Mid-Year Report
To Shareholders
March 31, 1996
AARP Investment Program
from Scudder
<PAGE>
TABLE OF CONTENTS
-----------------
Letter to Shareholders 2
AARP Fund Reports 7
AARP High Quality Money Fund 8
AARP High Quality Tax Free Money Fund 9
AARP GNMA and U.S. Treasury Fund 10
AARP High Quality Bond Fund 12
AARP Insured Tax Free General Bond Fund 14
AARP Balanced Stock and Bond Fund 16
AARP Growth and Income Fund 18
AARP Global Growth Fund 20
AARP Capital Growth Fund 22
AARP Funds' Investment Portfolios 24
Financial Statements 68
Financial Highlights 75
Notes to Financial Statements 80
Officers and Trustees 86
Service Information 88
<PAGE>
LETTER TO SHAREHOLDERS
----------------------
AARP Investment Program
from Scudder
Dear Shareholders,
The period covered by this Mid-Year Report was a favorable yet
volatile time for most investors, including those in the AARP Investment
Program from Scudder. Despite some short-term volatility, all of the AARP
Mutual Funds provided healthy returns for the six-month period ended March
31, 1996. Descriptions elaborating on the performance of the AARP Funds
begin on page eight. Before you turn to the performance of your particular
Fund(s), we encourage you to read this letter. We discuss the performance
of the stock and bond markets over the past six months, including the
reasons for recent volatility, and provide an outlook for the next few
months and beyond.
THE STOCK MARKET
The fourth quarter of 1995 ended a stellar year for the stock
market. The unmanaged Dow Jones Industrial Average (the price-weighted
average of 30 actively traded blue-chip stocks) continued to hit new highs
as slow growth, moderate inflation and falling interest rates provided a
favorable economic climate. While strong stock market performance
continued into 1996, it has not come easily. If you look at the graph on
page three, you see that stock market volatility, as measured by the Dow,
has increased significantly since the beginning of the year. What's
compelling about this graph is that the Dow not only survived several
setbacks, but sometimes recouped most of its losses within a day or two.
From October 1, 1995 to March 31, 1996, the Dow rose from 4761.26 to
5587.14, posting a 17.35% gain. The unmanaged Standard & Poor's 500 Stock
Price Index returned 11.71% for the period.
THE BOND MARKET
Following a favorable fourth quarter of 1995, in which declining
interest rates caused bond prices to rise, the bond market reversed course
in the first quarter of 1996 and interest rates rose rapidly. As you can
see in the graph on page three, long-term interest rates, as measured by
the 30-year Treasury bond, rose from 6.57% on October 1, 1995 to 6.67% on
2
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March 31, 1996. If you look closely, you will see that long-term rates
were as low as 5.95% back in early January and as high as 6.74% in
mid-March.
Unlike long-term rates, short-term interest rates are directly
driven by actions of the Federal Reserve Board (the Fed) and have remained
low over this period. Short-term rates (as measured by the three-month
Treasury bill) continued to decline over the past six months, from 5.40%
on October 1, 1995 to 5.18% on March 31, 1996.
LINE CHART TITLE: Stock Market
------------
CHART PERIOD:
(Plotted weekly from October 1, 1995 to March 31, 1996)
CHART DATE:
10/1/95 4789
4769
4794
4795
11/3/95 4755
4870
4990
5049
12/1/95 5074
5157
5177
5098
1/5/96 5117
5181
5061
5185
2/2/96 5395
5542
5503
5630
3/1/96 5486
5470
5585
5637
3/31/96 5587
CAPTION TO PRECEDING CHART:
The stock market, as measured by the unmanaged Dow Jones Industrial
Average, gained 17.35% over the last six months.
LINE CHART TITLE: Long-Term Interest Rates
------------------------
CHART PERIOD:
(Plotted weekly from October 1, 1995 to March 31, 1996)
CHART DATA:
10/1/95 6.57%
6.42
6.3
6.35
11/03/95 6.33
6.32
6.23
6.25
12/1/95 6.13
6.05
6.09
6.05
1/5/96 5.95
6.04
6.16
5.97
2/2/96 6.03
6.1
6.22
6.41
3/1/96 6.47
6.69
6.74
6.64
3/31/96 6.67
CAPTION TO PRECEDING CHART:
Long-term interest rates, as measured by the 30-year Treasury Bond,
were 6.57% on October 1, 1995 and 6.67% at the end of March 1996.
