-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vu3zjIOWcqI1+awjZrJggxaJ3/7dqGQvHL9xhGL+zsduYB4S/4yGzl0TRlfAISQ1 NYK6lVGqYv6Mq3N4y9RPng== 0000950131-95-003393.txt : 19951201 0000950131-95-003393.hdr.sgml : 19951201 ACCESSION NUMBER: 0000950131-95-003393 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951129 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIEL GROWTH FUND CENTRAL INDEX KEY: 0000798365 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04786 FILM NUMBER: 95597450 BUSINESS ADDRESS: STREET 1: 307 NORTH MICHIGAN AVENUE STREET 2: SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3127260140 MAIL ADDRESS: STREET 1: 307 NORTH MICHIGAN AVENUE STREET 2: SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60601 N-30D 1 ARIEL MUTUAL FUNDS ARIEL MUTUAL FUNDS Ariel Growth Fund Ariel Appreciation Fund Annual Report--September 30, 1995 [PHOTO OF LEAF] [LOGO OF SM] Ariel Growth Fund Inception November 6, 1986 Average Annual Total Return - --------------------------------------------------------------------- 1 Year 3 Year 5 Year Life of Fund - --------------------------------------------------------------------- Ariel +14.4% +9.3% +14.6% +12.9% Growth Fund - --------------------------------------------------------------------- Total return does not reflect a maximum 4.75% sales load that was charged prior to July 15, 1994. - --------------------------------------------------------------------- [GRAPH APPEARS HERE] Ariel Growth Fund Portfolio Composition Consumer Staples 12.2% Materials and Processing 20.3% Producer Durables 8.7% Financial Services 12.4% Health Care 2.8% Consumer Discretionary and Services 43.5% - --------------------------------------------------------------------- [GRAPH APPEARS HERE] S&P 500 Consumer Staples 11.7% Integrated Oils 7.7% Other Energy 1.0% Materials and Processing 8.7% Producer Durables 4.8% Autos and Transportation 4.5% Financial Services 13.8% Utilities 13.2% Technology 9.4% Health Care 9.8% Consumer Discretionary and Services 9.9% Comparison of change in value of $10,000 invested in Ariel Growth Fund and comparable indices* [GRAPH APPEARS HERE] Ariel Growth Fund S&P 500 Russell 2500 ----------------- ------- ------------ Nov-86 $10,000 $10,000 $10,000 Dec-86 $10,203 $9,745 $9,737 Dec-87 $11,367 $10,256 $9,281 Dec-88 $15,905 $11,960 $11,391 Dec-89 $19,900 $15,749 $13,604 Dec-90 $16,699 $15,260 $11,580 Dec-91 $22,163 $19,910 $16,988 Dec-92 $24,763 $21,427 $19,738 Dec-93 $26,924 $23,587 $23,002 Dec-94 $25,786 $23,897 $22,759 Sep-95 $29,418 $31,010 $29,178 *Statistics represent past performance which is not indicative of future results. Ariel Appreciation Fund Inception December 1, 1989 Average Annual Total Return - --------------------------------------------------------------------- 1 Year 3 Year 5 Year Life of Fund - --------------------------------------------------------------------- Ariel +12.1% +8.8% +14.9% +9.8% Appreciation Fund - --------------------------------------------------------------------- Total return does not reflect a maximum 4.75% sales load that was charged prior to July 15, 1994. - --------------------------------------------------------------------- [GRAPH APPEARS HERE] Ariel Appreciation Fund Portfolio Composition Producer Durables 5.8% Autos and Transportation 1.8% Health Care 12.7% Materials and Processing 15.2% Consumer Discretionary and Services 36.7% Consumer Staples 8.1% Financial Services 19.6% - --------------------------------------------------------------------- [GRAPH APPEARS HERE] S&P 500 Consumer Staples 11.7% Integrated Oils 7.7% Other Energy 1.0% Materials and Processing 8.7% Producer Durables 4.8% Autos and Transportation 4.5% Financial Services 13.8% Utilities 13.2% Technology 9.4% Health Care 9.8% Consumer Discretionary and Services 9.9% Comparison of change in value of $10,000 invested in Ariel Appreciation Fund and comparable indices* [GRAPH APPEARS HERE] Ariel Appreciation Fund S&P 500 Russell 2500 ----------------------- ------- ------------ Dec-89 $10,000 $10,000 $10,000 Dec-89 $10,054 $10,240 $10,050 Dec-90 $9,902 $9,922 $8,554 Dec-91 $13,184 $12,945 $12,549 Dec-92 $14,930 $13,932 $14,580 Dec-93 $16,115 $15,336 $16,992 Dec-94 $14,763 $15,539 $16,812 Sep-95 $17,222 $20,164 $21,553 *Statistics represent past performance which is not indicative of future results. [PHOTO OF JOHN W. ROGERS, JR.] John W. Rogers, Jr. President & Co-Chief Investment Officer [PHOTO OF ERIC T. MCKISSACK] Eric T. McKissack Co-Chief Investment Officer "Bleach, bugs and bags are our kind of businesses--good, consistent growers with quality products and services as well as all-weather characteristics." [PHOTO OF FRANKLIN MORTON] Franklin Morton Vice President & Director of Research ARIEL MUTUAL FUND NEWS ARIEL PREMIER BOND FUND MAKES ITS DEBUT The newest addition to the Ariel Mutual Funds family is the Ariel Premier Bond Fund. The Fund seeks to maximize total return through a combination of income and capital appreciation by investing in high quality, highly liquid fixed income securities. To manage this new fund, Ariel has joined forces with a company that has extensive expertise in fixed income investing, Lincoln Capital Management Company. Established in 1967, Lincoln Capital currently has more than $32 billion in assets under management. If you would like to receive a prospectus for the new Ariel Premier Bond Fund, please call 800-29-ARIEL. Please read it carefully before investing or sending money. 