<PAGE>
ARIEL MUTUAL FUNDS
Ariel Appreciation Fund
Ariel Growth Fund
Annual Report-September 30, 1996
[LOGO APPEARS HERE]
Ariel Premier Bond Fund
<PAGE>
The Tortoise and the Hare
One day a Hare was making fun of a Tortoise for being so slow upon his feet.
"Wait a bit," said the tortoise, "I'll run a race with you, and I'll wager that
I'll win." The Hare, who was much amused at the idea, said "Let's try and
see..." When the time came both started off together...The Hare nearly turned a
somersault in his haste, while the Tortoise began at a slow but steady pace.
Meanwhile the Tortoise kept plodding on...
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
The Patient Investor 2
Company in Focus 4
Company Updates 6
Ariel Equity Funds 8
Schedule of Investments
Ariel Growth Fund 10
Ariel Appreciation Fund 13
Equity Statistical Summary 16
Ariel Premier Bond 18
Statement of Assets & Liabilities 22
Statement of Operations 22
Statement of Changes in Net Assets 23
Financial Highlights 24
Notes to the Financial Statements 25
Report of Independent Auditors 27
Board of Trustees 28
</TABLE>
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.
Ariel Investment Trust
307 North Michigan Avenue
Suite 500
Chicago, Illinois 60601
800.292.7435
312.726.0140
Fax 312.726.7473
<PAGE>
THE PATIENT INVEST [LOGO APPEARS HERE] R(R)
Dear Fellow Shareholders: For the third quarter ending September 30, 1996, the
small and medium-sized companies that make up the Ariel Growth Fund portfolio
gained +2.8%, while the Ariel Appreciation Fund, with its medium-sized company
focus, fared even better with a +4.2% return. As a means of comparison, during
this same three month period, the smaller stocks that make up the Russell 2500
Index posted a +2.3% gain, whereas the broader market--as represented by the
Standard & Poor's 500 Index--earned +3.1%.
On the surface, the aforementioned returns might suggest a placid investing
environment during the hot summer months. In reality, a turbulent market
downspiral that began in late May, persisted throughout July. And just when the
summer market doldrums seemed to settle in, stocks rebounded in the August and
September months. As we had expected, the undervalued companies that make up the
Ariel Growth and Ariel Appreciation Funds served to safeguard the portfolios
from the mid-summer freefall. Moreover, the excellent fundamentals of these same
underfollowed franchise businesses positively contributed to our results just as
the market began to scale new heights by late summer. We watched with wonder and
incredulity as the Dow Jones Industrial Average flirted with the never before
seen 6000 mark. And somehow despite these nosebleed-like conditions that often
make our kinds of stocks a little queasy, our portfolios were particularly
boosted by the solid fundamentals of some of our favorite longtime holdings--
companies whose predictable earnings stand in stark contrast to the uncertain
and uneven results of the day. Office furniture manufacturer, Herman Miller,
Inc. (OTC: MLHR); GLAD garbage bag maker, First Brands Corporation (NYSE: FBR);
and banking giant, Northern Trust Corporation (OTC: NTRS) were just some of the
issues whose stock prices positively impacted our portfolios during the volatile
quarter.
And so, as the rabbit runs, the turtle plods along. With this said, we should
note that for the year ended September 30, 1996, we have been pleased to show
improving results for both Ariel equity portfolios after what had been a
difficult period for our conservative style. Specifically, over the last 12
months, the Ariel Growth and the Ariel Appreciation Funds have returned +16.3%
and +19.6% respectively versus +15.8% for the Russell 2500 and +20.3% for the
S&P 500 Index.
Another look at the research effort
We are delighted to report that John Miller, a Vice President in our research
department and 7 year Ariel veteran, was recently awarded the Chartered
Financial Analyst (CFA) designation--the highest accreditation given in the
investment field. John's successful completion of Level 3 of the CFA Exam ends
years of intense test preparation. As a result of his achievement, four of our
six research team members now hold CFA designations. Additionally, four of the
six also hold MBA degrees. John's success is not
2
<PAGE>
only important to his own professional growth and intellectual development but
also for the growth and development of our research team as a whole. As an
investment firm that scours the business landscape in search of excellent
companies run by good people, perhaps no area of our own firm could be more
important.
In 1995, we wrote about the addition of two senior analysts to the research
area. With their hiring, we sought to augment our investigative research effort
by creating an environment that would permit each analyst to conduct even more
focused and thorough research. The desired results of an expanded staff were
immediately apparent in our weekly meetings and have been increasingly evident
as these meetings have become more and more animated with time. Specifically, as
our group has been able to gel, we have witnessed a heightened level of dialogue
where experienced individuals speak with a great deal of conviction and
comfortably challenge each other's ideas. The in-depth reports on individual
securities that are distributed to each analyst prior to our meetings only serve
as the starting point of our discussions. The data put forth in these extensive
documents incite the analysts to challenge each other's assumptions about a
company's future earnings growth, balance sheet, product differentiation and
corporate leadership. Beyond the written work itself, the research meetings
become brainstorming sessions where analysts and portfolio managers search to
identify outside business and personal contacts that can shed additional light
on a current or potential portfolio holding.
Although the portfolio managers are the final decision makers, our research
analysts are forced to sell their ideas to the life and professional experiences
of five other investment professionals who fiercely adhere to our basic value
framework, but also filter information through their own skill sets. With our
concentrated portfolios, a self-imposed limit on the number of stocks that we
will follow, and our low portfolio turnover, each company must stand up to
intense scrutiny and surmount an extraordinary number of hurdles before a final
decision can be made to add it to our portfolios. As such, getting a stock into
an Ariel portfolio is that much harder and this degree of difficulty is
inevitably heightened by the fact that each analyst's personal compensation is
not only tied to the securities that fall under their own purview, but also the
investment results of the entire team. And since we all significantly
participate in our mutual fund portfolios with the investment of our children's
college funds, personal savings dollars and our firm's profit sharing plan, our
interests are also inextricably linked with those of our shareholders.
Be it continuing educational efforts or additional people, we will forever
search to uncover ways that will allow us to find the very best businesses run
by the very best people. Perhaps there is no time when this level of
investigation could be more important than when the stock market continues to
scale new heights and the bull market has extended itself longer than any other
in stock market history.
As always, we are most grateful for the opportunity to serve you and welcome any
questions or comments that you might have.
Sincerely,
/s/ John W. Rogers, Jr. /s/ Eric T. McKissack, CFA
John W. Rogers, Jr. Eric T. McKissack, CFA
Portfolio Manager Portfolio Manager
Ariel Growth Fund Ariel Appreciation Fund
3
<PAGE>
Company in Focus
Arthur J. Gallagher & Co. (NYSE:AJG) was established in 1927 and provides
insurance brokerage, risk management, and related services to domestic and
foreign clients. Its primary activity is the negotiation and placement of
property and casualty (P & C) and employee benefits policies with leading
insurance companies on a worldwide basis. (As a broker, Gallagher assumes no
direct insurance risk.) In addition, the company offers a wide variety of risk
management services. The breadth of Gallagher's services and its innovative
insurance solutions are significant competitive advantages. These advantages are
evidenced by a client retention rate that approaches 95% which compares very
favorably to the industry norm of 75-80%. The company has outperformed its peers
by focusing on niche markets, selling innovative products, executing a very
disciplined acquisition strategy, and tightly controlling expenses. The results
of these efforts include revenue and earnings growth that have averaged 11% and
12% respectively over the past decade and a return on equity that has averaged
almost 30%.
Arthur J. Gallagher
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
(630) 773-3800
Niche Markets - Gallagher has developed an expertise and an excellent reputation
in several niches. Among Gallagher's larger niche markets are
municipalities (e.g. towns, school districts, etc.) where the
company manages 35% of the insurance pools for these political
entities. Additionally, Gallagher handles the insurance needs for
about 70% of the Catholic churches in this country. It also has a
significant presence with Methodist and Lutheran churches.
Interestingly, both of these markets are global in nature and
Gallagher is using its demonstrated expertise to expand
internationally.
Innovative Products & Services - Gallagher has evolved beyond its brokerage
roots of placing clients' insurance needs with carriers in exchange for a
commission. Today, the company offers a full range of services to its corporate,
institutional, and municipal clients including brokerage, risk identification
and assessment, prevention, loss reserving, claims management, and information
services. In addition, it has developed an excellent reputation in the
alternative risk transfer (self insurance) arena. Even at a time when insurance
industry pricing has been soft, Gallagher has been able to save its clients
millions of dollars by creating (and managing for a fee) self insurance pools.
Of the 350 pools in the country, Gallagher manages approximately 125.
