<PAGE>
[Ariel Mutual Funds LOGO APPEARS HERE]
Ariel Growth Fund
Ariel Appreciation Fund
Semi-Annual Report--March 31, 1995
[PHOTO APPEARS HERE]
<PAGE>
[PHOTO APPEARS HERE]
John W. Rogers, Jr.
President & Co-Chief
Investment Officer
[PHOTO APPEARS HERE]
Eric T. McKissack
Co-Chief Investment
Officer
"Although the market's rebound has been
widely lauded, the results of this recent
surge clearly demonstrate that the large
company stocks racked up the biggest gains
while small and mid-sized company stocks
trailed behind."
[PHOTO APPEARS HERE]
Franklin Morton
Vice President &
Director of Research
<PAGE>
ARIEL APPRECIATION FUND
Inception December 1, 1989
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIEL +3.1% +5.5% +8.6% +9.0%
APPRECIATION
FUND
- -----------------------------------------------------------------------------
</TABLE>
Total return does not reflect a maximum 4.75% sales load that was charged
prior to July 15, 1994.
- -----------------------------------------------------------------------------
ARIEL APPRECIATION FUND
PORTFOLIO COMPOSITION
[PIE CHART APPEARS HERE]
Autos and Transportation 1.9%
Producer Durables 4.0%
Financial Services 12.2%
Consumer Staples 4.6%
Health Care 11.5%
Technology 4.7%
Materials and Processing 11.4%
Consumer Discretionary and Services 49.8%
- -----------------------------------------------------------------------------
S&P 500
[PIE CHART APPEARS HERE]
Other Energy 2.4%
Integrated Oils 8.4%
Consumer Staples 11.9%
Consumer Discretionary and Services 12.8%
Health Care 9.2%
Materials and Processing 8.5%
Producer Durables 7.2%
Autos and Transportation 4.8%
Financial Services 11.3%
Utilities 12.4%
Technology 11.0%
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED
IN ARIEL APPRECIATION FUND AND COMPARABLE INDICES*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period ARIEL APPRECIATION
(Fiscal Year Covered) FUND S&P 500 RUSSELL 2500
- ------------------- ------------------ ------- ------------
<S> <C> <C> <C>
Measurement Pt-
1989 $10,000 $10,000 $10,000
FYE 1990 $ $ $
FYE 1991 $ $ $
FYE 1992 $ $ $
FYE 1993 $ $ $
FYE 1994 $ $ $
FYE 1995 $15,807 $17,052 $18,054
</TABLE>
*Statistics represent past performance which is not indicative of future
results.
<PAGE>
ARIEL GROWTH FUND
Inception November 6, 1986
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIEL +6.5% +6.2% +7.5% +12.6%
GROWTH
FUND
- -----------------------------------------------------------------------------
</TABLE>
Total return does not reflect a maximum 4.75% sales load that was charged
prior to July 15, 1994.
- -----------------------------------------------------------------------------
ARIEL GROWTH FUND
PORTFOLIO COMPOSITION
[PIE CHART APPEARS HERE]
Materials and Processing 16.7%
Consumer Staples 6.8%
Consumer Discretionary and Services 58.5%
Producer Durables 2.5%
Financial Services 9.8%
Technology 2.4%
Health Care 3.4%
- -----------------------------------------------------------------------------
S&P 500
[PIE CHART APPEARS HERE]
Other Energy 2.4%
Integrated Oils 8.4%
Consumer Staples 11.9%
Consumer Discretionary and Services 12.8%
Health Care 9.2%
Materials and Processing 8.5%
Producer Durables 7.2%
Autos and Transportation 4.8%
Financial Services 11.3%
Utilities 12.4%
Technology 11.0%
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED
IN ARIEL GROWTH FUND AND COMPARABLE INDICES*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period ARIEL GROWTH
(Fiscal Year Covered) FUND S&P 500 RUSSELL 2500
- ------------------- ------------ ------- ------------
<S> <C> <C> <C>
Measurement Pt-
1986 $10,000 $10,000 $10,000
FYE 1987 $ $ $
FYE 1988 $ $ $
FYE 1989 $ $ $
FYE 1990 $ $ $
FYE 1991 $ $ $
FYE 1992 $ $ $
FYE 1993 $ $ $
FYE 1994 $ $ $
FYE 1995 $27,144 $26,224 $24,441
</TABLE>
*Statistics represent past performance which is not indicative of future
results.
<PAGE>
Semi-Annual Letter--March 31, 1995
Ariel Growth Fund
Ariel Appreciation Fund
Dear Shareholder:
For the three months ended March 31, 1995, the small and medium-sized companies
that make up the Ariel Growth Fund and the Ariel Appreciation Fund portfolios
returned +5.3% and +7.1% respectively. Over this same period, the smaller
securities that comprise the Russell 2500 Index returned +7.4%, while the large
stocks of the S&P 500 Index posted a +9.7% gain.