20 ARIEL GROWTH FUND NOW OPEN TO NEW INVESTORS Ariel Growth Fund, which had been closed to new investors since April 1990, is now open and offered to new investors at net asset value on a no-load basis. The minimum initial investment is $1,000, unless you participate in an automatic investment plan, in which case, there is a $50 minimum with monthly contributions. This Supplement supersedes contrary statements in the Prospectus dated February 1, 1995 (on pages 2 and 17). If you would like additional information on the Ariel Growth Fund, please call 1-800-29-ARIEL. ATTENTION IRA SHAREHOLDERS For your convenience, your $12.00 fee will be automatically deducted from your account on December 15th. If you would prefer to write a check for this amount which would allow your total account to continue to grow, please send a check for $12.00 directly to Ariel Mutual Funds, P.O. Box 419121, Kansas City, MO 64141-6121, by December 8th. Ariel Mutual Funds Ariel Growth Fund Ariel Appreciation Fund Ariel Premier Bond Fund Money Market Options Cash Resource Money Market U.S. Government Money Market Cash Resource Tax-Exempt Money Market For a free investment kit on any of the Ariel Mutual Funds, including a prospectus containing more information, please call 1-800-29-ARIEL. Please read the prospectus carefully before investing or sending money. Board of Directors Mario L. Baeza President of Wasserstein Perella International, a leading international investment bank, CEO of its Latin American operations and co-head of operations in Spain and Portugal, Mario is widely regarded as a preeminent expert in business and legal issues in Latin America. He received a B.A. from Cornell University and a J.D. from Harvard Law School, where he later taught. William C. Dietrich, C.P.A. Bill is a director and vice president, treasurer and CFO of Shopping Alternatives, Inc., a provider of home shopping services to the retail grocery and pharmacy industries. He has a B.A. from Georgetown University. Bill serves on the board and program staff of the Shalem Institute, an internationally known ecumenical organization. Royce N. Flippin, Jr. Director of program advancement for the Massachusetts Institute of Technology, Royce is also president of Flippin Associates, a broad- based consulting firm providing strategic and implementation services in the management of critical needs for the public and private sectors. He earned his B.A. from Princeton University and an M.B.A. from Harvard Business School. Royce is on the board of several corporations and non-profit institutions. John G. Guffey Currently, John is treasurer of Silby, Guffey & Co., Inc., a venture capital firm investing in early stage companies in the health care and environmental industries. John has a B.S. from the University of Pennsylvania's Wharton School. He does volunteer work and holds directorships with various local and national non-profit organizations. Mellody Hobson As senior vice president and director of marketing, Mellody oversees the servicing of Ariel Capital Management Inc.'s 32 institutional clients, as well as the marketing of the Ariel Mutual Funds. She received a B.A. from Princeton University's Woodrow Wilson School. Mellody works with a variety of civic institutions, including those affiliated with Princeton. Christopher G. Kennedy Chris is executive vice president of Merchandise Mart Properties, Inc. which manages, among other prime properties, The Merchandise Mart; The Washington Design Center; and New York's Decoration and Design Building. He earned his B.A. from Boston College and his M.B.A. at the J.L. Kellogg Graduate School of Management at Northwestern University. Chris serves on the board of directors of the Chicago Convention & Tourism Bureau; Boston- based Citizens Energy Corp. and Citizens Corp.; and the Greater Chicago Food Depository. Eric T. McKissack, CFA In the capacity of vice chairman & co-chief investment officer of Ariel Capital Management, Inc., Eric is responsible for co-managing client and mutual fund portfolios. He received a B.S. in both Management and Architecture from the Massachusetts Institute of Technology and he earned his M.B.A. from the University of California at Berkeley. He is also a Chartered Financial Analyst. Eric serves on a variety of civic and corporate boards. Bert N. Mitchell, C.P.A. Bert is founder, chairman and CEO of Mitchell/Titus & Co., the nation's largest minority-owned accounting firm. He holds B.B.A., M.B.A. and Honorary Doctorate degrees from the Baruch School of Business of the City University of New York, where he has also been a member of the accounting faculty. Bert is also a graduate of the Owner-President Management Program of the Harvard Business School. Bert is active in community affairs, philanthropy and politics. Ariel Investment Trust 307 North Michigan Avenue Suite 500 Chicago, Illinois 60601 800.292.7435 312.726.0140 Fax 312.726.7473 [RECYCLED PAPER LOGO] Printed on recycled paper Annual Report--September 30, 1995 Ariel Mutual Funds Ariel Growth Fund Ariel Appreciation