(LOGO)
Prospectus
ARTISAN MID CAP FUND
(Institutional Shares)
July 1, 2000
This prospectus offers Artisan Mid Cap Fund Institutional Shares to
institutional investors including, but not limited to, employee benefit plans,
endowments, foundations, trusts and corporations able to meet the Fund's minimum
investment requirement of $2 million.
An investment in the Fund is 100% no-load, which means you pay no sales charges.
You also pay no 12b-1 fees. However, you bear your share of annual fund
operating expenses (including the investment management fee) which are deducted
from Fund assets.
ARTISAN FUNDS, INC.
Suite 1770
1000 North Water Street
Milwaukee, WI 53202-3197
Be sure to read this prospectus before you invest and please keep it on file for
future reference.
This prospectus presents essential facts about the Fund, including investment
strategies, management fees and services available to you as an investor.
If you have a question about any part of this prospectus, please call the number
below. An Artisan Funds representative will be happy to help you.
--------------
1-800-399-1770
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
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TABLE OF CONTENTS
Important Legal Information.......................Cover
Goal, Strategy & Philosophy...........................2
Risks You Should Consider.............................3
Total Return - Calendar Year..........................4
Average Annual Total Returns..........................5
Fees & Expenses.......................................5
Who is Eligible to Invest?............................6
The Fund's Financial Highlights.......................7
Organization, Management & Management Fee.............8
Investing with the Fund...............................8
Minimum Investments..............................8
How to Buy Shares.....................................9
How to Sell Shares...................................10
Shareholder & Account Policies.......................12
Statements & Reports............................12
Share Price.....................................12
Dividends, Capital Gains & Taxes................13
Distribution Options............................13
Taxes...........................................13
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GOAL, STRATEGY & PHILOSOPHY
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GOAL
Artisan Mid Cap Fund seeks maximum long-term capital growth. The Fund may change
this goal without the approval of shareholders.
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STRATEGY & PHILOSOPHY
The Fund invests at least 65% of its total assets in the common stocks of
medium-sized U.S. companies.
A medium-sized company is one whose total stock market value falls within the
range of companies in the S&P 400 MidCap Index. As of March 31, 2000, this
Index included companies with capitalizations between approximately $210 million
and $23.2 billion. Over time, the capitalization range of companies in the
Index will change. As it does, the size of the companies in which the Fund
invests may change.
- The Fund prefers to invest in companies with "franchise" characteristics.
These could be a proprietary technology, dominant market share or some
other form of sustainable competitive advantage.
- The Fund also favors companies with predictable streams of cash flow
through real growth in demand for their products or services. Such
companies are well-positioned to take advantage of opportunities in
their markets.
- If Artisan Partners, the adviser to the Fund, is impressed with a
company's competitive position and prospects for growth, it then defines
and researches key investment issues. It also estimates the company's
intrinsic value, and generally will buy the stock only if it sells below
that estimate.
- Under ordinary circumstances, the Fund is fully invested in common
stocks. At times, however, Artisan Partners may determine that market or
economic conditions warrant a temporary defensive position. During those
periods, the Fund's assets may not be invested in accordance with its
strategy and the Fund may not achieve its investment objective. In this
case, the Fund may hold up to 100% of its assets in cash, cash
equivalents, or short-term government or corporate obligations.
The Fund tries to lower the risks of investing in medium-sized companies through
broad diversification by industry and company, as well as continuous monitoring
of each holding.
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. A higher rate of portfolio turnover results in increased
transaction expenses, the realization of capital gains or losses and may reduce
performance.
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Artisan Partners may decide to sell a stock when a company's valuation
approaches its growth rate, changing circumstances affect the original reasons
for a company's purchase, a company exhibits deteriorating fundamentals or more
attractive alternatives exist.
PRINCIPAL RISKS YOU SHOULD CONSIDER
The Fund invests primarily in common stocks. In the short-term, stock prices may
fluctuate widely in response to company, market or economic news. When you sell
your shares, they may be worth more or less than you paid for them. You can lose
money by investing in the Fund.
The Fund does not pursue income and is not a balanced investment plan. In
addition, there can be no assurance that it will achieve its investment goal.
The investment manager's ability to choose suitable investments for the Fund has
a significant impact on the Fund's ability to achieve its investment objective.
The percentage of the Fund's assets invested in various industries and sectors
will vary from time to time depending on the portfolio management team's
perception of investment opportunities. Investments in particular industries
or sectors may be more volatile than the overall stock market. For example,
technology, science and communications are rapidly changing fields, and stocks
of these companies may be subject to more abrupt or erratic market movements
than the stock market in general. Consequently, a higher percentage of holdings
in a particular industry or sector may have the potential for a greater impact
on the Fund.
Below are the principal investment risks of the Fund.
- Stocks of medium-sized companies tend to be more volatile than those of
large companies.
- Compared to large companies, medium-sized companies typically have
analyst coverage by fewer Wall Street firms. For this reason, they are
more likely to be trading at prices that reflect incomplete or
inaccurate information.
- During some periods, stocks of mid-sized companies, as a class, have
underperformed the stocks of small and large companies.
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INVESTMENT RETURNS
The bar chart and table below illustrate the risks of investing in the Fund. As
you can see, the bar chart shows the returns achieved year by year and the table
compares the Fund's average annual total returns for various periods, compared
to a market index. How the Fund has performed in the past does not necessarily
indicate how it will perform in the future.
TOTAL RETURN - CALENDAR YEAR<F1>
ARTISAN MID CAP FUND - INVESTOR SHARES
RETURN (%)
----------------------
1998 33.37%
1999 57.89%
<F1> Because Institutional Shares have not been offered for a full calendar
year, the information provided in the bar chart and table represents the
performance of Investor Shares, the Fund's other class of shares, which are
offered to individual investors by a separate prospectus. Institutional
Shares and Investor Shares would have substantially similar annual returns
because the shares are invested in the same portfolio of securities.
