As filed with the Securities and Exchange Commission on November 22, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-4786
Ariel Investment Trust
(Exact name of registrant as specified in charter)
200 East Randolph Street
Suite 2900
Chicago, Illinois, 60601
(Address of principal executive offices) (Zip code)
Mareilé B. Cusack, Esq.
200 East Randolph Street
Suite 2900
Chicago, Illinois 60601
(Name and address of agent for service)
with a copy to:
Arthur Don, Esq.
Greenberg Traurig, LLP
77 West Wacker Drive
Suite 3100
Chicago, IL 60601
Registrant’s telephone number, including area code: (312) 726-0140
Date of fiscal year end: September 30
Date of reporting period: September 30, 2017
Item 1. Reports to Stockholders.
The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 (the “Act”) (17 CFR 270.30e-1):
The patient investor
|
ANNUAL REPORT: 09/30/17
· | Value · Deep value · Global |
· | Ariel Fund |
· | Ariel Appreciation Fund |
· | Ariel Focus Fund |
· | Ariel Discovery Fund |
· | Ariel International Fund |
· | Ariel Global Fund |
Slow and steady wins the race.
One of Ariel Investments’ guiding principles is to communicate openly with our shareholders so they may gain a clear understanding of our investment philosophy, portfolio decisions and results, as well as our opinions on the underlying market. In reviewing the materials contained in The Patient Investor, please consider the information provided on this page. While our investment decisions are rooted in detailed analysis, it is important to point out that actual results can differ significantly from those we seek. We candidly discuss a number of individual companies. Our opinions are current as of the date they were written but are subject to change.
We want to remind investors that the information in this report is not sufficient on which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. Equity investments are affected by market conditions. The intrinsic value of the stocks in which the Funds invest may never be recognized by the broader market. Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund invest in micro, small and/or mid-cap companies. Investing in micro, small and mid-cap stocks is riskier and more volatile than investing in large cap stocks, in part because smaller companies may not have the scale, depth of resources and other assets of larger firms. Ariel Fund and Ariel Appreciation Fund often invest a significant portion of their assets in companies within the consumer discretionary and financial services sectors and their performance may suffer if these sectors underperform the overall stock market. Ariel Focus Fund invests primarily in equity securities of companies of any size in order to provide investors access to superior opportunities in companies of all market capitalizations. Ariel Focus Fund is a non-diversified fund in that it generally holds only 20-30 stocks and therefore may be more volatile than a more diversified investment. Ariel International Fund and Ariel Global Fund invest in foreign securities and may use currency derivatives and ETFs. Investments in foreign securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards, foreign currencies and taxes. The use of currency derivatives and ETFs may increase investment losses and expenses and create more volatility. Investments in emerging markets present additional risks, such as difficulties selling on a timely basis and at an acceptable price.
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for the Funds may be obtained by visiting our website, arielinvestments.com.
Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. For a current summary prospectus or full prospectus which contains this and other information about the Funds offered by Ariel Investment Trust, call us at 800.292.7435 or visit our website, arielinvestments.com. Please read the summary prospectus or full prospectus carefully before investing. Distributed by Ariel Distributors, LLC, a wholly owned subsidiary of Ariel Investments, LLC. Ariel Distributors, LLC is a member of the Securities Investor Protection Corporation.
Ariel Investment Trust
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
800.292.7435
• | arielinvestments.com |
• | linkedin.com/company/ariel-investments |
• | twitter.com/ArielFunds |
• | facebook.com/ArielInvestments |
Fund performance at a glance | AS OF 09/30/17 | |||
| ||||
Annualized
| ||||||||||||||
Quarter (%) | 1-year (%) | 3-year (%) | 5-year (%) | 10-year (%) | 20-year (%) | Since inception (%) | ||||||||
Small/mid cap value strategy
| 11/06/86
| |||||||||||||
Ariel Fund–Investor Class
| + 0.76
| + 15.76
| + 8.92
| + 14.75
| + 7.31
| + 9.03
| + 11.34
| |||||||
Ariel Fund–Institutional Class
| + 0.83
| + 16.11
| + 9.24
| + 15.10
| + 7.50
| + 9.13
| + 11.40
| |||||||
Russell 2500TM Value Index
| + 3.83
| + 15.75
| + 9.94
| + 13.25
| + 7.59
| + 9.17
| + 11.34
| |||||||
Russell 2500TM Index
| + 4.74
| + 17.79
| + 10.60
| + 13.86
| + 8.19
| + 8.71
| + 10.86
| |||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| + 7.00
| + 10.32
| |||||||
Mid cap value strategy
| 12/01/89
| |||||||||||||
Ariel Appreciation Fund–Investor Class
| + 0.08
| + 12.41
| + 7.08
| + 13.10
| + 8.07
| + 9.24
| + 10.75
| |||||||
Ariel Appreciation Fund–Institutional Class
| + 0.18
| + 12.78
| + 7.43
| + 13.48
| + 8.26
| + 9.34
| + 10.83
| |||||||
Russell Midcap® Value Index
| + 2.14
| + 13.37
| + 9.19
| + 14.33
| + 7.85
| + 9.56
| + 11.56
| |||||||
Russell Midcap® Index
| + 3.47
| + 15.32
| + 9.54
| + 14.26
| + 8.08
| + 9.25
| + 11.34
| |||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| + 7.00
| + 9.66
| |||||||
All cap value strategy
| 06/30/05
| |||||||||||||
Ariel Focus Fund–Investor Class
| + 2.16
| + 17.09
| + 4.90
| + 11.27
| + 5.08
| –
| + 5.80
| |||||||
Ariel Focus Fund–Institutional Class
| + 2.24
| + 17.40
| + 5.15
| + 11.55
| + 5.24
| –
| + 5.92
| |||||||
Russell 1000® Value Index
| + 3.11
| + 15.12
| + 8.53
| + 13.20
| + 5.92
| –
| + 7.48
| |||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| –
| + 8.57
| |||||||
Small cap deep value strategy
| 01/31/11
| |||||||||||||
Ariel Discovery Fund–Investor Class
| + 1.90
| + 17.54
| + 1.44
| + 2.90
| –
| –
| + 3.11
| |||||||
Ariel Discovery Fund–Institutional Class
| + 2.06
| + 17.82
| + 1.70
| + 3.17
| –
| –
| + 3.36
| |||||||
Russell 2000® Value Index
| + 5.11
| + 20.55
| + 12.12
| + 13.27
| –
| –
| + 11.08
| |||||||
Russell 2000® Index
| + 5.67
| + 20.74
| + 12.18
| + 13.79
| –
| –
| + 11.73
| |||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| –
| –
| + 13.01
| |||||||
International all cap strategy
| 12/30/11
| |||||||||||||
Ariel International Fund–Investor Class
| + 2.52
| + 9.55
| + 5.38
| + 9.54
| –
| –
| + 7.81
| |||||||
Ariel International Fund–Institutional Class
| + 2.49
| + 9.80
| + 5.64
| + 9.82
| –
| –
| + 8.06
| |||||||
MSCI EAFE Index (net)
| + 5.40
| + 19.10
| + 5.04
| + 8.38
| –
| –
| + 9.05
| |||||||
MSCI ACWI ex-US Index (net)
| + 6.16
| + 19.61
| + 4.70
| + 6.97
| –
| –
| + 7.87
| |||||||
Global all cap strategy
| 12/30/11
| |||||||||||||
Ariel Global Fund–Investor Class
| + 4.42
| + 12.87
| + 6.32
| + 11.34
| –
| –
| + 9.83
| |||||||
Ariel Global Fund–Institutional Class
| + 4.50
| + 13.10
| + 6.59
| + 11.63
| –
| –
| + 10.11
| |||||||
MSCI ACWI Index (net)
| + 5.18
| + 18.65
| + 7.43
| + 10.20
| –
| –
| + 11.12
|
The inception date for the Institutional Class shares of all Funds is December 30, 2011. Performance information for the Institutional Class prior to that date reflects the actual performance of a Fund’s Investor Class (and uses the actual expenses of the Fund’s Investor Class, for such period of time), without any adjustments. For any such period of time, the performance of a Fund’s Institutional Class would have been substantially similar to, yet higher than, the performance of its Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses, which are primarily differences in distribution and service fees. Descriptions for the indexes can be found on page 78. Any extraordinary performance shown for short-term periods may not be sustainable and is not representative of the performance over longer periods. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
1 |
TURTLE TALK
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Looking back 30 years – a Crash Course | ||||||
“Then, as now, we were obsessed with the markets and investing and possessed an unwavering belief in the merits of value investing. Since history is so important to our future, we thought it might make sense to try to recollect this pivotal time—for posterity as well as for our own continued learning.”
-Mellody Hobson, President, Ariel Investments
Please turn to page 3 to read Mellody Hobson’s interview with John Rogers on lessons learned during the Crash of 1987. For additional insights into John Rogers’ investment philosophy, read an interview he conducted with TICKER.com entitled, “Investing with a Patient, Long-Term View” at our award-winning website, arielinvestments.com.
|
Come out of your shell.
With the right investment philosophy, you don’t need to be shy about global investing.
Look for our series of ads in The Wall Street Journal focusing on our international and global strategies, along with our patient approach to investing.
To learn more about Ariel International Fund and Ariel Global Fund, turn to page 22 or visit arielinvestments.com/think-global. |
2 | ARIELINVESTMENTS.COM |
CRASH COURSE
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Fund and Ariel Appreciation Fund may be obtained by visiting our website, arielinvestments.com.
DEAR FELLOW SHAREHOLDER:
For the quarter ending September 30, 2017, Ariel Fund rose +0.76% which fell short of the +3.83% return of the style similar Russell 2500 Value Index benchmark as well as the +4.74% gain posted by the style neutral Russell 2500 Index. The broad market as measured by the S&P 500 earned +4.48%. While Ariel Appreciation Fund squeaked out a +0.08% return over the last three months, the Russell Midcap Value Index gained +2.14% and the Russell Midcap Index grew +3.47%. The common detractor across all of our strategies was our consumer discretionary holdings—an area where our deep expertise gives us great conviction about the long-term prospects for these branded businesses despite some near-term weakness.
Although it was an admittedly soft quarter for our flagship domestic equity strategies, our calendar year-to-date returns compare favorably to those of our primary value benchmarks with a big boost coming from our financial holdings. More specifically, Ariel Fund gained +7.43% versus +5.86% for the Russell 2500 Value Index over the last nine months. Helped by its growth stock holdings, the
Russell 2500 Index jumped +11.00% which although quite strong, still trails the S&P 500’s +14.24% return. Meanwhile, through September 30th, Ariel Appreciation Fund has earned +8.23% which is well ahead of the +7.43% gain of the Russell Midcap Value Index, but behind the +11.74 rise of the Russell Midcap Index.
PORTFOLIO COMINGS AND GOINGS
During the third quarter, we did not add or exit any positions in Ariel Fund or Ariel Appreciation Fund.
CRASH COURSE
It is hard to believe, but 30 years ago this month the markets were rocked by the Crash of 1987—otherwise known as Black Monday. As some may recall and others still want to forget, on October 19th of that year, a 508 point drop represented a -22.6% one day collapse for the Dow Jones Industrial Average. In the annals of stock market history, the plunge was momentous. If the market were to plummet in the same way today, more than 5,000 points would bleed out of the Dow in one trading session.
800.292.7435 | 3 |
As The New York Times recently noted, “It became a day of fast reactions amid a mood of extreme crisis in which it seemed no one knew what was going on and that you had to trust your own gut feelings…[B]uy-and-hold investors did splendidly if they stuck to their strategies. But that is easy to say now.“1 This characterization led us to recall this moment of truth for our young firm. Back in October of ‘87, Ariel was a few months shy of our 4th birthday. We had 8 people and our total assets were just $261 million. Then, as now, we were obsessed with the markets and investing and possessed an unwavering belief in the merits of value investing.
Since history is so important to our future, we thought it might make sense to try to recollect this pivotal time—for posterity as well as for our own continued learning. Our returns clearly demonstrate investment success during and in the aftermath of the period. To that point, our flagship Ariel Fund had a total return of +13.10% for the quarter ended September 30, 1987. The Fund ended the 1987 calendar year with a noteworthy +11.40% gain versus -4.88% for the Russell 2500 Value Index and -4.68% for the Russell 2500 Index. We also beat the S&P 500 which earned +5.25%. These returns coupled with a strong 1988 led to John being named “Co-Portfolio Manager of the Year by Sylvia Porter’s Personal Finance Magazine.” While all of that is well and good, we recently realized that despite many of our long tenures, the only person who worked at Ariel in 1987 and still works with us today is John Rogers. As such, I thought it would be instructive to pick his brain about that tumultuous time—in the hopes of preserving some useful investment lessons. What follows is an informal conversation between us.
—Mellody Hobson, President, Ariel Investments
Mellody Hobson (MH): What do you remember about the day the market crashed?
John W. Rogers, Jr. (JR): I remember being at the wedding planner—trying to select things like flowers and a band. And then, all of a sudden, a lot of calls started coming in from my office. Keep in mind, there were no cellphones. The calls were coming through the planner’s office.
MH: As the market news was being reported to you, what were you thinking?
JR: It was crazy because the fall was so swift and so dramatic. The velocity of the collapse was unimaginable—beyond anything I had ever seen in my career at that point. At the time, I remember thinking about Warren Buffett who said “you want to be greedy when others are fearful.” I also thought about Sir John Templeton who said “buy when there’s maximum pessimism.” Well, here there was total fear and pessimism. I literally was calling clients and asking them to send us more money. I was buying what I believed to be once-in-a-lifetime bargains—stocks that were being given away at prices that didn’t make any sense. And of course, we later found out in 2008 and 2009 that there was a twice-in-a-lifetime buying opportunity to be had.
MH: How did clients react to you calling them directly and saying, “This is happening; send us more money?”
JR: I think people were willing to entertain the thought. Some clients were actually intrigued by the idea—and a few did send more money. Without more money, we had to sell our more expensive and liquid names to raise the cash we needed to scoop up the bargains.
MH: Did you feel fear?
JR: Let’s just say that it was unpleasant. I can’t say that it was a warm, fuzzy feeling. But I understood that as long as I maintained a long-term perspective, this was an opportunity, not something to fear.
MH: Did you consider why the Crash was happening, or was that not a part of your calculus?
JR: It just didn’t make sense and in many ways didn’t matter. I knew my companies were still providing products and services. They were still generating cash flow. I knew three-to-five years later, they’d be generating more cash flow and doing even more business around the world. So as much as it was painful in the near term, there was never a doubt that whatever was causing this unraveling in the market was short-term in nature.
4 | ARIELINVESTMENTS.COM |
MH: Okay. And then when you woke up that next morning after what was obviously a very severe drop, did you wish you had bought more?
JR: The markets were so chaotic. We bought as much as we could at the best prices we could get. Nothing was trading in a rational manner. So there was not a lot of regret. I knew we did the best we could. We got some terrific buys at extremely low prices. And of course you always wished you could have gotten more, but we did the best we could in a crisis that came out of nowhere.
MH: Many people say they’re contrarian but you say no one really knows until a moment of truth comes. Were you, in any way, surprised by your reactions during that period based upon what you believed yourself to be?
JR: No, because I believed so deeply in the true contrarians. Being contrarian is in my DNA. I knew then and I know now that I don’t think like everybody else—for good or for bad.
“Being contrarian is in my DNA. I knew then and I know now that I don’t think like everybody else—for good or for bad.”
MH: How did the Crash affect you as an investor? What did you learn?
JR: It just reinforced the values that I built the firm around—being contrarian, buying when others are fearful, and thinking long-term. In order to remind myself what really matters, I carry this tattered piece of paper in my wallet from one of the Berkshire Hathaway annual reports where Warren writes, “American business will do fine over time… Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrial Average advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions.)” I think the stock market
crash of ‘87, as well as the ‘08 financial crisis, clearly reinforced that he’s right—that you just cannot let short-term noise and fleeting headlines impact your judgement. That brief passage helps me to remember that for whatever reason, people get obsessed with the here and now.
MH: Did it make the Crash of ‘87 feel like a trial run for the financial crisis that came much later?
JR: They were echoes of each other. Both reinforced that it’s always best to drown out the commotion and instead simply focus on individual companies and their future cash flow. So I think the Crash experience mattered and helped. By the time the Financial Crisis happened, I was older. I could not only go back and re-read things, but I could also call peers and friends for reinforcement and confidence boosts. Friends who were also true contrarians and value investors.
MH: Is it fair to say that both times you knew the market was irrational and would come back?
JR: Yeah. Obviously I had a high level of conviction. You have to have that in this business. That said, you’re also going to sometimes wonder if something has changed. Am I missing something somewhere? That’s why it’s so important to go back and read history, talk to people who are experienced and wise.
MH: You talked to others but you say being a contrarian is in your DNA.
JR: Yes, it is. The longer I do this, the more I know that you cannot train someone to be a contrarian. It is just not possible. You either are or you aren’t.
MH: Is there anything about some of the rougher markets—including the Crash of ’87—that makes you think, “I should’ve known better?”
JR: Not during those periods. I think that’s when you make the least mistakes. This is not your question but I think the biggest mistakes happen when the markets have been trending modestly higher, getting more and more expensive, and you start to feel this need to buy something.
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MH: Is right now one of those periods?
JR: Could be. Hopefully, I have learned from prior experiences and will not replicate past mistakes.
MH: And how do you do that?
JR: I work with our team to make sure we don’t stretch our disciplines to make something fit. You have to learn to overcome human nature. In the end, the people who are the most disciplined, those who don’t get itchy trigger fingers are the ones who are the most successful investors.
MH: So it sounds like the biggest risks are in good times, not when shocks to the system occur.
JR: Right. During those times, the values come like manna from heaven. Right now is a time to be really, really vigilant.
MH: Oprah has this saying, “One thing I know for sure.” When it comes to investing, what is the one thing you know for sure?
JR: If you buy good businesses and own them for the long term, you’re going to do really, really well.
In order to do this with conviction, you must always look forward and not backwards. That is at the heart of successful investing, what will the company look like in the future?
MH: Did the Crash make you a better investor or did the Crash just reveal your investment skill?
JR: I think crises reveal your character and what kind of investor you really are. Warren talks about that too when he says “when the tide goes out you see who is swimming naked.”
MH: Right.
As always, we appreciate the opportunity to serve you and welcome any questions or comments you might have. You can also contact us directly at email@arielinvestments.com.
Sincerely, | ||
| ||
John W. Rogers, Jr. | Mellody Hobson | |
Chairman and CEO | President |
2017 DISTRIBUTIONS
Capital Gains
Ariel Investments expects to pay capital gains distributions on Thursday, November 16, 2017 to shareholders of record as of Wednesday, November 15, 2017. Estimates of these distributions are as of October 31, 2017, and are shown in the table below:
Capital gains estimates*
Short-term gain/share |
Long-term gain/share |
Total gain/share | ||||
Ariel Fund
| $0.18
| $3.75
| $3.93
| |||
Ariel Appreciation Fund
| $0.26
| $5.25
| $5.51
|
* Estimates apply to both investor and institutional share classes.
Income Distributions
Ariel Investments expects to pay income distributions on Thursday, December 28, 2017, to shareholders of record as of Wednesday, December 27, 2017. Income distribution estimates will be available on arielinvestments.com the first week of December.
INVESTMENT NEWS LISTS ARIEL FUND AMONG BEST PERFORMING FUNDS SINCE 1987 CRASH
John W. Rogers, Jr., Lead Portfolio Manager of Ariel Fund, was featured in the October 19, 2017 | ||
issue of InvestmentNews. Referencing the worst one-day market crash in history, the article notes: “Those who weren’t scared out of the stock market have done well…a few funds have done exceptionally well and are being run by the same management team today.” To read the full article, visit our award-winning website at arielinvestments.com.
Past performance does not guarantee future results.
|
1 Robert Schiller, “Lessons from the 1987 Market Plunge,” The New York Times, October 22, 2017.
6 | ARIELINVESTMENTS.COM |
Ariel Fund management discussion | ||||
| ||||
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
Ariel Fund’s +15.76% 12-month return was in-line with its primary benchmark, the Russell 2500 Value Index, which gained +15.75%. However, the more style-neutral Russell 2500 Index jumped +17.79% over the same period. Over the course of the year, our underweight to the energy sector proved to be our strongest contributor relative to the Russell 2500 Value Index, while consumer discretionary stocks detracted the most from our return.
The top-performing holdings for the 12-month period were Zebra Technologies Corp. (ZBRA) and Royal Caribbean Cruises Ltd. (RCL), adding +134 basis points (bps) and +123 bps, respectively, to relative return. In the fourth calendar quarter of 2016, asset-tracking specialist, Zebra Technologies, saw its shares soar following a solid earnings report, and gained +55.98% in the 12-month period. The company beat consensus earnings estimates for four straight quarters and accelerated its debt repayment plan beyond initial guidance. Like Zebra Technologies, cruise ship operator, Royal Caribbean, saw its shares rise +61.40% during the Fund’s fiscal year on strong earnings results. Management cited healthy demand within the company’s North America and Europe segments as the primary driver for the positive results, and increased earnings guidance for the company’s fiscal year.
The bottom-performing stocks for the trailing year were Mattel, Inc. (MAT) and Viacom Inc. (VIAB). In March, toy manufacturer, Mattel, Inc., preannounced the first in a string of disappointing earnings results. The company cited weakness in toy demand and inventory overhang as the primary reason for the miss. After taking the helm in January, Mattel’s new CEO, Margo Georgiadis, elected to meaningfully cut the company’s quarterly dividend from $0.38 to $0.15. The change elicited a mixed response from investors, but many acknowledged the decision was necessary. Adding to the company’s woes was the September announcement that U.S. toy retailer, Toys“R”Us, would be filing for bankruptcy. While shares of Mattel stock had drifted lower for most of the year, it was this news that had the greatest impact on its stock price, which fell -27.44% in the third calendar quarter of 2017, and slipped -46.09% for the Fund’s fiscal year. Meanwhile, multinational media conglomerate, Viacom, has seen its shares fall -25.21% over the last 12 months. The company has been dogged by continued investor skepticism about its ability to execute its strategic plan in a climate where changing media consumption patterns and new technology have created general concerns about the cable business model. Despite the company’s positive earnings results and impressive revenues, the second calendar quarter of 2017 was particularly punishing on the stock, which fell -27.59% over the three-month period.
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Ariel Appreciation Fund management discussion | ||||
| ||||
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Appreciation Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
Ariel Appreciation Fund’s +12.41% one-year rise lagged the +13.37% gain posted by the Russell Midcap Value Index as well as the +15.32% rise of the style-neutral Russell Midcap Index. Over the course of the year, our financial stocks boosted returns, while consumer discretionary holdings proved the most significant detractors.
The top-performing holdings for the 12-month period were Kennametal, Inc. (KMT) and Northern Trust Corp. (NTRS). In
the first calendar quarter of 2017, tooling and industrial materials manufacturer, Kennametal, saw its shares soar +26.15% after the company reported better-than-expected earnings. Management highlighted strong organic growth and cost-cutting initiatives as the primary drivers of the positive performance. The company raised full-year guidance and noted benefits from potential changes in U.S. trade policy as a tailwind to their business. Kennametal ended the trailing one-year period with a +42.27% return. The second calendar quarter was a particularly strong one for global financial services firm, Northern Trust, when its shares rose +12.77%, contributing to the one year gain of +37.66%. The stock price was buoyed by improving net interest margins and a favorable interest rate environment. Total assets under management hit the $1 trillion mark for the first time in March, largely thanks to increases in its wealth management segment.
The bottom-performing stocks for the year were Mattel, Inc. (MAT) and J.M. Smucker Co. (SJM). In March, toy manufacturer, Mattel, Inc., preannounced the first in a string of disappointing earnings results. The company cited weakness in toy demand and inventory overhang as the primary reason for the miss. After taking the helm in January, Mattel’s new CEO, Margo Georgiadis, elected to meaningfully cut the company’s quarterly dividend from $0.38 to $0.15. The change elicited a mixed response from investors, but many acknowledged the decision was necessary. Adding to the company’s woes was the September announcement that U.S. toy retailer, Toys“R”Us, would be filing for bankruptcy. While shares of Mattel stock had drifted lower for most of the year, it was this news that had the greatest impact on its stock price, which fell -27.44% in the third calendar quarter of 2017, and slipped -46.09% for the fiscal year. Meanwhile, a disappointing earnings report from leading consumer food products manufacturer, J.M. Smucker, pushed the company’s shares down -10.76% in the third quarter, and -20.75% for the 12-month period. The earnings miss was driven by weak volumes within the company’s coffee and consumer foods segments. Management attributed this weakness to misalignment of branded to private-label price gaps, which was exacerbated by input costs and pricing imbalances. The company was also quick to note it has since fixed the issue by sharpening every day and promotional price points. As a result, the company has witnessed an uptick in volumes.
8 | ARIELINVESTMENTS.COM |
Ariel Fund performance summary | INCEPTION: 11/06/86 | |||
| ||||
John W. Rogers, Jr. |
John P. Miller,CFA |
Kenneth E. Kuhrt, CPA | ||
Lead portfolio manager | Portfolio manager | Portfolio manager |
Composition of equity holdings (%)
Ariel Fund† | Russell 2500 Value Index | Russell 2500 Index | S&P 500 Index | |||||||||||||||||
Consumer discretionary
|
| 30.68
|
|
| 10.74
|
|
| 13.61
|
|
| 13.15
|
| ||||||||
Financial services
|
| 30.68
|
|
| 39.53
|
|
| 27.37
|
|
| 19.97
|
| ||||||||
Producer durables
|
| 20.79
|
|
| 12.66
|
|
| 15.17
|
|
| 10.66
|
| ||||||||
Health care
|
| 8.24
|
|
| 5.92
|
|
| 11.77
|
|
| 14.37
|
| ||||||||
Materials & processing
|
| 4.36
|
|
| 6.93
|
|
| 7.85
|
|
| 3.20
|
| ||||||||
Technology
|
| 2.17
|
|
| 6.76
|
|
| 12.59
|
|
| 20.05
|
| ||||||||
Consumer staples
|
| 1.83
|
|
| 3.21
|
|
| 2.66
|
|
| 7.22
|
| ||||||||
Energy
|
| 0.45
|
|
| 7.20
|
|
| 4.55
|
|
| 6.09
|
| ||||||||
Utilities
|
| 0.00
|
|
| 7.07
|
|
| 4.43
|
|
| 5.29
|
|
† | Sector weightings are calculated based on equity holdings as a percentage of total net assets. |
Average annual total returns (%) as of 09/30/17
Quarter
| 1-year
| 3-year
| 5-year
| 10-year
| 20-year
|
Since
| ||||||||||
Ariel Fund–Investor Class
| + 0.76
| + 15.76
| + 8.92
| + 14.75
| + 7.31
| + 9.03
| + 11.34
| |||||||||
Ariel Fund–Institutional Class+
| + 0.83
| + 16.11
| + 9.24
| + 15.10
| + 7.50
| + 9.13
| + 11.40
| |||||||||
Russell 2500TM Value Index
| + 3.83
| + 15.75
| + 9.94
| + 13.25
| + 7.59
| + 9.17
| + 11.34
| |||||||||
Russell 2500TM Index
| + 4.74
| + 17.79
| + 10.60
| + 13.86
| + 8.19
| + 8.71
| + 10.86
| |||||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| + 7.00
| + 10.32
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17)1
Investor Class
| 1.01%
| |||
Institutional Class
| 0.71%
|
Top ten equity holdings (% of net assets)
1. | KKR & Co. L.P. | 4.9 | 6. | JLL | 3.6 | |||||||||
2. | Zebra Technologies Corp. | 4.7 | 7. | CBRE Group, Inc., Class A | 3.5 | |||||||||
3. | Lazard Ltd., Class A | 4.6 | 8. | MSG Networks, Inc. | 3.5 | |||||||||
4. | Royal Caribbean Cruises Ltd. | 3.8 | 9. | First American Financial Corp. | 3.4 | |||||||||
5. | Kennametal, Inc. | 3.7 | 10. | Northern Trust Corp. | 3.0 | |||||||||
+ | The inception date for the Institutional Class shares is December 30, 2011. Performance information for the Institutional Class prior to that date reflects the actual performance of the Fund’s Investor Class (and uses the actual expenses of the Fund’s Investor Class, for such period of time), without any adjustments. For any such period of time, the performance of the Fund’s Institutional Class would have been substantially similar to, yet higher than, the performance of the Fund’s Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses, which are primarily differences in distribution and service fees. |
1 | As of September 30, 2016, Ariel Fund had an annual expense ratio of 1.02% and 0.72%, respectively, for the Investor Class and Institutional Class. |
Notes: The graph and performance table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total return does not reflect a maximum 4.75% sales load charged prior to 7/15/94. |
See index descriptions on page 78. |
800.292.7435 | 9 |
Ariel Appreciation Fund performance summary | INCEPTION: 12/01/89 | |||
| ||||
John W. Rogers, Jr. |
Timothy R. Fidler, CFA | |||
Co-portfolio manager | Co-portfolio manager |
Composition of equity holdings (%)
Ariel Apprec- iation Fund† | Russell Midcap Value Index | Russell Midcap Index | S&P 500 Index | |||||||||||||||||
Financial services
|
| 34.06
|
|
| 35.16
|
|
| 27.19
|
|
| 19.97
|
| ||||||||
Consumer discretionary
|
| 23.13
|
|
| 12.45
|
|
| 14.97
|
|
| 13.15
|
| ||||||||
Health care
|
| 16.31
|
|
| 6.62
|
|
| 9.47
|
|
| 14.37
|
| ||||||||
Producer durables
|
| 16.11
|
|
| 10.63
|
|
| 13.01
|
|
| 10.66
|
| ||||||||
Consumer staples
|
| 3.54
|
|
| 3.64
|
|
| 3.86
|
|
| 7.22
|
| ||||||||
Energy
|
| 2.74
|
|
| 8.32
|
|
| 5.85
|
|
| 6.09
|
| ||||||||
Materials & processing
|
| 2.10
|
|
| 6.31
|
|
| 7.11
|
|
| 3.20
|
| ||||||||
Technology
|
| 1.04
|
|
| 5.39
|
|
| 11.91
|
|
| 20.05
|
| ||||||||
Utilities
|
| 0.00
|
|
| 11.48
|
|
| 6.63
|
|
| 5.29
|
|
† | Sector weightings are calculated based on equity holdings as a percentage of total net assets. |
Average annual total returns (%) as of 09/30/17
Quarter | 1-year | 3-year | 5-year | 10-year | 20-year | Since inception | ||||||||||
Ariel Appreciation Fund–Investor Class
| + 0.08
| + 12.41
| + 7.08
| + 13.10
| + 8.07
| + 9.24
| + 10.75
| |||||||||
Ariel Appreciation Fund–Institutional Class+
| + 0.18
| + 12.78
| + 7.43
| + 13.48
| + 8.26
| + 9.34
| + 10.83
| |||||||||
Russell Midcap® Value Index
| + 2.14
| + 13.37
| + 9.19
| + 14.33
| + 7.85
| + 9.56
| + 11.56
| |||||||||
Russell Midcap® Index
| + 3.47
| + 15.32
| + 9.54
| + 14.26
| + 8.08
| + 9.25
| + 11.34
| |||||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| + 7.00
| + 9.66
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17)1
Investor Class
| 1.12%
| |||
Institutional Class
| 0.81%
|
Top ten equity holdings (% of net assets)
1. | AFLAC, Inc. | 5.0 | 6. | J.M. Smucker Co. | 3.5 | |||||||||
2. | First American Financial Corp. | 4.5 | 7. | Interpublic Group of Cos., Inc. | 3.5 | |||||||||
3. | Zimmer Biomet Holdings, Inc. | 4.4 | 8. | Keysight Technologies, Inc. | 3.5 | |||||||||
4. | Laboratory Corp. of America Holdings | 4.2 | 9. | Lazard Ltd., Class A | 3.3 | |||||||||
5. | Northern Trust Corp. | 3.9 | 10. | Stanley Black & Decker, Inc. | 3.3 | |||||||||
+ | The inception date for the Institutional Class shares is December 30, 2011. Performance information for the Institutional Class prior to that date reflects the actual performance of the Fund’s Investor Class (and uses the actual expenses of the Fund’s Investor Class, for such period of time), without any adjustments. For any such period of time, the performance of the Fund’s Institutional Class would have been substantially similar to, yet higher than, the performance of the Fund’s Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses, which are primarily differences in distribution and service fees. |
1 | As of September 30, 2016, Ariel Appreciation Fund had an annual expense ratio of 1.12% and 0.82%, respectively, for the Investor Class and Institutional Class. |
Notes: The graph and performance table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total return does not reflect a maximum 4.75% sales load charged prior to 7/15/94. |
See index descriptions on page 78. |
10 | ARIELINVESTMENTS.COM |
A STOCK PICKER’S QUARTER, PART 2
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Focus Fund may be obtained by visiting our website, arielinvestments.com.