Acquisition Strategy - As small agencies find it increasingly difficult to offer
the product breadth and servicing capabilities of the larger brokers and clearly
lack the economies of scale, acquisitions have become a critical part of
Gallagher's growth strategy. Gallagher seeks to acquire well-managed agencies
with local franchises that can benefit from Gallagher's broader product line and
the centralizing of its back office functions. Moreover, the company is one of
the favored purchasers as it largely maintains the entrepreneurial character of
the acquired agency. Over the past 40 years, Gallagher has successfully
completed approximately 40 transactions which have accounted for about one-half
of the company's growth. The current pace of approximately 3-5 deals per year
appears sustainable.
Motivated Management - The Gallagher family, directors, and employ-
4
<PAGE>
ees, own approximately one-third of the 18 million outstanding shares. Chief
Executive Officer Patrick Gallagher (age 45), assumed the leadership reins from
his uncle, Robert Gallagher. He has spent his entire career with the company and
his background includes both sales and management responsibilities. With their
ownership stake and significant stock options, the entire team is strongly
motivated to maximize shareholder value. In addition to managing the company
very successfully, this team has enhanced shareholder value by repurchasing at
favorable prices almost $90 million of stock over the past four years.
P & C Industry Fundamentals - Historically, the P & C insurance industry has
exhibited cyclical characteristics. Demand for insurance has increased steadily
with economic growth and inflation being the primary drivers. The available
supply of insurance is determined by the amount of capital that insurance
companies have to put to work. After an extended period of strong stock and bond
performance (insurance companies have large investment portfolios) and lower
than average catastrophe losses over the past 2-3 years, capital is at record
levels. As a result, industry pricing has softened as insurance companies
compete to put their capital to work. As insurance premium prices have declined,
the commission to the broker has also declined, pressuring the revenues of
Gallagher and other brokers. In fact, pricing has been in a decline for almost
ten years.
While the exact timing of a turnaround is difficult to predict, we are
encouraged by the fact that this is the longest downturn on record and that the
stock and bond markets will not go straight up forever. Additionally,
catastrophes tend to be random events and periods of favorable performance are
likely to be followed by more difficult periods.
The lengthy deterioration in the P & C insurance industry fundamentals has taken
its toll on Wall Street. Virtually every analyst has been burnt at least once
calling for a favorable turn in the industry. As a group, they are very cautious
and this is reflected in the valuations of their stocks.
This environment has had a direct impact on Gallagher. Its stock price has
declined 25% from its 1996 high and trades at 10 times estimated 1997 earnings
and 6.7 times estimated cash flow. These represent significant discounts to peer
and broader market valuations.
However, despite the difficult business environment, Gallagher has consistently
demonstrated superior profitability as measured by return on equity which has
averaged almost 30% over the past decade. In addition, it has generated
significant free cash flow which has been used to repay debt, steadily increase
dividends, and repurchase shares at attractive prices. Today, the company is
debt free and has cash and investments of $140 million, or almost $9.00 per
share. These attributes provide Gallagher with significant financial
flexibility.
In our research endeavors, we seek to find "diamonds in the rough." In
Gallagher, we think that we have found one and are patiently adding it to our
portfolios. We are not predicating our recommendation on an immediate turn in
the P & C industry. Instead, we are banking on Gallagher's proven ability to
prosper despite difficult business conditions and view a possible turn in the P
& C industry's fundamentals as the "icing on the cake."
5
<PAGE>
Company Updates
Central Newspapers (NYSE:ECP) Central Newspapers' stock has raced nearly 40%
ahead of its 52-week low as a result of several positive factors. The naming of
a former Gannett executive, Louis Weill III, to the office of CEO has given the
company a breath of fresh air. Following his many years at Gannett, Weill ran
Central Newspapers' Phoenix operations until his recent succession to the helm.
His strong leadership skills and desire to grow the Indianapolis-headquartered
company in the style of larger entities should add considerable value for
shareholders.
A recent acquisition of the Alexandria Daily Town Talk in Louisiana has expanded
Central's reach beyond its strongholds in Indiana and Arizona. This newest
addition offers the ability to leverage existing operations into contiguous
areas. Additionally, the company's strong cash flow has allowed it to buy back
approximately 400,000 shares of the 27 million outstanding under a one million
share buyback authorization.
Newsprint prices have plummeted from a high last year of $750 a ton to below
$550, which by our estimates adds close to $.20 per share to second half
earnings. Moreover, improved linage through new advertising campaigns and cost-
cutting measures also helped third quarter results of $.57 versus $.42, a 36%
rise in earnings per share.
CENTRAL NEWSPAPERS, INC.
With the stock trading at just over 7 times cash flow and with the group valued
at 8-10 times, we think this stock will continue to outperform the market. On a
price/ earnings basis, the stock is also trading at an attractive 14.8 times our
next year's estimate of $2.70.
The Rouse Company (NYSE:RSE) The most significant event at The Rouse Company in
several years was the acquisition in June 1996 of The Hughes Corporation for
$520 million. This top tier real estate portfolio included Fashion Show Mall
(the leading shopping mall in Las Vegas), over four million square feet of
office, business, and industrial properties in Las Vegas and Los Angeles, as
well as Summerlin, a 22,500 acre master-planned community on the outskirts of
Las Vegas. These excellent properties offer substantial growth potential over
the coming decade. For example, Summerlin has been ranked the best selling
master planned residential community in the U.S. in each of the past four years.
To date only 20% of the acreage has been developed and there is space for a
major regional mall. In the office, business, and industrial portfolio, many of
the larger projects are less than 50% developed. With the Las Vegas economy
being one of the fastest growing in the nation in terms of population and job
creation, we are very enthusiastic about the outlook for these properties.
THE ROUSE COMPANY
The Rouse Company's existing portfolio of properties had an excellent first half
with cash flow per share rising 18%. Strong land sales and a doubling of cash
flow from the office/mixed use properties more than offset sluggish results from
the shopping malls.
Despite the strong historic and expected growth joined with management's
consistent record of meeting or exceeding expectations, the shares trade at only
10 times our 1997 estimate, a valuation that we find extremely compelling.
6
<PAGE>
Safety Kleen (NYSE:SK) Since our original recommendation in the early part of
1995, Safety Kleen's stock has not changed much despite a market that continues
to soar to new heights. However, management recently presented a well-thought
strategy to revitalize the stock. With the operational issues under control and
its plants working efficiently, the company is on its way to growing earnings
per share by 15% per year. To achieve this target, the company is rolling out
new services to capture more revenues.
For example, Safety Kleen has begun to collect and perform silver recovery from
photochemical waste for thousands of photography labs, x-ray and medical labs,
and printing and publishing shops. Furthermore, the company introduced a new
vacuum service that removes the residual oil and sludge that accumulate in
underground sump tanks in hundreds of thousands of service stations and
automobile repair places in the U.S. While most of the new services mentioned
are not yet fully developed, they are only extensions of Safety Kleen's current
capability and require little capital investments.
We continue to recommend purchase of Safety Kleen for the following reasons.
First, after several years of high capital expenditures, cash flow should
improve dramatically from here. Second, the large capital requirements of new
businesses should diminish, and thereby contribute to the bottom line starting
this year. Finally, by our estimates, Safety Kleen remains a very inexpensive
stock -- trading at only 12.5 times 1997 earnings per share and 5.8 times its
cash flow.
[Safety-Kleen Logo]
Specialty Equipment (OTC:SPEQ) Since we first recommended Specialty Equipment in
May 1995, the company has generated attractive operating results and cash flow,
and has strengthened its balance sheet. Yet, its stock price has appreciated
only modestly during this period.
[Globe Logo]
Nonetheless, Specialty's prospects appear exciting. As its fast-food restaurant
customers continue their expansion activity into new markets, they positively
impact Specialty's Taylor division (maker of soft serve ice cream equipment and
clam shaped grills). For instance, its largest customer, McDonald's Corporation
(NYSE: MCD), closed its recent nine-month period with an 11% increase in system-
wide restaurants. Considering comments from McDonald's management, we expect
this rate of unit expansion to continue into next year. Given the consistency of
Specialty's products and the strong relationship with this customer and many
others, we remain optimistic about future performance.
Specialty's other core business, Beverage-Air, has had mixed results. After a
difficult period in its refrigeration business, a time in which year-over-year
comparisons declined for four consecutive quarters, we expect operating results
to improve sharply in future quarters.
Currently at $13.50, Specialty is trading below 6 times cash flow and around 8.6
times our forward 12-month earnings estimate of $1.57. We find the shares
attractive and recommend purchase.