Large Companies Lead Market Rally
Square on the heels of a fitful investing environment that left most money
managers under water in 1994, the stock market staged a comeback during the
first quarter of 1995. As one Barron's reporter grippingly wrote, "The Dow Jones
Industrial Average sliced through 4000 like the proverbial hot knife through
soft butter. And before you could say 'hooray!' it raced passed 4100, and then
through 4200." Although the market's rebound has been widely lauded, the results
of this recent surge clearly demonstrate that the large company stocks racked up
the biggest gains while small and mid-sized company stocks trailed behind.
Within a more narrowly defined universe of smaller companies, Investor's
Business Daily reports that the most popular and expensive "small-cap growth
companies produced a return of 8.2% in the first quarter" while the often
ignored and underfollowed, "small-cap value (issues) rose 5.1%." (In a hard
charging bull market, it is not surprising that the glitziest issues attract the
most attention. In more difficult market environments, this same attention
becomes painfully unwanted.)
True to the market's often erratic behavior, there are no apparent reasons for
the muted performance of small and medium-sized companies over the last quarter
or even the last year. In theory, one might assume that the performance of these
stocks has been penalized by weak earnings. In reality, this has not been the
case. A recent issue of Barron's reports that the operating earnings for the
stock market's largest publicly-traded companies grew by 11% in the fourth
quarter of 1994. Over this same period, these earnings for the universe of small
and mid-sized companies grew by 13%. By comparison, the operating earnings for
the undervalued companies that make up the Ariel portfolios also grew by an
average of 13%. Not only are our own portfolio companies growing, 84% of these
issues managed to meet or beat Wall Street's earnings expectations during the
fourth quarter of 1994 versus 78% of the entire universe of 4,800 companies that
have estimates. As our company statistics
<PAGE>
Ariel Growth Fund
Ten Largest Holdings
as of March 31, 1995
1 First Brands Corporation
Manufacturer and marketer of consumer products for home and automotive markets
2 Longs Drug Stores
A leading operator of retail drug stores in California and other western states
3 Ecolab, Inc.
Leading developer and marketer of premium cleaning and sanitizing products and
services for the hospitality markets
4 Russell Corporation
Designer and manufacturer of leisure apparel and athletic uniforms
5 The Clorox Co.
Leading producer of bleach, household cleaning and other widely recognized
consumer products
6 Rouse Company
A retail mall developer
7 Central Newspapers, Inc.
Leading media company that publishes daily and weekly newspapers in metropolitan
Phoenix, Arizona and Indianapolis, Indiana as well as smaller Indiana
communities
8 Hasbro, Inc.
World's largest manufacturer of toys
9 T. Rowe Price Associates
Investment advisor to family of no-load mutual funds and to private accounts of
institutional individual clients
10 Bergen Brunswig Corp.
Nation's second largest distributor/wholesaler of pharmaceuticals and health
care products
reveal, we have been largely pleased with their recent earnings reports.
Moreover, we continue to be quite confident in the long-term prospects for these
issues since long-term stock prices ultimately reflect company fundamentals.
The Running of the Bulls and the Return
of Jordan
In light of the recent large company leadership, it should come as no surprise
that the market pundits are once again attempting to reap big profits from
illusory trends. As is typical of a fair-weather Wall Street crew, good news
brings out the bulls. (Sports enthusiasts please note-this discussion has
absolutely nothing to do with Michael Jordan's return; although some fanatics
might argue that Air Jordan's greatness is capable of lifting a stock market
too.) "There's more than a whiff of speculation in the air," notes The New York
Times and the numbers speak for themselves. Among the sentiment indicators, Alan
Abelson of Barron's says that of the scores of investment managers polled "63%
(were) bullish in the Consensus survey, 56% in Market Vane and even among those
dour market letter writers canvassed by Investors Intelligence, there are
finally more bulls than outright bears." In short, the hot bandwagon is in the
large cap arena and the institutional crowd is rushing to get a seat.
As we have discussed on many occasions, with our naturally contrarian view, our
confidence is heightened when we read of such widespread like-mindedness. Again,
it seems appropriate to quote a saying that we recanted in the last issue of The
Patient Investor, "If all children sit on one end of a seesaw because its the
end going up, it can't go up." In purchasing shares of small and medium-sized
companies that have been widely ignored by Wall Street investors, we believe
that we've got a seat on the side of the seesaw that's ready to rise.
2
<PAGE>
Ariel Appreciation Fund
Ten Largest Holdings
as of March 31, 1995
1 Rouse Company
Retail mall developer
2 Hasbro, Inc.
World's largest toy manufacturer
3 Bergen Brunswig Corp.
Nation's second largest distributor/wholesaler of pharmaceuticals and health
care products
4 Russell Corporation
Designer and manufacturer of leisure apparel and athletic uniforms
5 Omnicom Group, Inc.
Fourth largest advertising agency in the world
6 MBIA, Inc.
Leading insurer of municipal bonds
7 Universal Foods
Manufacturer and marketer of food ingredients and consumer foods
8 Leggett & Platt
Manufacturer of furniture components
9 Merry Land & Investment Co.
One of the largest owners and operators of upscale garden apartments in the
southeast (a real estate investment trust-REIT)
10 Watts Industries, Inc.
Designs, manufactures and sells extensive line of valves for the water plumbing
and heating markets
Portfolio Comings and Goings
During the course of the last quarter, we purchased one new security for the
Ariel Growth Fund, CCH, Inc. (CCHIA: OTC). CCH has been a leader for more than
75 years in the publication of current information related to tax and business
law. The company has a tremendous franchise in the business community that we
believe to be undervalued but well positioned for the future. During this same
period, we sold our position in United Stationers (USTR: OTC), the nation's
largest distributor of office supplies. In January, this long-time holding was
acquired by a competing company known as Associated Stationers.
