<PAGE>
ARIEL MUTUAL FUNDS
Ariel Growth Fund
Ariel Appreciation Fund
Semi-Annual Report--March 31, 1996
[PHOTO APPEARS HERE]
<PAGE>
Ariel Growth Fund
Inception November 6, 1986
Average Annual Total Return as of March 31, 1996
- --------------------------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- --------------------------------------------------------------------------------
Ariel +15.8% +7.3% +9.6% +13.0%
Growth
Fund
- --------------------------------------------------------------------------------
Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.
- --------------------------------------------------------------------------------
Ariel Growth Fund Consumer Discretionary
Portfolio Composition and Services 42.2% Consumer Staples 10.5%
Health Care 3.1% Materials and
Processing 19.6%
Financial Services 12.1% Producer Durables 11.3%
- --------------------------------------------------------------------------------
S&P 500 Consumer Discretionary Consumer Staples 11.5%
and Services 9.5%
Integrated Oils 7.9%
Health Care 10.5%
Other Energy 1.1%
Technology 9.0%
Materials and Processing 8.6%
Utilities 11.9%
Producer Durables 5.0%
Financial Services 14.9%
Autos and Transportation 4.6%
Comparison of change in value of $10,000 invested
in Ariel Growth Fund and comparable indices*
[PLOT GRAPHS APPEAR HERE]
Ariel Growth S&P 500 Russell 2500
1986 $ 10,000 $ 10,000 $ 10,000
1987 $ 11,367 $ 10,256 $ 9,281
1988 $ 15,905 $ 11,960 $ 11,391
1989 $ 19,900 $ 15,749 $ 13,604
1990 $ 16,699 $ 15,260 $ 11,580
1991 $ 22,163 $ 19,910 $ 16,988
1992 $ 24,763 $ 21,427 $ 19,738
1993 $ 26,924 $ 23,587 $ 23,002
1994 $ 25,787 $ 23,897 $ 22,759
1995 $ 30,562 $ 32,878 $ 29,975
1996 $ 31,423 $ 34,642 $ 31,735
*Statistics represent past performance which is not indicative of future
results.
<PAGE>
Ariel Appreciation Fund
Inception December 1, 1989
Average Annual Total Return as of March 31, 1996
- --------------------------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- --------------------------------------------------------------------------------
Ariel +19.5% +9.1% +9.2% +10.6%
Growth
Fund
- --------------------------------------------------------------------------------
Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.
- --------------------------------------------------------------------------------
Ariel Appreciation Fund Consumer Staples 9.4% Financial Services 19.1%
Portfolio Composition Technology 1.9% Producer Durables 9.1%
Autos and Transportation 1.4%
Health Care 9.5%
Consumer Discretionary
and Services 33.8% Materials and
Processing 15.4%
- --------------------------------------------------------------------------------
Russell 2500 Consumer Discretionary Consumer Staples 3.2%
and Services 15.7%
Integrated Oils 0.5%
Health Care 11.5%
Other Energy 3.8%
Technology 10.5%
Materials and
Processing 10.3%
Utilities 9.5% Producer Durables 7.8%
Autos and
Financial Services 20.5% Transportation 3.8%
Comparison of change in value of $10,000 invested
in Ariel Appreciation Fund and comparable indices*
[PLOT GRAPHS APPEAR HERE]
Appreciation Fund S&P 500 Russell 2500
1989 $ 10,000 $ 10,000 $ 10,000
1990 $ 9,902 $ 9,922 $ 8,554
1991 $ 13,184 $ 12,945 $ 12,549
1992 $ 14,930 $ 13,932 $ 14,580
1993 $ 16,115 $ 15,336 $ 16,992
1994 $ 14,763 $ 15,539 $ 16,812
1995 $ 18,330 $ 21,378 $ 22,142
1996 $ 18,882 $ 22,525 $ 23,442
*Statistics represent past performance which is not indicative of future
results.
<PAGE>
[PHOTO APPEARS HERE]
John W. Rogers, Jr.
President & Co-Chief
Investment Officer
[PHOTO APPEARS HERE]
Eric T. McKissack
Co-Chief Investment
Officer
[PHOTO APPEARS HERE]
Franklin Morton
Vice President &
Director of Research
"...in the course of our daily reading we have noticed that the current feeding
frenzy in the investment world is being nourished by business articles focused
on short-term results."
<PAGE>
Semi-Annual Report--March 31, 1996
Ariel Mutual Funds
Ariel Growth Fund
Ariel Appreciation Fund
Dear Shareholder:
For the first quarter ending March 31, 1996, the large company stocks that
comprise the Standard and Poor's 500 Index advanced 5.37% while the smaller
stocks that make up the Russell 2500 Index faired slightly better with a 5.87%
gain. During this same three month period, the Ariel Growth Fund and the Ariel
Appreciation Fund returned 2.82% and 3.01% respectively-their conservative
stance overshadowed by the bigger gains racked up by the most expensive,
volatile and aggressive issues.