7
<PAGE>
Ariel Equity Funds
Ten Largest Holdings
as of September 30, 1996
1 First Brands Corporation
Manufacturer and marketer of
consumer products for home and
automobile markets
2 Rouse Company
Retail mall developer
3 Ecolab, Inc.
Leading developer and marketer
of premium cleaning and sanitizing
products and services for the
hospitality markets
4 MBIA, Inc.
Leading insurer of municipal bonds
5 Harte-Hanks Communications
Diversified communications company
6 Herman Miller, Inc.
Major manufacturer of furniture for
offices and health care facilities
7 Central Newspapers, Inc.
Leading media company that
publishes daily and weekly newspapers
in metropolitan Phoenix
and Indianapolis
8 Interface, Inc.
World's leading manufacturer and
marketer of carpet tiles
9 Northern Trust Corporation
Chicago-based bank holding company
10 Longs Drug Stores, Inc.
A leading operator of retail drug
stores in California and other
western states
Ariel Growth Fund
Inception November 6, 1986
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 3 Year 5 Year Life of Fund
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Ariel Growth Fund +16.3% +10.5% +10.3% +13.2%
</TABLE>
Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.
<TABLE>
<CAPTION>
Ariel Growth Fund
Portfolio Composition
Pie Chart
<S> <C>
Materials & Processing 22.1%
Health Care 3.4%
Producer Durables 10.7%
Financial Services 14.9%
Other 2.1%
Consumer Staples 10.1%
Consumer Discretionary & Services 36.8%
</TABLE>
Ariel Growth Fund seeks long-term capital appreciation by investing in
undervalued companies in consistent industries that show strong potential for
growth. The Fund looks for issuers that provide quality products or services. To
capture anticipated growth, the Fund generally holds investments for a
relatively long period, usually three to five years. The Fund invests in
companies with market capitalizations under $1.5 billion, with an emphasis on
smaller capitalization (small cap) stocks.
<TABLE>
<CAPTION>
S&P 500
Portfolio Composition
Pie Chart
<S> <C>
Other 5.2%
Utilities 10.6%
Autos & Transportation 4.1%
Other Energy 1.1%
Integrated Oils 7.9%
Techology 10.5%
Consumer Staples 11.8%
Consumer Discretionary & Services 10.2%
Financial Services 15.3%
Producer Durables 5.1%
Health Care 10.6%
</TABLE>
Comparison of change in value of $10,000 invested in Ariel Growth Fund and
comparable indices*
<TABLE>
<CAPTION>
<S> <C> <C>
Ariel Growth Fund Nov86 $10,000
Dec86 $10,203
Dec87 $11,367
Dec88 $15,905
Dec89 $19,900
Dec90 $16,699
Dec91 $22,163
Dec92 $24,763
Dec93 $26,924
Dec94 $25,786
Dec95 $30,562
Sep96 $34,208
S&P 500 Nov86 $10,000
Dec86 $ 9,745
Dec87 $10,256
Dec88 $11,960
Dec89 $15,749
Dec90 $15,260
Dec91 $19,910
Dec92 $21,427
Dec93 $23,897
Dec94 $23,897
Dec95 $32,878
Sep96 $37,316
Russell 2500 Nov86 $10,000
Dec86 $ 9,737
Dec87 $ 9,281
Dec88 $11,391
Dec89 $13,604
Dec90 $11,580
Dec91 $16,988
Dec92 $19,738
Dec93 $23,002
Dec94 $22,759
Dec95 $29,975
Sep96 $33,797
</TABLE>
8
<PAGE>
Ariel Appreciation Fund
Inception December 1, 1989
<TABLE>
<CAPTION>
Average Annual Total Return
- -----------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Ariel Appreciation Fund +19.6% +11.2% +10.5% +11.1%
</TABLE>
Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.
Ariel Appreciation Fund
Portfolio Composition
<TABLE>
<CAPTION>
Pie Chart
<S> <C>
Materials & Processing 14.1%
Health Care 8.9%
Producer Durables 11.4%
Financial Services 21.7%
Other 2.3%
Consumer Staples 8.6%
Consumer Discretionary & Services 33.0%
S&P 500
Portfolio Composition
Pie Chart
<S> <C>
Other 5.2%
Utilities 10.6%
Autos & Transportation 4.1%
Other Energy 1.1%
Integrated Oils 7.9%
Technology 10.5%
Materials & Processing 7.6%
Consumer Staples 11.8%
Consumer Discretionary & Services 10.2%
Financial Services 15.3%
Producer Durables 5.1%
Health Care 10.6%
</TABLE>
Comparison of change in value of $10,000 invested in Ariel Appreciation Fund and
comparable indices*
<TABLE>
<CAPTION>
Plot Points
<S> <C> <C>
Ariel Appreciation Fund Dec 89 $10,000
Dec 90 $ 9,902
Dec 91 $13,184
Dec 92 $14,930
Dec 93 $16,115
Dec 94 $14,763
Dec 95 $18,330
Dec 96 $20,596
S&P 500 Dec 89 $10,000
Dec 90 $ 9,922
Dec 91 $12,945
Dec 92 $13,932
Dec 93 $15,336
Dec 94 $15,539
Dec 95 $21,378
Dec 96 $24,263
Russell 2500 Dec 89 $10,000
Dec 90 $ 8,554
Dec 91 $12,549
Dec 92 $14,580
Dec 93 $16,992
Dec 94 $16,812
Dec 95 $22,142
Dec 96 $24,965
</TABLE>
Ariel Appreciation Fund also pursues long-term capital appreciation by
investing in undervalued companies with growth potential, but does so at a lower
level of risk than Ariel Growth Fund. Like Ariel Growth Fund, this Fund seeks
issuers that provide quality products or services. To capture anticipated
growth, the Fund will also hold investments for a relatively long period --
usually three to five years. The Fund invests in small and midsize companies
with market capitalizations from $200 million to $5 billion, with an emphasis on
medium capitalization (mid cap) stocks.