DEAR FELLOW SHAREHOLDER:
In the quarter, Ariel Focus Fund gained +2.16%, modestly trailing our primary benchmark, the Russell 1000 Value index, which gained +3.11%, and the S&P 500, which returned +4.48%. Over the nine months, Focus Fund gained +8.72% ahead of our benchmark, which returned +7.92% behind the S&P 500, which earned +14.24%.
Two of our largest positions, BorgWarner, Inc. (BWA) and KKR & Co. L.P. (KKR), turned in strong quarters up +21.32% and +10.26%, respectively. On the downside, Bed Bath and Beyond, Inc. (BBBY) declined an additional -25.57% before we exited our position and Zimmer Biomet holdings, Inc. (ZBH) fell -8.61%.
A LOOK AT OUR LARGEST POSITION
BorgWarner, Inc. (BWA), an acknowledged industry leader with great long-term prospects, has become our largest position. We haven’t said much about this investment in past quarterly letters, so we want to share more about the company, three short-term challenges weighing on its stock price, and why we see good things to come.
BorgWarner is a premier automotive drivetrain and engine component manufacturer best known for designing and building
highly-engineered systems which allow automotive original equipment manufacturers (OEM’s) to get better gas mileage without sacrificing power or acceleration. These systems include advanced turbochargers which use exhaust gas to burn more fuel with lower carbon emissions. Auto OEMs and their customers get the best of all worlds: better fuel efficiency and lower emissions with no less power or acceleration.
SHORT-TERM CHALLENGES
Our opportunity to initiate a position in BorgWarner occurred when its stock price dropped from a 2014 high of $67 to $32 in February of 2016. The company’s shares were pressured by three primary factors.
First, Volkswagen, one of BorgWarner’s largest customers, was hit with billions of dollars in fines arising from its fraudulent emission testing software. While none of BWA’s products were implicated, investors became concerned that the company’s shipments to Volkswagen would decline.
Second, investors grew wary given their concern that gas and diesel car sales would begin to lose market share to electric cars—and BorgWarner was seen as underinvested in electric.
800.292.7435 | 11 |
Finally, investors became convinced that the automotive cycle was “getting long in the tooth.” US passenger car production was anticipated to decline after record highs of over 17.5 million units1 in 2016. In early 2016, stocks of automotive OEMs and suppliers also saw significant decline. When we bought our first shares of BorgWarner, we were paying less than ten times our estimate of next year’s earnings.
WHY WE’RE STAYING IN THE RACE
Since our initial purchase in 2016, BorgWarner’s stock has increased approximately +61% to $51 at the end of the third quarter.
Market concerns did pressure the company’s earnings in 2015, as sales and earnings declined, due in part to problems at Volkswagen and lower diesel sales. In 2016, however, sales and profits rebounded and are up again in 2017.
Today, BorgWarner has powertrain offerings for almost any automotive energy source: gas, diesel, electric or hybrid. As mileage requirements are rising, emissions are coming down. And while total US auto sales may tick down in 2017 from the prior year, miles driven around the world continue to edge up steadily. We believe more cars will be purchased globally ten years from now than today. While we don’t know what share of these cars will be driven autonomously or powered electrically, we expect demand for efficient and environmentally-friendly power train technology will continue to grow, and BorgWarner will be well positioned to meet that demand.
A LOOK AT OUR SECOND LARGEST POSITION
Our second largest position, KKR & Co L.P. (KKR), was the largest positive contributor to performance in the first nine months. We continue to believe KKR is one of those rare stocks trading well below its intrinsic value with a visible short-term catalyst to close the valuation gap. KKR is a leader in the growing alternative asset management industry, an industry with wonderful “2 and 20” fee structures, increasing institutional allocations, and expanding market share for the largest players.
Despite the industry’s positive condition and KKR’s leadership position, we have long argued that the company’s stock traded at a significant discount to its intrinsic value for this key reason: KKR’s structure as a partnership makes it difficult, if not impossible, for index funds and ETFs to own the company’s shares. As money flows out of actively managed mutual funds and into passive index funds, natural owners are forced to sell KKR with no corresponding buyer.
We also believe KKR’s senior management agrees that the company’s shares are trading at a discount, validating our analysis of the structural cause. As a result, we believe KKR is likely to change its structure, making it eligible for inclusion in index funds and ETFs. When this happens, we believe buying demand for the shares is likely to be immediate and significant. Evidently, the market is already starting to agree with us, as the shares have increased 35.6% this year.
PORTFOLIO COMINGS AND GOINGS
We added three new names to the portfolio in the third quarter. We purchased shares of J.M. Smucker Co. (SJM) after the stock declined from a high of $156 in 2016 to $120 in August. We have held SJM in several portfolios over the years, and respect the company’s ability to manage an impressive portfolio of leading consumer brands including Folgers coffee, Jif peanut butter, and Smucker’s jellies and jams. Smucker’s stock declined due to disappointing early results from its recent acquisition of Big Heart Pet Brands, as well as some lost market share and margin erosion at Folgers. With recent pressure on SJM’s stock, we saw an opportunity to purchase a great portfolio of market leading brands for approximately 13 times our estimate of next year’s earnings.
In the third quarter, we initiated a position in Team, Inc. (TISI), which provides maintenance and repair services to clients in the petrochemical industry. The refining industry is capital intensive, using high pressure and high temperature piping systems— and clients’ profitability requires that their facilities run with optimal efficiency. Before our purchase, the company’s stock declined sharply when it was forced to issue a convertible debt security to pay down its bank lines. Previously, Team had taken on debt to finance a series of acquisitions. Convertible debt offerings often pressure a company’s stock as many convertible buyers simultaneously short a company’s stock to hedge their position.
We believe recent damage to the Texas refining industry should increase short-term demand for Team’s services, on top of a very healthy long-term industry outlook. Team’s relatively leveraged balance sheet, however, will keep us from making this a large position.
We also “reinitiated” a position in Snap-On, Inc. (SNA) a stock we had owned previously but exited when it approached intrinsic value. Snap-On supplies automotive tools to independent mechanics, and sells these tools from a proprietary van working a designated route. The company’s
12 | ARIELINVESTMENTS.COM |
sales representatives focus on establishing real relationships with the professionals they service. Snap-On’s stock has declined over concerns about a downturn in auto sales.
We exited our position in Bed Bath and Beyond, Inc. (BBBY) after steadily reducing our holdings in this home furnishing retailer over the last several years. When we first purchased Bed Bath and Beyond in 2014, we believed a general recovery in the US housing market would drive sales for the company, given its leadership position in everything from kitchen appliances to sheets and pillows.
We also thought the company’s omni-channel strategy of allowing customers to order online and pick-up anywhere in the country (which personally helped us stock multiple college freshman dorm rooms) would shield it from the Amazon threat. We were wrong. Bed Bath and Beyond has seen its market share, sales, margins and net income all decline dramatically as customers shift their home furnishing purchases on-line.
The company’s latest earnings miss prompted us to conclude it no longer passes our Rip Van Winkle test. We ask ourselves, “Could I go to sleep for five years and wake up confident that the company would still be in a strong position?” In the case of Bed Bath and Beyond, the answer is “no.” As a result, we sold our position.
Finally, we also exited our position in Anixter International, Inc. (AXE) at prices well above our average cost. We had an opportunity to purchase Anixter’s shares when analysts turned negative on the company’s decision to enter the electric utility servicing business. Now that this new business has exceeded the market’s expectations, the stock has recovered close to our valuation. We sold it to pursue better opportunities.
As always, we appreciate the opportunity to serve you and welcome any questions or comments you might have. You can also contact us directly at email@arielinvestments.com.
Sincerely,
Charles K. Bobrinskoy
Portfolio manager
2017 DISTRIBUTIONS
Capital Gains
Ariel Investments expects to pay capital gains distributions on Thursday, November 16, 2017 to shareholders of record as of Wednesday, November 15, 2017. Estimates of these distributions are as of October 31, 2017, and are shown in the table below:
Capital gains estimates*
Short-term gain/share |
Long-term gain/share |
Total gain/share | ||||
Ariel Focus Fund
| $0.23
| $0.44
| $0.67
|
* Estimates apply to both investor and institutional share classes.
Income Distributions
Ariel Investments expects to pay income distributions on Thursday, December 28, 2017, to shareholders of record as of Wednesday, December 27, 2017. Income distribution estimates will be available on arielinvestments.com the first week of December.
1 Associated Press, “2016 US Auto Sales set a new record high led by SUVs,” The LA Times, January 04, 2017.
800.292.7435 | 13 |
Ariel Focus Fund management discussion | ||||
| ||||
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Focus Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
Ariel Focus Fund’s +17.09% rise over the last 12 months bested the Russell 1000 Value Index’s +15.12% return, but trailed the S&P 500, which rose +18.61%. Over the course of the year, financial stocks boosted our returns, while materials & processing issues proved the most significant detractors.
The top-performing holdings for the 12-month period were KKR & Co. L.P. (KKR) and BorgWarner, Inc. (BWA). Alternative asset manager, KKR, performed particularly well following the U.S. presidential election. More specifically, it was the company’s strong earnings results in early February that sent shares soaring +19.51% in the first calendar quarter of the year, and up +48.11% for the Fund’s fiscal year. The company surpassed expectations despite weakness in assets under management. Likewise, the third calendar quarter was a strong one for global automotive industry components and parts supplier, BorgWarner, when its shares gained +21.32% after the company reported better-than-expected earnings, boosting the one-year return to +47.64%. The company’s organic revenue growth was stronger than anticipated, even in the face of tougher market conditions in North America. Management has raised full-year guidance as the company ramps up new business segments to satisfy increasing global demands for automotive fuel efficiency.
The bottom-performing stocks for the trailing year were Bed Bath & Beyond Inc. (BBBY) and Apache Corp. (APA). Home furnishing retailer, Bed Bath & Beyond, struggled mightily with its shares falling -46.99% from the beginning of the fiscal year to when we exited our position following a string of earnings disappointments. Bed Bath & Beyond suffered under the intense online competition that has gradually eroded its market share, sales, margins, and net income. When we originally purchased the stock, we believed a general recovery in the U.S. housing market would drive sales for the company, given its leadership position in everything from kitchen appliances to sheets and pillows. We also thought the company’s omni-channel strategy of allowing customers to order online and pick-up anywhere in the country would shield it from the Amazon.com, Inc. (AMZN) threat. Simply put, we were wrong. Over the 12-month period, we began gradually reducing our position in BBBY and completed our exit in the third calendar quarter of 2017. Energy producer, Apache’s shares slumped -18.71% in the first calendar quarter as production remained sluggish, and fell -27.00% for the last 12 months. The company reported lower production across almost all geographies and lowered 2017 full-year guidance.
14 | ARIELINVESTMENTS.COM |
Ariel Focus Fund performance summary | INCEPTION: 06/30/05 | |||
| ||||
Charles K. Bobrinskoy
Portfolio manager
Composition of equity holdings (%)
Ariel Focus Fund † | Russell 1000 Value Index | S&P 500 Index | ||||||||||||
Financial services
|
| 29.39
|
|
| 31.01
|
|
| 19.97
|
| |||||
Health care
|
| 15.51
|
|
| 13.89
|
|
| 14.37
|
| |||||
Producer durables
|
| 13.57
|
|
| 8.20
|
|
| 10.66
|
| |||||
Energy
|
| 9.79
|
|
| 10.96
|
|
| 6.09
|
| |||||
Technology
|
| 8.72
|
|
| 7.52
|
|
| 20.05
|
| |||||
Materials & processing
|
| 8.22
|
|
| 3.18
|
|
| 3.20
|
| |||||
Consumer discretionary
|
| 8.15
|
|
| 8.23
|
|
| 13.15
|
| |||||
Consumer staples
|
| 6.23
|
|
| 7.69
|
|
| 7.22
|
| |||||
Utilities
|
| 0.00
|
|
| 9.32
|
|
| 5.29
|
|
† | Sector weightings are calculated based on equity holdings as a percentage of total net assets. |
Average annual total returns (%) as of 09/30/17
Quarter | 1-year | 3-year | 5-year | 10-year | Since inception | |||||||
Ariel Focus Fund–Investor Class
| + 2.16
| + 17.09
| + 4.90
| + 11.27
| + 5.08
| + 5.80
| ||||||
Ariel Focus Fund–Institutional Class+
| + 2.24
| + 17.40
| + 5.15
| + 11.55
| + 5.24
| + 5.92
| ||||||
Russell 1000® Value Index
| + 3.11
| + 15.12
| + 8.53
| + 13.20
| + 5.92
| + 7.48
| ||||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 7.44
| + 8.57
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17) 1 | Net | Gross | ||||||
Investor Class
| 1.00%
| 1.19%
| ||||||
Institutional Class
| 0.75%
| 0.90%
|
Top ten equity holdings (% of net assets)
1. | BorgWarner, Inc. | 5.9 | 6. | Laboratory Corp. of America Holdings | 4.7 | |||||||||
2. | KKR & Co. L.P. | 5.3 | 7. | Lockheed Martin Corp. | 4.4 | |||||||||
3. | Oracle Corp. | 5.1 | 8. | Lazard Ltd., Class A | 4.4 | |||||||||
4. | CVS Health Corp. | 5.1 | 9. | Zimmer Biomet Holdings, Inc. | 4.3 | |||||||||
5. | Barrick Gold Corp. | 5.0 | 10. | Western Union Co. | 4.0 | |||||||||
+ | The inception date for the Institutional Class shares is December 30, 2011. Performance information for the Institutional Class prior to that date reflects the actual performance of the Fund’s Investor Class (and uses the actual expenses of the Fund’s Investor Class, for such period of time), without any adjustments. For any such period of time, the performance of the Fund’s Institutional Class would have been substantially similar to, yet higher than, the performance of the Fund’s Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses, which are primarily differences in distribution and service fees. |
1 | As of September 30, 2016, Ariel Focus Fund (Investor Class) had an annual net expense ratio of 1.00% and a gross expense ratio of 1.35%. As of September 30, 2016, Ariel Focus Fund (Institutional Class) had an annual net expense ratio of 0.75% and a gross expense ratio of 1.08%. Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and reimburse expenses in order to limit Ariel Focus Fund’s total annual operating expenses to 1.00% of net assets for the Investor Class and 0.75% of net assets for the Institutional Class through the end of the fiscal year ending September 30, 2017. Through January 31, 2014, the Expense Cap was 1.25% for the Investor Class and 1.00% for the Institutional Class. |
Notes: The graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
See index descriptions on page 78. |
800.292.7435 | 15 |
STOCK TALK
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Discovery Fund may be obtained by visiting our website, arielinvestments.com.
DEAR FELLOW SHAREHOLDER:
Average annual total returns as of 09/30/17
Quarter | Year-to-date | 1-year | 3-year | 5-year | Since inception* | |||||||
Ariel Discovery Fund
| + 1.90%
| + 6.45%
| + 17.54%
| + 1.44%
| + 2.90%
| + 3.11%
| ||||||
Russell 2000® Value Index
| + 5.11
| + 5.68
| + 20.55
| + 12.12
| + 13.27
| + 11.08
| ||||||
Russell 2000® Index
| + 5.67
| + 10.94
| + 20.74
| + 12.18
| + 13.79
| + 11.73
| ||||||
S&P 500® Index
| + 4.48
| + 14.24
| + 18.61
| + 10.81
| + 14.22
| + 13.01
|
* The inception date for Ariel Discovery Fund is 01/31/11.
The third quarter of 2017 was rocky for small value stocks. Despite most indexes hitting record highs, our niche of very small, low price-to-book stocks has languished for roughly four years. According to a recent article in The Wall Street Journal, value as defined by low price-to-book has in fact underperformed significantly for the past ten years.1
Despite this, our confidence in small and micro-cap asset-focused investing has not wavered; in fact, we believe with time, reversion to the mean should lead to
an extended period of extraordinary returns. With fundamental results at our companies generally strong, we believe Ariel Discovery Fund is extremely cheap on both an absolute and relative basis.
The Fund grew +1.90% this quarter and remains ahead of its primary benchmark calendar year-to-date in 2017. For the trailing one year, our return of +17.54% is modestly below the primary benchmark’s +20.55% gain. Our long-term results continue to be dragged down by 2015, when our niche endured a severe bear market.
Attempting to purchase with a margin of safety on price cannot protect investors from the volatility associated with stocks, incorrect assumptions or estimations on our part, declining fundamentals or external forces.
16 | ARIELINVESTMENTS.COM |
IF WE COULD OWN JUST ONE STOCK, WHAT WOULD IT BE?
Since 2011, we have tackled this question, often asked by investment websites and magazines. While we would never recommend investing this way, a detailed answer effectively illustrates the characteristics we seek.
As a reminder, we look for companies trading at an entry point providing a “margin of safety,” and seek protection in asset values, emphasizing pristine balance sheets. We want to invest alongside talented and properly incentivized leadership, and we look to identify upside potential from underappreciated opportunities and/or overlooked assets.
Recent addition Tejon Ranch, Co. (TRC) owns 270,000 contiguous acres—essentially half the size of Rhode Island—60 miles north of downtown Los Angeles. Its stock currently trades at 1.4 times book value; however, book value is substantially understated as the ranch’s land is recorded at 1936 prices, when the company was incorporated. We believe the true value of the land is multiples of the accounting value.
“With fundamental results at our companies generally strong, we believe Ariel Discovery Fund is extremely cheap on both an absolute and relative basis.”
Strong directors and incentivized leadership can often drive shareholder value. Tejon Ranch fits the bill, with 29.4% insider ownership. In addition, the Tisch Family controls 17.0% of the company, with Daniel Tisch serving on the board. Third Avenue Management also has a board seat and 10.4% ownership. Tejon CEO Gregory Bielli has extensive development experience, owns significant stock and options, and receives a reasonable base salary.
While Tejon Ranch generates revenue through its mineral resources, farming activities, and Commerce Center, the investment appeal is in the land and the company’s plan to grow and realize its value.
Tejon Ranch is planning three communities—Mountain Village, Grapevine, and Centennial—which will eventually support 35,000 residential units and 15.4 million square feet of retail space. We recently spent a day on the property, and were impressed by the diverse and beautiful landscape set aside for community developments.
“We want to invest alongside talented and properly incentivized leadership, and we look to identify upside potential from underappreciated opportunities and/or overlooked assets.”
The success of any one development should realize significant value, and we expect all three to bear fruit. Mountain Village is the furthest along, with groundbreaking planned for 2018. Covering over 26,000 acres of picturesque mountainous land, the development will support 3,500 homes and is targeted toward second-home buyers. Grapevine and Centennial will support larger, traditional residential communities. Grapevine’s 15,300 acres of land, adjacent to the Tejon Ranch Commerce Center, will support 12,000-14,000 homes. Centennial is likely to benefit from its proximity to Los Angeles and the city’s housing shortage, and will eventually have 19,300 entry-level homes.
Our sum-of-the-parts analysis indicates significant upside potential as development plans become visible, construction progresses, and the market begins to appreciate the scarcity value of this land. In the meantime, recurring revenue from existing operations, along with a strong balance sheet, allows us to take a long-term view as management continues to execute its strategic vision.
WINNERS AND LOSERS
The top performer during the quarter was Electro Scientific Industries, Inc. (ESIO), up +68.93%. Glu Mobile, Inc. (GLUU) rose +50.40%, while Atlas Financial Holdings, Inc. (AFH) returned +26.85%. On the downside, GlassBridge Enterprises, Inc. (GLAE) lost -49.75%, Team, Inc. (TISI) dropped -43.07%, and Synacor, Inc. (SYNC) fell -26.03%.
800.292.7435 | 17 |
For the first nine months of 2017, the top performing names were Electro Scientific Industries, Inc. (ESIO), Glu Mobile, Inc. (GLUU), and Kindred Biosciences, Inc. (KIN), returning +135.14%, +93.81%, and +84.71%, respectively. On the downside, GlassBridge Enterprises, Inc. (GLAE), Team, Inc. (TISI), and Bristow Group, Inc. (BRS), lost -75.73%, -65.99%, and -53.68%, respectively.
PORTFOLIO COMINGS AND GOINGS
West Marine, Inc. (WMAR) was sold upon the completion of its acquisition for cash by privately-held Monomoy Capital Partners. We also sold out of Digi International, Inc. (DGII) given management’s unwillingness to sell the company last year after receiving an unsolicited bid, as well as our belief the stock was trading near full value. Finally, we sold out of long-time holding International Speedway Corp. (ISCA) as we felt it was approaching fair value.
In addition to Tejon Ranch, we added two other companies this quarter: AstroNova, Inc. (ALOT) and U.S. Silica Holdings, Inc. (SLCA).
AstroNova, a long time holding in our Micro-Cap strategy, provides printers and data acquisition systems used in many industries, including aerospace and automotive. We view AstroNova as a high-quality company run by a properly incentivized management team positioned for margin expansion.
Already owned in other Ariel strategies, U.S. Silica provides sand for industrial uses as well as frac sand to the oil and gas market. We bought Silica during a sell-off in the energy sector, when negative sentiment led investors to overlook the more stable industrial business. With Silica’s market capitalization briefly dipping below $2 billion, we pounced on the opportunity to initiate a position at a deep discount to our intrinsic value estimate.
As always, we appreciate the opportunity to serve you and welcome any questions or comments you might have. You can also contact us directly at email@arielinvestments.com.
Sincerely,
David M. Maley
Lead portfolio manager
2017 DISTRIBUTIONS
Capital Gains
Ariel Investments expects to pay capital gains distributions on Thursday, November 16, 2017 to shareholders of record as of Wednesday, November 15, 2017. Estimates of these distributions are as of October 31, 2017, and are shown in the table below:
Capital gains estimates*
Short-term gain/share |
Long-term gain/share |
Total gain/share | ||||
Ariel Discovery Fund
| $0.00
| $0.00
| $0.00
|
* Estimates apply to both investor and institutional share classes.
Income Distributions
Ariel Investments expects to pay income distributions on Thursday, December 28, 2017, to shareholders of record as of Wednesday, December 27, 2017. Income distribution estimates will be available on arielinvestments.com the first week of December.
1 Wesley Gray, “Is value investing dead? It depends on how you measure it,” The Wall Street Journal, September 24, 2017.
18 | ARIELINVESTMENTS.COM |
Ariel Discovery Fund management discussion | ||||
| ||||
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Discovery Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
Over the last year, Ariel Discovery Fund’s +17.54% rise lagged the Russell 2000 Value Index, which gained +20.55%, as well as the +20.74% return of the Russell
2000. Over the course of the year, our consumer staples holdings boosted returns, while producer durables holdings proved the most significant detractors.
The top-performing holdings for the 12-month period were Brooks Automation, Inc. (BRKS) and Kindred Biosciences, Inc. (KIN). Brooks Automation, a leading provider of automation and cryogenic solutions, gained +101.06% prior to our exiting the position in the second calendar quarter of 2017. The company reported better-than-expected earnings for 10 consecutive quarters citing double-digit revenue growth within its life sciences and semiconductor segments for its solid results. Animal pharmaceutical company, Kindred Biosciences, experienced a blockbuster first calendar quarter, as its shares surged +65.88% on strong quarterly results, and finished the trailing year period with a +57.31% gain. The company reported a smaller loss than expected and improved its liquidity, maintaining a solid cash position of more than $50 million on its balance sheet. Strong results across its product trials for Mirataz, which treats weight loss in cats, and Zimeta, which treats fever in horses, increased investor optimism that final FDA approval for the drugs would come by calendar year end.
The bottom-performing stocks for the trailing year were Team, Inc. (TISI) and Bristow Group, Inc. (BRS). After ending calendar year 2016 on a high note, high temperature and high pressure piping expert, Team, Inc. saw its shares tumble -65.99% through the first three calendar quarters of 2017, and it dipped -59.19% for the 12-month period. The company has had a string of disappointing earnings results as weakness within its primary end markets have taken their toll. Over the last few years, Team has taken on additional leverage to complete several acquisitions. While the acquisitions themselves have not been concerning, they have put pressure on the balance sheet, making it more vulnerable to any slowdown. The company has significant exposure to the oil and gas industry and weakness in those commodity markets has led many customers to defer maintenance. That said, work can only be delayed for so long before
800.292.7435 | 19 |
Ariel Discovery Fund management discussion | ||||
| ||||
customers put their employees and facilities at risk. Meanwhile, the second calendar quarter was also a difficult one for helicopter transport company supplier Bristow Group. Its shares declined -49.19% over the period as continued oil price weakness and disappointing earnings weighed heavily on the stock. Management lowered guidance and accelerated cost cutting. Despite the short-term difficulties, company leadership reiterated that it expected to see stronger results in the second half of the company’s fiscal year as recent contract wins come online. They also reaffirmed their commitment to maintaining total liquidity over $200 million, highlighting the successful renegotiation of short-term debt obligations late in its last fiscal year. Shares rebounded in the third calendar quarter, rising +22.22% after the company beat earnings estimates, driven by successful implementation of cost-cutting initiatives and improved stability within their off-shore oil & gas business segment. Despite the boost in the quarter, the trailing one-year return for Bristow was -31.99%.
20 | ARIELINVESTMENTS.COM |
Ariel Discovery Fund performance summary | INCEPTION: 01/31/11 | |||
| ||||
David M. Maley | Kenneth E. Kuhrt, CPA | |
Lead portfolio | Portfolio | |
manager | manager |
Composition of equity holdings (%)
Ariel Discovery Fund† | Russell 2000 Value Index | Russell 2000 Index | S&P 500 Index | |||||||||||||||||
Technology
|
| 29.80
|
|
| 8.07
|
|
| 13.87
|
|
| 20.05
|
| ||||||||
Consumer discretionary
|
| 20.22
|
|
| 11.02
|
|
| 13.22
|
|
| 13.15
|
| ||||||||
Financial services
|
| 19.16
|
|
| 41.95
|
|
| 25.91
|
|
| 19.97
|
| ||||||||
Producer durables
|
| 9.11
|
|
| 11.44
|
|
| 13.88
|
|
| 10.66
|
| ||||||||
Energy
|
| 6.41
|
|
| 6.12
|
|
| 3.54
|
|
| 6.09
|
| ||||||||
Utilities
|
| 3.92
|
|
| 7.07
|
|
| 4.63
|
|
| 5.29
|
| ||||||||
Materials & processing
|
| 3.89
|
|
| 5.99
|
|
| 7.18
|
|
| 3.20
|
| ||||||||
Health care
|
| 3.30
|
|
| 6.02
|
|
| 15.48
|
|
| 14.37
|
| ||||||||
Consumer staples
|
| 0.00
|
|
| 2.33
|
|
| 2.28
|
|
| 7.22
|
|
† | Sector weightings are calculated based on equity holdings as a percentage of total net assets. |
Average annual total returns (%) as of 09/30/17
Quarter | 1-year | 3-year | 5-year | Since inception | ||||||
Ariel Discovery Fund–Investor Class
| + 1.90
| + 17.54
| + 1.44
| + 2.90
| + 3.11
| |||||
Ariel Discovery Fund–Institutional Class+
| + 2.06
| + 17.82
| + 1.70
| + 3.17
| + 3.36
| |||||
Russell 2000® Value Index
| + 5.11
| + 20.55
| + 12.12
| + 13.27
| + 11.08
| |||||
Russell 2000® Index
| + 5.67
| + 20.74
| + 12.18
| + 13.79
| + 11.73
| |||||
S&P 500® Index
| + 4.48
| + 18.61
| + 10.81
| + 14.22
| + 13.01
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17) 1
| Net
| Gross
| ||||
Investor Class
| 1.25%
| 1.48%
| ||||
Institutional Class
| 1.00%
| 1.15%
|
Top ten equity holdings (% of net assets)
1. | RealNetworks, Inc. | 5.7 | 6. | XO Group, Inc. | 3.8 | |||||||||||||||
2. | Cowen Group, Inc., Class A | 5.2 | 7. | First American Financial Corp. | 3.7 | |||||||||||||||
3. | Rosetta Stone, Inc. | 5.1 | 8. | Telenav, Inc. | 3.4 | |||||||||||||||
4. | Century Casinos, Inc. | 5.0 | 9. | Kindred Biosciences, Inc. | 3.3 | |||||||||||||||
5. | ORBCOMM, Inc. | 3.9 | 10. | Capital Southwest Corp. | 3.1 |
+ | The inception date for the Institutional Class shares is December 30, 2011. Performance information for the Institutional Class prior to that date reflects the actual performance of the Fund’s Investor Class (and uses the actual expenses of the Fund’s Investor Class, for such period of time), without any adjustments. For any such period of time, the performance of the Fund’s Institutional Class would have been substantially similar to, yet higher than, the performance of the Fund’s Investor Class, because the shares of both classes are invested in the same portfolio of securities, but the classes bear different expenses, which are primarily differences in distribution and service fees. |
1 | As of September 30, 2016, Ariel Discovery Fund (Investor Class) had an annual net expense ratio of 1.25% and a gross expense ratio of 1.86%. As of September 30, 2016, Ariel Discovery Fund (Institutional Class) had an annual net expense ratio of 1.00% and a gross expense ratio of 1.32%. Effective February 1, 2014, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and reimburse expenses in order to limit Ariel Discovery Fund’s total annual operating expenses to 1.25% of net assets for the Investor Class and 1.00% of net assets for the Institutional Class through the end of the fiscal year ending September 30, 2017. Through January 31, 2014, the Expense Cap was 1.50% for the Investor Class and 1.25% for the Institutional Class. |
Notes: The graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
See index descriptions on page 78. |
800.292.7435 | 21 |
A NON-CONSENSUS APPROACH TO INVESTING
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel International Fund and Ariel Global Fund may be obtained by visiting our website, arielinvestments.com.