THE REASONS FOR RECENT VOLATILITY
Stock and bond market volatility began in mid-January as the U.S.
economy seemed to strengthen and doubt grew about whether the Fed would
keep lowering short-term interest rates. On Friday, March 8 an
unanticipated strong jobs report from the Federal Government heightened
inflation fears, which drove the Dow down by as much as 217 points before
ending the day down 171 points. It was the largest one-day drop in more
than four years and the third largest point drop ever, although it
represented only a 3.03% decline of the stock market and was ranked 18th
in overall percentage drops. That same day the yield on the 30-year
Treasury bond rose from 6.46% to 6.69%, causing bond prices to decline.
The following business day was a different story. With stock prices down
from the previous day's trading, many investors (both individuals and
professionals, including mutual fund portfolio managers) saw buying
opportunities, and the Dow rose again by 110 points.
By the end of March, volatility had diminished, with the range
between the highs and lows of major indicators such as the Dow narrowing
from the swings of early March. Investors and traders seemed to have
weighed the Government statistics and concluded the economy was expanding
only moderately.
3
<PAGE>
The bond market also ended the quarter on a favorable note. The
30-year Treasury bond declined to 6.67% by quarter end as reports on
manufacturing and housing suggested that the U.S. economy was expanding
slowly enough to keep inflation from accelerating.
THE OUTLOOK
Over the next few months, we believe that the economy will grow
very slowly. We even think that there is significant probability that
output could decline, which would qualify as a recession. However, if we
look ahead to 1997, we believe the outlook should brighten with a quick
return to growth. Even better for investors, we do not expect inflation to
be a problem. It could decline to below 2%.
The economy began to slow down in response to decisive interest
rate hikes made by the Fed during 1994 and early 1995. Even though the Fed
has eased interest rates three times in the past year, interest rates are
far above inflation. This means that monetary policy remains "tight."
Government spending has also slowed, even as taxes have risen rapidly,
which means that fiscal policy is also "tight." Meanwhile, consumer
spending has slowed down. Americans are somewhat concerned about their
jobs, so families have been trying to save a little more and borrow a
little less. These are all classic signs that a business expansion is
coming to an end.
Even if the economy does experience a recession, it is likely to
be short and mild. The economy has many strengths including global
technological advancements and a sound banking system.
WHAT THIS MEANS FOR INVESTORS
As an investor, you may be tempted to get distracted by the
current volatility in the markets and lose sight of your long-term
investments goals. However, history tells us that long-term investors are
best served by putting the inevitable short-term volatility of the markets
into proper perspective. If you can accept that both the bond and stock
markets will have volatility, the short-term downturns in the markets
should not be cause for alarm. In fact, these downturns often provide
buying opportunities for investors. It is also important to diversify your
assets in a mix of different investments such as stocks, bonds, and money
market investments. This sensible strategy often provides a degree of
protection from market volatility.
THE AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Mutual Funds are managed conservatively as the portfolio
management teams try to provide competitive returns while moderating the
share price volatility of your investment. This makes the AARP Funds
distinct from many other mutual funds which may seek higher returns, but
do not focus on reducing share price fluctuation. It is this commitment to
conservative investing that has continued to appeal to AARP members. As of
4
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March 31, 1996, there were more than 650,000 investors participating in
the Program and nearly $13 billion in assets under management.
Of course, while the AARP Mutual Funds are conservatively
managed, it is important that you realize that your principal is never
insured or guaranteed, and the value of your investment and your return
will move up and down as market conditions change.
The Program prides itself on the introduction of new services and
features that will help meet shareholders' changing needs. We are pleased
to note the following services and enhancements:
Introduction of the AARP Global Growth Fund
We were pleased to offer our newest AARP Mutual Fund to
shareholders on February 1, 1996 -- the AARP Global Growth Fund. You can
read about this Fund in the current Prospectus and other communications,
and can find information about it on page 20 of this Report.
New Easy-Access Line Enhancements
In October 1995 we significantly enhanced our toll-free 24-hour
automated Easy-Access Line by making it easier to use, providing help when
you need it, and offering more information with enhanced security. Then,
based on shareholder reaction, we subsequently improved the service by
allowing you to get price, yield, and total return information without
having to give your Social Security number. When you call our toll-free
number at 1-800-631-4636, you now have a choice. You can press the star
key ("*") on your touch-tone phone to receive only prices, yields, total
returns, or AARP Fund descriptions or enter your Social Security number
and PIN to receive information on your specific account.