Falling Wizards
The world is in a hurry. Federal Express, faxes and e-mail prove it. Nowhere is
this more evident than Wall Street where promises of quick riches are often
made. In a market where the S&P 500 leaps ahead more than 37% in four short
quarters and new stock offerings rise by meteoric proportions on their first
trading days, perhaps it is not surprising that investors are desperate for
immediate thrills. And so the race for fast gains is on and the dollars pour in.
At $29 billion, twice as much money went into domestic stock mutual funds in the
first month of this year than all of 1990. Similarly, when a mutual fund with $1
billion in assets that had been closed to new investors temporarily opened in
hopes of attracting an added $150 million, in just 48 hours, another $1 billion
flowed in before it closed again. But more than this delirious environment
itself, in the course of our daily reading we have noticed that the current
feeding frenzy in the investment world is being nourished by business articles
focused on short-term results. And so it appears former fund manager Peter
Lynch's simple truth that "real money is made over time" is about as dated as
the time when he actually managed money.
A recent BusinessWeek cover story epitomizes this new phenomenon. The headline
for a cover story about Tiger Management Corporation, a well-known investment
management firm, boldly proclaims in giant-sized capital letters, "The Fall of
the Wall Street Wizard." Further, a sub-headline underneath the founder, Julian
Robertson's picture asks, ". . . why has his magnificent record gone sour?" At
first glance, one gets the impression of catastrophe-that a rogue portfolio
manager has lost a substantial portion of his clients' assets. Yet, in reality,
the situation was not nearly so bleak. Instead, as all managers do, the fund in
question had underper-
<PAGE>
formed the broader market. In this specific case, the underperformance continued
over two back-to-back years.
Every investment manager is pained by their own underperformance-there is no
harsher critic-but two years does not a record make. With further reading, one
quickly learns that prior to his 1994/1995 difficulties, Robertson had managed
fourteen consecutive years of nothing less than spectacular performance. Thus,
it is unfortunate that in a prominent cover story, a stunning sixteen year
cumulative record took a back seat to a two-year slump. Fourteen years of being
so right, two years of being out-of-favor and the writer tells the readers, "the
glory days are over."
The two years discussed in the BusinessWeek article are practically a lifetime
in comparison to some of the other articles that we have read focusing on even
shorter spells. The fund that holds the top spot for its ten year record was the
subject of a recent story which took pause over performance results for the past
six months. This criticism despite the fact that the same fund outperformed the
S&P 500 nine out of the past twelve years. Additionally, the fund's consecutive
outperformance of the index over the past five years is "a feat accomplished by
fewer than two dozen other mutual funds." One manager built this sterling long-
term record, yet we are told that recent results suggest "a worrisome trend."
Lastly, the largest mutual fund in the nation holds more than $55 billion. While
one could take issue with the size of the fund and the vast number of stocks
that it must own in order to stay fully invested, there is no question that the
fund has attracted such a huge asset base by virtue of an impressive record
built over decades. Despite these very strong past returns, results weakened in
1994 and, as was the case with 75% of all stock funds, the manager did not beat
the S&P 500 in 1995. Thus, in the current quick fix environment, some speculate
that the fund manager may be removed from his current duties.
Ariel Growth Fund
Ten Largest Holdings
as of March 31, 1996
1 First Brands Corp.
Manufacturer and marketer of consumer products for home and automobile markets
2 Ecolab, Inc.
Leading developer and marketer of premium cleaning and sanitizing products and
services for the hospitality markets
3 Central Newspapers, Inc.
Leading media company that publishes daily and weekly newspapers in metropolitan
Phoenix and Indianapolis
4 Rouse Co.
Retail mall developer
5 Longs Drug Stores, Inc.
A leading operator of retail drug stores in California
6 Harte-Hanks Communications
Diversified communications company with businesses in newspapers,
publication, direct marketing and broadcasting
7 Northern Trust Corporation
Chicago-based bank holding company
8 Herman Miller, Inc.
Major manufacturer of furniture for offices and health care facilities
9 Omnicom Group
Third largest advertising agency in the world
10 Hasbro, Inc.
One of the world's largest toy manufacturers
2
<PAGE>
Ariel Appreciation Fund
Ten Largest Holdings
as of March 31, 1996
1 Rouse Company
A retail mall developer
2 Harte-Hanks Communications
Diversified communications company with businesses in newspapers, publications,
direct marketing and broadcasting
3 Longs Drug Stores, Inc.
A leading operator of retail drug stores in California
4 Northern Trust Corporation
Chicago-based bank holding company
5 Hasbro, Inc.
One of the world's largest toy manufacturers
6 Merry Land & Investment Co., Inc.
One of the largest owners and operators of upscale garden apartments in the
southeast (a real estate investment trust-REIT)
7 Bergen Brunswig Corp.
Nation's second largest distributor/ wholesaler of pharmaceuticals and health
care products
8 MBIA, Inc.
Leading insurer of municipal bonds
9 T. Rowe Price Associates, Inc.
T. Rowe Price serves as the investment advisor to a large family of no-load
mutual funds, individuals, and institutional clients
10 Omnicom Group, Inc.
Third largest advertising agency in the world
Watch Out Below
The inherent danger of a short-term investment mindset is that it leads
individuals and investment managers to greater and greater risk. Portfolio
managers deviate from proven investment strategies in a bold effort to avoid the
sharp criticism that can come from underperformance. Individuals jump from fund
to fund in search of hot performance. Evidence of these happenings is abundant.