In the Ariel Appreciation Fund, we established new positions in three
securities: McCormick & Co., Inc. (MCCRK: OTC), the spice manufacturer; Bob
Evans Farms (BOBE: OTC), the food and restaurant company; and Ecolab, Inc. (ECL:
NYSE), a leading developer and marketer of cleaning and sanitizing products. All
three companies represent established enterprises with very strong niche
businesses.
Newly Elected Trustees
We are pleased to report that as a result of a special meeting of the
shareholders of the Funds held on January 24, 1995, several Trustees were
elected to the Board of Trustees of the Ariel Mutual Funds. These Trustees are:
Mario L. Beaza, Esq., Mellody Hobson, Christopher G. Kennedy and Eric T.
McKissack. Those previously elected Trustees whose term of office continued
after the shareholder meeting are: William C. Dietrich, Royce N. Flippin, Jr.,
John G. Guffey, Jr. and Bert N. Mitchell. All of the Trustees' biographies are
listed on the back cover of this report.
3
<PAGE>
All matters voted on by the shareholders of record as of November 11, 1994 and
the results of the shareholders' vote at the January 24, 1995 meeting were as
follows:
<TABLE>
<CAPTION>
A. Election of Trustees.
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Mario L. Baeza, ESQ.
Ariel Growth Fund 2,785,097 31,616 --
Ariel Appreciation Fund 3,630,839 71,780 --
Mellody L. Hobson
Ariel Growth Fund 2,772,166 46,299 --
Ariel Appreciation Fund 3,616,531 89,201 --
Christopher G. Kennedy
Ariel Growth Fund 2,786,292 30,466 --
Ariel Appreciation Fund 3,633,776 68,579 --
Eric T. McKissack
Ariel Growth Fund 2,795,046 21,666 --
Ariel Appreciation Fund 3,654,729 46,657 --
B. Approval of the Management Agreement between the Trust and Ariel Capital
Management, Inc., with respect to each Fund.
For Against Abstain
--- ------- -------
Ariel Growth Fund 2,505,202 26,986 145,940
Ariel Appreciation Fund 3,314,609 40,568 346,066
C. Amendment of each Fund's investment restrictions relating to concentration.
For Against Abstain
--- ------- -------
Ariel Growth Fund 1,354,894 982,785 162,097
Ariel Appreciation Fund 2,640,087 199,337 370,031
D. Ratification of the selection of Ernst & Young LLP as independent auditors for
the Funds.
For Against Abstain
--- ------- -------
Ariel Growth Fund 2,652,176 22,922 141,614
Ariel Appreciation Fund 3,334,171 32,031 326,041
</TABLE>
As always, we are grateful for the opportunity to serve you and welcome any
comments or questions that you might have.
Sincerely,
/s/ John W. Rogers, Jr. /s/ Eric T. McKissack
John W. Rogers, Jr. Eric T. McKissack, CFA
Portfolio Manager Portfolio Manager
Ariel Growth Fund Ariel Appreciation Fund
4
<PAGE>
Ariel Growth Fund
Schedule of Investments
March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS 99.33% Market Value
of Shares
<S> <C> <C>
Advertising--3.41%
83,620 Omnicom Group, Inc. $ 4,578,195
-----------
Apparel & Shoes--4.32%
195,760 Russell Corp. 5,799,390
-----------
Business Services--7.28%
137,950 Angelica Corp. 3,793,625
247,150 Ecolab, Inc. 5,993,388
-----------
9,787,013
-----------
Consumer Products--12.45%
63,925 American Greetings Corp., Class A 1,909,759
81,175 Armor All Products Corp. 1,745,263
92,200 Clorox Co. 5,532,000
172,750 First Brands Corp. 6,499,719
61,420 Oil-Dri Corporation of America 1,036,463
-----------
16,723,204
-----------
Education--3.02%
108,287 DeVRY, Inc.* 4,060,762
-----------
Entertainment/Leisure--5.78%
125,075 Johnson Worldwide Associates, Inc.,
Class A* 2,923,628
143,300 Hasbro, Inc. 4,836,375
-----------
7,760,003
-----------
Environmental--1.07%
80,450 Safety Kleen Corp. 1,438,044
-----------
Financial Services-9.69%
90,925 Duff & Phelps Corp. 1,022,906
52,200 MBIA, Inc. 3,282,075
114,500 Northern Trust Corp. 4,021,812
129,170 T. Rowe Price Associates 4,698,559
-----------
13,025,352
-----------
Food/Restaurants--5.09%
161,333 Bob Evans Farms, Inc. 3,367,826
153,650 McCormick & Co., Inc. 3,476,331
-----------
6,844,157
-----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Ariel Growth Fund
Schedule of Investments
March 31, 1995 (Unaudited)
<S> <C> <C>
Number COMMON STOCKS 99.33%--(continued) Market Value
of Shares
Furniture & Furnishings-8.17%
326,600 Interface, Inc., Class A $ 4,572,400
89,500 Leggett & Platt, Inc. 3,759,000
120,695 Miller (Herman), Inc. 2,640,203
-----------
10,971,603
-----------
Health Care-3.42%
171,560 Bergen Brunswig Corp., Class A 4,589,243
-----------
Miscellaneous-3.95%