Fund Dear Shareholder: For the twelve months ending September 30, 1995, the small and medium-sized issues that make up the Ariel Growth Fund and Ariel Appreciation Fund portfolios returned 14.4% and 12.1%, respectively. Over this same one year period, the smaller issues that comprise the Russell 2500 returned 25.5%, while the large stocks that make up the S&P 500 Index posted a 29.8% gain. Despite sky high market valuations, unbridled investor enthusiasm continues to enable technology issues to defy gravity and propel the stock market to record levels. As we have written in recent letters, over the near term, the Ariel Growth and Ariel Appreciation Fund portfolio returns have been hampered by our lack of ownership in this volatile sector. Yet, we remain convinced that continued strength in this segment of the market is not sustainable and the downside risk for these issues could be extremely high. During a time when the stock market continues to captivate the public's attention with its new highs and the bull market continues its unprecedented run, investment managers everywhere are at the center of an intense debate about their outlook for the future. In the course of everyday conversation, we, ourselves, are constantly bombarded with such queries. However, we have begun to notice that when we discuss the long-term benefits of investing in good, consistent businesses with strong brand franchises, fewer and fewer people appear to get excited. Instead, more and more people want to hear about flashy, sexy stocks--most often in the red hot technology industry. Although we remain firmly committed to our patient investing strategy, we'll be the first to admit that there are times when others can make you feel out of place. Such has been the case for our disciplined value style in recent periods. However, in the normal course of our daily reading, we recently ran across an article that struck a strong cord with our contrarian views and offered support for our time tested belief that over the long-term, investing in consistent business franchises is a winning strategy. Ariel Growth Fund Ten Largest Holdings as of September 30, 1995 1 Longs Drug Stores, Inc. A leading operator of retail drug stores in California and other western states 2 First Brands Corporation Manufacturer and marketer of consumer products for home and automobile markets 3 Ecolab, Inc. Leading developer and marketer of premium cleaning and sanitizing products and services for the hospitality markets 4 Clorox Company Leading producer of bleach, household cleaning and other widely recognized consumer products 5 Rouse Company A retail mall developer 6 Central Newspapers, Inc. Leading media company that publishes daily and weekly newspapers in metropolitan Phoenix and Indianapolis 7 Harte-Hanks Communications Diversified communications company with businesses in newspapers, publications, direct marketing and broadcasting 8 Interface, Inc. Manufacturer and marketer of world's two leading brands of carpet tiles-- Interface and Heuga 9 Russell Corporation Designer and manufacturer of leisure apparel and athletic uniforms 10 Northern Trust Corporation Chicago-based bank holding company How the Forbes "Best" Perform Against the Rest In its annual issue on "The Best Small Companies," Forbes magazine columnists Fleming Meeks and David S. Fondiller have penned a thought provoking article that urges readers to "Dare to Be Dull." Recognizing questions that might arise from this counter-intuitive title, the writers offer evidence that make a very convincing case. Their thesis--"dull companies with steady earnings growth may not make for stimulating cocktail party chatter, but over the long term make the best investments." In this age of hot stock investing where popularity contest winners have driven market returns, we could not have been more delighted to read a succinct piece reflecting our own bias towards bucking trends and investing in businesses that have solid, consistent franchises but do not have high expectations built into their prices. The writers make their case by monitoring the results of the small company businesses whose strong near-term earnings results have warranted them a place on Forbes' "Best 200 Small Companies" list. Interestingly, when tracking the standings of these same companies over those of prior years, the writers discovered that, "Few show up year after year . . Of last year's 200 [companies], 103 have disappeared." The results of this analysis effectively demonstrates that the highly touted "best" status that is bestowed on this select group of fast growers is often fleeting. To further their point, they examined the top 200 companies 2 Ariel Appreciation Fund Ten Largest Holdings as of September 30, 1995 1 Rouse Company A retail mall developer 2 Harte-Hanks Communications Diversified communications company with businesses in newspapers, publications, direct marketing and broadcasting 3 Longs Drug Stores, Inc. A leading operator of retail drug stores in California 4 Hasbro, Inc. World's largest toy manufacturer 5 Merry Land & Investment Co., Inc. One of the largest owners and operators of upscale garden apartments in the southeast (a real estate investment trust-REIT) 6 Omnicom Group, Inc. Fourth