ARIEL GROWTH FUND, N-30B-2, 1997-09-03

ARIEL GROWTH FUND
N-30B-2, 1997-09-03

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[GRAPHIC]

ARIEL MUTUAL FUNDS

Quarterly Report
June 30, 1997

THE PATIENT INVESTOR [LOGO]

Ariel Appreciation Fund

Ariel Growth Fund

Ariel Premier Bond Fund

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THE TORTOISE AND THE HARE

ONE DAY A HARE WAS MAKING FUN OF A TORTOISE FOR BEING SO SLOW UPON HIS FEET.
"WAIT A BIT," SAID THE TORTOISE, "I'LL RUN A RACE WITH YOU, AND I'LL WAGER THAT
I'LL WIN." THE HARE, WHO WAS MUCH AMUSED AT THE IDEA, SAID "LET'S
TRY AND SEE..." WHEN THE TIME CAME BOTH STARTED OFF TOGETHER...THE HARE NEARLY
TURNED A SOMERSAULT IN HIS HASTE, WHILE THE TORTOISE BEGAN AT A SLOW BUT STEADY
PACE. MEANWHILE THE TORTOISE KEPT PLODDING ON...

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Table of Contents

Ariel Investment Trust
307 North Michigan Avenue
Suite 500
Chicago, Illinois 60601

800.292.7435
312.726.0140
Fax 312.726.7473

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.

PERFORMANCE DATA PROVIDED REPRESENTS PAST PERFORMANCE AND IS NOT INDICATIVE OF
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.

The Patient Investor 2

Company in Focus 6

Company Updates 8

Ariel Equity Funds 12

Schedule of Equity Investments 14

Equity Statistical Summary 20

Ariel Bond Fund 22

Schedule of Bond Investments 24

Board of Trustees 28

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SLOW AND STEADY WINS THE RACE.-AESOP
THE PATIENT INVEST[LOGO]R -Registered Trademark-

DEAR FELLOW SHAREHOLDER: For the second quarter ending June 30, 1997, the Ariel
Growth Fund gained 12.88%, while the Ariel Appreciation Fund fared even better
with a return of 14.59%. These results fell somewhat short of both the broader
market as represented by the S&P 500 Index and the small and mid-cap stocks of
the Russell 2500 Index, which rose 17.46% and 15.11% respectively for the same
three months. Year-to-date through June, however, the Ariel Growth Fund remains
significantly ahead of its small-cap peers, posting a 14.08% return versus
11.25% for the Russell 2500 Index. The Ariel Appreciation Fund has likewise
shown strong results with a year-to-date return of 14.19%.

TO SELL OR NOT TO SELL

For many, current market frenzy has prompted the question: Is it time to sell?
Each day, many investors pace and nail-bite, wondering if the seemingly
inexhaustible bull will finally run its course. Such panic is only fueled by
cover stories like the August 1997 issue of MONEY MAGAZINE, which advises
investors to immediately sell 20% of their stock portfolios. Our answer to
nervous inquiries is simple-institutional and individual investors alike must
stick with their asset allocation decisions for the long term and resist the
urge to time the market based upon current sentiment. As for the media's
dramatic pronouncements, they can as easily be contrarian indicators. Who can
forget BUSINESSWEEK'S August 13, 1979 cover, "The Death of Equities"? What's
more, from countless academic studies to anecdotal experiences of investment
gurus, successful market timing has been repeatedly exposed as an anomaly. As
Burton Malkiel proves so eloquently in A RANDOM WALK DOWN WALL STREET, "You
cannot predict future stock prices on the basis of past stock prices . . . you
cannot even utilize public information to predict future prices . . .

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[GRAPHIC]

everything that is known, or even knowable, has already been reflected in
present prices."

With Malkiel's words in mind, we believe the likelihood of a correction is
inversely correlated to the frequency with which such predictions are publicly
made. Therefore, rather than reacting to press warnings, we advise investors to
use the media as a tool to gauge a stock's popularity. How well information is
disseminated, absorbed by the market and ultimately reflected in a company's
stock price can decisively affect an investment. We practice what we preach. As
you know, we are voracious readers -painstakingly inspecting more than 150
journals and periodicals each month. Titles range from popular magazines such as
WORTH, SMART MONEY and FORTUNE to industry-specific journals that include CRUISE
INDUSTRY NEWS, WHOLESALE DRUGS, and NATION'S RESTAURANT NEWS. If our holdings
are frequently covered, they are reviewed. Similarly, we also scrutinize our
competitors, using Morningstar's PRINCIPIA database to survey, on a regular
basis, the top thirty holdings of other managers, thereby measuring the
popularity of our own favorites.

SELLING WITH PRECISION

While we do not lend media warnings much credence, we do not advise maintaining
a portfolio of expensive stocks either. As you are well aware, to substantially
reduce the price risk inherent in such a portfolio, we always advocate value
investing. And while a popular, well-publicized business is almost assuredly
more expensive relative to its intrinsic value than it was when it was obscure,
to be precise in our sell determination, we also evaluate other, more
quantitative factors. Over the years, we have relied heavily on price/earnings
multiples to help in making sell decisions. However, these multiples can be
distorted by a variety of factors including depreciation or nonrecurring
charges, for example, or, as we have discussed in the past, amortization of
goodwill. Further, price/earnings multiples can be more or less relevant in
certain industries. In order to compliment our evaluation of a company's price
multiples, we turn to private market value (PMV)--the price an informed and
rational buyer would pay for an entire

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business. Over the years we have worked harder and harder
at refining our understanding of PMV, which takes into account, among other
factors, price to cash flow estimates. Realizing the importance of such factors
in our valuations, we have increasingly integrated PMV into our sell discipline.
Along with popularity measures and price multiples, private market value
effectively rounds out a system of checks and balances.

Consider the scenario: We own stock in a sound business, one that passes all of
our criteria. Our surveillance of popularity, price multiples and PMV indicates
that it remains an excellent value. When, if ever, would we sell such a holding?
In his 1987 report to Berkshire Hathaway shareholders, the famed investor Warren
Buffett states that he is "content [in part] to hold any security indefinitely,
so long as the prospective return on equity capital of the underlying business
is satisfactory [and] management is competent and honest." Similarly, we
continually re-evaluate our businesses to confirm solid fundamentals and a
top-flight management team. If, however, there has been a change, we will not
hesitate to sell. Red flags include acquisitions, divestitures, a change in
management leadership or a change in a company's competitive landscape. Thus,
fundamentals-not market sentiment-remain at the heart of our investment
discipline, both in purchase and sale decisions.

PORTFOLIO COMINGS AND GOINGS

Recent portfolio transactions exemplify these guidelines. As we have just
discussed, we have been concerned about the expensive market. But rather than
time the market, we are doing what we have systematically done for years: We
reduce our stronger performers as they approach fair valuations, reinvesting
newly freed assets into stocks with greater upside potential. For example, we
have recently added to our positions in Safety-Kleen (NYSE:SK), and in this
report's company-in-focus, Golden Books (NASDAQ:GBFE). Both are great bargains
by our standards. We are also in the process of building a new position in
Allergan (NYSE:AGN), a pharmaceutical company with excellent fundamentals and a
strong

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niche in the area of ophthalmic products. By contrast, a change in fundamentals
has provoked our sale of communications conglomerate, Harte Hanks (NYSE:HH).
This company recently divested of the newspaper and broadcasting properties
which represented two of its most profitable businesses. Since the remaining
direct marketing and shopping businesses have no barriers to entry and
competition is of grave concern, the stock no longer meets our criteria.

THE WALL STREET JOURNAL recently commented that "fear-of-regret" dominates
today's market and investors have therefore forgotten "how to pull the trigger"
(July 28, 1997). As we wrote in the PATIENT INVESTOR just weeks before the 1987
crash, perhaps the most important lesson learned from making a sell decision is
that there must be no regret for additional profits that may have been lost once
a stock is sold. Those words more than rang true in October of that year.
Indeed, sell decisions must be disciplined and unemotional. Like the tortoise
who ignored the hare's periodic taunts, investors must move forward,
uninfluenced by market movement, media headlines or fear.