New Statement Enhancements
- Average Cost Information
Average cost information was added to your monthly
consolidated statement (it does not appear on quarterly IRA
statements) in January. As you know, the IRS requires you to
report any gains or losses from the sale or exchange of non-money
market mutual fund shares. To determine your gain or loss, first
you need to know how much you paid for the shares you sold. To
help you better manage your investment, we now provide you with
an estimate of the price you paid to obtain the shares. This
amount now appears on each of your monthly statements.
5
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- Year-to-Date Information
The Account Activity section of your statement now
includes year-to-date activity. This is beneficial since it
allows you to view all activity for the year on a monthly basis.
You can then decide whether to keep or discard previous
statements.
- Investment Flow Summary
The Investment Flow Summary section was added to the
consolidated statement of retirement plan shareholders in their
first quarter statement mailed in April, and will be rolled out
to other shareholders in May. It summarizes the flow of your
transactions and market activity for each of the AARP Mutual
Funds in your portfolio. This allows you to see easily the
progress of your portfolio. The section adds up all your
additions (new share purchases) then subtracts any withdrawals
(shares sold) and notes any market value changes.
- New Funds Center in New York
The newest Scudder Funds Center opened in New York City
in March. When you visit us on the northwest corner of 51st
Street and Lexington Avenue, you can obtain information on the
AARP Mutual Funds and speak face-to-face with one of our AARP
Mutual Fund Representatives. If you live in the New York area and
need help in allocating your assets, have questions about
planning for retirement, or want to learn more about the AARP
Mutual Funds, stop in and see us. For directions, please call us
at 1-800-253-2277.
If you have any questions about your AARP Funds or the
information provided in this Report, please call our knowledgeable AARP
Mutual Fund Representatives between the hours of 8:00 A.M. to 8:00 P.M.,
Monday through Friday, eastern time at 1-800-253-2277.
Sincerely,
/s/Cuyler W. Findlay /s/Linda C. Coughlin /s/Douglas M. Loudon
Cuyler W. Findlay Linda C. Coughlin Douglas M. Loudon
Chairman President Investment Director
6
<PAGE>
AARP Fund Reports
-----------------
The following pages contain a summary of each Fund in the AARP Investment
Program from Scudder. Each AARP Mutual Fund report, except the AARP Global
Growth Fund, contains the one-year total return, five-year total return, and
ten-year total return (or Life of Fund total return if the Fund is less than
10 years old). Because a one-year total return could be high or low depending
on market conditions over a 12-month period, it is useful to have the
perspective of the five-year and ten-year total return figures. Within each
Fund description (except for the AARP Money Funds), one-year total return is
broken down into two components: distribution of income and capital change.
Distribution of income is defined to include reinvested dividends. Capital
change is defined as the change in the price per share including any
reinvested capital gains distributions.
You will also note that all of the AARP Funds, except the AARP Money Funds
and the AARP Global Growth Fund, have been compared to market indices. We are
providing these comparisons to comply with the Securities and Exchange
Commission's (SEC) disclosure requirements. Under these requirements, all
mutual funds (except money funds) are required to compare their performance
over the past ten years (or Life of Fund) to that of a broad-based securities
market index. It is important to note, however, that these indices may have
limited relevance to the performance of mutual funds. They do not reflect the
deduction of any servicing, investment management, or administration
expenses.
Also, the AARP Mutual Funds are unique in the emphasis on seeking to reduce
share price fluctuation. This, in turn, can have significant impact on
performance. Therefore, when comparing an AARP Mutual Fund's performance with
that of a major market index, remember that any comparison may be of limited
value.
7
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AARP HIGH QUALITY MONEY FUND
----------------------------
FUND OVERVIEW
This Fund is designed to preserve your principal while you earn money market
returns. The AARP High Quality Money Fund has quality standards high enough to
have secured a AAAm rating from Standard & Poor's (S&P)*, a leading national
independent rating firm. The Fund seeks to maintain a $1.00 share price,
although there may be circumstances under which this goal cannot be achieved. It
is important to note that unlike bank savings accounts, the Fund is not insured
or guaranteed by the U.S. Government and the yield of the Fund will fluctuate.