The nation's largest fund company "reassigns" a dozen portfolio managers so that
their more aggressive styles better reflect fund prospectus guidelines. The Wall
Street Journal quotes a well regarded financial advisor who urges investors to
get into one of this year's hottest funds-up more than 30% to date-"while the
going is good."
Additionally, the potential perils of these scenarios are heightened by today's
unprecedented market conditions. In a stock market selling at all time highs; a
market with a bull run that has lasted longer than any other; a market where 14
of the 25 best performing initial public offerings of all time have occurred
just since the beginning of the year; a market where Time Magazine tells us
"prices have been swinging so wildly on the New York Stock Exchange that the Big
Board's circuit breakers (which temporarily suspend trading) have already kicked
in more times than in all of 1995"; and a market flush with restless cash-now is
not the time for added risk and danger. Instead, its time for caution and
patience.
As long as there is a stock market, financial writers will spotlight the hot and
cold investment hands of the day. The glut of today's manager rankings and star
systems promote these discussions. However, because investment styles go in and
out of favor, no manager is immune to isolated periods of underperformance. If
the investment manager employs a sound strategy in a disciplined manner, shorter
term performance difficulties should not cause alarm. An exercise developed by
Michael Stolper, publisher of Mutual Fund Monthly makes
3
<PAGE>
this point. He assigns IQ points to mutual fund star rankings-30 points for
each. Thus a five star fund manager has an IQ of 150. But if three years pass
and the fund has two stars, the manager's IQ suddenly plummets to 60. As a
measure of intellectual capacity, the IQ or "intellectual quotient" is not
fluid. Thus, while on the surface, changes in stars and rankings may suggest
brilliance gone awry, as Stolper notes, "intellect and judgment are not such
perishable commodities."
And so, we say again, as we have said on many occasions before, investing is
synonymous with a marathon, not a sprint.
Portfolio Comings and Goings
During the course of the quarter, we added two new portfolio issues: Thomas
Nelson, Inc. (NYSE:TNM) and Whitman Corporation (NYSE:WH). Thomas Nelson has
carved out a strong and unique niche as the nation's leading publisher of Bibles
as well as other religious books and music. Whitman Corporation operates three
separate businesses that all dominate their own distinct market segments: Pepsi
General Bottlers is the largest Pepsi bottling company; Midas International is
well-known for its muffler and brake replacement franchises; and Hussman
Corporation manufactures food refrigeration systems. We are excited about the
long-term growth prospects of both Thomas Nelson and Whitman Corporation and
believe that we were able to purchase shares in two wonderful companies at
bargain prices.
Over the quarter, we eliminated two holdings whose long-term outlooks appear
less bright: Sealright Co. (OTC:SRCO) and Johnson Worldwide (OTC:JWAIA).
Specifically, we sold Sealright Co. after the company experienced a change in
its top management. In such instances, we look at a business from a fresh
perspective. After so doing, we were less comfortable holding shares in this ice
cream package maker. While we are convinced of the wonderful business franchise
held by Johnson Worldwide-a manufacturer of outdoor recreational products,
including camping and fishing equipment-we have lost faith in management's
ability to execute their stated goals and objectives.
As always, we appreciate the opportunity to serve you and welcome any questions
or comments that you may have.
