Our patient approach focuses on the long term, allowing us to take advantage of great buying opportunities that arise from Wall Street’s excessive focus on the short term and from the institutional neglect common with small cap stocks.

Ariel Discovery Fund searches for sound businesses trading below intrinsic value, which we believe is best determined by two factors: asset value and/or earnings power.

Asset Value

• A company’s assets as defined by tangible assets, unrecognized assets or franchise value are key to determining a margin of safety.
• In analyzing a company’s assets the following tools are most often used: price/tangible book value, price/net current assets and price/cash.

Earnings Power

• Earnings power, as evaluated by price/earnings, price/cash flow and EV/EBITDA, typically represent upside to the investment opportunity. For example, a common investment would be the purchase of a company trading below its liquid asset value, which is currently operating at roughly break-even. Expected improvement in operations then provides an inexpensive or even free "call option," with assets providing a margin of safety.

The portfolio managers bring a unique expertise in evaluating which metric is most useful in measuring a company’s value.

In addition to the above quantitative factors, we may also evaluate a company qualitatively by examining its product positioning, new product potential, quality of and ownership by the management team, as well as turnaround and/or takeover potential.

In the end, the intent is to make a sound investment which allows for a margin of safety.

Margin of Safety: 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.

We believe ethical business practices make good investment sense.

We do not invest in corporations whose primary source of revenue is derived from:

• the production or sale of tobacco products or
• the manufacture of handguns.

We consider a company’s environmental record which includes reviewing research from outside vendors that provide such services.

We encourage portfolio companies to have an open dialogue on:

• giving back to the community,
• a dedication to education, and
• proactive diversity practices.

For more information, read The Responsibility Factor.

^* Ariel Investments, LLC, the Adviser, is contractually obligated to waive fees or reimburse expenses in order to limit Ariel Discovery Fund’s total annual operating expenses to 1.50% of net assets for the Investor Class and 1.25% of net assets for Institutional Class through the end of the fiscal year ending September 30, 2014. No termination of this agreement by either the Board of Trustees or the Adviser may be effective until, at the earliest, October 1, 2014.