DEAR FELLOW SHAREHOLDER:
Global equities continued to rally in the quarter with emerging markets leading the way. All of the major indices have delivered double digit returns year-to-date with indications of global economic growth and expansion driving investor optimism. A weaker US dollar and improvements in fundamentals for non-US companies helped push foreign markets ahead of domestic. The detailed returns for our funds follow.
Quarter | Year-to-date | |||
Ariel International Fund
| + 2.52% | +16.16% | ||
MSCI EAFE Index (net)
| + 5.40 | +19.96 | ||
Ariel Global Fund
| + 4.42% | +14.32% | ||
MSCI ACWI Index (net)
| + 5.18 | +17.25 |
This quarter marked a continuation of the difficult market environment for our portfolios. While we are disappointed to have underperformed our benchmarks, we remain confident in our approach. Moreover, lagging in the late stages of a bull market is not unexpected, especially when that market has exceeded most investors’ expectations by continuing to set record highs. In fact, results over the past two decades have seen similar periods of challenging performance when the market shot higher.
As independent thinkers, we tend to own high quality businesses out of favor with most investors. We believe these companies offer greater potential for the margin of safety and superior risk-adjusted returns we seek. In the current “risk-on” environment, some pockets of the market have performed very well and, in our opinion, are crowded trades; while other sectors are deeply out of favor, offering an attractive risk/reward potential. We avoid the former and favor the latter. Our contrarian approach is a key driver of our long-term track record, and while this approach often hurts before it helps, we have the patience required to allow it to play out over a full market cycle.
Today, one example of an out-of-favor sector is telecoms, particularly those focused on wireless mobile services. However, our research and investment process in this sector has led us to a non-consensus point of view, resulting in a meaningful exposure in our portfolios in both absolute and relative terms. A cell phone today, more specifically a smart phone, is an indispensable tool and a lifeline which even the unemployed are unlikely to give up—which supports our conclusion that the demand for telecom services is stable and relatively recession-proof.
In addition, we think the free cash flow generation potential of the business has materially improved. While the
22 |
ARIELINVESTMENTS.COM |
telecommunications industry is capital intensive, we expect meaningful capital expenditures will be lower than in the past. Historically, the investments required to build 2G, 3G or 4G networks spanned improvements in both coverage and capacity; that’s changed with the evolution to 5G, which requires spending primarily on capacity. This spending shift improves the free cash flow generation and dividend paying capacity of the business, which we like.
Despite the industry’s maturity and the high global penetration of mobile phones, we also expect steady revenue growth in this sector given substantial room for usage growth, especially on data packages. A good example is China Mobile, our largest exposure in the sector—and the largest wireless operator in the world with over 850 million subscribers and a dominant position in the Chinese market. Much of this company’s hefty capital expenditures are either behind it—as it recently finished building out its 4G network—or many years out when the 5G networks will require investments.
The point is that China Mobile will spend far less on capital investments than forecasted, and will now focus instead on increasing capacity. This shift will result in high cash flow generation, spur dividend growth and ensure a strong balance sheet – all of which should serve to improve valuations and return potential while reducing risk. China Mobile’s steady growth and low risk profile is being neglected in a market which favors higher growth, although in higher risk businesses. The stock sports an approximately 3.6% dividend yield, and at approximately 4 EV/EBITDA, is among the cheapest stocks in the world.
Even though the stock markets around the world have risen substantially, making it harder to find investment bargains, our mission is to find these exceptions—and, in our view, China Mobile is a stand-out. It is among our top holdings and is exemplary of the risk-adjusted return opportunities we seek to own on your behalf.
As always, we appreciate the opportunity to serve you and welcome any questions or comments you might have. You can also contact us directly at email@arielinvestments.com.
Sincerely,
Rupal J. Bhansali
Portfolio manager
2017 DISTRIBUTIONS
Capital Gains
Ariel Investments expects to pay capital gains distributions on Thursday, November 16, 2017 to shareholders of record as of Wednesday, November 15, 2017. Estimates of these distributions are as of October 31, 2017, and are shown in the table below:
Capital gains estimates*
Short-term gain/share |
Long-term gain/share |
Total gain/share | ||||
Ariel International Fund
| $0.14
| $0.02
| $0.16
| |||
Ariel Global Fund
| $0.18
| $0.36
| $0.54
|
* Estimates apply to both investor and institutional share classes.
Income Distributions
Ariel Investments expects to pay income distributions on Thursday, December 28, 2017, to shareholders of record as of Wednesday, December 27, 2017. Income distribution estimates will be available on arielinvestments.com the first week of December.
Attempting to purchase with a margin of safety on price cannot protect investors from the volatility associated with stocks, incorrect assumptions or estimations on our part, declining fundamentals or external forces.
800.292.7435 |
23 |
Ariel International Fund management discussion | ||||
| ||||
Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel International Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
In the 12 months ending September 30, 2017, Ariel International Fund returned +9.55% trailing the MSCI EAFE’s +19.10% and MSCI ACWI ex-US Index’s +19.61% returns.
Performance over this period has been influenced as much by what we have not owned as it has been by what we do own. Since the U.S. Presidential election, financials–more specifically, banks—have led the stock market rally. We are wary, however, of the risks associated with owning many of these companies, and have instead discovered more appealing values elsewhere.
Our bottom-up research continues to uncover attractive investments particularly within the out-of-favor health care and telecom sectors. We also have a meaningful position in information technology stocks, which accounts for both our largest absolute weight as well as our largest weight relative to the MSCI EAFE.
While, in aggregate, we remain underweight in the financial sector, our investment in Deutsche Boerse AG has been the largest contributor to performance for the period, with its shares rising +35.02%. Over the past year, the company has reported better-than-expected revenues and increased its dividend. Notably, in March, the European Commission vetoed a potential merger with the London Stock Exchange, which ultimately helped alleviate concerns over Brexit. Moreover, the company has announced initiatives to add new asset classes and it is expanding derivatives trading and big data to drive continued growth.
The second-largest contributor to performance was Telefonica Deutschland Holding, a provider of broadband, landline and mobile telecommunications in Germany. The company’s stock has trended upwards over the past 12 months, earning +45.72% over the period. More recently, the company outperformed after reporting better-than-expected earnings amidst an intensely competitive local market environment. The company is also rolling out new pricing for data plans, which has been well received by consumers.
In contrast, the stock price of food retailer Ahold N.V. has fallen -15.85% in the period, in part due to the announcement in June that U.S.-based competitor Whole
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Ariel International Fund management discussion | ||||
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Foods Market, Inc. would be acquired by Amazon.com, Inc. We disagree with the market’s assessment that Amazon’s entry is a slippery slope that will disrupt the grocery business. Over the past twelve months, however, the stock has been the largest drag on performance.
Gemalto N.V., a Dutch digital security company and the world’s largest manufacturer of SIM cards, also detracted from performance. The stock has fallen -29.81% over the past 12 months after the company missed earnings and guided down, due to weakness in some of its end markets. Gemalto has been diversifying into new growth areas that we believe will eventually offset such declines—the offset, however, is not always contemporaneous. We have been adding to our position as shares lag since we believe there are multiple secular growth drivers that are likely to play out in the coming years.
Additionally, in an effort to help us further manage portfolio risk, we employ currency hedging techniques, including buying and selling currency on a spot basis and entering into short-term foreign currency forward contracts. This approach can result in either gains or losses. For the 12-month period, it resulted in net realized losses of $1,847,114 for Ariel International Fund.
While we are disappointed to have trailed the index over this period, it is not atypical for our risk-aware strategy to do so during the late stages of a bull market. At such points in the cycle, the best case scenario is often priced into a company’s stock price, but the downside is not. We avoid risky, overpriced companies and instead focus on those that are misunderstood and mispriced. We remain confident in our contrarian approach and acknowledge it may take time for the market to recognize the value we believe is inherent in our portfolio holdings today.
Since corrections are virtually impossible to predict, we are patiently adhering to our time-tested investment process.
800.292.7435 |
25 |
Ariel Global Fund management discussion | ||||
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Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for Ariel Global Fund may be obtained by visiting our website, arielinvestments.com.
As we approach the 10th anniversary of the market bottom in March 2009, the upward trajectory of the equity market continues both at home and abroad. Over the 12-month period ended September 30, 2017, the S&P 500 Index gained +18.61%, while the Russell 2000 Index earned an impressive +20.74%. International developed market MSCI EAFE Index also surpassed expectations, delivering +19.10% during the period.
Over the past year, geopolitical events have dominated headlines as the anti-establishment sentiment that began with Great Britain’s decision to leave the European Union (also known as Brexit) continued with the unexpected election of Donald Trump as the 45th President of the United States. While the election results came as a shock to many, the market reacted favorably to the news. The equity rally that followed was dubbed the “Trump Bump.” The biggest winners were sectors perceived to benefit most from anticipated policy changes under the new administration, specifically small, regional banks and industrial firms. Election surprises were not limited to the United States. In France, the election of former investment banker and political neophyte, Emmanuel Macron, was also viewed favorably by the markets. In the Eurozone, we saw steady growth in GDP, which, paired with rising business and economic confidence, helped drive equities higher. The market seemed content to focus on elections and fiscal policies while ignoring the growing risk of an emboldened North Korea.
While valuations overseas remain attractive today, they appear a bit stretched in the United States. That said, company fundamentals remain sound and a business-friendly backdrop should provide a longer runway for U.S. equities over the near term. In our opinion, our portfolios sell at attractive valuations versus the broad market. As such, we believe we are well positioned for whatever comes our way.
In the 12 months ending September 30, 2017, Ariel Global Fund returned +12.87%, trailing the MSCI ACWI Index’s +18.65% return.
Performance over this period has been influenced as much by what we have not owned as it has been by what we do own. Since the U.S. Presidential election, financials—more specifically, banks—have led the stock market rally. We are wary, however, of the risks associated with owning many of these companies, and have instead discovered more appealing values elsewhere. Our bottom-up research continues to uncover attractive investments, particularly within the out-of-favor health care and telecom sectors.
Microsoft was the strongest contributor for the past year, earning +31.47%. While the company is undoubtedly well known, we believe it is misunderstood. As the global leader in enterprise software, the company “owns” this ecosystem much like Apple “owns” the consumer ecosystem. Within its core enterprise market, Microsoft has grown and gained market share in several areas, and in our view, the risk-reward of owning Microsoft improved substantially. For many years, the stock had languished on the back of an unwarranted focus on its weak consumer business, which led the market to ignore the company’s doubled earnings and cash flows during that period. In our view, Microsoft continues to have the best revenue, earnings and cash flow growth prospects in the large-cap technology sector, with a diverse mix of growth businesses that are under-earning their potential, including Azure, Bing, Xbox, and devices such as Lumia and Surface. Additionally, we believe the consumer division’s prospects are improving following the launch of Windows 10, but we view upside from this division as pure optionality.
Another contributor to performance was Chinese web services company, Baidu, Inc., whose shares jumped over +38.48% in the third calendar quarter after the company reported record earnings and raised its forward-looking guidance, and it gained +36.04% for the trailing one-year period. Baidu’s results reflect success in its cost-control strategy as it continues to make significant investments in artificial intelligence, automation and other businesses.
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Ariel Global Fund management discussion | ||||
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In contrast, the largest detractor was China Mobile, one of the world’s largest telecom providers. The stock fell -11.53% for the trailing one-year period. While the company remains the domestic market leader with its superior 4G network, the street is concerned about the possibility of sub optimal deployment of their free cash flows. We disagree. China Mobile has already completed an extensive build out of its 4G network. We recognize that an upgrade to 5G is inevitable, but our domain expertise tells us that this will be much less expensive, as it requires mainly adding capacity to the existing network. We have taken the opportunity to add to our position on weakness.
Gemalto N.V., a Dutch digital security company and the world’s largest manufacturer of SIM cards, also detracted from performance. The stock has fallen -29.81% over the past 12 months after the company missed earnings and guided down, due to weakness in some of its end markets. Gemalto has been diversifying into new growth areas that we believe will eventually offset such declines—the offset, however, is not always contemporaneous. We have been adding to our position since we believe there are multiple secular growth drivers that are likely to play out in the coming years.
Additionally, in an effort to help us further manage portfolio risk, we employ currency hedging techniques, including buying and selling currency on a spot basis and entering into short-term foreign currency forward contracts. This approach can result in either gains or losses. For the 12-month period, it resulted in net realized losses of $241,961 for Ariel Global Fund.
While we are disappointed to have trailed the index over this period, it is not atypical for our risk-aware strategy to do so during the late stages of a bull market. We remain confident in our contrarian approach and acknowledge it may take time for the market to recognize the value we believe is inherent in our portfolio holdings today.
Since corrections are virtually impossible to predict, we are patiently adhering to our time-tested investment process.
800.292.7435 |
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Ariel International Fund performance summary | INCEPTION: 12/30/11 | |||
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Rupal J. Bhansali
Portfolio manager
Composition of equity holdings* (%)
Ariel International Fund† | MSCI EAFE Index | MSCI ACWI ex-US Index | ||||||||||||
Telecommunication services
| 16.41 | 4.07 | 4.21 | |||||||||||
Information technology
| 15.20 | 6.31 | 11.11 | |||||||||||
Health care
| 10.60 | 10.57 | 7.91 | |||||||||||
Consumer staples
| 9.09 | 11.22 | 9.60 | |||||||||||
Consumer discretionary
| 9.01 | 12.20 | 11.28 | |||||||||||
Financials
| 8.77 | 21.46 | 23.32 | |||||||||||
Energy
| 7.39 | 5.05 | 6.64 | |||||||||||
Industrials
| 3.56 | 14.41 | 11.82 | |||||||||||
Utilities
| 3.09 | 3.35 | 3.08 | |||||||||||
Real estate
| 0.70 | 3.54 | 3.20 | |||||||||||
Materials
| 0.04 | 7.81 | 7.83 |
* | The sectors above are the Global Industry Classification Standard (“GICS”) sector classifications. GICS was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Ariel Investments, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. |
Average annual total returns (%) as of 09/30/17
Quarter | 1-year | 3-year | 5-year | Since inception | ||||||
Ariel International Fund–Investor Class
| + 2.52
| + 9.55
| + 5.38
| + 9.54
| + 7.81
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Ariel International Fund–Institutional Class
| + 2.49
| + 9.80
| + 5.64
| + 9.82
| + 8.06
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MSCI EAFE Index (net)
| + 5.40
| + 19.10
| + 5.04
| + 8.38
| + 9.05
| |||||
MSCI ACWI ex-US Index (net)
| + 6.16
| + 19.61
| + 4.70
| + 6.97
| + 7.87
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17) 1 | Net | Gross | ||||
Investor Class
| 1.15%
| 1.32%
| ||||
Institutional Class
| 0.89%
| 0.95%
|
Top ten companies^ (% of net assets)
1. | Deutsche Boerse AG | 5.8 | 6. | Koninklijke Ahold Delhaize N.V. | 4.1 | |||||||||
2. | GlaxoSmithKline plc | 5.1 | 7. | Michelin (CGDE) | 3.9 | |||||||||
3. | Roche Holding AG | 4.7 | 8. | Telefonica Deutschland Holding | 3.7 | |||||||||
4. | Nokia Corp. | 4.7 | 9. | Nintendo Co., Ltd. | 3.4 | |||||||||
5. | China Mobile Ltd. | 4.7 | 10. | Baidu, Inc. | 3.3 | |||||||||
^For | the purposes of determining the Fund’s top ten, securities of the same issuer are aggregated. |
Top ten country weightings† (% of net assets)
Japan | 16.24 | Netherlands | 6.28 | |||
Germany | 10.78 | France | 5.82 | |||
Switzerland | 8.98 | Finland | 4.69 | |||
China | 8.03 | United States | 4.19 | |||
United Kingdom | 7.90 | Spain | 3.23 |
1 | As of September 30, 2016, Ariel International Fund (Investor Class) had an annual net expense ratio of 1.25% and a gross expense ratio of 1.52%. As of September 30, 2016, Ariel International Fund (Institutional Class) had an annual net expense ratio of 1.00% and a gross expense ratio of 1.10%. Effective November 29, 2016, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and reimburse expenses (the “Expense Cap”) in order to limit Ariel International Fund’s total annual operating expenses to 1.13% of net assets for the Investor Class and 0.88% of net assets for the Institutional Class through the end of the fiscal year ending September 30, 2018. Prior to November 29, 2016, the Expense Cap was 1.25% of net assets for the Investor Class and 1.00% of net assets for the Institutional Class. Through January 31, 2014, the Expense Cap was 1.40% for the Investor Class and 1.15% for the Institutional Class. |
† | Sector and country weightings are calculated based on equity holdings as a percentage of total net assets. |
Notes: The graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
See index descriptions on page 78. |
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Ariel Global Fund performance summary | INCEPTION: 12/30/11 | |||
| ||||
Rupal J. Bhansali
Portfolio manager
Composition of equity holdings* (%)
Ariel Global Fund† | MSCI ACWI Index | |||||||||||
Health care
| 20.78 | 11.19 | ||||||||||
Information technology
| 20.55 | 17.52 | ||||||||||
Telecommunication services
| 13.88 | 3.17 | ||||||||||
Financials
| 12.45 | 18.74 | ||||||||||
Consumer staples
| 7.16 | 8.79 | ||||||||||
Energy
| 5.23 | 6.36 | ||||||||||
Consumer discretionary
| 5.04 | 11.90 | ||||||||||
Utilities
| 4.15 | 3.07 | ||||||||||
Industrials
| 3.54 | 10.83 | ||||||||||
Real estate
| 0.07 | 3.11 | ||||||||||
Materials
| 0.00 | 5.33 |
* | The sectors above are the Global Industry Classification Standard (“GICS”) sector classifications. GICS was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Ariel Investments, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. |
Average annual total returns (%) as of 09/30/17
Quarter | 1-year | 3-year | 5-year | Since inception | ||||||
Ariel Global Fund–Investor Class
| + 4.42
| +12.87
| + 6.32
| +11.34
| + 9.83
| |||||
Ariel Global Fund–Institutional Class
| + 4.50
| +13.10
| + 6.59
| +11.63
| +10.11
| |||||
MSCI ACWI Index (net)
| + 5.18
| +18.65
| + 7.43
| +10.20
| +11.12
|
Performance data quoted represents past performance and does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To access performance data current to the most recent month-end, visit arielinvestments.com. The minimum initial investment for Investor Class shares is $1,000; the minimum for Institutional Class shares is $1,000,000.
Growth of a $10,000 investment since inception (Investor Class)
Expense ratio (as of 9/30/17) 1 | Net | Gross | ||||
Investor Class
| 1.15%
| 1.42%
| ||||
Institutional Class
| 0.90%
| 1.01%
|
Top ten companies^ (% of net assets)
1. | Microsoft Corp. | 7.3 | 6. | China Mobile Ltd. | 4.9 | |||||||||
2. | Gilead Sciences, Inc. | 6.0 | 7. | Nokia Corp. | 4.2 | |||||||||
3. | Baidu, Inc. | 5.6 | 8. | Johnson & Johnson | 4.1 | |||||||||
4. | GlaxoSmithKline plc | 5.2 | 9. | Michelin (CGDE) | 3.3 | |||||||||
5. | Roche Holding AG | 5.0 | 10. | Berkshire Hathaway Inc., Class B | 3.3 | |||||||||
^For the purposes of determining the Fund’s top ten, securities of the same issuer are aggregated.
Top ten country weightings† (% of net assets)
United States | 39.19 | Germany | 4.64 | |||
China | 10.55 | France | 4.57 | |||
Japan | 8.05 | Finland | 4.21 | |||
Switzerland | 7.33 | Netherlands | 2.86 | |||
United Kingdom | 6.37 | Italy | 1.11 |
1 | As of September 30, 2016, Ariel Global Fund (Investor Class) had an annual net expense ratio of 1.25% and a gross expense ratio of 1.70%. As of September 30, 2016, Ariel Global Fund (Institutional Class) had an annual net expense ratio of 1.00% and a gross expense ratio of 1.14%. Effective November 29, 2016, Ariel Investments, LLC, the Adviser, has contractually agreed to waive fees and reimburse expenses (the “Expense Cap”) in order to limit Ariel Global Fund’s total annual operating expenses to 1.13% of net assets for the Investor Class and 0.88% of net assets for the Institutional Class through the end of the fiscal year ending September 30, 2018. Prior to November 29, 2016, the Expense Cap was 1.25% of net assets for the Investor Class and 1.00% of net assets for the Institutional Class. Through January 31, 2014, the Expense Cap was 1.40% for the Investor Class and 1.15% for the Institutional Class. |
† | Sector and country weightings are calculated based on equity holdings as a percentage of total net assets. |
Notes: The graph does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
See index descriptions on page 78. |
800.292.7435 | 29 |
Aflac Incorporated (NYSE: AFL)
1932 Wynnton Road
Columbus, GA 31999
800.992.3522 | Aflac.com |
Headquartered in Columbus, Georgia, Aflac Incorporated (AFL) is a unique example of a differentiated insurance company. Aflac provides supplemental health and life insurance products to customers in Japan and the United States. Its insurance products are aimed at covering medical and nonmedical expenses that arise from medical emergencies. These expenses are typically not covered by either the national health insurance system in Japan, or primary insurance coverage in the United States, such as wage loss. In 2000, Aflac introduced the Aflac Duck, launching one of the most effective marketing campaigns, and catapulting the brand into a household name both domestically and abroad. Aflac was founded in 1955 by three brothers, and in 1974, the company began selling supplemental insurance in Japan. Today, Aflac Japan is the largest contributor to the topline, accounting for 71% of total revenues in 2016.
SCALE ADVANTAGE
Aflac is the number one insurance provider in Japan in terms of policies in force, insuring one in four households. In fact, Aflac is the market leader in cancer and medical insurance in Japan, with 63.7% and 16.7% market share, respectively. Cancer and medical insurance are classified as third sector insurance products. As compared to the commoditized first sector insurance products, such as life insurance, third sector products are associated with higher returns. We believe Aflac’s focus on third sector products has been an important contributor to the company’s ability to sustain above-average returns. Competitors noticed, as many have entered the third sector to compete directly with Aflac over
the last decade; despite the flurry of competition, Aflac has been able to maintain its leading position in a growing market through product innovation and partnership with distributors like Japan Post. In fact, Aflac is currently marketing a new third sector product in Japan, income-support for customers in their 20s through 40s.
GROWTH OPPORTUNITIES
In both Japan and the United States, healthcare costs are increasing rapidly due to a variety of factors, including an aging population. With rising out-of-pocket healthcare expenses, we believe supplemental insurance policies will become even more essential in both countries. Known for a quick turnaround on claims and customer loyalty, Aflac is well-positioned to service this growing need. We believe these trends will help Aflac Japan grow its third sector sales at a 4%-6% compound annual growth rate (CAGR), and Aflac US grow its sales at a 3%-5% CAGR, in-line with management’s long-term guidance.
A LONG-TERM VIEW
Negative interest rates in Japan and artificially low interest rates in the United States have pressured investment returns for Aflac over the past few years. Despite the headwinds, Aflac continues to execute and grow its core business. Investors are noticing, as is evidenced by its 17% year-to-date return. Long-term, we believe Aflac will persist as a uniquely differentiated insurance company with above average returns and consistent, steady growth. As of September 30, 2017, shares traded at $81.39, a 6% discount to our steadily growing private market value of $86.86.
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AstroNova, Inc. (NASDAQ: ALOT)
600 East Greenwich Avenue
West Warwick, RI 02893
401.828.4000 | Astronovainc.com |
Founded in 1971 and headquartered just outside Providence, RI, AstroNova, Inc. is a global provider of specialized printers and their related consumables. Through its two operating segments, Product Identification and Test & Measurement, the company produces specialty printers for color label applications, ruggedized printers for commercial and military use, and data acquisition recorders for the aerospace, automotive, and general industrial markets. The highly specialized nature of these products supports a meaningful competitive advantage, which has contributed to the company’s success over the last four decades. Additionally, a disciplined management team, strong balance sheet, and lack of Wall Street coverage make AstroNova a compelling long-term opportunity.
DIFFERENTIATED PRINTING PRODUCTS
Printing technologies have improved tremendously since the early days of the stylus printer and AstroNova has been there every step of the way. The company’s Product Identification (“PI”) business offers a variety of full-color digital label printers that utilize application technologies ranging from ink jet to thermal transfer. The printers’ superior output quality, speed, and ease of use are true differentiators and benefit many businesses that need to make their own product labels as a part of their “just in time” production process. AstroNova also offers a full suite of related consumables, software, and support services, which only add to its overall value proposition. PI’s customers span the globe and range from small, local businesses to Fortune 500 companies in the food, cosmetics and personal care, and pharmaceutical industries, among others.
DOMINANT MARKET SHARE
AstroNova’s Test & Measurement segment is best known for its ruggedized printers, which can be found on numerous airplanes manufactured by the likes of Airbus, Boeing, Bombardier, and Lockheed. These printers must satisfy stringent regulatory standards and are specially designed to endure the harsh conditions of flight. Despite the proliferation of digital devices in the cockpit, pilots still rely heavily on physical print-outs of flight paths, airport runway blueprints, and other mission-critical information. The high up-front development costs, strict regulation, and long-term contracts that AstroNova has secured deter new entrants and protect AstroNova’s 60% share of the market.
KEY CHANGES TO SUPPORT GROWTH
AstroNova’s strong product portfolio has translated into robust sales growth over the last several years. Although the company is profitable, sales growth has yet to contribute meaningful profit growth. This issue can be attributed to two sources: antiquated manufacturing and IT systems as well as lack of scale. Fortunately, the company has been taking steps to address these problem areas. Current CEO, Greg Woods, and CFO, Joe O’Connell, have been responsible for leading the charge. Since 2012, AstroNova has divested non-core assets, introduced Lean cost controls, and upgraded the company’s ERP system. This resulted in noticeable gross margin expansion. Additionally, a focus on broader international expansion, both organically and through acquisition, has not only boosted sales, but also created supply chain efficiencies whose benefits should be amplified as the company continues to grow. While AstroNova has yet to achieve enough critical mass for sales to translate into richer profits, we believe the improved, revitalized company is certainly on the right path, and we look forward to observing its progress in the future.
800.292.7435 |
31 |
Quest Diagnostics, Inc. (NYSE: DGX)
500 Plaza Drive
Secaucus, NJ 07094
973.520.2900 | Questdiagnostics.com |
Founded 50 years ago as Metropolitan Pathology Laboratory Inc., Quest Diagnostics has grown into the leading provider of clinical laboratory testing in the U.S. The company serves one in three adult Americans annually through its 2,200 patient service centers across the country. In so doing, it offers a broad range of routine medical services in the diagnosis and monitoring sector of disease prevention and treatment. Since its inception, Quest Diagnostics has primarily focused on providing rapid response times via quality, yet affordable diagnostics through a network of regional laboratories close to doctors’ offices.
The U.S. independent reference lab market is dominated by two players—Quest Diagnostics and LabCorp—which compete with a large group of hospital-based labs and smaller regional players. Quest Diagnostics benefits from economies of scale through its national footprint, in the form of cost advantages over regional and hospital labs with smaller networks.
A FRANCHISE FACING SECULAR DECLINE?
Many believed the diagnostic laboratory industry was mature and faced declining growth. With health care costs rising rapidly, it is not surprising that pricing pressures and reimbursement rate reductions were also major concerns. Indeed, the company’s revenues had remained stagnant since 2009, at about $7.5 billion for several years. Moreover, despite Quest Diagnostic’s size and positioning, the company had historically trailed peer LabCorp in terms of operational efficiency. These risk factors were some of the key overhangs on Quest Diagnostics’ stock price when we initiated our position in the company several years ago.
OUR CONTRARIAN PICK
We believed that a new management team and a renewed focus on operational execution would improve the earnings power of the business and return more money to shareholders. Our extensive research led us to conclude that instead of losing market share, the company would gain wallet share. This is because diagnostic tests meaningfully influence medical treatment decisions, but represent a much smaller fraction of overall health care expenses. As the health care industry evolves towards value-based pricing (rather than volume-based pricing), the clinical laboratory industry can be part of the solution (as opposed to being the problem) and is likely to grow its share of industry revenues. Moreover, advances in technology and personalized medicine are increasing the number and value of complex gene-based diagnostic tests available to patients, which are more lucrative from a margin perspective. Over the years, as we expected, the company has made great strides in streamlining its organization, integrating acquisitions, and improving operational efficiency, in an effort to narrow the operational gap versus LabCorp.
We accumulated our position in Quest Diagnostics in 2012 when the stock was a pariah and had few takers. This is the kind of risk reward setup we like – a lot of the bad news was priced in but the good news was not. In the past five years, business fundamentals have improved and the stock has appreciated. Admittedly, the company had steady growth instead of heady growth—but as patient long-term value investors, we believe slow and steady wins the race.