FOR WHOM THE
FUND IS DESIGNED
This Fund may be appropriate for investors who have short-term needs or who do
not want the risks associated with investing in stocks or bonds. These investors
include those seeking money market income to help meet regular day-to-day needs,
those who need immediate access to their assets through free checkwriting, those
who want to diversify their assets with an investment designed to provide a
degree of safety and stability, and those seeking a short-term investment prior
to making longer-term investment choices.
PORTFOLIO
MANAGEMENT TEAM
Stephen L. Akers
Lead Portfolio Manager
K. Sue Cote
Debra A. Hanson
Robert T. Neff
Portfolio Managers
*The rating for the Fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.
How the Fund has Performed
As with all money funds, the performance of the AARP High Quality Money
Fund mirrored what happened to short-term interest rates. Short-term interest
rates, as measured by the three-month U.S. Treasury Bill, declined from 5.40%
to 5.18% over the past six months. This trend caused a gradual decline in the
Fund's 7-day net annualized yield from 4.97% on September 30, 1995 to 4.38% as
of March 31, 1996.
The Fund's one-year total return was 4.87%, which was made up entirely
of income. The five-year cumulative total return was 20.69%; the five-year
average annualized total return was 3.83%; the 10-year cumulative total return
was 67.04%; and the 10-year average annualized total return was 5.26%. Of
course past performance is not a guarantee of future results, and yield will
fluctuate.
The Fund's Recent Investment Strategy
As interest rates remained low over the past six months, our aim was to
continue to keep a long average maturity in the Fund. We maintained a barbell
strategy in which approximately 28% of the portfolio was invested in securities
that mature in one month or less, and 19% was invested in securities maturing
in six to 12 months.
As of March 31, 1996, the average maturity of the Fund was 52 days,
which is slightly shorter than the 55 days at the beginning of October 1995. We
have allowed the average maturity to decline somewhat by reinvesting all cash
in securities with maturities of 60 days or less. We have taken this step as a
result of the recent upward pressure on short-term interest rates. Although we
do not expect short-term rates to rise in the next few months, we do expect
continued volatility, and will therefore remain cautious as we work to offer
you competitive yields and stability.
8
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AARP HIGH QUALITY TAX FREE MONEY FUND
-------------------------------------
FUND OVERVIEW
The AARP High Quality Tax Free Money Fund is designed to offer you stability of
principal, along with income free from federal taxes.^1 The quality of the Fund
is high enough to have secured a AAAm rating from Standard & Poor's (S&P), a
leading national independent rating firm.^2 The AARP High Quality Tax Free Money
Fund is designed to maintain a $1.00 share price, although there may be
circumstances under which this goal cannot be achieved. It is important to note
that, unlike bank savings accounts, the Fund is not insured or guaranteed by the
U.S. Government, and yield will fluctuate.
FOR WHOM THE
FUND IS DESIGNED
This Fund may be appropriate for investors seeking tax-free income or who do not
want the risks associated with investing in stocks or bonds. These investors
include those seeking money market income to meet regular day-to-day expenses,
those needing immediate access to their assets through free checkwriting, those
creating a diversified portfolio who want a portion of their assets in a
conservative investment designed to offer stability, and those seeking a
short-term investment prior to making longer-term investment choices.
PORTFOLIO
MANAGEMENT TEAM
K. Sue Cote
Lead Portfolio Manager
Donald C. Carleton
Portfolio Manager
^1 It is the policy of the Fund not to invest in taxable issues. However, the
Fund's income may be subject to state and local taxes. Capital gains, if any,
may be subject to taxes as well.
^2 The rating for the Fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.
How the Fund has Performed
Over the past six months, the yield on the AARP High Quality Tax Free
Money Fund declined as short-term interest rates declined. The Fund's 7-day net
annualized yield fell from 3.37% on September 30, 1995 to 2.56% on March 31,
1996. This is a taxable equivalent yield of 4.24% for shareholders in the 39.6%
tax bracket. The Fund's one-year total return was 3.00%, which was made up
entirely of income. The five-year cumulative total return was 13.13%; the
five-year average annualized total return was 2.50%, the ten-year cumulative
total return was 46.41%; and the ten-year average annualized total return was
3.89%.*
Please note that the five-year and ten-year figures include the
performance of the AARP Insured Tax Free Short Term Fund, which changed its name
and objective to the AARP High Quality Tax Free Money Fund on August 1, 1991. Of
course, past performance is not a guarantee of future results and yield will
fluctuate.