However, because the classes do not have the same expenses, the expense
ratio and the Total Return and Average Annual Total Return of Institutional
Shares will differ from the Investor Shares.
The Fund's return from January 1, 2000 through March 31, 2000 was 26.14%.
For the periods shown in the bar chart, the highest and lowest quarterly returns
for the Investor Shares were 37.66% and (10.54)% for the quarters ended December
31, 1999 and September 30, 1998, respectively.
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AVERAGE ANNUAL TOTAL RETURNS
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FOR THE YEAR FROM 6/27/97
ENDED 12/31/99 THROUGH 12/31/99
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ARTISAN MID CAP FUND
(INVESTOR SHARES) 57.89% 48.39%
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S&P 400 MidCap Index<F1> 14.72% 20.38%
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Investor Shares inception date is 6/27/97. All returns reflect reinvested
dividends.
<F1> The S&P 400 MidCap Index is an unmanaged, market-weighted index of 400 mid-
cap companies.
The Fund's performance was achieved during a period of generally favorable
market and economic conditions, including for securities offered in initial
public offerings (IPOs), in which the Fund invests when attractive opportunities
are presented to it. The market and economic conditions prevailing in 1998 and
1999 are unlikely to continue and any positive impact on performance of IPO
investments will diminish as the Fund's assets grow.
FEES & EXPENSES OF THE FUND
Below are the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) imposed on purchases None
Exchange fee None
Redemption fee None
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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EXPENSE MID CAP FUND
(INSTITUTIONAL SHARES)
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MANAGEMENT FEES 1.00%
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DISTRIBUTION (12B-1) FEES None
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OTHER EXPENSES 0.20<F1>
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.20<F1>
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<F1> In the absence of an operating history, the amount shown for "other
expenses" is the estimated amount that the Fund will incur.
EXAMPLE. This example is intended to help you compare the cost of investing in
Institutional Shares of the Fund with that of investing in other mutual funds.
The example assumes you invest $10,000 for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that you earn a 5% return each year, and that operating expenses remain
constant.
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TIME PERIOD MID CAP FUND
(INSTITUTIONAL SHARES)
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1 YEAR $122
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3 YEARS $381
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5 YEARS $660
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10 YEARS $1,455
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This example is for illustration only. It is not meant to suggest actual or
expected costs or returns, which may be more or less than the amounts shown.
WHO IS ELIGIBLE TO INVEST?
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 mid cap companies.
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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, OR TO OBTAIN AN APPLICATION, CALL 1-800-399-1770. SEE "HOW TO BUY
SHARES."
THE FUND'S FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the financial performance
of the Fund since it began operations as it relates to Investor Shares (not
Institutional Shares). Certain information reflects financial results for a
single Investor Share. Because Institutional Shares have not previously been
issued, similar information does not exist for them. Total return represents
the rate you would have earned (or lost) on an investment, assuming reinvestment
of all dividends and distributions. For periods up to and including the year
ended June 30, 1999, this information has been audited by PricewaterhouseCoopers
LLP, independent accountants, whose report is included in the annual report,
which is available on request.
For a share outstanding 6 Months Ended Year Year Year
throughout the period Ended Ended Ended Ended
12/31/99 6/30/99 6/30/98 6/30/97<F1>
--------- --------- --------- ---------
(unaudited)
Net asset value,
beginning of period $16.67 $13.69 $10.00 $10.00
Income from investment operations:
Net investment loss (0.05) (0.16)<F5> (0.08) --
Net realized and unrealized
gains on securities 5.90 4.41 4.56 --
-------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 5.85 4.25 4.48 --
-------- -------- -------- --------
Distributions paid to shareholders:
Net realized gains on
investment transactions (0.83) (1.27) (0.79) --
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $21.69 $16.67 $13.69 $10.00
======== ======== ======== ========
Total return 36.0%<F2> 35.8% 46.1% 0.0%<F2>
Ratios/supplemental data:
Net assets, end of
period (millions) $98.0 $43.3 $12.8 $1.8
Ratio of expenses to
average net assets 1.60%<F3> 2.00%<F4> 2.00%<F4> 0.00%<F3>
Ratio of net investment
income to average
net assets. (0.84)%<F3> (1.13)%<F4>(0.77)%<F4> 0.00%<F3>
Portfolio turnover rate 133.29%<F2> 202.84% 235.65% 0.00%<F2>
<F1> For the period from commencement of operations (June 27, 1997) through June
30, 1997.
<F2> Not annualized.
<F3> Annualized.
<F4> The ratios of expenses to average net assets and net investment loss to
average net assets exclude fund expenses paid by Artisan Partners. Absent
fund expenses paid by Artisan Partners, the ratios of expenses to average
net assets and net investment loss to average net assets would have been
2.12% and (1.25)% for the year ended June 30, 1999 and 3.64% and (2.41)%
for the year ended June 30, 1998, respectively.
<F5> Computed based on average shares outstanding.
7
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ORGANIZATION, MANAGEMENT & MANAGEMENT FEE
ORGANIZATION. The Fund is a series of Artisan Funds, Inc. The Fund offers two
classes of shares - Investor Shares and Institutional Shares. This prospectus
describes Institutional Shares. Investor Shares are offered to individual
investors through a separate prospectus.