32 |
ARIELINVESTMENTS.COM |
U.S. Silica Holdings (NYSE: SLCA)
8490 Progress Drive, Suite 300
Frederick, MD 21701
800.243.7500 | USSilica.com |
U.S. Silica is one of the largest producers of silica in North America. Silica, naturally occurring in sand, flint and agate, is used in the manufacture of glass, ceramics, and abrasives. The company was founded more than 100 years ago, and throughout time has built up substantial distribution capabilities. Their current distribution capabilities of silica mines and transload facilities around the country provide a low-cost advantage for the company. U.S. Silica’s customers span across various industries including oil and gas, glass, chemicals, foundry, building products, fillers and extenders, recreation, industrial filtration and treatment, and testing and analysis. The company’s industrial customers have been built up over decades, while the importance of the oil and gas customer base has ratcheted up more recently.
SIGNIFICANT DEMAND INCREASE
There has been a significant increase in oil and natural gas production in North America, primarily due to the technology improvements in drilling and fracturing well bores to increase production. Utilizing advanced approaches to drilling results in the need for a product to help support the walls of the well to allow the oil and gas to flow to the surface. Silica meets the requirements and is both plentiful in availability and low in price. Thus, there has been a substantial increase in the demand for silica as the length of wells increase combined with the benefits drillers are seeing in using higher volumes of silica. Demand for silica in the oil and gas industry is estimated to be up over 75 percent this year, which should outpace supply and support price stability.
UNDERAPPRECIATED INDUSTRIAL BUSINESS
The tremendous growth of the oil and gas business has resulted in U.S. Silica’s longest standing business being
overlooked by investors. However, the industrial business represents over 28 percent of the company’s operating profit and has exhibited slower, but more consistent growth through the years. Fueled by the growth in demand in the automotive and housing products end markets, the company has continued to invest capital in developing its presence. That capital investment has helped in the innovation of its product offerings to better protect the company’s competitive advantage for years to come.
SOLID BALANCE SHEET
U.S. Silica’s management team has remained disciplined in its capital allocation through the years, even with the tremendous growth opportunities available to the business. Silica has consistently maintained an excess cash position and utilized periods of strong stock price appreciation to raise additional capital. A strong balance sheet has allowed the company to take advantage of opportunities during downturns in the industry, which its levered competitors can’t access. Today, U.S. Silica’s balance sheet remains in an excess cash position, giving it ample dry powder to continue to strengthen its competitive advantage and take market share from its balance sheet constrained peers.
INTRIGUING VALUATION
The market continues to focus on the oil and gas segment and primarily the supply and demand mix of one region of the country. This creates an interesting investment opportunity for us as we appreciate the company’s logistic capabilities and strength in the industrial business to support any volatility in the oil and gas segment.
As of September 30, 2017, shares traded at $31.07, a 48% discount to our steadily growing private market value of $60.04.
800.292.7435 |
33 |
Ariel Fund statistical summary | 09/30/17 (UNAUDITED) | |||
| ||||
52-week range | Earnings per share | P/E calendar | ||||||||||||||||||||||||||||||||||||||||
Company | Ticker symbol | Price 09/30/17 | Low | High | 2015 actual calendar | 2016 actual calendar | Forward 12 months estimate | 2015 actual P/E | 2016 actual P/E | Forward 12 months P/E | Market cap. ($MM) | |||||||||||||||||||||||||||||||
Contango Oil & Gas Co. | MCF | 5.03 | 3.97 | 11.98 | (2.59) | (0.48) | (0.68) | NM | NM | NM | 129 | |||||||||||||||||||||||||||||||
Bristow Group, Inc. | BRS | 9.35 | 6.21 | 21.88 | 2.18 | (0.44) | (2.60) | 4.3 | NM | NM | 330 | |||||||||||||||||||||||||||||||
MTS Systems Corp. | MTSC | 53.45 | 41.53 | 59.00 | 3.16 | 2.95 | 3.33 | 16.9 | 18.1 | 16.1 | 900 | |||||||||||||||||||||||||||||||
International Speedway Corp. | ISCA | 36.00 | 30.05 | 40.31 | 1.44 | 1.68 | 1.68 | 25.0 | 21.4 | 21.4 | 1,578 | |||||||||||||||||||||||||||||||
MSG Networks, Inc. | MSGN | 21.20 | 18.20 | 25.30 | N/A | 2.25 | 2.30 | N/A | 9.4 | 9.2 | 1,592 | |||||||||||||||||||||||||||||||
Brady Corp. | BRC | 37.95 | 31.70 | 40.50 | 1.55 | 1.81 | 2.11 | 24.5 | 21.0 | 18.0 | 1,949 | |||||||||||||||||||||||||||||||
Adtalem Global Education, Inc. | ATGE | 35.85 | 21.97 | 40.70 | 2.50 | 2.70 | 3.02 | 14.3 | 13.3 | 11.9 | 2,236 | |||||||||||||||||||||||||||||||
Simpson Manufacturing Co., Inc. | SSD | 49.04 | 39.82 | 49.56 | 1.46 | 1.93 | 2.09 | 33.6 | 25.4 | 23.5 | 2,318 | |||||||||||||||||||||||||||||||
Sotheby’s | BID | 46.11 | 33.85 | 57.95 | 2.08 | 1.73 | 2.08 | 22.2 | 26.7 | 22.2 | 2,429 | |||||||||||||||||||||||||||||||
Meredith Corp. | MDP | 55.50 | 43.85 | 66.25 | 3.55 | 3.70 | 3.72 | 15.6 | 15.0 | 14.9 | 2,473 | |||||||||||||||||||||||||||||||
U.S. Silica Holdings, Inc. | SLCA | 31.07 | 24.26 | 61.49 | 0.22 | 0.68 | 2.21 | 141.2 | 45.7 | 14.1 | 2,523 | |||||||||||||||||||||||||||||||
Anixter Intl, Inc. | AXE | 85.00 | 58.99 | 88.00 | 4.42 | 4.93 | 5.55 | 19.2 | 17.2 | 15.3 | 2,856 | |||||||||||||||||||||||||||||||
TEGNA, Inc. | TGNA | 13.33 | 12.01 | 26.65 | 1.78 | 2.67 | 1.55 | 7.5 | 5.0 | 8.6 | 2,867 | |||||||||||||||||||||||||||||||
Kennametal, Inc. | KMT | 40.34 | 26.79 | 43.09 | 1.78 | 1.48 | 2.52 | 22.7 | 27.3 | 16.0 | 3,254 | |||||||||||||||||||||||||||||||
Graham Holdings Co. | GHC | 585.10 | 440.55 | 615.85 | 26.75 | 33.58 | 35.55 | 21.9 | 17.4 | 16.5 | 3,272 | |||||||||||||||||||||||||||||||
Dun & Bradstreet Corp. | DNB | 116.41 | 100.46 | 137.58 | 7.64 | 7.46 | 7.51 | 15.2 | 15.6 | 15.5 | 4,296 | |||||||||||||||||||||||||||||||
Fair Isaac Corp. | FICO | 140.50 | 109.77 | 147.02 | 3.31 | 3.74 | 4.43 | 42.4 | 37.6 | 31.7 | 4,316 | |||||||||||||||||||||||||||||||
Littelfuse, Inc. | LFUS | 195.88 | 124.32 | 199.26 | 5.45 | 7.23 | 8.77 | 35.9 | 27.1 | 22.3 | 4,449 | |||||||||||||||||||||||||||||||
The Madison Square Garden Co. | MSG | 214.10 | 160.96 | 226.95 | N/A | 0.30 | 1.37 | N/A | 713.7 | 156.3 | 5,041 | |||||||||||||||||||||||||||||||
Charles River Laboratories Intl, Inc. | CRL | 108.02 | 67.20 | 109.59 | 3.76 | 4.56 | 5.40 | 28.7 | 23.7 | 20.0 | 5,140 | |||||||||||||||||||||||||||||||
Mattel, Inc. | MAT | 15.48 | 14.35 | 33.23 | 1.39 | 1.78 | 0.98 | 11.1 | 8.7 | 15.8 | 5,305 | |||||||||||||||||||||||||||||||
Lazard Ltd. | LAZ | 45.22 | 33.48 | 48.86 | 3.74 | 3.35 | 3.15 | 12.1 | 13.5 | 14.4 | 5,499 | |||||||||||||||||||||||||||||||
First American Financial Corp. | FAF | 49.97 | 35.28 | 49.99 | 2.72 | 3.04 | 3.73 | 18.4 | 16.4 | 13.4 | 5,533 | |||||||||||||||||||||||||||||||
JLL | JLL | 123.50 | 86.62 | 134.76 | 10.19 | 8.51 | 9.21 | 12.1 | 14.5 | 13.4 | 5,593 | |||||||||||||||||||||||||||||||
Zebra Technologies Corp. | ZBRA | 108.58 | 62.91 | 109.89 | 4.78 | 5.10 | 6.93 | 22.7 | 21.3 | 15.7 | 5,767 | |||||||||||||||||||||||||||||||
Bio-Rad Laboratories, Inc. | BIO | 222.22 | 154.89 | 242.79 | 4.75 | 4.38 | 4.97 | 46.8 | 50.7 | 44.7 | 6,582 | |||||||||||||||||||||||||||||||
Janus Henderson Group plc | JHG | 34.84 | 30.24 | 36.25 | N/A | N/A | 2.21 | N/A | N/A | 15.8 | 6,839 | |||||||||||||||||||||||||||||||
Keysight Technologies, Inc. | KEYS | 41.66 | 30.93 | 43.15 | 2.24 | 2.21 | 2.47 | 18.6 | 18.9 | 16.9 | 7,736 | |||||||||||||||||||||||||||||||
Interpublic Group of Cos., Inc. | IPG | 20.79 | 19.57 | 25.71 | 1.25 | 1.51 | 1.58 | 16.6 | 13.8 | 13.2 | 8,176 | |||||||||||||||||||||||||||||||
Snap-on, Inc. | SNA | 149.01 | 140.83 | 181.73 | 8.10 | 10.07 | 10.62 | 18.4 | 14.8 | 14.0 | 8,581 | |||||||||||||||||||||||||||||||
Western Union Co. | WU | 19.20 | 18.39 | 22.70 | 1.70 | 1.81 | 1.86 | 11.3 | 10.6 | 10.3 | 8,915 | |||||||||||||||||||||||||||||||
KKR & Co. L.P. | KKR | 20.33 | 13.58 | 20.43 | 1.21 | 0.68 | 2.63 | 16.8 | 29.9 | 7.7 | 9,554 | |||||||||||||||||||||||||||||||
Viacom, Inc. | VIAB | 27.84 | 26.65 | 46.72 | 5.06 | 3.81 | 4.02 | 5.5 | 7.3 | 6.9 | 11,203 | |||||||||||||||||||||||||||||||
J.M. Smucker Co. | SJM | 104.93 | 103.50 | 143.68 | 6.73 | 8.17 | 7.96 | 15.6 | 12.8 | 13.2 | 11,920 | |||||||||||||||||||||||||||||||
CBRE Group, Inc. | CBG | 37.88 | 25.40 | 38.99 | 2.05 | 2.30 | 2.68 | 18.5 | 16.5 | 14.1 | 12,801 | |||||||||||||||||||||||||||||||
Nielsen Holdings plc | NLSN | 41.45 | 36.96 | 54.99 | 2.63 | 2.81 | 2.87 | 15.8 | 14.8 | 14.4 | 14,780 | |||||||||||||||||||||||||||||||
Laboratory Corp. of America Holdings | LH | 150.97 | 119.51 | 164.22 | 7.91 | 8.83 | 9.99 | 19.1 | 17.1 | 15.1 | 15,399 | |||||||||||||||||||||||||||||||
Mohawk Industries, Inc. | MHK | 247.51 | 175.52 | 259.91 | 10.56 | 13.04 | 14.27 | 23.4 | 19.0 | 17.3 | 18,399 | |||||||||||||||||||||||||||||||
Northern Trust Corp. | NTRS | 91.93 | 66.83 | 99.30 | 3.85 | 4.71 | 5.02 | 23.9 | 19.5 | 18.3 | 21,005 | |||||||||||||||||||||||||||||||
Royal Caribbean Cruises Ltd. | RCL | 118.54 | 67.53 | 125.00 | 4.83 | 7.12 | 8.03 | 24.5 | 16.6 | 14.8 | 25,498 |
Note: Holdings are as of September 30, 2017. All earnings per share numbers are fully diluted and reflect the company’s cash earnings. Such numbers are from continuing operations and are adjusted for non-recurring items. All estimates of future earnings per share shown in this table are prepared by Ariel Investments research analysts as of September 30, 2017 and have not been updated to reflect any subsequent events. P/E ratios are based on earnings stated and September 30, 2017 stock price. NM=Not Meaningful.
34 | ARIELINVESTMENTS.COM |
Ariel Appreciation Fund statistical summary | 09/30/17 (UNAUDITED) | |||
| ||||
52-week range | Earnings per share | P/E calendar | ||||||||||||||||||||||||||||||||||||||||
Company | Ticker symbol | Price 09/30/17 | Low | High | 2015 actual calendar | 2016 actual calendar | Forward 12 months estimate | 2015 actual P/E | 2016 actual P/E | Forward 12 months P/E | Market cap. ($MM) | |||||||||||||||||||||||||||||||
Bristow Group, Inc. | BRS | 9.35 | 6.21 | 21.88 | 2.18 | (0.44) | (2.60) | 4.3 | NM | NM | 330 | |||||||||||||||||||||||||||||||
International Speedway Corp. | ISCA | 36.00 | 30.05 | 40.31 | 1.44 | 1.68 | 1.68 | 25.0 | 21.4 | 21.4 | 1,578 | |||||||||||||||||||||||||||||||
MSG Networks, Inc. | MSGN | 21.20 | 18.20 | 25.30 | N/A | 2.25 | 2.30 | N/A | 9.4 | 9.2 | 1,592 | |||||||||||||||||||||||||||||||
U.S. Silica Holdings, Inc. | SLCA | 31.07 | 24.26 | 61.49 | 0.22 | 0.68 | 2.21 | 141.2 | 45.7 | 14.1 | 2,523 | |||||||||||||||||||||||||||||||
Houlihan Lokey, Inc. | HLI | 39.13 | 23.19 | 39.68 | 1.27 | 1.83 | 2.11 | 30.8 | 21.4 | 18.5 | 2,620 | |||||||||||||||||||||||||||||||
Anixter Intl, Inc. | AXE | 85.00 | 58.99 | 88.00 | 4.42 | 4.93 | 5.55 | 19.2 | 17.2 | 15.3 | 2,856 | |||||||||||||||||||||||||||||||
Kennametal, Inc. | KMT | 40.34 | 26.79 | 43.09 | 1.78 | 1.48 | 2.52 | 22.7 | 27.3 | 16.0 | 3,254 | |||||||||||||||||||||||||||||||
The Madison Square Garden Co. | MSG | 214.10 | 160.96 | 226.95 | N/A | 0.30 | 1.37 | N/A | 713.7 | 156.3 | 5,041 | |||||||||||||||||||||||||||||||
Charles River Laboratories Intl, Inc. | CRL | 108.02 | 67.20 | 109.59 | 3.76 | 4.56 | 5.40 | 28.7 | 23.7 | 20.0 | 5,140 | |||||||||||||||||||||||||||||||
Mattel, Inc. | MAT | 15.48 | 14.35 | 33.23 | 1.39 | 1.78 | 0.98 | 11.1 | 8.7 | 15.8 | 5,305 | |||||||||||||||||||||||||||||||
Lazard Ltd. | LAZ | 45.22 | 33.48 | 48.86 | 3.74 | 3.35 | 3.15 | 12.1 | 13.5 | 14.4 | 5,499 | |||||||||||||||||||||||||||||||
First American Financial Corp. | FAF | 49.97 | 35.28 | 49.99 | 2.72 | 3.04 | 3.73 | 18.4 | 16.4 | 13.4 | 5,533 | |||||||||||||||||||||||||||||||
JLL | JLL | 123.50 | 86.62 | 134.76 | 10.19 | 8.51 | 9.21 | 12.1 | 14.5 | 13.4 | 5,593 | |||||||||||||||||||||||||||||||
BOK Financial Corp. | BOKF | 89.08 | 66.93 | 90.69 | 4.23 | 4.43 | 5.43 | 21.1 | 20.1 | 16.4 | 5,827 | |||||||||||||||||||||||||||||||
Bio-Rad Laboratories, Inc. | BIO | 222.22 | 154.89 | 242.79 | 4.75 | 4.38 | 4.97 | 46.8 | 50.7 | 44.7 | 6,582 | |||||||||||||||||||||||||||||||
Keysight Technologies, Inc. | KEYS | 41.66 | 30.93 | 43.15 | 2.24 | 2.21 | 2.47 | 18.6 | 18.9 | 16.9 | 7,736 | |||||||||||||||||||||||||||||||
Nordstrom, Inc. | JWN | 47.15 | 39.53 | 62.82 | 3.21 | 3.25 | 3.07 | 14.7 | 14.5 | 15.4 | 7,836 | |||||||||||||||||||||||||||||||
Interpublic Group of Cos., Inc. | IPG | 20.79 | 19.57 | 25.71 | 1.25 | 1.51 | 1.58 | 16.6 | 13.8 | 13.2 | 8,176 | |||||||||||||||||||||||||||||||
Snap-on, Inc. | SNA | 149.01 | 140.83 | 181.73 | 8.10 | 10.07 | 10.62 | 18.4 | 14.8 | 14.0 | 8,581 | |||||||||||||||||||||||||||||||
Western Union Co. | WU | 19.20 | 18.39 | 22.70 | 1.70 | 1.81 | 1.86 | 11.3 | 10.6 | 10.3 | 8,915 | |||||||||||||||||||||||||||||||
KKR & Co. L.P. | KKR | 20.33 | 13.58 | 20.43 | 1.21 | 0.68 | 2.63 | 16.8 | 29.9 | 7.7 | 9,554 | |||||||||||||||||||||||||||||||
BorgWarner, Inc. | BWA | 51.23 | 33.09 | 51.55 | 3.04 | 3.45 | 4.03 | 16.9 | 14.8 | 12.7 | 10,813 | |||||||||||||||||||||||||||||||
Viacom, Inc. | VIAB | 27.84 | 26.65 | 46.72 | 5.06 | 3.81 | 4.02 | 5.5 | 7.3 | 6.9 | 11,203 | |||||||||||||||||||||||||||||||
J.M. Smucker Co. | SJM | 104.93 | 103.50 | 143.68 | 6.73 | 8.17 | 7.96 | 15.6 | 12.8 | 13.2 | 11,920 | |||||||||||||||||||||||||||||||
CBRE Group, Inc. | CBG | 37.88 | 25.40 | 38.99 | 2.05 | 2.30 | 2.68 | 18.5 | 16.5 | 14.1 | 12,801 | |||||||||||||||||||||||||||||||
National Oilwell Varco | NOV | 35.73 | 29.90 | 43.63 | 3.45 | (0.22) | 1.31 | 10.4 | NM | 27.3 | 13,579 | |||||||||||||||||||||||||||||||
Nielsen Holdings plc | NLSN | 41.45 | 36.96 | 54.99 | 2.63 | 2.81 | 2.87 | 15.8 | 14.8 | 14.4 | 14,780 | |||||||||||||||||||||||||||||||
Laboratory Corp. of America Holdings | LH | 150.97 | 119.51 | 164.22 | 7.91 | 8.83 | 9.99 | 19.1 | 17.1 | 15.1 | 15,399 | |||||||||||||||||||||||||||||||
Omnicom Group, Inc. | OMC | 74.07 | 71.63 | 89.66 | 4.67 | 5.41 | 5.57 | 15.9 | 13.7 | 13.3 | 17,092 | |||||||||||||||||||||||||||||||
Willis Towers Watson plc | WLTW | 154.23 | 112.76 | 156.14 | 7.03 | 7.96 | 9.31 | 21.9 | 19.4 | 16.6 | 20,761 | |||||||||||||||||||||||||||||||
Northern Trust Corp. | NTRS | 91.93 | 66.83 | 99.30 | 3.85 | 4.71 | 5.02 | 23.9 | 19.5 | 18.3 | 21,005 | |||||||||||||||||||||||||||||||
Cardinal Health, Inc. | CAH | 66.92 | 62.70 | 84.88 | 4.87 | 5.15 | 5.08 | 13.7 | 13.0 | 13.2 | 21,147 | |||||||||||||||||||||||||||||||
T. Rowe Price Group, Inc. | TROW | 90.65 | 62.97 | 91.19 | 4.63 | 4.91 | 5.66 | 19.6 | 18.5 | 16.0 | 21,780 | |||||||||||||||||||||||||||||||
Blackstone Group L.P. | BX | 33.37 | 23.33 | 35.09 | 1.82 | 2.00 | 2.97 | 18.3 | 16.7 | 11.2 | 21,817 | |||||||||||||||||||||||||||||||
Stanley Black & Decker, Inc. | SWK | 150.97 | 111.89 | 152.43 | 6.59 | 7.28 | 8.56 | 22.9 | 20.7 | 17.6 | 23,121 | |||||||||||||||||||||||||||||||
CBS Corp. | CBS | 58.00 | 54.11 | 70.10 | 3.34 | 3.74 | 4.74 | 17.4 | 15.5 | 12.2 | 23,374 | |||||||||||||||||||||||||||||||
Zimmer Biomet Holdings, Inc. | ZBH | 117.09 | 95.63 | 133.49 | 6.90 | 7.96 | 8.49 | 17.0 | 14.7 | 13.8 | 23,664 | |||||||||||||||||||||||||||||||
Franklin Resources, Inc. | BEN | 44.51 | 33.02 | 47.65 | 3.22 | 2.95 | 3.12 | 13.8 | 15.1 | 14.3 | 24,835 | |||||||||||||||||||||||||||||||
Progressive Corp. | PGR | 48.42 | 30.63 | 49.01 | 2.02 | 1.70 | 2.62 | 24.0 | 28.5 | 18.5 | 28,132 | |||||||||||||||||||||||||||||||
AFLAC, Inc. | AFL | 81.39 | 66.50 | 84.51 | 5.64 | 6.62 | 6.72 | 14.4 | 12.3 | 12.1 | 32,230 | |||||||||||||||||||||||||||||||
Illinois Tool Works, Inc. | ITW | 147.96 | 111.50 | 150.29 | 5.57 | 6.14 | 7.22 | 26.6 | 24.1 | 20.5 | 50,920 | |||||||||||||||||||||||||||||||
Thermo Fisher Scientific, Inc. | TMO | 189.20 | 139.07 | 194.30 | 7.39 | 8.28 | 10.27 | 25.6 | 22.9 | 18.4 | 73,811 |
Note: Holdings are as of September 30, 2017. All earnings per share numbers are fully diluted and reflect the company’s cash earnings. Such numbers are from continuing operations and are adjusted for non-recurring items. All estimates of future earnings per share shown in this table are prepared by Ariel Investments research analysts as of September 30, 2017 and have not been updated to reflect any subsequent events. P/E ratios are based on earnings stated and September 30, 2017 stock price. NM=Not Meaningful.
800.292.7435 | 35 |
Ariel Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—99.20% | Value | ||||||
Consumer discretionary & services—30.68% | ||||||||
688,440 | Royal Caribbean Cruises Ltd. | $81,607,678 | ||||||
3,525,923 | MSG Networks, Inc.(a)(b) | 74,749,568 | ||||||
4,519,352 | TEGNA, Inc. | 60,242,962 | ||||||
3,830,700 | Mattel, Inc. | 59,299,236 | ||||||
2,718,066 | Interpublic Group of Cos., Inc. | 56,508,592 | ||||||
1,548,024 | Adtalem Global Education, Inc. | 55,496,660 | ||||||
961,608 | Meredith Corp. | 53,369,244 | ||||||
1,215,900 | Nielsen Holdings plc | 50,399,055 | ||||||
173,204 | Mohawk Industries, Inc.(a) | 42,869,722 | ||||||
1,377,125 | Viacom, Inc., Class B | 38,339,160 | ||||||
918,552 | International Speedway Corp., Class A | 33,067,872 | ||||||
146,824 | The Madison Square Garden Co., Class A(a) | 31,435,018 | ||||||
15,983 | Graham Holdings Co., Class B | 9,351,653 | ||||||
192,865 | Sotheby’s(a) | 8,893,005 | ||||||
|
|
| ||||||
655,629,425 | ||||||||
|
|
| ||||||
Consumer staples—1.83% | ||||||||
372,245 | J.M. Smucker Co. | 39,059,668 | ||||||
|
|
| ||||||
Energy—0.45% | ||||||||
1,928,817 | Contango Oil & Gas Co.(a)(b) | 9,701,950 | ||||||
|
|
| ||||||
Financial services—30.68% | ||||||||
5,181,639 | KKR & Co. L.P. | 105,342,721 | ||||||
2,152,203 | Lazard Ltd., Class A | 97,322,620 | ||||||
621,799 | JLL | 76,792,176 | ||||||
1,977,053 | CBRE Group, Inc., Class A(a) | 74,890,768 | ||||||
1,463,288 | First American Financial Corp. | 73,120,501 | ||||||
697,700 | Northern Trust Corp. | 64,139,561 | ||||||
1,637,449 | Janus Henderson Group plc | 57,048,723 | ||||||
464,478 | Dun & Bradstreet Corp. | 54,069,884 | ||||||
1,780,054 | Western Union Co. | 34,177,037 | ||||||
132,863 | Fair Isaac Corp. | 18,667,252 | ||||||
|
|
| ||||||
655,571,243 | ||||||||
|
|
| ||||||
Health care—8.24% | ||||||||
273,643 | Bio-Rad Laboratories, Inc.(a) | 60,808,947 | ||||||
383,000 | Laboratory Corp. of America Holdings(a) | 57,821,510 | ||||||
530,726 | Charles River Laboratories Intl, Inc.(a) | 57,329,023 | ||||||
|
|
| ||||||
175,959,480 | ||||||||
|
|
| ||||||
Materials & processing—4.36% | ||||||||
1,092,397 | Simpson Manufacturing Co., Inc. | 53,571,149 | ||||||
1,271,961 | U.S. Silica Holdings, Inc. | 39,519,828 | ||||||
|
|
| ||||||
93,090,977 | ||||||||
|
|
| ||||||
Producer durables—20.79% | ||||||||
927,100 | Zebra Technologies Corp.(a) | 100,664,518 | ||||||
1,953,441 | Kennametal, Inc. | 78,801,810 | ||||||
1,402,385 | Keysight Technologies, Inc.(a) | 58,423,359 | ||||||
1,350,028 | Brady Corp., Class A | 51,233,563 | ||||||
332,213 | Snap-on, Inc. | 49,503,059 | ||||||
894,616 | MTS Systems Corp.(b) | 47,817,225 | ||||||
3,847,967 | Bristow Group, Inc.(b) | 35,978,491 | ||||||
110,989 | Littelfuse, Inc. | 21,740,525 | ||||||
|
|
| ||||||
444,162,550 | ||||||||
|
|
|
36 | ARIELINVESTMENTS.COM |
Ariel Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—99.20% | Value | ||||||
Technology—2.17% | ||||||||
545,942 | Anixter Intl, Inc.(a) | $46,405,070 | ||||||
|
|
| ||||||
Total common stocks (Cost $1,338,903,009) | 2,119,580,363 | |||||||
|
|
| ||||||
Number of shares | Short-term investments—0.77% | Value | ||||||
16,351,749 |
Northern Institutional Treasury Portfolio, 0.90%(c) | $16,351,749 | ||||||
|
|
| ||||||
Total short-term investments (Cost $16,351,749) | 16,351,749 | |||||||
|
|
| ||||||
Total Investments—99.97% (Cost $1,355,254,758) | 2,135,932,112 | |||||||
Other Assets less Liabilities—0.03% | 685,228 | |||||||
|
|
| ||||||
Net Assets—100.00% | $2,136,617,340 | |||||||
|
|
|
(a)Non-income producing.
(b)Affiliated company (See Note Seven, Transactions with Affiliated Companies).
(c)The rate presented is the rate in effect at September 30, 2017.
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 37 |
Ariel Appreciation Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—99.03% | Value | ||||||
Consumer discretionary & services—23.13% | ||||||||
2,884,730 | Interpublic Group of Cos., Inc. | $59,973,537 | ||||||
727,400 | Omnicom Group, Inc. | 53,878,518 | ||||||
994,700 | BorgWarner, Inc. | 50,958,481 | ||||||
2,469,100 | Mattel, Inc. | 38,221,668 | ||||||
906,724 | Nielsen Holdings plc | 37,583,710 | ||||||
782,900 | Nordstrom, Inc. | 36,913,735 | ||||||
1,678,637 | MSG Networks, Inc.(a) | 35,587,104 | ||||||
572,200 | CBS Corp., Class B | 33,187,600 | ||||||
619,600 | Viacom, Inc., Class B | 17,249,664 | ||||||
474,858 | International Speedway Corp., Class A | 17,094,888 | ||||||
56,566 | The Madison Square Garden Co., Class A(a) | 12,110,781 | ||||||
|
|
| ||||||
392,759,686 | ||||||||
|
|
| ||||||
Consumer staples—3.54% | ||||||||
573,575 | J.M. Smucker Co. | 60,185,225 | ||||||
|
|
| ||||||
Energy—2.74% | ||||||||
1,303,600 | National Oilwell Varco | 46,577,628 | ||||||
|
|
| ||||||
Financial services—34.06% | ||||||||
1,049,600 | AFLAC, Inc. | 85,426,944 | ||||||
1,541,900 | First American Financial Corp. | 77,048,743 | ||||||
717,300 | Northern Trust Corp. | 65,941,389 | ||||||
1,256,720 | Lazard Ltd., Class A | 56,828,878 | ||||||
324,800 | Willis Towers Watson plc | 50,093,904 | ||||||
961,952 | Houlihan Lokey, Inc. | 37,641,182 | ||||||
694,700 | Progressive Corp. | 33,637,374 | ||||||
1,723,100 | Western Union Co. | 33,083,520 | ||||||
1,474,768 | KKR & Co. L.P. | 29,982,033 | ||||||
200,080 | JLL | 24,709,880 | ||||||
240,650 | T. Rowe Price Group, Inc. | 21,814,922 | ||||||
621,100 | Blackstone Group L.P. | 20,726,107 | ||||||
214,489 | BOK Financial Corp. | 19,106,680 | ||||||
367,750 | CBRE Group, Inc., Class A(a) | 13,930,370 | ||||||
191,500 | Franklin Resources, Inc. | 8,523,665 | ||||||
|
|
| ||||||
578,495,591 | ||||||||
|
|
| ||||||
Health care—16.31% | ||||||||
644,700 | Zimmer Biomet Holdings, Inc. | 75,487,923 | ||||||
471,300 | Laboratory Corp. of America Holdings(a) | 71,152,161 | ||||||
251,354 | Thermo Fisher Scientific, Inc. | 47,556,177 | ||||||
390,980 | Charles River Laboratories Intl, Inc.(a) | 42,233,660 | ||||||
477,600 | Cardinal Health, Inc. | 31,960,992 | ||||||
38,725 | Bio-Rad Laboratories, Inc.(a) | 8,605,469 | ||||||
|
|
| ||||||
276,996,382 | ||||||||
|
|
| ||||||
Materials & processing—2.10% | ||||||||
1,145,380 | U.S. Silica Holdings, Inc. | 35,586,957 | ||||||
|
|
| ||||||
Producer durables—16.11% | ||||||||
1,415,115 | Keysight Technologies, Inc.(a) | 58,953,691 | ||||||
371,999 | Stanley Black & Decker, Inc. | 56,160,689 | ||||||
1,334,400 | Kennametal, Inc. | 53,829,696 |
38 | ARIELINVESTMENTS.COM |
Ariel Appreciation Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—99.03% | Value | ||||||
Producer durables—16.11% (continued) | ||||||||
315,650 | Illinois Tool Works, Inc. | $46,703,574 | ||||||
236,000 | Snap-on, Inc. | 35,166,360 | ||||||
2,426,964 | Bristow Group, Inc.(b) | 22,692,113 | ||||||
|
|
| ||||||
273,506,123 | ||||||||
|
|
| ||||||
Technology—1.04% | ||||||||
208,289 | Anixter Intl, Inc.(a) | 17,704,565 | ||||||
|
|
| ||||||
Total common stocks (Cost $1,114,473,892) | 1,681,812,157 | |||||||
|
|
| ||||||
Number of shares | Short-term investments—0.89% | Value | ||||||
15,086,426 |
Northern Institutional Treasury Portfolio, 0.90%(c) | $15,086,426 | ||||||
|
|
| ||||||
Total short-term investments (Cost $15,086,426) | 15,086,426 | |||||||
|
|
| ||||||
Total Investments—99.92% (Cost $1,129,560,318) | 1,696,898,583 | |||||||
Other Assets less Liabilities—0.08% | 1,361,904 | |||||||
|
|
| ||||||
Net Assets—100.00% | $1,698,260,487 | |||||||
|
|
|
(a)Non-income producing.