The Fund's Recent Investment Strategy
As interest rates remained low, our aim was to keep our average
maturity extended as long as possible by investing in tax-exempt commercial
paper maturing in six to 12 months. As of March 31, 1996, the average maturity
of the Fund was 47 days. We would have liked to have maintained an even longer
average maturity, but the supply of longer-term securities in the six- to
12-month range was limited.
As always, all securities we bought over the past six months are rated
within the two highest quality ratings of at least one of the three leading
national independent rating firms: Fitch Investors Service Inc., Moody's
Investor Services Inc., or S&P. For those funds rated by S&P, there are
particular guidelines with which any tax-free money fund must comply in order to
maintain its AAAm rating. In addition, Scudder credit analysts approve only a
small percentage of securities that fit within the S&P criteria. Therefore, the
number of securities that we have to choose from is much smaller and we believe
generally of better quality than other tax-free money funds.
We expect short-term interest rates in the municipal market to remain
stable or decrease over the next six months. Consequently, the yield of the AARP
High Quality Tax Free Money Fund should decline slightly. However, we will keep
the Fund's average maturity as long as prudently possible by investing in
longer-maturity securities that are fairly valued. We believe this strategy
should continue to offer shareholders competitive tax-free income and stability.
* Total returns would have been lower had certain expenses not been reduced.
9
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
--------------------------------
FUND OVERVIEW
The AARP GNMA and U.S. Treasury Fund seeks to produce monthly income from a
conservatively managed high-quality portfolio. Although your principal is not
guaranteed as it is with an insured fixed-rate Certificate of Deposit (CD) or
savings account, the Fund is managed to help reduce share price fluctuation.
While the securities in the Fund are guaranteed as to the timely payment of
principal and interest, the guarantee is not related to the Fund's yield or
share price, both of which will fluctuate daily.
Total Return
------------
CUMULATIVE
FUND INDEX^+
---- -------
1 yr. 8.62% 10.84%
5 yr. 39.23% 48.20%
10 yr. 105.72% 139.35%
AVERAGE ANNUAL
FUND INDEX^+
---- ------
1 yr. 8.62% 10.84%
5 yr. 6.84% 8.18%
10 yr. 7.48% 9.11%
How the Fund has Performed
As stated in the Letter to Shareholders, the last quarter of 1995 was
favorable but the first quarter of 1996 was a volatile time for bond investors.
After a year of mostly declining interest rates, long-term interest rates began
to rise in 1996. Shareholders in the AARP GNMA and U.S. Treasury Fund were
shielded from some of this volatility because of the Fund's unique strategy to
keep 20% to 50% of its assets in short-term securities. It is this strategy,
however, that often causes the Fund to lag the unmanaged Lehman Brothers
Mortgage GNMA Index. When we look to the chart below, the AARP GNMA and U.S.
Treasury Fund's one-year total return of 8.62% (representing 7.07% in
distributions of income and 1.55% in capital change) underperformed the index
return of 10.84%. It is important to note that the index return does not reflect
investment in cash equivalents or the deduction of any servicing, investment
management, or administrative expenses as a mutual fund does.
While 12-month returns for the Fund will vary from year to year, by
maintaining a long-term focus and staying invested through good and bad times,
your investment has the opportunity to grow over time and overcome down periods
in the market. As the graph to the right shows, if you invested $10,000 in the
Fund on March 31, 1986, your investment would have grown to $20,572. If you took
your distributions in cash, the value of your investment would have been $9,348,
and you would have received $7,563 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- ---------------------
1986 $10000 $10000
1987 10952 11039
1988 11339 11736
1989 11892 12395
1990 13160 14172
1991 14775 16150
1992 16335 18051
1993 18087 20096
1994 18154 20321
1995 18939 21594
1996 20572 23935
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- --------------------
1992 10.55% 11.77%
1993 10.73 11.34
1994 0.37 1.13
1995 4.32 6.26
1996 8.62 10.84
^+ The unmanaged Lehman Brothers Mortgage GNMA Index is a market value weighted
measure of all fixed-rate securities backed by mortgage pools of the GNMA.
Index returns are calculated monthly and assume reinvestment of dividends.
Unlike Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
10
<PAGE>
The Fund's Recent Investment Strategy
Through most of 1995, we shifted assets from shorter-term instruments
into GNMA securities, which were selling at attractive price levels. As of
year-end, approximately 75% of the portfolio was invested in GNMA securities,
with a third of the Fund's assets invested in 7% to 7 1/2% coupon mortgages.
This strategy proved successful in providing shareholders with more income
during a period of declining interest rates.