Sincerely,
[SIGNATURE] [SIGNATURE]
John W. Rogers, Jr. Eric T. McKissack
Portfolio Manager Portfolio Manager
Ariel Growth Fund Ariel Appreciation Fund
4
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--93.53% Market Value
of Shares
<S> <C> <C>
Advertising-3.45%
94,500 Omnicom Group, Inc. $ 4,252,500
------------
Apparel & Shoes-2.61%
120,400 Russell Corp. 3,220,700
------------
Business Services-6.78%
131,850 Angelica Corp. 2,801,812
185,400 Ecolab, Inc. 5,562,000
------------
8,363,812
------------
Consumer Products-9.84%
72,900 Armor All Products Corp. 1,193,737
40,400 Clorox Co. 3,479,450
237,800 First Brands Corp. 6,658,400
61,420 Oil-Dri Corporation of America 821,493
------------
12,153,080
------------
Education-1.57%
56,974 DeVRY, Inc.* 1,937,116
------------
Entertainment & Leisure-3.24%
108,100 Hasbro, Inc. 3,999,700
------------
Environmental-2.54%
218,450 Safety Kleen Corp. 3,140,219
------------
Financial Services-10.54%
44,900 MBIA, Inc. 3,367,500
88,300 Northern Trust Corp. 4,768,200
262,225 Phoenix Duff & Phelps Corp. 1,638,906
61,100 T. Rowe Price Associates 3,238,300
------------
13,012,906
------------
Food & Restaurants-4.98%
178,333 Bob Evans Farms, Inc. 2,897,911
147,900 McCormick & Co., Inc. 3,253,800
------------
6,151,711
------------
</TABLE>
5
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--93.53% (continued) Market Value
of Shares
<S> <C> <C>
Furniture & Furnishings-8.55%
297,600 Interface, Inc., Class A $ 3,571,200
108,000 Leggett & Platt, Inc. 2,470,500
145,695 Miller (Herman), Inc. 4,516,545
------------
10,558,245
------------
Health Care-2.86%
134,900 Bergen Brunswig Corp., Class A 3,524,263
------------
Industrial-4.54%
264,800 Specialty Equipment Cos., Inc.* 3,872,700
87,400 Watts Industries, Inc., Class A 1,737,075
------------
5,609,775
------------
Miscellaneous-2.70%
59,400 Stanhome, Inc. 1,893,375
59,200 Whitman Corp. 1,435,600
------------
3,328,975
------------
Newspapers-9.77%
464,410 American Media, Inc., Class A* 1,683,486
154,600 Central Newspapers, Inc., Class A 5,507,625
229,200 Harte-Hanks Communications 4,870,500
------------
12,061,611
------------
Office & Business Equipment-3.94%
136,620 General Binding Corp. 2,971,485
124,000 Hunt Mfg. Co. 1,891,000
------------
4,862,485
------------
Packaging-2.77%
226,300 Shorewood Packaging Corp.* 3,422,788
------------
Printing & Publishing-1.61%
60,000 Banta Corp. 1,605,000
25,500 Thomas Nelson, Inc. 382,500
------------
1,987,500
------------
</TABLE>
6
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--93.53% (continued) Market Value
of Shares
<S> <C> <C>
Real Estate-5.28%
47,000 Merry Land and Investment Co., Inc. $ 1,022,250
251,400 Rouse Co. 5,499,375
------------
6,521,625
------------
Retailing-5.96%
109,300 Longs Drug Stores, Inc. 5,164,425
461,680 Payless Cashways, Inc.* 2,192,980
------------
7,357,405
------------
Total Common Stocks
(cost $87,563,147) 115,466,416
------------
Principal REPURCHASE AGREEMENTS--7.80%
Amount
$9,624,776 State Street Bank & Trust Company
Repurchase Agreement, 4.0%, dated 3/29/96,
repurchase price $9,627,984, maturing
4/1/96 (collateralized by U.S. Treasury
Bond, 8.75%, 5/15/17) 9,624,776
------------
Total Repurchase Agreements
(cost $9,624,776) 9,624,776
------------
Total Investments--101.33%
(cost $97,187,923) 125,091,192
Liabilities less
Other Assets and Cash--(1.33)% (1,637,236)
------------
NET ASSETS--100.00% $123,453,956
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--97.65% Market Value
of Shares
<S> <C> <C>
Advertising-2.65%
80,150 Omnicom Group, Inc. $ 3,606,750
------------
Apparel & Shoes-2.16%
110,000 Russell Corp. 2,942,500
------------
Autos & Transportation-1.41%
104,800 Harper Group, Inc. 1,912,600
------------
Business Services-3.69%
64,800 Ecolab, Inc. 1,944,000
152,600 Equifax, Inc. 3,071,075
------------
5,015,075
------------
Chemicals-2.47%
87,500 Morton International, Inc. 3,357,812
------------
Consumer Products-5.76%
153,800 Armor All Products Corp. 2,518,475
23,950 Clorox Co. 2,062,694
116,220 First Brands Corp. 3,254,160
------------
7,835,329
------------
Entertainment & Leisure-5.91%
125,240 Carnival Cruise Lines, Inc. 3,444,100
124,300 Hasbro, Inc. 4,599,100
------------
8,043,200
------------
Environmental-2.55%
241,800 Safety Kleen Corp. 3,475,875
------------
Financial Services-13.03%
54,700 MBIA, Inc. 4,102,500
105,480 MBNA Corp. 3,124,845
99,300 Northern Trust Corp. 5,362,200
185,750 Phoenix Duff & Phelps Corp. 1,160,938
75,100 T. Rowe Price Associates 3,980,300
------------
17,730,783
------------
Food & Restaurants-4.86%
115,400 Bob Evans Farms, Inc. 1,875,250
</TABLE>
8
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--97.65% (continued) Market Value
of Shares
<S> <C> <C>
Food & Restaurants-4.86% (cont'd.)