MANAGEMENT. The Fund is managed by Artisan Partners Limited Partnership (Artisan
Partners), which selects the Fund's investments and handles its business affairs
under the direction of the board of directors. Artisan Partners was organized in
1994 and, as of March 31, 2000, manages approximately $9.5 billion for Artisan
Funds and institutional clients. Artisan Partners is a limited partnership
managed by its general partner, Artisan Investment Corporation. The address is:
Artisan Partners, 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202-3197.
ANDREW C. STEPHENS, Portfolio Manager, has been a Managing Director of Artisan
Partners and a Vice President of Artisan Funds since he joined Artisan Partners
in 1997. From 1993 to 1997, Mr. Stephens was Co-Manager of the Strong Asset
Allocation Fund. From 1994 to 1996, he served as a Senior Research Analyst for
the Strong Common Stock Fund and Strong Opportunity Fund.
Mr. Stephens holds a BS degree in Economics from the University of Wisconsin -
Madison.
MANAGEMENT FEE. The Fund pays a management fee to Artisan Partners for serving
as its investment adviser and providing administrative services. The fee is
determined as a percentage of average daily net assets. The Fund also pays
expenses related to its daily operations. Expenses paid out of the Fund's
assets are reflected in its share price or dividends. For services furnished
by Artisan Partners, the Fund has agreed to pay an annual fee of 1.00% of the
Fund's average daily net assets.
INVESTING WITH THE FUND
THE FUND IS 100% NO-LOAD, which means you pay no sales charges. You also pay no
12b-1 fees. However, you bear your share of annual fund operating expenses
(including the investment management fee) which are deducted from Fund assets.
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MINIMUM INVESTMENTS
To open an account......................$2,000,000
To add to an account......................$100,000
Minimum balance required................$2,000,000
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Each account must separately meet the minimum investment requirements applicable
to Institutional Shares. The Fund 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
APPLICATIONS FOR INSTITUTIONAL SHARES ARE ONLY MADE AVAILABLE THROUGH ARTISAN
DISTRIBUTORS LLC BY CALLING 1-800-399-1770. Institutional Shares may be
purchased by check or wire. There are no sales commissions or underwriting
discounts.
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BY WIRE
You may purchase 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
DISTRIBUTORS LLC 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 #011000028
Credit to Artisan Mid Cap Institutional Shares 1333
Deposit DDA 99050882
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BY CHECK
To make an initial purchase of shares by check, complete and sign the "Account
Application" and send it to the Fund's transfer agent at one of the following
addresses with a check for the total purchase amount payable to "Artisan Funds":
REGULAR MAIL OVERNIGHT DELIVERY
-------------------- --------------------
Artisan Funds Artisan Funds
c/o Boston Financial c/o Boston Financial
Marina Bay - Floor 3 66 Brooks Drive
500 Victory Road Braintree, MA 02184
Quincy, MA 02171
All investment checks must be delivered to one of the above addresses. Neither
Artisan Funds nor Artisan Distributors LLC is authorized to accept shareholder
investment checks at their corporate offices.
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PURCHASES IN KIND
You may, subject to the approval of Artisan Funds, purchase shares of the Fund
with securities that are eligible for purchase by the Fund (consistent with the
Fund's investment strategy, goal and philosophy) that have value that is readily
ascertainable in accordance with the Fund's valuation policies. Call Artisan
Funds at 1-800-399-1770 if you would like to purchase Fund shares with other
securities.
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SUBSEQUENT INVESTMENTS
You may make subsequent investments by wire transfer using the instructions
given above, or by submitting a check, along with either the stub from your Fund
account confirmation statement or a note indicating the amount of the purchase,
your account number, and the name in which your account is registered. ARTISAN
FUNDS WILL NOT ACCEPT CASH, DRAFTS, THIRD PARTY CHECKS, OR CHECKS DRAWN ON BANKS
OUTSIDE OF THE UNITED STATES. If your order to purchase Institutional Shares is
canceled because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
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PURCHASE PRICE & 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's transfer agent of the check or wire transfer of funds in payment of the
purchase.
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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 OVERNIGHT DELIVERY
-------------------- --------------------
Artisan Funds Artisan Funds
c/o Boston Financial c/o Boston Financial
Marina Bay - Floor 3 66 Brooks Drive
500 Victory Road Braintree, MA 02184
Quincy, MA 02171
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Your redemption request must:
- identify the Fund and give your account number;
- specify the number of shares or dollar amount to be redeemed;
- be accompanied by a corporate resolution or other authorization in the case
of a redemption by a corporation, trust, partnership or other entity, as
described below; and
- be signed by the shareholder in ink or by a duly authorized agent of the
shareholder.
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EVIDENCE OF AUTHORITY
Redemption requests by a corporation, trust, partnership or other entity must be
accompanied by evidence of 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 by-law 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, such as 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.
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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 Fund intends to pay all redemptions in cash. During any 90-day period for
any one shareholder, a Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of
these limits may be paid wholly or partly by an in-kind distribution of
securities.
The price at which your redemption order will be executed is the net asset value
next determined after proper redemption instructions are received by the Fund's
transfer agent. 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.
11
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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).
SHAREHOLDER & ACCOUNT POLICIES
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STATEMENTS & REPORTS
As a Fund investor, you will receive:
- confirmation statements - after every transaction in your account or change
in your account registration;
- quarterly account statements;
- annual and semi-annual reports with financial statements;
- year-end tax statements.
We suggest you keep each quarterly and year-end account statement with your
other important financial papers. You may need them for tax purposes.
If you need copies of statements, call 1-800-399-1770. Copies of this year's or
last year's statements are free of charge; for earlier years, there is a $10
processing fee.
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SHARE PRICE
The Fund is open for business every day the New York Stock Exchange ("NYSE") is
open. Institutional Shares will not be priced on days when the NYSE is closed.