We continued to favor GNMA securities in the first quarter of 1996, as
illustrated in the chart below. However, beginning in February we replaced our 7
1/2% coupon mortgages with lower-coupon bonds in the vicinity of 6% to 7%.
Despite their lower relative coupons, the bonds in the portfolio still produced
income above most other high-quality fixed-income investments such as
Treasuries.
CALLOUT
It has been an ongoing strategy to keep 20% to 50% of the Fund's assets in
short-term U.S. Treasury obligations and cash equivalents to help moderate share
price volatility.
The remainder of the portfolio was invested in short-term U.S. Treasury
obligations and cash equivalents with maturities of three years or less. These
shorter-term securities helped moderate share price fluctuation. It has been an
ongoing strategy to keep some of the Fund's assets in shorter maturity bonds to
help dampen share price volatility.
We have maintained a consistent strategy in the Fund for the past 10
years. Shareholders in this Fund should feel comfortable that the current blend
of GNMA securities will provide a competitive stream of income, while the
short-term Treasury securities and cash equivalents will continue to dampen
share price volatility.
PIE CHART TITLE: Asset Allocation
----------------
CHART PERIOD: As of March 31, 1996
CHART DATA:
Government National Mortgage
Association 70%
U.S. Treasury Obligations 29%
Cash Equivalents 1%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for conservative investors who want relatively high current
income and a degree of protection from day-to-day share price volatility.
Investors should be seeking to invest for the longer term (at least one to three
years) and be comfortable with fluctuation in the value of their principal and
yield.
PORTFOLIO
MANAGEMENT TEAM
David H. Glen
Lead Portfolio Manager
Mark S. Boyadjian
Portfolio Manager
11
<PAGE>
AARP HIGH QUALITY BOND FUND
---------------------------
FUND OVERVIEW
The AARP High Quality Bond Fund offers you monthly income and the opportunity
for higher returns than you can expect from the AARP GNMA and U.S. Treasury
Fund. In pursuing higher returns, fluctuation in the value of your principal may
also be greater. The Fund has quality standards that are among the highest of
any general bond fund currently available, with at least 65% of the portfolio
invested in AAA-rated and AA-rated issues, and the other 35% in nothing less
than A-rated bonds.
Total Return
------------
CUMULATIVE
FUND INDEX^+
---- ------
1 yr. 10.22% 10.79%
5 yr. 45.99% 50.29%
10 yr. 110.48% 128.59%
AVERAGE ANNUAL
FUND INDEX^+
---- ------
1 yr. 10.22% 10.79%
5 yr. 7.86% 8.48%
10 yr. 7.73% 8.61%
How the Fund has Performed
As stated in the Letter to Shareholders, the last quarter of 1995 was
favorable but the first quarter of 1996 was a volatile period for bond
investors. After a year of mostly declining interest rates, long-term interest
rates began to rise in 1996. The AARP High Quality Bond Fund was negatively
impacted by this because as interest rates rise, bonds prices fall. In addition,
the Fund's conservative strategy often causes the Fund to lag the unmanaged
Lehman Brothers Aggregate Bond Index when the bond market rallies, as it did in
1995. When we look to the chart below, the AARP High Quality Bond Fund's
one-year total return of 10.22% (representing 6.30% in distributions of income
and 3.92% in capital change) underperformed the index return of 10.79%. It is
important to note that the quality of the securities in the portfolio is higher
than those in the index, and the index return does not reflect investment in
cash equivalents or the deduction of any servicing, investment management, or
administrative expenses, as a mutual fund does.