ONE FINAL NOTE

We are pleased to announce the election of James W. Compton to our board of
trustees. Jim serves as the President and Chief Executive Officer of the
Chicago Urban League. In addition to a variety of civic affiliations, Jim
also serves on the boards of several corporate and educational institutions.
He is a graduate of Morehouse College, where he received a bachelor's degree
in Political Science. We are delighted to have the opportunity to benefit
from Jim's experience, leadership and counsel.

As always, we are most grateful for the opportunity to serve you, and welcome
any questions or comments you might have.

Sincerely,

/s/ John W. Rogers, Jr. /S/ Eric T. McKissack, CFA
- ----------------------------- ----------------------------

John W. Rogers, Jr. Eric T. McKissack, CFA
Portfolio Manager Portfolio Manager
Ariel Growth Fund Ariel Appreciation Fund

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COMPANY IN FOCUS

GOLDEN BOOKS - Registered Trademark - FAMILY ENTERTAINMENT (NASDAQ:GBFE) was
established in 1910 and is the largest publisher of children's books in the
United States. Golden publishes primarily under the Golden Books trademark
and has published Little Golden Books, its core product line, for over 50
years. Among its best known titles are RICHARD SCARRY'S BEST WORD BOOK EVER,
LITTLE LULU, and the GOLDEN TREASURY OF CHILDREN'S LITERATURE. In addition to
its own titles, Golden also generates sales licensed by third parties.
Properties from its five largest licensors include: Disney, DC Comics,
Children's Television Workshop (SESAME STREET), Mercer Mayer (LITTLE
CRITTERS) and Mattel.

GOLDEN BOOKS -Registered Trademark-
FAMILY ENTERTAINMENT

The Golden franchise has subsisted over the years despite terrible neglect.
Originally dubbed Western Publishing, the company was private for many years
until purchased by Mattel Inc. (NYSE: MAT) in 1979. Then, in 1984, Richard
Bernstein and an investment group acquired the firm. After several years of
appalling operating results, Western Publishing was sold last May to Golden
Press Holdings, a company owned jointly by three venture capitalists, one of
whom includes Richard E. Snyder, former chairman of Simon & Schuster and current
GBFE chief executive officer. Shortly thereafter, the company's name was changed
to Golden Books Family Entertainment.

STRONG AND WIDELY RECOGNIZED BRAND FRANCHISE - The strength of Golden's
franchise is evident in the company's leading market share among mass merchants
where Golden dominates shelf space. Further, Golden enjoys attractive barriers
to entry. Successful start-ups are rarely seen in publishing because of the
heavy capital costs required to create products and the difficulty inherent to
establishing a brand name. Additionally, Golden's product distribution is
superior and would be difficult to duplicate. Golden is not without competition,
however. Some of its major competitors include Random House, Simon & Schuster
and HarperCollins Publishers. With this said, significant opportunity exists for
Golden to further leverage its unique franchise into new distribution channels,
including specialty bookstores such as Borders Group (NYSE: BGP) and Barnes &
Noble (NYSE: BKS). Additional opportunity also exists in the home video arena
and with multi-media interactive products.

PRODUCT EXPANSION - Richard Snyder wants to build a focused family
entertainment company that extends well beyond books. Accordingly, Golden
initiated its foray into video, television and film in August 1996 by
purchasing the video library and copyrights of Broadway Video Entertainment.
The library titles include RUDOLPH THE RED-NOSED REINDEER, LASSIE, FELIX THE
CAT, UNDERDOG and TENNESSEE

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TUXEDO. To date, this purchase has proven fruitful as witnessed by Golden's
recently announced licensing arrangements with entertainment companies to make
26 new half-hour episodes of LASSIE, 20 new half-hour episodes of LITTLE LULU,
and an original animated RUDOLPH THE RED-NOSED REINDEER feature film. The
company will further leverage this acquisition by incorporating these characters
into its children's books and home videos.

Beyond children's publishing and family entertainment, management intends to
focus on an adult readership later this year. At that time, Golden will
introduce several books focused primarily on parenting and the family. Recently,
the company announced plans to publish Stephen R. Covey's THE SEVEN HABITS OF
HIGHLY EFFECTIVE FAMILIES as the lead title of this new business.

SOLID MANAGEMENT TEAM - Golden's new management team is highly energized and
incentivized. All team members possess significant experience in the
publishing and entertainment industries. Investors may recall Richard Snyder,
for example, from his days at Simon & Schuster, where he served as CEO from
1975 to 1994 and is widely credited for building the company into a global
publishing powerhouse. Golden's other management team members are likewise
exceptional.

Golden represents a unique opportunity for investors given management's
strategy to build upon its strategic alliances and revitalize Golden's core
business while expanding its product lines and distribution channels.
Additionally, opportunity exists for shareholders as management leverages the
characters within its entertainment group and explores licensing
opportunities. At current prices, the stock is trading at a significant
discount to what we perceive an informed buyer would pay for each of Golden's
businesses separately (private market value). Our target price is in excess
of $20 per share.

Golden's return to profitability and improved cash flow, however, is highly
dependent upon the successful implementation of management's strategy to grow
its children's publishing business and to become a leading family
entertainment company. Given the enviable strength of the Golden franchise
and the capabilities of Dick Snyder and the rest of the management team, we
are confident this can be accomplished.

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COMPANY UPDATES
[LOGO] PHOENIX
DUFF & PHELPS

PHOENIX DUFF & PHELPS (NYSE:DUF) We recently sold our entire position in Phoenix
Duff & Phelps. Our decision reflected serious concerns regarding the company's
business strategy and its execution rather than a shift in sentiment about the
money management industry. In fact, our enthusiasm for the industry remains
unchanged. While Phoenix Duff & Phelps stock is inexpensive by a variety of
measures, since the 1995 merger of Phoenix Home Life Insurance Company and Duff
& Phelps Corporation, fundamentals have significantly lagged expectations. Duff
& Phelps investment performance was generally poor in the years 1993 through
1995. With the takeover, management initiated steps to improve returns. These
initiatives were met with mixed results at best, which has led to continued
client defections. Additionally, Phoenix Duff & Phelps' joint venture with a
Scottish money manager last year and recent acquisitions of two US investment
companies are troubling with the heart of the business in need of considerable
attention.

Ultimately, in 1996, poor performance caused outflows to exceed inflows by $3.3
billion, almost 10% of assets. Ironically, these outflows occurred at a time
when the money management industry enjoyed record cash inflows driven by
investors' desires to participate in the strong market. In the first quarter of
1997, the pattern continued; outflows approximated $800 million, reflecting
little improvement in an even stronger environment. While we believe trends for
Phoenix Duff & Phelps are finally beginning to improve, the pace is exceedingly
and unacceptably slow. Client cash flows are not likely to turn positive in the
next year.

Based upon the above factors, we rate the shares a sell.

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FIRST BRANDS (NSYE:FBR) In the record-setting market of late, First Brands'
stock has declined, dropping 25 percent from its 12-month high. This dip
reflects disappointing earnings, the result of what we believe are temporary
factors. In First Brands' largest business, GLAD bags and plastic wrap, sales
have languished. We detect no changes in consumer impressions or usage,
however, and no loss of market share. We attribute the weakness to
above-average pantry inventories at the consumer level, likely due to strong
purchasing trends during previous promotions. In First Brands' STP automotive
products segment, sales are also depressed, due to sluggish reorders from
Wal-Mart (NYSE:WMT). To improve its profitability, Wal-Mart has been reducing
inventory across product lines. This practice typically disrupts normal
reorder patterns for a one- to three-month period, which leads us to believe
that STP sales could pick up shortly. Finally, in the cat litter business,
First Brands is advertising to introduce a new product that features
activated charcoal as a deodorizer. As with all new products, expenses
precede revenues.

