in illiquid securities, including repurchase
agreements maturing in more than seven days.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(l+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
B-19
<PAGE>
The Fund's Total Return and Average Total Return for various periods
ended June 30, 1997 is shown below:
Average Annual
Total Return Total Return
------------ --------------
1 year 11.3% 11.3%
Life of Fund <F5> 64.6% 24.6%
<F5> from March 28, 1995 (commencement of operations)
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the Fund
are not necessarily indicative of future results. The Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing the Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts or
partnerships managed by Artisan Partners Limited Partners, and other competing
investment and deposit products available from or through other financial insti-
tutions. The composition of these indexes, averages or accounts differs from
that of the Fund. Comparison of the Fund to an alternative investment should
consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes to be
accurate. The Fund also may note its mention (including performance or other
comparative rankings) in newspapers, magazines, or other media from time to
time. However, the Fund assumes no responsibility for the accuracy of such
data. Newspapers and magazines and other media which might mention the Fund
include, but are not limited to, the following:
B-20
<PAGE>
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:
B-21
<PAGE>
Dow-Jones Industrial Average New York Stock Exchange
Russell 2000 Small Stock Index Composite Index
Russell Mid-Cap Stock Index American Stock Exchange
Russell Mid-Cap Value Index Composite Index
Standard & Poor's 500 Stock Index NASDAQ Composite
Standard & Poor's 400 Industrials NASDAQ Industrials
Standard & Poor's Mid-Cap 400 (These indexes generally
Index reflect the performance
Wilshire 5000 of stocks traded in the
Wilshire 4500 indicated markets.)
Wilshire 4000
Wilshire Small-Cap Index
Wilshire Small-Cap Value Index
(These indexes are widely
recognized indicators of general
U.S. stock market results.)
The performance of the Fund also may be compared to the following mutual
fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company
Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds
Average; Lipper Small Company Growth Fund Index; ICD Aggressive Growth and Long
Term Growth Funds Average; ICD Aggressive Growth Fund Large Index; ICD
Aggressive Growth Fund Small Index; ICD Aggressive Growth Funds Average; ICD All
Equity Funds Average; Morningstar Growth Average; Morningstar Small-Cap Funds
Average; Morningstar Aggressive Growth Average; Morningstar U.S. Diversified
Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund Average;
Morningstar All Equity Funds Average; and Morningstar General Equity Average.
The ICD Indexes reflect the unweighted average total return of the largest
twenty four funds within their respective category as calculated and published
by ICD.
The Lipper Small Company Growth Fund Index reflects the net asset value
weighted total return of the largest thirty growth funds as calculated and
published by Lipper Analytical Services, Inc. ("Lipper"), an independent
service that monitors the performance of more than 1,000 funds.
The Lipper, ICD and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated and published by
these independent services that monitor the performance of mutual funds. The
Fund also may use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. The Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service.
The Fund may cite its rating, recognition or other mention by Morningstar,
Inc. ("Morningstar") or any other entity. Morningstar's rating system is
based on risk-adjusted total
B-22
<PAGE>
return performance and is expressed in a star-rating format. The risk-adjusted
number is computed by subtracting a Fund's risk score (which is a function of
the Fund's monthly returns less the 3-month Treasury bill return) from the
Fund's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. The Fund also may use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by the Fund to be
accurate, illustrating the past performance of small-capitalization stocks,
large-capitalization stocks, common stocks, equity securities, growth stocks
(small-capitalization, large-capitalization, or both) and value stocks (small-
capitalization, large-capitalization, or both).
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, their dates of birth and their
principal business occupations during at least the last five (5) years, are
shown below. Directors deemed to be "interested persons" of Artisan Funds for
purposes of the 1940 Act are indicated with an asterisk.
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
- ----------------- --------------------- ----------------------------------
Andrew A. Ziegler Director, Chairman of Managing Partner of Artisan
10/7/57 the Board and Chief Partners; prior to founding
Executive 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.
B-23
<PAGE>
Carlene Murphy Director and President Managing Partner of Artisan
Ziegler Partners; prior to founding
6/20/56 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 Stein
Roe Special Fund.
David A. Erne Director Partner of the law firm Reinhart,
5/6/43 Boerner, Van Deuren, Norris &
Rieselbach, S.C., Milwaukee, WI.
Thomas R. Hefty Director President of United Wisconsin
6/9/47 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
5/17/40 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.
Lawrence A. Totsky Chief Financial Chief financial officer of
5/6/59 Officer, Treasurer Artisan Partners; senior vice
and Secretary president (since 1994) and director
of mutual fund administration,
Strong Capital Management, Inc.,
prior thereto.
B-24
<PAGE>
Mark L. Yockey Vice President Partner of Artisan Partners; prior
6/5/56 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 Artisan
3/6/64 Partners, equity trader with
Northwestern Mutual since January
1989, prior thereto, sales
associate with Dean Witter
Reynolds.
Millie Adams Vice President Co-portfolio manager of the Fund;
Hurwitz prior to joining Artisan Partners,
12/16/62 co-portfolio manager at Stein Roe
& Farnham Incorporated from 1992
until 1995, and an analyst with
OLC Corporation from 1989 to 1991.
Scott C. Vice President Portfolio manager, Artisan Small
Satterwhite Cap Value Fund; prior to joining
7/15/57 Artisan Partners in June 1997,
portfolio manager of the Biltmore
Special Values Fund from August 1,
1993 through May 31, 1997 and
Senior Vice President and Manager
of Personal Trust Portfolio
Management for the Personal
Financial Services Group of
Wachovia Bank of North Carolina,
N.A.
Andrew C. Stephens Vice President Portfolio manager, Artisan Mid Cap
10/31/63 Fund; co-manager of Strong Asset
Allocation Fund at Strong,
February 1993 through March 1997,
and senior research analyst for
Strong Common Stock Fund and
Strong Opportunity Fund, September
1994 through March 1996; prior to
February 1933, head trader,
Strong.
The business address of the officers and directors affiliated with Artisan
Partners is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin 53202.
The addresses of the other
B-25
<PAGE>
directors are: Mr. Erne - 1000 N. Water Street, Milwaukee, Wisconsin 53202;
Mr. Hefty - 401 W. Michigan Street, Milwaukee, Wisconsin 53203; and
Mr. Witt - 800 E. Northwest Highway, Des Plaines, Illinois 60016.
Mr. Ziegler and Ms. Ziegler are married to each other.
Mr. Ziegler and Ms. Ziegler serve as members of the Executive Committee of
the Board of Directors. The Executive Committee, which meets between regular
meetings of the Board, is authorized to exercise all of the powers of the Board
of Directors.
The only compensation paid to directors and officers of Artisan Funds for
their services as such consists of an annual $5,000 retainer fee (per series of
Artisan Funds) paid to directors who are not interested persons of Artisan Funds
or Artisan Partners. Artisan Funds has no retirement or pension plans.
The following table sets forth compensation paid by the Fund and by Artisan
Funds, Inc. (comprised of the Fund and Artisan International Fund) during the
fiscal year ended June 30, 1997 to each of the directors of the Fund.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM ARTISAN
AGGREGATE BENEFITS ESTIMATED SMALL CAP FUND
COMPENSATION ACCRUED ANNUAL AND FUND
NAME OF FROM ARTISAN AS PART OF BENEFITS UPON COMPLEX PAID
DIRECTOR SMALL CAP FUND FUND EXPENSES RETIREMENT TO DIRECTORS
- -------- -------------- ------------- ---------- ------------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy Ziegler 0 0 0 0
David A. Erne 5,000 0 0 10,000
Thomas R. Hefty 5,000 0 0 10,000
Howard B. Witt 5,000 0 0 10,000
On September 30, 1997, the officers and directors of Artisan Funds as a
group owned less than 1% of the outstanding shares of the Fund and less than 1%
of the outstanding shares of Artisan Funds.
PRINCIPAL SHAREHOLDERS
No person was known by Artisan Funds to own of record or beneficially 5% or
more of the outstanding shares of the Fund at September 30, 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 March 27, 1995 (the "Advisory Agreement"). Artisan Partners
is a Delaware limited partnership. Artisan Investment Corporation was
incorporated on December 7, 1994 for the sole purpose of acting as general
partner of Artisan Partners. Mr. Ziegler and Ms. Ziegler, as officers of
Artisan Investment
B-26
<PAGE>
Corporation, manage Artisan Partners. The principal address of Artisan
Partners is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202. Artisan Partners also has offices at 100 Pine Street, Suite 3250, San
Francisco, California, and Five Concourse Parkway, Suite 208, Atlanta, Georgia
30328.
In return for its services, the Fund pays Artisan Partners a monthly fee at
the annual rate of 1% of the Fund's average daily net assets up to $500 million;
.975 of 1% of average daily net assets from $500 million up to $750 million;
.950 of 1% of average daily net assets from $750 million to $1 billion; and .925
of 1% of average daily net assets over $1 billion. Artisan Partners has
undertaken to reimburse the Fund for certain expenses, as described in the
prospectus. The advisory fees paid by the Fund to Artisan Partners during
fiscal years 1997 and 1996, and for the period March 28, 1995 through June 30,
1995, aggregated $2,906,791, $2,734,855 and $66,510, respectively.
The Advisory Agreement provides that Artisan Partners shall not be liable
for any loss suffered by the Fund or its shareholders as a consequence of any
act of omission in connection with investment advisory or portfolio services
under the agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of Artisan Partners in the performance of its duties or
from reckless disregard by Artisan Partners of its obligations and duties under
the Advisory Agreement.
The Advisory Agreement may be continued from year to year only so long as
the continuance is approved annually (a) by the vote of a majority of the
directors of the Fund who are not "interested persons" of the Fund or Artisan
Partners cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the board of directors or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the portfolio. The
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
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
B-27
<PAGE>
portfolio transactions. The general level of brokerage commissions paid is
reviewed by Artisan Partners, and reports are made annually to the board of
directors.
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services Artisan
Partners feels are useful. In certain instances, Artisan Partners receives from
brokers and dealers products or services that are used both as investment
research and for administrative, marketing, or other non-research purposes. In
such instances, Artisan Partners makes a good faith effort to determine the
relative proportions of such products or services which may be considered as
investment research. The portion of the costs of such products or services
attributable to research usage may be defrayed by Artisan Partners (without
prior agreement or understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by Artisan Partners in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of
Artisan Partners and not all such research products or services are used in
connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer of a net basis, Artisan Partners also may
consider the part, if any, played by the broker or dealer in bringing the
security involved to Artisan Partners' attention, including investment research
related to the security and provided to the Fund.