(b)Affiliated company (See Note Seven, Transactions with Affiliated Companies).
(c)The rate presented is the rate in effect at September 30, 2017.
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 39 |
Ariel Focus Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—99.58% | Value | ||||||
Consumer discretionary & services—8.15% | ||||||||
63,500 | BorgWarner, Inc. | $3,253,105 | ||||||
34,300 | Adtalem Global Education, Inc. | 1,229,655 | ||||||
|
|
| ||||||
4,482,760 | ||||||||
|
|
| ||||||
Consumer staples—6.23% | ||||||||
34,100 | CVS Health Corp. | 2,773,012 | ||||||
6,200 | J.M. Smucker Co. | 650,566 | ||||||
|
|
| ||||||
3,423,578 | ||||||||
|
|
| ||||||
Energy—9.79% | ||||||||
26,000 | Exxon Mobil Corp. | 2,131,480 | ||||||
51,300 | National Oilwell Varco | 1,832,949 | ||||||
31,000 | Apache Corp. | 1,419,800 | ||||||
|
|
| ||||||
5,384,229 | ||||||||
|
|
| ||||||
Financial services—29.39% | ||||||||
142,400 | KKR & Co. L.P. | 2,894,992 | ||||||
53,100 | Lazard Ltd., Class A | 2,401,182 | ||||||
114,100 | Western Union Co. | 2,190,720 | ||||||
21,300 | JPMorgan Chase & Co. | 2,034,363 | ||||||
7,000 | Goldman Sachs Group, Inc. | 1,660,330 | ||||||
30,400 | Bank of New York Mellon Corp. | 1,611,808 | ||||||
30,200 | First American Financial Corp. | 1,509,094 | ||||||
26,600 | Progressive Corp. | 1,287,972 | ||||||
17,000 | Blackstone Group L.P. | 567,290 | ||||||
|
|
| ||||||
16,157,751 | ||||||||
|
|
| ||||||
Health care—15.51% | ||||||||
17,000 | Laboratory Corp. of America Holdings(a) | 2,566,490 | ||||||
20,300 | Zimmer Biomet Holdings, Inc. | 2,376,927 | ||||||
16,500 | Johnson & Johnson | 2,145,165 | ||||||
131,200 | Hanger, Inc.(a) | 1,441,888 | ||||||
|
|
| ||||||
8,530,470 | ||||||||
|
|
| ||||||
Materials & processing—8.22% | ||||||||
170,482 | Barrick Gold Corp. | 2,743,056 | ||||||
82,200 | Mosaic Co. | 1,774,698 | ||||||
|
|
| ||||||
4,517,754 | ||||||||
|
|
| ||||||
Producer durables—13.57% | ||||||||
7,856 | Lockheed Martin Corp. | 2,437,638 | ||||||
13,400 | Stanley Black & Decker, Inc. | 2,022,998 | ||||||
13,800 | Zebra Technologies Corp.(a) | 1,498,404 | ||||||
5,400 | Snap-on, Inc. | 804,654 | ||||||
52,400 | Team, Inc.(a) | 699,540 | ||||||
|
|
| ||||||
7,463,234 | ||||||||
|
|
| ||||||
Technology—8.72% | ||||||||
58,000 | Oracle Corp. | 2,804,300 | ||||||
13,700 | International Business Machines Corp. | 1,987,596 | ||||||
|
|
| ||||||
4,791,896 | ||||||||
|
|
| ||||||
Total common stocks (Cost $44,041,011) | 54,751,672 | |||||||
|
|
| ||||||
40 | ARIELINVESTMENTS.COM |
Ariel Focus Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Short-term investments—1.03% | Value | ||||||
567,308 |
Northern Institutional Treasury Portfolio, 0.90%(b) | $567,308 | ||||||
|
|
| ||||||
Total short-term investments (Cost $567,308) | 567,308 | |||||||
|
|
| ||||||
Total Investments—100.61% (Cost $44,608,319) | 55,318,980 | |||||||
Other Assets less Liabilities—(0.61)% | (333,661 | ) | ||||||
|
|
| ||||||
Net Assets—100.00% | $54,985,319 | |||||||
|
|
|
(a)Non-income producing.
(b)The rate presented is the rate in effect at September 30, 2017.
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 41 |
Ariel Discovery Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—95.81% | Value | ||||||
Consumer discretionary & services—20.22% | ||||||||
207,374 | Rosetta Stone, Inc.(a) | $2,117,289 | ||||||
252,357 | Century Casinos, Inc.(a) | 2,071,851 | ||||||
80,002 | XO Group, Inc.(a) | 1,573,639 | ||||||
27,922 | Strattec Security Corp. | 1,142,010 | ||||||
26,700 | Movado Group, Inc. | 747,600 | ||||||
55,575 | Gaia, Inc.(a) | 666,900 | ||||||
|
|
| ||||||
8,319,289 | ||||||||
|
|
| ||||||
Energy—6.41% | ||||||||
73,300 | Gulf Island Fabrication, Inc. | 930,910 | ||||||
91,856 | Green Brick Partners, Inc.(a) | 909,374 | ||||||
143,902 | Mitcham Industries, Inc.(a) | 502,218 | ||||||
58,354 | Contango Oil & Gas Co.(a) | 293,521 | ||||||
|
|
| ||||||
2,636,023 | ||||||||
|
|
| ||||||
Financial services—19.16% | ||||||||
119,808 | Cowen Group, Inc., Class A(a) | 2,132,582 | ||||||
30,600 | First American Financial Corp. | 1,529,082 | ||||||
74,100 | Capital Southwest Corp. | 1,269,333 | ||||||
94,993 | Safeguard Scientifics, Inc.(a) | 1,268,157 | ||||||
15,200 | MB Financial, Inc. | 684,304 | ||||||
28,600 | Atlas Financial Holdings, Inc.(a) | 540,540 | ||||||
21,802 | Tejon Ranch Co.(a) | 460,022 | ||||||
|
|
| ||||||
7,884,020 | ||||||||
|
|
| ||||||
Health care—3.30% | ||||||||
172,985 | Kindred Biosciences, Inc.(a) | 1,357,932 | ||||||
|
|
| ||||||
Materials & processing—3.89% | ||||||||
25,800 | U.S. Silica Holdings, Inc. | 801,606 | ||||||
382,291 | Orion Energy Systems, Inc.(a) | 428,166 | ||||||
28,731 | Landec Corp.(a) | 372,067 | ||||||
|
|
| ||||||
1,601,839 | ||||||||
|
|
| ||||||
Producer durables—9.11% | ||||||||
170,874 | Ballantyne Strong, Inc.(a) | 1,042,331 | ||||||
95,300 | Bristow Group, Inc. | 891,055 | ||||||
18,098 | CRA International, Inc. | 742,923 | ||||||
41,199 | Team, Inc.(a) | 550,007 | ||||||
47,225 | Spartan Motors, Inc. | 521,836 | ||||||
|
|
| ||||||
3,748,152 | ||||||||
|
|
| ||||||
Technology—29.80% | ||||||||
486,996 | RealNetworks, Inc.(a) | 2,337,581 | ||||||
222,334 | Telenav, Inc.(a) | 1,411,821 | ||||||
102,525 | TechTarget, Inc.(a) | 1,224,149 | ||||||
190,137 | PCTEL, Inc. | 1,197,863 | ||||||
138,500 | GSI Technology, Inc.(a) | 1,006,895 | ||||||
349,132 | Synacor, Inc.(a) | 942,656 | ||||||
131,285 | Pendrell Corp.(a) | 896,677 | ||||||
320,780 | SeaChange Intl, Inc.(a) | 878,937 | ||||||
212,000 | Glu Mobile, Inc.(a) | 797,120 | ||||||
105,900 | Edgewater Technology, Inc.(a) | 690,468 | ||||||
29,595 | AstroNova, Inc. | 383,255 | ||||||
24,574 | Electro Scientific Industries, Inc.(a) | 342,070 | ||||||
77,510 | GlassBridge Enterprises, Inc.(a) | 154,245 | ||||||
|
|
| ||||||
12,263,737 | ||||||||
|
|
| ||||||
42 | ARIELINVESTMENTS.COM |
Ariel Discovery Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—95.81% | Value | ||||||
Utilities—3.92% | ||||||||
154,186 | ORBCOMM, Inc.(a) | $1,614,327 | ||||||
|
|
| ||||||
Total common stocks (Cost $39,211,293) | 39,425,319 | |||||||
|
|
|
Number of shares | Short-term investments—4.25% | Value | ||||||
1,747,830 | Northern Institutional Treasury Portfolio, 0.90%(b) | $1,747,830 | ||||||
|
|
| ||||||
Total short-term investments (Cost $1,747,830) | 1,747,830 | |||||||
|
|
| ||||||
Total Investments—100.06% (Cost $40,959,123) | 41,173,149 | |||||||
Other Assets less Liabilities—(0.06)% | (26,209 | ) | ||||||
|
|
| ||||||
Net Assets—100.00% | $41,146,940 | |||||||
|
|
|
(a)Non-income producing.
(b)The rate presented is the rate in effect at September 30, 2017.
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 43 |
Ariel International Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—83.86% | Value | ||||||
Australia—0.21% | ||||||||
272,737 | AMP Ltd. | �� | $1,033,306 | |||||
|
|
| ||||||
Belgium—0.05% | ||||||||
2,646 | Galapagos N.V.(a) | 269,543 | ||||||
|
|
| ||||||
Canada—1.41% | ||||||||
114,885 | IGM Financial, Inc. | 3,861,572 | ||||||
37,845 | Suncor Energy, Inc. | 1,326,357 | ||||||
23,514 | Magna International, Inc. | 1,254,897 | ||||||
36,276 | Hydro One Ltd. | 660,541 | ||||||
|
|
| ||||||
7,103,367 | ||||||||
|
|
| ||||||
China—8.03% | ||||||||
67,085 | Baidu, Inc. ADR(a) | 16,616,284 | ||||||
1,604,000 | China Mobile Ltd. | 16,252,317 | ||||||
143,110 | China Mobile Ltd. ADR | 7,237,073 | ||||||
29,000 | Shenzhou International Group Holdings, Ltd. | 227,200 | ||||||
|
|
| ||||||
40,332,874 | ||||||||
|
|
| ||||||
Denmark—0.14% | ||||||||
14,540 | Novo Nordisk A/S | 695,103 | ||||||
|
|
| ||||||
Finland—4.69% | ||||||||
3,677,883 | Nokia Corp. ADR | 21,993,740 | ||||||
258,159 | Nokia Corp. | 1,550,000 | ||||||
|
|
| ||||||
23,543,740 | ||||||||
|
|
| ||||||
France—5.82% | ||||||||
132,990 | Michelin (CGDE) | 19,411,839 | ||||||
65,470 | Safran SA | 6,688,640 | ||||||
16,965 | Thales SA | 1,920,478 | ||||||
5,709 | Euler Hermes Group | 674,747 | ||||||
5,010 | Sanofi | 497,450 | ||||||
|
|
| ||||||
29,193,154 | ||||||||
|
|
| ||||||
Germany—10.78% | ||||||||
268,833 | Deutsche Boerse AG | 29,139,360 | ||||||
3,294,712 | Telefonica Deutschland Holding | 18,488,807 | ||||||
120,654 | Dialog Semiconductor plc(a) | 5,328,285 | ||||||
16,966 | GEA Group AG | 771,806 | ||||||
5,261 | Drillisch AG | 368,975 | ||||||
|
|
| ||||||
54,097,233 | ||||||||
|
|
| ||||||
Hong Kong—0.88% | ||||||||
8,815,321 | Li & Fung Ltd. | 4,423,685 | ||||||
|
|
| ||||||
Italy—3.04% | ||||||||
2,744,848 | Snam SpA | 13,223,098 | ||||||
47,762 | Azimut Holdings SpA | 1,033,033 | ||||||
176,718 | Italgas SpA | 992,099 | ||||||
|
|
| ||||||
15,248,230 | ||||||||
|
|
| ||||||
Japan—16.24% | ||||||||
46,400 | Nintendo Co., Ltd. | 17,137,383 | ||||||
613,200 | NTT DOCOMO, Inc. | 14,007,826 | ||||||
221,300 | Nippon Telegraph & Telephone Corp. | 10,142,138 | ||||||
75,800 | Shimamura Co., Ltd. | 9,093,979 | ||||||
258,700 | Japan Tobacco, Inc. | 8,478,877 |
44 | ARIELINVESTMENTS.COM |
Ariel International Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—83.86% | Value | ||||||
Japan—16.24% (continued) | ||||||||
1,079,800 | Seven Bank Ltd. | $3,896,013 | ||||||
19,300 | Daito Trust Construction Co., Ltd. | 3,516,107 | ||||||
93,600 | Subaru Corp. | 3,377,169 | ||||||
42,700 | Toyota Motor Corp. | 2,546,252 | ||||||
28,200 | Secom Co., Ltd. | 2,055,511 | ||||||
39,800 | Mabuchi Motor Co., Ltd. | 1,991,326 | ||||||
55,700 | Canon, Inc. | 1,903,279 | ||||||
6,000 | Murata Manufacturing Co., Ltd. | 881,937 | ||||||
19,400 | Chugai Pharmaceutical Co., Ltd. | 805,137 | ||||||
24,400 | Ono Pharmaceutical Co., Ltd. | 552,835 | ||||||
15,400 | ASKUL Corp. | 433,841 | ||||||
22,100 | Japan Exchange Group, Inc. | 391,034 | ||||||
5,500 | Takeda Pharmaceutical Co., Ltd. | 303,728 | ||||||
|
|
| ||||||
81,514,372 | ||||||||
|
|
| ||||||
Luxembourg—1.31% | ||||||||
44,961 | RTL Group(b) | 3,403,048 | ||||||
110,858 | Tenaris ADR | 3,138,390 | ||||||
268 | RTL Group(c) | 20,300 | ||||||
|
|
| ||||||
6,561,738 | ||||||||
|
|
| ||||||
Netherlands—6.28% | ||||||||
1,102,626 | Koninklijke Ahold Delhaize N.V. | 20,616,524 | ||||||
244,008 | Gemalto N.V. | 10,899,816 | ||||||
|
|
| ||||||
31,516,340 | ||||||||
|
|
| ||||||
Singapore—0.32% | ||||||||
66,400 | United Overseas Bank Ltd. | 1,150,356 | ||||||
88,600 | Singapore Exchange Ltd. | 482,697 | ||||||
|
|
| ||||||
1,633,053 | ||||||||
|
|
| ||||||
Spain—3.23% | ||||||||
409,334 | Endesa SA | 9,228,329 | ||||||
221,086 | Tecnicas Reunidas SA | 6,988,510 | ||||||
|
|
| ||||||
16,216,839 | ||||||||
|
|
| ||||||
Sweden—0.21% | ||||||||
40,068 | H&M Hennes & Mauritz AB, Class B | 1,037,993 | ||||||
|
|
| ||||||
Switzerland—8.98% | ||||||||
93,192 | Roche Holding AG | 23,790,016 | ||||||
30,957 | Swisscom AG | 15,862,925 | ||||||
1,025 | SGS SA | 2,458,899 | ||||||
91,924 | UBS AG | 1,571,066 | ||||||
10,870 | Novartis AG | 933,189 | ||||||
2,772 | Nestle SA | 232,157 | ||||||
101 | Givaudan SA | 219,764 | ||||||
|
|
| ||||||
45,068,016 | ||||||||
|
|
| ||||||
United Arab Emirates—0.15% | ||||||||
2,561,105 | Dubai Financial Market(a) | 775,925 | ||||||
|
|
| ||||||
United Kingdom—7.90% | ||||||||
1,189,997 | GlaxoSmithKline plc | 23,735,561 | ||||||
105,887 | Reckitt Benckiser Group plc | 9,666,869 | ||||||
372,425 | National Grid plc | 4,614,212 | ||||||
39,823 | GlaxoSmithKline plc ADR | 1,616,814 | ||||||
|
|
| ||||||
39,633,456 | ||||||||
|
|
|
800.292.7435 | 45 |
Ariel International Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—83.86% | Value | ||||||
United States—4.19% | ||||||||
59,489 | Philip Morris Intl, Inc. | $6,603,874 | ||||||
46,751 | EOG Resources, Inc. | 4,522,692 | ||||||
43,102 | Core Laboratories N.V. | 4,254,167 | ||||||
35,607 | Occidental Petroleum Corp. | 2,286,325 | ||||||
47,407 | Fluor Corp. | 1,995,835 | ||||||
9,179 | Pioneer Natural Resources Co. | 1,354,270 | ||||||
|
|
| ||||||
21,017,163 | ||||||||
|
|
| ||||||
Total common stocks (Cost $389,806,355) | 420,915,130 | |||||||
|
|
| ||||||
Number of shares | Investment companies—1.61% | Value | ||||||
Exchange Traded Funds—1.61% | ||||||||
186,469 | Vanguard FTSE Developed Markets ETF | $8,094,619 | ||||||
|
|
| ||||||
Total Investment companies (Cost $7,038,480) | 8,094,619 | |||||||
|
|
| ||||||
Number of shares | Short-term investments—4.63% | Value | ||||||
|
23,239,370 |
|
Northern Institutional Treasury Portfolio, 0.90%(d) |
|
$23,239,370 |
| ||
|
|
| ||||||
Total short-term investments (Cost $23,239,370) | 23,239,370 | |||||||
|
|
| ||||||
Total Investments—90.10% (Cost $420,084,205) | 452,249,119 | |||||||
Cash, Foreign Currency, Other Assets less Liabilities—9.90% | 49,707,216 | |||||||
|
|
| ||||||
Net Assets—100.00% | $501,956,335 | |||||||
|
|
|
(a)Non-income producing.
(b)This security was purchased through more than one stock exchange and this line represents shares purchased through Xetra.
(c)This security was purchased through more than one stock exchange and this line represents shares purchased through Euronext Brussels.
(d)The rate presented is the rate in effect at September 30, 2017.
ADR American Depositary Receipt
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
46 | ARIELINVESTMENTS.COM |
Ariel International Fund schedule of investments | 09/30/17 | |||
| ||||
At September 30, 2017, the open forward currency contracts are:
Contract settlement date | Counterparty | Currency to be received | Amount to be received | Currency to be delivered | Amount to be delivered | Unrealized appreciation (depreciation) | ||||||||||||||||
Open forward currency contracts with unrealized appreciation | ||||||||||||||||||||||
10/25/2017 | UBS AG | USD | 793,877 | CAD | 986,500 | $3,111 | ||||||||||||||||
10/25/2017 | UBS AG | GBP | 527,657 | CNH | 4,697,352 | 1,822 | ||||||||||||||||
10/25/2017 | UBS AG | GBP | 1,447,792 | EUR | 1,612,903 | 32,759 | ||||||||||||||||
10/25/2017 | UBS AG | CAD | 986,500 | USD | 780,072 | 10,694 | ||||||||||||||||
10/25/2017 | UBS AG | GBP | 7,386,749 | USD | 9,717,866 | 188,687 | ||||||||||||||||
10/25/2017 | UBS AG | GBP | 1,620,825 | USD | 2,132,327 | 41,402 | ||||||||||||||||
10/25/2017 | UBS AG | SGD | 1,285,787 | USD | 942,738 | 5,454 | ||||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal UBS AG | 283,929 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||
10/25/2017 | Northern Trust | GBP | 329,791 | CAD | 538,703 | 10,473 | ||||||||||||||||
10/25/2017 | Northern Trust | USD | 630,202 | CAD | 782,507 | 2,955 | ||||||||||||||||
10/25/2017 | Northern Trust | GBP | 1,582,748 | CNH | 14,080,212 | 6,948 | ||||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal Northern Trust | 20,376 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||
10/25/2017 | JPMorgan Chase | GBP | 585,857 | CAD | 958,000 | 17,787 | ||||||||||||||||
10/25/2017 | JPMorgan Chase | GBP | 1,199,449 | USD | 1,577,841 | 30,769 | ||||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal JPMorgan Chase | 48,556 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal unrealized appreciation | 352,861 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||
Open forward currency contracts with unrealized depreciation | ||||||||||||||||||||||
10/25/2017 | UBS AG | JPY | 786,196,869 | CNH | 48,235,896 | (252,305 | ) | |||||||||||||||
10/25/2017 | UBS AG | USD | 1,118,010 | CNH | 7,565,794 | (18,838 | ) | |||||||||||||||
10/25/2017 | UBS AG | USD | 12,079,893 | CNH | 81,747,051 | (203,544 | ) | |||||||||||||||
10/25/2017 | UBS AG | NOK | 9,539,553 | EUR | 1,021,694 | (10,758 | ) | |||||||||||||||
10/25/2017 | UBS AG | SEK | 21,146,200 | EUR | 2,217,036 | (23,958 | ) | |||||||||||||||
10/25/2017 | UBS AG | USD | 5,563,294 | EUR | 4,711,063 | (12,367 | ) | |||||||||||||||
10/25/2017 | UBS AG | AUD | 6,267,576 | USD | 4,949,373 | (34,706 | ) | |||||||||||||||
10/25/2017 | UBS AG | AUD | 16,377,376 | USD | 13,066,853 | (224,670 | ) | |||||||||||||||
10/25/2017 | UBS AG | JPY | 956,265,813 | USD | 8,669,288 | (160,295 | ) | |||||||||||||||
10/25/2017 | UBS AG | NOK | 8,234,555 | USD | 1,037,012 | (2,515 | ) | |||||||||||||||
10/25/2017 | UBS AG | NOK | 6,698,352 | USD | 846,979 | (5,473 | ) | |||||||||||||||
10/25/2017 | UBS AG | SEK | 31,556,783 | USD | 3,906,848 | (26,890 | ) | |||||||||||||||
10/25/2017 | UBS AG | SEK | 40,761,625 | USD | 5,043,647 | (31,939 | ) | |||||||||||||||
10/25/2017 | UBS AG | SGD | 3,354,783 | USD | 2,475,000 | (1,047 | ) | |||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal UBS AG | (1,009,305 | ) | ||||||||||||||||||||
|
|
|
800.292.7435 | 47 |
Ariel International Fund schedule of investments | 09/30/17 | |||
| ||||
Contract settlement date | Counterparty | Currency to be received | Amount to be received | Currency to be delivered | Amount to be delivered | Unrealized appreciation (depreciation) | ||||||||||||||||
10/25/2017 | Northern Trust | AUD | 1,200,361 | CAD | 1,190,044 | $(12,671 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 3,090,564 | CAD | 3,064,000 | (32,623 | ) | |||||||||||||||
10/25/2017 | Northern Trust | USD | 1,556,239 | CAD | 1,959,895 | (14,787 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 1,692,386 | CHF | 1,301,000 | (18,723 | ) | |||||||||||||||
10/25/2017 | Northern Trust | EUR | 470,444 | CNH | 3,756,000 | (7,600 | ) | |||||||||||||||
10/25/2017 | Northern Trust | USD | 3,229,252 | CNH | 21,596,947 | (15,938 | ) | |||||||||||||||
10/25/2017 | Northern Trust | JPY | 351,845,875 | EUR | 2,700,180 | (64,955 | ) | |||||||||||||||
10/25/2017 | Northern Trust | USD | 1,761,227 | EUR | 1,491,761 | (4,310 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 561,050 | USD | 447,979 | (8,036 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 1,392,308 | USD | 1,111,709 | (19,942 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 1,560,177 | USD | 1,245,747 | (22,347 | ) | |||||||||||||||
10/25/2017 | Northern Trust | AUD | 2,610,449 | USD | 2,084,352 | (37,390 | ) | |||||||||||||||
10/25/2017 | Northern Trust | EUR | 1,491,761 | USD | 1,788,893 | (23,357 | ) | |||||||||||||||
10/25/2017 | Northern Trust | JPY | 589,260,854 | USD | 5,338,915 | (95,586 | ) | |||||||||||||||
10/25/2017 | Northern Trust | SEK | 5,128,119 | USD | 635,262 | (4,751 | ) | |||||||||||||||
10/25/2017 | Northern Trust | SGD | 565,026 | USD | 416,870 | (197 | ) | |||||||||||||||
10/25/2017 | Northern Trust | SGD | 949,238 | USD | 708,686 | (8,679 | ) | |||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal Northern Trust | (391,892 | ) | ||||||||||||||||||||
|
|
| ||||||||||||||||||||
10/25/2017 | JPMorgan Chase | USD | 2,811,918 | CNH | 18,837,209 | (18,589 | ) | |||||||||||||||
10/25/2017 | JPMorgan Chase | USD | 2,173,648 | CNH | 14,707,557 | (36,332 | ) | |||||||||||||||
10/25/2017 | JPMorgan Chase | AUD | 5,370,182 | EUR | 3,629,600 | (84,739 | ) | |||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal JPMorgan Chase | (139,660 | ) | ||||||||||||||||||||
|
|
| ||||||||||||||||||||
Subtotal unrealized depreciation | (1,540,857 | ) | ||||||||||||||||||||
|
|
| ||||||||||||||||||||
Net unrealized appreciation (depreciation) on forward currency contracts |
| $(1,187,996 | ) | |||||||||||||||||||
|
|
|
The accompanying notes are an integral part of the financial statements.