92,055 McCormick & Co., Inc. $ 2,025,210
71,300 Universal Foods Corp. 2,718,313
------------
6,618,773
------------
Furniture & Furnishings-7.52%
349,400 Furniture Brands International, Inc.* 3,231,950
153,860 Leggett & Platt, Inc. 3,519,547
112,300 Miller (Herman), Inc. 3,481,300
------------
10,232,797
------------
Health Care-6.90%
161,987 Bergen Brunswig Corp., Class A 4,231,910
46,800 Invacare Corp. 1,322,100
91,000 Sybron Corp.* 2,229,500
55,900 Vivra, Inc.* 1,607,125
------------
9,390,635
------------
Industrial-4.96%
81,300 DII Group, Inc.* 2,469,487
107,100 Specialty Equipment Cos., Inc.* 1,566,338
136,600 Watts Industries, Inc., Class A 2,714,925
------------
6,750,750
------------
Miscellaneous-4.25%
81,600 Fisher Scientific International 3,121,200
67,600 Stanhome, Inc. 2,154,750
21,100 Whitman Corp. 511,675
------------
5,787,625
------------
Newspapers-5.11%
274,275 Harte-Hanks Communications 5,828,344
17,000 Tribune Co. 1,119,875
------------
6,948,219
------------
Office & Business Equipment-3.22%
129,305 General Binding Corp. 2,812,384
31,900 Pitney-Bowes, Inc. 1,563,100
------------
4,375,484
------------
Packaging-2.57%
231,310 Shorewood Packaging Corp.* 3,498,564
------------
</TABLE>
9
<PAGE>
Ariel Mutual Funds
Ariel Appreciation Fund
Schedule of Investments
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Number COMMON STOCKS--97.65% (continued) Market Value
of Shares
<S> <C> <C>
Printing & Publishing-4.91%
125,625 Banta Corp. $ 3,360,469
35,700 Donnelley (R.R.) & Sons Co. 1,231,650
44,700 Houghton Mifflin Co. 1,972,387
7,500 Thomas Nelson, Inc. 112,500
------------
6,677,006
------------
Real Estate-8.01%
210,050 Merry Land and Investment Co., Inc. 4,568,587
289,150 Rouse Co. 6,325,156
------------
10,893,743
------------
Retailing-5.71%
121,520 Longs Drug Stores, Inc. 5,741,820
425,350 Payless Cashways, Inc.* 2,020,413
------------
7,762,233
------------
Total Common Stocks
(cost $102,315,157) 132,855,753
------------
Principal REPURCHASE AGREEMENTS--2.89%
Amount
$3,934,281 State Street Bank & Trust Company
Repurchase Agreement, 4.0%, dated 3/29/96,
repurchase price $3,935,592, maturing
4/1/96 (collateralized by U.S. Treasury
Bond, 8.75%, 5/15/17) 3,934,281
------------
Total Repurchase Agreements
(cost $3,934,281) 3,934,281
------------
Total Investments--100.54%
(cost $106,249,438) 136,790,034
Liabilities less
Other Assets and Cash--(0.54)% (741,842)
------------
NET ASSETS--100.00% $136,048,192
============
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements
10
<PAGE>
Ariel Mutual Funds
Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
GROWTH APPRECIATION
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $97,187,923 and
$106,249,438, respectively) $125,091,192 $136,790,034
Dividends and interest receivable 287,894 229,936
Receivable for shares sold -- 3,853
Receivable from adviser -- 9,015
Prepaid and other assets 20,872 22,618
------------ ------------
Total assets 125,399,958 137,055,456
------------ ------------
LIABILITIES:
Payable for securities purchased 1,732,979 688,387
Payable for shares redeemed 31,114 101,445
Accrued management fee 65,197 86,141
Accrued distribution fee 25,076 28,714
Other liabilities 91,636 102,577
------------ ------------
Total liabilities 1,946,002 1,007,264
------------ ------------
NET ASSETS $123,453,956 $136,048,192
============ ============
NET ASSETS CONSIST OF:
Paid-in-capital $ 89,723,414 $ 97,752,616
Undistributed net investment income -- 227,651
Accumulated net realized gain on investment
transactions 5,827,273 7,527,329
Net unrealized appreciation on investments 27,903,269 30,540,596
------------ ------------
Total net assets $123,453,956 $136,048,192
============ ============
Total shares outstanding (no par value),
unlimited shares authorized 4,394,792 5,937,815
========= =========
Net asset value, redemption price and offering
price per share (net assets/shares outstanding) $28.09 $22.91
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Ariel Mutual Funds
Statement of Operations
For the Six Months Ended March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
GROWTH APPRECIATION
FUND FUND
---------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $1,250,127 $ 1,449,789
Interest 89,457 105,368