The Fund buys and sells Institutional Shares each day at the net asset value per
Institutional Share.
The NET ASSET VALUE PER INSTITUTIONAL SHARE is the value of a single
Institutional Share. It is computed by totaling 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 value of the Fund's
liabilities and the liabilities specifically allocated to Institutional Shares,
then dividing the result by the number of Institutional Shares outstanding. The
net asset value is computed daily at the NYSE closing time - usually 3:00 p.m.
central time, but sometimes earlier.
12
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Fund securities and assets are valued chiefly by quotations from the primary
market in which they are traded. If quotations are not readily available, they
are valued by a method that the board of directors believes reflects a fair
value.
The Fund may hold foreign securities to a limited extent. Values of foreign
securities are translated from local currencies into U.S. dollars using current
exchange rates. To the extent the Fund holds foreign securities - traded
primarily on foreign exchanges - the price of Institutional Shares may change on
days when the Fund is not open for purchase or sale.
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DIVIDENDS, CAPITAL GAINS & TAXES
AS A SHAREHOLDER IN THE FUND, YOU ARE ENTITLED TO YOUR SHARE OF ITS NET INCOME
AND ANY GAINS REALIZED ON ITS INVESTMENTS. The Fund intends to distribute
substantially all of its net income and net realized capital gains to investors
at least annually.
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DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to receive
your distributions. If you want to change your distribution option at a later
date, you may either submit a written request or call us at 1-800-399-1770.
The Fund offers three options:
- REINVESTMENT OPTION. Your dividends and capital gain distributions will be
reinvested in additional shares of the Fund. If you do not indicate a
choice on your application, we will automatically reinvest your
distributions.
- INCOME-ONLY OPTION. We will automatically reinvest your capital gain
distributions but send you a check for dividends.
- CASH OPTION. We will send you 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.
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TAXES
As you should with any investment, consider how the return on your investment in
the Fund will be taxed. If your investment is in a tax-deferred account - an
employee benefit plan account, for example - the following tax discussion does
not apply.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and may
be subject to state or local taxes. If you are a U.S. citizen residing outside
the United States, your distributions may also 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 you received
them on December 31.
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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. The character of a capital gain depends on the
length of time that the Fund held the asset it sold.
Given its objective and strategy, the Fund will chiefly produce capital gains
distributions, as opposed to current income. Every January, the Fund will send
you and the IRS a statement - called Form 1099 - showing the total amount of
taxable distributions you received in the previous calendar year.
TAXES ON TRANSACTIONS. When you redeem shares, you will experience 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. You may be subject to tax.
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 that reports, among other things, your average
cost basis of the shares you sold. This will allow you or your tax preparer to
determine the tax consequences of each redemption. However, be sure to keep your
regular account statements; their information will be essential in verifying the
amount of your capital gains or losses.
To invest, you must be a U.S. resident with a Social Security or taxpayer
identification number. When you sign your account application, you must 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 this procedure, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
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For more detail on the Fund, you may request the Statement of Additional
Information, which is incorporated herein by reference.
You can find more information about the Fund's investments in its annual and
semi-annual reports to shareholders. These documents discuss the market
conditions and investment strategies that significantly affected the Fund's
performance in its most recent fiscal period.
For a free copy of any of these documents, call 1-800-399-1770. Also call this
number if you have a question or would like to receive other information about
the Fund.
Text-only versions of the Fund's documents can be viewed online or downloaded
from the EDGAR Database on the SEC's Internet web site at www.sec.gov. You may
also review and copy those documents by visiting the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 202-942-8090. In addition, copies may be
obtained, after mailing the appropriate duplicating fee, by writing to the SEC's
Public Reference Section, 450 5th Street, N.W., Washington, D.C. 20549-0102 or
by e-mail request at [email protected].
811-8932
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(LOGO) ARTISAN FUNDS
INVESTMENT MANAGEMENT PRACTICED WITH
INTELLIGENCE AND DISCIPLINE IS AN ART.
<PAGE>
ARTISAN FUNDS, INC.
ARTISAN MID CAP FUND
INSTITUTIONAL SHARES
1000 North Water Street, Suite 1770
Milwaukee, Wisconsin 53202
(414) 390-6100 (800) 344-1770
STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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Artisan Mid Cap Fund Institutional Shares (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 July 1, 2000 and any supplement to that prospectus. A copy of
the prospectus can be obtained without charge by calling (800) 344-1770, or by
writing to Artisan Funds.
The Artisan Funds, Inc. Annual Report to shareholders for the fiscal year
ended June 30, 1999 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 Artisan Funds, Inc. Semi-Annual Report to shareholders for the fiscal
year ended December 31, 1999 contains financial statements, notes thereto,
supplementary information entitled "Financial Highlights," all of which (but no
other part of the Semi-Annual Report) are incorporated herein by reference.
TABLE OF CONTENTS
Page
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Information about the Fund and Artisan Partners....................B-2
Investment Objective and Policies..................................B-2
Investment Techniques and Risks....................................B-3
Investment Restrictions...........................................B-17
Performance Information...........................................B-19
Organization......................................................B-23
Directors and Officers............................................B-24
Principal Shareholders............................................B-27
Investment Advisory Services......................................B-28
Code of Ethics....................................................B-29
Distributor.......................................................B-29
Portfolio Transactions............................................B-29
Purchasing and Redeeming Shares...................................B-31
Additional Tax Information........................................B-31
Custodian and Transfer Agent......................................B-33
Independent Accountants...........................................B-33
Financial Statements..............................................B-33
Appendix - Description of Bond Ratings......................Appendix-1
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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. The portfolio manager of the 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
that belief.