During fiscal years 1997 and 1996, and during the period March 28, 1995
(commencement of operations) through June 30, 1995, the Fund paid brokerage
commissions of $650,359, $942,389 and $309,765, respectively, to brokers who
furnished research services to the Fund or Artisan Partners on purchases and
sales aggregating $637,608,952, $775,778,115 and $92,293,148, respectively.
B-28
<PAGE>
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares," and "How to Sell Shares." All of that
information is incorporated herein by reference.
Shares of the Fund may be purchased or redeemed through certain financial
services companies, some of which may charge a transaction fee. The Fund may
authorize from time to time certain financial services companies, broker-dealers
or their designees ("authorized agents") to accept share purchase and
redemption orders on the Fund's behalf. For purchase orders placed through an
authorized agent, a shareholder will pay the Fund's NAV per share (see "Net
Asset Value," below), next computed after the receipt by the authorized agent
of such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the NAV per share next computed
after the receipt by the authorized agent of the redemption order, less any
redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company
may not charge any transaction fees directly to investors in the Fund. However,
accounting and shareholder servicing services provided by such a company with
respect to Fund shares held by that company for its customers, the company may
charge a fee of up to 0.35% of the annual average value of those accounts. The
Fund pays a portion of those fees not to exceed the estimated fees and expenses
that the Fund would pay to its own transfer agent if the shares of the Fund held
by such customers of the company were registered directly in their names on the
books of the Fund's transfer agent. The balance of those fees is paid by
Artisan Partners.
NET ASSET VALUE. Share purchase and redemption orders will be priced at
the Fund's net asset value next computed after such orders are received and
accepted by: (i) the Fund; (ii) a broker-dealer or other financial services
company authorized by the Fund to accept purchase and redemption orders on the
Fund's behalf; or (iii) such authorized broker-dealer's designee. The net asset
value of the shares of the Fund is determined as of the close of regular session
trading on the New York Stock Exchange ("NYSE") (currently 3:00 p.m., Central
time) each day the NYSE is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in January, the
third Monday in February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be determined on days
when the NYSE is closed unless, in the judgment of the board of directors, net
asset value of the Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time. The net asset value per
share of the Fund is determined by dividing the value of all its securities and
other assets, less its liabilities, by the number of shares of the Fund
outstanding.
The Fund intends to pay all redemptions in cash and is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions were
B-29
<PAGE>
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.
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions of mid-term capital
gains will be taxable to you as mid-term capital gains. Distributions of net
long-term capital gain will be taxable to you as long-term capital gain
regardless of the length of time you have held your shares.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent of any
long-term capital gain distributions you have received with respect to those
shares.
The Taxpayer Relief Act of 1997 reduced from 28% to 20% the maximum tax
rate on long-term capital gains. This reduced rate generally applies to
securities held more than 18 months and sold after July 28, 1997, and securities
held for more than one year and sold between May 6, 1997 and July 29, 1997.
The Fund may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption proceeds.
Backup withholding may be required if:
B-30
<PAGE>
- You fail to furnish your properly certified social security or
other tax identification number;
- You fail to certify that your tax identification number is correct
or that you are not subject to backup withholding due to the
underreporting of certain income;
- The IRS informs the Fund that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. The Fund must promptly pay the the IRS all
amounts withheld. Therefore, it is not usually possible for the Fund to
reimburse you for amounts withheld. You may, however, claim the amount withheld
as a credit on your federal income tax return.
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 securities in
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.
The discussion of taxation above is not intended to be a full discussion of
income tax laws and their effect on shareholders. You are encouraged to consult
your own tax advisor. The foregoing information applies to U.S. shareholders.
Foreign shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
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.
B-31
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
serves as the Fund's independent accountants, providing services including (i)
audit of the annual financial statements; (ii) assistance and consultation in
connection with Securities and Exchange Commission filings; and (iii) review of
the annual income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
The 1997 annual report to shareholders of the Fund, a copy of which
accompanies this statement of additional information, contains financial
statements, notes thereto, supplementary information entitled "Financial
Highlights," and a report of independent accountants, all of which (but no
other part of the annual report) are incorporated herein by reference.
Additional copies of the annual report may be obtained from Artisan Funds at no
charge by writing or telephoning Artisan Funds at the address or telephone
number on the cover page of this statement of additional information.
B-32
<PAGE>
ARTISAN INTERNATIONAL FUND
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100
(800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1997
Supplemented through February 27, 1998
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 dated October
28, 1997 for Artisan International Fund, Artisan International Shares
("International Shares") and Artisan International Fund, Artisan International
Institutional Shares ("Institutional Shares"), and any additional supplements
to those 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 and Artisan Partners.............................B-2
Investment Objective and Policies...........................................B-2
Investment Techniques and Risks.............................................B-2
Investment Restrictions....................................................B-17
Performance Information....................................................B-20
Directors and Officers.....................................................B-24
Principal Shareholders.....................................................B-27
Investment Advisory Services...............................................B-27
Portfolio Transactions.....................................................B-28
Purchasing and Redeeming Shares............................................B-29
Additional Tax Information.................................................B-31
Custodian..................................................................B-33
Independent Accountants....................................................B-33
Financial Statements.......................................................B-33
<PAGE>
INFORMATION ABOUT THE FUND AND ARTISAN PARTNERS
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds"). Artisan
Partners Limited Partnership ("Artisan Partners") provides investment advisory
services to the Fund.
Artisan Funds strives to offer distinctive, high-value-added investment
opportunities. Artisan Funds is not a "family" of indistinguishable products
devised by marketers in a financial services conglomerate. Rather, Artisan
Partners is a small partnership of investment professionals, focused on a
limited number of distinct investment strategies, each of which is offered as
a series of Artisan Funds. At the date of this statement of additional
information, those series are (in addition to the Fund) are Artisan
Small Cap Fund, Artisan Mid Cap Fund and Artisan Small Cap Value Fund.
The portfolio manager of each Fund is a specialist in his or her market, with
an investment process created and refined through years of experience - an
artisan. At Artisan Funds, we believe that experienced, active managers
investing in inefficient markets can produce superior returns over time. The
Artisan Funds are intended for long-term investors who share on that belief.
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
B-2
<PAGE>
underlying securities. The Fund may invest in sponsored or unsponsored ADRs.
In the case of an unsponsored ADR, the Fund is likely to bear its proportionate
share of the expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a sponsored ADR.
The Fund does not intend to invest more than 5% of its net assets in unsponsored
ADRs.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under "Managing
Investment Exposure.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. Because U.S. and foreign
stock markets typically move in different cycles, combining international and
U.S. investments can protect an investment portfolio against the full impact of
a downturn in any single market, thus helping to enhance returns by lowering
risk.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
DEBT SECURITIES
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
B-3
<PAGE>
Investments in debt securities by the Fund may be in those that are within
the four highest ratings categories of Standard & Poor's Corporation ("S&P")
or Moody's Investors Services, Inc. ("Moody's") (generally referred to as
"investment grade") or, if unrated, deemed to be of comparable quality by
Artisan Partners. However, the Fund may invest up to 35% of its net assets in
debt securities that are rated below investment grade. The Fund does not
currently intend to invest more than 5% of its net assets in securities rated
below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund
is not required to dispose of the security, but Artisan Partners will consider
that fact in determining whether the Fund should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
DEFENSIVE INVESTMENTS
The Fund intends to be substantially fully invested in equity securities of
non-U.S. issuers in ordinary circumstances, although the Fund may invest without
limit in corporate or government obligations (U.S. or non-U.S.) or hold cash or
cash equivalents if Artisan Partners determines that a temporary defensive
position is advisable.
CONVERTIBLE SECURITIES
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The common
stock underlying convertible securities may be issued by a different entity than
the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege.
The value of convertible securities is influenced by both the yield of non-
convertible securities of comparable issuers and by the value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." The
investment value of the convertible security will typically fluctuate inversely
with changes in prevailing interest rates. However, at the same time, the
convertible security will be influenced by its "conversion value," which is
the market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In
B-4
<PAGE>
determining whether to purchase a convertible security, Artisan Partners
will consider the same criteria that would be considered in purchasing the
underlying stock. Although convertible securities purchased by the Fund
are frequently rated investment grade, the Fund also may purchase unrated
securities or securities rated below investment grade if the securities meet
Artisan Partners' other investment criteria. Convertible securities rated
below investment grade (a) tend to be more sensitive to interest rate and
economic changes, (b) may be obligations of issuers who are less creditworthy
than issuers of higher quality convertible securities, and (c) may be more
thinly traded due to such securities being less well known to investors than
either common stock or conventional debt securities. As a result, Artisan
Partners' own investment research and analysis tends to be more important
in the purchase of such securities than other factors.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to
the effects of possible changes in security prices, currency exchange rates or
other factors that affect the value of its portfolio. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts.
These techniques are used by Artisan Partners to adjust the risk and return
characteristics of the Fund's portfolio. If Artisan Partners judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, or if the counterparty to the transaction does not
perform as promised, the transaction could result in a loss. Use of these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. These
techniques are used by the Fund for hedging, risk management or portfolio
management purposes and not for speculation.
Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. Currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities. Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted in a particular
currency. Portfolio hedging allows the Fund to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that currency) so
that the U.S. dollar value of certain
B-5
<PAGE>
underlying foreign portfolio securities can be approximately matched by an
equivalent U.S. dollar liability. The Fund may not engage in portfolio hedging
with respect to the currency of a particular country to an extent greater than
the aggregate market value (at the time of making such sale) of the securities
held in its portfolio denominated or quoted in that particular currency, except
that the Fund may hedge all or part of its foreign currency exposure through
the use of a basket of currencies or a proxy currency where such currencies or
currency act as an effective proxy for other currencies. In such a case, the
Fund may enter into a forward contract where the amount of the foreign currency
to be sold exceeds the value of the securities denominated in such currency.
The use of this basket hedging technique may be more efficient and economical
than entering into separate forward contracts for each currency held in the
Fund. The Fund may not engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular currency, the
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange
B-6
<PAGE>
transactions varies with such factors as the currency involved, the length of
the contract period, and prevailing market conditions. Because currency
exchange transactions are usually conducted on a principal basis, no fees or
commissions are involved.