largest advertising agency in the world 7 MBIA, Inc. Leading insurer of muncipal bonds 8 Bergen Brunswig Corp. Nation's second largest distributor/wholesaler of pharmaceuticals and health care products 9 Interco Inc. Second largest manufacturer of furniture and leading manufacturer and retailer of footwear in U.S. 10 T. Rowe Price Associates Investment advisor to family of no-load mutual funds and to private accounts of institutional individual clients that made the cut in 1992 and then looked back ten years. The results were characterized as follows, "Then, as now, computer related firms made up the largest sector of the list. But while many of the companies in that hot sector doubled, even quadrupled over 12 months, only three beat the market over 10 years and many disappeared altogether." The "B" Team The final statistics that would surprise many was that the companies that actually performed the best were those that the Forbes writers viewed to be "distinctly boring." Instead of the high technology issues or hot concept restaurants, the longer term winners were the most mundane businesses--as the writers note, "companies making batteries, box springs and business forms." Ironically, some might classify this group as the "B" team. Our own "B" team consists of bleach, bugs and bags. Although some view the household products manufactured by Clorox (NYSE: CLX) to be ordinary, the company has a dominant bleach franchise that dwarfs the competition. Additionally, Clorox has fast become a major player in the insecticide arena as its recent Black Flag acquisition joins its pre-existing Combat label. Taking the long-term view, we believe that the company stands to benefit from tremendous new product development and aggressive cost reduction programs well into the future. Today, the stock trades at $71 5/8--up substantially from a 3 52-week low of $53 1/8 as well as our original $20 per share purchase price. For another longtime holding, First Brands (NYSE: FBR), the answer is in the bag! With the continued success in its premium line of GLAD-LOCK Bags for food storage and Glad Trash Bags for garbage disposal, we have watched the share price of First Brands rise over 40% over the last year--from a low of $32 1/2 to its current price of $45 1/2 today. Bleach, bugs and bags are our kinds of businesses--good, consistent growers with quality products and services as well as all-weather characteristics. Moreover, in this time of record highs and market exess, these are precisely the kinds of businesses that are well positioned to withstand the more difficult periods that are sure to come. They have not been bid up by unrealistic expections, yet their consistent earnings show great promise for good things to come. Discussions about these types of franchises may not amaze our friends at this year's parties, but we're certain that at least they'll be around for next. As always, we are most grateful for the opportunity to serve you and welcome any comments that you might have. Please feel free to call us with any questions at 1-800-29-ARIEL. Sincerely, /s/John W. Rogers, Jr. /s/Eric T. McKissack John W. Rogers, Jr. Eric T. McKissack Portfolio Manager Portfolio Manager Ariel Growth Fund Ariel Appreciation Fund November 1, 1995 4 Ariel Mutual Funds Ariel Growth Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 98.73% Market Value of Shares Advertising--3.19% 59,300 Omnicom Group, Inc. $ 3,861,913 ----------- Apparel & Shoes--3.48% 164,900 Russell Corp. 4,204,950 ----------- Business Services--7.06% 128,350 Angelica Corp. 3,224,794 192,500 Ecolab, Inc. 5,317,812 ----------- 8,542,606 ----------- Consumer Products--10.98% 81,175 Armor All Products Corp. 1,390,122 73,800 Clorox Co. 5,267,475 126,300 First Brands Corp. 5,683,500 61,420 Oil-Dri Corporation of America 936,655 ----------- 13,277,752 ----------- Education--2.30% 107,974 DeVRY, Inc.* 2,780,331 ----------- Entertainment & Leisure--5.21% 121,300 Hasbro, Inc. 3,775,462 105,400 Johnson Worldwide Associates, Inc., Class A* 2,529,600 ----------- 6,305,062 ----------- Environmental--1.85% 152,850 Safety Kleen Corp. 2,235,431 ----------- Financial Services--10.00% 90,925 Duff & Phelps Corp. 988,809 46,500 MBIA, Inc. 3,278,250 88,300 Northern Trust Corp. 4,061,800 73,400 T. Rowe Price Associates 3,761,750 ----------- 12,090,609 ----------- Food & Restaurants--5.49% 161,333 Bob Evans Farms, Inc. 3,105,660
5 Ariel Mutual Funds Ariel Growth Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 98.73%--(continued) Market Value of Shares Food & Restaurants--5.49% (continued) 147,900 McCormick & Co., Inc. $ 3,531,112 ----------- 6,636,772 ----------- Furniture & Furnishings--9.35% 281,000 Interface, Inc., Class A 4,812,125 108,000 Leggett & Platt, Inc. 2,659,500 140,695 Miller (Herman), Inc. 3,833,939 ----------- 11,305,564 ----------- Health Care--2.73% 154,300 Bergen Brunswig Corp., Class A 3,298,163 ----------- Industrial--0.46% 22,500 Watts Industries, Inc., Class A 559,688 ----------- Miscellaneous--3.56% 202,900 Specialty Equipment Cos., Inc.* 2,485,525 57,200 Stanhome, Inc. 1,816,100 ----------- 4,301,625 ----------- Newspapers--10.41% 464,410 American Media, Inc., Class A 2,670,358 165,100 Central Newspapers, Inc., Class A 5,035,550 163,500 Harte-Hanks Communications 4,884,562 ----------- 12,590,470 ----------- Office & Business Equipment--4.67% 161,420 General Binding Corp. 3,510,885 138,300 Hunt Mfg. Co. 2,143,650 ----------- 5,654,535 ----------- Packaging--4.71% 165,700 Sealright Co., Inc. 2,154,100 204,100 Shorewood Packaging Corp.* 3,546,238 ----------- 5,700,338 ----------- Printing & Publishing--1.96% 98,235 Commerce Clearinghouse, Inc., Class A 2,369,919 -----------