[LOGO]

While we are always skeptical of explanations for earnings shortfalls, we have
looked closely at each of these circumstances and have concluded they should
have no long-term impact. We have owned this stock since 1989 and understand its
fundamentals well. In our view, Wall Street has overreacted to short-term
concerns and we expect earnings growth to resume in 1998. If our work proves
overly optimistic and fundamentals do not improve, these market-leading brands
represent attractive acquisition candidates. In a takeover of the business,
First Brands' shareholders could see values approaching $40 a share. At present,
however, we view this recent dip in stock price as a buying opportunity--the
shares currently sell at only 13 times our forward 12-month earnings estimate.

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COMPANY UPDATES

NORTHERN TRUST COMPANY (NYSE:NTRS) Northern's fundamentals remain quite
strong and are a testament to the successful execution of its niche strategy.
In 1996, earnings per share rose 19 percent and are expected to grow another
15 percent by year end. The company focuses on the personal and corporate
trust segments of the banking industry. These fee-based businesses are
characterized by faster growth, greater consistency and higher returns than
traditional lending which dominates the business mix of most banks. In the
personal trust area, Northern is benefiting from record levels of new
business, the maturation of newer branches in attractive sunbelt markets, and
the strong market. In the corporate trust segment, growth has resulted from
competitors exiting the market due to a lack of scale, technology and
reputation. In each of its core businesses, Northern is one of the largest
participants on a national scale and is recognized for the quality of its
products and its unparalleled customer service. Additionally, the company has
been successful at selling profitable incremental services, including foreign
exchange and securities lending.

[LOGO]

Northern's high quality and strong fundamentals have not gone unnoticed by Wall
Street. Its shares have risen roughly 80 percent over the past 12 months and 150
percent over the past two years. Even with this spectacular appreciation in its
stock price, we continue to rate the shares a hold. This stance reflects our
belief that the valuation does not yet fully represent Northern's superior
business mix and favorable growth prospects. Further, given the consolidation
wave again sweeping the financials industry, we would not be surprised to see
Northern acquired by a larger institution. Our work suggests that a price in the
low 60s could be realized in such a scenario. The company's stock currently
sells at $48.38 per share.

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SAFETY-KLEEN (NYSE:SK) has been in our portfolio since early 1995. Although we
are quite familiar with its fundamentals and remain enthusiastic about its
long-term prospects, 1997 appears to be a challenging year for the company. In
March, Safety-Kleen pre-announced an earnings disappointment, which resulted
from pressure on lube oil pricing and weak results for its Oil Recovery Service
unit for the first quarter 1997. As Wall Street registered its displeasure,
Safety-Kleen's stock price declined 16 percent in one day. Since Oil Recovery
Service is not a core business to Safety-Kleen, we believe these concerns to be
overblown. Furthermore, we believe lube oil capacity and pricing pressures will
be resolved in the latter half of 1997. Exxon, which exerts tremendous influence
as the industry leader, lowered prices by 20 percent in an effort to shake out
excess capacity. We are encouraged by the results of Exxon's moves; already
approximately two-thirds of the excess capacity is nearly eliminated.

Another minor concern is an upstart competitor, Mansur Industries. Mansur is a
developmental-stage company offering industrial-parts washers based on a
different technology than Safety-Kleen's. With excellent public relations, this
stock has more than tripled since its initial public offering last fall. Yet,
the company holds less than one percent market share and remains unprofitable.
Our research, including recent meetings with Safety-Kleen management and
in-depth conversations with customers, indicates Mansur has not made any
significant technological breakthrough. As such, Safety-Kleen, with its
extensive nationwide service network, has an overwhelming competitive advantage.

[LOGO]

Selling at 15 times next year's earnings and six times cash flow, Safety-Kleen
remains an attractive core holding in our portfolio.

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ARIEL EQUITY FUNDS

TEN LARGEST HOLDINGS
as of June 30, 1997

1 CENTRAL NEWSPAPERS, INC.

Leading media company that publishes daily and weekly newspapers in
metropolitan Phoenix and Indianapolis

2 ECOLAB, INC.

Leading developer and marketer of premium cleaning and sanitizing products
and services for the hospitality markets

3 NORTHERN TRUST CORP.

Chicago-based bank holding company

4 HASBRO, INC.

World's largest toy manufacturer

5 MBIA, INC.

Leading insurer of municipal bonds

6 ROUSE CO.

Retail mall developer

7 INTERFACE, INC.

World's leading manufacturer and marketer of carpet tiles

8 FIRST BRANDS CORP.

Manufacturer and marketer of consumer products for home and
automobile markets

9 SPECIALTY EQUIPMENT

Manufacturer of commercial and institutional food service equipment

10 SAFETY KLEEN

World's largest recycler of automotive and hazardous and non-hazardous
fluids

ARIEL GROWTH FUND
Inception November 6, 1986

ARIEL GROWTH FUND SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING IN
UNDERVALUED COMPANIES IN CONSISTENT INDUSTRIES THAT SHOW STRONG POTENTIAL FOR
GROWTH. THE FUND LOOKS FOR ISSUERS THAT PROVIDE QUALITY PRODUCTS OR SERVICES. TO
CAPTURE ANTICIPATED GROWTH, THE FUND GENERALLY HOLDS INVESTMENTS FOR A
RELATIVELY LONG PERIOD, USUALLY THREE TO FIVE YEARS. THE FUND INVESTS IN
COMPANIES WITH MARKET CAPITALIZATIONS UNDER $1.5 BILLION, WITH AN EMPHASIS ON
SMALLER CAPITALIZATION (SMALL CAP) STOCKS.

AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30,1997
- --------------------------------------------------------------------------------
1 Year 3 Year 5 Year 10 Year Life of Fund
- --------------------------------------------------------------------------------
ARIEL GROWTH FUND +29.4% +19.3% +14.3% +13.5% +14.7%

Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.

ARIEL GROWTH FUND
PORTFOLIO COMPOSITION

[CHART]
Utilities 2.0%
Materials and Processing 21.8%
Other 2.9%
Producer Durables 9.4%
Financial Services 13.5%
Health Care 5.0%
Consumer Staples 8.6%
Consumer Discretionary & Services 36.8%

S&P 500
PORTFOLIO COMPOSITION

[CHART]
Other 5.6%
Utilities 9.3%
Autos & Transportation 3.6%
Other Energy 1.2%
Integrated Oils 7.8%
Technology 12.1%
Materials & Processing 6.9%
Consumer Staples 11.9%
Consumer Discretionary & Services 9.5%
Financial Services 16.1%
Producer Durables 4.5%
Health Care 11.6%

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED IN ARIEL GROWTH FUND AND
COMPARABLE INDICES*

[GRAPH]

Plot Points

Ariel Growth Fund Nov 86 $10,000
Dec 86 $10,203
Dec 87 $11,367
Dec 88 $15,905
Dec 89 $19,900
Dec 90 $16,699
Dec 91 $22,163
Dec 92 $24,763
Dec 93 $26,924
Dec 94 $25,786
Dec 95 $30,562
Dec 96 $37,747
Jun 97 $43,062

S&P Nov 86 $10,000
Dec 86 $ 9,745
Dec 87 $10,256
Dec 88 $11,960
Dec 89 $15,749
Dec 90 $15,260
Dec 91 $19,910
Dec 92 $21,427
Dec 93 $23,587
Dec 94 $23,897
Dec 95 $32,878
Dec 96 $40,426
Jun 97 $48,757