The discussion below supplements the description in the prospectus of the
Fund's investment objectives, policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long-term capital growth by investing 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 March 31, 2000, the MidCap Index included
companies with capitalizations between approximately $210 million and $23.2
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
offers two classes of shares: Artisan Mid Cap Investor Shares ("Mid Cap
Investor Shares") and Artisan Mid Cap Institutional Shares ("Mid Cap
Institutional Shares"). As described more fully in the Mid Cap Institutional
Shares prospectus, Mid Cap Institutional Shares are offered to certain
institutional investors with a minimum initial investment of $2 million.
Artisan Partners, investment adviser to the Fund, seeks mid-cap companies
that possess franchise characteristics with prospects for growth and whose stock
sells at compelling valuations. This focus may lead it to companies with
superior business potential that are temporarily out of favor or misunderstood
by the market. Artisan Partners attempts to identify these companies
when they are experiencing a change in dynamics that could potentially leverage
their inherent strengths.
This strategy rests on a few basic beliefs:
- An established franchise can protect a company from some of the effects
of competition. Over time, this advantage could lead to more stable
cash flow and, ultimately, to higher valuation. Examples of "franchise
characteristics" are proprietary technology, a defensible brand, a
dominant market share, or the position of a low-cost provider.
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- A franchise company selling at a significant discount to its intrinsic
value offers superior long-term investment potential. Thus, the
assessment of "intrinsic value" - the price that Artisan Partners
believes a strategic buyer would pay to own the entire company - is
fundamental to Artisan Partners' process.
- A company with franchise characteristics and an attractive valuation is
often one experiencing a major change - for instance, new management, a
restructuring, a new product cycle, an acquisition or a divestiture.
Such a change could serve as a catalyst to improved performance, higher
earnings, and, often, powerful, long-term market response. Artisan
Partners actively seeks such opportunities, hoping to identify as early
as possible the potential for positive change.
- The mid-cap universe provides a fertile ground for identifying franchise
companies trading at attractive prices. Large-cap franchise companies,
because they are heavily followed and sponsored, tend to be priced
efficiently. Small-cap companies typically do not yet possess
meaningful franchise characteristics. By contrast, the mid-
cap universe - in which market caps range between approximately $210
million and $23.2 billion as of March 31, 2000 - is less efficient than
the large-cap, is more mature than the small-cap, and is populated by
many established companies whose franchise characteristics are emerging
or are poised to create powerful competitive advantages.
The Fund attempts to manage portfolio risk by focusing on stocks that sell
at significant discounts to their intrinsic value as determined by Artisan
Partners, and 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 or other similar rights, and convertible securities.
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.
The Fund's investment objective 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. However, investors
in the Fund will receive at least 30 days' prior written notice of any change in
the Fund's investment objective.
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") European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs"), or other securities representing
underlying shares of foreign issuers) , 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. EDRs are
European receipts evidencing a
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similar arrangement. GDRs are receipts that may trade in U.S. or
non-U.S. markets. The Fund may invest in sponsored or unsponsored ADRs, EDRs or
GDRs. In the case of an unsponsored depositary receipt, 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 depositary receipt. The Fund does not intend to invest more
than 5% of its net assets in unsponsored depositary receipts.
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.
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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. The Fund may invest up to 35% of its net assets in debt
securities that are rated below investment grade (i.e., securities rated BBB or
lower by S&P or Ba or lower by Moody's, commonly called "junk bonds"). However,
the Fund currently does not intend to invest more than 5% of its net assets in
debt 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. During those
periods, the Fund's assets may not be invested in accordance with its strategy
and the Fund may not achieve its investment objective.
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). The estimated price at which a convertible security would
be valued by the marketplace if it had no conversion feature 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.
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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 which 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 may use 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 at a 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 or income receivables. 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
B-6
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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's portfolio. 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-7
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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 write (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 stock 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.
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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 unexpected 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 was unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become
worthless. If the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the underlying security
until the option expired. As the writer of a covered call option on a security,
the Fund foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it had purchased.
Futures Contracts and Options on Futures Contracts. The Fund may use
interest rate futures contracts, index futures contracts, and foreign currency
futures contracts. An interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index<F1>
at a specified price and time. A public market exists in futures contracts
covering a number of indexes (including, but not limited to: the Standard &
Poor's 500 Index, the Value Line Composite Index, 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.
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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 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.
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Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must
also be included in these calculations.
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. In trying to increase or reduce market exposure, there can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index futures
contracts, the composition of the index, including the issuers and the weighting
of each issue, may differ from the composition of the Fund's portfolio, and, in
the case of interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's portfolio. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
B-11
<PAGE>
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%).
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.
----------------
<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 option.
B-12
<PAGE>
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 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.
----------------
<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-13
<PAGE>
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 or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) to deliver, the
same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property.
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 will be qualifying income for purposes of the 90%
requirement.
The Fund intends to distribute to shareholders at least 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 on investing no more than
10% of its net assets in illiquid securities. In making a determination of
whether a Rule 144A security is liquid or not, 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.
B-14
<PAGE>
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
currently does not 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 minimal credit risks. 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.
B-15
<PAGE>
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 a 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 currently does not 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 Fund's 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 currently does not 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.
B-16
<PAGE>
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. For the years ended
June 30, 1999 and 1998, the Fund's portfolio turnover rates were as follows:
202.84% and 235.65%. 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 costs, 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 lesser of (i) 67% of the Fund's
shares present at a meeting if more than 50% of the shares outstanding are
present or (ii) more than 50% of the Fund's outstanding shares, 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);
B-17
<PAGE>
(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 U.S. Government 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 is also 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 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); and (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);
(b) 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>
(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) invest more than 25% of its total assets (valued at time of purchase)
in securities of foreign issuers
(e) 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
(f) 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; or
(g) 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.