Ten Largest Holdings
as of September 30, 1996
1 Rouse Company
Retail mall developer
2 Harte-Hanks Communications
Diversified communications company
3 First Brands Corporation
Manufacturer and marketer of consumer products for home and automobile
markets
4 Northern Trust Corporation
Chicago-based bank holding company
5 MBIA, Inc.
Leading insurer of municipal bonds
6 Longs Drug Stores, Inc.
A leading operator of retail drug stores in California and other western
states
7 Herman Miller, Inc.
Major manufacturer of furniture for offices and health care facilities
8 Hasbro, Inc.
World's largest toy manufacturer
9 Bergen Brunswig Corporation
Nation's second largest distributor/wholesaler of pharmaceuticals and health
care products
10 Leggett & Platt, Inc.
Specializes in manufacturing and marketing components for the home
furnishing industry and diversified markets
9
<PAGE>
Schedule of Investments
<TABLE>
Ariel Growth Fund
Schedule of Investments
September 30, 1996
<S> <C> <C> <C>
Number COMMON STOCKS--98.94% Cost Market Value
of Shares
Advertising--3.31%
77,700 Omnicom Group, Inc. $1,120,818 $ 3,632,475
---------- -----------
Business Services--6.94%
115,350 Angelica Corp. 3,189,095 2,494,444
151,900 Ecolab, Inc. 1,883,095 5,126,625
---------- -----------
5,072,190 7,621,069
---------- -----------
Consumer Products--10.27%
71,900 Armor All Products Corp. 1,054,198 1,150,400
35,000 Clorox Co. 1,374,550 3,355,625
226,500 First Brands Corp. 3,150,015 5,917,312
61,420 Oil-Dri Corporation of America 1,046,965 852,203
---------- -----------
6,625,728 11,275,540
---------- -----------
Diversified Operations--2.08%
98,600 Whitman Corp. 2,387,220 2,280,125
---------- -----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Number COMMON STOCKS--98.94% (cont) Cost Market Value
of Shares
<S> <C> <C> <C>
Entertainment & Leisure--3.47%
102,700 Hasbro, Inc. $ 1,316,769 $ 3,812,737
----------- ------------
Environmental--3.37%
224,050 Safety Kleen Corp. 3,554,642 3,696,825
----------- ------------
Financial Services--13.28%
59,200 MBIA, Inc. 3,399,385 5,076,400
67,400 Northern Trust Corp. 2,388,939 4,431,550
262,225 Phoenix Duff & Phelps Corp. 1,837,953 1,638,906
105,400 T. Rowe Price Associates 441,758 3,425,500
----------- ------------
8,068,035 14,572,356
----------- ------------
Food & Restaurants--5.27%
178,333 Bob Evans Farms, Inc. 2,223,491 2,385,204
145,600 McCormick & Co., Inc. 3,129,561 3,403,400
----------- ------------
5,353,052 5,788,604
----------- ------------
Furniture & Furnishings--11.38%
264,100 Interface, Inc., Class A 3,989,788 4,555,725
102,600 Leggett & Platt, Inc. 1,071,207 3,013,875
121,495 Miller (Herman), Inc. 2,299,901 4,920,548
----------- ------------
7,360,896 12,490,148
----------- ------------
Health Care--3.32%
114,800 Bergen Brunswig Corp., Class A 1,762,006 3,644,900
----------- ------------
Industrial--4.91%
73,400 Brady (WH) Co. 1,625,350 1,844,175
267,800 Specialty Equipment Cos., Inc.* 2,973,179 3,548,350
----------- ------------
4,598,529 5,392,525
----------- ------------
Insurance--0.52%
16,700 Arthur J. Gallagher & Co. 571,377 574,063
----------- ------------
Newspapers--11.20%
457,810 American Media, Inc., Class A* 4,786,323 2,460,729
127,000 Central Newspapers, Inc.,
Class A 2,220,625 4,841,875
178,900 Harte-Hanks Communications 2,263,325 4,986,837
----------- ------------
9,270,273 12,289,441
----------- ------------
Office & Business Equipment--4.76%
134,620 General Binding Corp. 1,968,983 3,163,570
122,300 Hunt Mfg. Co. 1,549,217 2,063,812
----------- ------------
3,518,200 5,227,382
----------- ------------
</TABLE>
11
<PAGE>
<TABLE>
Number of Shares COMMON STOCKS--98.94% (cont) Cost Market Value
<S> <C> <C> <C>
Packaging--3.44%
223,000 Shorewood Packaging Corp.* $ 2,269,493 $ 3,777,063
----------- ------------
Printing & Publishing--1.38%
138,800 Thomas Nelson, Inc. 1,903,392 1,509,450
----------- ------------
Real Estate--6.18%
47,000 Merry Land & Investment Co., Inc. 1,043,843 1,004,625
222,100 Rouse Co.* 2,210,979 5,774,600
----------- ------------
3,254,822 6,779,225
----------- ------------
Retailing--3.86%
97,500 Longs Drug Stores, Inc. 3,469,132 4,241,250
------------ ------------
Total Common Stocks 71,476,574 108,605,178
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal Amount REPURCHASE AGREEMENTS--0.83% Cost Market Value
$915,242 State Street Bank & Trust Company
Repurchase Agreement, 4.00%,
dated 9/30/96, repurchase price
$915,344, maturing 10/1/96
(collateralized by U.S. Treasury
Bond, 6.25%, 8/15/23) $ 915,242 $ 915,242
----------- ------------
Total Repurchase Agreements 915,242 915,242
----------- ------------
Total Investments--99.77% $72,391,816 109,520,420
===========
Other Assets and Cash
less Liabilities--0.23% 249,617
------------
NET ASSETS--100.00% $109,770,037
============
*Non-income producing
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Ariel Appreciation Fund
Schedule of Investments
September 30, 1996
<S> <C> <C> <C>
Number COMMON STOCKS--99.39% Cost Market Value
of Shares
Advertising--2.76%
80,150 Omnicom Group, Inc. $ 1,565,730 $ 3,747,013
----------- -----------
Business Services--4.58%
64,800 Ecolab, Inc. 1,601,491 2,187,000
152,600 Equifax, Inc. 1,242,124 4,024,825
----------- -----------
2,843,615 6,211,825
----------- -----------
Chemicals--2.56%
87,500 Morton International, Inc. 2,773,242 3,478,125
----------- -----------
Consumer Products--10.37%
153,800 Armor All Products Corp. 2,452,049 2,460,800
40,450 Clorox Co. 3,018,993 3,878,144
227,000 First Brands Corp. 4,665,135 5,930,375
62,300 Stanhome, Inc. 1,990,625 1,798,912
----------- -----------
12,126,802 14,068,231
----------- -----------
Diversified Operations--2.31%
135,400 Whitman Corp. 3,353,226 3,131,125
----------- -----------
Entertainment & Leisure--6.02%
116,700 Carnival Cruise Lines, Inc. 1,805,622 3,617,700
122,500 Hasbro, Inc. 1,936,021 4,547,813
----------- -----------
3,741,643 8,165,513
----------- -----------
Environmental--3.33%
273,600 Safety Kleen Corp. 4,172,781 4,514,400
----------- -----------
Financial Services--14.98%
62,000 MBIA, Inc. 4,053,446 5,316,500
119,780 MBNA Corp. 2,000,581 4,162,355
83,100 Northern Trust Corp. 3,482,479 5,463,825
185,750 Phoenix Duff & Phelps Corp. 1,488,974 1,160,937
129,400 T. Rowe Price Associates 1,878,019 4,205,500
----------- -----------
12,903,499 20,309,117
----------- -----------
Food & Restaurants--3.24%
115,400 Bob Evans Farms, Inc. 2,258,483 1,543,475
122,055 McCormick & Co., Inc. 2,710,051 2,853,036
----------- -----------
4,968,534 4,396,511
----------- -----------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Number of Shares COMMON STOCKS--99.39% (cont) Cost Market Value
<S> <C> <C> <C>
Furniture & Furnishings--6.69%
153,860 Leggett & Platt, Inc. $ 1,876,028 $ 4,519,637
112,300 Miller (Herman), Inc. 3,222,411 4,548,150
----------- -----------
5,098,439 9,067,787
----------- -----------
Health Care--8.84%
142,687 Bergen Brunswig Corp., Class A 2,651,420 4,530,312
72,600 Fisher Scientific International 1,760,598 2,994,750
91,000 Sybron Corp.* 1,050,861 2,639,000
55,900 Vivra, Inc.* 683,027 1,823,738
----------- -----------
6,145,906 11,987,800
----------- -----------
Industrial--6.07%
87,700 Brady (WH) Co. 1,819,963 2,203,462
38,800 Solectron Corp.* 1,240,873 1,901,200
312,000 Specialty Equipment Cos., Inc.* 4,064,648 4,134,000
----------- -----------
7,125,484 8,238,662
----------- -----------
Insurance--0.64%
25,400 Arthur J. Gallagher & Co. 868,342 873,125
----------- -----------
Newspapers--6.02%
245,075 Harte-Hanks Communications 2,972,825 6,831,466
17,000 Tribune Co. 863,186 1,326,000
----------- ------------
3,836,011 8,157,466
----------- ------------
Office & Business Equipment--3.48%
129,305 General Binding Corp. 2,131,766 3,038,667
31,900 Pitney-Bowes, Inc. 1,103,507 1,678,738
----------- ------------
3,235,273 4,717,405
----------- ------------
Packaging--3.16%
252,810 Shorewood Packaging Corp.* 2,666,047 4,281,969
----------- ------------
Printing & Publishing--2.69%
38,400 Houghton Mifflin Co. 1,106,777 1,809,600
169,500 Thomas Nelson, Inc. 2,127,452 1,843,313
----------- ------------
3,234,229 3,652,913
----------- ------------
Real Estate--8.03%
187,500 Merry Land & Investment Co., Inc. 3,586,266 4,007,812
264,700 Rouse Co.* 3,128,949 6,882,200
----------- ------------
6,715,215 10,890,012
----------- ------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Number COMMON STOCKS--99.39% (cont) Cost Market Value
of Shares
<S> <C> <C> <C>
Retailing--3.62%
112,920 Longs Drug Stores, Inc. $ 4,114,765 $ 4,912,020
----------- ------------
Total Common Stocks 91,488,783 134,801,019
----------- ------------
Principal REPURCHASE AGREEMENTS--0.59%
Amount
$793,119 State Street Bank & Trust Company
Repurchase Agreement, 4.00%, dated
9/30/96, repurchase price $793,207,
maturing 10/1/96 (collateralized by
U.S. Treasury Bond, 6.25%, 8/15/23) 793,119 793,119
----------- ------------
Total Repurchase Agreements 793,119 793,119
----------- ------------
Total Investments--99.98% $92,281,902 135,594,138
===========
Other Assets and Cash
less Liabilities--0.02% 33,068
------------
NET ASSETS--100.00% $135,627,206
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Equity Statistical Summary
<TABLE>
<CAPTION>
Ariel Growth
(unaudited)
Earnings Per Share
-------------------------------
52-Week 1995 1996 1997 1996 1997 Market
Ticker Price Range Actual Estimate Estimate P/E P/E Cap.