Russell 2500 Nov 86 $10,000
Dec 86 $ 9,737
Dec 87 $ 9,281
Dec 88 $11,391
Dec 89 $13,604
Dec 90 $11,580
Dec 91 $16,988
Dec 92 $19,738
Dec 93 $23,002
Dec 94 $22,759
Dec 95 $29,975
Dec 96 $35,680
Jun 97 $39,695

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ARIEL APPRECIATION FUND
Inception December 1, 1989

ARIEL APPRECIATION FUND ALSO PURSUES LONG-TERM CAPITAL APPRECIATION BY INVESTING
IN UNDERVALUED FIRMS WITH GROWTH POTENTIAL, BUT DOES SO AT A LOWER LEVEL OF RISK
THAN ARIEL GROWTH FUND. LIKE ARIEL GROWTH FUND, THIS FUND SEEKS OUT ISSUERS THAT
PROVIDE QUALITY PRODUCTS OR SERVICES. TO CAPTURE ANTICIPATED GROWTH, THE FUND
WILL ALSO HOLD INVESTMENTS FOR A RELATIVELY LONG PERIOD--USUALLY THREE TO FIVE
YEARS. THE FUND INVESTS IN SMALL AND MIDSIZE COMPANIES WITH MARKET
CAPITALIZATIONS FROM $200 MILLION TO $5 BILLION, WITH AN EMPHASIS ON MEDIUM
CAPITALIZATION (MID CAP) STOCKS.

AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 1997
- -------------------------------------------------------------------------------
1 Year 3 Year 5 Year Life of Fund
- -------------------------------------------------------------------------------
ARIEL APPRECIATION FUND +31.0% +19.2% +14.8% +13.4%

Total return does not reflect a maximum 4.75% sales load that was charged prior
to July 15, 1994.

ARIEL APPRECIATION FUND
PORTFOLIO COMPOSITION

[CHART]
Utilities 3.1%
Materials and Processing 15.2%
Health Care 7.2%
Producer Durables 10.4%
Other 3.0%
Auto & Transportation 1.0%
Financial Services 15.8%
Consumer Discretionary & Services 36.0%
Consumer Staples 8.3%

S&P 500
PORTFOLIO COMPOSITION

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED IN ARIEL APPRECIATION FUND
AND COMPARABLE INDICES*

[GRAPH]

Plot Points

Ariel Appreciation Fund Dec 89 $10,000
Dec 90 $ 9,902
Dec 91 $13,184
Dec 92 $14,930
Dec 93 $16,115
Dec 94 $14,763
Dec 95 $18,330
Dec 96 $22,677
Jun 97 $25,896

S&P Dec 89 $10,000
Dec 90 $ 9,922
Dec 91 $12,945
Dec 92 $13,932
Dec 93 $15,336
Dec 94 $15,539
Dec 95 $21,378
Dec 96 $26,286
Jun 97 $31,703

Russell 2500 Dec 89 $10,000
Dec 90 $ 8,554
Dec 91 $12,549
Dec 92 $14,580
Dec 93 $16,992
Dec 94 $!6,812
Dec 95 $22,142
Dec 96 $26,356
Jun 97 $29,322

TEN LARGEST HOLDINGS
as of June 30, 1997

1 HASBRO, INC.

World's largest toy manufacturer

2 NORTHERN TRUST CORP.

Chicago-based bank holding company

3 ROUSE CO.

Retail mall developer

4 MBIA, INC.

Leading insurer of municipal bonds

5 LEGGETT & PLATT, INC.

Specializes in manufacturing and marketing components for the home
furnishing industry and diversified markets

6 HARTE-HANKS COMMUNICATIONS

Diversified communications company

7 SPECIALTY EQUIPMENT

Manufacturer of commercial and institutional food service equipment

8 LONGS DRUG STORES, INC.

A leading operator of retail drug stores in California and other
western states

9 SHOREWOOD PACKAGING

Manufacturer of high quality paperboard packaging

10 FIRST BRANDS CORP.

Manufacturer and marketer of consumer products for home and
automobile markets

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SCHEDULE OF INVESTMENTS

ARIEL GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)

Number COMMON STOCKS-99.19% Cost Market Value
of Shares

ADVERTISING--2.98%
66,500 Omnicom Group, Inc. $ 954,683 $ 4,098,062
--------- -----------

BUSINESS SERVICES--5.28%
151,900 Ecolab, Inc. 1,883,095 7,253,225
--------- ---------

CONSUMER PRODUCTS--6.56%
24,000 Clorox Co. 935,155 3,168,000
226,500 First Brands Corp. 3,150,016 5,195,344
40,620 Oil-Dri Corporation of America 690,540 652,459
--------- ---------
4,775,711 9,015,803
--------- ---------

DIVERSIFIED OPERATIONS--3.04%
165,200 Whitman Corp. 3,920,211 4,181,625
--------- ---------

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Number COMMON STOCKS-99.19% (cont) Cost Market Value
of Shares
ENTERTAINMENT & LEISURE--4.90%
237,400 Hasbro, Inc. $3,423,889 $6,736,225
---------- -----------
ENVIRONMENTAL--3.70%
301,350 Safety Kleen Corp. 4,758,938 5,085,281
---------- -----------

FINANCIAL SERVICES--12.61%
59,200 MBIA, Inc. 3,399,385 6,678,500
144,700 Northern Trust Corp. 2,761,426 6,999,863
70,700 T. Rowe Price Associates 274,648 3,649,888
---------- ----------
6,435,459 17,328,251
---------- ----------
FOOD & RESTAURANTS--5.06%
193,933 Bob Evans Farms, Inc. 2,305,055 3,284,740
145,600 McCormick & Co., Inc. 3,129,561 3,676,400
---------- ----------
5,434,616 6,961,140
---------- ----------
FURNITURE & FURNISHINGS--10.19%
264,100 Interface, Inc., Class A 3,989,788 5,843,212
102,600 Leggett & Platt, Inc. 1,071,207 4,411,800
103,990 Miller (Herman), Inc. 898,755 3,743,640
---------- ----------
5,959,750 13,998,652
---------- ----------

Number COMMON STOCKS-99.19% (cont) Cost Market Value
of Shares

HEALTH CARE--4.92%
63,200 Allergan, Inc. $1,706,193 $2,010,550
170,300 Bergen Brunswig Corp., Class A 2,441,648 4,747,113
---------- ----------
4,147,841 6,757,663
---------- ----------

INDUSTRIAL--5.33%
73,400 Brady (WH) Co. 1,625,350 2,128,600
352,200 Specialty Equipment Cos., Inc.* 4,033,263 5,194,950
---------- ----------
5,658,613 7,323,550
---------- ----------

INSURANCE--0.75%
27,200 Arthur J. Gallagher & Co. 908,305 1,026,800
---------- ----------

NEWSPAPERS--13.33%
627,110 American Media, Inc., Class A* 5,791,957 4,389,770
127,000 Central Newspapers, Inc., Class A 2,220,625 9,096,375
164,000 Harte-Hanks Communications 2,073,896 4,838,000
---------- ----------
10,086,478 18,324,145
---------- ----------

OFFICE & BUSINESS EQUIPMENT--4.75%
134,620 General Binding Corp. 1,968,983 3,836,670
143,900 Hunt Mfg. Co. 1,916,478 2,698,125
---------- ----------
3,885,461 6,534,795
---------- ----------

15
<PAGE>

Number COMMON STOCKS-99.19% (cont) Cost Market Value
of Shares

PACKAGING--3.69%
223,000 Shorewood Packaging Corp.* $2,269,493 $5,073,250
---------- ----------
PRINTING & PUBLISHING--2.12%
64,400 Golden Books 710,594 805,000
8,000 Lee Enterprise 186,480 211,000
137,000 Thomas Nelson, Inc. 1,760,738 1,900,875
---------- ----------
2,657,812 2,916,875
---------- ----------
REAL ESTATE--4.41%
205,700 Rouse Co.* 2,311,964 6,068,150
---------- ----------

