John Rogers’ Ariel Fund December commentary.

Investments in foreign securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving foreign economies and markets, foreign political systems, foreign regulatory standards and foreign currencies and taxes. The use of currency derivatives and exchange-traded funds (ETFs) may increase investment losses and expenses and create more volatility. Investments in emerging and developing markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price. The intrinsic value of the stocks in which the portfolio invests may never be recognized by the broader market.

Performance data quoted represents past performance. Past performance does not guarantee future results. All performance assumes the reinvestment of dividends and capital gains and represents returns of the Investor Class shares. 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. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end for the Funds may be obtained by visiting our website,

Happy New Year, and along with it, Happy Birthday to our global portfolios! We find it hard to believe that our youngest offspring are already 3 years old. Because turning 3 is a significant milestone in the investment world, the occasion merits a review of our Ariel International and Ariel Global Funds’ performance.

John Rogers’ Ariel Fund: Performance overview

As you know, our global portfolios seek, first and foremost, to reduce risk, which is the driving force in their performance profiles. That is, their relative returns can be better in a cautious environment than in an ebullient one. Over the last three years ended December 31, 2014, annualized returns have reflected a lot of active risk-seeking behavior in our view, with the developed foreign market MSCI EAFE Index gaining +11.56%, and the all-country MSCI ACWI Index returning +14.72%. Somewhat predictably in such a period, our Ariel International Fund’s +8.69% and Ariel Global Fund’s +12.38% did not match this hot pace. Within their respective Morningstar Foreign Large Value and World Stock categories, the funds’ three-year rankings1 are similarly mundane: 68th and 73rd percentile, respectively. A closer look at 2014, however, shows that in a lower-octane period, performance can be quite strong. Ariel International Fund fell just -2.44% when the EAFE dropped -4.48%; the Fund’s return was in the top 7% of its Foreign Large Value category. Ariel Global Fund’s +5.29% gain outpaced the ACWI’s +4.71% mark, landing in the 22nd percentile of its World Stock group.

Many investors use volatility as a measurement of risk, so we will highlight our standard deviation metrics. Over the past three years, the MSCI EAFE Index’s standard deviation has been +13.18%, while our comparable Ariel International Fund’s level was just +12.04%. The all-country MSCI ACWI Index’s +10.63% standard deviation was also more jittery than our Ariel Global Fund’s +10.04% mark.

1 Past performance does not guarantee future results. For the period ended December 31, 2014, the rankings of Ariel International Fund for the one-, three-year and since inception periods were 25 out of 348 funds, 205 out of 303 funds and 205 out of 303 funds, respectively, among Morningstar Foreign Large Value funds. For the period ended December 31, 2014, the rankings of Ariel Global Fund for the one-, three-year and since inception periods were 257 out of 1158 funds, 652 out of 881 funds and 652 out of 881 funds, respectively, among Morningstar World Stock funds. Morningstar, Inc. is a nationally recognized organization that reports performance and calculates rankings for mutual funds. Rankings are based on total returns. Morningstar ranks each fund relative to all funds in the same category.

Once a mutual fund reaches its third birthday, it receives Morningstar’s flagship risk/reward rating, the Star Rating2 . Ariel International Fund’s initial grade from Morningstar is 3 stars. Ariel Global Fund’s investor share class debuted with 2 stars, with its institutional shares getting 3 stars. In other words, the small difference in expense ratios kept the investor shares from a 3-star rating.

Because high cash weightings early in the funds’ lives lowered returns, we think the performance picture will be more reflective of the strategy a few months from now. As we prudently invested assets in early 2012, we held double-digit levels of cash. Now cash is down to a normal level, with Ariel International Fund averaging 6% and Ariel Global Fund averaging 5% in 2014. In their short lifetimes, cash has been the biggest detractor to performance, which should not be the case going forward.

John Rogers’ Ariel Fund: Long-term stock selection

Long-term, our stock selection is likely to drive returns. With that in mind, on an attribution basis, we had solid outperformance in equities over the three-year period. Ariel International Fund’s equities topped its benchmark by +659 basis points, while Ariel Global Fund’s stocks outperformed by +646 basis points. Breaking down those results highlights the different aspects of our philosophy. For one, we made a decision to steer away from low-return, high-dividend “bond-like” sectors, and our low investments in energy, materials and utilities boosted returns by +535 and +750 basis points in the International and Global Funds, respectively. Our somewhat contrarian investments in out-of-favor growth sectors, especially health care for Global and information technology for International, also helped. In both cases, we invested with conviction. Our Global Fund averaged about double the ACWI health-care weighting, and our International Fund held more than triple the EAFE technology level. Both stances boosted returns. Stock-picking was also strong: Technology stocks added +296 basis points of return in International, and health-care stocks boosted returns by +134 basis points in Global.

Admittedly, not every contrarian stance pans out. We made even more controversial investments in telecommunications and consumer staples stocks with lackluster results. Indeed, our investments in these sectors hampered returns by more than -500 basis points in each portfolio. That said, we maintained index-like weightings in these forays, limiting the damage. Taken altogether, we believe that a thoughtful investor can see the patterns of our strategy showing through. Overall, our risk aversion comes through at a number of levels; it will appear better in the bad times that have not yet really occurred the last three years than in good times. Secondly, we will be opportunistic in some areas where investors overlook positive futures, and we will avoid areas where greed or hype causes outsized valuations. Finally, stock-picking is our bread and butter, as our 2014 results show.

2 Morningstar, Inc. is a nationally recognized organization that reports performance and calculates rankings for mutual funds. For Morningstar Data Shown: © 2014 Morningstar. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of information. The Morningstar RatingTM for funds methodology rates funds based on an enhanced Morningstar RiskAdjusted Return measure, which also accounts for the effects of all sales charges, loads, or redemption fees. Funds are ranked by their Morningstar Risk-Adjusted Return scores and stars are

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