Slow recovery: Black-managed mutual funds are picking up the pieces after a tough 2001. (B.E. Black Fund Watch).

For mutual fund managers, style mattered in 2001. Although Morningstar Inc., the Chicago-based mutual fund research firm, reported that the average domestic mutual fund was down about 11% last year, funds that focused on value stocks in the mid- or small-cap areas came away with better-than-average results. Small-cap value funds gained more than 17%, mid-cap value funds gained more than 6%, and although large-cap value funds lost 5.5%, that was only half as much as the average domestic stock fund lost.

Value investing created good news for some of the African American-managed mutual funds. Barbara L. Bowles, president and CEO of The Kenwood Group in Chicago, manages the Kenwood Growth & Income Fund (KNWDX) along with Mark W. Watson, the company's president. She explains her fund's outstanding performance, saying "value performed substantially better than other types of funds and since we're mid-cap value, and mid-cap funds did better than large-cap funds, the combination of mid-cap as well as value helped us." She adds, "our stock selection was excellent last year so we did significantly better than our own segment."

Kenwood Growth & Income returned 15.7% for 2001, ranking 17th among all mid-cap value funds, according to Morningstar. Bowles achieved those results by investing heavily in the financial services industry (23.9%), which was bolstered by 11 interest rate cuts last year, and the service industry (22.0%), which was driven by the strength of consumer spending. The fund's portfolio contains companies such as Nationwide Financial Services (NYSE: NFS), Arden Realty Group (NYSE: ARI), and Knight Ridder (NYSE: KRI), which should position Kenwood Growth & Income to produce similar results in 2002.

"Most of us are expecting a turnaround by the second half of the year," says Bowles. "If we get that, I think stocks will do well. But it is very possible that the turnaround will take the entire year."

The possibility of a sluggish environment probably won't bother the Ariel (ARGFX) and Ariel Appreciation Funds (CAAPX) too much. Both benefited last year from their philosophy of investing in small- and mid-cap companies that will grow over the long haul. The Ariel Fund grew by 14.2% in 2001, while Ariel Appreciation marked a 16.2% gain. The Ariel Fund ranked No. 21 among small-cap blend funds; Ariel Appreciation ranked No. 2 among mid-cap blend funds tracked by Morningstar.

"We are looking at 2002 with an optimistic eye and remain encouraged that value investing will continue to fare well through what is an unclear and uncertain environment," says Eric T. McKissack, Ariel Capital Management's vice chairman and portfolio manager of the Ariel Appreciation Fund. "The stimulus of fiscal spending and a historic number of rate cuts will fuel the economy to one degree or another The question is, `Will it be the historic 5%-plus recovery that you see after a down period, or will it be a bit more muted?' In my opinion, it's going to be more muted."

If McKissack is right about a muted recovery and value investing continuing to be the right style for this market, mutual funds that use the growth style may be in for a third difficult year in a row. According to Morningstar, funds in the growth category were off 24% last year. But several growth funds managed by African Americans performed better than their peers.

The Lou Holland Growth Fund (LHGFX) deserves mention. Although CEO Louis A. Holland's Chicago-based firm posted a loss of 5.2% for 2001, it was No. 6 among all large-cap blend funds.

B. E. Black Mutual Funds Index

                                               1-Year
                                               Total       3-Year
                                  Year-to-     Return      Total
Fund Name (Ticker)                 Date *    ([dagger])   Return *

STOCK FUNDS

Ariel (ARGFX)                      11.50        14.2       13.72
Ariel Appreciation (CAAPX)         14.95        16.2       10.90
Brown Capital Mgmt Balanced       -13.94       -12.0       -2.32
  Instl (BCBIX)
Brown Capital Mgmt Equity Instl   -19.65       -18.3       -4.03
  (BCEIX)
Brown Capital Mgmt Small Co         2.52        13.3       21.38
  Instl (BCSIX)
DEM Equity Investor (DEMEX)       -17.19       -15.6        7.72
Edgar Lomax Value (LOMAX)          -4.67        -5.3        3.53
Kenwood Growth & Income (KNWDX)     8.97        15.7        8.24
Lou Holland Growth (LHGFX)         -6.74        -5.2       -0.54
MDL Large Cap Growth Equity       -22.81       -24.9      -12.15
  (MLGEX)
Profit Value (PVALX)              -17.19       -10.6       -0.31
Thomason Capital/SRI Equity        -8.10        -4.0       -9.51
  (N/A) **

BOND FUNDS

Ariel Premier Bond (APBRX)          6.85         6.8        5.69
MDL Broad Market Fixed Income       9.01         8.6        6.47
  (MBMFX)

                                   5-Year                   Minimum
                                   Total      Toll-Free     Initial
Fund Name (Ticker)                Return *      Number      Invest.

STOCK FUNDS

Ariel (ARGFX)                      15.30     800-292-7435    $1,000
Ariel Appreciation (CAAPX)         16.63     800-292-7435     1,000
Brown Capital Mgmt Balanced         6.05     800-525-3863    10,000
  Instl (BCBIX)
Brown Capital Mgmt Equity Instl     5.78     800-525-3863    10,000
  (BCEIX)
Brown Capital Mgmt Small Co        18.68     800-525-3863    10,000
  Instl (BCSIX)
DEM Equity Investor (DEMEX)         N/A      800-752-1013        25
Edgar Lomax Value (LOMAX)           N/A      800-576-8229     2,500
Kenwood Growth & Income (KNWDX)     8.20     888-536-3863     2,000
Lou Holland Growth (LHGFX)         10.38     800-295-9779       250
MDL Large Cap Growth Equity         N/A      877-635-3863       500
  (MLGEX)
Profit Value (PVALX)               10.50     888-744-2337     1,000
Thomason Capital/SRI Equity         1.92     800-489-1125     5,000
  (N/A) **

BOND FUNDS

Ariel Premier Bond (APBRX)          6.24     800-292-7435     1,000
MDL Broad Market Fixed Income       N/A      877-635-3863       500
  (MBMFX)

([dagger]) AS OF DEC. 31, 2001

* AS OF FEB. 11, 2002

** NO TICKER; FUND IS INELLIGIBLE FOR LISTING ON AN EXCHANGE

SOURCES: MORNINGSTAR INC.; COMPANY OFFICIAL