Calvert, Ariel plan to end investment relationship


Calvert Group Ltd., a Bethesda-based mutual fund company, and its Chicago-based partner announced yesterday an end to their 8-year-old investment relationship.

The two funds -- the Calvert-Ariel Growth Fund and Calvert-Ariel Appreciation Fund, with about $400 million in combined assets -- will be solely managed by Ariel Capital Management Inc. beginning this fall.

"It is sort of awkward, like friends divorcing," said Donald J. Phillips, publisher of Chicago-based Morningstar Mutual Funds. "I think both were better for the partnership. I think this is better for Ariel. I don't know if it is better for Calvert. They need to do

some shaking up of their product line, but I think Calvert will live through this."

Yesterday's announcement does not affect the more than 30 remaining Calvert mutual and money market funds.

Since 1986, Ariel, one of the country's largest minority-owned money managers, has handled the investment management, and Calvert has marketed and sold the two funds through outside brokers and financial planners.

Taking complete control of the funds fits into Ariel's long-term plans to develop its own fund family, said Eric T. McKissak, co-chief investment officer at Ariel. Starting next Friday, Ariel will sell its mutual funds directly to investors.

A principal reason behind the split was a difference in philosophy over whether to charge a "load," or a sales charge, to customers and market the funds through brokers and financial planners. Calvert, which distributes the two funds, charges a 4.75 percent sales commission.

"One, Ariel really wanted to control their own destiny and manage and control the operations. Secondly, they think no-load is the way to go. We disagree," said Steven J. Schueth, Calvert's vice president for socially responsible investing. "We are committed to selling products through brokers and financial planners."

The Ariel funds will stop charging a load as of July 15, though they will continue to pay brokers a "trailing compensation," or annual fee from Ariel's revenues.

In recent years, a number of mutual funds have dropped their sales charge and seen their assets take off, Mr. Phillips said.

Because of the immense popularity of mutual funds and a growing desire of consumers for lower investment fees, it has become difficult for load funds without their own sales force to compete for customers.

Calvert, however, has been sheltered somewhat by a strong track record and reputation.

"Calvert has a leg up, because it's known for its socially conscious investing, and that opens up some doors," Mr. Phillips said. "You have to have performance to get people on board ultimately."

The Calvert-Ariel Appreciation Fund, with $208 million in assets, returned 7 percent over the past 12 months, among the top 20 percent of its peers. The Calvert-Ariel Growth Fund returned 5.5 percent over the same period.

According to Ariel, its investment strategy for the two funds will not change. What will change after Sept. 5 are:

* The two funds will become the Ariel Growth Fund and Ariel Appreciation Fund.

* Shareholders can no longer transfer funds directly from Ariel funds to Calvert funds.

* Ariel shareholders can transfer their funds without fees into money-market and tax-free bond funds Ariel intends to introduce this summer.

By the end of the summer, Calvert hopes to offer a growth fund of small- to mid-sized companies similar to the growth and appreciation funds it will lose, said Mr. Schueth.

Calvert will receive compensation from Ariel equal to about 1 percent of the asset value of the two funds, now about $400 million, when the funds are transferred in early September, the two companies said.

The Calvert Group manages 35 mutual and money market funds with about $4.8 billion in assets and 200,000 shareholders and depositors.

In addition to Ariel's two mutual funds, it is the asset manager for 50 institutional customers and has $2.1 billion in assets under management.

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