---------- -----------
Total investment income 1,339,584 1,555,157
---------- -----------
EXPENSES:
Management fee 387,614 514,896
Transfer agent fees and expenses 147,465 176,235
Distribution fee 149,082 171,632
Printing and postage expense 43,040 48,311
Professional fees 29,645 31,941
Federal and state registration fees 12,141 12,547
Trustees' fees and expenses 10,813 10,812
Custody fees and expenses 8,741 8,730
Miscellaneous expenses 18,941 17,477
---------- -----------
Total expenses before waiver 807,482 992,581
Waiver of expenses -- (59,369)
---------- -----------
Net expenses 807,482 933,212
---------- -----------
NET INVESTMENT INCOME 532,102 621,945
---------- -----------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 6,987,767 10,026,338
Change in unrealized appreciation
on investments 645,317 2,335,321
---------- -----------
Net gain on investments 7,633,084 12,361,659
---------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $8,165,186 $12,983,604
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Ariel Mutual Funds
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
GROWTH FUND APPRECIATION FUND
------------------------------- -------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
March 31, 1996 Sept. 30, 1995 March 31, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 532,102 $ 1,569,187 $ 621,945 $ 857,415
Net realized gain on investments 6,987,767 16,984,463 10,026,338 9,407,780
Change in unrealized
appreciation on investments 645,317 (1,509,398) 2,335,321 5,951,567
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations 8,165,186 17,044,252 12,983,604 16,216,762
------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (1,659,824) (1,134,168) (1,152,463) (412,918)
Capital gains (15,885,827) (8,249,215) (10,183,833) (9,198,828)
------------- ------------- ------------- -------------
(17,545,651) (9,383,383) (11,336,296) (9,611,746)
------------- ------------- ------------- -------------
SHARE TRANSACTIONS:
Shares sold 123,634,445 191,400,263 91,840,747 239,579,765
Shares issued to holders in
reinvestment of dividends 16,343,325 8,993,824 10,096,898 9,170,255
Shares redeemed (128,096,263) (236,613,280) (110,848,708) (274,322,662)
------------- ------------- ------------- -------------
Net increase (decrease) 11,881,507 (36,219,193) (8,911,063) (25,572,642)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,501,042 (28,558,324) (7,263,755) (18,967,626)
NET ASSETS:
Beginning of period 120,952,914 149,511,238 143,311,947 162,279,573
------------- ------------- ------------- -------------
End of period (includes
undistributed net investment
income of $0, $708,465,
$227,651 and $758,169,
respectively) $ 123,453,956 $ 120,952,914 $ 136,048,192 $ 143,311,947
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Ariel Mutual Funds
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
GROWTH FUND
-----------------------------------------------------------------
Six Months Ten Months
Ended Year Ended Ended
March 31, September 30, Sept. 30,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 30.78 $ 28.84 $ 30.46 $ 29.59 $ 27.36
Income from investment operations:
Net investment income 0.16 0.36 0.18 0.73 0.31
Net realized and unrealized gains
on investments 1.77 3.51 0.23 2.81 3.19
-------- -------- -------- -------- --------
Total from investment operations 1.93 3.87 0.41 3.54 3.50
Distributions to shareholders:
Dividends from net investment
income (0.44) (0.23) (0.30) (0.75) (0.56)
Distributions from capital gains (4.18) (1.70) (1.73) (1.92) (0.71)
-------- -------- -------- -------- --------
Total distributions (4.62) (1.93) (2.03) (2.67) (1.27)
-------- -------- -------- -------- --------
Net asset value, end of period $ 28.09 $ 30.78 $ 28.84 $ 30.46 $ 29.59
======== ======== ======== ======== ========
Total return 6.81%(a) 14.38% 1.41% 12.54% 13.15%(a)
Supplemental data and ratios:
Net assets, end of period, in
thousands $123,454 $120,953 $149,511 $233,826 $236,186
Ratio of expenses to average
net assets 1.35%(b) 1.37%(c) 1.25% 1.16% 1.23%(b)
Ratio of net income to average
net assets 0.89%(b) 1.18%(c) 0.56% 0.72% 0.83%(b)
Portfolio turnover rate 10% 16% 9% 13% 19%
Average commission rate paid
per share $ 0.0581
</TABLE>
(a) Total return is not annualized.
(b) Annualized.