48 | ARIELINVESTMENTS.COM |
Ariel Global Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—92.85% | Value | ||||||
Australia—0.09% | ||||||||
24,314 | AMP Ltd. | $92,117 | ||||||
|
|
| ||||||
Brazil—0.10% | ||||||||
11,486 | BB Seguridade Participacoes SA | 103,830 | ||||||
|
|
| ||||||
Canada—0.87% | ||||||||
13,113 | IGM Financial, Inc. | 440,761 | ||||||
7,877 | Suncor Energy, Inc. | 276,066 | ||||||
2,092 | Magna International, Inc. | 111,646 | ||||||
2,635 | Hydro One Ltd. | 47,980 | ||||||
|
|
| ||||||
876,453 | ||||||||
|
|
| ||||||
Chile—0.48% | ||||||||
16,503 | Banco Santander-Chile ADR | 490,304 | ||||||
|
|
| ||||||
China—10.55% | ||||||||
23,016 | Baidu, Inc. ADR(a) | 5,700,833 | ||||||
272,000 | China Mobile Ltd. | 2,756,004 | ||||||
44,218 | China Mobile Ltd. ADR | 2,236,104 | ||||||
|
|
| ||||||
10,692,941 | ||||||||
|
|
| ||||||
Denmark—0.05% | ||||||||
1,018 | Novo Nordisk A/S | 48,667 | ||||||
|
|
| ||||||
Finland—4.21% | ||||||||
682,605 | Nokia Corp. ADR | 4,081,978 | ||||||
31,270 | Nokia Corp. | 187,747 | ||||||
|
|
| ||||||
4,269,725 | ||||||||
|
|
| ||||||
France—4.57% | ||||||||
22,729 | Michelin (CGDE) | 3,317,631 | ||||||
10,847 | Safran SA | 1,108,167 | ||||||
1,785 | Thales SA | 202,066 | ||||||
|
|
| ||||||
4,627,864 | ||||||||
|
|
| ||||||
Germany—4.64% | ||||||||
27,784 | Deutsche Boerse AG | 3,011,565 | ||||||
257,497 | Telefonica Deutschland Holding | 1,444,986 | ||||||
5,676 | Dialog Semiconductor plc(a) | 250,662 | ||||||
|
|
| ||||||
4,707,213 | ||||||||
|
|
| ||||||
Hong Kong—0.24% | ||||||||
486,000 | Li & Fung Ltd. | 243,883 | ||||||
|
|
| ||||||
Italy—1.11% | ||||||||
232,724 | Snam SpA | 1,121,130 | ||||||
|
|
| ||||||
Japan—8.05% | ||||||||
107,200 | NTT DOCOMO, Inc. | 2,448,857 | ||||||
37,500 | Nippon Telegraph & Telephone Corp. | 1,718,618 | ||||||
4,250 | Nintendo Co., Ltd. | 1,569,696 | ||||||
36,500 | Japan Tobacco, Inc. | 1,196,285 | ||||||
15,500 | Subaru Corp. | 559,253 | ||||||
2,800 | Secom Co., Ltd. | 204,093 | ||||||
1,700 | Shimamura Co., Ltd. | 203,955 |
800.292.7435 | 49 |
Ariel Global Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—92.85% | Value | ||||||
Japan—8.05% (continued) | ||||||||
1,700 | Toyota Motor Corp. | $101,373 | ||||||
600 | Murata Manufacturing Co., Ltd. | 88,194 | ||||||
400 | Daito Trust Construction Co., Ltd. | 72,873 | ||||||
|
|
| ||||||
8,163,197 | ||||||||
|
|
| ||||||
Mexico—0.40% | ||||||||
122,441 | Wal-Mart de Mexico SAB de CV | 280,384 | ||||||
12,718 | Santander Mexico Financial Group ADR | 128,325 | ||||||
|
|
| ||||||
408,709 | ||||||||
|
|
| ||||||
Netherlands—2.86% | ||||||||
97,549 | Koninklijke Ahold Delhaize N.V. | 1,823,938 | ||||||
24,098 | Gemalto N.V. | 1,076,455 | ||||||
|
|
| ||||||
2,900,393 | ||||||||
|
|
| ||||||
Singapore—0.14% | ||||||||
8,300 | United Overseas Bank Ltd. | 143,794 | ||||||
|
|
| ||||||
Spain—0.99% | ||||||||
44,626 | Endesa SA | 1,006,082 | ||||||
|
|
| ||||||
Switzerland—7.33% | ||||||||
19,731 | Roche Holding AG | 5,036,922 | ||||||
4,151 | Swisscom AG | 2,127,047 | ||||||
109 | SGS SA | 261,483 | ||||||
|
|
| ||||||
7,425,452 | ||||||||
|
|
| ||||||
Thailand—0.61% | ||||||||
98,100 | Kasikornbank PCL | 612,674 | ||||||
|
|
| ||||||
United Kingdom—6.37% | ||||||||
139,883 | GlaxoSmithKline plc | 2,790,092 | ||||||
61,450 | GlaxoSmithKline plc ADR | 2,494,870 | ||||||
59,012 | National Grid plc | 731,137 | ||||||
4,781 | Reckitt Benckiser Group plc | 436,478 | ||||||
|
|
| ||||||
6,452,577 | ||||||||
|
|
| ||||||
United States—39.19% | ||||||||
99,129 | Microsoft Corp. | 7,384,119 | ||||||
75,092 | Gilead Sciences, Inc. | 6,083,954 | ||||||
32,183 | Johnson & Johnson | 4,184,112 | ||||||
18,018 | Berkshire Hathaway, Inc., Class B(a) | 3,303,060 | ||||||
27,573 | American Express Co. | 2,494,254 | ||||||
20,729 | Philip Morris Intl, Inc. | 2,301,126 | ||||||
28,453 | Southern Co. | 1,398,180 | ||||||
27,019 | Verizon Communications, Inc. | 1,337,170 | ||||||
7,426 | Costco Wholesale Corp. | 1,220,018 | ||||||
28,672 | Fluor Corp. | 1,207,091 | ||||||
16,113 | Schlumberger Ltd. | 1,124,043 | ||||||
8,910 | Sempra Energy | 1,016,898 | ||||||
8,386 | Core Laboratories N.V. | 827,698 | ||||||
12,345 | Occidental Petroleum Corp. | 792,672 | ||||||
13,109 | U.S. Bancorp | 702,511 | ||||||
6,084 | EOG Resources, Inc. | 588,566 | ||||||
3,838 | Pioneer Natural Resources Co. | 566,259 | ||||||
8,486 | Discover Financial Services | 547,177 | ||||||
110,981 | Acacia Research Corp.(a) | 504,964 | ||||||
4,561 | Quest Diagnostics, Inc. | 427,092 |
50 | ARIELINVESTMENTS.COM |
Ariel Global Fund schedule of investments | 09/30/17 | |||
| ||||
Number of shares | Common stocks—92.85% | Value | ||||||
United States—39.19% (continued) | ||||||||
2,616 | CME Group, Inc. | $354,939 | ||||||
6,818 | Coach, Inc. | 274,629 | ||||||
32,043 | Pandora Media, Inc.(a) | 246,731 | ||||||
2,924 | Tractor Supply Co. | 185,060 | ||||||
1,168 | Accenture plc, Class A | 157,762 | ||||||
785 | FactSet Research Systems, Inc. | 141,386 | ||||||
2,719 | TripAdvisor, Inc.(a) | 110,201 | ||||||
1,205 | InterDigital, Inc. | 88,869 | ||||||
791 | Intercontinental Exchange, Inc. | 54,342 | ||||||
853 | Expeditors International of Washington, Inc. | 51,061 | ||||||
265 | Acuity Brands, Inc. | 45,389 | ||||||
|
|
| ||||||
39,721,333 | ||||||||
|
|
| ||||||
Total common stocks (Cost $80,319,138) | 94,108,338 | |||||||
|
|
| ||||||
Number of shares | Short-term investments—5.17% | Value | ||||||
5,245,317 | Northern Institutional Treasury Portfolio, 0.90%(b) | $5,245,317 | ||||||
|
|
| ||||||
Total short-term investments (Cost $5,245,317) | 5,245,317 | |||||||
|
|
| ||||||
Total Investments—98.02% (Cost $85,564,455) | 99,353,655 | |||||||
Cash, Foreign Currency, Other Assets less Liabilities—1.98% | 2,003,279 | |||||||
|
|
| ||||||
Net Assets—100.00% | $101,356,934 | |||||||
|
|
|
(a)Non-income producing.
(b)The rate presented is the rate in effect at September 30, 2017.
ADR American Depositary Receipt
A category may contain multiple industries as defined by the Global Industry Classification Standards.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 51 |
Ariel Global Fund schedule of investments | 09/30/17 | |||
| ||||
At September 30, 2017, the open forward currency contracts are:
Contract settlement date | Counterparty | Currency to be received | Amount to be received | Currency to be delivered | Amount to be delivered | Unrealized appreciation (depreciation) | ||||||||||||||||||
Open forward currency contracts with unrealized appreciation |
| |||||||||||||||||||||||
10/25/2017 | Northern Trust | USD | 939,881 | CHF | 904,938 | $3,786 | ||||||||||||||||||
10/25/2017 | Northern Trust | USD | 970,367 | JPY | 107,100,261 | 17,373 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal Northern Trust | 21,159 | |||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal unrealized appreciation | 21,159 | |||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Open forward currency contracts with unrealized depreciation |
| |||||||||||||||||||||||
10/25/2017 | UBS AG | EUR | 262,731 | CNH | 2,099,545 | (4,532 | ) | |||||||||||||||||
10/25/2017 | UBS AG | JPY | 149,085,910 | CNH | 9,146,936 | (47,844 | ) | |||||||||||||||||
10/25/2017 | UBS AG | USD | 3,377,070 | CNH | 22,853,309 | (56,903 | ) | |||||||||||||||||
10/25/2017 | UBS AG | NOK | 1,732,788 | EUR | 185,583 | (1,954 | ) | |||||||||||||||||
10/25/2017 | UBS AG | USD | 2,842,712 | EUR | 2,407,242 | (6,319 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal UBS AG | (117,552 | ) | ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
10/25/2017 | Northern Trust | AUD | 758,387 | CHF | 583,000 | (8,390 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | CAD | 525,834 | CHF | 407,753 | (290 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | USD | 654,705 | CNH | 4,378,607 | (3,231 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | AUD | 1,543,303 | EUR | 1,043,745 | (25,130 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | CAD | 317,139 | EUR | 216,334 | (1,822 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | CAD | 798,953 | EUR | 545,000 | (4,590 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | JPY | 76,624,187 | EUR | 588,039 | (14,146 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | SEK | 4,570,318 | EUR | 479,538 | (5,617 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | USD | 256,692 | EUR | 217,418 | (628 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | USD | 510,302 | EUR | 432,226 | (1,249 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | AUD | 313,079 | GBP | 190,026 | (9,350 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | SEK | 1,964,696 | GBP | 185,007 | (6,555 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | SGD | 159,387 | USD | 117,594 | (56 | ) | |||||||||||||||||
10/25/2017 | Northern Trust | SGD | 198,361 | USD | 148,093 | (1,814 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal Northern Trust | (82,868 | ) | ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal unrealized depreciation | (200,420 | ) | ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net unrealized appreciation (depreciation) on forward currency contracts |
| $(179,261 | ) | |||||||||||||||||||||
|
|
|
The accompanying notes are an integral part of the financial statements.
52 | ARIELINVESTMENTS.COM |
Statements of assets & liabilities | 09/30/17 | |||
| ||||
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | |||||||||||||
Assets: | ||||||||||||||||
Investments in unaffiliated issuers, at value (cost $1,051,873,029, $981,120,559, $44,041,011 and $39,211,293, respectively) | $1,951,333,129 | $1,659,120,044 | $54,751,672 | $39,425,319 | ||||||||||||
Investments in affiliated issuers, at value (cost $287,029,980 and $133,353,333, respectively) | 168,247,234(a) | 22,692,113 | (a) | — | — | |||||||||||
Short-term investments, at value (cost $16,351,749, $15,086,426, $567,308 and $1,747,830, respectively) | 16,351,749 | 15,086,426 | 567,308 | 1,747,830 | ||||||||||||
Dividends and interest receivable | 1,644,837 | 1,849,045 | 7,801 | 19,277 | ||||||||||||
Receivable for fund shares sold | 640,181 | 738,333 | 25,001 | 13,366 | ||||||||||||
Receivable for securities sold | — | — | 210,159 | 111,816 | ||||||||||||
Prepaid and other assets | 36,946 | 33,375 | 1,033 | 1,285 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets | 2,138,254,076 | 1,699,519,336 | 55,562,974 | 41,318,893 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities: | ||||||||||||||||
Payable for securities purchased | — | — | 556,670 | 153,689 | ||||||||||||
Payable for fund shares redeemed | 1,050,676 | 755,709 | 1,800 | — | ||||||||||||
Other liabilities | 586,060 | 503,140 | 19,185 | 18,264 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities | 1,636,736 | 1,258,849 | 577,655 | 171,953 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets | $2,136,617,340 | $1,698,260,487 | $54,985,319 | $41,146,940 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets consist of: | ||||||||||||||||
Paid-in capital | $1,291,991,488 | $983,785,134 | $42,152,924 | $44,396,283 | ||||||||||||
Undistributed net investment income (loss) | 32,275,297 | 29,190,968 | 410,205 | (32,985) | ||||||||||||
Accumulated net realized gain (loss) on investments | 31,673,201 | 117,946,120 | 1,711,529 | (3,430,384) | ||||||||||||
Net unrealized appreciation (depreciation) on investments | 780,677,354 | 567,338,265 | 10,710,661 | 214,026 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets | $2,136,617,340 | $1,698,260,487 | $54,985,319 | $41,146,940 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investor class shares: | ||||||||||||||||
Net assets | $1,542,729,893 | $1,450,734,959 | $40,606,965 | $8,508,770 | ||||||||||||
Shares outstanding (no par value, unlimited authorized) | 22,322,598 | 28,494,608 | 2,961,498 | 793,750 | ||||||||||||
Net asset value, offering and redemption price per share | $69.11 | $50.91 | $13.71 | $10.72 | ||||||||||||
Institutional class shares: | ||||||||||||||||
Net assets | $593,887,447 | $247,525,528 | $14,378,354 | $32,638,170 | ||||||||||||
Shares outstanding (no par value, unlimited authorized) | 8,572,305 | 4,846,347 | 1,050,253 | 2,992,659 | ||||||||||||
Net asset value, offering and redemption price per share | $69.28 | $51.07 | $13.69 | $10.91 |
(a)See Note Seven, Transactions with Affiliated Companies, for information on affiliated issuers.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 53 |
Statements of assets & liabilities | 09/30/17 | |||
| ||||
Ariel International Fund | Ariel Global Fund | |||||||
Assets: | ||||||||
Investments in unaffiliated issuers, at value (cost $396,844,835 and $80,319,138, respectively) | $429,009,749 | $94,108,338 | ||||||
Short-term investments, at value (cost $23,239,370 and $5,245,317, respectively) | 23,239,370 | 5,245,317 | ||||||
Foreign currencies (cost $22,909,158 and $1,980,583, respectively) | 23,465,645 | 1,995,999 | ||||||
Dividends and interest receivable | 1,452,848 | 327,106 | ||||||
Receivable for dividend reclaims | 602,739 | 178,027 | ||||||
Receivable for fund shares sold | 25,168,657 | 119,962 | ||||||
Receivable for securities and foreign currencies sold | 385,156 | 97,978 | ||||||
Unrealized appreciation of forward currency contracts | 352,861 | 21,159 | ||||||
Prepaid and other assets | 5,222 | 146 | ||||||
|
|
|
|
|
| |||
Total assets | 503,682,247 | 102,094,032 | ||||||
|
|
|
|
|
| |||
Liabilities: | ||||||||
Payable for securities and foreign currencies purchased | 83,120 | 210,886 | ||||||
Payable for fund shares redeemed | 19,009 | 300,000 | ||||||
Unrealized depreciation of forward currency contracts | 1,540,857 | 200,420 | ||||||
Other liabilities | 82,926 | 25,792 | ||||||
|
|
|
|
|
| |||
Total liabilities | 1,725,912 | 737,098 | ||||||
|
|
|
|
|
| |||
Net assets | $501,956,335 | $101,356,934 | ||||||
|
|
|
|
|
| |||
Net assets consist of: | ||||||||
Paid-in capital | $457,073,488 | $83,057,015 | ||||||
Undistributed net investment income | 6,980,146 | 1,224,095 | ||||||
Accumulated net realized gain on investments, foreign currencies and forward currency contracts | 6,345,900 | 3,448,074 | ||||||
Net unrealized appreciation (depreciation) on: | ||||||||
Investments | 32,164,914 | 13,789,200 | ||||||
Translation of assets and liabilities in foreign currencies | 579,883 | 17,811 | ||||||
Forward currency contracts | (1,187,996) | (179,261) | ||||||
|
|
|
|
|
| |||
Net assets | $501,956,335 | $101,356,934 | ||||||
|
|
|
|
|
| |||
Investor class shares: | ||||||||
Net assets | $70,615,804 | $11,458,593 | ||||||
Shares outstanding (no par value, unlimited authorized) | 4,964,125 | 713,991 | ||||||
Net asset value, offering and redemption price per share | $14.23 | $16.05 | ||||||
Institutional class shares: | ||||||||
Net assets | $431,340,531 | $89,898,341 | ||||||
Shares outstanding (no par value, unlimited authorized) | 30,831,762 | 5,775,122 | ||||||
Net asset value, offering and redemption price per share | $13.99 | $15.57 |
The accompanying notes are an integral part of the financial statements.
54 | ARIELINVESTMENTS.COM |
Statements of operations | YEAR ENDED 09/30/17 | |||
| ||||
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | |||||||||||||
Investment income: | ||||||||||||||||
Dividends | ||||||||||||||||
Unaffiliated issuers | $35,760,238 | $34,761,034 | (a) | $1,019,770 | (a) | $351,186 | ||||||||||
Affiliated issuers | 1,718,925 | (b) | 509,662 | (b) | — | — | ||||||||||
Interest | 403,617 | 284,848 | 3,905 | 10,594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total investment income | 37,882,780 | 35,555,544 | 1,023,675 | 361,780 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses: | ||||||||||||||||
Management fees | 12,779,993 | 11,971,265 | 343,329 | 314,293 | ||||||||||||
Distribution fees (Investor Class) | 3,932,643 | 3,735,340 | 99,667 | 19,927 | ||||||||||||
Shareholder service fees | ||||||||||||||||
Investor Class | 1,624,359 | 1,593,589 | 18,793 | 3,187 | ||||||||||||
Institutional Class | 456,291 | 126,655 | 3,688 | 24,968 | ||||||||||||
Transfer agent fees and expenses | ||||||||||||||||
Investor Class | 315,869 | 285,041 | 18,133 | 5,188 | ||||||||||||
Institutional Class | 74,047 | 28,705 | 2,760 | 5,114 | ||||||||||||
Printing and postage expenses | ||||||||||||||||
Investor Class | 290,327 | 264,275 | 862 | 5,866 | ||||||||||||
Institutional Class | 55,999 | 26,652 | 727 | 3,014 | ||||||||||||
Trustees’ fees and expenses | 305,831 | 243,962 | 7,320 | 5,438 | ||||||||||||
Professional fees | 173,008 | 143,099 | 42,161 | 40,744 | ||||||||||||
Custody fees and expenses | 29,317 | 23,636 | 3,783 | 7,336 | ||||||||||||
Federal and state registration fees | 77,040 | 55,314 | 39,414 | 33,763 | ||||||||||||
Interest expense | 880 | — | 18 | — | ||||||||||||
Miscellaneous expenses | 164,408 | 139,135 | 12,027 | 8,779 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total expenses before reimbursements | 20,280,012 | 18,636,668 | 592,682 | 477,617 | ||||||||||||
Expense reimbursements | — | — | (96,879) | (64,825) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net expenses | 20,280,012 | 18,636,668 | 495,803 | 412,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment income (loss) | 17,602,768 | 16,918,876 | 527,872 | (51,012) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized gain (loss): | ||||||||||||||||
Net realized gain (loss) on investments | ||||||||||||||||
Unaffiliated issuers | 113,640,023 | 151,548,051 | 3,664,205 | 3,149,592 | ||||||||||||
Affiliated issuers | (18,203,951) | (b) | — | — | — | |||||||||||
Change in net unrealized appreciation (depreciation) on investments | ||||||||||||||||
Unaffiliated issuers | 186,032,918 | 44,641,713 | 3,878,895 | 3,216,705 | ||||||||||||
Affiliated issuers | 11,687,649 | (b) | (11,333,922) | (b) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net gain on investments | 293,156,639 | 184,855,842 | 7,543,100 | 6,366,297 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net increase in net assets resulting from operations | $310,759,407 | $201,774,718 | $8,070,972 | $6,315,285 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a)Net of $12,963 and $3,469 in foreign taxes withheld, respectively.
(b)See Note Seven, Transactions with Affiliated Companies, for information on affiliated issuers.
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 55 |
Statements of operations | YEAR ENDED 09/30/17 | |||
| ||||
Ariel International Fund | Ariel Global Fund | |||||||
Investment income: | ||||||||
Dividends | ||||||||
Unaffiliated issuers | $10,835,510 | (a) | $2,552,149 | (a) | ||||
Interest | 108,049 | 25,382 | ||||||
|
|
|
|
|
| |||
Total investment income | 10,943,559 | 2,577,531 | ||||||
|
|
|
|
|
| |||
Expenses: | ||||||||
Management fees | 2,641,535 | 734,279 | ||||||
Distribution fees (Investor Class) | 165,838 | 24,989 | ||||||
Shareholder service fees | ||||||||
Investor Class | 82,453 | 8,751 | ||||||
Institutional Class | 101,221 | 24,348 | ||||||
Transfer agent fees and expenses | ||||||||
Investor Class | 12,652 | 4,896 | ||||||
Institutional Class | 31,172 | 10,559 | ||||||
Printing and postage expenses | ||||||||
Investor Class | 23,545 | 7,495 | ||||||
Institutional Class | 24,132 | 6,134 | ||||||
Trustees’ fees and expenses | 42,732 | 12,597 | ||||||
Professional fees | 60,809 | 45,252 | ||||||
Custody fees and expenses | 85,750 | 18,092 | ||||||
Administration fees | 22,723 | 8,638 | ||||||
Fund accounting fees | 19,891 | 10,376 | ||||||
Federal and state registration fees | 51,186 | 37,714 | ||||||
Miscellaneous expenses | 23,315 | 14,604 | ||||||
|
|
|
|
|
| |||
Total expenses before reimbursements | 3,388,954 | 968,724 | ||||||
Expense reimbursements | (283,653) | (120,477) | ||||||
|
|
|
|
|
| |||
Net expenses | 3,105,301 | 848,247 | ||||||
|
|
|
|
|
| |||
Net investment income | 7,838,258 | 1,729,284 | ||||||
|
|
|
|
|
| |||
Realized and unrealized gain (loss): | ||||||||
Net realized gain (loss) on: | ||||||||
Investments | 6,489,197 | 3,766,678 | ||||||
Translation of assets and liabilities in foreign currencies | 909,177 | (26,355) | ||||||
Forward currency contracts | (1,847,114) | (241,961) | ||||||
|
|
|
|
|
| |||
Total | 5,551,260 | 3,498,362 | ||||||
|
|
|
|
|
| |||
Change in net unrealized appreciation (depreciation) on: | ||||||||
Investments | 28,720,153 | 6,797,130 | ||||||
Translation of assets and liabilities in foreign currencies | 631,436 | 29,546 | ||||||
Forward currency contracts | (974,317) | (165,935) | ||||||
|
|
|
|
|
| |||
Total | 28,377,272 | 6,660,741 | ||||||
|
|
|
|
|
| |||
Net gain on investments | 33,928,532 | 10,159,103 | ||||||
|
|
|
|
|
| |||
Net increase in net assets resulting from operations | $41,766,790 | $11,888,387 | ||||||
|
|
|
|
|
|
(a)Net of $1,115,466 and $170,966 in foreign taxes withheld, respectively.
The accompanying notes are an integral part of the financial statements.
56 | ARIELINVESTMENTS.COM |
Statements of changes in net assets | ||||
| ||||
Ariel Fund | Ariel Appreciation Fund | |||||||||||||||||
Year Ended September 30, 2017 | Year Ended September 30, 2016 | Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
Operations: | ||||||||||||||||||
Net investment income (loss) | $17,602,768 | $21,978,183 | $16,918,876 | $25,535,490 | ||||||||||||||
Net realized gain (loss) on investments | 95,436,072 | 125,688,661 | 151,548,051 | 120,167,917 | ||||||||||||||
Change in net unrealized appreciation (depreciation) on investments | 197,720,567 | 144,236,294 | 33,307,791 | 79,953,815 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets from operations | 310,759,407 | 291,903,138 | 201,774,718 | 225,657,222 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Distributions to shareholders: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Investor Class | (4,396,399) | (10,754,988) | (9,473,910) | (17,090,416) | ||||||||||||||
Institutional Class | (3,803,600) | (5,542,010) | (2,026,092) | (3,428,879) | ||||||||||||||
Capital gains | ||||||||||||||||||
Investor Class | (91,349,955) | (213,884,059) | (101,494,115) | (157,811,879) | ||||||||||||||
Institutional Class | (34,615,653) | (74,522,019) | (14,937,019) | (19,534,087) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total distributions | (134,165,607) | (304,703,076) | (127,931,136) | (197,865,261) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Share transactions: | ||||||||||||||||||
Shares issued | ||||||||||||||||||
Investor Class | 203,355,917 | 134,661,763 | 107,203,986 | 160,698,488 | ||||||||||||||
Institutional Class | 238,185,361 | 56,848,002 | 49,279,693 | 87,382,418 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | ||||||||||||||||||
Investor Class | 93,727,686 | 219,814,850 | 108,100,350 | 170,592,360 | ||||||||||||||
Institutional Class | 38,409,206 | 80,060,597 | 16,235,656 | 21,813,451 | ||||||||||||||
Shares redeemed | ||||||||||||||||||
Investor Class | (350,784,289) | (373,038,216) | (311,406,654) | (428,562,564) | ||||||||||||||
Institutional Class | (251,735,813) | (128,148,651) | (47,346,089) | (88,723,241) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) from share transactions | (28,841,932) | (9,801,655) | (77,933,058) | (76,799,088) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total increase (decrease) in net assets | 147,751,868 | (22,601,593) | (4,089,476) | (49,007,127) | ||||||||||||||
Net assets: | ||||||||||||||||||
Beginning of year | 1,988,865,472 | 2,011,467,065 | 1,702,349,963 | 1,751,357,090 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
End of year | $2,136,617,340 | $1,988,865,472 | $1,698,260,487 | $1,702,349,963 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Undistributed net investment income (loss) included in net assets at end of year | $32,275,297 | $22,872,528 | $29,190,968 | $23,994,342 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital share transactions: | ||||||||||||||||||
Investor shares | ||||||||||||||||||
Shares sold | 3,056,069 | 2,205,963 | 2,176,869 | 3,455,009 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 1,497,439 | 3,587,119 | 2,309,072 | 3,605,383 | ||||||||||||||
Shares redeemed | (5,252,330) | (6,151,754) | (6,320,437) | (9,178,715) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | (698,822) | (358,672) | (1,834,496) | (2,118,323) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Institutional shares | ||||||||||||||||||
Shares sold | 3,586,990 | 937,187 | 991,740 | 1,889,162 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 611,077 | 1,303,317 | 345,683 | 460,523 | ||||||||||||||
Shares redeemed | (3,791,749) | (2,138,368) | (961,750) | (1,897,423) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | 406,318 | 102,136 | 375,673 | 452,262 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 57 |
Statements of changes in net assets | ||||
| ||||
Ariel Focus Fund | Ariel Discovery Fund | |||||||||||||||||
Year Ended September 30, 2017 | Year Ended September 30, 2016 | Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
Operations: | ||||||||||||||||||
Net investment income (loss) | $527,872 | $571,592 | $(51,012) | $(90,224) | ||||||||||||||
Net realized gain (loss) on investments | 3,664,205 | (968,650) | 3,149,592 | (6,219,725) | ||||||||||||||
Change in net unrealized appreciation (depreciation) on investments | 3,878,895 | 6,523,742 | 3,216,705 | 9,026,391 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets from operations | 8,070,972 | 6,126,684 | 6,315,285 | 2,716,442 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Distributions to shareholders: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Investor Class | (391,885) | (401,524) | — | — | ||||||||||||||
Institutional Class | (157,417) | (175,566) | — | — | ||||||||||||||
Capital gains | ||||||||||||||||||
Investor Class | — | (3,802,984) | — | (384,753) | ||||||||||||||
Institutional Class | — | (1,167,998) | — | (1,706,059) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total distributions | (549,302) | (5,548,072) | — | (2,090,812) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Share transactions: | ||||||||||||||||||
Shares issued | ||||||||||||||||||
Investor Class | 7,316,386 | 3,592,173 | 2,461,886 | 1,523,007 | ||||||||||||||
Institutional Class | 1,161,196 | 457,414 | 752,447 | 894,049 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | ||||||||||||||||||
Investor Class | 339,571 | 3,621,973 | — | 382,050 | ||||||||||||||
Institutional Class | 154,394 | 1,341,538 | — | 1,706,060 | ||||||||||||||
Shares redeemed | ||||||||||||||||||
Investor Class | (8,876,687) | (5,021,280) | (2,082,747) | (1,167,860) | ||||||||||||||
Institutional Class | (422,416) | (664,247) | (2,342,403) | (419,104) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) from share transactions | (327,556) | 3,327,571 | (1,210,817) | 2,918,202 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total increase (decrease) in net assets | 7,194,114 | 3,906,183 | 5,104,468 | 3,543,832 | ||||||||||||||
Net assets: | ||||||||||||||||||
Beginning of year | 47,791,205 | 43,885,022 | 36,042,472 | 32,498,640 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
End of year | $54,985,319 | $47,791,205 | $41,146,940 | $36,042,472 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Undistributed net investment income (loss) included in net assets at end of year | $410,205 | $431,635 | $(32,985) | $— | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital share transactions: | ||||||||||||||||||
Investor shares | ||||||||||||||||||
Shares sold | 553,416 | 321,824 | 246,392 | 182,746 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 26,822 | 326,427 | — | 44,684 | ||||||||||||||
Shares redeemed | (677,044) | (457,778) | (210,653) | (140,490) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | (96,806) | 190,473 | 35,739 | 86,940 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Institutional shares | ||||||||||||||||||
Shares sold | 87,168 | 40,374 | 75,499 | 103,593 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 12,244 | 121,077 | — | 197,005 | ||||||||||||||
Shares redeemed | (33,066) | (60,213) | (229,835) | (49,651) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | 66,346 | 101,238 | (154,336) | 250,947 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
58 | ARIELINVESTMENTS.COM |
Statements of changes in net assets | ||||
| ||||
Ariel International Fund | Ariel Global Fund | |||||||||||||||||
Year Ended September 30, 2017 | Year Ended September 30, 2016 | Year Ended September 30, 2017 | Year Ended September 30, 2016 | |||||||||||||||
Operations: | ||||||||||||||||||
Net investment income (loss) | $7,838,258 | $2,190,257 | $1,729,284 | $1,104,878 | ||||||||||||||
Net realized gain (loss) on investments, foreign currency translations and forward currency contracts | 5,551,260 | 2,037,223 | 3,498,362 | 1,181,057 | ||||||||||||||
Change in net unrealized appreciation (depreciation) on investments, foreign currency translations and forward currency contracts | 28,377,272 | 3,301,472 | 6,660,741 | 5,803,126 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets from operations | 41,766,790 | 7,528,952 | 11,888,387 | 8,089,061 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Distributions to shareholders: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Investor Class | (906,508) | (60,860) | (136,222) | (57,676) | ||||||||||||||
Institutional Class | (2,706,303) | (36,774) | (1,574,058) | (830,402) | ||||||||||||||
Capital gains | ||||||||||||||||||
Investor Class | (179,976) | (10,016) | (101,557) | — | ||||||||||||||
Institutional Class | (369,024) | (4,359) | (827,143) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total distributions | (4,161,811) | (112,009) | (2,638,980) | (888,078) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Share transactions: | ||||||||||||||||||
Shares issued | ||||||||||||||||||
Investor Class | 22,909,476 | 72,570,711 | 2,350,942 | 3,585,964 | ||||||||||||||
Institutional Class | 292,489,633 | 108,200,324 | 9,944,255 | 15,343,818 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | ||||||||||||||||||
Investor Class | 1,057,588 | 68,255 | 193,665 | 49,300 | ||||||||||||||
Institutional Class | 3,067,636 | 40,280 | 2,389,831 | 825,218 | ||||||||||||||
Shares redeemed | ||||||||||||||||||
Investor Class | (29,821,986) | (14,772,898) | (1,364,753) | (1,264,976) | ||||||||||||||
Institutional Class | (18,454,995) | (1,296,305) | (3,848,381) | (1,396,199) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) from share transactions | 271,247,352 | 164,810,367 | 9,665,559 | 17,143,125 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total increase (decrease) in net assets | 308,852,331 | 172,227,310 | 18,914,966 | 24,344,108 | ||||||||||||||
Net assets: | ||||||||||||||||||
Beginning of year | 193,104,004 | 20,876,694 | 82,441,968 | 58,097,860 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
End of year | $501,956,335 | $193,104,004 | $101,356,934 | $82,441,968 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Undistributed net investment income (loss) included in net assets at end of year | $6,980,146 | $3,692,636 | $1,224,095 | $1,475,632 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital share transactions: | ||||||||||||||||||
Investor shares | ||||||||||||||||||
Shares sold | 1,717,748 | 5,703,817 | 157,448 | 256,508 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 86,700 | 5,369 | 13,829 | 3,567 | ||||||||||||||
Shares redeemed | (2,305,236) | (1,171,827) | (92,413) | (89,913) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | (500,788) | 4,537,359 | 78,864 | 170,162 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Institutional shares | ||||||||||||||||||
Shares sold | 22,745,237 | 8,596,238 | 713,775 | 1,128,778 | ||||||||||||||
Shares issued to holders in reinvestment of dividends | 256,056 | 3,228 | 175,862 | 61,492 | ||||||||||||||
Shares redeemed | (1,467,578) | (103,001) | (264,773) | (100,907) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) | 21,533,715 | 8,496,465 | 624,864 | 1,089,363 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 59 |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $63.74 | $63.93 | $75.33 | $65.57 | $49.67 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.52 | 0.62 | 0.50 | 0.67 | 0.48 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.07 | 8.86 | (2.07) | 9.50 | 15.91 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 9.59 | 9.48 | (1.57) | 10.17 | 16.39 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.18) | (0.41) | (0.40) | (0.41) | (0.49) | |||||||||||||||
Distributions from capital gains | (4.04) | (9.26) | (9.43) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (4.22) | (9.67) | (9.83) | (0.41) | (0.49) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $69.11 | $63.74 | $63.93 | $75.33 | $65.57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 15.76% | 15.55% | (3.40)% | 15.52% | 33.28% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $1,542,730 | $1,467,270 | $1,494,724 | $1,759,016 | $1,787,490 | |||||||||||||||
Ratio of expenses to average net assets | 1.01% | 1.02% | 1.02% | 1.03% | 1.03% | |||||||||||||||
Ratio of net investment income to average net assets | 0.72% | 1.02% | 0.67% | 0.88% | 0.83% | |||||||||||||||
Portfolio turnover rate | 14% | 20% | 25% | 29% | 30% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $63.87 | $64.08 | $75.49 | $65.70 | $49.79 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.63 | 0.77 | 0.57 | 0.81 | 0.59 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.19 | 8.91 | (1.93) | 9.60 | 16.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 9.82 | 9.68 | (1.36) | 10.41 | 16.59 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.37) | (0.63) | (0.62) | (0.62) | (0.68) | |||||||||||||||
Distributions from capital gains | (4.04) | (9.26) | (9.43) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (4.41) | (9.89) | (10.05) | (0.62) | (0.68) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $69.28 | $63.87 | $64.08 | $75.49 | $65.70 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 16.11% | 15.87% | (3.11)% | 15.88% | 33.72% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $593,887 | $521,595 | $516,743 | $391,219 | $365,694 | |||||||||||||||
Ratio of expenses to average net assets | 0.71% | 0.72% | 0.72% | 0.72% | 0.72% | |||||||||||||||
Ratio of net investment income to average net assets | 1.01% | 1.31% | 0.97% | 1.21% | 1.04% | |||||||||||||||
Portfolio turnover rate | 14% | 20% | 25% | 29% | 30% |
The accompanying notes are an integral part of the financial statements.