Options on Securities and Indexes. The Fund may purchase and sell put
options and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may purchase
agreements, sometimes called cash puts, that may accompany the purchase of a new
issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign currency has the
obligation upon exercise of the option to deliver the underlying security or
foreign currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon exercise,
the writer of an option on an index is obligated to pay the difference between
the cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
A put option is "covered" if the Fund maintains assets with a value equal
to the exercise price in a segregated account with its custodians, or owns on a
share-for-share or equal principal amount basis a put on the same security as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the
B-7
<PAGE>
Fund will realize a capital loss. If the premium received from a closing sale
transaction is more than the premium paid to purchase the option, the Fund
will realize a capital gain or, if it is less, the Fund will realize a capital
loss. The principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, the Fund
foregoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it 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
<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.
B-8
<PAGE>
number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, the Russell 2000 Index and
the New York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price
of the securities that the Fund intends to purchase. Although other techniques
could be used to reduce or increase the Fund's exposure to stock price,
interest rate and currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using futures
contracts and futures options.
The Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
The success of any futures transaction depends on Artisan Partners
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, Artisan Partners might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its custodian or broker 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 generally
set by the exchange on which the contract is traded and may be modified during
the term of the contract (although the Fund's broker may require margin deposits
in excess of the minimum required by the exchange). 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
B-9
<PAGE>
of the futures contract. This process is known as "marking-to-market."
Variation margin paid or received by the Fund does not represent a borrowing
or loan by the Fund but is instead settlement between the Fund and the broker
of the amount one would owe the other if the futures contract had expired at
the close of the previous day. In computing daily net asset value, the Fund
will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. In trying to increase or reduce market exposure, there can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does
B-10
<PAGE>
not limit potential losses because the limit may work to prevent the liquidation
of unfavorable positions. For example, futures prices have occasionally moved
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock index futures
contracts are not normally subject to such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
Limitations on Options and Futures. If other options, futures contracts,
or futures options of types other than those described herein are traded in the
future, the Fund also may use those investment vehicles, provided the board of
directors determines that their use is consistent with the Fund's investment
objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money," <F2>
would exceed 5% of the Fund's total assets.
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
<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.
B-11
<PAGE>
intent of Regulation 1.3(z), or, with respect to positions in commodity futures
and commodity options contracts that do not come within the meaning and intent
of Regulation 1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into (in the case of an option
that is in-the-money at the time of purchase, the in-the-money amount (as
defined in Section 190.01(x) of the Commission Regulations) may be excluded
in computing such 5%).
As long as the Fund continues to sell its shares in certain states and
applicable state law or regulation so requires, the Fund's options and futures
transactions also will be subject to certain non-fundamental investment
restrictions set forth under "Investment Restrictions" in this statement of
additional information.
Taxation of Options and Futures. If the Fund exercises a call or put
option that it holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of the security
sold (put). For cash settlement options and futures options exercised by the
Fund, the difference between the cash received at exercise and the premium paid
is a capital gain or loss.
If a call or put option written by the Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by the Fund is in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option <F3> other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on
such option transaction, to the extent it does not exceed the unrealized gains
on the securities covering the option, may be subject to deferral until the
securities covering the option have been sold.
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
<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).
B-12
<PAGE>
earlier of delivery notice date or expiration date. If the Fund delivers
securities under a futures contract, the Fund also realizes a capital
gain or loss on those securities.
For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with
respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses
on certain positions (including options, futures and futures options positions,
the related securities and certain successor positions thereto) may be
deferred to a later taxable year. Sale of futures contracts or writing of
call options (or futures call options) or buying put options (or futures put
options) that are intended to hedge against a change in the value of securities
held by the Fund may affect the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for Federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property.
These changes generally apply to constructive sales after June 8, 1997.
Furthermore, the Secretary of the Treasury is authorized to promulgate
regulations that will treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting notional principal
contracts, and futures or forward contracts to deliver the same or substantially
similar property.
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). 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 addition, for tax years beginning before August 5, 1997, gains
realized on the sale or other disposition of securities held less than three
months must be less than 30% of the Fund's annual gross income. In order to
avoid realizing excessive gains on securities held less than three months, the
Fund may be required to
B-13
<PAGE>
defer the closing out of certain positions beyond the time when it would
otherwise be advantageous to do so.
The Fund intends to distribute to shareholders annually any capital gains
that have been recognized for Federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other Fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the Fund. Shareholders will be
advised of the nature of such capital gain distributions.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that
are eligible for purchase and sale under Rule 144A under the 1933 Act ("Rule
144A securities"). That Rule permits certain qualified institutional buyers,
including investment companies that own and invest at least $100 million in
securities, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. Artisan Partners, under the
supervision of the board of directors, will consider whether Rule 144A
securities are illiquid and thus subject to the Fund's restriction of
investing no more than 10% of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination, Artisan Partners will
consider the trading markets for the specific security, taking into account
the unregistered nature of a Rule 144A security. In addition,
Artisan Partners could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers, (3) dealer undertakings
to make a market, and (4) nature of the security and of marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The liquidity of Rule 144A securities
would be monitored and, if as a result of changed conditions, Artisan
Partners determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Fund does not invest more than 10% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
Artisan Partners' judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy
B-14
<PAGE>
or other default of the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or in the value of
the securities loaned during the period while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its rights. The Fund
does not currently intend to loan more than 5% of its net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks
not associated with direct investments in securities, the Fund will enter into
repurchase agreements only with banks and dealers believed by Artisan Partners
to present minimum credit risks in accordance with guidelines approved by the
board of trustees. Artisan Partners will review and monitor the
creditworthiness of such institutions, and will consider the capitalization of
the institution, Artisan Partners prior dealings with the institution, any
rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Artisan Partners deems it advisable for investment reasons.
The Fund does not currently intend to have commitments to purchase when-issued
securities in excess of 5% of its net assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
However,
B-15
<PAGE>
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.
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.)
B-16
<PAGE>
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;
(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>
(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,
<F4> The Fund will not purchase securities when total borrowings by the Fund are
greater than 5% of its net asset value.
B-17
<PAGE>
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 were formerly required by law or regulation of one or more states
in which shares of the Fund are offered for sale. The Fund expects that certain
of the following restrictions (including restrictions (a) and (d) through (j))
will be revised or eliminated, although no change in the Fund's operations is
expected to result. The Fund may not:
(a) invest in any of the following: (i) interests in oil, gas, or other
mineral leases or exploration or development programs (except readily marketable
securities, including but not limited to master limited partnership interests,
that may represent indirect interests in oil, gas, or other mineral exploration
or development programs); (ii) puts, calls, straddles, spreads, or any
combination thereof if by reason thereof the value of the Fund's aggregate
investment in such securities exceed 5% of its total assets (except that the
Fund may enter into transactions in options, futures, and options on futures);
and (iii) limited partnerships in real estate unless they are readily
marketable;
(b) invest in companies for the purpose of exercising control or
management;
(c) purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of the Fund's
total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate; any such purchases are
to be made in the open market where no profit to a sponsor or dealer results
from the purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation, acquisition or
reorganization; <F5>
<F5> As long as Fund shares are offered for sale in California and applicable
California law or regulation so requires, the Fund will not acquire or
retain the shares of other open-end investment companies.
B-18
<PAGE>
(d) purchase or hold securities of an issuer if 5% of the securities of
such issuer are owned by those officers, directors or partners of the Fund or of
its investment adviser, who each own beneficially more than 1/2 of 1% of the
securities of that issuer;
(e) purchase securities of issuers (other than issuers of Federal agency
obligations or securities issued or guaranteed by any foreign country or asset-
backed securities) that, including their predecessors or unconditional
guarantors, have been in operation for less than three years, if
by reason of such purchase the value of the Fund's investment in all such
securities will exceed 5% of its total assets (valued at time of purchase);
(f) mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection with options,
futures, and options on futures;
(g) invest more than 5% of its net assets (valued at time of purchase) in
warrants, nor more than 2% of its net assets in warrants that are not listed on
the New York or American stock exchange;
(h) buy or sell an option on a security, a futures contract, or an option
on a futures contract unless the option, the futures contract, or the option on
the futures contract is offered through the facilities of a recognized
securities association or listed on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums paid for all
put and call options exceed 5% of its net assets (less the amount by which any
such positions are in-the-money), excluding put and call options purchased as
closing transactions;
(j) invest more than 10% of its net assets in restricted securities, other
than securities eligible for resale pursuant to Rule 144A of the Securities Act
of 1933;
(k) purchase securities on margin (except for use of short-term credits as
are necessary for the clearance of transactions), or sell securities short
unless (i) the Fund owns or has the right to obtain securities equivalent in
kind and amount to those sold short at no added cost or (ii) the securities sold
are "when issued" or "when distributed" securities which the Fund expects to
receive in recapitalization, reorganization, or other exchange for securities
the Fund contemporaneously owns or has the right to obtain and provided that
transactions in options, futures, and options on futures are not treated as
short sales; or
(l) invest more than 10% of its net assets (taken at market value at the
time of each purchase) in illiquid securities, including repurchase agreements
maturing in more than seven days.
B-19
<PAGE>
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:
ERV = P(l+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
The Fund's Total Return and Average Total Return for various periods
ended June 30, 1997 is shown below:
Average Annual
Total Return Total Return
------------ ------------
1 year 20.9% 20.9%
Life of Fund <F6> 46.1% 28.5%
<F6> from December 28, 1995 (commencement of operations)
Total Return and Average Annual Total Return of Institutional Shares will
be calculated in the same way as for International Shares. The performance of
Institutional Shares will be different from the performance of 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 Institutional Shares is expected to be lower, the Total Return
and Average Annual Total Return of Institutional Shares are expected to be
greater than for 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,
B-20
<PAGE>
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 International
Shares or 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 International Shares or
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:
B-21
<PAGE>
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:
B-22
<PAGE>
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials NASDAQ Composite
Standard & Poor's Mid-Cap 400 Index NASDAQ Industrials
Wilshire 5000
(These indexes are widely (These indexes generally
recognized indicators of general reflect the performance
U.S. stock market results.) of stocks traded in the
indicated markets.)