157,000 Specialty Equipment Cos., Inc.* 1,903,625
118,995 Stanhome, Inc. 3,406,232
-----------
5,309,857
-----------
Newspapers-8.91%
453,110 American Media, Inc., Class A 3,228,409
189,390 Central Newspapers, Inc., Class A 4,947,814
188,325 Harte-Hanks Communications 3,790,041
-----------
11,966,264
-----------
Office & Business Equipment-4.11%
175,320 General Binding Corp. 3,155,760
172,350 Hunt Mfg. Co. 2,369,812
-----------
5,525,572
-----------
Packaging-5.62%
198,750 Sealright Co., Inc. 3,776,250
234,100 Shorewood Packaging Corp.* 3,774,862
-----------
7,551,112
-----------
Printing & Publishing-1.28%
98,235 Commerce Clearing House, Inc., Class A 1,719,113
-----------
Real Estate-3.97%
271,900 Rouse Co. 5,336,037
-----------
Retailing-7.79%
191,045 Longs Drug Stores, Inc. 6,328,366
465,680 Payless Cashways, Inc.* 4,132,910
-----------
10,461,276
-----------
Total Common Stocks
(cost $106,594,638) 133,446,197
-----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Ariel Growth Fund
Schedule of Investments
March 31, 1995 (Unaudited)
<S> <C> <C>
Principal SHORT-TERM INVESTMENTS 1.14% Market Value
Amount
$1,525,000 United Missouri Bank
Money Market Fiduciary $ 1,525,000
------------
Total Short-Term Investments
(cost $1,525,000) 1,525,000
------------
Total Investments 100.47%
(cost $108,119,638) 134,971,197
Liabilities less Cash and
Other Assets (0.47)% (627,906)
------------
NET ASSETS 100.00% $134,343,291
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Ariel Appreciation Fund
Schedule of Investments
March 31, 1995 (Unaudited)
<S> <C> <C>
Number COMMON STOCKS 95.25% Market Value
of Shares
Advertising-3.03%
80,225 Omnicom Group, Inc. $ 4,392,319
-----------
Apparel & Shoes-5.01%
163,470 Russell Corp. 4,842,799
192,800 Stride Rite Corp. 2,434,100
-----------
7,276,899
-----------
Autos & Transportation-1.81%
150,000 Harper Group, Inc. 2,625,000
-----------
Business Services-2.87%
54,300 Ecolab, Inc. 1,316,775
84,500 Equifax, Inc. 2,851,875
-----------
4,168,650
-----------
Consumer Products-4.83%
70,050 American Greetings Corp., Class A 2,092,744
153,800 Armor All Products Corp. 3,306,700
43,075 First Brands Corp. 1,620,697
-----------
7,020,141
-----------
Entertainment/Leisure-6.13%
150,740 Carnival Cruise Lines, Inc. 3,523,547
159,300 Hasbro, Inc. 5,376,375
-----------
8,899,922
-----------
Environmental-1.01%
82,200 Safety Kleen Corp. 1,469,325
-----------
Financial Services-9.69%
120,250 Duff & Phelps Corp. 1,352,826
68,495 MBIA, Inc. 4,306,623
101,120 MBNA Corp. 2,932,480
73,200 Northern Trust Corp. 2,571,150
80,000 T. Rowe Price Associates 2,910,000
-----------
14,073,079
-----------
Food/Restaurants-5.27%
63,700 Bob Evans Farms, Inc. 1,329,738
92,055 McCormick & Co., Inc. 2,082,744
124,600 Universal Foods Corp. 4,236,400
-----------
7,648,882
-----------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Ariel Appreciation Fund
Schedule of Investments
March 31, 1995 (Unaudited)
<S> <C> <C>
Number COMMON STOCKS 95.25%--(continued) Market Value
of Shares
Furniture & Furnishings-5.04%
469,500 INTERCO, Inc. $ 3,169,125
98,880 Leggett & Platt, Inc. 4,152,960
-----------
7,322,085
-----------
Health Care-10.91%
38,700 Bausch & Lomb, Inc. 1,383,525
195,487 Bergen Brunswig Corp., Class A 5,229,291
82,900 Invacare Corp. 2,922,225
96,500 Sybron Corp.* 3,474,000
87,900 Vivra, Inc.* 2,834,775
-----------
15,843,816
-----------
Industrial-5.21%
180,375 Juno Lighting, Inc. 3,528,586
183,600 Watts Industries, Inc., Class A 4,039,200
-----------
7,567,786
-----------
Miscellaneous-5.11%
83,000 Fisher Scientific International 2,469,250
126,550 Stanhome, Inc. 3,622,494
52,700 Wellman, Inc. 1,330,675
-----------
7,422,419
-----------
Newspapers-4.21%
182,850 Harte-Hanks Communications 3,679,856
44,050 Tribune Co. 2,433,762
-----------
6,113,618
-----------
Office & Business Equipment-2.02%
116,455 General Binding Corp. 2,096,190
23,200 Pitney-Bowes, Inc. 835,200
-----------
2,931,390
-----------
Packaging-2.31%
208,370 Shorewood Packaging Corp.* 3,359,966
-----------
Printing & Publishing-6.75%
83,750 Banta Corp. 2,763,750
56,000 Commerce Clearing House, Inc., Class A 980,000
68,500 Commerce Clearing House, Inc., Class B 1,164,500
25,200 Donnelley (R.R.) & Sons Co. 866,250
86,600 Houghton Mifflin Co. 4,026,900
-----------
9,801,400
-----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Ariel Appreciation Fund
Schedule of Investments
March 31, 1995 (Unaudited)
Number COMMON STOCKS 95.25%--(continued) Market Value