6 Ariel Mutual Funds Ariel Growth Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 98.73%--(continued) Market Value of Shares Real Estate--4.46% 17,000 Merry Land and Investment Co., Inc. $ 359,125 230,200 Rouse Co. 5,035,625 ------------ 5,394,750 ------------ Retailing--6.86% 140,400 Longs Drug Stores, Inc. 5,826,600 461,680 Payless Cashways, Inc.* 2,481,530 ------------ 8,308,130 ------------ Total Common Stocks (cost $92,160,656) 119,418,608 ------------ Principal REPURCHASE AGREEMENTS 0.70% Amount $850,000 State Street Bank & Trust Company Repurchase Agreement, 4.50%, dated 9/29/95, repurchase price $850,213, maturing 10/2/95 (collateralized by U.S. Treasury Note, 4.75%, 10/31/98) 850,000 ------------ Total Repurchase Agreements (cost $850,000) 850,000 ------------ Total Investments 99.43% (cost $93,010,656) 120,268,608 Other Assets and Cash less Liabilities 0.57% 684,306 ------------ NET ASSETS 100.00% $120,952,914 ============
*Non-income producing The accompanying notes are an integral part of the financial statements. 7 Ariel Mutual Funds Ariel Appreciation Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 94.21% Market Value of Shares Advertising-3.10% 68,125 Omnicom Group, Inc. $ 4,436,641 ----------- Apparel & Shoes-2.59% 145,600 Russell Corp. 3,712,800 ----------- Autos & Transportation-1.69% 127,600 Harper Group, Inc. 2,424,400 ----------- Business Services-3.48% 64,800 Ecolab, Inc. 1,790,100 76,300 Equifax, Inc. 3,195,063 ----------- 4,985,163 ----------- Consumer Products-3.86% 153,800 Armor All Products Corp. 2,633,825 3,950 Clorox Co. 281,931 58,110 First Brands Corp. 2,614,950 ----------- 5,530,706 ----------- Entertainment & Leisure-5.97% 161,140 Carnival Cruise Lines, Inc. 3,867,360 150,900 Hasbro, Inc. 4,696,763 ----------- 8,564,123 ----------- Environmental-2.47% 241,800 Safety Kleen Corp. 3,536,325 ----------- Financial Services-11.18% 120,250 Duff & Phelps Corp. 1,307,719 60,495 MBIA, Inc. 4,264,897 71,620 MBNA Corp. 2,981,182 73,200 Northern Trust Corp. 3,367,200 80,000 T. Rowe Price Associates 4,100,000 ----------- 16,020,998 ----------- Food & Restaurants-5.01% 71,600 Bob Evans Farms, Inc. 1,378,300 92,055 McCormick & Co., Inc. 2,197,813
8 Ariel Mutual Funds Ariel Appreciation Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 94.21%--(continued) Market Value of Shares Food & Restaurants-5.01% (continued) 103,300 Universal Foods Corp. $ 3,602,587 ----------- 7,178,700 ----------- Furniture & Furnishings-5.78% 528,000 INTERCO, Inc.* 4,158,000 153,860 Leggett & Platt, Inc. 3,788,802 12,500 Miller (Herman), Inc. 340,625 ----------- 8,287,427 ----------- Health Care-10.12% 52,300 Bausch & Lomb, Inc. 2,163,913 195,487 Bergen Brunswig Corp., Class A 4,178,535 23,400 Invacare Corp. 1,123,200 90,500 Sybron Corp.* 3,642,625 106,900 Vivra, Inc.* 3,394,075 ----------- 14,502,348 ----------- Industrial-2.37% 136,600 Watts Industries, Inc., Class A 3,397,925 ----------- Miscellaneous-5.57% 83,000 Fisher Scientific International 2,687,125 62,500 Morton International, Inc. 1,937,500 65,000 Stanhome, Inc. 2,063,750 52,700 Wellman, Inc. 1,291,150 ----------- 7,979,525 ----------- Newspapers-5.39% 182,850 Harte-Hanks Communications 5,462,644 34,000 Tribune Co. 2,256,750 ----------- 7,719,394 ----------- Office & Business Equipment-2.90% 129,305 General Binding Corp. 2,812,384 31,900 Pitney-Bowes, Inc. 1,339,800 ----------- 4,152,184 ----------- Packaging-2.60% 214,470 Shorewood Packaging Corp.* 3,726,416 -----------
9 Ariel Mutual Funds Ariel Appreciation Fund Schedule of Investments September 30, 1995
Number COMMON STOCKS 94.21%--(continued) Market Value of Shares Printing & Publishing-7.91% 83,750 Banta Corp. $ 3,559,375 56,000 Commerce Clearing House, Inc., Class A 1,351,000 68,500 Commerce Clearing House, Inc., Class B 1,524,125 35,700 Donnelley (R.R.) & Sons Co. 1,392,300 75,500 Houghton Mifflin Co. 3,510,750 ------------ 11,337,550 ------------ Real Estate-7.27% 210,050 Merry Land and Investment Co., Inc. 4,437,306 273,450 Rouse Co. 5,981,719 ------------ 10,419,025 ------------ Retailing-4.95% 115,920 Longs Drug Stores, Inc. 4,810,680 425,350 Payless Cashways, Inc.* 2,286,256 ------------ 7,096,936 ------------ Total Common Stocks (cost $106,803,311) 135,008,586 ------------ Principal REPURCHASE AGREEMENTS 5.70% Amount $8,175,000 State Street Bank & Trust Company Repurchase Agreement, 4.50%, dated 9/29/95, repurchase price $8,177,044, maturing 10/2/95 (collateralized by U.S. Treasury Note, 4.75%, 10/31/98) 8,175,000 ------------ Total Repurchase Agreements (cost $8,175,000) 8,175,000 ------------ Total Investments 99.91% (cost $114,978,311) 143,183,586 Other Assets and Cash less Liabilities 0.09% 128,361 ------------ NET ASSETS 100.00% $143,311,947 ============