Morgan Stanley Capital International Europe, Australasia and Far East (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 International Shares or 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
B-23
<PAGE>
numerical score is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35% labeled three
star, the next 22.5% labeled two star and the bottom 10% one star. A high
rating reflects either above-average returns or below-average risk, or both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. The Fund also may use historical data compiled by Prudential
Securities, Inc., Morgan Stanley Capital International, or other similar sources
believed by the Fund to be accurate, illustrating the past performance of small-
capitalization stocks, large-capitalization stocks, common stocks, equity
securities, growth stocks (small-capitalization, large-capitalization, or both),
value stocks (small-capitalization, large-capitalization, or both), the U.S.
stock market generally, or the U.S. stock market compared to other stock markets
throughout the world.
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, their dates of birth and principal
business occupations during at least the last five (5) years, are shown below.
Directors deemed to be "interested persons" of Artisan Funds for purposes of
the 1940 Act are indicated with an asterisk.
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
- ----------------- --------------- ----------------------------------
Andrew A. Ziegler Director, Chairman of Managing Partner of Artisan
10/7/57 the Board and Chief Partners; prior to founding
Executive 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.
B-24
<PAGE>
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
- ---------------- --------------- ----------------------------------
Carlene Murphy Director and President Managing Partner of Artisan
Ziegler Partners; prior to founding
6/20/56 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 Reinhart,
5/6/43 Boerner, Van Deuren, Norris &
Rieselbach, S.C., Milwaukee, WI.
Thomas R. Hefty Director President of United Wisconsin
6/9/47 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
5/17/40 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.
Lawrence A. Totsky Chief Financial Chief financial officer of
5/6/59 Officer, Treasurer Artisan Partners; senior vice
and Secretary president (since 1994) and director
of mutual fund administration,
Strong Capital Management, Inc.,
prior thereto.
B-25
<PAGE>
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
- ---------------- --------------- -----------------------------------
Mark L. Yockey Vice President Partner of Artisan Partners;
6/5/56 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
3/6/64 Artisan Partners, equity trader
with Northwestern Mutual since
January 1989, prior thereto,
sales associate with Dean Witter
Reynolds.
Millie Adams Vice President Co-portfolio manager of Artisan
Hurwitz Small Cap Fund; prior to joining
12/16/62 Artisan Partners, co-portfolio
manager at Stein Roe & Farnham
Incorporated from 1992 until
1995; and an analyst with OLC
Corporation from 1989 to 1991.
Scott C. Vice President Portfolio manager, Artisan Small
Satterwhite Cap Value Fund; prior to joining
7/15/57 Artisan Partners in June 1997,
portfolio manager of the Biltmore
Special Values Fund from August
1, 1993 through May 31, 1997 and
Senior Vice President and Manager
of Personal Trust Portfolio
Management for the Personal
Financial Services Group of
Wachovia Bank of North Carolina,
N.A.
Andrew C. Stephens Vice President Portfolio manager, Artisan Mid
10/31/63 Cap Fund; co-manager of Strong
Asset Allocation Fund at Strong,
February 1993 through March 1997,
and senior research analyst for
Strong Common Stock Fund and
Strong Opportunity Fund,
September 1994 through March
1996; prior to February 1933,
head trader, Strong.
The business address of the officers and directors affiliated with Artisan
Partners 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
B-26
<PAGE>
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.
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 Ziegler 0 0 0 0
David A. Erne 2,500 0 0 10,000
Thomas R. Hefty 2,500 0 0 10,000
Howard B. Witt 2,500 0 0 10,000
As of September 30, 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 September 30, 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
B-27
<PAGE>
Investment Corporation, manage Artisan Partners. The principal address
of Artisan Partners is 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202. Artisan Partners also has offices at 100 Pine Street, Suite 3250, San
Francisco, California and Five Concourse Parkway, Suite 2120, Atlanta, Georgia
30328.
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 any ordinary operating expenses in excess
of 2.50% of average net asset annually. The advisory fees paid by the Fund to
Artisan Partners during fiscal year 1997 and for the period December 28, 1995
through June 30, 1996, totalled $2,444,080 and $133,215, respectively.
The Advisory Agreement provides that Artisan Partners shall not be liable
for any loss suffered by the Fund or its shareholders as a consequence of any
act 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.
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).
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
B-28
<PAGE>
portfolio transactions. The general level of brokerage commissions paid is
reviewed by Artisan Partners, and reports are made annually to the board of
directors.
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services Artisan
Partners feels are useful. In certain instances, Artisan Partners receives from
brokers and dealers products or services that are used both as investment
research and for administrative, marketing, or other non-research purposes. In
such instances, Artisan Partners makes a good faith effort to determine the
relative proportions of such products or services which may be considered as
investment research. The portion of the costs of such products or services
attributable to research usage may be defrayed by Artisan Partners (without
prior agreement or understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by Artisan Partners in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of
Artisan Partners and not all such research products or services are used in
connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, Artisan Partners also may
consider the part, if any, played by the broker or dealer in bringing the
security involved to Artisan Partners' attention, including investment research
related to the security and provided to the Fund.
During the fiscal year ended June 30, 1997 and during the period December
28, 1995 (commencement of operations) through June 30, 1996, the Fund paid
brokerage commissions of $2,960,678 and $425,266, respectively, to brokers who
furnished research services to the Fund or Artisan Partners on purchases and
sales aggregating $824,170,635 and $97,912,681, respectively.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares" and "How to Sell Shares" in the International
Shares prospectus and "Purchasing
B-29
<PAGE>
and Redeeming Shares" in the International Institutional Shares prospectus.
All of that information is incorporated herein by reference.
Shares of the Fund may be purchased or redeemed through certain financial
services companies, some of which may charge a transaction fee. The Fund may
authorize from time to time certain financial services companies, broker-dealers
or their designees ("authorized agents") to accept share purchase and
redemption orders on the Fund's behalf. For purchase orders placed through an
authorized agent, a shareholder will pay the Fund's NAV per share (see "Net
Asset Value," below), next computed after the receipt by the authorized agent
of such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the NAV per share next computed
after the receipt by the authorized agent of the redemption order, less any
redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company
may not charge any transaction fees directly to investors in the Fund. However,
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 (currently 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. Share purchase and redemption orders will be priced at
the net asset value for the applicable class of shares next computed after such
orders are received and accepted by: (i) the Fund; (ii) a broker-dealer or
other financial services company authorized by the Fund to accept purchase and
redemption orders on the Fund's behalf; or (iii) such authorized broker-dealer's
designee. 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 January, 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
B-30
<PAGE>
and the net asset value of the Fund is not calculated. Conversely, trading
in the Fund's portfolio securities may not occur on days when Artisan Funds
is open. As a result, the calculation of net asset value does not take
place contemporaneously with the determinations of the prices of many of
the Fund's portfolio securities and the value of the Fund's portfolio may
be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
The Fund intends to pay all redemptions in cash and is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions.
The Fund reserves the right to suspend or postpone redemptions of its
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Commission, if the NYSE is closed for other than customary
weekend and holiday closings; (b) the Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Commission, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Fund and Artisan Partners each have adopted a code of ethics that,
among other things, regulates the personal 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.
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions of mid-term capital
gains will be taxable to you as mid-term capital gains. Distributions of net
long-term capital gain will be taxable to you as long-term capital gain
regardless of the length of time you have held your shares.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent of any
long-term capital gain distributions you have received with respect to those
shares.
B-31
<PAGE>
The Taxpayer Relief Act of 1997 reduced from 28% to 20% the maximum tax
rate on long-term capital gains. This reduced rate generally applies to
securities held more than 18 months and sold after July 28, 1997, and securities
held for more than one year and sold between May 6, 1997 and July 29, 1997.
The Fund may be required to withhold federal income tax ("backup
withholding') from certain payments to you, generally redemption proceeds.
Backup withholding may be required if:
- You fail to furnish your properly certified social security or
other tax identification number;
- You fail to certify that your tax identification number is correct
or that you are not subject to backup withholding due to the
underreporting of certain income;
- The IRS informs the Fund that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. The Fund must promptly pay the the IRS all
amounts withheld. Therefore, it is not usually possible for the Fund to
reimburse you for amounts withheld. You may, however, claim the amount withheld
as a credit on your federal income tax return.
To the extent the Fund invests in foreign securities, it may be subject to
withholding and other taxes imposed by foreign countries. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxed, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the Fund's total assets at the close of any
fiscal year consist of stock or securities of foreign corporations, the Fund may
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign income taxes
paid by them, and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate category income
for purposes of computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily benefit from
this election relating to foreign taxes. Each year, the Fund will notify
shareholders of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund, and (ii) the portion of Fund dividends which
represent income from each foreign country if the Fund qualifies to pass along
such credit.
B-32
<PAGE>
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 1997 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.
The "Financial Highlights" included in the annual report relate to the Fund's
International Shares. Additional copies of the annual report may be obtained
from Artisan Funds at no charge by writing or telephoning Artisan Funds at the
address or telephone number on cover page of this Statement of Additional
Information.
B-33
<PAGE>
ARTISAN MID CAP FUND
ARTISAN FUNDS, INC.
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100 (800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1997
Supplemented through February 27, 1998
Artisan Mid Cap Fund (the "Fund") is a series of Artisan Funds, Inc.
("Artisan Funds"). This statement of additional information is not a
prospectus. It should be read in conjunction with the prospectus of the Fund
dated October 28, 1997 and any supplement to the prospectus. That prospectus
can be obtained without charge by calling or writing to the Fund at the
telephone numbers and address shown above.
TABLE OF CONTENTS
Page
-----
Information about the Fund and Artisan Partners..................B-2
Investment Objective and Policies................................B-2
Investment Techniques and Risks..................................B-2
Investment Restrictions.........................................B-17
Performance Information.........................................B-19
Directors and Officers..........................................B-22
Investment Advisory Services....................................B-25
Portfolio Transactions..........................................B-26
Purchasing and Redeeming Shares.................................B-27
Additional Tax Information......................................B-29
Custodian.......................................................B-30
Independent Accountants.........................................B-30
INFORMATION ABOUT THE FUND AND ARTISAN PARTNERS
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds"). Artisan
Partners Limited Partnership ("Artisan Partners") provides investment advisory
services to the Fund.
Artisan Funds strives to offer distinctive, high-value-added investment
opportunities. Artisan Funds is not a "family" of indistinguishable products
devised by marketers in a financial services conglomerate. Rather, Artisan
Partners is a small partnership of investment professionals, focused on a
limited number of distinct investment strategies, each of which is offered as
a series of Artisan Funds. At the date of this statement of additional
information, those series are (in addition to the Fund) are Artisan
Small Cap Fund, Artisan International Fund, and Artisan Small Cap Value Fund.