RETAILING--3.56%
187,000 Longs Drug Stores, Inc. 3,312,291 4,897,061
---------- ----------

TELEPHONE COMMUNICATIONS--2.01%
60,200 Century Telephone Enterprises 2,669,809 2,765,744
---------- ----------

Total Common Stocks 75,454,419 136,346,297
----------- ------------

Principal REPURCHASE AGREEMENTS-1.64%
Amount

$2,257,358 State Street Bank & Trust
Company Repurchase Agreement,
4.75%, dated 6/30/97, repurchase
price $2,257,655, maturing 7/1/97
(collateralized by U.S. Treasury
Bond, 6.125%, 5/15/98) $2,257,358 $2,257,358
---------- ----------

Total Repurchase Agreements 2,257,358 2,257,358
---------- ----------

Total Investments-100.83% $ 77,711,777 138,603,655
------------
------------
Liabilities, less
Cash and Other Assets-(0.83)% (1,141,030)
-------------
NET ASSETS-100.00% $137,462,625
-------------
-------------

*Non-income producing

16
<PAGE>

ARIEL APPRECIATION FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)

Number COMMON STOCKS-95.46% Cost Market Value
of Shares

ADVERTISING--2.98%
80,150 Omnicom Group, Inc. $1,565,730 $4,939,244
---------- ----------
BUSINESS SERVICES--2.80%
64,800 Ecolab, Inc. 1,601,491 3,094,200
41,900 Equifax, Inc. 313,754 1,558,156
--------- ----------
1,915,245 4,652,356
---------- ----------

CHEMICALS--2.71%
35,259 Autoliv, Inc. 995,789 1,379,508
103,400 Morton International, Inc. 2,467,804 3,121,387
---------- ----------
3,463,593 4,500,895
---------- ----------

CONSUMER PRODUCTS--5.88%
31,850 Clorox Co. 2,322,561 4,204,200
242,000 First Brands Corp. 4,988,816 5,550,875
---------- ----------
7,311,377 9,755,075
---------- ----------

Number COMMON STOCKS-95.46% (cont) Cost Market Value
of Shares

DIVERSIFIED OPERATIONS--3.03%
198,600 Whitman Corp. $4,846,243 $5,027,063
---------- ----------
ENTERTAINMENT & LEISURE--7.75%
116,700 Carnival Cruise Lines, Inc. 1,805,622 4,813,875
283,750 Hasbro, Inc. 4,504,776 8,051,406
---------- ----------
6,310,398 12,865,281
---------- ----------

ENVIRONMENTAL--3.16%
310,300 Safety Kleen Corp. 4,730,595 5,236,312
---------- ----------

FINANCIAL SERVICES--13.45%
62,000 MBIA, Inc. 4,053,446 6,994,375
66,370 MBNA Corp. 462,809 2,430,801
166,200 Northern Trust Corp. 3,482,478 8,039,925
93,900 T. Rowe Price Associates 1,360,696 4,847,587
---------- ----------
9,359,429 22,312,688
---------- ----------

FOOD & RESTAURANTS--3.03%
115,400 Bob Evans Farms, Inc. 2,258,483 1,954,587
122,055 McCormick & Co., Inc. 2,710,051 3,081,889
---------- ----------
4,968,534 5,036,476
---------- ----------

17
<PAGE>

Number COMMON STOCKS-95.46% (cont) Cost Market Value
of Shares
FURNITURE & FURNISHINGS--6.87%
153,860 Leggett & Platt, Inc. $1,876,028 $6,615,980
132,800 Miller (Herman), Inc. 1,841,560 4,780,800
---------- ----------
3,717,588 11,396,780
---------- ----------

HEALTH CARE--6.92%
76,100 Allergan, Inc. 2,436,275 2,420,931
194,733 Bergen Brunswig Corp., Class A 3,005,763 5,428,182
91,000 Sybron Corp.* 1,050,861 3,628,625
---------- ----------
6,492,899 11,477,738
---------- ----------

INDUSTRIAL--6.30%
155,700 Brady (WH) Co. 3,303,191 4,515,300
402,100 Specialty Equipment Cos., Inc.* 5,148,160 5,930,975
---------- ----------
8,451,351 10,446,275
---------- ----------

INSURANCE--0.79%
34,500 Arthur J. Gallagher & Co. 1,156,293 1,302,375
---------- ----------

NEWSPAPERS--7.39%
61,300 Central Newspapers, Inc.,
Class A 2,995,079 4,390,613
211,575 Harte-Hanks Communications 2,546,985 6,241,463
34,000 Tribune Co. 863,186 1,634,125
---------- ----------
6,405,250 12,266,201
---------- ----------

Number COMMON STOCKS-95.46% (cont) Cost Market Value
of Shares
OFFICE & BUSINESS EQUIPMENT--3.56%
129,305 General Binding Corp. $2,131,766 $3,685,193
31,900 Pitney-Bowes, Inc. 1,103,507 2,217,050
---------- ----------
3,235,273 5,902,243
---------- ----------

PACKAGING--3.47%
252,810 Shorewood Packaging Corp.* 2,666,047 5,751,428
---------- ----------

PRINTING & PUBLISHING--4.12%
38,400 Houghton Mifflin Co. 1,106,777 2,563,200
74,500 Lee Enterprises 1,878,904 1,964,938
166,600 Thomas Nelson, Inc. 1,966,197 2,311,575
---------- ----------
4,951,878 6,839,713
---------- ----------

REAL ESTATE--4.71%
264,700 Rouse Co.* 2,938,365 7,808,650
---------- ----------

RETAILING--3.56%
225,840 Longs Drug Stores, Inc.
4,114,765 5,914,185
---------- ----------

<PAGE>

Number COMMON STOCKS-95.46% (cont) Cost Market Value
of Shares

TELEPHONE COMMUNICATIONS--2.98%
146,600 Century Telephone Enterprises $4,617,028 $4,938,588
---------- ----------

Total Common Stocks 93,217,881 158,369,566
---------- -----------

Principal REPURCHASE AGREEMENTS-5.16%
Amount
$8,555,264 State Street Bank & Trust
Company Repurchase Agreement,
4.75%, dated 6/30/97, repurchase
price $8,556,393, maturing 7/1/97
(collateralized by U.S. Treasury
Bond, 6.125%, 5/15/98) 8,555,264 8,555,264
---------- ----------

Total Repurchase Agreements 8,555,264 8,555,264
---------- ----------

Total Investments-100.62% $101,773,145 166,924,830
------------
------------

Liabilities, less Cash
and Other Assets-(0.62)% (1,029,011)
------------
NET ASSETS-100.00% $165,895,819
------------
------------