of Shares
<S> <C> <C>
Real Estate--6.69%
210,050 Merry Land and Investment Co., Inc. $ 4,095,975
286,450 Rouse Co. 5,621,581
------------
9,717,556
------------
Retailing--4.92%
101,900 Longs Drug Stores, Inc. 3,375,437
425,350 Payless Cashways, Inc.* 3,774,981
------------
7,150,418
------------
Technology--2.43%
43,800 Computer Associates International, Inc. 2,600,625
20,000 SunGard Data Systems* 920,000
------------
3,520,625
Total Common Stocks
(cost $114,705,836) 138,325,296
------------
Principal SHORT-TERM INVESTMENTS 4.32% Market Value
Amount
$6,275,000 United Missouri Bank
Money Market Fiduciary 6,275,000
------------
Total Short-Term Investments
(cost $6,275,000) 6,275,000
------------
Total Investments 99.57%
(cost $120,980,836) 144,600,296
Cash and Other Assets
less Liabilities 0.43% 626,315
------------
NET ASSETS 100.00% $145,226,611
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Ariel Mutual Funds
Statement of Assets and Liabilities
March 31, 1995 (Unaudited)
GROWTH APPRECIATION
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $108,119,638 and $120,980,836, respectively) $134,971,197 $144,600,296
Cash 32,793 31,090
Dividends and interest receivable 441,610 373,748
Receivable for securities sold 341,678 3,358,290
Receivable for shares sold 13,633 18,519
Receivable from adviser 6,562 27,224
Prepaid and other assets 26,661 41,568
------------ ------------
Total assets 135,834,134 148,450,735
------------ ------------
LIABILITIES:
Payable for securities purchased 1,016,590 2,668,999
Payable for shares redeemed 205,768 197,379
Accrued management fee 80,793 95,890
Accrued distribution fee 87,879 89,449
Other liabilities 99,813 172,407
------------ ------------
Total liabilities 1,490,843 3,224,124
------------ ------------
NET ASSETS $134,343,291 $145,226,611
============ ============
NET ASSETS CONSIST OF:
Paid-in-capital $101,050,375 $120,486,166
Undistributed net investment income 327,637 216,317
Accumulated net realized gain on investment transactions 6,113,720 904,668
Net unrealized appreciation on investments 26,851,559 23,619,460
------------ ------------
Total net assets $134,343,291 $145,226,611
============ ============
Total shares outstanding (no par value),
unlimited shares authorized 4,730,113 6,953,431
============ ============
Net asset value, redemption price and offering price
per share (net assets/shares outstanding) $28.40 $20.89
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Ariel Mutual Funds
Statement of Operations
For the Six Months Ended March 31, 1995
(Unaudited)
GROWTH APPRECIATION
FUND FUND
----- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,123,894 $1,267,156
Interest 19,287 31,117
----------- ----------
Total investment income 2,143,181 1,298,273
----------- ----------
EXPENSES:
Management fee 457,188 543,744
Transfer agent fees and expenses 214,284 200,883
Distribution fee 175,841 181,250
Printing and postage expense 42,050 71,317
Professional fees 30,505 30,542
Federal and state registration fees 19,212 19,986
Trustees' fees and expenses 14,052 14,552
Miscellaneous expenses 15,916 18,742
----------- ----------
Total expenses before waiver 969,048 1,081,016
Waiver of expenses (14,224) (98,209)
----------- ----------
Net expenses 954,824 982,807
----------- ----------
NET INVESTMENT INCOME 1,188,357 315,466
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 7,953,593 2,627,624
Change in unrealized appreciation
on investments (1,915,791) 1,365,752
----------- ----------
Net gain on investments 6,037,802 3,993,376
----------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,226,159 $4,308,842
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Ariel Mutual Funds
Statement of Changes in Net Assets
(Unaudited)
GROWTH FUND APPRECIATION FUND
----------- -----------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1995 Sept. 30, 1994 March 31, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,188,357 $ 1,137,983 $ 315,466 $ 356,934
Net realized gain on investments 7,953,593 8,645,691 2,627,624 12,322,890
Changes in unrealized appreciation
on investments (1,915,791) (6,970,227) 1,365,752 (6,427,549)
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations 7,226,159 2,813,447 4,308,842 6,252,275
------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (1,134,166) (2,150,516) (412,821) (498,701)
Capital gains (8,249,215) (12,390,927) (9,198,828) (3,297,972)
------------- ------------- ------------- -------------