The portfolio manager of each Fund is a specialist in his or her market, with
an investment process created and refined through years of experience - an
artisan. At Artisan Funds, we believe that experienced, active managers
investing in inefficient markets can produce superior returns over time.
The Artisan Funds are intended for long-term investors who share on that belief.
The discussion below supplements the description in the prospectus of the
Fund's investment objectives, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
Artisan Mid Cap Fund invests for maximum long-term capital growth. The
Fund invests primarily in the common stocks of medium-sized companies. Medium-
sized companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). As of September
30, 1997, the MidCap Index included companies with capitalizations between
approximately $250 million and $12 billion. the market capitalization range in
which the Fund invests will change as the range of the companies included in the
MidCap Index changes. The investment objective of the Fund may be changed by
the board of directors without the approval of a "majority of the outstanding
voting securities' (as defined in the Investment Company Act of 1940) of the
Fund.
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities.
In addition, the Fund may from time to time have significant portions of its
portfolio invested in foreign securities. The Fund also may invest in any other
type of security, including debt securities.
INVESTMENT TECHNIQUES AND RISKS
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets in foreign securities
(including American Depository Receipts ("ADRs")), which may entail a greater
degree of risk (including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than does
B-2
<PAGE>
investment in securities of domestic issuers. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying securities. The Fund may invest in sponsored or unsponsored ADRs.
In the case of an unsponsored ADR, the Fund is likely to bear its proportionate
share of the expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a sponsored ADR.
The Fund does not intend to invest more than 5% of its net assets in
unsponsored ADRs.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under "Managing
Investment Exposure.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
DEBT SECURITIES
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
Investments in debt securities by the Fund may be in those that are within
the four highest ratings categories of Standard & Poor's Corporation ("S&P")
or Moody's Investors Services, Inc.
B-3
<PAGE>
("Moody's") (generally referred to as "investment grade") or, if unrated,
deemed to be of comparable quality by Artisan Partners. However, the Fund may
invest up to 35% of its net assets in debt securities that are rated below
investment grade. The Fund does not currently intend to invest more than 5% of
its net assets in securities rated below investment grade.
Debt securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Artisan Partners will consider that
fact in determining whether the Fund should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
DEFENSIVE INVESTMENTS
The Fund intends to be substantially fully invested in equity securities in
ordinary circumstances, although the Fund may invest without limit in corporate
or government obligations or hold cash or cash equivalents if Artisan Partners
determines that a temporary defensive position is advisable.
CONVERTIBLE SECURITIES
Convertible securities include any corporate debt security or preferred
stock that may be converted into underlying shares of common stock. The common
stock underlying convertible securities may be issued by a different entity than
the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege.
The value of convertible securities is influenced by both the yield of non-
convertible securities of comparable issuers and by the value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." The
investment value of the convertible security will typically fluctuate inversely
with changes in prevailing interest rates. However, at the same time, the
convertible security will be influenced by its "conversion value," which is
the market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock.
By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible security, Artisan Partners will consider the same
criteria that would be considered in purchasing the underlying stock. Although
convertible
B-4
<PAGE>
securities purchased by the Fund are frequently rated investment
grade, the Fund also may purchase unrated securities or securities rated below
investment grade if the securities meet Artisan Partners' other investment
criteria. Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, Artisan Partners' own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
<PAGE>
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, foreign
exchange dealers or 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.
B-5
<PAGE>
dollar liability. The Fund may not engage in portfolio hedging with respect
to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities
held in its portfolio denominated or quoted in that particular currency,
except that the Fund may hedge all or part of its foreign currency exposure
through the use of a basket of currencies or a proxy currency where such
currencies or currency act as an effective proxy for other currencies.
In such a case, the Fund may enter into a forward contract where the
amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The Fund may not engage
in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular currency, the
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period,
B-6
<PAGE>
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 the Nasdaq National Market. The Fund
may purchase agreements, sometimes called cash puts, that may accompany the
purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months).
The writer of an option on an individual security or on a foreign currency
has the obligation upon exercise of the option to deliver the underlying
security or foreign currency upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security or foreign currency.
Upon exercise, the writer of an option on an index is obligated to pay the
difference between the cash value of the index and the exercise price multiplied
by the specified multiplier for the index option. (An index is designed to
reflect specified facets of a particular financial or securities market, a
specific group of financial instruments or securities, or certain economic
indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
B-7
<PAGE>
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an option
written by the Fund is recorded as a deferred credit. The value of an option
purchased or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives.
A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or expected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, the Fund
foregoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index <F1>
at a specified price and time. A public market exists in futures contracts
covering a number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, the Russell 2000 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.
B-8
<PAGE>
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price
of the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase the Fund's exposure to stock
price, interest rate and currency fluctuations, the Fund may be able to achieve
its exposure more 2effectively 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 generally
set by the exchange on which the contract is traded, although the margin
requirement may be modified during the term of the contract and the Fund's
broker may require margin deposits in excess of the minimum required by the
exchange. 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
B-9
<PAGE>
nature of the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other futures
positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging
in the transaction realizes a capital gain, or if it is more, the Fund realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund engaging in the transaction realizes a
capital gain, or if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. In trying to increase or reduce market exposure, there can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the
B-10
<PAGE>
position during the interval of inability to close, and would continue to be
required to meet margin requirements until the position is closed. In addition,
many of the contracts discussed above are relatively new instruments without a
significant trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
Limitations on Options and Futures. If other options, futures contracts,
or futures options of types other than those described herein are traded in the
future, the Fund also may use those investment vehicles, provided the board of
directors determines that their use is consistent with the Fund's investment
objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money," <F2>
would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, the Fund must maintain with its custodian (or broker, if legally
permitted) assets (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the Fund similarly
will maintain with its custodian assets (including any margin) equal to the
amount by which such option is in-the-money until the option expires or is
closed out by the Fund.
The Fund may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent the Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
within the meaning and intent of Regulation 1.3(z), the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into (in the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%).
<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.
B-11
<PAGE>
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,
plus other capitalized costs of the option, 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, plus other capitalized costs of the option, 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.
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, plus other capitalized costs of the option, 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, and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized
<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).
B-12
<PAGE>
with respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case
of positions classified as part of a "mixed straddle," the recognition of losses
on certain positions (including options, futures and futures options positions,
the related securities and certain successor positions thereto) may be deferred
to a later taxable year. Sale of futures contracts or writing of call options
(or futures call options) or buying put options (or futures put options) that
are intended to hedge against a change in the value of securities held by the
Fund may affect the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for Federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property.
These changes generally apply to constructive sales after June 8, 1997.
Furthermore, the Secretary of the Treasury is authorized to promulgate
regulations that will treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting notional principal
contracts, and futures or forward contracts to deliver the same or substantially
similar property.
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). 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 addition, for tax years beginning before August 5, 1997, gains
realized on the sale or other disposition of securities held less than three
months must be less than 30% of the Fund's annual gross income. 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.
B-13
<PAGE>
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on the Fund or an investor.
Investors are urged to consult their own tax advisers for a complete review of
the tax ramifications of an investment in the Fund.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that
are eligible for purchase and sale under Rule 144A under the 1933 Act ("Rule
144A securities'). That Rule permits certain qualified institutional buyers,
including investment companies that own and invest at least $100 million in
securities, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. Artisan Partners, under the supervision
of the board of directors, will consider whether Rule 144A securities are
illiquid and thus subject to the Fund's restriction of investing no more than
10% of its net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, Artisan Partners will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, Artisan Partners could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, Artisan
Partners determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Fund does not invest more than 10% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (3) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
Artisan Partners' judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to
B-14
<PAGE>
income during this period, and (c) expenses of enforcing its rights. The Fund
does not currently intend to loan more than 5% of its net assets.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, the Fund will enter into
repurchase agreements only with banks and dealers believed by Artisan Partners
to present minimum credit risks in accordance with guidelines approved by the
board of trustees. Artisan Partners will review and monitor the
creditworthiness of such institutions, and will consider the capitalization of
the institution, Artisan Partners' prior dealings with the institution, any
rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Artisan Partners deems it advisable for investment reasons.
The Fund does not currently intend to have commitments to purchase when-issued
securities in excess of 5% of its net assets.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
However, reverse repurchase agreements will be treated as borrowing and subject
to the Artisan Funds' fundamental limitation on borrowing.
B-15
<PAGE>
At the time the Fund enters into a binding obligation to purchase
securities on a when-issued or delayed-delivery basis or enters into a reverse
repurchase agreement, assets of the Fund having a value at least as great as the
purchase price of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of the obligation.
The use of these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value fluctuation.
SHORT SALES
The Fund may make short sales "against the box." In a short sale, the
Fund sells a borrowed security and is required to return the identical security
to the lender. A short sale "against the box" involves the sale of a security
with respect to which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to obtain the current
market price of a security which it desires to sell but is unavailable for
settlement. The Fund does not currently intend to have commitments to make
short sales "against the box" in excess of 5% of its net assets.
LINE OF CREDIT
Artisan Funds maintains a line of credit with a bank in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Fund
would be subject to restriction (4) under "Investment Restrictions" in this
statement of additional information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. At times, the Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The future turnover
rate may vary greatly from year to year. A high rate of portfolio turnover in
the Fund, if it should occur, would result in increased transaction expense,
which must be borne by the Fund. High portfolio turnover also may result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for Federal income tax purposes. (See "Dividends,
Capital Gains, and Taxes" in the prospectus, and "Additional Tax Information"
in this statement of additional information.)
B-16
<PAGE>
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Artisan Funds has adopted the following investment restrictions which may
not be changed without the approval of the Fund's shareholders, under which the
Fund may not:
(1) act as an underwriter of securities, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or
commodity contracts, except that it may enter into (a) futures and options
on futures and (b) forward contracts;
(3) make loans, but this restriction shall not prevent the Fund from (a) buying
a part of an issue of bonds, debentures, or other obligations which are
publicly distributed, or from investing up to an aggregate of 15% of its
total assets (taken at market value at the time of each purchase) in parts
of issues of bonds, debentures or other obligations of a type privately
placed with financial institutions, (b) investing in repurchase agreements,
or (c) lending portfolio securities, provided that it may not lend
securities if, as a result, the aggregate value of all securities loaned
would exceed 33% of its total assets (taken at market value at the time of
such loan);
(4) borrow (including entering into reverse repurchase agreements), except that
it may (a) borrow up to 33 1/3% of its total assets, taken at market value
at the time of such borrowing, as a temporary measure for extraordinary or
emergency purposes, but not to increase portfolio income and (b) enter into
transactions in options, futures, and options on futures; <F4>
(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;
<F4> The Fund will not purchase securities when total borrowings by the Fund are
greater than 5% of its net asset value.