Company Symbol 9/30/96 Low High Calendar Calendar Calendar Calendar Calendar ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil-Dri Corp. of America ODC 13.88 11.88 16.38 0.79 0.77 1.04 18.0 13.3 100
Hunt Manufacturing Co. HUN 16.88 12.75 18.38 1.24 1.50 1.65 11.3 10.2 185
Thomas Nelson, Inc. TNM 11.00 10.25 26.13 0.53 (0.05) 0.97 nm 11.3 188
Angelica Corporation AGL 21.63 19.38 25.25 1.08 0.98 1.00 22.1 21.6 198
American Media, Inc. ENQ 5.50 2.75 6.00 0.51 0.63 0.79 8.7 7.0 230
Phoenix Duff & Phelps DUF 6.25 5.50 11.38 0.64 0.67 0.71 9.3 8.8 274
Specialty Equipment Cos. SPEQ 13.25 9.25 15.75 1.47 1.34 1.63 9.9 8.1 293
Shorewood Packaging Corp. SHOR 16.94 13.00 18.00 1.05 1.30 1.52 13.0 11.1 310
Armor All Products Corp. ARMR 16.00 14.25 19.50 0.99 0.79 1.05 20.3 15.2 341
Interface, Inc. IFSIA 17.25 11.63 17.38 1.07 1.20 1.50 14.4 11.5 364
General Binding Corp. GBND 23.50 19.25 24.00 1.44 1.55 1.67 15.2 14.1 370
Arthur J. Gallagher & Co. AJG 34.38 30.00 39.50 2.53 2.58 2.65 13.3 13.0 525
W.H. Brady Co. BRCOA 25.13 18.00 27.50 1.31 1.42 1.66 17.7 15.1 550
Bob Evans Farms, Inc. BOBE 13.38 13.13 19.38 1.12 0.84 1.00 15.9 13.4 570
Longs Drug Stores Corp. LDG 43.50 37.88 48.50 2.71 3.02 3.26 14.4 13.3 849
Merry Land & Investment MRY 21.38 20.00 24.00 1.84 2.02 2.16 10.6 9.9 899
Safety Kleen Corporation SK 16.50 13.38 18.63 1.17 1.30 1.40 12.7 11.8 959
Herman Miller, Inc. MLHR 40.50 26.50 41.13 1.85 1.95 2.55 20.8 15.9 964
Central Newspapers, Inc. ECP 38.13 29.25 39.38 2.13 2.38 2.75 16.0 13.9 1,017
Harte-Hanks Communication HHS 27.88 18.67 28.00 1.38 1.59 1.89 17.5 14.8 1,017
First Brands Corporation FBR 26.13 21.00 29.50 1.59 1.79 2.02 14.6 12.9 1,074
Bergen Brunswig Corp. BBC 31.75 20.50 32.50 1.89 2.12 2.35 15.0 13.5 1,271
The Rouse Company RSE 26.00 18.25 27.38 1.83 2.20 2.50 11.8 10.4 1,492
McCormick & Company, Inc. MCCRK 23.38 18.88 26.63 1.17 1.15 1.30 20.3 18.0 1,858
T. Rowe Price Associates TROW 32.50 21.31 35.75 1.25 1.56 1.76 20.8 18.5 1,860
Ecolab, Inc. ECL 33.75 27.25 33.88 1.50 1.71 1.96 19.7 17.2 2,171
Whitman Corporation WH 23.25 20.13 25.75 1.26 1.37 1.50 17.0 15.5 2,444
Leggett & Platt, Inc. LEG 29.38 19.88 29.50 1.59 1.85 2.05 15.9 14.3 2,636
Hasbro, Inc. HAS 37.13 28.50 46.75 2.28 2.56 2.80 14.5 13.3 3,205
Omnicom Group, Inc. OMC 46.75 31.13 48.00 2.01 2.40 2.70 19.5 17.3 3,540
MBIA Incorporated MBI 85.75 69.25 86.63 6.35 7.16 7.91 12.0 10.8 3,688
Northern Trust Corp. NTRS 65.75 43.75 68.00 3.70 4.42 5.01 14.9 13.1 3,700
Clorox Company CLX 95.88 69.25 100.50 4.35 4.90 5.42 19.6 17.7 4,941
</TABLE>
Note: All earnings per share numbers are fully diluted. Such numbers are from
continuing operations and are adjusted for non-recurring items. Additionally,
all numbers are before amortization charges associated with goodwill and other
intangible assets. The Rouse Company and Merry Land & Investment numbers are
before depreciation and deferred taxes.
16
<PAGE>
<TABLE>
<CAPTION>
Ariel Appreciation
(unaudited)
Earnings Per Share
------------------------------
52-Week 1995 1996 1997 1996 1997 Market
Ticker Price Range Actual Estimate Estimate P/E P/E Cap.
Company Symbol 9/30/96 Low High Calendar Calendar Calendar Calendar Calendar ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas Nelson, Inc. TNM 11.00 10.25 26.13 0.53 (0.05) 0.97 nm 11.3 188
Phoenix Duff & Phelps DUF 6.25 5.50 11.38 0.64 0.67 0.71 9.3 8.8 274
Specialty Equipment Cos. SPEQ 13.25 9.25 15.75 1.47 1.34 1.63 9.9 8.1 293
Shorewood Packaging Corp. SHOR 16.94 13.00 18.00 1.05 1.30 1.52 13.0 11.1 310
Armor All Products Corp. ARMR 16.00 14.25 19.50 0.99 0.79 1.05 20.3 15.2 341
General Binding Corp. GBND 23.50 19.25 24.00 1.44 1.55 1.67 15.2 14.1 370
Stanhome Inc. STH 28.88 25.38 32.63 2.44 2.50 2.70 11.6 10.7 518
Arthur J. Gallagher & Co. AJG 34.38 30.00 39.50 2.53 2.58 2.65 13.3 13.0 525
W.H. Brady Co. BRCOA 25.13 18.00 27.50 1.31 1.42 1.66 17.7 15.1 550
Bob Evans Farms, Inc. BOBE 13.38 13.13 19.38 1.12 0.84 1.00 15.9 13.4 570
Houghton Mifflin Company HTN 47.13 39.63 50.63 1.99 2.53 3.34 18.6 14.1 687
Fisher Scientific Int'l. FSH 41.25 28.63 42.63 2.10 2.40 3.00 17.2 13.8 821
Longs Drug Stores Corp. LDG 43.50 37.88 48.50 2.71 3.02 3.26 14.4 13.3 849
Merry Land & Investment MRY 21.38 20.00 24.00 1.84 2.02 2.16 10.6 9.9 899
Safety Kleen Corporation SK 16.50 13.38 18.63 1.17 1.30 1.40 12.7 11.8 959
Herman Miller, Inc. MLHR 40.50 26.50 41.13 1.85 1.95 2.55 20.8 15.9 964
Harte-Hanks Communication HHS 27.88 18.67 28.00 1.38 1.59 1.89 17.5 14.8 1,017
First Brands Corporation FBR 26.13 21.00 29.50 1.59 1.79 2.02 14.6 12.9 1,074
Bergen Brunswig Corp. BBC 31.75 20.50 32.50 1.89 2.12 2.35 15.0 13.5 1,271
Vivra Inc. V 32.63 21.08 35.38 1.08 1.25 1.50 26.1 21.8 1,306
Sybron International Corp. SYB 29.00 18.38 30.00 1.44 1.75 1.85 16.6 15.7 1,359
The Rouse Company RSE 26.00 18.25 27.38 1.83 2.20 2.50 11.8 10.4 1,492
McCormick & Company, Inc. MCCRK 23.38 18.88 26.63 1.17 1.15 1.30 20.3 18.0 1,858
T. Rowe Price Associates TROW 32.50 21.31 35.75 1.25 1.56 1.76 20.8 18.5 1,860
Ecolab, Inc. ECL 33.75 27.25 33.88 1.50 1.71 1.96 19.7 17.2 2,171
Whitman Corporation WH 23.25 20.13 25.75 1.26 1.37 1.50 17.0 15.5 2,444
Solectron Corporation SLR 49.00 29.00 51.13 1.77 2.43 3.18 20.2 15.4 2,570
Leggett & Platt, Inc. LEG 29.38 19.88 29.50 1.59 1.85 2.05 15.9 14.3 2,636
Hasbro, Inc. HAS 37.13 28.50 46.75 2.28 2.56 2.80 14.5 13.3 3,205
Omnicom Group, Inc. OMC 46.75 31.13 48.00 2.01 2.40 2.70 19.5 17.3 3,540
MBIA Incorporated MBI 85.75 69.25 86.63 6.35 7.16 7.91 12.0 10.8 3,688
Northern Trust Corp. NTRS 65.75 43.75 68.00 3.70 4.42 5.01 14.9 13.1 3,700
Equifax, Incorporated EFX 26.38 17.75 27.75 1.06 1.26 1.40 20.9 18.8 4,008
Tribune Company TRB 78.00 56.63 79.00 4.13 4.53 5.05 17.2 15.4 4,774
Clorox Company CLX 95.88 69.25 100.50 4.35 4.90 5.42 19.6 17.7 4,941
Morton International MII 39.75 29.63 40.25 2.62 2.99 3.41 13.3 11.7 5,663
MBNA Corporation KRB 34.75 22.67 34.88 1.55 1.98 2.45 17.6 14.2 7,741
Pitney Bowes, Inc. PBI 52.75 40.75 54.50 2.68 3.10 3.40 17.0 15.5 7,866
Carnival Corporation CCL 31.00 22.00 31.50 1.59 1.93 2.00 16.1 15.5 9,124
</TABLE>
Note: All earnings per share numbers are fully diluted. Such numbers are from
continuing operations and are adjusted for non-recurring items. Additionally,
all numbers are before amortization charges associated with goodwill and other
intangible assets. The Rouse Company and Merry Land & Investment numbers are
before depreciation and deferred taxes.