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 repre-
sented by the Total Return for the period.
Average Annual Total Return is computed as follows:
n
ERV = P(l+T)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the period, at the end
of the period (or fractional portion thereof)
B-19
<PAGE>
The Fund's Total Return and Average Annual Total Return for various periods
ended December 31, 1999 is shown below:
Artisan Mid Cap Fund
--------------------
Mid Cap Investor Shares
-----------------------
Average Annual
Total Return Total Return
------------ --------------
1 year 57.89% 57.89%
Life of Fund<F5> 169.84% 48.39%
-------------------
<F5> from June 27, 1997 (commencement of operations)
Total Return and Average Annual Total Return of Mid Cap Investor Shares
are calculated in the same way as for Mid Cap Institutional Shares. The
performance of Mid Cap Institutional Shares is expected to be different from
the performance of Mid Cap Investor Shares because the expenses allocated to
the classes are different. Because the expense ratio for Mid Cap
Institutional Shares is expected to be lower, the Total Return and Average
Annual Total Return of Mid Cap Institutional Shares are expected to be
greater than for Mid Cap Investor Shares.
The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into consideration. 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. The Fund may invest in initial public offerings (IPOs). IPOs and
other investment techniques may have a magnified performance impact on a fund
with a small asset base. The Fund may not experience similar performance as its
assets grow.
In advertising and sales literature, the Fund's performance 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 those 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 Artisan Funds generally believe
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, Artisan Funds 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 Morningstar
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.
Various newspapers and publications including those listed above may also
make mention of the Fund's portfolio manager. Portfolio managers and other
members of the Adviser's staff may make presentations at conferences or trade
shows, appear on television or radio programs, or conduct or participate in
telephone conference calls, and the Fund may announce those presentations,
appearances or calls to some or all shareholders, or to potential investors in
the Fund. Biographical and other information about the Fund's portfolio
manager, including information about awards received by that portfolio manager
or mentions of the manager in the media, may also be described or quoted in Fund
advertisements or sales literature.
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
B-21
<PAGE>
The Fund's performance may be compared to the following indexes or
averages:
Dow-Jones Industrial Average New York Stock Exchange
Russell 2000 Index Composite Index
Russell 2000 Growth Index American Stock Exchange
Russell 2000 Value Index Composite Index
Russell Mid-Cap Stock Index NASDAQ Composite
Russell Mid-Cap Value Index NASDAQ Industrials
Standard & Poor's 500 Stock Index (These indexes generally
Standard & Poor's 400 Industrials reflect the performance of
Standard & Poor's 400 MidCap Index stocks traded in the
Wilshire 5000 indicated markets.)
Wilshire 4500
Wilshire 4000
(These indexes are widely recognized
indicators of general U.S. stock market
results.)
The Fund's performance 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 Mid Cap Fund Index; Lipper
Mid-Cap Core Fund Index, Lipper General Equity Funds Average; Lipper Equity
Funds Average; Morningstar Growth 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 Lipper Mid Cap Fund Index reflects the net asset value weighted total
return of the thirty largest mid cap funds as calculated and published by
Lipper, Inc. ("Lipper"), an independent service that monitors the performance of
more than 1,000 funds.
The Lipper 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 also 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
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 the 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
B-22
<PAGE>
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,
Artisan Funds 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 Artisan Funds 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).
ORGANIZATION
The Fund is a series of Artisan Funds, Inc. ("Artisan Funds"), an open-end,
diversified management investment company which was incorporated under Wisconsin
law on January 5, 1995.
Each share of the Fund has one vote. All shares participate equally in
dividends and other distributions declared by the board of directors, and all
shares of the Fund have equal rights in the event of liquidation of the Fund.
Shares of the Fund have no preemptive, conversion or subscription rights.
Artisan Funds is governed by a board of directors which is responsible for
protecting the interests of the shareholders of the Fund. The directors are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Fund, review contractual arrangements with
companies that provide services to the Fund and review performance. A majority
of directors are not otherwise affiliated with Artisan Funds 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). Artisan Funds 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.
Artisan Funds believes that not holding shareholder meetings except as otherwise
required reduces the Fund's expenses and enhances shareholder return.
B-23
<PAGE>
The Fund may hold special meetings of shareholders 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.
DIRECTORS AND OFFICERS
Directors and officers of Artisan Funds, and their principal business
occupations during at least the last five (5) years, are shown below. Directors
deemed to be "interested persons" of Artisan Funds for purposes of the 1940 Act
are indicated with an asterisk.
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
--------------------- --------------- -------------------------------
Andrew A. Ziegler* Director, Chairman Managing Director of Artisan
10/7/57 of the Board and Partners; prior to founding
Chief Executive Artisan Partners in 1994,
Officer President and Chief Operating
Officer of Strong/Corneliuson
Capital Management ("Strong")
and President of the Strong
Funds from 1990 to 1994.
Carlene Murphy Director and Vice Managing Director of Artisan
Ziegler<F6> President Partners; Co-Manager of Artisan
6/20/56 Small Cap Fund; President of
Artisan Funds (1995-1999);
prior to founding Artisan
Partners in 1994, 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.
David A. Erne Director Partner of the law firm
5/6/43 Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, S.C.,
Milwaukee, WI, and Director of
Capital Commerce
Banccorporation - Milwaukee
Western Bank since 1994.
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.
B-24
<PAGE>
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
--------------------- --------------- -------------------------------
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 Material Sciences
Corporation, (a technology
based manufacturer of
continuously processed coated
and specialty engineered
materials and services) since
1997; and Director of Franklin
Electric Co., Inc. (a
manufacturer of electronic
motors) since 1994.