B-17
<PAGE>
(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:
(a) invest in companies for the purpose of exercising control or management;
(b) 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;
(c) invest more than 25% of its total assets (valued at time of purchase) in
securities of foreign issuers;
(d) 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
(e) 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.
(f) under normal market conditions, invest less than 65% of its total assets in
securities of issuers having aggregate common stock market capitalizations
within the range of the aggregate common stock market capitalizations of
issuers included in the S&P MidCap 400 Index, in each case at the time of
investment.
B-18
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return' is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(l+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
The Fund's Total Return for the period from June 27, 1997 (commencement of
operations) through December 31, 1997 was 28.1%
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the Fund
are not necessarily indicative of future results. The Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing the Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the performance of the Fund may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, other accounts or
partnerships managed by Artisan Partners Limited Partners, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts differs
from that of the Fund. Comparison of the Fund to an alternative investment
should consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund generally believes to be
accurate. The Fund also may note its mention (including performance or other
comparative rankings) in newspapers, magazines, or other media from time to
time. However, the Fund assumes no responsibility for the accuracy of such
data. Newspapers and magazines and other media which might mention the Fund
include, but are not limited to, the following:
B-19
<PAGE>
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
Consumer Digest (syndicated 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:
B-20
<PAGE>
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Russell 2000 Small Stock Index American Stock Exchange Composite Index
Russell Mid-Cap Stock Index NASDAQ Composite
Russell Mid-Cap Growth Index NASDAQ Industrials
Standard & Poor's 500 Stock Index
Standard & Poor's 400 Industrials
Standard & Poor's Mid-Cap 400 Index (These indexes generally reflect the
Standard & Poor's Mid-Cap Growth Index performance of stocks traded in the
Wilshire 5000 indicated markets.)
Wilshire 4500
Wilshire 4000
Wilshire Small-Cap Index
(These indexes are widely
recognized indicators of general
U.S. stock market results.)
The performance of the Fund also may be compared to the following mutual
fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company
Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds
Average; Lipper Small Company Growth Fund Index; ICD Aggressive Growth and Long
Term Growth Funds Average; ICD Aggressive Growth Fund Large Index; ICD
Aggressive Growth Fund Small Index; ICD Aggressive Growth Funds Average; ICD All
Equity Funds Average; Morningstar Growth Average; Morningstar Small-Cap Funds
Average; Morningstar Aggressive Growth Average; Morningstar U.S. Diversified
Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund Average;
Morningstar All Equity Funds Average; and Morningstar General Equity Average.
The ICD Indexes reflect the unweighted average total return of the largest
twenty four funds within their respective category as calculated and published
by ICD.
The Lipper Small Company Growth Fund Index reflects the net asset value
weighted total return of the largest thirty growth funds as calculated and
published by Lipper Analytical Services, Inc. ("Lipper"), an independent
service that monitors the performance of more than 1,000 funds.
The Lipper, ICD and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated and published by
these independent services that monitor the performance of mutual funds. The
Fund also may use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. The Fund may compare its performance or ranking against all funds
tracked by Lipper or another independent service.
The Fund may cite its rating, recognition or other mention by Morningstar,
Inc. ("Morningstar") or any other entity. Morningstar proprietary ratings
reflect historical risk-
B-21
<PAGE>
adjusted performance as of the date indicated. The ratings are subject to
change every month. Morningstar ratings are calculated from the fund's
three-, five-, and ten-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor that
reflects fund performance below 90-day T-bill returns. Ten percent of the
funds in an investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and 10% receive one star. A
high rating reflects either above-average returns or below-average risk, or
both.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. The Fund also may use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by the Fund to be
accurate, illustrating the past performance of small-capitalization stocks,
large-capitalization stocks, common stocks, equity securities, growth stocks
(small-capitalization, large-capitalization, or both) and value stocks (small-
capitalization, large-capitalization, or both).
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, their dates of birth and their
principal business occupations during at least the last five (5) years, are
shown below. Directors deemed to be "interested persons" of Artisan Funds
for purposes of the 1940 Act are indicated with an asterisk.
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS
BIRTH WITH REGISTRANT DURING THE PAST 5 YEARS
- ---------------- --------------- --------------------------------
Andrew A. Ziegler Director, Chairman of Managing Director of Artisan
10/7/57 the Board and Chief Partners; prior to founding
Executive 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.
B-22
<PAGE>
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS
BIRTH WITH REGISTRANT DURING THE PAST 5 YEARS
- ---------------- --------------- ----------------------------------
Carlene Murphy Director and President Managing Director of Artisan
Ziegler Partners; co-portfolio manager,
6/20/56 Artisan Small Cap Fund; 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 Stein Roe Special Fund.
David A. Erne Director Partner of the law firm Reinhart,
5/6/43 Boerner, Van Deuren, Norris &
Rieselbach, S.C., Milwaukee, WI.
Thomas R. Hefty Director President of United Wisconsin
6/9/47 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
5/17/40 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.
Lawrence A. Totsky Chief Financial Chief financial officer of
5/6/59 Officer, Treasurer Artisan Partners; senior vice
and Secretary president (since 1994) and director
of mutual fund administration,
Strong Capital Management, Inc.,
prior thereto.
Mark L. Yockey Vice President Portfolio manager, Artisan
6/5/56 International Fund; 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 Artisan
3/6/64 Partners, equity trader with
Northwestern Mutual since January
1989, prior thereto, sales
associate with Dean Witter
Reynolds.
B-23
<PAGE>
Millie Adams Vice President Co-portfolio manager of the Fund
Hurwitz since August 1996; senior
12/16/62 analyst of Artisan Partners'
small capitalization equity
products since February 1995;
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.
Scott C. Vice President Portfolio manager, Artisan Small
Satterwhite Cap Value Fund; prior to joining
7/15/57 Artisan Partners in June 1997,
portfolio manager of the Biltmore
Special Values Fund from August
1, 1993 through May 31, 1997 and
Senior Vice President and Manager
of Personal Trust Portfolio
Management for the Personal
Financial Services Group of
Wachovia Bank of North Carolina,
N.A.
Andrew C. Stephens Vice President Portfolio manager, Artisan Mid
10/31/63 Cap Fund; co-manager of Strong
Asset Allocation Fund at Strong,
February 1993 through March 1997,
and senior research analyst for
Strong Common Stock Fund and
Strong Opportunity Fund,
September 1994 through March
1996; prior to February 1933,
head trader, Strong.
The business address of the officers and directors affiliated with Artisan
Partners 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
B-24
<PAGE>
W. Michigan Street, Milwaukee,
Wisconsin 53203; and Mr. Witt - 800 E. Northwest Highway, Des Plaines, Illinois
60016.
Mr. Ziegler and Ms. Ziegler are married to each other.
Mr. Ziegler and Ms. Ziegler serve as members of the Executive Committee of
the Board of Directors. The Executive Committee, which meets between regular
meetings of the Board, is authorized to exercise all of the powers of the Board
of Directors.
The only compensation paid to directors and officers of Artisan Funds for
their services as such consists of an annual $5,000 retainer fee (per series of
Artisan Funds) paid to directors who are not interested persons of Artisan Funds
or Artisan Partners. Artisan Funds has no retirement or pension plans.
The following table sets forth compensation paid by the Fund and by Artisan
Funds, Inc. during the fiscal year ended June 30, 1997 to each of the directors
of the Fund.
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED ANNUAL FROM ARTISAN MID
COMPENSATION AS PART OF BENEFITS CAP FUND AND FUND
FROM ARTISAN FUND ESTIMATED COMPLEX
NAME OF DIRECTOR MID CAP FUND EXPENSES RETIREMENT PAID TO DIRECTORS
- ---------------- ------------ -------- ---------- -----------------
Andrew A. Ziegler $ 0 $ 0 $ 0 $ 0
Carlene Murphy Ziegler 0 0 0 0
David A. Erne 0 0 0 10,000
Thomas R. Hefty 0 0 0 10,000
Howard B. Witt 0 0 0 10,000
On September 30, 1997, the officers and directors of Artisan Funds as a
group owned less than 1% of the outstanding shares of the Fund and less than 1%
of the outstanding shares of Artisan Funds.
PRINCIPAL SHAREHOLDERS
No person was known by Artisan Funds to own of record or beneficially 5% or
more of the outstanding shares of the Fund at September 30, 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 April 30, 1997 (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. Artisan Partners also has offices at 100
B-25
<PAGE>
Pine Street, Suite 3250, San Francisco, California and Five Concourse Parkway,
Suite 2120, Atlanta, Georgia 30328.
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 any ordinary operating expenses in excess
of 2.0% of average net assets over each fiscal year. For the period from June
28, 1997 (commencement of operations) through June 30, 1997, the Fund made no
advisory fee payments to Artisan Partners.
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.
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).
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.
B-26
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services
Artisan Partners feels are useful. In certain instances, Artisan Partners
receives from brokers and dealers products or services that are used both as
investment research and for administrative, marketing, or other non-research
purposes. In such instances, Artisan Partners makes a good faith effort to
determine the relative proportions of such products or services which may be
considered as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by Artisan Partners
(without prior agreement or understanding, as noted above) through brokerage
commissions generated by transactions by clients (including the Fund), while
the portions of the costs attributable to non-research usage of such products
or services is paid by Artisan Partners in cash. No person acting on behalf
of the Fund is authorized, in recognition of the value of research products
or services, to pay a commission in excess of that which another broker or
dealer might have charged for effecting the same transaction. Research
products or services furnished by brokers and dealers may be used in servicing
any or all of the clients of Artisan Partners and not all such research
products or services are used in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer of a net basis, Artisan Partners also may
consider the part, if any, played by the broker or dealer in bringing the
security involved to Artisan Partners' attention, including investment research
related to the security and provided to the Fund. For the period from June 28,
1997 (commencement of operations) through June 30, 1997, there were no purchases
or sales of portfolio securities.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the prospectus under the
headings "How to Buy Shares," and "How to Sell Shares." All of that
information is incorporated herein by reference.