*Non-income producing The accompanying notes are an integral part of the financial statements. 10 Ariel Mutual Funds Statement of Assets and Liabilities September 30, 1995
GROWTH APPRECIATION FUND FUND ------------ ------------ ASSETS: Investments in securities, at value (cost $93,010,656 and $114,978,311, respectively) $120,268,608 $143,183,586 Cash 12,623 2,986 Dividends and interest receivable 356,614 359,602 Receivable for securities sold 295,129 -- Receivable for shares sold 205,106 1,968 Receivable from adviser 4,687 21,064 Prepaid and other assets 15,280 16,538 ------------ ------------ Total assets 121,158,047 143,585,744 ------------ ------------ LIABILITIES: Payable for shares redeemed 36,107 66,713 Accrued management fee 64,894 86,498 Accrued distribution fee 24,959 28,958 Other liabilities 79,173 91,628 ------------ ------------ Total liabilities 205,133 273,797 ------------ ------------ NET ASSETS $120,952,914 $143,311,947 ============ ============ NET ASSETS CONSIST OF: Paid-in-capital $ 77,841,907 $106,663,679 Undistributed net investment income 708,465 758,169 Accumulated net realized gain on investment transactions 15,144,590 7,684,824 Net unrealized appreciation on investments 27,257,952 28,205,275 ------------ ------------ Total net assets $120,952,914 $143,311,947 ============ ============ Total shares outstanding (no par value), unlimited shares authorized 3,929,774 6,295,904 ========= ========= Net asset value, redemption price and offering price per share (net assets/shares outstanding) $30.78 $22.76 ====== ======
The accompanying notes are an integral part of the financial statements. 11 Ariel Mutual Funds Statement of Operations For the Year Ended September 30, 1995
GROWTH APPRECIATION FUND FUND ------------ ------------ INVESTMENT INCOME: Dividends $ 3,315,809 $ 2,519,904 Interest 68,221 239,125 ----------- ----------- Total investment income 3,384,030 2,759,029 ----------- ----------- EXPENSES: Management fee 865,718 1,050,040 Transfer agent fees and expenses 354,053 444,547 Distribution fee 332,968 350,140 Printing and postage expense 132,887 155,026 Professional fees 84,847 86,584 Federal and state registration fees 19,709 29,280 Trustees' fees and expenses 27,182 27,707 Miscellaneous expenses 31,005 62,085 ----------- ----------- Total expenses before waiver 1,848,369 2,205,409 Waiver of expenses (33,526) (303,795) ----------- ----------- Net expenses 1,814,843 1,901,614 ----------- ----------- NET INVESTMENT INCOME 1,569,187 857,415 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on investments 16,984,463 9,407,780 Change in unrealized appreciation on investments (1,509,398) 5,951,567 ----------- ----------- Net gain on investments 15,475,065 15,359,347 ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,044,252 $16,216,762 =========== ===========
The accompanying notes are an integral part of the financial statements. 12 Ariel Mutual Funds Statement of Changes in Net Assets
GROWTH FUND APPRECIATION FUND ----------- ----------------- Year Ended September 30, Year Ended September 30, 1995 1994 1995 1994 ---- ---- ---- ---- OPERATIONS: Net investment income $ 1,569,187 $ 1,137,983 $ 857,415 $ 356,934 Net realized gain on investments 16,984,463 8,645,691 9,407,780 12,322,890 Change in unrealized appreciation on investments (1,509,398) (6,970,227) 5,951,567 (6,427,549) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 17,044,252 2,813,447 16,216,762 6,252,275 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income (1,134,168) (2,150,516) (412,918) (498,701) Capital gains (8,249,215) (12,390,927) (9,198,828) (3,297,972) ------------- ------------- ------------- ------------- (9,383,383) (14,541,443) (9,611,746) (3,796,673) ------------- ------------- ------------- ------------- SHARE TRANSACTIONS: Shares sold 191,400,263 33,767,016 239,579,765 363,284,131 Shares issued to holders in reinvestment of dividends 8,993,824 14,541,425 9,170,255 3,796,630 Shares redeemed (236,613,280) (120,895,117) (274,322,662) (414,321,318) ------------- ------------- ------------- ------------- Net decrease (36,219,193) (72,586,676) (25,572,642) (47,240,557) ------------- ------------- ------------- ------------- TOTAL DECREASE IN NET ASSETS (28,558,324) (84,314,672) (18,967,626) (44,784,955) NET ASSETS: Beginning of period 149,511,238 233,825,910 162,279,573 207,064,528 ------------- ------------- ------------- ------------- End of period (includes undistributed net investment income of $708,465, $273,446, $758,169 and $313,672, respectively) $ 120,952,914 $ 149,511,238 $ 143,311,947 $ 162,279,573 ============= ============= ============= =============
The accompanying notes are an integral part of the financial statements. 13 Ariel Mutual Funds Financial Highlights