(9,383,381) (14,541,443) (9,611,649) (3,796,673)
------------- ------------- ------------- -------------
SHARE TRANSACTIONS:
Shares sold 103,025,415 33,767,016 124,581,402 363,284,131
Shares issued to holders in
reinvestment of dividends 8,993,824 14,541,425 9,170,255 3,796,630
Shares redeemed (125,029,964) (120,895,117) (145,501,812) (414,321,318)
------------- ------------- ------------- -------------
Net decrease (13,010,725) (72,586,676) (11,750,155) (47,240,557)
------------- ------------- ------------- -------------
TOTAL DECREASE IN
NET ASSETS (15,167,947) (84,314,672) (17,052,962) (44,784,955)
NET ASSETS:
Beginning of period 149,511,238 233,825,910 162,279,573 207,064,528
------------- ------------- ------------- -------------
End of period (includes
undistributed net investment
income of $327,637, $273,466,
$216,317 and $313,672,
respectively) $ 134,343,291 $ 149,511,238 $ 145,226,611 $ 162,279,573
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Ariel Mutual Funds
Financial Highlights
(Unaudited)
GROWTH FUND
---------------------------------------------------------------------------------
Six Months Year Ended Ten Months Year Ended
Ended September 30, Ended November 30,
March 31, 1995 1994 1993 September 30, 1992 1991 1990
-------------- ------ ------ ------------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $28.84 $30.46 $29.59 $27.36 $21.21 $27.20
Income from investment operations:
Net investment income 0.25 0.18 0.73 0.31 0.46 0.30
Net realized and unrealized gains (losses)
on investments 1.24 0.23 2.81 3.19 5.97 (5.77)
------ ------ ------ ------ ------ ------
Total from investment operations 1.49 0.41 3.54 3.50 6.43 (5.47)
Distributions to shareholders:
Dividends from net investment income (0.23) (0.30) (0.75) (0.56) (0.28) (0.39)
Distributions from capital gains (1.70) (1.73) (1.92) (0.71) - (0.13)
------ ------ ------ ------ ------ ------
Total distributions (1.93) (2.03) (2.67) (1.27) (0.28) (0.52)
------ ------ ------ ------ ------ ------
Net asset value, end of period $28.40 $28.84 $30.46 $29.59 $27.36 $21.21
====== ====== ====== ====== ====== ======
Total return 5.54%(a) 1.41% 12.54% 13.15%(a) 30.62% (20.53)%
Supplemental data and ratios:
Net assets, end of period $134,343,291 $149,511,238 $233,825,910 $236,185,943 $240,059,610 $188,687,292
Ratio of expenses to average net assets 1.36%(b)(c) 1.25% 1.16% 1.23%(b) 1.25% 1.31%
Ratio of net income to average net assets 1.69%(b)(c) 0.56% 0.72% 0.83%(b) 1.72% 1.28%
Portfolio turnover rate 13% 9% 13% 19% 39% 20%
(a) Total return is not annualized.
(b) Annualized.
(c) Without the fee waiver, the ratio of expenses to average net assets would have
been 1.38% and the ratio of net investment income to average net assets would
have been 1.67% for the period ended 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Ariel Mutual Funds
Financial Highlights, continued
(Unaudited)
APPRECIATION FUND
-------------------------------------------------------------------------------
Six Months Year Ended Ten Months Year Ended
Ended September 30, Ended November 30,
March 31, 1995 1994 1993 September 30, 1992 1991 1990
-------------- ------ ------ ------------------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $21.82 $21.67 $19.42 $17.60 $13.82 $15.00
Income from investment operations:
Net investment income 0.05 0.04 0.06 0.09 0.14 0.15
Net realized and unrealized gains (losses)
on investments 0.48 0.51 2.27 1.92 3.88 (1.25)
------ ------ ------ ------ ------ ------
Total from investment operations 0.53 0.55 2.33 2.01 4.02 (1.10)
Distributions to shareholders:
Dividends from net investment income (0.06) (0.05) (0.08) (0.17) (0.17) (0.08)
Distributions from capital gains (1.40) (0.35) - (0.02) (0.07) -
------ ------ ------ ------ ------ ------
Total distributions (1.46) (0.40) (0.08) (0.19) (0.24) (0.08)
------ ------ ------ ------ ------ ------
Net asset value, end of period $20.89 $21.82 $21.67 $19.42 $17.60 $13.82
====== ====== ====== ====== ====== ======
Total return 2.90%(a) 2.56% 12.03% 11.47%(a) 29.48% (7.37)%
Supplemental data and ratios:
Net assets, end of period $145,226,611 $162,279,573 $207,064,528 $146,624,364 $76,481,886 $23,342,775
Ratio of expenses to average net assets 1.36%(b)(c) 1.35%(c) 1.37% 1.44%(b)(c) 1.50%(c) 0.70%(c)
Ratio of net income to average net assets 0.44%(b)(c) 0.17%(c) 0.33% 0.57%(b)(c) 1.61%(c) 2.23%(c)
Portfolio turnover rate 1% 12% 56% 2% 20% 4%
</TABLE>
(a) Total return is not annualized.