60 | ARIELINVESTMENTS.COM |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel Appreciation Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $48.90 | $48.01 | $56.12 | $53.83 | $45.13 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.51 | 0.70 | 0.50 | 0.43 | 0.44 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 5.21 | 5.62 | (2.08) | 5.92 | 13.08 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 5.72 | 6.32 | (1.58) | 6.35 | 13.52 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.30) | (0.50) | (0.37) | (0.42) | (0.33) | |||||||||||||||
Distributions from capital gains | (3.41) | (4.93) | (6.16) | (3.64) | (4.49) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (3.71) | (5.43) | (6.53) | (4.06) | (4.82) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $50.91 | $48.90 | $48.01 | $56.12 | $53.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 12.41% | 13.66% | (3.89)% | 12.22% | 34.31% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $1,450,735 | $1,483,144 | $1,557,796 | $1,777,388 | $1,758,277 | |||||||||||||||
Ratio of expenses to average net assets | 1.12% | 1.12% | 1.12% | 1.12% | 1.13% | |||||||||||||||
Ratio of net investment income to average net assets | 0.94% | 1.43% | 0.95% | 0.79% | 1.00% | |||||||||||||||
Portfolio turnover rate | 20% | 14% | 22% | 24% | 28% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel Appreciation Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $49.03 | $48.17 | $56.28 | $53.95 | $45.19 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.59 | 0.72 | 0.65 | 0.60 | 0.35 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 5.30 | 5.76 | (2.04) | 5.96 | 13.34 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 5.89 | 6.48 | (1.39) | 6.56 | 13.69 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.44) | (0.69) | (0.56) | (0.59) | (0.44) | |||||||||||||||
Distributions from capital gains | (3.41) | (4.93) | (6.16) | (3.64) | (4.49) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (3.85) | (5.62) | (6.72) | (4.23) | (4.93) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $51.07 | $49.03 | $48.17 | $56.28 | $53.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 12.78% | 14.01% | (3.55)% | 12.59% | 34.76% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $247,526 | $219,206 | $193,561 | $169,839 | $118,732 | |||||||||||||||
Ratio of expenses to average net assets | 0.81% | 0.82% | 0.79% | 0.79% | 0.80% | |||||||||||||||
Ratio of net investment income to average net assets | 1.25% | 1.73% | 1.31% | 1.16% | 1.35% | |||||||||||||||
Portfolio turnover rate | 20% | 14% | 22% | 24% | 28% |
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 61 |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel Focus Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $11.83 | $11.70 | $15.12 | $13.85 | $10.95 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.13 | 0.13 | 0.14 | 0.11 | 0.14 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.88 | 1.46 | (1.99) | 1.95 | 2.89 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 2.01 | 1.59 | (1.85) | 2.06 | 3.03 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.13) | (0.13) | (0.11) | (0.09) | (0.13) | |||||||||||||||
Distributions from capital gains | — | (1.33) | (1.46) | (0.70) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.13) | (1.46) | (1.57) | (0.79) | (0.13) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $13.71 | $11.83 | $11.70 | $15.12 | $13.85 | |||||||||||||||
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 17.09% | 14.59% | (13.98)% | 15.42% | 28.02% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $40,607 | $36,173 | $33,553 | $53,500 | $43,925 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 1.00% | 1.00% | 1.00% | 1.08% | 1.25% | |||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.19% | 1.35% | 1.37% | 1.40% | 1.54% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 0.93% | 1.23% | 0.89% | 0.78% | 1.19% | |||||||||||||||
Ratio of net investment income to average net assets, excluding waivers | 0.74% | 0.88% | 0.52% | 0.46% | 0.90% | |||||||||||||||
Portfolio turnover rate | 35% | 20% | 16% | 40% | 41% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel Focus Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $11.81 | $11.71 | $15.14 | $13.87 | $10.97 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.15 | 0.15 | 0.15 | 0.15 | 0.19 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.89 | 1.46 | (1.97) | 1.96 | 2.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 2.04 | 1.61 | (1.82) | 2.11 | 3.06 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.16) | (0.18) | (0.15) | (0.14) | (0.16) | |||||||||||||||
Distributions from capital gains | — | (1.33) | (1.46) | (0.70) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.16) | (1.51) | (1.61) | (0.84) | (0.16) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $13.69 | $11.81 | $11.71 | $15.14 | $13.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 17.40% | 14.83% | (13.77)% | 15.74% | 28.36% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $14,378 | $11,618 | $10,332 | $12,507 | $11,372 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 0.75% | 0.75% | 0.75% | 0.83% | 1.00% | |||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 0.90% | 1.08% | 1.07% | 1.06% | 1.19% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 1.18% | 1.48% | 1.15% | 1.02% | 1.46% | |||||||||||||||
Ratio of net investment income to average net assets, excluding waivers | 1.03% | 1.15% | 0.84% | 0.79% | 1.27% | |||||||||||||||
Portfolio turnover rate | 35% | 20% | 16% | 40% | 41% |
The accompanying notes are an integral part of the financial statements.
62 | ARIELINVESTMENTS.COM |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel Discovery Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $9.12 | $9.03 | $11.59 | $12.47 | $10.63 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment loss | (0.03) | (0.04) | (0.11) | (0.10) | (0.06) | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.63 | 0.71 | (1.79) | (0.60) | 1.90 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.60 | 0.67 | (1.90) | (0.70) | 1.84 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Distributions from capital gains | — | (0.58) | (0.66) | (0.18) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | — | (0.58) | (0.66) | (0.18) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $10.72 | $9.12 | $9.03 | $11.59 | $12.47 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 17.54% | 7.90% | (17.69)% | (5.80)% | 17.31% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $8,509 | $6,913 | $6,058 | $10,272 | $10,239 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 1.25% | 1.25% | 1.25% | 1.33% | 1.50% | |||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.48% | 1.86% | 2.10% | 1.93% | 2.90% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, including waivers | (0.34)% | (0.48)% | (0.67)% | (0.79)% | (0.79)% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | (0.57)% | (1.09)% | (1.52)% | (1.39)% | (2.19)% | |||||||||||||||
Portfolio turnover rate | 39% | 45% | 29% | 36% | 31% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel Discovery Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $9.26 | $9.13 | $11.69 | $12.54 | $10.66 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment loss | (0.01) | (0.02) | (0.04) | (0.06) | (0.03) | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.66 | 0.73 | (1.86) | (0.61) | 1.91 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.65 | 0.71 | (1.90) | (0.67) | 1.88 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Distributions from capital gains | — | (0.58) | (0.66) | (0.18) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | — | (0.58) | (0.66) | (0.18) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $10.91 | $9.26 | $9.13 | $11.69 | $12.54 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 17.82% | 8.27% | (17.53)% | (5.52)% | 17.64% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $32,638 | $29,129 | $26,441 | $35,970 | $27,096 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 1.00% | 1.00% | 1.00% | 1.07% | 1.25% | |||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.15% | 1.32% | 1.29% | 1.25% | 1.93% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, including waivers | (0.08)% | (0.23)% | (0.42)% | (0.53)% | (0.61)% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | (0.23)% | (0.55)% | (0.71)% | (0.71)% | (1.29)% | |||||||||||||||
Portfolio turnover rate | 39% | 45% | 29% | 36% | 31% |
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 63 |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel International Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $13.21 | $12.17 | $12.85 | $12.38 | $9.77 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.26 | 0.14 | 0.01 | 0.22 | 0.07 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.96 | 0.93 | (0.23) | 0.41 | 2.65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.22 | 1.07 | (0.22) | 0.63 | 2.72 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.17) | (0.02) | (0.13) | — | (0.11) | |||||||||||||||
Distributions from capital gains | (0.03) | (0.01) | (0.33) | (0.16) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.20) | (0.03) | (0.46) | (0.16) | (0.11) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $14.23 | $13.21 | $12.17 | $12.85 | $12.38 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 9.55% | 8.76% | (1.79)% | 5.22% | 28.11% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $70,616 | $72,200 | $11,290 | $4,842 | $2,260 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 1.15% | (a) | 1.25% | 1.26% | (b) | 1.29% | 1.40% | |||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.32% | 1.52% | 3.49% | 4.24% | 9.36% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 1.79% | 1.94% | 1.39% | 2.13% | 0.98% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | 1.62% | 1.67% | (0.84)% | (0.82)% | (6.98)% | |||||||||||||||
Portfolio turnover rate | 23% | 27% | 34% | 19% | 29% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel International Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $13.00 | $11.96 | $12.71 | $12.26 | $9.78 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.18 | 0.20 | 0.18 | 0.29 | 0.14 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.05 | 0.87 | (0.37) | 0.38 | 2.59 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.23 | 1.07 | (0.19) | 0.67 | 2.73 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.21) | (0.02) | (0.23) | (0.06) | (0.25) | |||||||||||||||
Distributions from capital gains | (0.03) | (0.01) | (0.33) | (0.16) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.24) | (0.03) | (0.56) | (0.22) | (0.25) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $13.99 | $13.00 | $11.96 | $12.71 | $12.26 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 9.80% | 8.98% | (1.48)% | 5.48% | 28.42% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $431,341 | $120,904 | $9,587 | $8,455 | $4,129 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 0.89% | (a) | 1.00% | 1.01% | (b) | 1.03% | 1.15% | |||||||||||||
Ratio of expenses to average net assets, excluding waivers | 0.95% | 1.10% | 2.68% | 3.17% | 6.53% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 2.52% | 2.41% | 1.69% | 2.49% | 1.09% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | 2.46% | 2.31% | 0.02% | 0.35% | (4.29)% | |||||||||||||||
Portfolio turnover rate | 23% | 27% | 34% | 19% | 29% |
(a) | Effective November 29, 2016, the Adviser has contractually agreed to waive fees and reimburse expenses in order to limit the Fund’s total annual operating expenses to 1.13% for the Investor Class and 0.88% for the Institutional Class through the end of the fiscal year ending September 30, 2018. |
See Note Five. |
(b) | These ratios round to 1.26% and 1.01% due to interest expense which is excluded from the expense waiver. |
The accompanying notes are an integral part of the financial statements.
64 | ARIELINVESTMENTS.COM |
Financial highlights For a share outstanding throughout each period | ||||
| ||||
Year ended September 30 | ||||||||||||||||||||
Ariel Global Fund (Investor Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $14.60 | $13.11 | $13.96 | $12.91 | $10.02 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss) | 0.22 | 0.12 | (0.07) | 0.14 | 0.02 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.60 | 1.48 | (0.64) | 1.20 | 2.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.82 | 1.60 | (0.71) | 1.34 | 2.89 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.21) | (0.11) | — | — | — | |||||||||||||||
Distributions from capital gains | (0.16) | — | (0.14) | (0.29) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.37) | (0.11) | (0.14) | (0.29) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $16.05 | $14.60 | $13.11 | $13.96 | $12.91 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 12.87% | 12.26% | (5.15)% | 10.52% | 28.84% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $11,459 | $9,275 | $6,095 | $2,816 | $1,954 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 1.15% | (a) | 1.25% | 1.25% | 1.29% | 1.40% | ||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.42% | 1.70% | 2.71% | 3.70% | 5.37% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 1.66% | 1.34% | 1.30% | 1.56% | 0.81% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | 1.39% | 0.90% | (0.16)% | (0.85)% | (3.16)% | |||||||||||||||
Portfolio turnover rate | 24% | 31% | 35% | 20% | 39% | |||||||||||||||
Year ended September 30 | ||||||||||||||||||||
Ariel Global Fund (Institutional Class) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of year | $14.21 | $12.81 | $13.79 | $12.76 | $10.04 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income | 0.25 | 0.20 | 0.18 | 0.16 | 0.08 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.55 | 1.40 | (0.84) | 1.20 | 2.81 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total from investment operations | 1.80 | 1.60 | (0.66) | 1.36 | 2.89 | |||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||
Dividends from net investment income | (0.28) | (0.20) | (0.18) | (0.04) | (0.17) | |||||||||||||||
Distributions from capital gains | (0.16) | — | (0.14) | (0.29) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total distributions | (0.44) | (0.20) | (0.32) | (0.33) | (0.17) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net asset value, end of year | $15.57 | $14.21 | $12.81 | $13.79 | $12.76 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total return | 13.10% | 12.56% | (4.88)% | 10.84% | 29.15% | |||||||||||||||
Supplemental data and ratios: | ||||||||||||||||||||
Net assets, end of year, in thousands | $89,898 | $73,166 | $52,002 | $53,937 | $25,975 | |||||||||||||||
Ratio of expenses to average net assets, including waivers | 0.90% | (a) | 1.00% | 1.00% | 1.04% | 1.15% | ||||||||||||||
Ratio of expenses to average net assets, excluding waivers | 1.01% | 1.14% | 1.30% | 1.51% | 2.51% | |||||||||||||||
Ratio of net investment income to average net assets, including waivers | 1.91% | 1.60% | 1.40% | 1.71% | 0.97% | |||||||||||||||
Ratio of net investment income (loss) to average net assets, excluding waivers | 1.80% | 1.47% | 1.10% | 1.24% | (0.39)% | |||||||||||||||
Portfolio turnover rate | 24% | 31% | 35% | 20% | 39% |
(a) | Effective November 29, 2016, the Adviser has contractually agreed to waive fees and reimburse expenses in order to limit the Fund’s total annual operating expenses to 1.13% for the Investor Class and 0.88% for the Institutional Class through the end of the fiscal year ending September 30, 2018. |
See Note Five. |
The accompanying notes are an integral part of the financial statements.
800.292.7435 | 65 |
Notes to the financial statements | 09/30/17 | |||
| ||||
NOTE ONE | ORGANIZATION
Ariel Investment Trust (the “Trust”) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel Discovery Fund, Ariel International Fund and Ariel Global Fund (the “Funds”) are series of the Trust. Ariel Focus Fund is a non-diversified Fund, all other Funds are diversified. The Funds issue two classes of shares: an Investor Class and an Institutional Class.
The Northern Trust Company (“Northern Trust”) provides fund administration and tax reporting services for the Funds in its role as sub-fund administrator engaged by the Adviser for Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund and as fund administrator engaged by the Trust for Ariel International Fund and Ariel Global Fund. Northern Trust also acts as the Funds’ accounting agent and custodian. U.S. Bancorp Fund Services, LLC serves as the Funds’ transfer agent.
NOTE TWO | 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 Funds are investment companies and follow accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards CodificationTM Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including but not limited to ASC 946. GAAP requires management to make certain estimates and assumptions at the date of the financial statements. Actual results may differ from such estimates.
Securities valuation—Securities for which market quotations are readily available are valued at the last sale price on the national securities exchange on which such securities are primarily traded and, in the case of securities reported on the Nasdaq system, are valued based on the Nasdaq Official Closing Price. If a last sale price or a closing price is not reported, a security shall be valued using i) the closing price on another exchange on which the security traded (if such price is made available by the pricing vendor) or ii) securities for which reliable bid and ask quotations are available are valued at the mean between bid and ask prices.
Certain common stocks that trade on foreign exchanges are subject to valuation adjustments to account for the market movement between the close of a foreign market in which the security is traded and the close of the New York Stock Exchange. In the event the Funds become aware of a significant event that may materially affect the value of a security, a fair value of such security will be determined in accordance with procedures established by the Board of Trustees.
Investments in money market funds are valued at their closing net asset value each business day.
Debt securities having a maturity over 60 days are valued using evaluated prices or matrix pricing methods determined by a pricing service which take into consideration factors such as yield, maturity, ratings, and traded prices in identical or similar securities. Short-term debt obligations having a maturity of 60 days or less are valued at amortized cost, so long as it approximates fair value.
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.
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. Dividends from foreign securities are recorded on the ex-dividend date, or as soon as the information is available.
Subsequent events—In preparing these financial statements, the Trust has evaluated subsequent events after September 30, 2017 and there were no such events that would require adjustment to or additional disclosure in these financial statements.
Fair value measurements—Accounting Standards CodificationTM 820-10 (ASC 820-10) establishes a three-tier framework for measuring fair value based on a hierarchy of inputs. The hierarchy distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ investments and are summarized below:
Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, “quoted” prices in inactive markets, dealer indications, and inputs corroborated by observable market data)
Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)
66 | ARIELINVESTMENTS.COM |
Notes to the financial statements | 09/30/17 | |||
| ||||
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following tables summarize the inputs used as of September 30, 2017 in valuing the Funds’ investments carried at fair value:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | |||||||||||||
Level 1 | $2,135,932,112 | $1,696,898,583 | $55,318,980 | $41,173,149 | ||||||||||||
Level 2 | — | — | — | — | ||||||||||||
Level 3 | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total investments | $2,135,932,112 | $1,696,898,583 | $55,138,980 | $41,173,149 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Industry classifications for Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, and Ariel Discovery Fund are included in the Schedules of Investments for the respective Fund.
Ariel International Fund | Level 1 | Level 2* | Level 3 | Total | ||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $45,230,204 | $— | $— | $45,230,204 | ||||||||||||
Consumer staples | 45,598,300 | — | — | 45,598,300 | ||||||||||||
Energy | 37,093,809 | — | — | 37,093,809 | ||||||||||||
Financials | 43,233,183 | 775,925 | — | 44,009,108 | ||||||||||||
Health care | 53,199,376 | — | — | 53,199,376 | ||||||||||||
Industrials | 17,882,496 | — | — | 17,882,496 | ||||||||||||
Information technology | 76,310,724 | — | — | 76,310,724 | ||||||||||||
Materials | 219,762 | — | — | 219,762 | ||||||||||||
Real estate | 3,516,108 | — | — | 3,516,108 | ||||||||||||
Telecommunication services | 82,360,061 | — | — | 82,360,061 | ||||||||||||
Utilities | 15,495,182 | — | — | 15,495,182 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total common stocks | $420,139,205 | $775,925 | $— | $420,915,130 | ||||||||||||
Exchange traded funds | 8,094,619 | — | — | 8,094,619 | ||||||||||||
Short-term investments | 23,239,370 | — | — | 23,239,370 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total investments | $451,473,194 | $775,925 | $— | $452,249,119 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other financial instruments | ||||||||||||||||
Forward currency contracts ^
|
| $—
|
|
| $(1,187,996)
|
|
| $—
|
|
| $(1,187,996)
|
| ||||
Ariel Global Fund | Level 1 | Level 2* | Level 3 | Total | ||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $5,107,631 | $— | $— | $5,107,631 | ||||||||||||
Consumer staples | 7,258,228 | — | — | 7,258,228 | ||||||||||||
Energy | 5,296,434 | — | — | 5,296,434 | ||||||||||||
Financials | 12,621,039 | — | — | 12,621,039 | ||||||||||||
Health care | 21,065,709 | — | — | 21,065,709 | ||||||||||||
Industrials | 3,584,314 | — | — | 3,584,314 | ||||||||||||
Information technology | 20,833,045 | — | — | 20,833,045 | ||||||||||||
Real estate | 72,873 | — | — | 72,873 | ||||||||||||
Telecommunication services | 14,068,787 | — | — | 14,068,787 | ||||||||||||
Utilities | 4,200,278 | — | — | 4,200,278 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total common stocks | $94,108,338 | $— | $— | $94,108,338 | ||||||||||||
Short-term investments | 5,245,317 | — | — | 5,245,317 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total investments | $99,353,655 | $— | $— | $99,353,655 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other financial instruments | ||||||||||||||||
Forward currency contracts ^ | $— | $(179,261) | $— | $(179,261) |
There were no transfers between levels for the Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel Discovery Fund, Ariel International Fund and Ariel Global Fund. Transfers between levels, if any, are recognized at the end of the reporting period.
800.292.7435 | �� | 67 |
Notes to the financial statements | 09/30/17 | |||
| ||||
* | As of September 30, 2017, the only Level 2 investments held were securities fair valued due to market closure and forward currency contracts. See Schedule of Investments. |
^ | Forward currency contracts derive their value from underlying exchange rates. These instruments are normally valued by pricing vendors using pricing models. The pricing models typically use inputs that are observed from trading in active forward foreign currency markets. As such, forward currency contracts are categorized as Level 2. The value of forward currency contracts that is disclosed in this table is equal to the difference between Unrealized appreciation of forward currency contracts and Unrealized depreciation of forward currency contracts shown in the Statements of Assets and Liabilities for each Fund at September 30, 2017. See also Schedules of Investments. |
Offsetting assets and liabilities—The Funds are subject to various master netting agreements (“Master Netting Agreements”), which govern the terms of certain transactions with select counterparties. Master Netting Agreements seek to reduce the counterparty risk associated with relevant transactions by allowing the Funds to close out and net their total exposure to a counterparty in the event of a default by the other party or a termination event. Termination events include, but are not limited to, a failure to pay or deliver or a breach of the terms of the agreement with respect to all the transactions governed under a single agreement with that counterparty. The Master Netting Agreements may also specify collateral posting arrangements at pre-arranged exposure levels. The Funds are not currently collateralizing their exposures under foreign exchange trades. For financial reporting purposes, the Funds do not offset financial assets and liabilities that are subject to the Master Netting Agreements in the Statements of Assets and Liabilities. Gross exposure relating to open forward currency contracts by counterparty is disclosed in the Schedules of Investments as Open forward currency contracts with unrealized appreciation (assets) and Open forward currency contracts with unrealized depreciation (liabilities) and in total by Fund on the Statements of Assets and Liabilities as Unrealized appreciation of forward currency contracts (assets) and Unrealized depreciation of forward currency contracts (liabilities). The net recognized asset (appreciation) or liability (depreciation) is shown in the Schedules of Investments as Net unrealized appreciation (depreciation) on forward currency contracts.
Foreign currency—Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars on a daily basis using exchange rates obtained from an independent third party. Net realized gain (loss) and Net unrealized appreciation (depreciation) on investments include the effects of changes in exchange rates on the underlying investments. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies on the Statements of Assets and Liabilities until the underlying assets or liabilities are settled in cash, at which time they are recorded as Net realized gain (loss) on translation of assets and liabilities in foreign currencies on the Statements of Operations.
Forward currency contracts—Ariel International Fund and Ariel Global Fund enter into forward currency contracts to provide the appropriate currency exposure related to protecting the value of securities and related receivables and payables against changes in foreign exchange rates. The primary risk associated with a Fund’s use of these contracts is that a counterparty will fail to fulfill its obligation to pay gains due to the Fund under the contracts. Counterparty risk is mitigated by entering into forward currency contracts only with highly rated counterparties. Forward currency contracts are “marked-to-market” daily and any resulting unrealized gain (loss) is recorded as Net unrealized appreciation (depreciation) on forward currency contracts on the Statements of Assets and Liabilities. The Funds record realized gain (loss) at the time a forward currency contract is settled or closed on the Statements of Operations as Net realized gain (loss) on forward currency contracts.
Class and expense allocations—Each class of shares of the Funds has equal rights to assets and earnings, except that shareholders of each class bear certain class-specific expenses related to marketing and distribution and shareholder servicing and communication. Income, other non-class-specific expense, and realized and unrealized gains and losses on investments are allocated to each class of shares based on its relative net assets. Expenses that are not directly attributable to one or more Funds are allocated among applicable Funds on an equitable and consistent basis considering such things as the nature and type of expense and the relative net assets of the Funds.
Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund pay all operating expenses not expressly assumed by the Adviser, including custodial and transfer agency fees, federal and state securities registration fees, legal and audit fees, and brokerage commissions and other costs associated with the purchase and sale of portfolio securities. Ariel International Fund and Ariel Global Fund pay all operating expenses not expressly assumed by the Adviser, including custodial and transfer agency fees, fund administration, fund accounting, federal and state securities registration fees, legal and audit fees, and brokerage commissions and other costs associated with the purchase and sale of portfolio securities.
Distributions to shareholders—Dividends from net investment income and net realized capital gains, if any, are declared and paid to shareholders at least annually and are recorded on ex-dividend date.
68 | ARIELINVESTMENTS.COM |
Notes to the financial statements | 09/30/17 | |||
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NOTE THREE | INVESTMENT TRANSACTIONS
Purchases and sales—Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the year ended September 30, 2017 were as follows:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Purchases | $288,402,023 | $335,145,507 | $18,255,807 | $14,549,900 | $300,428,667 | $30,130,139 | ||||||||||||||||||
Sales | 430,328,568 | 528,061,185 | 18,307,142 | 16,138,399 | 69,775,502 | 20,793,401 |
NOTE FOUR | INCOME TAX MATTERS AND DISTRIBUTIONS TO SHAREHOLDERS
Income Tax Matters—It is the Funds’ policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income to shareholders. The Funds file U.S. federal income tax returns in addition to state and local tax returns that may be required. Management has analyzed the Funds’ tax positions taken for all open federal income tax years (September 30, 2014 – 2017), and has concluded that no provision for federal income tax is required in the financial statements.
The cost and unrealized appreciation and depreciation of investments (including derivative instruments) on a federal income tax basis at September 30, 2017 were as follows:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Cost of investments | $1,396,881,351 | $1,134,295,437 | $44,890,855 | $41,046,731 | $420,474,918 | $85,869,314 | ||||||||||||||||||
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Gross unrealized appreciation | 926,374,713 | 713,203,923 | 14,593,586 | 8,197,752 | 43,705,009 | 16,230,716 | ||||||||||||||||||
Gross unrealized depreciation | (187,323,952 | ) | (150,600,777 | ) | (4,165,461 | ) | (8,071,334 | ) | (11,935,278 | ) | (2,748,244 | ) | ||||||||||||
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Net unrealized appreciation (depreciation) | $739,050,761 | $562,603,146 | $10,428,125 | $126,418 | $31,769,731 | $13,482,472 | ||||||||||||||||||
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The difference between book basis and tax basis unrealized appreciation and depreciation is attributable primarily to the deferral of losses on wash sales and partnership adjustments.