GROWTH FUND --------------------------------------------------------------- Ten Months Year Ended Year Ended September 30, Ended Nov. 30, 1995 1994 1993 Sept. 30, 1992 1991 ---- ---- ---- -------------- ---- Net asset value, beginning of period $ 28.84 $ 30.46 $ 29.59 $ 27.36 $ 21.21 Income from investment operations: Net investment income 0.36 0.18 0.73 0.31 0.46 Net realized and unrealized gains on investments 3.51 0.23 2.81 3.19 5.97 -------- -------- -------- -------- -------- Total from investment operations 3.87 0.41 3.54 3.50 6.43 Distributions to shareholders: Dividends from net investment income (0.23) (0.30) (0.75) (0.56) (0.28) Distributions from capital gains (1.70) (1.73) (1.92) (0.71) -- -------- -------- -------- -------- -------- Total distributions (1.93) (2.03) (2.67) (1.27) (0.28) -------- -------- -------- -------- -------- Net asset value, end of period $ 30.78 $ 28.84 $ 30.46 $ 29.59 $ 27.36 ======== ======== ======== ======== ======== Total return 14.38% 1.41% 12.54% 13.15%(a) 30.62% Supplemental data and ratios: Net assets, end of period, in thousands $120,953 $149,511 $233,826 $236,186 $240,060 Ratio of expenses to average net assets 1.37%(b) 1.25% 1.16% 1.23%(c) 1.25% Ratio of net income to average net assets 1.18%(b) 0.56% 0.72% 0.83%(c) 1.72% Portfolio turnover rate 16% 9% 13% 19% 39%
(a) Total return is not annualized. (b) Net of reimbursements. Without the fee waiver, the ratio of expenses to average net assets would have been 1.39% for the period ended 1995 for the Growth Fund and 1.58%, 1.40%, 1.50% and 1.53% for the periods ended 1995, 1994, 1992 and 1991 for the Appreciation Fund, respectively; and the ratio of net investment income to average net assets would have been 1.16% for the period ended 1995 for the Growth Fund and 0.39%, 0.12%, 0.51% and 1.58% for the periods ended 1995, 1994, 1992 and 1991 for the Appreciation Fund, respectively. (c) Annualized. The accompanying notes are an integral part of the financial statements. 14
APPRECIATION FUND - ----------------------------------------------------------------------- Ten Months Year Ended Year Ended September 30, Ended Nov. 30, 1995 1994 1993 Sept. 30, 1992 1991 ---- ---- ---- -------------- ---- $21.82 $21.67 $19.42 $17.60 $13.82 0.14 0.04 0.06 0.09 0.14 2.26 0.51 2.27 1.92 3.88 ------ ------ ------ ------ ------ 2.40 0.55 2.33 2.01 4.02 (0.06) (0.05) (0.08) (0.17) (0.17) (1.40) (0.35) -- (0.02) (0.07) ------ ------ ------ ------ ------ (1.46) (0.40) (0.08) (0.19) (0.24) ------ ------ ------ ------ ------ $22.76 $21.82 $21.67 $19.42 $17.60 ====== ====== ====== ====== ====== 12.11% 2.56% 12.03% 11.47%(a) 29.48% $143,312 $162,280 $207,065 $146,624 $76,482 1.36%(b) 1.35%(b) 1.37% 1.44%(b)(c) 1.50%(b) 0.61%(b) 0.17%(b) 0.33% 0.57%(b)(c) 1.61%(b) 18% 12% 56% 2% 20%
15 Ariel Mutual Funds Notes to the Financial Statements September 30, 1995 1. ORGANIZATION Ariel Growth Fund (doing business as Ariel Investment Trust) (the "Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Growth Fund and the Appreciation Fund (the "Funds" or "Ariel Mutual Funds") are diversified portfolios of the Trust. The Growth Fund commenced operations on November 6, 1986 and the Appreciation Fund commenced operations on December 1, 1989. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATION - Securities for which market quotations are readily available are valued at the most recent closing price. All other securities for which reliable bid quotations are available are valued at the mean between bid and asked prices, or yield equivalent as obtained from one or more market makers for such securities. Short-term securities maturing within 60 days are valued at amortized cost which approximates market. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. The Funds may enter into repurchase agreements with recognized financial institutions and in all instances hold underlying securities with a value at least equal to the total repurchase price such financial institutions have agreed to pay. FEDERAL INCOME TAXES - No provision for federal income taxes has been made since the Funds have complied to date with the provisions under Subchapter M of the Internal Revenue Code available to regulated investment companies. SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are accounted for on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recognized on an accrual basis. EXPENSES - The Funds are charged for those expenses that are directly attributable to each portfolio, such as advisory and administration. Expenses that are not directly attributable to a portfolio are typically allocated among each portfolio in proportion to their respective net assets. DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and net realized capital gains, if any, are declared and paid at least annually. Distributions to shareholders are determined in accordance with federal income regulations and are recorded on the ex-dividend date. 16 Ariel Mutual Funds Notes to the Financial Statements, continued September 30, 1995 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock were as follows:
Year Ended Year Ended September 30, 1995 September 30, 1994 Growth Fund Appreciation Fund Growth Fund Appreciation Fund ------------ ------------------ ------------ ------------------ Shares sold 6,811,402 11,384,217 1,162,333 17,780,992 Shares issued to holders in reinvestment of dividends 333,352 470,028 507,662 175,646 Shares redeemed (8,399,958) (12,995,996) (4,160,360) (20,073,672) ----------- ------------ ----------- ------------ Net decrease (1,255,204) (1,141,751) (2,490,365) (2,117,034) =========== ============ =========== ============
4. INVESTMENT TRANSACTIONS Purchases and sales of securities, excluding short-term investments, for the year ended September 30, 1995 are summarized below.