Shares of the Fund may be purchased or redeemed through certain financial
services companies, some of which may charge a transaction fee. The Fund may
authorize from time to time certain financial services companies, broker-dealers
or their designees ("authorized agents") to accept share purchase and
redemption orders on the Fund's behalf. For purchase orders placed
B-27
<PAGE>
through an authorized agent, a shareholder will pay the Fund's NAV per share
(see "Net Asset Value," below), next computed after the receipt by the
authorized agent of such purchase order, plus any applicable transaction charge
imposed by the agent. For redemption orders placed through an authorized agent,
a shareholder will receive redemption proceeds which reflect the NAV per share
next computed after the receipt by the authorized agent of the redemption order,
less any redemption fees imposed by the agent.
In some instances, an authorized agent or other financial services company
may not charge any transaction fees directly to investors in the Fund. However,
accounting and shareholder servicing services provided by such a company with
respect to Fund shares held by that company for its customers, the company may
charge a fee of up to 0.35% of the annual average value of those accounts. The
Fund pays a portion of those fees not to exceed the estimated fees and expenses
that the Fund would pay to its own transfer agent if the shares of the
Fund held by such customers of the company were registered directly in their
names on the books of the Fund's transfer agent. The balance of those fees
is paid by Artisan Partners.
Net Asset Value. Share purchase and redemption orders will be priced at
the Fund's net asset value next computed after such orders are received and
accepted by: (i) the Fund; (ii) a broker-dealer or other financial services
company authorized by the Fund to accept purchase and redemption orders on the
Fund's behalf; or (iii) such authorized broker-dealer's designee. The net asset
value of the shares of the Fund is determined as of the close of regular session
trading on the New York Stock Exchange ("NYSE") (currently 3:00 p.m., Central
time) each day the NYSE is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in January, the
third Monday in February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be determined on days
when the NYSE is closed unless, in the judgment of the board of directors, net
asset value of the Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time. The net asset value per
share of the Fund is determined by dividing the value of all its securities and
other assets, less its liabilities, by the number of shares of the Fund
outstanding.
The Fund intends to pay all redemptions in cash and is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions.
The Fund reserves the right to suspend or postpone redemptions of its
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Commission, if the NYSE is closed for other than customary
weekend and holiday closings; (b) the Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Commission, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
B-28
<PAGE>
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.
Your distributions will be taxable to you, under income tax law, whether
received in cash or reinvested in additional shares. For federal income tax
purposes, any distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions of mid-term capital
gains will be taxable to you as mid-term capital gains. Distributions of net
long-term capital gain will be taxable to you as long-term capital gain
regardless of the length of time you have held your shares.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you realize a loss on the sale of Fund shares held for six months or
less, your short-term loss is recharacterized as long-term to the extent of any
long-term capital gain distributions you have received with respect to those
shares.
The Taxpayer Relief Act of 1997 reduced from 28% to 20% the maximum tax
rate on long-term capital gains. This reduced rate generally applies to
securities held more than 18 months and sold after July 28, 1997, and securities
held for more than one year and sold between May 6, 1997 and July 29, 1997.
The Fund may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption proceeds.
Backup withholding may be required if:
- You fail to furnish your properly certified social security or other tax
identification number;
- You fail to certify that your tax identification number is correct or
that you are not subject to backup withholding due to the underreporting
of certain income;
- The IRS informs the Fund that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. The Fund must promptly pay the the IRS all
amounts withheld. Therefore,
B-29
<PAGE>
it is not usually possible for the Fund to reimburse you for amounts withheld.
You may, however, claim the amount withheld as a credit on your federal income
tax return.
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 securities in
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
Copies of the June 30, 1997 Annual and December 31, 1997 Semi-Annual
Reports to shareholders accompany this statement of additional information.
The Annual Report 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 report) are incorporated
herein by reference. The Semi-Annual Report contains unaudited financial
statements, notes thereto and supplementary information entitled "Financial
Highlights," all of which (but no other part of the report) are incorporated
herein by reference. Additional copies of the reports may be obtained from
Artisan Funds at no charge by writing or telephoning Artisan Funds at the
address or telephone number on the cover page of this statement of additional
information. The unaudied financial statements included in the Fund's Semi-
Annual Report reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period presented.
B-30
<PAGE>
XXXXX
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements included in Part A of this registration
statement:
None.
(2) Financial Statements included in Part B of this amendment:
ARTISAN SMALL CAP FUND
----------------------
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's annual report to shareholders for
the fiscal year ended June 30, 1997:
- Schedule of Investments at June 30, 1997
- Statement of Assets and Liabilities at June 30, 1997
- Statement of Operations for the Period Ended June 30, 1997
- Statement of Changes in Net Assets for the Years Ended
June 30, 1997 and June 30, 1996
- Notes to Financial Statements
- Report of Independent Accountants
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's Semi-Annual Report to shareholders
for the fiscal year ended December 31, 1997:
- Schedule of Investments at December 31, 1997 (unaudited)
- Statement of Assets and Liabilities at December 31, 1997
(unaudited)
- Statement of Operations for the Period Ended December 31,
1997 (unaudited)
- Statement of Changes in Net Assets for the Period Ended
December 31, 1997 (unaudited)
- Notes to Financial Statements
ARTISAN INTERNATIONAL FUND
--------------------------
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's annual report to shareholders for
the fiscal year ended June 30, 1997:
- Schedule of Investments at June 30, 1997
- Statement of Assets and Liabilities at June 30, 1997
- Statement of Operations for the Period Ended June 30, 1997
- Statement of Changes in Net Assets for the Year ended June
30, 1997 and the Period ended June 30, 1996
<PAGE>
- Notes to Financial Statements
- Report of Independent Accountants
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's Semi-Annual Report to shareholders
for the fiscal year ended December 31, 1997:
- Schedule of Investments at December 31, 1997 (unaudited)
- Statement of Assets and Liabilities at December 31, 1997
(unaudited)
- Statement of Operations for the Period Ended December 31,
1997 (unaudited)
- Statement of Changes in Net Assets for the Period Ended
December 31, 1997 (unaudited)
- Notes to Financial Statements
ARTISAN MID CAP FUND
--------------------
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's annual report to shareholders for
the fiscal year ended June 30, 1997:
- Statement of Assets and Liabilities at June 30, 1997
- Statement of Changes in Net Assets for the Period ended
June 30, 1997 (from commencement of operations on
June 28, 1997)
- Notes to Financial Statements
- Report of Independent Accountants
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's Semi-Annual Report to shareholders
for the fiscal year ended December 31, 1997:
- Schedule of Investments at December 31, 1997 (unaudited)
- Statement of Assets and Liabilities at December 31, 1997
(unaudited)
- Statement of Operations for the Period Ended December 31,
1997 (unaudited)
- Statement of Changes in Net Assets for the Period Ended
December 31, 1997 (unaudited)
- Notes to Financial Statements
Artisan Small Cap Value Fund
----------------------------
The following financial statements, but no other part of the
report, are incorporated by reference to the following
portions of Registrant's Semi-Annual Report to shareholders
for the fiscal year ended December 31, 1997:
- Schedule of Investments at December 31, 1997 (unaudited)
- Statement of Assets and Liabilities at December 31, 1997
(unaudited)
- Statement of Operations for the Period Ended December 31,
1997 (unaudited)
- Statement of Changes in Net Assets for the Period Ended
December 31, 1997 (unaudited)
- Notes to Financial Statements
Note: the following schedules have been omitted for the following
reasons:
Schedule I - The required information is presented in the
Schedules of Investments at June 30, 1997 or December 31
1997, respectively.
Schedules II, III, IV and V - the required information is
not present.
(b) Exhibits:
EXHIBIT EDGAR
NUMBER EXHIBIT DESCRIPTION
NO.
1.1 EX-99.B1-1 Amended and Restated Articles of Incorporation of the
Registrant. (a)
1.2 EX-99.B1-2 Articles of Amendment dated October 12, 1995. (a)
1.3 EX-99.B1-3 Articles of Amendment dated January 16, 1997. (b)
1.4 EX-99.B1-4 Articles of Amendment dated April 10, 1997. (c)
1.5 EX-99.B1-5 Articles of Amendment dated June 5, 1997. (d)
2 EX-99.B2 Bylaws, as amended. (a)
3 EX-99.B3 None.
4 EX-99.B4 None (Registrant does not issue share certificates.)
<PAGE>
EXHIBIT EDGAR
NUMBER EXHIBIT DESCRIPTION
NO.
5.1 EX-99.B5-1 Investment Advisory Agreement between the Registrant
and Artisan Partners Limited Partnership relating to
Artisan Small Cap Fund. (a)
5.2 EX-99.B5-2 Investment Advisory Agreement between the Registrant
and Artisan Partners Limited Partnership relating to
Artisan International Fund. (a)
5.3 EX-99.B5-3 Investment Advisory Agreement between the Registrant
and Artisan Partners Limited Partnership relating to
Artisan Mid Cap Fund. (c)
5.4 EX-99.B5-4 Form of Investment Advisory Agreement between the
Registrant and Artisan Partners Limited Partnership
relating to Artisan Small Cap Value Fund. (d)
6 EX-99.B6 None.
7 EX-99.B7 None.
8.1 EX-99.B8-1 Custodian Agreement and Accounting Services Agreement
between the Registrant and State Street Bank and Trust
Company. (a)
8.2 EX-99.B8-2 Notification to custodian regarding addition of
Artisan Mid Cap Fund (c).
8.3 EX-99.B8-3 Notification to custodian regarding addition of
Artisan Small Cap Value Fund. (d)
9.1 EX-99.B9-1 Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company. (a)
9.2 EX-99.B9-2 Amendment No. 1 to Transfer Agency Agreement. (b)
9.3 EX-99.B9-3 Notification to transfer agent regarding addition of
Artisan Mid Cap Fund. (c).