While 12-month returns for the Fund will vary from year to year, by
maintaining a long-term focus and staying invested through good and bad times,
your investment has the opportunity to grow over time and overcome down periods
in the market. As the graph to the right shows, if you invested $10,000 in the
Fund on March 31, 1986, your investment would have grown to $21,048. If you took
your distributions in cash, the value of your investment would have been $9,864,
and you would have received $7,303 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
--------- ---------------------
1986 $10000 $10000
1987 10780 10873
1988 11162 11404
1989 11806 11992
1990 12960 13472
1991 14417 15209
1992 15936 16945
1993 18009 19197
1994 18515 19653
1995 19096 20633
1996 21048 22859
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
--------- ---------------------
1992 10.54% 11.43%
1993 13.01 13.3
1994 2.8 2.37
1995 3.14 4.99
1996 10.22 10.79
^+ The unmanaged Lehman Brothers Aggregate Bond Index is a market value weighted
measure of treasury issues, agency issues, corporate bond issues and mortgage
securities. Index returns are calculated monthly and assume reinvestment of
dividends. Unlike Fund returns, Index returns do not reflect any fees or
expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
12
<PAGE>
The Fund's Recent Investment Strategy
In keeping with the Fund's objective of managing share price
volatility, our investment strategy changed in early 1995 and has remained
consistent ever since. During the six-month period covered by this report, we
decided to add income to the portfolio from attractively priced mortgage-backed
and corporate securities. We put a large portion of the Fund's assets into
mortgage-backed securities (approximately 32% as of March 31, 1996) because of
their high quality, income potential, and attractive prices. We also continued
to invest in corporate securities which included issues from some of the
country's leading consumer staples, durable goods manufacturing, financial, and
transportation companies.
We favored intermediate-term bonds in anticipation of a steeper yield
curve, which is when short-term yields decline faster than long-term yields.
This strategy proved positive for the Fund because intermediate-term bonds were
the best-performers over the past six months.
CALLOUT
The Fund attempts to reduce share price fluctuation by investing in a variety of
different sectors.
The Fund continued to maintain its objective of investing in
high-quality securities. As of March 31, 1996, 67% of the portfolio was invested
in government, AAA-rated or AA-rated securities; 17% of the Fund was invested in
A-rated bonds; and 16% was invested in cash equivalents.
We believe that the AARP High Quality Bond Fund's current portfolio is
well positioned and major changes are not expected over the near term. This Fund
should continue to provide shareholders with high income and less share price
fluctuation than a long-term bond. Our emphasis remains on delivering both
competitive yields and potential price appreciation, as well as on maintaining
high credit quality and diversification across various types of issues.
PIE CHART TITLE: Asset Allocation
----------------
CHART PERIOD: As of March 31, 1996
CHART DATA:
U.S. Government Agency Pass-Thrus 31%
U.S. Treasury Obligations 27%
Corporate Bonds 20%
Commercial Paper 16%
Foreign Bonds--U.S. $ Denominated 5%
Asset Backed 1%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors who want competitive returns from a portfolio
of high credit quality. Investors should be seeking to invest for the longer
term (at least one to three years) and be comfortable with fluctuation in the
value of their principal and yield.
PORTFOLIO
MANAGEMENT TEAM
David H. Glen
Lead Portfolio Manager
William M. Hutchinson
Stephen A. Wohler
Portfolio Managers
13
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
---------------------------------------
FUND OVERVIEW
The AARP Insured Tax Free General Bond Fund seeks to pay high monthly income
that is free from federal taxes.* The Fund invests in a portfolio consisting
primarily of high-grade municipal securities that are insured against default.
This insurance does not apply to the value of your shares or the yield of the
Fund, both of which will fluctuate daily. The Fund also aims to keep the value
of its shares more stable than that of a long-term municipal bond.
Total Return
------------
CUMULATIVE
FUND INDEX^+
---- ------
1 yr. 7.23% 8.38%
5 yr. 45.13% 47.45%
10 yr. 112.79% 117.13%
AVERAGE ANNUAL
FUND INDEX^+
---- ------
1 yr. 7.23% 8.38%
5 yr. 7.73% 8.07%
10 yr. 7.84% 8.05%
* It is the policy of the Fund not to invest in taxable issues. However, the
Fund's income may be subject to state and local taxes. Gains on sales of Fund
shares and distributions of capital gains may be subject to federal, state and
local taxes.
How the Fund has Performed
As stated in the Letter to Shareholders, the last quarter of 1995 was
favorable but the first quarter of 1996 was a volatile period for bond
investors, including those in the municipal market. Since January 1996, with
rising long-term interest rates, the value of the securities held by the Fund
decreased and the net asset value declined. When we look at the annualized total
return, as illustrated in the chart below, the AARP Insured Tax Free General
Bond Fund's one-year total return of 7.23% (representing 5.06% in distributions
of income and 2.17% in capital change) underperformed the unmanaged Lehman
Brothers Municipal Bond Index return of 8.38%. It is important to note that due
to the Fund's objective to reduce share price volatility, it will often lag
other municipal funds when the bond market rallies, as it did in 1995. However,
it may also shield the Fund when the market declines, as it did during the first
quarter of 1996.