(c) Net of reimbursements. Without the fee waiver, the ratio of expenses to
average net assets would have been 1.39% for the period ended 1995 for the
Growth Fund and 1.45%, 1.58%, 1.40%, 1.50% and 1.53% for the periods ended
1996, 1995, 1994, 1992 and 1991 for the Appreciation Fund; and the ratio of
net investment income to average net assets would have been 1.16% for the
period ended 1995 for the Growth Fund and 0.82%, 0.39%, 0.12%, 0.51% and
1.58% for the periods ended 1996, 1995, 1994, 1992 and 1991 for the
Appreciation Fund, respectively.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
APPRECIATION FUND
------------------------------------------------------------------------------------------------
Year Six Months Ten Months Year
Ended Ended Year Ended Ended Ended
Nov. 30, March 31, September 30, Sept. 30, Nov. 30,
1991 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 21.21 $ 22.76 $ 21.82 $ 21.67 $ 19.42 $ 17.60 $ 13.82
0.46 0.12 0.14 0.04 0.06 0.09 0.14
5.97 2.00 2.26 0.51 2.27 1.92 3.88
-------- -------- -------- -------- -------- -------- -------
6.43 2.12 2.40 0.55 2.33 2.01 4.02
(0.28) (0.20) (0.06) (0.05) (0.08) (0.17) (0.17)
-- (1.77) (1.40) (0.35) -- (0.02) (0.07)
-------- -------- -------- -------- -------- -------- -------
(0.28) (1.97) (1.46) (0.40) (0.08) (0.19) (0.24)
-------- -------- -------- -------- -------- -------- -------
$ 27.36 $ 22.91 $ 22.76 $ 21.82 $ 21.67 $ 19.42 $ 17.60
======== ======== ======== ======== ======== ======== =======
30.62% 9.64%(a) 12.11% 2.56% 12.03% 11.47%(a) 29.48%
$240,060 $136,048 $143,312 $162,280 $207,065 $146,624 $76,482
1.25% 1.36%(b)(c) 1.36%(c) 1.35%(c) 1.37% 1.44%(b)(c) 1.50%(c)
1.72% 0.91%(b)(c) 0.61%(c) 0.17%(c) 0.33% 0.57%(b)(c) 1.61%(c)
39% 11% 18% 12% 56% 2% 20%
$0.0620
</TABLE>
15
<PAGE>
Ariel Mutual Funds
Notes to the Financial Statements
March 31, 1996 (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 are typically allocated among
each portfolio 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 determined in accordance with federal income
regulations and are recorded on the ex-dividend date. The character of
distributions made during the year from net investment income or net realized
gain may differ from the characterization for federal income tax purposes due to
differences in the recognition of income, expense and gain items for financial
statement and tax purposes. Where
16
<PAGE>
Ariel Mutual Funds
Notes to the Financial Statements, continued
March 31, 1996 (Unaudited)
appropriate, reclassifications between net asset accounts are made for such
differences that are permanent in nature. Accordingly, at March 31, 1996,
reclassifications were recorded from undistributed net investment income to
reduce accumulated net realized gain on investment transactions by $419,257 for
the Growth Fund.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
Growth Fund Appreciation Fund Growth Fund Appreciation Fund
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Shares sold 4,232,430 4,083,546 6,811,402 11,384,217
Shares issued to holders in
reinvestment of dividends 603,074 458,325 333,352 470,028
Shares redeemed (4,370,486) (4,899,960) (8,399,958) (12,995,996)
---------- ---------- ---------- -----------
Net increase (decrease) 465,018 (358,089) (1,255,204) (1,141,751)
========== ========== ========== ==========
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments for the six
months ended March 31, 1996 are summarized below:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
------------ -----------------
<S> <C> <C>
Purchases $ 11,905,114 $15,046,066
Sales 23,490,390 29,560,558
</TABLE>
At March 31, 1996 gross unrealized appreciation and depreciation of securities
were as follows:
<TABLE>
<CAPTION>
Growth Fund Appreciation Fund
------------- -----------------
<S> <C> <C>
Unrealized appreciation $ 38,123,011 $35,556,556
Unrealized (depreciation) (10,219,742) (5,015,960)
------------ -----------
Net appreciation $ 27,903,269 $30,540,596
============ ===========
</TABLE>
17
<PAGE>
Ariel Mutual Funds
Notes to the Financial Statements, continued
March 31, 1996 (Unaudited)
5. Investment Advisory and Other Transactions with Affiliates
The Trust has entered into an investment advisory and administrative services
agreement (the "Management Agreement") with Ariel Capital Management, Inc. (the
"Adviser"). Pursuant to the Management Agreement, the Adviser is paid by the
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. 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.
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 for 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. Payments have been made to Ariel Distributors, Inc., an affiliate of
the Adviser.
18
<PAGE>
[This page intentionally left blank]
19
<PAGE>
Ariel Mutual Fund News
FOCUS ON UGMAs
What is an UGMA?
The Uniform Gift to Minors Act (UGMA) allows individuals to set up an account in
the name of a child. A custodian, usually the parents, oversees the account for
the child. When the child reaches the age of majority, the assets of the account
become the child's property unless other arrangements have been made.
What are the special tax-favored benefits of an UGMA?
The Internal Revenue Service allows gifts of $10,000 to an individual each
calendar year without the donor incurring any gift tax. Therefore, a husband or
wife may make a joint gift to anyone, normally a child or grandchild, by
contributing up to $20,000 per year, per recipient.