*Non-income producing

19
<PAGE>

EQUITY STATISTICAL SUMMARY

ARIEL GROWTH
(UNAUDITED)
<TABLE>
<CAPTION>

EARNINGS PER SHARE
------------------
52-WEEK
PRICE RANGE 1996 1997 1996 1997 MARKET
TICKER PRICE ------------- ACTUAL ESTIMATE P/E P/E CAP.
COMPANY SYMBOL 6/30/97 LOW HIGH CALENDAR CALENDAR CALENDAR CALENDAR ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil-Dri Corporation ODC 16.06 12.75 17.75 0.85 1.06 18.9 15.2 104
Hunt Manufacturing Co. HUN 18.75 12.75 19.13 1.37 1.30 13.7 14.4 206
Thomas Nelson, Inc. TNM 13.88 8.88 15.25 0.04 0.58 nm 23.9 282
American Media, Inc. ENQ 7.00 4.38 7.00 0.13 0.37 53.8 18.9 293
Specialty Equipment Cos., Inc. SPEQ 14.75 10.25 15.00 1.34 1.43 11.0 10.3 310
Shorewood Packaging Corp. SHOR 22.75 14.50 22.88 1.26 1.47 18.1 15.5 414
General Binding Corp. GBND 28.50 20.00 33.25 1.60 1.80 17.8 15.8 450
Interface, Inc. IFSIA 22.13 13.44 25.63 1.23 1.53 18.0 14.5 522
Golden Books Family Ent. GBFE 12.50 7.88 13.38 (3.06) (0.32) nm nm 606
Arthur J. Gallagher & Co. AJG 37.75 29.13 37.75 2.58 2.73 14.6 13.8 619
W.H. Brady Co. BRCOA 29.00 20.50 29.50 1.32 1.55 22.0 18.7 635
Bob Evans Farms, Inc. BOBE 16.94 12.13 17.25 0.82 1.10 20.7 15.4 722
First Brands Corp. FBR 22.94 20.13 29.38 1.62 1.34 14.2 17.1 927
Safety Kleen Corp. SK 16.88 14.13 18.63 1.05 1.03 16.1 16.4 984
Longs Drug Stores, Inc. LDG 26.19 18.94 27.50 1.49 1.52 17.6 17.2 1,027
Harte-Hanks Communications HHS 29.50 24.50 31.63 1.28 1.49 23.0 19.8 1,097
Lee Enterprises LEE 26.38 19.00 27.00 1.21 1.47 21.8 17.9 1,227
Bergen Brunswig Corp. BBC 28.13 19.80 31.00 1.48 1.70 19.0 16.5 1,412
Herman Miller, Inc. MLHR 36.00 14.94 42.50 1.50 1.97 24.0 18.3 1,703
Central Newspapers, Inc. ECP 71.63 33.38 71.63 2.31 3.28 31.0 21.8 1,891
McCormick & Co., Inc. MCCRK 25.25 18.88 27.00 1.03 1.30 24.5 19.4 1,919
Century Telephone Enterprises CTL 33.69 28.50 34.50 2.14 2.45 15.7 13.8 2,025
Allergan Inc. AGN 31.81 25.88 42.00 2.00 1.80 15.9 17.7 2,084
The Rouse Co. RSE 29.50 24.38 32.25 2.16 2.46 13.7 12.0 2,274
Whitman Corp. WH 24.00 21.63 26.75 1.38 1.40 17.4 17.1 2,438
T. Rowe Price Associates TROW 51.63 22.75 54.25 1.59 1.94 32.5 26.6 2,989
Ecolab, Inc. ECL 47.75 29.50 48.06 1.75 2.12 27.3 22.5 3,099
Hasbro, Inc. HAS 28.38 21.25 29.67 1.52 1.72 18.7 16.5 3,635
Leggett & Platt, Inc. LEG 43.00 24.13 43.00 1.85 2.15 23.2 20.0 3,990
MBIA, Inc. MBI 112.81 73.00 122.00 7.22 8.06 15.6 14.0 4,885
Omnicom Group, Inc. OMC 61.63 38.00 64.56 2.25 2.65 27.4 23.3 5,035
Northern Trust Corp. NTRS 48.38 28.38 51.88 2.20 2.58 22.0 18.8 5,394
Clorox Co. CLX 132.19 86.88 134.19 4.52 4.99 29.2 26.5 6,834

</TABLE>

Note: All earnings per share numbers are fully diluted. Such numbers are from
continuing operations and are adjusted for non-recurring items. The Rouse
Company numbers are before depreciation and deferred taxes.
nm= not meaningful

<PAGE>

ARIEL APPRECIATION
(UNAUDITED)

EARNINGS PER SHARE
------------------
52-WEEK
PRICE RANGE 1996 1997 1996 1997 MARKET
TICKER PRICE ------------- ACTUAL ESTIMATE P/E P/E CAP.
COMPANY SYMBOL 6/30/97 LOW HIGH CALENDAR CALENDAR CALENDAR CALENDAR ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas Nelson, Inc. TNM 13.88 8.88 15.25 0.04 0.58 nm 23.9 282
Specialty Equipment Cos., Inc. SPEQ 14.75 10.25 15.00 1.34 1.43 11.0 10.3 310
Shorewood Packaging Corp. SHOR 22.75 14.50 22.88 1.26 1.47 18.1 15.5 414
General Binding Corp. GBND 28.50 20.00 33.25 1.60 1.80 17.8 15.8 450
Arthur J. Gallagher & Co. AJG 37.75 29.13 37.75 2.58 2.73 14.6 13.8 619
W.H. Brady Co. BRCOA 29.00 20.50 29.50 1.32 1.55 22.0 18.7 635
Bob Evans Farms, Inc. BOBE 16.94 12.13 17.25 0.82 1.10 20.7 15.4 722
First Brands Corp. FBR 22.94 20.13 29.38 1.62 1.34 14.2 17.1 927
Houghton Mifflin Co. HTN 66.75 45.25 66.75 2.22 3.10 30.1 21.5 948
Safety Kleen Corp. SK 16.88 14.13 18.63 1.05 1.03 16.1 16.4 984
Longs Drug Stores, Inc. LDG 26.19 18.94 27.50 1.49 1.52 17.6 17.2 1,027
Harte-Hanks Communications HHS 29.50 24.50 31.63 1.28 1.49 23.0 19.8 1,097
Lee Enterprises LEE 26.38 19.00 27.00 1.21 1.47 21.8 17.9 1,227
Bergen Brunswig Corp. BBC 28.13 19.80 31.00 1.48 1.70 19.0 16.5 1,412
Herman Miller, Inc. MLHR 36.00 14.94 42.50 1.50 1.97 24.0 18.3 1,703
Sybron Corp. SYB 39.88 23.88 39.88 1.41 1.79 28.3 22.3 1,882
Central Newspapers, Inc. ECP 71.63 33.38 71.63 2.31 3.28 31.0 21.8 1,891
McCormick & Co., Inc. MCCRK 25.25 18.88 27.00 1.03 1.30 24.5 19.4 1,919
Century Telephone Enterprises CTL 33.69 28.50 34.50 2.14 2.45 15.7 13.8 2,025
Allergan Inc. AGN 31.81 25.88 42.00 2.00 1.80 15.9 17.7 2,084
The Rouse Co. RSE 29.50 24.38 32.25 2.16 2.46 13.7 12.0 2,274
Whitman Corp. WH 24.00 21.63 26.75 1.38 1.40 17.4 17.1 2,438
T. Rowe Price Associates TROW 51.63 22.75 54.25 1.59 1.94 32.5 26.6 2,989
Ecolab, Inc. ECL 47.75 29.50 48.06 1.75 2.12 27.3 22.5 3,099
Hasbro, Inc. HAS 28.38 21.25 29.67 1.52 1.72 18.7 16.5 3,635
Leggett & Platt, Inc. LEG 43.00 24.13 43.00 1.85 2.15 23.2 20.0 3,990
Autoliv Inc. ALV 39.13 33.38 40.25 1.72 1.85 22.8 21.2 3,991
Morton International, Inc. MII 30.19 29.88 44.63 1.31 1.55 23.0 19.5 4,227
MBIA, Inc. MBI 112.81 73.00 122.00 7.22 8.06 15.6 14.0 4,885
Omnicom Group, Inc. OMC 61.63 38.00 64.56 2.25 2.65 27.4 23.3 5,035
Northern Trust Corp. NTRS 48.38 28.38 51.88 2.20 2.58 22.0 18.8 5,394
Equifax, Inc. EFX 37.19 24.13 37.19 1.21 1.45 30.7 25.6 5,400
Tribune Co. TRB 48.06 31.63 50.31 1.97 2.15 24.4 22.4 5,897
Clorox Co. CLX 132.19 86.88 134.19 4.52 4.99 29.2 26.5 6,834
Pitney Bowes, Inc. PBI 69.50 43.25 74.88 3.12 3.53 22.3 19.7 10,133
MBNA Corp. KRB 36.63 16.75 37.88 1.33 1.70 27.5 21.5 12,238
Carnival Corporation CCL 41.25 24.50 45.00 1.95 2.18 21.2 18.9 12,280

</TABLE>

21
<PAGE>

ARIEL PREMIER BOND

DEAR FELLOW SHAREHOLDER: For the three months ending June 30, 1997, the Ariel
Premier Bond Fund, Institutional Class returned 3.55% and the Ariel Premier Bond
Fund, Investor Class returned 3.37%. The broader bond market as represented by
the Lehman Brothers Aggregate Bond Index gained 3.68% over the same period. The
Institutional Class continues to slightly outpace the Index for the year to
date, with a 3.17% return versus 3.10% for the Index. Additionally, the
Institutional Class lands well within the top quintile of Morningstar's
high-quality bond fund objective, with year-to-date total return through June 30
ranking 30th out of 244 funds. The Institutional Class fares equally well over
the trailing one-year period ending June 30, with a total return ranking 39th
out of 239 high-quality peers, as ranked by Morningstar's PRINCIPIA.