(b) Annualized.
(c) Without the fee waiver, the ratio of expenses to average net assets would
have been 1.50%, 1.40%, 1.50%, 1.53% and 1.68% and the ratio of net
investment income to average net assets would have been 0.30%, 0.12%, 0.51%,
1.58% and 1.25%, for the periods ended 1995, 1994, 1992, 1991 and 1990,
respectively.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Ariel Mutual Funds
Notes to the Financial Statements
March 31, 1995 (Unaudited)
1. ORGANIZATION
Ariel Growth Fund (doing business as Ariel Investment Trust) (the "Trust") is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Growth Fund
and the Appreciation Fund (the "Funds" or "Ariel Mutual Funds") are diversified
portfolios of the Trust. The Growth Fund commenced operations on November 6,
1986 and the Appreciation Fund commenced operations on December 1, 1989.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATION - Securities for which market quotations are readily
available are valued at the most recent closing price. All other securities for
which reliable bid quotations are available are valued at the mean between bid
and asked prices, or yield equivalent as obtained from one or more market makers
for such securities. Short-term securities maturing within 60 days are valued
at amortized cost which approximates market. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
The Funds may enter into repurchase agreements with recognized financial
institutions and in all instances hold underlying securities with a value at
least equal to the total repurchase price such financial institutions have
agreed to pay.
FEDERAL INCOME TAXES - No provision for federal income taxes has been made since
the Funds have complied to date with the provisions under Subchapter M of the
Internal Revenue Code available to regulated investment companies.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are
accounted for on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Dividend income is
recorded on the ex-dividend date and interest income is recognized on an accrual
basis.
EXPENSES - The Funds are charged for those expenses that are directly
attributable to each portfolio, such as advisory and administration. Expenses
that are not directly attributable to a portfolio or class are typically
allocated among each portfolio or class in proportion to their respective net
assets.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income and net
realized capital gains, if any, are declared and paid at least annually.
Distributions to shareholders are recorded on the ex-dividend date.
16
<PAGE>
Ariel Mutual Funds
Notes to the Financial Statements, continued
March 31, 1995 (Unaudited)
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1995 September 30, 1994
Growth Fund Appreciation Fund Growth Fund Appreciation Fund
------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
Shares sold 3,772,541 6,013,715 1,162,333 17,780,992
Shares issued to holders in
reinvestment of dividends 333,352 470,028 507,662 175,646
Shares redeemed (4,560,758) (6,967,967) (4,160,360) (20,073,672)
---------- ---------- ---------- -----------
Net decrease (454,865) (484,224) (2,490,365) (2,117,034)
========== ========== ========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments, for the six
months ended March 31, 1995 are summarized below.
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
----------- -------------------
<S> <C> <C>
Purchases $17,449,852 $14,941,023
Sales 38,761,083 32,378,652
</TABLE>
At March 31, 1995 gross unrealized appreciation and depreciation of securities
were as follows:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
----------- -------------------
<S> <C> <C>
Unrealized appreciation $32,936,448 $28,705,381
Unrealized (depreciation) (6,084,889) (5,085,921)
----------- -----------
Net appreciation $26,851,559 $23,619,460
=========== ===========
</TABLE>
5. INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH AFFILIATES
On February 1, 1995 the Trust entered into a new combined investment advisory
and administrative services agreement (the "Management Agreement") with Ariel
Capital Management, Inc. (the "Adviser"). Pursuant to the Management Agreement,
the Adviser is paid by the Ariel Growth Fund and the Ariel Appreciation Fund, a
monthly fee at the annual rate of 0.65% and 0.75% of the first $500 million of
average net assets, 0.60% and 0.70% of the next $500 million of average net
assets and 0.55% and 0.65% on the average net assets in excess of $1 billion,
respectively. Prior to February 1, 1995 and since inception of the Funds, the
Adviser was paid an advisory fee at the annual rate of 0.25% of each of the
Fund's average daily net assets. Effective September 6, 1994 and prior to
February 1, 1995, the Trust had entered into an Administrative Agreement
17
<PAGE>
ARIEL MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1995 (UNAUDITED)
with the Adviser for certain administrative services. The Trust compensated
the Adviser for administrative services based upon average daily net assets of
each Fund at an annual rate of 0.50% and 0.40% for the Appreciation Fund and
Growth Fund, respectively.