17
<PAGE>
[Ariel Premier Bond Logo]
Dear Shareholder: For the three months ending September 30, 1996, the Ariel
Premier Bond Fund, Institutional Class, returned +2.04% versus +1.85% for the
broader bond market as represented by the Lehman Aggregate Bond Index.
Although Treasury yields ended the third quarter little changed from the prior
three months, the seeming stability masked a quarter in which rates actually
experienced significant volatility. Reports of a strengthening economy
alternating with signs of diminishing growth led to sharp changes in market
sentiment and yields. The higher yields of early July reflected expectations for
rising inflation and a Fed tightening. However, these expectations abated and
rates declined in early August on signs of a slowing economy. By early
September, falling yields reversed themselves in anticipation, yet again, of
higher inflation and rising short rates.
For the first nine months of 1996, duration has had an important impact on
returns; the shorter the better. Mortgages and corporates have outperformed
equal duration Treasuries primarily due to their inherent yield advantage. The
high yield and foreign sectors have been the best performers this year--albeit
with added risk. Accordingly, short duration portfolios with a low quality
corporate or foreign emphasis have added the most value relative to broad bond
market indices. Although the Ariel Premier Bond Fund shies away from these
riskier investments, our overweighting in mortgages enhanced our returns versus
those of the Lehman Aggregate Index for both the month and quarter.
Although our outlook is relatively optimistic for the economy and modestly
bearish on inflation, the Fund's duration remains neutral because current yields
have priced in some of this bad news. If yields were to decline, reflecting a
more enthusiastic view, we would likely move to shorten the portfolio's
duration.
On the whole, there have been no significant changes in current portfolio
strategy. Discount mortgages are overweighted and seasoned issues have been
substituted for newer ones. Our 19% position in asset-backed securities is a
high quality substitute for corporates.
As always, we are grateful for the opportunity to serve you and welcome any
comments or questions that you may have.
Sincerely,
/s/ John W. Rogers, Jr. /s/ Kenneth R. Meyer
John W. Rogers, Jr. Kenneth R. Meyer
President Executive Vice President
Ariel Capital Management, Inc. Lincoln Capital Management Company
18
<PAGE>
<TABLE>
<CAPTION>
Ariel Premier Bond Fund Average Annual Total Return
Inception October 1, 1995 ---------------------------------------------------------------------
3Q96 1 Year Life of Fund
---------------------------------------------------------------------
Ariel Premier Bond Fund, Inst. Cl. +2.04% +3.96% +3.96%
<S> <C>
Ariel Premier Bond Fund
Portfolio Composition
Pie Chart
Other 0.8%
Asset-Backed 19.4%
Mortgage-Backed 32.4%
Commercial Paper 7.1%
Government & Agency 40.3%
</TABLE>
<TABLE>
<CAPTION>
Lehman Aggregate Bond Index
Portfolio Composition
Pie Chart
<S> <C>
Asset-Backed 1.0%
Mortgage-Backed 29.7%
Corporate 17.6%
Government & Agency 51.7%
</TABLE>
<TABLE>
<CAPTION>
Comparison of change in value of $10,000 invested in Ariel Premier Bond Fund and
comparable indices*
Plot Points
<S> <C> <C>
Ariel Premier Bond Fund Oct 95 $10,000
Dec 95 $10,351
Mar 96 $10,092
Jun 96 $10,189
Sep 96 $10,396
Lehman Aggregate Oct 95 $10,000
Dec 95 $10,426
Mar 96 $10,240
Jun 96 $10,298
Sep 96 $10,490
</TABLE>
* Statistics represent past performance which is not indicative of future
results.
Ariel Premier Bond Fund seeks to maximize total return through a combination of
income and capital appreciation by investing in high-quality fixed income
securities. The fund may invest in investment-grade bonds including U.S.
Government (and government agency) securities, corporate bonds, mortgage-related
securities and asset-backed securities. Under normal conditions, at least 80% of
the funds assets will be invested in fixed income securities rated A or better
by the recognized rating agencies. Ariel Premier Bond Fund will not invest in
"junk bonds" or other low-rated securities.
19
<PAGE>
<TABLE>
<CAPTION>
Ariel Premier Bond Fund
Schedule of Investments
September 30, 1996
Par Value ASSET-BACKED SECURITIES--19.38% Cost Market Value
<S> <C> <C> <C>
$ 70,000 Circuit City Credit Card,
1995-1A, 6.375%, 8/15/05 $ 69,093 $ 69,024
70,000 Finger Hut, 96-1A, 6.45%, 2/20/02 70,000 69,697
60,000 Green Tree Financial, 1995-1 A5,
8.40%, 6/15/25 65,946 63,799
50,000 J.C. Penney Master Credit Card Trust,
1990-CA, 9.625%, 6/30/00 55,872 54,467
44,203 Merrill Lynch Mortgage Investors, Inc.,
1995-C2-A1, Floating Rate, 6/15/21 45,185 44,333
300,000 The Money Store, 1996-1 A3,
6.85%, 12/20/02 299,955 302,451
300,000 The Money Store, 1996-B A6,
7.38%, 5/15/17 299,953 302,649
200,000 Olympic Auto Receivables,
1995-EA4, 5.85%, 3/15/01 197,800 197,980
60,000 Prime, 95-1A, 6.75%, 11/15/05 62,726 59,906
350,000 Private Label Credit Card,
1994-2A, 7.80%, 9/20/03 357,890 359,625
80,084 Railcar Trust, 1992-1A,
7.75%, 6/1/04 85,884 82,771
45,000 Sears Credit Account, 96-1A,
6.20%, 2/16/06 44,082 44,154
440,000 Sears Credit Account, 96-2A,
6.50%, 10/15/03 437,594 440,229
420,000 Standard Credit Card Master -
Citibank, 8.25%, 11/7/03 448,362 444,826
300,000 UCFC, 96 CA 3, 7.15%, 12/15/13 299,954 303,300
40,000 World Financial, 96-A, 6.70%,
2/15/04 39,928 39,852
100,000 World Omni Auto Lease, 1996-AA1,
6.30%, 6/25/02 99,911 99,491
---------- ----------
Total Asset-Backed Securities 2,980,135 2,978,554
---------- ----------
U.S. GOVERNMENT AGENCIES--43.42%
Mortgage-Backed Securities--32.36%
1,490,457 Federal Home Loan Mortgage Corp.