Growth Fund Appreciation Fund ----------- ----------------- Purchases $20,690,570 $24,555,951 Sales 65,466,654 56,676,261
At September 30, 1995 gross unrealized appreciation and depreciation of securities were as follows:
Growth Fund Appreciation Fund ----------- ----------------- Unrealized appreciation $34,956,693 $32,740,000 Unrealized (depreciation) (7,698,741) (4,534,725) ----------- ----------- Net appreciation $27,257,952 $28,205,275 =========== ===========
The book and federal income tax basis of securities is the same for the Growth Fund and Appreciation Fund. As of September 30, 1995 the Appreciation Fund had net realized capital loss carryforwards of $975,067, resulting from a fund acquisition on September 13, 1991, which expire, if unused, on September 30, 1998. Based upon provisions in the Internal Revenue Code, the Appreciation Fund is only allowed to utilize $752,586 of capital loss carryforwards each year. It is management's intention to distribute future realized capital gains to the extent that such gains exceed available Federal income tax capital loss carryforwards. For the year ended September 30, 1995, 100% of dividends paid from net investment income of the Growth Fund and Appreciation Fund qualifies for the dividend received deduction available to corporate shareholders. 17 Ariel Mutual Funds Notes to the Financial Statements, continued September 30, 1995 5. INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH AFFILIATES On February 1, 1995 the Trust entered into a new combined investment advisory and administrative services agreement (the "Management Agreement") with Ariel Capital Management, Inc. (the "Adviser"). Pursuant to the Management Agreement, the Adviser is paid by the Ariel Growth Fund and the Ariel Appreciation Fund, a monthly fee at the annual rate of 0.65% and 0.75% of the first $500 million of average net assets, 0.60% and 0.70% of the next $500 million of average net assets and 0.55% and 0.65% on the average net assets in excess of $1 billion, respectively. Prior to February 1, 1995 and since inception of the Funds, the Adviser was paid an advisory fee at the annual rate of 0.25% of each of the Fund's average daily net assets. Effective September 6, 1994 and prior to February 1, 1995, the Trust had entered into an Administrative Agreement with the Adviser for certain administrative services. Under the Administrative Agreement, the Trust compensated the Adviser for administrative services based upon average daily net assets of each Fund at an annual rate of 0.40% and 0.50% for the Growth Fund and Appreciation Fund, respectively. Since September 6, 1994 the Adviser has agreed to reimburse each Fund for operating expenses (exclusive of brokerage, interest, taxes, distribution plan expenses and extraordinary items) exceeding, on a pro rata basis, 1.50% of the first $30 million of each Fund's average daily net assets and 1.00% of such assets in excess of $30 million. Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Trust has adopted a distribution plan which permits each Fund to pay for certain expenses associated with the distribution of its shares up to 0.30% annually of the Funds' average daily net asset value. Such expenses are currently limited to an annual rate of 0.25% of each Fund's average daily net assets by the Board of Trustees. Payments have been made to the Adviser and to Ariel Distributors, Inc., an affiliate of the Adviser. 18 Ariel Mutual Funds Report of Independent Auditors To the Board of Trustees and Shareholders of Ariel Mutual Funds: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ariel Growth Fund and Ariel Appreciation Fund, comprising Ariel Investment Trust ("Ariel Mutual Funds"), as of September 30, 1995, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the fiscal periods since 1991. These financial statements and financial highlights are the responsibility of the Ariel Mutual Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds of the Ariel Mutual Funds at September 30, 1995, and the results of their operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the fiscal periods since 1991, in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois October 20, 1995 19 [LOGO OF ARIEL MUTUAL FUNDS] ------------------- Bulk Mail U.S. Postage Ariel Investment Trust Paid 307 North Michigan Avenue Permit No. 6784 Suite 500 Chicago, IL Chicago, Illinois 60601 ------------------- -----END PRIVACY-ENHANCED MESSAGE-----