<PAGE>
ARIEL MUTUAL FUNDS
Ariel Growth Fund
Ariel Appreciation Fund
Annual Report--September 30, 1995
[PHOTO OF LEAF]
[LOGO OF SM]
<PAGE>
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.
<PAGE>
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.
<PAGE>
[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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 98.73% Market Value
of Shares
<S> <C> <C>
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
</TABLE>
5
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 98.73%--(continued) Market Value
of Shares
<S> <C> <C>
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
-----------
</TABLE>
6
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 98.73%--(continued) Market Value
of Shares
<S> <C> <C>
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
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 94.21% Market Value
of Shares
<S> <C> <C>
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
</TABLE>
8
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 94.21%--(continued) Market Value
of Shares
<S> <C> <C>
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
-----------
</TABLE>
9
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Number COMMON STOCKS 94.21%--(continued) Market Value
of Shares
<S> <C> <C>
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
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Ariel Mutual Funds
Statement of Assets and Liabilities
September 30, 1995
<TABLE>
<CAPTION>
GROWTH APPRECIATION
FUND FUND
------------ ------------
<S> <C> <C>
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
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Ariel Mutual Funds
Statement of Operations
For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
GROWTH APPRECIATION
FUND FUND
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Ariel Mutual Funds
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
GROWTH FUND APPRECIATION FUND
----------- -----------------
Year Ended September 30, Year Ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Ariel Mutual Funds
Financial Highlights
<TABLE>
<CAPTION>
GROWTH FUND
---------------------------------------------------------------
Ten Months Year Ended
Year Ended September 30, Ended Nov. 30,
1995 1994 1993 Sept. 30, 1992 1991
---- ---- ---- -------------- ----
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
APPRECIATION FUND
- -----------------------------------------------------------------------
Ten Months Year Ended
Year Ended September 30, Ended Nov. 30,
1995 1994 1993 Sept. 30, 1992 1991
---- ---- ---- -------------- ----
<S> <C> <C> <C> <C>
$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%
</TABLE>
15
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1995 September 30, 1994
Growth Fund Appreciation Fund Growth Fund Appreciation Fund
------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
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)
=========== ============ =========== ============
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, for the
year ended September 30, 1995 are summarized below.
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
----------- -----------------
<S> <C> <C>
Purchases $20,690,570 $24,555,951
Sales 65,466,654 56,676,261
</TABLE>
At September 30, 1995 gross unrealized appreciation and depreciation of
securities were as follows:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
----------- -----------------
<S> <C> <C>
Unrealized appreciation $34,956,693 $32,740,000
Unrealized (depreciation) (7,698,741) (4,534,725)
----------- -----------
Net appreciation $27,257,952 $28,205,275
=========== ===========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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