(FHLMC) Gold, 6.50%, 11/1/25 1,406,255 1,401,953
287,143 FHLMC Gold, 6.50%, 3/1/26 264,669 270,093
443,845 FHLMC Gold, 6.50%, 4/1/26 409,106 417,489
780,392 FHLMC Gold, 6.50%, 5/1/26 719,312 734,053
46,356 Federal National Mortgage
Association (FNMA), 7.00%, 10/1/23 45,557 44,734
505,842 FNMA, 7.00%, 5/1/24 497,120 488,138
491,877 FNMA, 6.50%, 11/1/25 451,388 462,054
362,306 FNMA, 6.50%, 1/1/26 345,393 340,339
65,136 FNMA, 6.50%, 3/1/26 59,774 61,187
145,540 FNMA, 6.50%, 3/1/26 135,269 136,716
171,272 FNMA, 6.50%, 4/1/26 158,465 160,888
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Par Value U.S. GOVERNMENT AGENCIES--43.42% (cont) Cost Market Value
Mortgage-Backed Securities--32.36% (cont)
$ 483,484 FNMA, 6.50%, 5/1/26 $ 449,138 $ 454,170
----------- -----------
4,941,446 4,971,814
----------- -----------
Other Agency Issues--11.06%
160,000 Government Trust Certificate, Israel
Trust, Series 2E, 9.40%, 5/15/02 175,151 170,800
250,000 Government Trust Certificate, Aid
Israel, 5.70%, 2/15/03 249,186 235,312
300,000 Resolution Funding 96 KS4,
7.30%, 4/25/22 299,931 304,032
630,000 Resolution Funding Corporation,
8.125%, 10/15/19 697,790 697,681
245,000 Resolution Funding Corporation,
8.875%, 7/15/20 305,108 292,471
----------- -----------
1,727,166 1,700,296
----------- -----------
Total U.S. Government Agencies 6,668,612 6,672,110
----------- -----------
U.S. GOVERNMENT OBLIGATIONS--29.28%
1,425,000 U.S. Treasury Bond,
8.125%, 8/15/19 1,586,980 1,593,136
2,050,000 U.S. Treasury Note,
5.875%, 4/30/98 2,049,248 2,045,141
870,000 U.S. Treasury Note,
6.125%, 7/31/00 853,775 861,587
----------- -----------
Total U.S. Government Obligations 4,490,003 4,499,864
----------- -----------
Par Value COMMERCIAL PAPER--7.14% Cost Market Value
$ 400,000 Cargill, Inc., 5.30%, 10/17/96 $ 399,058 $ 399,058
400,000 Ford Motor Credit Co., 5.37%,
10/15/96 399,165 399,165
300,000 National Rural Utilities, 5.30%,
11/4/96 298,498 298,498
----------- -----------
Total Commercial Paper 1,096,721 1,096,721
----------- -----------
REPURCHASE AGREEMENTS--1.27%
195,465 State Street Bank & Trust Company
Repurchase Agreement, 4.00%, dated
9/30/96, repurchase price $195,487,
maturing 10/1/96 (collateralized by
U.S. Treasury Bill, 2/27/97) 195,465 195,465
----------- -----------
Total Repurchase Agreements 195,465 195,465
----------- -----------
Total Investments--100.49% $15,430,936 15,442,714
===========
Liabilities less
Other Assets and Cash--(0.49)% (76,094)
-----------
NET ASSETS--100.00% $15,366,620
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Statement of Assets & Liabilities
September 30, 1996
<TABLE>
<CAPTION>
GROWTH APPRECIATION PREMIER
FUND FUND BOND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $72,391,816, $92,281,902
and $15,430,936, respectively) $109,520,420 $135,594,138 $15,442,714
Cash 15,651 62,437 -
Dividends and interest receivable 263,894 248,390 163,623
Receivable for securities sold 156,000 - -
Prepaid and other assets 12,765 12,474 -
------------ ------------ -----------
Total assets 109,968,730 135,917,439 15,606,337
------------ ------------ -----------
LIABILITIES:
Accrued management fee 58,155 94,146 5,619
Accrued distribution fee 22,367 26,998 -
Payable for shares redeemed 33,582 77,741 -
Shareholder distributions payable - - 234,098
Other liabilities 84,589 91,348 -
------------ ------------ -----------
Total liabilities 198,693 290,233 239,717
------------ ------------ -----------
NET ASSETS $109,770,037 $135,627,206 $15,366,620
============ ============ ===========
NET ASSETS CONSIST OF:
Paid-in-capital $ 66,290,486 $ 85,824,699 $15,288,404
Undistributed net investment income -- 382,445 4,064
Accumulated net realized gain on
investment transactions 6,350,947 6,107,826 62,374
Net unrealized appreciation on
investments 37,128,604 43,312,236 11,778
------------ ------------ -----------
Total net assets $109,770,037 $135,627,206 $15,366,620
============ ============ ===========
Total shares outstanding (no par value),
unlimited shares authorized 3,589,095 5,428,331 1,544,997
============ ============ ===========
Net asset value, redemption price and
offering price per share
(net assets/shares outstanding) $ 30.58 $ 24.99 $ 9.95
============ ============ ===========
</TABLE>
Statement of Operations
Year Ended September 30, 1996
<TABLE>
<CAPTION>
GROWTH APPRECIATION PREMIER
FUND FUND BOND FUND
----------- ------------ ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,022,814 $ 2,322,234 $ -
Interest 149,433 190,187 423,990
----------- ----------- --------
Total investment income 2,172,247 2,512,421 423,990
----------- ----------- --------
EXPENSES:
Management fee 751,001 1,010,049 31,840
Distribution fee 288,847 336,683 -
Transfer agent fees and expenses 282,951 341,024 -
Printing and postage expense 54,892 56,189 -
Professional fees 42,884 44,934 -
Trustees' fees and expenses 23,353 22,953 -
Federal and state registration fees 21,428 23,706 -
Custody fees and expenses 15,444 14,343 -
Miscellaneous expenses 30,448 32,764 -
----------- ----------- --------
Total expenses before waiver 1,511,248 1,882,645 31,840
Waiver of expenses - (47,713) -
----------- ----------- --------
Net expenses 1,511,248 1,834,932 31,840
----------- ----------- --------
NET INVESTMENT INCOME 660,999 677,489 392,150
----------- ----------- --------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 7,382,064 8,710,352 65,835
Change in unrealized appreciation
on investments 9,870,652 15,106,961 11,778
----------- ----------- --------
Net gain on investments 17,252,716 23,817,313 77,613
----------- ----------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $17,913,715 $24,494,802 $469,763
=========== =========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
GROWTH FUND APPRECIATION FUND PREMIER BOND FUND
----------- ----------------- -----------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
1996 1995 1996 1995 1996
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 660,999 $ 1,569,187 $ 677,489 $ 857,415 $ 392,150
Net realized gain on investments 7,382,064 16,984,463 8,710,352 9,407,780 65,835
Change in unrealized
appreciation on investments 9,870,652 (1,509,398) 15,106,961 5,951,567 11,778
------------- ------------- ------------- ------------- -----------
Net increase in net assets
resulting from operations 17,913,715 17,044,252 24,494,802 16,216,762 469,763
------------- ------------- ------------- ------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (1,659,356) (1,134,168) (1,152,459) (412,918) (389,495)
Capital gains (15,885,827) (8,249,215) (10,183,833) (9,198,828) (2,052)
------------- ------------- ------------- ------------- -----------
(17,545,183) (9,383,383) (11,336,292) (9,611,746) (391,547)
------------- ------------- ------------- ------------- -----------
SHARE TRANSACTIONS:
Shares sold 224,715,671 191,400,263 115,542,199 239,579,765 16,322,662
Shares issued to holders in
reinvestment of dividends 16,343,324 8,993,824 10,096,899 9,170,255 143,156
Shares redeemed (252,610,404) (236,613,280) (146,482,349) (274,322,662) (1,187,414)
------------- ------------- ------------- ------------- -----------
Net increase (decrease) (11,551,409) (36,219,193) (20,843,251) (25,572,642) 15,278,404
------------- ------------- ------------- ------------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (11,182,877) (28,558,324) (7,684,741) (18,967,626) 15,356,620
NET ASSETS:
Beginning of period 120,952,914 149,511,238 143,311,947 162,279,573 10,000
------------- ------------- ------------- ------------- -----------
End of period (includes
undistributed net investment
income of $0, $708,465,
$382,445, $758,169 and
$4,064, respectively) $ 109,770,037 $ 120,952,914 $ 135,627,206 $ 143,311,947 $15,366,620
============= ============= ============= ============= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
GROWTH FUND
-----------
Ten Months
Year Ended September 30, Ended
1996 1995 1994 1993 Sept. 30, 1992
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 30.78 $ 28.84 $ 30.46 $ 29.59 $ 27.36
Income from investment
operations:
Net investment income 0.18 0.36 0.18 0.73 0.31
Net realized and
unrealized gains
(losses) on investments 4.24 3.51 0.23 2.81 3.19
-------- -------- -------- -------- --------
Total from investment
operations 4.42 3.87 0.41 3.54 3.50
Distributions to
shareholders:
Dividends from net
investment income (0.44) (0.23) (0.30) (0.75) (0.56)
-------- -------- -------- -------- --------
Distributions from
capital gains (4.18) (1.70) (1.73) (1.92) (0.71)
-------- -------- -------- -------- --------
Total distributions (4.62) (1.93) (2.03) (2.67) (1.27)
Net asset value, end of -------- -------- -------- -------- --------
period $ 30.58 $ 30.78 $ 28.84 $ 30.46 $ 29.59
======== ======== ======== ======== ========
Total return 16.28% 14.38% 1.41% 12.54% 13.15%(a)
Supplemental data and
ratios:
Net assets, end of
period, in thousands $109,770 $120,953 $149,511 $233,826 $236,186
Ratio of expenses to
average net assets 1.31% 1.37%(b) 1.25% 1.16% 1.23%(c)
Ratio of net income to
average net assets 0.57% 1.18%(b) 0.56% 0.72% 0.83%(c)
Portfolio turnover rate 17% 16% 9% 13% 19%
Average commission rate
paid per share $ 0.0493
</TABLE>
<TABLE>
<CAPTION>
APPRECIATION FUND PREMIER BOND FUND
----------------- -----------------
Ten Months
Year Ended September 30, Ended Year Ended September 30,
1996 1995 1994 1993 Sept. 30, 1992 1996
---- ---- ---- ---- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 22.76 $ 21.82 $ 21.67 $ 19.42 $ 17.60 $ 10.00
Income from investment
operations:
Net investment income 0.13 0.14 0.04 0.06 0.09 0.43
Net realized and
unrealized gains
(losses) on investments 4.07 2.26 0.51 2.27 1.92 (0.04)
-------- -------- -------- -------- -------- --------
Total from investment
operations 4.20 2.40 0.55 2.33 2.01 0.39
Distributions to
shareholders:
Dividends from net
investment income (0.20) (0.06) (0.05) (0.08) (0.17) (0.43)
Distributions from
capital gains (1.77) (1.40) (0.35) -- (0.02) (0.01)
-------- -------- -------- -------- -------- --------
Total distributions (1.97) (1.46) (0.40) (0.08) (0.19) (0.44)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 24.99 $ 22.76 $ 21.82 $ 21.67 $ 19.42 $ 9.95
======== ======== ======== ======== ======== ========
Total return 19.60% 12.11% 2.56% 12.03% 11.47%(a) 3.96%
Supplemental data and
ratios:
Net assets, end of
period, in thousands $135,627 $143,312 $162,280 $207,065 $146,624 $15,367
Ratio of expenses to
average net assets 1.36%(b) 1.36%(b) 1.35%(b) 1.37% 1.44%(b)(c) 0.48%
Ratio of net income to
average net assets 0.50%(b) 0.61%(b) 0.17%(b) 0.33% 0.57%(b)(c) 5.85%
Portfolio turnover rate 26% 18% 12% 56% 2% 423%
Average commission rate
paid per share $ 0.0513
</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 1.40%, 1.58%, 1.40% and 1.50% for the periods ended 1996,
1995, 1994 and 1992 for the Appreciation Fund; 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 0.46%, 0.39%, 0.12% and 0.51% for the
periods ended 1996, 1995, 1994 and 1992 for the Appreciation Fund,
respectively.