Distributions to shareholders—Distributions to shareholders are determined in accordance with federal income tax regulations and may differ from Net investment income and realized capital gains for financial reporting purposes. Reclassifications between net asset accounts are made at the end of the fiscal year for such differences that are permanent in nature. These differences are primarily due to distribution reclassifications, net operating loss, or foreign currency. Reclassifications recorded at September 30, 2017 were as follows:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Paid-in-capital | $— | $— | $— | $(71,600) | $— | $— | ||||||||||||||||||
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Undistributed net investment income | ||||||||||||||||||||||||
(loss) | — | (222,248 | ) | — | 18,027 | (937,937 | ) | (270,541 | ) | |||||||||||||||
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Accumulated net realized gain (loss) | — | 222,248 | — | 53,573 | 937,937 | 270,541 |
800.292.7435 | 69 |
Notes to the financial statements | 09/30/17 | |||
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The tax character of distributions paid during the years ended September 30 was as follows:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Distributions from: | ||||||||||||||||||||||||
Ordinary income | $8,199,999 | $16,296,998 | $25,534,724 | $31,164,768 | $549,302 | $736,884 | ||||||||||||||||||
Long-term capital gains | 125,965,608 | 288,406,078 | 102,396,412 | 166,700,493 | — | 4,811,188 | ||||||||||||||||||
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Total distributions | $134,165,607 | $304,703,076 | $127,931,136 | $197,865,261 | $549,302 | $5,548,072 | ||||||||||||||||||
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Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Distributions from: | ||||||||||||||||||||||||
Ordinary income | $— | $15,925 | $4,161,811 | $97,642 | $2,248,980 | $888,078 | ||||||||||||||||||
Long-term capital gains | — | 2,074,887 | — | 14,367 | 390,000 | — | ||||||||||||||||||
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Total distributions | $— | $2,090,812 | $4,161,811 | $112,009 | $2,638,980 | $888,078 | ||||||||||||||||||
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The components of accumulated earnings at September 30, 2017 on a federal income tax basis were as follows:
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Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Undistributed ordinary income | $13,079,247 | $13,611,431 | $1,152,434 | $— | $11,777,548 | $2,399,005 | ||||||||||||||||||
Undistributed long-term capital gains | 92,495,844 | 138,260,776 | 1,251,836 | — | 755,685 | 2,400,631 | ||||||||||||||||||
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Tax accumulated earnings | 105,575,091 | 151,872,207 | 2,404,270 | — | 12,533,233 | 4,799,636 | ||||||||||||||||||
Accumulated capital and other losses | — | — | — | (3,375,761) | — | — | ||||||||||||||||||
Unrealized appreciation | ||||||||||||||||||||||||
(depreciation) | 739,050,761 | 562,603,146 | 10,428,125 | 126,418 | 32,349,614 | 13,500,283 | ||||||||||||||||||
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Total accumulated earnings | $844,625,852 | $714,475,353 | $12,832,395 | $(3,249,343) | $44,882,847 | $18,299,919 | ||||||||||||||||||
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At September 30, 2017, Ariel Discovery Fund had post October capital loss deferrals of $41,074.
At September 30, 2017, long-term capital losses of $3,334,687 incurred by Ariel Discovery Fund are carried forward indefinitely under the provisions of the Regulated Investment Company Modernization Act of 2010.
NOTE FIVE | INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH RELATED PARTIES
Management fees—Ariel Investments, LLC (the “Adviser”) provides investment advisory and administrative services to Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund under a Management Agreement. The Adviser provides investment advisory services to Ariel International Fund and Ariel Global Fund under an Advisory Agreement (collectively, the “Agreements”). Pursuant to the Agreements, the Adviser is paid a monthly fee on average daily net assets at the annual rates shown below:
Management fees | Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | ||||||||||||||||||
Average daily net assets: | ||||||||||||||||||||||||
First $500 million | 0.65 | % | 0.75 | % | 0.65 | % | 0.80 | % | 0.80 | % | 0.80 | % | ||||||||||||
Next $500 million | 0.60 | % | 0.70 | % | 0.60 | % | 0.75 | % | 0.80 | % | 0.80 | % | ||||||||||||
Over $1 billion | 0.55 | % | 0.65 | % | 0.55 | % | 0.70 | % | 0.75 | % | 0.75 | % |
70 | ARIELINVESTMENTS.COM |
Notes to the financial statements | 09/30/17 | |||
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The Adviser has contractually agreed to reimburse the Funds to the extent their respective total annual operating expenses exceed certain limits as shown below:
Ariel Focus Fund
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Ariel Discovery Fund
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Ariel Fund Investor Class | Ariel Appreciation Fund Investor Class | Investor Class | Institutional Class | Investor Class | Institutional Class | |||||||||||||||||||
First $30 million* | 1.50% | 1.50% | — | — | — | — | ||||||||||||||||||
Over $30 million* | 1.00% | 1.00% | — | — | — | — | ||||||||||||||||||
On average daily net assets** | — | — | 1.00% | 0.75% | 1.25% | 1.00% | ||||||||||||||||||
Expiration of Waiver** | — | — | 2018 | 2018 | 2018 | 2018 | ||||||||||||||||||
Ariel International Fund
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Ariel Global Fund
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Investor Class | Institutional Class | Investor Class | Institutional Class | |||||||||||||||||||||
On average daily net assets** | 1.13% | *** | 0.88% | *** | 1.13% | *** | 0.88% | *** | ||||||||||||||||
Expiration of Waiver** | 2018 | 2018 | 2018 | 2018 |
* | Exclusive of brokerage, interest, taxes, distribution plan expenses and extraordinary items. |
** | Through September 30 of the respective year. After this date, there is no assurance that such expenses will be limited. The Adviser has no right to recapture previously-waived fees. |
*** | On November 29, 2016, the Adviser elected to decrease the expense caps for Ariel International Fund and Ariel Global Fund from 1.25% to 1.13% for the Investor Class and from 1.00% to 0.88% for the Institutional Class. Due to the intra-year change, the expense caps for Ariel International Investor Class and Institutional Class were 1.15% and 0.89%, respectively, for the year. For Ariel Global Fund Investor Class and Institutional Class, the expense caps were 1.15% and 0.90%, respectively, for the year. |
Distribution fees—Ariel Distributors, LLC is the Funds’ distributor and principal underwriter (“the Distributor”). The Trust has adopted a plan of distribution under Rule 12b-1 of the 1940 Act for the Investor Class of the Funds. Under the plan, the Investor Class of each Fund pays 12b-1 distribution fees calculated at an annual rate of 0.25% of average daily net assets on a weekly basis to the Distributor for its services. For the year ended September 30, 2017 distribution fee expenses were as follows:
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Paid to Distributor | $3,932,643 | $3,735,340 | $99,667 | $19,927 | $165,838 | $24,989 | ||||||||||||||||||
Paid to broker/dealers | 2,905,520 | 2,823,776 | 39,935 | 6,710 | 155,837 | 16,792 |
The remaining amounts were used by the Distributor to offset the costs of marketing, advertising, and other distribution expenses.
Trustees’ fees—Trustees’ fees and expenses represent only those expenses of disinterested (independent) trustees of the Funds.
NOTE SIX | FORWARD CURRENCY CONTRACTS
As reflected in the Statements of Operations, Net realized gain (loss) and the Change in net unrealized appreciation (depreciation) on forward currency contracts for the year ended September 30, 2017 were:
Ariel International Fund | Ariel Global Fund | |||||||
Net realized gain (loss) on forward currency contracts | $(1,847,114 | ) | $(241,961 | ) | ||||
Change in net unrealized appreciation (depreciation) on forward currency contracts | (974,317 | ) | (165,935 | ) |
For the year ended September 30, 2017, the volume of the forward currency contracts is measured by the number of trades during the period and the average notional value of such contracts. Ariel International Fund and Ariel Global Fund had 165 and 79 forward currency trades during the year with an average notional value of $2,582,960 and $761,037, respectively. A complete list of open forward currency contracts is found in the Schedule of Investments for the respective funds.
800.292.7435 | 71 |
Notes to the financial statements | 09/30/17 | |||
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NOTE SEVEN | TRANSACTIONS WITH AFFILIATED COMPANIES
If a Fund’s holding represents ownership of 5% or more of the voting securities of a company, the company is deemed to be an affiliate as defined in the 1940 Act. The following transactions were made during the year ended September 30, 2017, with affiliated companies:
Share activity
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Year ended September 30, 2017
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Security name | Balance September 30, 2016 | Purchases | Sales | Balance September 30, 2017 | Value | Dividends credited to income | Amount of gain (loss) realized on sale of shares |
Amount of | Percent of net assets | |||||||||||||||||||||||||||
Ariel Fund | ||||||||||||||||||||||||||||||||||||
Bristow Group, | ||||||||||||||||||||||||||||||||||||
Inc. (Producer durables) | 3,147,795 | 1,196,672 | 496,500 | 3,847,967 | $35,978,491 | $645,386 | $(18,576,967 | ) | $6,287,013 | 1.7% | ||||||||||||||||||||||||||
Contango Oil & | ||||||||||||||||||||||||||||||||||||
Gas Co. (Energy) | 1,928,817 | — | — | 1,928,817 | 9,701,950 | — | — | (10,010,561 | ) | 0.5 | ||||||||||||||||||||||||||
MSG Networks, | ||||||||||||||||||||||||||||||||||||
Inc. (Consumer discretionary & services) | 3,353,208 | 428,215 | 255,500 | 3,525,923 | 74,749,568 | — | 373,016 | 8,773,147 | 3.5 | |||||||||||||||||||||||||||
MTS Systems | ||||||||||||||||||||||||||||||||||||
Corp. (Producer durables) | 894,616 | — | — | 894,616 | 47,817,225 | 1,073,539 | — | 6,638,050 | 2.2 | |||||||||||||||||||||||||||
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$168,247,234 | $1,718,925 | $(18,203,951 | ) | $11,687,649 | 7.9% | |||||||||||||||||||||||||||||||
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Fund | ||||||||||||||||||||||||||||||||||||
Bristow Group, | ||||||||||||||||||||||||||||||||||||
Inc. (Producer durables) | 2,426,964 | — | — | 2,426,964 | $22,692,113 | $509,662 | $— | $(11,333,922 | ) | 1.3% | ||||||||||||||||||||||||||
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NOTE EIGHT | LINE OF CREDIT
The Funds have a $125,000,000 Line of Credit (the “Line”), which is uncommitted, with Northern Trust. The Line is for temporary or emergency purposes such as to provide liquidity for shareholder redemptions. The Funds incur interest expense to the extent of amounts drawn (borrowed) under the Line. Interest is based on the sum of 1.00% and the Federal Funds Target Rate.
For the year ended September 30, 2017, the details of the borrowings were as follows:
Fund
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Average daily borrowings
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Number of days outstanding
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Weighted average annualized interest rate
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Ariel Fund | $ | 4,222,566 | 6 | 1.25% | ||||||||
Ariel Focus Fund | 56,742 | 6 | 1.90% |
72 | ARIELINVESTMENTS.COM |
Report of independent registered public accounting firm | ||||
| ||||
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF ARIEL INVESTMENT TRUST:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Ariel Investment Trust, comprising Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel Discovery Fund, Ariel International Fund, and Ariel Global Fund (collectively the “Funds”), as of September 30, 2017, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years then ended. These financial statements and financial highlights are the responsibility of the 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2017, by correspondence with the Funds’ custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 as of September 30, 2017, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Chicago, Illinois
November 17, 2017
800.292.7435 | 73 |
Important supplemental information | 09/30/17 (UNAUDITED) | |||
| ||||
2017 TAX INFORMATION
The following information for the fiscal year ended September 30, 2017 for Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel Discovery Fund, Ariel International Fund and Ariel Global Fund is provided pursuant to provisions of the Internal Revenue Code.
Ariel Fund | Ariel Appreciation Fund | Ariel Focus Fund | Ariel Discovery Fund | Ariel International Fund | Ariel Global Fund | |||||||||||||||||||
Long term capital gain distributions paid during the year * | $125,965,608 | $102,396,412 | $— | $— | $— | $390,000 | ||||||||||||||||||
Dividends received deduction % for corporate shareholders | 99% | 43% | 84% | — | 2% | 30% |
* Designated for purposes of the dividends paid deduction.
Complete information will be reported on Forms 1099-DIV sent to shareholders in January 2018. The Funds intend to designate the maximum amount of qualified dividend income allowed.
FOREIGN TAX CREDIT PASS THROUGH
Pursuant to Section 853 of the Internal Revenue Code, Ariel International Fund and Ariel Global Fund designate the following amounts as foreign taxes paid for the year ended September 30, 2017. Foreign taxes paid for purposes of Section 853 may be less than actual foreign taxes paid for financial statement purposes.
Ariel International Fund | Ariel Global Fund | |||||||
Creditable foreign taxes paid | $954,242 | $146,996 | ||||||
Per share amount | $0.0267 | $0.0227 | ||||||
Portion of ordinary income distribution derived from foreign sourced income* | 94.99% | 67.57% |
* None of the Funds listed above derived any income from “ineligible foreign sources” as defined under Section 901(j) of the Internal Revenue Code.
Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. Above figures may differ from those cited elsewhere in this report due to differences in the calculation of income and gains under U.S. generally accepted accounting principles (book) purposes and Internal Revenue Service (tax) purposes. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investments in the Funds. In January, shareholders, excluding corporate shareholders, will receive an IRS 1099-DIV regarding the Federal tax status of the dividends and distributions they received in the calendar year.
PROXY VOTING POLICIES, PROCEDURES, AND RECORD
Both a description of the policies and procedures that the Funds’ investment adviser uses to determine how to vote proxies relating to portfolio securities and information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2017 are available upon request by calling 800-292-7435. Such information for the Funds is also available on the Securities and Exchange Commission’s (“SEC”) web site at www.sec.gov.
SHAREHOLDER STATEMENTS AND REPORTS
The Funds attempt to reduce the volume of mail sent to shareholders by sending one copy of financial reports, prospectuses and other regulatory materials to two or more account holders who share the same address. We will send you a notice at least 60 days before sending only one copy of these documents if we have not received written consent from you previously. Should you wish to receive individual copies of materials, please contact us at 800-292-7435. Once we have received your instructions, we will begin sending individual copies for each account within 30 days.
AVAILABILITY OF QUARTERLY SCHEDULES OF INVESTMENTS
The Funds file complete schedules of investments with the SEC for the quarters ended December 31 and June 30 of each fiscal year on Form N-Q which are available on the SEC’s website at www.sec.gov. Additionally, the Funds’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. For information on the Public Reference Room, call 800-SEC-0330.
All of the Funds’ quarterly reports contain a complete schedule of portfolio holdings. All quarterly reports are made available to shareholders on the Funds’ web site at www.arielinvestments.com. Shareholders also may obtain copies of shareholder reports upon request by calling 800-292-7435 or by writing to Ariel Investment Trust, c/o U.S. Bancorp Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin, 53201-0701
74 | ARIELINVESTMENTS.COM |
Fund expense example | 09/30/17 (UNAUDITED) | |||
| ||||
EXAMPLE
As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution and service (12b-1) fees; and other Fund expenses. The Funds currently do not charge any transaction costs, such as sales charges (loads) on purchase payments, reinvested dividends or other distributions, redemption fees or exchange fees. The following example is intended to help you understand your ongoing costs (in dollars) of investing in each of the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that IRA, 403(b) and Coverdell ESA account holders are charged an annual $15 recordkeeping fee or a one-time, lifetime $60 fee. If these fees were included in either the Actual Expense or Hypothetical Example below, your costs would be higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of April 1, 2017–September 30, 2017.
ACTUAL EXPENSES
The first line of the table below for each Fund provides information about actual account values and actual expenses for that particular Fund. You may use the information in each of these lines, together with the amount you invested, to estimate the expenses that you paid over the period in each Fund. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000=8.6), then multiply the result by the number in the first line under the heading, entitled “Expenses Paid During Period”, to estimate the expenses you paid on your account during this period in each Fund.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The right portion of the table below for each Fund provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each of the Funds to other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight only your ongoing costs in each of the Funds. Therefore, the right portion of the table for each Fund is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
Actual | Hypothetical (5% return before expenses) | |||||||||||||||||||||||
Fund and return | Beginning account value 04/01/17 | Ending account value 09/30/17 | Expenses paid during period* | Ending account value 09/30/17 | Expenses paid during period* | Annualized expense ratio* | ||||||||||||||||||
Ariel Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,008.20 | $5.08 | $1,020.00 | $5.11 | 1.01% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,009.60 | 3.63 | 1,021.46 | 3.65 | 0.72% | ||||||||||||||||||
Ariel Appreciation Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,008.10 | $5.64 | $1,019.45 | $5.67 | 1.12% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,009.90 | 4.03 | 1,021.06 | 4.05 | 0.80% | ||||||||||||||||||
Ariel Focus Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,016.30 | $5.05 | $1,020.05 | $5.06 | 1.00% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,017.80 | 3.79 | 1,021.31 | 3.80 | 0.75% | ||||||||||||||||||
Ariel Discovery Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,044.80 | $6.41 | $1,018.80 | $6.33 | 1.25% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,046.00 | 5.13 | 1,020.05 | 5.06 | 1.00% | ||||||||||||||||||
Ariel International Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,082.10 | $5.90 | $1,019.40 | $5.72 | 1.13% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,083.70 | 4.60 | 1,020.66 | 4.46 | 0.88% | ||||||||||||||||||
Ariel Global Fund | ||||||||||||||||||||||||
Investor Class | $1,000.00 | $1,080.80 | $5.89 | $1,019.40 | $5.72 | 1.13% | ||||||||||||||||||
Institutional Class | 1,000.00 | 1,082.00 | 4.59 | 1,020.66 | 4.46 | 0.88% |
* Expenses are calculated using each Portfolio’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the most recent half fiscal year (183), and divided by the number of days in the current year (365).
800.292.7435 | 75 |
Board of trustees | ||||
| ||||
Name and age
| Position(s) held with Fund
| Term of office and length of time served
| Principal occupation(s) during past 5 years
| Other directorships
| ||||
INDEPENDENT TRUSTEES:
| ||||||||
James W. Compton Age: 79 | Trustee, Chairman of Governance Committee, Member of Management Contracts and Audit Committees | Indefinite, until successor elected Trustee since 1997; Governance Committee Chair since 2015 | Retired President and Chief Executive Officer, Chicago Urban League, 1972 to 2006 | Commonwealth Edison Company | ||||
William C. Dietrich Age: 68 | Lead Independent Trustee, Chairman of Executive Committee, Member of Management Contracts and Audit Committees | Indefinite, until successor elected Trustee since 1986; Lead Independent Trustee and Executive Committee Chair since 2014 | Retired Executive Director, Shalem Institute for Spiritual Formation, Inc., 2006 to 2009 | |||||
Christopher G. Kennedy Age: 54 | Trustee, Chairman of Audit Committee, Member of Management Contracts, Governance and Executive Committees | Indefinite, until successor elected Trustee since 1995; Audit Committee Chair since 2014 | Chairman, Joseph P. Kennedy Enterprises, Inc. since 2012; Founder and Chairman,Top Box Foods since 2012 | Interface Inc.; Knoll, Inc. | ||||
Kim Y. Lew Age: 51 | Trustee, Member of Management Contracts and Audit Committees | Indefinite, until successor elected Trustee since 2014 | Vice President and Chief Investment Officer, Carnegie Corporation of New York since 2016; Vice President and Co-Chief Investment Officer, Carnegie Corporation of New York, 2011 to 2015 | |||||
William M. Lewis, Jr. Age: 61 | Trustee, Member of Management Contract Committee | Indefinite, until successor elected Trustee since 2007 | Managing Director and Co-Chairman of Investment Banking, Lazard Ltd. since 2004 | |||||
Stephen C. Mills Age: 57 | Trustee, Member of Management Contracts Committee | Indefinite, until successor elected Trustee since 2015 | President of Basketball Operations, New York Knicks since 2017, General Manager & NBA Alternate Governor, New York Knicks since 2013; Chief Executive Officer and Partner of the Athletes and Entertainers Wealth Management Group, LLC, 2010 to 2013 | |||||
James M. Williams Age: 69 | Trustee, Chairman of Management Contracts Committee, Member of Governance Committee | Indefinite, until successor elected Trustee since 2006; Management Contracts Committee Chair since 2007 | Vice President and Chief Investment Officer, J. Paul Getty Trust since 2002 | SEI Mutual Funds (Mr. Williams oversees a total of 104 SEI Mutual Fund portfolios) | ||||
INTERESTED TRUSTEES:
| ||||||||
Mellody L. Hobson Age: 48 | Chairman of the Board of Trustees and President, Member of Executive Committee | Indefinite, until successor elected Trustee since 1993; President since 2002; Chairman since 2006 | President, Ariel Investments since 2000 | The Estée Lauder Companies, Inc.; Starbucks Corporation | ||||
Merrillyn J. Kosier Age: 57 | Trustee and Vice President | Indefinite, until successor elected Trustee since 2003; Vice President since 1999 | Executive Vice President, Ariel Investments since 1999; Chief Marketing Officer, Mutual Funds, Ariel Investments since 2007 | |||||
John W. Rogers, Jr. Age: 59 | Trustee | Indefinite, until successor elected Trustee, 1986 to 1993 and since 2000 | Founder, Chairman, Chief Executive Officer and Chief Investment Officer, Ariel Investments since 1983; Lead Portfolio Manager, Ariel Fund since 1986 and Co-Portfolio Manager, Ariel Appreciation Fund since 2002 | Exelon Corporation; McDonald’s Corporation | ||||
TRUSTEES EMERITUS (no Trustee duties nor responsibilities) Royce N. Flippin, Jr. H. Carl McCall |
Note: Number of portfolios in complex overseen by all Trustees is six. Address for all Trustees is 200 East Randolph Street, Suite 2900, Chicago, IL 60601-6505.
76 | ARIELINVESTMENTS.COM |
Officers | ||||
| ||||
Name and age
| Position(s) held with Fund
| Term of office and length of time served
| Principal occupation(s) during past 5 years
| Other directorships
| ||||
Mareilé B. Cusack Age: 59 | Vice President, Anti-Money Laundering Officer and Secretary | Indefinite, until successor elected Vice President since 2008; Anti-Money Laundering Officer since 2010; Secretary since 2014; Assistant Secretary, 2008 to 2014 | Senior Vice President, Ariel Investments since 2012; General Counsel, Ariel Investments since 2008; Vice President, Ariel Investments, 2007 to 2012 | |||||
Wendy D. Fox Age: 55 | Chief Compliance Officer and Vice President | Indefinite, until successor elected Chief Compliance Officer and Vice President since 2014 | Chief Compliance Officer and Vice President, Ariel Investments, since 2004 | |||||
Mellody L. Hobson Age: 48 | Chairman of the Board of Trustees and President, Member of Executive Committee | Indefinite, until successor elected Trustee since 1993; President since 2002; Chairman since 2006 | President, Ariel Investments since 2000 | The Estée Lauder Companies, Inc.; Starbucks Corporation | ||||
Merrillyn J. Kosier Age: 57 | Trustee and Vice President | Indefinite, until successor elected Trustee since 2003; Vice President since 1999 | Executive Vice President, Ariel Investments since 1999; Chief Marketing Officer, Mutual Funds, Ariel Investments since 2007 | |||||
James R. Rooney Age: 58 | Chief Financial Officer, Vice President and Treasurer | Indefinite, until successor elected Chief Financial Officer, Vice President and Treasurer since 2015 | Vice President, Fund Administration, Ariel Investments, since September 2015; Vice President, Shareholder Reporting, Fidelity Pricing & Cash Management Services, Fidelity Management, 2007 to 2015 |
Note: Number of portfolios in complex overseen by all Officers is six. Address for all officers is 200 East Randolph Street, Suite 2900, Chicago, IL 60601-6505. The Statement of Additional Information (SAI) for Ariel Investment Trust includes additional information about the Funds’ Trustees and Officers. The SAI is available without charge by calling 800.292.7435 or logging on to our website, arielinvestments.com.
800.292.7435 | 77 |
The Russell 2500™ Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. This index pertains to Ariel Fund.
The Russell 2500™ Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2,500 of the smallest securities based on a combination of their market cap and current index membership. This index pertains to Ariel Fund.
The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. This index pertains to Ariel Discovery Fund.
The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership This index pertains to Ariel Discovery Fund.
The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. This index pertains to Ariel Appreciation Fund.
The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. This index pertains to Ariel Appreciation Fund.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. This index pertains to Ariel Focus Fund.
The S&P 500® Index is the most widely accepted barometer of large cap U.S. equities. It includes 500 leading companies. This index pertains to Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund and Ariel Discovery Fund.
MSCI EAFE Index is an unmanaged, market-weighted index of companies in developed markets, excluding the U.S. and Canada. The MSCI EAFE Index net returns reflect the reinvestment of income and other earnings, including the dividends net of the maximum withholding tax applicable to non-resident institutional investors that do not benefit from double taxation treaties. MSCI uses the maximum tax rate applicable to institutional investors, as determined by the companies’ country of incorporation. This index pertains to Ariel International Fund.
The MSCI ACWI (All Country World Index) ex-US Index is an unmanaged, market-weighted index of global developed and emerging markets, excluding the United States. The MSCI ACWI ex-US Index net returns reflect the reinvestment of income and other earnings, including the dividends net of the maximum withholding tax applicable to non-resident institutional investors that do not benefit from double taxation treaties. MSCI uses the maximum tax rate applicable to institutional investors, as determined by the companies’ country of incorporation. This index pertains to Ariel International Fund.
MSCI ACWI (All Country World Index) Index is an unmanaged, market weighted index of global developed and emerging markets. The MSCI ACWI Index net returns reflect the reinvestment of income and other earnings, including the dividends net of the maximum withholding tax applicable to non-resident institutional investors that do not benefit from double taxation treaties. MSCI uses the maximum tax rate applicable to institutional investors, as determined by the companies’ country of incorporation. This index pertains to Ariel Global Fund.
Indexes are unmanaged. An investor cannot invest directly in an index.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or underlying data and no party may rely on any Russell Indexes and/or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI. Source: MSCI.
78 | ARIELINVESTMENTS.COM |
Ariel Investment Trust
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
800.292.7435
• arielinvestments.com
• linkedin.com/company/ariel-investments
• twitter.com/arielfunds
• facebook.com/arielinvestments
What’s inside
· | Crash Course Read investing lessons John Rogers learned during the Crash of 1987. |
· | A Non-Consensus Approach To Investing Learn why Portfolio Manager Rupal Bhansali prizes a contrarian approach to investing. |
· | A Stock Picker’s Quarter, Part 2 Learn what stocks contributed to Ariel Focus Fund’s performance. |
· | Stock Talk If we could only own one stock, what would it be? Find out by reading Portfolio Manager David Maley’s letter. |
· | Company Spotlights Read our investment thesis on Aflac Incorporated, AstroNova Inc., Quest Diagnostics Inc., and U.S. Silica Holdings and learn why we believe these companies have intriguing valuations and long-term growth opportunities. |
What’s online
· | Visit the Media Center View Rupal Bhansali’s explanation of intrinsic value, risk and volatility. |
· | View estimates of Capital Gains and Income Distributions for all funds. |
Slow and steady wins the race. |
TPI (124,500) ©11/17 AI–03 |
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a code of ethics, that applies to the registrant’s principal executive officer and principal financial officer, or persons performing similar functions.
During the period covered by this report, no revisions were made to the code of ethics.
A copy of the current code of ethics is available on our web site at www.arielmutualfunds.com and without charge, upon request by calling toll-free 1-800-292-7435.
During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) William C. Dietrich, (2) Christopher G. Kennedy, and (3) Kim Y. Lew.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate Audit Fees of Deloitte & Touche LLP (“Deloitte”) for professional services rendered for the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for the fiscal years ended September 30, 2017 and September 30, 2016, respectively, were $133,000 and $139,000.
(b) Audit-Related Fees. The aggregate Audit-Related Fees of Deloitte for services rendered for assurance and related services that are reasonably related to the performance of the audit or review of the registrant’s financial statements, but not reported as Audit Fees for the fiscal years ended September 30, 2017 and September 30, 2016, respectively, were $0 and $0.
For the twelve month periods ended September 30, 2017 and September 30, 2016, aggregate Audit-Related Fees billed by Deloitte that were required to be approved by the Audit Committee of the registrant’s Board of Directors (the “Audit Committee”) for audit-related services rendered to the registrant’s investment advisor and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant (the “Affiliated Service Providers”) that relate directly to the operations and financial reporting of the registrant were $0 and $0, respectively.
(c) Tax Fees. The aggregate Tax Fees of Deloitte for professional services rendered for the review of Federal, state and excise tax returns and other tax compliance consultations for the fiscal years ended September 30, 2017 and September 30, 2016, respectively, were $26,936 and $25,900.
Fees included in the Tax Fees category comprise all services performed by professional staff in the independent accountant’s tax division except those services related to the audit.
For the twelve month periods ended September 30, 2017 and September 30, 2016, the aggregate Tax Fees billed by Deloitte that were required to be approved by the registrant’s Audit Committee for tax compliance, tax advice and tax planning services rendered on behalf of Affiliated Service Providers that relate directly to the operations and financial reporting of the registrant were $0 and $0, respectively.
2
(d) All Other Fees. The aggregate Other Fees of Deloitte for all other non-audit services rendered to the registrant for the fiscal years ended September 30, 2017 and September 30, 2016, were $0 and $0.
For the twelve month periods ended September 30, 2017 and September 30, 2016, the aggregate fees in this category billed by Deloitte that were required to be approved by the registrant’s Audit Committee for services rendered on behalf of Affiliated Service Providers that relate directly to the operations and financial reporting of the registrant were $0 and $0, respectively.
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
The registrant’s Audit Committee must pre-approve all audit and non-audit services provided by the independent accountant relating to the operations or financial reporting of the registrant. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
The registrant’s Audit Committee has adopted a policy whereby audit and non-audit services performed by the registrant’s independent accountant require pre-approval in advance at regularly scheduled Audit Committee meetings. If such a service is required between regularly scheduled Audit Committee meetings, pre-approval may be authorized by the Audit Committee Chairperson with ratification at the next scheduled audit committee meeting.
(2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) For the twelve month periods ended September 30, 2017 and September 30, 2016, aggregate non-audit fees billed by Deloitte for services rendered to the registrant were $26,936 and $25,900, respectively.
For the twelve month periods ended September 30, 2017 and September 30, 2016, aggregate non-audit fees billed by Deloitte for services rendered to the Affiliated Services Providers were $0 and $0, respectively.
(h) The registrant’s Audit Committee has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. No such services were rendered.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
(a) | Included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not applicable. |
3
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.
Item 11. Controls and Procedures.
(a) | The registrant’s certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to them by others, particularly during the period in which this report is being prepared. The registrant’s certifying officers have determined that the registrant’s disclosure controls and procedures are effective based on their evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. |
(b) | There were no significant changes in the registrant’s internal controls over financial reporting, or in other factors that could significantly affect these controls, that occurred during the registrant’s second fiscal half-year, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a) (1) Code of Ethics – Not applicable. Item 2 requirements satisfied through alternative means.
(a) (2) Certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2(a)) – Filed as an attachment to this filing.
(a) (3) Written solicitation to purchase securities under Rule 23c-1 – Not applicable.
(b) | Certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 |
4
of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). A certification furnished pursuant to this paragraph will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference – Filed as an attachment to this filing. |
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Ariel Investment Trust | ||
By: | /s/ Mellody L. Hobson | |
Mellody L. Hobson | ||
President | ||
(Principal Executive Officer) |
Date: November 22, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Mellody L. Hobson | |
Mellody L. Hobson | ||
President | ||
(Principal Executive Officer) |
Date: November 22, 2017
By: | /s/ James R. Rooney | |
James R. Rooney | ||
Vice President, Chief Financial Officer and Treasurer | ||
(Principal Financial Officer) |
Date: November 22, 2017
6