In addition, the first $1,300 of earnings each year are taxed at the child's
rate. After age 14, all earnings are taxed at the child's rate, which can
provide significant tax savings.
Why should I set-up an UGMA?
An UGMA can be used as a savings vehicle for a child's college education. The
key to effective college savings is to get an early start. As a general rule,
the younger the child, the more aggressively you should invest. If you have more
than ten years until that first tuition check is due, consider funds that invest
in stocks for long-term growth. As your child gets closer to college age, you
may think about more conservative investment strategies.
Why should I open an UGMA with the Ariel Mutual Funds?
Our unique patient investing philosophy is well suited for investors who are
seeking to build wealth over the long term. By opening an UGMA with the Ariel
Mutual Funds, you can start an investment plan for a child's future.
For more information on setting up an UGMA account, please call an Ariel Mutual
Funds Shareholder Services Representative at 1-800-29-ARIEL (1-800-292-7435).
20
<PAGE>
TOOLS FOR DISCIPLINED INVESTING
At Ariel Mutual Funds, we believe the key to success is a focused approach and
the discipline to stick with it. Therefore we offer a broad range of services
to help you stick to a long-range investment plan.
Automatic Investment Program
Through this service, you can employ the time-tested method of dollar cost
averaging, the practice of investing the same amount of money each month,
regardless of the share price. Your fixed dollar amount buys more shares when
prices are lower and fewer when prices are higher. Over time, this method can
help lower the average cost of shares you buy.
The payments can be deducted directly from your bank account and invested in
your Ariel Mutual Funds account. That way, you don't have to remember to send a
check every month; we do the work to make sure you stick to your investment
plan.
Reinvestment of Fund Distributions
You can have dividends and capital gain distributions automatically reinvested
at no charge. In this way, every dollar earned benefits from compounding. Over
time, compounding of reinvested distributions can significantly increase the
value of your investment since you will be earning money from your
contributions plus the distributions generated by those contributions.
Free Exchange Privileges
You can exchange shares between any of the Ariel Mutual Funds as well as any of
the money market funds. Therefore, if you have money in one of the money market
funds and would like to add to your long-term investment plan in one of the
Ariel Mutual Funds you can do so by transferring at no charge.
For more information on any of these services, please call an Ariel Mutual
Funds Shareholder Services Representative at 1-800-29-ARIEL (1-800-292-4375).
<PAGE>
Ariel Mutual Funds
Ariel Growth Fund
Ariel Appreciation Fund
Ariel Premier Bond Fund
Money Market Options
Cash Resource Money Market
Cash Resource U.S. Government Money Market
Cash Resource Tax-Exempt Money Market
For a free investment kit on any of the Ariel Mutual Funds, including a
prospectus containing more information, please call 1-800-29-ARIEL. Please read
the prospectus carefully before investing or sending money.
<PAGE>
Board of Directors
Bert N. Mitchell, C.P.A. Bert is founder, chairman and CEO of Mitchell & Titus,
LLP, the nation's largest minority-owned accounting firm. He holds B.B.A.,
M.B.A. and Honorary Doctorate degrees from the Baruch School of Business of the
City University of New York, where he has also been a member of the accounting
faculty. Bert is also a graduate of the Owner-President Management Program of
the Harvard Business School. Bert is active in community affairs, philanthropy
and politics.
Mario L. Baeza Chairman and CEO of Latin America Equity Partners, L.P., Mario
is widely regarded as a preeminent expert in business and legal issues in Latin
America. He received a B.A. from Cornell University and a J.D. from Harvard Law
School, where he later taught.
William C. Dietrich, C.P.A. Bill is a director and vice president, treasurer
and CFO of Shopping Alternatives, Inc., a provider of home shopping services to
the retail grocery and pharmacy industries. He has a B.A. from Georgetown
University. Bill serves on the board and program staff of the Shalem Institute,
an internationally known ecumenical organization.
Royce N. Flippin, Jr. Director of program advancement for the Massachusetts
Institute of Technology, Royce is also president of Flippin Associates, a broad-
based consulting firm providing strategic and implementation services in the
management of critical needs for the public and private sectors. He earned his
B.A. from Princeton University and an M.B.A. from Harvard Business School. Royce
is on the board of several corporations and non-profit institutions.
John G. Guffey Currently, John is treasurer of Silby, Guffey & Co., Inc., a
venture capital firm investing in early stage companies in the health care and
environmental industries. John has a B.S. from the University of Pennsylvania's
Wharton School. He does volunteer work and holds directorships with various
local and national non-profit organizations.
Mellody Hobson As senior vice president and director of marketing, Mellody
oversees the servicing of Ariel Capital Management Inc.'s institutional clients
as well as the marketing of the Ariel Mutual Funds. She received a B.A. from
Princeton University's Woodrow Wilson School. 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.
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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