Michael C. Roos President Managing Director of Artisan
4/18/58 Partners; President of Artisan
Distributors; prior to joining
Artisan Partners in 1995, Vice
President, Fidelity Investments
(since 1994).
Lawrence A. Totsky Chief Financial Managing Director of Artisan
5/6/59 Officer, Treasurer Partners; Chief Financial
and Secretary Officer, Artisan Partners;
prior to joining Artisan
Partners in 1998, Senior Vice
President (since 1994) and
Director of Mutual Fund
Administration, Strong Capital
Management, Inc., prior
thereto.
Mark L. Yockey Vice President Managing Director of Artisan
6/5/56 Partners; Portfolio Manager of
Artisan International Fund;
prior to joining Artisan
Partners in 1995, Portfolio
Manager of the United
International Growth Fund and
Vice President of Waddell &
Reed (investment management
firm) since January 1990.
Sandra Jean Voss- Vice President Senior Equity Trader for
Reinhardt Artisan Partners; prior to
joining Artisan Partners in
1995, Equity Trader with
Northwestern Mutual Life
Insurance Company since January
1989.
B-25
<PAGE>
NAME AND DATE OF POSITIONS HELD PRINCIPAL OCCUPATIONS DURING
BIRTH WITH REGISTRANT PAST 5 YEARS
--------------------- --------------- -------------------------------
Scott C. Satterwhite Vice President Managing Director of Artisan
7/15/57 Partners, and Portfolio
Manager, Artisan Small Cap
Value Fund; prior to joining
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 Managing Director of Artisan
10/31/63 Partners, and Portfolio
Manager, Artisan Mid Cap Fund;
prior to joining Artisan
Partners in 1997, 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.
Marina T. Carlson Vice President Managing Director of Artisan
5/9/64 Partners, and Co-Portfolio
Manager, Artisan Small Cap
Fund; prior to joining Artisan
Partners in 1999, Manager of
Strong Mid Cap Disciplined Fund
from its inception in December
1998 through March 1999 and Co-
Manager of Strong Opportunity
Fund and Strong Common Stock
Fund from 1993 through December
1998.
James C. Kieffer Vice President Research Analyst for Artisan
12/2/64 Partners; Vice President of
Artisan Funds; prior to joining
Artisan Partners in 1997,
Research Analyst for McColl
Partners since 1996; prior to
McColl Partners, Research
Analyst for Wachovia Investment
Management since 1989.
Gregory K. Ramirez Assistant Secretary Controller of Artisan Partners;
7/14/70 and Assistant Assistant Treasurer and
Treasurer Assistant Secretary of Artisan
Funds; prior to joining Artisan
Partners in 1997, Audit Manager
of Price Waterhouse LLP.
B-26
<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 many of the powers of the Board
of Directors.
The compensation paid to directors and officers of Artisan Funds for their
services as such consists of an annual retainer fee in the amount of $27,000.
In addition, directors receive $1,000 for any meeting held on a day other than
which a meeting of the full board of directors is held and $500 for any meeting
held by telephone. Compensation is paid only to directors who are not
interested persons of Artisan Funds or Artisan Partners and is allocated among
the series of the Artisan Funds. The Artisan Mid Cap Fund pays $6,000 of the
annual retainer, $222 of each meeting fee, and $111 of each telephone meeting
fee. Artisan Funds has no retirement or pension plans.
The following table sets forth compensation paid by Artisan Funds, Inc.
during the fiscal year ended June 30, 1999 to each of the directors of the Fund.
PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
COMPENSATION BENEFITS ACCRUED FROM ARTISAN FUND AND
FROM ARTISAN AS PART OF FUND FUND COMPLEX(4)
NAME OF DIRECTOR FUNDS EXPENSES PAID TO DIRECTORS
---------------- --------------- --------------- --------------------
Andrew A. Ziegler $ 0 $ 0 $ 0
Carlene Murphy
Ziegler 0 0 0
David A. Erne 20,000 0 20,000
Thomas R. Hefty 20,000 0 20,000
Howard B. Witt 20,000 0 20,000
At March 31, 2000, the officers and directors of Artisan Funds as a group
owned less than 1% of the outstanding shares of Artisan Mid Cap Fund.
PRINCIPAL SHAREHOLDERS
No person was known by Artisan Funds to own of record or beneficially 5% or
more of the outstanding shares of the Artisan Mid Cap Institutional Shares at
April 28, 2000. The only persons known by Artisan Funds to own of record or
beneficially 5% or more of the outstanding shares of the Artisan Mid Cap
Investor Shares as of March 31, 2000 were:
B-27
<PAGE>
NAME AND ADDRESS OUTSTANDING SHARES HELD
---------------- -----------------------
Charles Schwab & Co. Inc. <F1> 29.96%
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. <F1> 8.94%
One World Financial Center
200 Liberty Street
New York, NY 10281-1003
Wells Fargo Bank, Trustee 6.00%
Stoel Rives LLP Retirement Trust
PO Box 9800
Calabasas, CA 91372-0800
<F1> Shares are held of record on behalf of customers, and not beneficially.
INVESTMENT ADVISORY SERVICES
Artisan Partners Limited Partnership ("Artisan Partners") provides
investment advisory services to the Fund pursuant to Investment Advisory
Agreements dated April 10, 1997. 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 Pine Street, Suite 2950, San Francisco, California, and Five
Concourse Parkway NE, 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.
The Artisan Mid Cap Fund paid investment advisory fees of $229,384 and
$93,853 in 1999 and 1998, respectively, of which $29,152 and $93,853,
respectively, was waived or reimbursed by Artisan Partners. From its inception
on June 27, 1997 through June 30, 1997, Artisan Mid Cap Fund did not pay any
investment advisory fees. 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
B-28
<PAGE>
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).