Lower-rated corporate securities fared quite well in the second quarter, and our
high-quality AAA-rated status held us back somewhat relative to the broad bond
market. Among our high-quality peers, however, our short duration posture kept
us well ahead of the norm year to date. The most significant change in our
portfolio strategy occurred in May when we slightly shortened the Fund's
duration. This move reflects our belief that above-trend economic growth will
continue. The Federal Reserve may raise short-term interest rates in such an
environment in order to control growth and thereby head off inflation. While the
possibility of higher rates had not yet been reflected in bond yields as of the
end of the second quarter, we felt it prudent to be prepared for at least a 1/2%
rise in interest rates by year end.

Minimizing the Bond Fund's sensitivity to interest rates is only one aspect of
our ongoing effort to limit risk to our shareholders. We remain sensitive to
prepayment risk by emphasizing mortgages with discount coupons. We also continue
to minimize credit risk with our underweighting in corporates. To offset the
yield lost by our moderate investment in corporate bonds, we maintain a
significant position in asset-backed securities.

As always, we are grateful for the opportunity to serve you, and we welcome any
questions or comments you might have.

Sincerely,

/s/ John W. Rogers, Jr. /s/ Kenneth R. Meyer

John W. Rogers, Jr. Kenneth R. Meyer
President President
Ariel Capital Management, Inc. Lincoln Capital Management Company

22
<PAGE>

ARIEL PREMIER BOND FUND
Institutional Class Inception October 1, 1995
Investor Class Inception February 1, 1997

AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 1997
- --------------------------------------------------------------------------------
2Q97 1 Year Life of Fund
- --------------------------------------------------------------------------------

Ariel Premier Bond Fund, Inst. Cl. 3.55% +8.12% +5.7%
Ariel Premier Bond Fund, Inv. Cl. 3.37% +2.7%

Ariel Premier Bond Fund seeks to maximize total return through a combination of
income and capital appreciation by investing in high-quality fixed income
securities. The fund may invest in investment-grade bonds including U.S.
Government (and government agency) securities, corporate bonds, mortgage-related
securities and asset-backed securities. Under normal conditions, at least 80% of
the funds assets will be invested in fixed income securities rated A or better
by the recognized rating agencies. Ariel Premier Bond Fund will not invest in
"junk bonds" or other low-rated securities.

ARIEL PREMIER BOND FUND PORTFOLIO COMPOSITION

[CHART]

Repurchase Agreements 1.9%
Asset-Backed 20.3%
Government & Agency 35.2%
Mortgage-Backed 20.4%
Commercial Paper 16.7%
Corporate 5.5%

LEHMAN AGGREGATE BOND INDEX PORTFOLIO COMPOSITION

[CHART]

Corporate 18.5%
Government & Agency 50.6%
Mortgage-Backed 29.9%
Asset-Backed 1.0%

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED IN ARIEL PREMIER BOND FUND,
INV. CL. AND COMPARABLE INDICES*

[GRAPH]

Plot Points

Ariel Premier Bond Fund, Inv. Cl. Feb 97 $10,000
Mar 97 $ 9,930
Jun 97 $10,265

Lehman Aggregate Feb 97 $10,000
Mar 97 $ 9,914
Jun 97 $10,279

*Statistics represent past performance which is not indicative of future
results.

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTED IN ARIEL PREMIER BOND FUND,
INST. CL. AND COMPARABLE INDICES*

[GRAPH]

Plot Points

Ariel Premier Bond Fund, Inst. Cl Oct 95 $10,000
Dec 95 $10,351
Mar 96 $10,092
Jun 96 $10,189
Sep 96 $10,396
Dec 96 $10,677
Jun 97 $11,016

Lehman Aggregate Oct 95 $10,000
Dec 95 $10,426
Mar 96 $10,240
Jun 96 $10,298
Sep 96 $10,490
Dec 96 $10,805
Jun 97 $11,140

*Statistics represent past performance which is not indicative of future
results.

23
<PAGE>

ARIEL PREMIER BOND FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)

Par Value ASSET-BACKED SECURITIES-20.25% Cost Market Value

$2,650,000 CSFB, 97-C1 A1C, 7.24%, 4/20/07 $2,690,538 $2,676,500
470,000 Capital Equipment Receivables
Trust, 6.28%, 6/15/00 469,903 469,958
70,000 Circuit City Credit Card,
1995-1A, 6.375%, 8/15/05 69,151 69,892
1,170,000 Finger Hut, 96-1A, 6.45%, 2/20/02 1,177,898 1,172,246
800,000 First Omni, 96-AA, 6.65%, 9/15/03 807,326 801,520
60,000 Green Tree Financial, 1995-1 A5,
8.40%, 6/15/25 65,901 62,761
1,450,000 J.C. Penney Master Credit Card Trust,
1990-C1, 9.625%, 6/30/00 1,571,171 1,561,737
1,610,695 Merrill Lynch Mortgage Investors, Inc.,
1995-C2-A1, Floating Rate, 6/15/21 1,632,685 1,626,802
300,000 The Money Store, 1996-1 A3,
6.85%, 12/20/02 299,959 303,426
550,000 The Money Store, 1997-A A3,
6.675%, 4/15/12 549,830 552,041
300,000 The Money Store, 1996-B A6,
7.38%, 5/15/17 299,954 303,555
200,000 Olympic Auto Receivables,
1995-EA4, 5.85%, 3/15/01 198,129 199,682

Par Value ASSET-BACKED SECURITIES-20.25% (cont) Cost Market Value

$1,440,000 Prime, 95-1A, 6.75%, 11/15/05 $1,446,713 $1,446,840
350,000 Private Label Credit Card,
1994-2A, 7.80%, 9/20/03 357,222 359,016
430,000 Salomon Brothers, 96LB3, 6.875%,
10/25/26 429,974 430,452
45,000 Sears Credit Account, 96-1A,
6.20%, 2/16/06 44,137 44,494
440,000 Sears Credit Account, 96-2A,
6.50%, 10/15/03 437,800 441,870
2,005,000 Sears Credit Account, 96-4A,
6.45%, 10/16/06 2,000,844 1,987,557
420,000 Standard Credit Card Master -
Citibank, 94-4A, 8.25%, 11/7/03 445,972 445,418
300,000 Standard Credit Card Master -
Citibank, 8.25%, 1/7/07 322,065 324,693
1,400,000 Team Fleet Financial Co.,
97-1A, 7.35%, 5/15/03 1,399,064 1,420,132
300,000 UCFC, 96 CA 3, 7.15%,
12/15/13 299,954 301,896
1,880,000 World Financial, 96-A,
6.70%, 2/15/04 1,889,826 1,890,340
2,523,101 World Omni Auto Lease,
1996-AA1, 6.30%, 6/25/02 2,527,980 2,532,260
400,000 World Omni Auto Lease,
1996-BA3, 6.25%,11/15/02 399,378 399,148
----------- ----------