9.4 EX-99.B9-4 Notification to transfer agent regarding addition of
Artisan Small Cap Value Fund. (d)
10.1 EX-99.B10-1 Opinion and Consent of Counsel dated March 8, 1995
with respect to Artisan Small Cap Fund. (a)
10.2 EX-99.B10-2 Opinion and Consent of Counsel dated October 13, 1995
with respect to Artisan International Fund. (a)
10.3 EX-99.B10-3 Opinion and Consent of Counsel dated April 10, 1997
with respect to Artisan Mid Cap Fund. (c)
10.4 EX-99.B10-4 Opinion and Consent of Counsel dated June 6, 1997 with
respect to Artisan Small Cap Value Fund. (d)
<PAGE>
EXHIBIT EDGAR
NUMBER EXHIBIT NO. DESCRIPTION
11 EX-99.B-11 Consent of Independent Accountants.
12 EX-99.B-12 None.
13 EX-99.B13 Subscription Agreement between the Registrant and
Andrew A. Ziegler and Carlene Murphy Ziegler
relating to Artisan Small Cap Fund. (a)
14.1 EX-99.B14-1 IRA plan booklet dated March 1995. (a)
15 EX-99.B15 None.
16 EX-99.B16 Schedule of computation of performance quotations. (a)
17.1 EX-27.1 Financial Data Schedule of Artisan Small Cap Fund.
17.2 EX-27.2 Financial Data Schedule of Artisan International
Fund.
17.3 EX-27.3 Financial Data Schedule of Artisan Mid Cap Fund.
17.4 EX-27.4 Financial Data Schedule of Artisan Small Cap Value Fund
18 EX-99.B18 Multiple Class Plan pursuant to Rule 18f-3 for
Artisan International Fund.(b)
19 EX-99.B19 Form of account application. (d)
(a) Previously filed. Incorporated by reference to the exhibit of the same
number filed with post-effective amendment no. 3 to Registrant's
registration statement, Securities Act file number 33-88316 (the
"Registration Statement"), filed on November 27, 1995.
(b) Previously filed. Incorporated by reference to the exhibit of the same
number filed with post-effective amendment no. 5 to the Registration
Statement, filed on January 21, 1997.
(c) Previously filed. Incorporated by reference to the exhibit of the same
number filed with post-effective amendment no. 6 to the Registration
Statement, filed on April 11, 1997.
(d) Previously filed. Incorporated by reference to the exhibit of the same
number filed with post-effective amendment no. 7 to the Registration
Statement, filed on June 6, 1997.
ITEM 25. Persons Controlled by or Under Common Control With Registrant.
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with, the
Registrant within the meaning of this item. The information in the prospectus
under the caption "The Fund in Detail - Organization - Management" and in the
statement of additional information under the caption "Investment Advisory
Services" is incorporated herein by reference.
<PAGE>
ITEM 26. Number of Holders of Securities.
No. of Record Holders
Title of Series and Class at January 31, 1998
- ------------------------ ---------------------
Artisan Small Cap Fund 14,773
Artisan International Fund - International Shares 7,301
Artisan International Fund - International 55
Institutional Shares 70
Artisan Mid Cap Fund 2,917
Artisan Small Cap Value Fund
ITEM 27. Indemnification.
Article VIII of Registrant's Amended Articles of Incorporation (Exhibits
1.1, 1.2, 1.3, 1.4 and 1.5, which are incorporated herein by reference) provides
that the Registrant shall indemnify and advance expenses to its currently acting
and its former directors and officers to the fullest extent that indemnification
of directors and officers is permitted by the Wisconsin Statutes, and the Board
of Directors may by bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Wisconsin Statutes; provided however, that nothing
therein shall be construed to protect any director or officer of the Registrant
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant will not advance attorneys' fees or other expenses incurred
by the person to be indemnified unless the Registrant shall have received an
undertaking by or on behalf of such person to repay the advance unless it is
ultimately determined that such person is entitled to indemnification and one of
the following conditions shall have occurred: (i) such person shall provide
security for his undertaking, (ii) the Registrant shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of the
disinterested, non-party directors of the Registrant, or an independent legal
counsel in a written opinion, shall have determined that based on a review of
readily available facts there is reason to believe that such person ultimately
will be found entitled to indemnification.
<PAGE>
Registrant and its directors and officers are insured under a policy of
insurance maintained by Registrant, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors or officers. The
policy expressly excludes coverage for any director or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
ITEM 28. Business and Other Connections of Investment Adviser.
The information in each prospectus under the caption "The Fund in Detail -
Organization - Management" is incorporated herein by reference. For a
description of other business, profession, vocation or employment of a
substantial nature in which any general partner, managing general partner,
director or officer of Artisan Partners Limited Partnership has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the information under the caption "Directors
and Officers' in the statement of additional information.
ITEM 29. Principal Underwriters.
None
ITEM 30. Location of Accounts and Records.
Lawrence A. Totsky
Artisan Partners Limited Partnership
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within 60 days of the end
of the four to six month period from the effective date of the Registrant's
1933 Act registration statement.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
(d) Registrant undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company
Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
requirements for effectiveness of this registration statement pursuant to
rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to the registration statement be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Milwaukee and
state of Wisconsin on February 27, 1998.
ARTISAN FUNDS, INC.
By /s/ Andrew A. Ziegler
Andrew A. Ziegler,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the
following person in the capacities and on the date indicated.
Name Title Date
/s/ Andrew A. Ziegler Director, Chief Executive )
Andrew A. Ziegler Officer (principal executive )
officer) )
)
)
/s/ Carlene Murphy Ziegler Director and President )
Carlene Murphy Ziegler )
)
)
)
/s/ David A. Erne Director ) February 27,
David A. Erne ) 1998
)
)
/s/ Thomas R. Hefty Director )
Thomas R. Hefty )
)
)
/s/ Howard B. Witt Director )
Howard B. Witt )
)
)
/s/ Lawrence A. Totsky Chief Financial Officer, )
Lawrence A. Totsky Treasurer and Secretary )
(principal financial and )
accounting officer) )
<PAGE>
Index of Exhibits Filed with this Registration Statement
--------------------------------------------------------
Exhibit EDGAR Exhibit Exhibit
Number Number
------ ------------- ----------------------------
11 EX-99.B-11 Consent of Independent
Accountants.
17.1 EX-27.1 Financial Data Schedule of
Artisan Small Cap Fund.
17.2 EX-27.2 Financial Data Schedule of
Artisan International Fund.
17.3 EX-27.3 Financial Data Schedule of
Artisan Mid Cap Fund.
17.4 EX-27.4 Financial Data Schedule of
Artisan Small Cap Value Fund.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 9 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated July 30, 1997, relating to the financial
statements and financial highlights appearing in the June 30, 1997 Annual
Reports of Artisan Small Cap Fund, Artisan International Fund and Artisan
Mid Cap Fund, (constituting three portfolios of Artisan Funds, Inc.), which
are also incorporated by reference into the Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in the
Prospectuses and under the heading "Independent Accountants" in the Statements
of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
February 27, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000935015
<NAME> ARTISAN FUNDS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 235,654,167
<INVESTMENTS-AT-VALUE> 271,449,491
<RECEIVABLES> 1,599,333
<ASSETS-OTHER> 38,796
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 273,087,620
<PAYABLE-FOR-SECURITIES> 4,979,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 288,354
<TOTAL-LIABILITIES> 5,267,732
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205,535,540
<SHARES-COMMON-STOCK> 17,722,769
<SHARES-COMMON-PRIOR> 23,259,873
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,489,024
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,795,324
<NET-ASSETS> 267,819,888
<DIVIDEND-INCOME> 1,357,501
<INTEREST-INCOME> 620,047
<OTHER-INCOME> 0
<EXPENSES-NET> 4,101,900
<NET-INVESTMENT-INCOME> (2,124,352)
<REALIZED-GAINS-CURRENT> 28,932,063
<APPREC-INCREASE-CURRENT> (6,867,786)
<NET-CHANGE-FROM-OPS> 19,939,925
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 21,951,585
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,247,380
<NUMBER-OF-SHARES-REDEEMED> 15,384,496
<SHARES-REINVESTED> 1,600,012
<NET-CHANGE-IN-ASSETS> (132,180,701)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,626,207
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,906,791
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,101,900
<AVERAGE-NET-ASSETS> 290,914,894
<PER-SHARE-NAV-BEGIN> 14.67
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.11
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000935015
<NAME> ARTISAN FUNDS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 417,909,723
<INVESTMENTS-AT-VALUE> 451,895,742
<RECEIVABLES> 14,858,211
<ASSETS-OTHER> 26,396
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 466,790,349
<PAYABLE-FOR-SECURITIES> 7,443,106
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,167,173
<TOTAL-LIABILITIES> 17,610,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 402,232,773
<SHARES-COMMON-STOCK> 31,015,095
<SHARES-COMMON-PRIOR> 5,921,803
<ACCUMULATED-NII-CURRENT> 2,577,725
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,432,054
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,937,518
<NET-ASSETS> 449,180,070
<DIVIDEND-INCOME> 6,102,067
<INTEREST-INCOME> 465,933
<OTHER-INCOME> 0
<EXPENSES-NET> 3,952,913
<NET-INVESTMENT-INCOME> 2,615,087
<REALIZED-GAINS-CURRENT> 10,582,162
<APPREC-INCREASE-CURRENT> 30,229,107
<NET-CHANGE-FROM-OPS> 43,426,356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 237,011
<DISTRIBUTIONS-OF-GAINS> 1,238,614
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,329,489
<GROSS-ADVISORY-FEES> 36,871
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142,449
<AVERAGE-NET-ASSETS> 7,359,837
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 2.82
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.01
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000935015
<NAME> ARTISAN FUNDS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 26,764,759
<INVESTMENTS-AT-VALUE> 27,400,569
<RECEIVABLES> 124,522
<ASSETS-OTHER> 46,630
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,571,721
<PAYABLE-FOR-SECURITIES> 93,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 88,871
<TOTAL-LIABILITIES> 182,556
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,652,503
<SHARES-COMMON-STOCK> 2,656,362
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (7,080)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 107,932
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 635,810
<NET-ASSETS> 27,389,165
<DIVIDEND-INCOME> 68,795
<INTEREST-INCOME> 40,702
<OTHER-INCOME> 0
<EXPENSES-NET> 116,577
<NET-INVESTMENT-INCOME> (7,080)
<REALIZED-GAINS-CURRENT> 107,932
<APPREC-INCREASE-CURRENT> 635,810
<NET-CHANGE-FROM-OPS> 736,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,993,974
<NUMBER-OF-SHARES-REDEEMED> 337,612
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27,389,165
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61,064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125,633
<AVERAGE-NET-ASSETS> 23,936,095
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