(c) Annualized.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Notes to the Financial Statements
September 30, 1996
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, Appreciation Fund and Premier Bond Fund (the "Funds" or "Ariel Mutual
Funds") are diversified portfolios of the Trust. The Premier Bond Fund is
structured to offer an Institutional Class and an Investor Class. Currently,
only shares of the Institutional Class are offered for sale.
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. The
financial statements have been prepared in accordance with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements.
INVESTMENT VALUATION - Securities for which market quotations are readily
available are valued at the most recent closing price. If a closing price is
not reported, equity 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, and debt securities
over 60 days are valued based on quotes obtained from dealers. 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 management fees. 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 are
declared and paid at least annually for the Growth Fund and Appreciation Fund
and quarterly for the Premier Bond Fund. Distributions of 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. The character of
distributions made during the year from net investment income or net realized
gain may differ from the characterization for federal income tax purposes due to
differences in the recognition of income, expense and gain items for financial
statement and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in nature.
25
<PAGE>
Notes to the Financial Statements (cont)
September 30, 1996
3. Capital Share Transactions
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1996
Growth Fund Appreciation Fund Premier Bond Fund
----------- ----------------- -----------------
<S> <C> <C> <C>
Shares sold 7,768,583 5,103,680 1,649,706
Shares issued to holders in
reinvestment of dividends 603,075 458,325 14,370
Shares redeemed (8,712,337) (6,429,578) (120,079)
----------- ----------- ---------
Net increase (decrease) (340,679) (867,573) 1,543,997
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, 1995
Growth Fund Appreciation Fund
----------- -----------------
<S> <C> <C>
Shares sold 6,811,402 11,384,217
Shares issued to holders in
reinvestment of dividends 333,352 470,028
Shares redeemed (8,399,958) (12,995,996)
----------- -----------
Net decrease (1,255,204) (1,141,751)
=========== ===========
</TABLE>
4. Investment Transactions
Purchases and sales of securities, excluding short-term investments and U.S.
government securities, for the year ended September 30, 1996 are summarized
below:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund Premier Bond Fund
----------- ----------------- -----------------
<S> <C> <C> <C>
Purchases $18,856,199 $34,014,480 $13,330,095
Sales 46,698,963 57,715,522 3,609,392
</TABLE>
Purchases and sales of U.S. government securities for the Premier Bond Fund for
the year ended September 30, 1996 were $26,544,351 and $22,145,394,
respectively.
At September 30, 1996 gross unrealized appreciation and depreciation of
securities were as follows:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund Premier Bond Fund
----------- ----------------- -----------------
<S> <C> <C> <C>
Unrealized appreciation $41,082,913 $45,053,234 $ 80,757
Unrealized (depreciation) (3,954,309) (1,740,998) (68,979)
----------- ----------- --------
Net appreciation $37,128,604 $43,312,236 $ 11,778
=========== =========== =========
</TABLE>
The book and federal income tax basis of securities is the same for the Growth
Fund, Appreciation Fund and Premier Bond Fund. As of September 30, 1996 the
Appreciation Fund had net realized capital loss carryforwards of $222,481,
resulting from a fund acquisition on September 13, 1991, which expire, if
unused, on September 30, 1998. 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, 1996,
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.
5. Investment Advisory and Other Transactions with Affiliates
The Trust has entered into an 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
Growth Fund and 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. 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.
26
<PAGE>
Notes to the Financial Statements (cont)
September 30, 1996
The Trust has entered into an investment advisory agreement and administrative
services agreement with the Adviser for the Premier Bond Fund. Pursuant to the
agreements, the Fund pays the Adviser an investment advisory fee and
administrative services fee based on the average daily net assets of the Fund at
the annual rate of 0.35% and 0.10%, respectively. Prior to May 14, 1996, the
Adviser was paid an investment advisory fee and administrative services fee
based on the average daily net assets of the Fund at the annual rate of 0.43%
and 0.15%, respectively. The Adviser pays all of the Fund's expenses other than
the investment advisory fee and administrative services fee, the expenses
assumed by the Adviser under the administrative services agreement, interest,
taxes, brokerage commissions and extraordinary expenses.
Lincoln Capital Management Company ("Lincoln Capital"), is the sub-adviser of
the Premier Bond Fund. Lincoln Capital manages the day-to-day investment
operations for the Fund. The Fund pays no fees directly to Lincoln Capital.
Lincoln Capital receives fees from the Adviser at the annual rate of 0.30% of
the average daily net assets up to $50 million; 0.20% for the next $50 million;
0.15% for the next $150 million and 0.10% for amounts greater than $250 million.
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Trust has
adopted a distribution plan which permits the Growth Fund and Appreciation Fund
to pay for certain expenses associated with the distribution of their shares up
to 0.30% annually of each Fund's 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 Ariel
Distributors, Inc., an affiliate of the Adviser.
Report of Independent Auditors
September 30, 1996
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, Ariel Appreciation Fund, and
Ariel Premier Bond Fund, comprising Ariel Investment Trust ("Ariel Mutual
Funds"), as of September 30, 1996, the related statement of operations, the
statement of changes in net assets and the financial highlights for the fiscal
periods indicated therein. 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, 1996, by correspondence with the custodian. 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, 1996, and the results of
their operations, the changes in their net assets and the financial highlights
for each of the fiscal periods indicated therein, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
October 23, 1996
27
<PAGE>
Board of Trustees
Bert N. Mitchell, C.P.A. Bert is founder, chairman and CEO of Mitchell & Titus,
LLP, 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.
Mario L. Baeza Chairman and CEO of Latin America Equity Partners, L.P., 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 institutional clients,
as well as the marketing of the Ariel Mutual Funds. She received a B.A. from
Princeton University's Woodrow Wilson School. She serves as a Director of the
Chicago Public Library as well as the Civic Federation of Chicago. Additionally,
Mellody works with a variety of other 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 and 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.
28
<PAGE>
and on...and on. Soon the Hare was so far ahead he thought he might as well have
a rest, so down he lay and fell fast asleep...as the Tortoise plodded on...and
on. Suddenly the Hare woke up with a start. What was the time? Where was the
Tortoise? He dashed on at his fastest pace...only to find that the Tortoise had
already won the race.
Slow & steady wins the race.
<PAGE>
[Logo]
Ariel Investment Trust BULK MAIL
307 North Michigan Avenue U.S. POSTAGE
Suite 500 PAID
Chicago, Illinois 60601 PERMIT NO. 6784
CHICAGO, IL
[Logo] Printed on recycled paper