Total Asset-Backed Securities 21,833,374 21,824,236
----------- ----------

24
<PAGE>

Par Value CORPORATE DEBT-5.51% Cost Market Value

$275,000 Bank of America, 8.0%, 12/15/26 $271,232 $275,688
275,000 J.C. Penney Co., 7.625%, 3/1/97 269,473 268,125
95,000 JP Morgan Capital, 7.54%, 1/15/27 95,000 91,081
1,400,000 Phillip Morris, 7.125%, 8/15/02 1,389,887 1,393,000
1,918,480 Railcar Leasing LLC, 6.75%,
7/15/06 1,917,721 1,913,683
1,598,961 Railcar Trust, 1992-1A, 7.75%,
6/1/04 1,668,752 1,658,474
340,000 US West Capital Funding, Inc.,
6.95%, 1/15/37 339,321 339,575
----------- -----------

Total Corporate Debt 5,951,386 5,939,626
----------- -----------

U.S. GOVERNMENT AGENCIES-24.49%

MORTGAGE-BACKED SECURITIES--20.43%
4,070,026 Federal Home Loan Mortgage
Corp. (FHLMC),
6.50%, 2/1/26 3,938,509 3,916,097
1,472,559 FHLMC Federal Home Loan,
6.50%, 11/1/25 1,390,050 1,421,019
5,633,403 FHLMC Gold, 6.50%, 3/1/26 5,327,725 5,408,067
438,101 FHLMC Gold, 6.50%, 4/1/26 404,074 420,445
748,746 FHLMC Gold, 6.50%, 5/1/26 690,588 718,706
44,805 Federal National Mortgage
Association (FNMA),
7.00%, 10/1/23 44,040 44,077

Par Value U.S. GOVERNMENT AGENCIES-24.49% (cont) Cost Market Value

MORTGAGE-BACKED SECURITIES--20.43% (CONT)
$1,866,921 FNMA, 6.50%, 4/1/24 $1,780,203 $1,792,823
454,390 FNMA, 7.00%, 5/1/24 446,625 447,006
475,815 FNMA, 6.50%, 11/1/25 436,956 456,188
1,525,832 FNMA, 6.50%, 1/1/26 1,479,162 1,461,457
6,187,632 FNMA, 6.50%, 5/1/26 5,832,194 5,926,575
---------- -----------
21,770,126 22,012,460
---------- -----------
OTHER AGENCY ISSUES--4.06%
250,000 Government Trust Certificate,
Aid Israel, 5.70%, 2/15/03 249,267 238,438
1,746,022 Government Trust Certificate,
Israel Trust, Series 2E, 9.40%,
5/15/02 1,865,051 1,846,418
1,250,423 Pemex Exp Trust, 7.66%, 8/15/01 1,288,101 1,281,746
630,000 Resolution Funding Corporation,
8.125%, 10/15/19 696,884 713,538
245,000 Resolution Funding Corporation,
8.875%, 7/15/20 304,316 298,954
---------- -----------

4,403,619 4,379,094
---------- -----------

Total U.S. Government Agencies 26,173,745 26,391,554
---------- -----------

25
<PAGE>

Par Value U.S. GOVERNMENT OBLIGATIONS-31.16% Cost Market Value

$13,460,000 U.S. Treasury Bond,
8.125%, 8/15/19 $15,083,479 $15,356,514
2,660,000 U.S. Treasury Note,
5.625%, 11/30/98 2,636,913 2,647,924
11,825,000 U.S. Treasury Note,
7.50%, 10/31/99 12,144,290 12,156,926
2,750,000 U.S. Treasury Note,
7.875%, 11/15/04 2,985,939 2,964,858
450,000 U.S. Treasury Note,
6.50%, 5/15/05 445,533 448,844
---------- -----------
Total U.S. Government
Obligations 33,296,154 33,575,066
---------- -----------

COMMERCIAL PAPER-16.67%

1,000,000 AT&T Corp., 5.52%, 7/1/97 1,000,000 1,000,000
1,000,000 Ameritech Capital Corp.,
5.510%, 7/18/97 997,398 997,398
1,500,000 Bellsouth Telecommunication,
5.50%, 7/9/97 1,498,167 1,498,167
1,000,000 Du Pont Ei De Nemours,
5.51%, 7/10/97 998,623 998,623
1,500,000 Eastman Kodak Co., 5.50%,
7/17/97 1,496,333 1,496,333
1,500,000 Ford Motor Credit Co., 5.53%,
7/14/97 1,497,005 1,497,005
1,000,000 General Electric Capital Corp.,
5.55%, 7/22/97 996,763 996,763
1,500,000 Heinz Co., 5.50%, 7/17/97 1,496,333 1,496,333
1,500,000 Metlife Funding, 5.51%,
7/14/97 1,497,015 1,497,015

Par Value COMMERCIAL PAPER-16.67% (cont) Cost Market Value

$1,000,000 National Rural Utilities, 5.54%,
7/23/97 $996,614 $996,614
1,500,000 Norwest Corporation, 5.52%,
7/17/97 1,496,320 1,496,320
1,500,000 Pepsico, Inc., 5.50%,
7/21/97 1,495,416 1,495,416
1,000,000 Southern California Edison Co.,
5.55%, 7/21/97 1,495,375 1,495,375
1,000,000 Xerox Credit Corporation,
5.55%, 7/25/97 996,300 996,300
---------- -----------

Total Commercial Paper 17,957,662 17,957,662
---------- -----------
REPURCHASE AGREEMENTS-1.09%
1,177,680 State Street Bank & Trust
Company Repurchase
Agreement, 4.75%, 6/30/97,
repurchase price $1,177,835,
maturing 7/1/97 (collateralized
by U.S. Treasury Bond,
6.125%, 5/15/98) 1,177,680 1,177,680
---------- -----------
Total Repurchase
Agreements 1,177,680 1,177,680
---------- -----------
Total Investments-99.17% $106,390,001 106,865,824
------------
------------
Other Assets and Cash
less Liabilities-0.83% 892,870
------------

NET ASSETS-100.00% $107,758,694
------------
------------

26
<PAGE>

INTENTIONALLY LEFT BLANK.

27
<PAGE>

BOARD OF TRUSTEES

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.

JAMES W. COMPTON Jim serves as the President and CEO of the Chicago Urban
League, which has worked to eliminate racial discrimination and segregation
since 1916. He has a B.A. degree from Morehouse College. Jim serves on the board
of directors of Commonwealth Edison Company and Unicom Corp.

WILLIAM C. DIETRICH, C.P.A. Bill is a director and vice president, treasurer and
CFO of Streamline Mid-Atlantic, 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. She serves as a Director of the
Chicago Public Library as well as the Civic Federation of Chicago. 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, the
Greater Chicago Food Depository, and Boston-based Citizens Energy Corp. and
Citizens Corp.

ERIC T. MCKISSACK, CFA In the capacity of vice chairman and 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.

<PAGE>

AND ON...AND ON. SOON THE HARE WAS SO FAR AHEAD HE THOUGHT HE MIGHT AS WELL HAVE
A REST, SO DOWN HE LAY AND FELL FAST ASLEEP...AS THE TORTOISE PLODDED ON...AND
ON. SUDDENLY THE HARE WOKE UP WITH A START. WHAT WAS THE TIME? WHERE WAS THE
TORTOISE? HE DASHED ON AT HIS FASTEST PACE...ONLY TO FIND THAT THE TORTOISE HAD
ALREADY WON THE RACE.

SLOW AND STEADY WINS THE RACE

<PAGE>

ARIEL MUTUAL FUNDS
----------------
Ariel Investment Trust BULK MAIL
307 North Michigan Avenue U.S. POSTAGE
Suite 500 PAID
Chicago, Illinois 60601 PERMIT NO. 6784
CHICAGO, IL
---------------

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