CODE OF ETHICS
The 1940 Act and rules thereunder require that Artisan Funds, Artisan
Partners and Artisan Distributors LLC ("Distributors") establish standards and
procedures for the detection and prevention of certain conflicts of interest,
including activities by which persons having knowledge of the investments and
investment intentions of Artisan Funds might take advantage of that knowledge
for their own benefit. Artisan Funds, Artisan Partners and Distributors have
adopted a Code of Ethics to meet those concerns and legal requirements.
Although the Code does not prohibit employees who have knowledge of the
investments and investment intentions of Artisan Funds from engaging in personal
securities investing, it does regulate such personal securities investing by
these employees as a part of the effort by Artisan Funds, Artisan Partners and
Distributors to detect and prevent conflicts of interest.
DISTRIBUTOR
Shares of the Fund are offered for sale by Distributors without any sales
commissions, 12b-1 fees, or other charges to the Fund or its shareholders.
Distributors is wholly-owned by Artisan Partners. All distribution expenses
relating to the Fund are paid by Artisan Partners, including the payment or
reimbursement of any expenses incurred by Distributors. The Distribution
Agreement will continue in effect through October 30, 2000 and thereafter from
year to year provided such continuance is approved annually (i) by a majority of
the directors or by a majority of the outstanding voting securities of the Fund
and (ii) by a majority of the directors who are not parties to the Agreement or
interested persons of any such party.
Artisan Funds has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange Commission and any
auditing and filing fees required in compliance with various state securities
laws. Artisan Partners bears all sales and promotional expenses, including the
cost of prospectuses and other materials used for sales and promotional purposes
by Distributors. Distributors offers the Fund's shares only on a best efforts
basis. Distributors is located at 1000 North Water Street, Suite 1770,
Milwaukee, Wisconsin 53202.
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
B-29
<PAGE>
any broker or dealer. Recognizing the value of these factors, the Fund may pay
a brokerage commission in excess of that which another broker or dealer may have
charged for effecting the same transaction. Evaluations of the reasonableness
of brokerage commissions, based on the foregoing factors, are made on an ongoing
basis by Artisan Partners' staff while effecting portfolio transactions. The
general level of brokerage commissions paid is reviewed by Artisan Partners, and
reports are made annually to the board of directors.
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, Artisan Partners often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Artisan Partners uses internal allocation
procedures to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including Artisan Funds, 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 Artisan Funds), 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
Artisan Funds 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 Artisan Funds.
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 Artisan Funds. During fiscal years
1999, 1998 and 1997, Artisan Mid Cap Fund paid brokerage commissions of $175,709
and $72,800 to brokers who furnished research services to the Fund or Artisan
Partners on purchases and sales aggregating $109,326,360 and $50,307,734 (from
its inception on June 27, 1997 through June 30, 1997, Artisan Mid Cap Fund had
no purchases or sales of its portfolio securities).
B-30
<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.
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 the Fund's transfer agent. 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.
Although the Fund intends to pay all redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, the Fund is obligated to pay share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or one percent
of the Fund's net assets represented by such share class during any 90-day
period. Redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of readily marketable securities. If redemptions are 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.
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. If Artisan Funds should fail to qualify
for pass-through tax treatment under Subchapter M, then it would be required to
pay taxes on any income and realized capital gains, reducing the amount
B-31
<PAGE>
of income and realized capital gains that would otherwise be available for
distribution to the Fund's 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 October,
November or December of 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 gains. Distributions of net long-term
capital gains are taxable to you as long-term capital gains (currently taxed at
a maximum rate of 20% for individual taxpayers) regardless of the length of time
you have held your shares. Long-term gains are those derived from securities
held by the Fund for more than one year.
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 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. Artisan Funds must promptly pay the IRS all
amounts withheld. Therefore, it usually is not possible for Artisan Funds 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.
B-32
<PAGE>
In accordance with tax laws, 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 may be recognized to the extent of any gains
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.
U.S. citizens residing in a foreign country should consult their tax advisors as
to the tax consequences of ownership of Fund shares.
CUSTODIAN AND TRANSFER AGENT
State Street Bank & Trust Company ("State Street"), 66 Brooks Drive,
Braintree, MA 02184, 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 transfer agency, dividend paying agency and 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
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 serves as the Fund's independent accountants, providing services including
(i) an 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 financial statements of Artisan Funds appearing in the prospectus and
this Statement of Additional Information for periods prior to and including the
year ended June 30, 1999 have been audited by PricewaterhouseCoopers LLP,
independent accountants, as indicated in their reports with respect thereto, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing. The unaudited interim financial
statements as of December 31, 1999, reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the results for
the six months ended December 31, 1999.
The Artisan Funds, Inc. Annual Report to shareholders for the fiscal year
ended June 30, 1999 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.
B-33
<PAGE>
The Artisan Funds, Inc. Semi-Annual Report to shareholders for the fiscal
year ended December 31, 1999 contains financial statements, notes thereto,
supplementary information entitled "Financial Highlights," all of which
(but no other part of the Semi-Annual Report) are incorporated herein by
reference.
APPENDIX
--------
DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Fund's investment adviser believes that the quality of
debt securities in which the Fund invests should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated independently.
Ratings are based on current information furnished by the issuer or obtained by
the ratings services from other sources which they consider reliable. Ratings
may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of rating used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P").
RATINGS BY MOODY'S
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt-edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Although the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Appendix-1
<PAGE>
Ba--Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B--Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
Ca--Bonds rated Ca represent obligations which are speculative in a high degree.
Such bonds are often in default or have other marked shortcomings.
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and
interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and interest and
differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