Since September 6, 1994 the Adviser has agreed to reimburse each Fund for
operating expenses (exclusive of brokerage, interest, taxes, distribution plan
expenses and extraordinary items) exceeding, on a pro rata basis, 1.50% of the
first $30 million of each Fund's average daily net assets and 1.00% of such
assets in excess of $30 million.
The Adviser also serves as the Trust's principal underwriter effective
September 6, 1994. Pursuant to Rule 12b-1 of the Investment Company Act of 1940,
the Trust has adopted a distribution plan which permits each Fund to pay certain
expenses associated with the distribution of its shares up to 0.30% annually of
the Funds' average daily net asset value. Such expenses are currently limited to
an annual rate of 0.25% of each Fund's average daily net assets by the Board of
Trustees.
18
<PAGE>
[PHOTO APPEARS HERE]
The Ariel Mutual Funds team that serves you (from left to right)
Mellody Hobson, Senior Vice President & Director of Marketing;
Eric T. McKissack, Co-Chief Investment Officer; Lisa G. Hardiman,
Director of Shareholder Services; John W. Rogers, Jr., President
& Co-Chief Investment Officer; Franklin Morton (seated),
Vice President and Director of Research.
ARIEL MUTUAL FUNDS
ARIEL GROWTH FUND
ARIEL APPRECIATION FUND
MONEY MARKET OPTIONS
Cash Resource Money Market
U.S. Government Money Market
Cash Resource Tax-Exempt Money Market
<PAGE>
Board of Directors
Mario L. Baeza President of Wasserstein Perella International, a leading
international investment bank, CEO of its Latin American operations and co-head
of operations in Spain and Portugal, Mario is widely regarded as a preeminent
expert in business and legal issues in Latin America. He received a B.A. from
Cornell University and a J.D. from Harvard Law School, where he later taught.
William C. Deitrich, C.P.A. Bill is a director and vice president, treasurer and
CFO of Home Shopping Alternatives, Inc., a provider of home shopping services to
the retail grocery and pharmacy industries. He has a B.A. from Georgetown
University. Bill serves on the board and program staff of the Shalem Institute,
an internationally known ecumenical organization.
Royce N. Flippin, Jr. Director of program advancement for the Massachusetts
Institute of Technology, Royce is also president of Flippin Associates, a
broad-based consulting firm providing strategic and implementation services in
the management of critical needs for the public and private sectors. He earned
his B.A. from Princeton University and an M.B.A. from Harvard Business School.
Royce is on the board of several corporations and non-profit institutions.
John G. Guffey Currently, John is treasurer of Silby, Guffey & Co., Inc., a
venture capital firm investing in early stage companies in the health care and
environmental industries. John has a B.S. from University of Pennsylvania's
Wharton School. He does volunteer work and holds directorships with various
local and national non-profit organizations.
Mellody Hobson As senior vice president and director of marketing, Mellody
oversees the servicing of Ariel Capital Management Inc.'s fifty institutional
clients, as well as the marketing of the Ariel Mutual Funds. She received a B.A.
from Princeton University's Woodrow Wilson School. Mellody works with a variety
of civic institutions, including those affiliated with Princeton.
Christopher G. Kennedy Chris is executive vice president of Merchandise Mart
Properties, Inc. which manages, among other prime properties, The Merchandise
Mart; The Washington Design Center; and New York's Decoration and Design
Building. He earned his B.A. from Boston College and his M.B.A. at the J.L.
Kellogg Graduate School of Management at Northwestern University. Chris serves
on the board of directors of the Chicago Convention & Tourism Bureau;
Boston-based Citizens Energy Corp. and Citizens Corp.; and the Greater Chicago
Food Depository.
Eric T. McKissack, CFA In the capacity of vice chairman & co-chief investment
officer of Ariel Capital Management, Inc., Eric is responsible for co-managing
client and mutual fund portfolios. He received a B.S. in both Management and
Architecture from the Massachusetts Institute of Technology and he earned his
M.B.A. from the University of California at Berkeley. He is also a Chartered
Financial Analyst. Eric serves on a variety of civic and corporate boards.
Bert N. Mitchell, C.P.A. Bert is founder, chairman and CEO of Mitchell/Titus &
Co., the nation's largest minority-owned accounting firm. He holds B.B.A.,
M.B.A. and Honorary Doctorate degrees from the Baruch School of Business of the
City University of New York, where he has also been a member of the accounting
faculty. Bert is also a graduate of the Owner-President Management Program of
the Harvard Business School. Bert is active in community affairs, philanthropy
and politics.
Ariel Investment Trust
307 North Michigan Avenue
Suite 500
Chicago, Illinois 60601
800.292.7435
312.726.0140
Fax 312.726.7473
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