It is important to note that 12-month returns for the Fund will vary
from year to year. However, by maintaining a long-term focus and staying
invested through good and bad times, your investment has the opportunity to grow
over time and overcome down periods in the market. As the graph to the right
shows, if you invested $10,000 in the Fund on March 31, 1986, your investment
would have grown to $21,279. If you took your distributions in cash, the value
of your investment would have grown to $11,004, and you would have received
$6,914 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP Insured Tax Free Lehman Brothers
General Bond Fund Municipal Bond Index^+
----------------- ---------------------
1986 $10000 $10000
1987 11233 11097
1988 11104 11376
1989 12322 12196
1990 13470 13482
1991 14662 14726
1992 16024 16197
1993 18266 18225
1994 18595 18648
1995 19844 20034
1996 21279 21713
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Insured Tax Free Lehman Brothers
General Bond Fund Municipal Bond Index^+
----------------- ---------------------
1992 7.23% 8.38%
1993 9.28 10.01
1994 14.0 12.51
1995 1.79 2.32
1996 6.71 7.43
^+ The unmanaged Lehman Brothers Municipal Bond Index is a market value weighted
measure of municipal bonds with a maturity of at least two years. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
14
<PAGE>
The Fund's Recent Investment Strategy
Through the end of 1995, the portfolio management team continued to
shift a majority of the portfolio from long-term bonds with maturities of over
20 years to bonds with maturities of under 15 years. It continues to be heavily
weighted in intermediate-term bonds, with 42% of the portfolio invested in bonds
maturing in 10 to 15 years. This strategy has added to the Fund's favorable
performance over the past few months, because bonds with maturities in the
15-year range that were non-callable performed better than longer-term bonds.
In addition, as of March 31, 1996, approximately 90% of the portfolio
was invested in insured securities (or securities escrowed in U.S. Treasuries
which provide the backing of the U.S. Government). Remember that this insurance
protects the bond from default but does not apply to the value of your shares or
to the yield of the Fund, both of which will fluctuate daily.
CALLOUT
Investing in insured securities of varying maturities helps dampen the price
volatility of this Fund.
As always, we invested in securities rated within the top three ratings
by Moody's Investor Services Inc. and Standard & Poor's -- two independent
rating services.
We believe that the Fund's strategy will continue to provide
shareholders with high income free from federal taxes as we seek to keep its
share price more stable than a long-term municipal bond.
PIE CHART TITLE: Asset Allocation -- Municipal Bond Effective Maturities
CHART PERIOD: As of March 31, 1996
CHART DATA:
Less than 1 year 8%
1 to less than 5 years 10%
5 to less than 10 years 17%
10 to less than 15 years 42%
Greater than 15 years 23%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors in higher tax brackets who want income that
is free from federal income taxes. Investors should be seeking to invest for the
longer term (at least one to three years) and be comfortable with fluctuation in
the value of their principal and yield.
PORTFOLIO
MANAGEMENT TEAM
Donald C. Carleton
Lead Portfolio Manager
Philip G. Condon
Portfolio Manager
15
<PAGE>
AARP BALANCED STOCK AND BOND FUND
---------------------------------
Fund Overview
Through a combination of stocks, bonds, and cash reserves, the AARP Balanced
Stock and Bond Fund seeks to offer you long-term growth of capital and quarterly
income. The Fund attempts to keep the value of its shares more stable than other
potentially higher returning, higher risk balanced mutual funds.
Total Return
------------
CUMULATIVE
BLENDED
FUND INDEX^+
---- ------
1 yr. 21.04% 22.90%
Life of
Fund* 25.09% 28.93%
AVERAGE ANNUAL
BLENDED
FUND INDEX^+
---- ------
1 yr. 21.04% 22.90%
Life of
Fund^* 10.91% 12.49%
How the Fund has Performed
The AARP Balanced Stock and Bond Fund performed well over the past six
months. While the Fund provided a solid one-year total return of 21.04%
(representing 4.43% in distributions of income and 16.61% in capital change)
over this period, it slightly underperformed the blended index's one-year total
return of 22.90%, primarily because of the Fund's conservative investment
strategy to reduce share price volatility. The blended index is made up of the
S&P Stock Price Index 50%, the Lehman Brothers Aggregate Bond Index 40%, and the
3-Month Treasury Bill Index 10%.
It is important to note that 12-month returns for the Fund will vary
from year to year. However, by maintaining a long-term focus and staying
invested through good and bad times, your investment has the opportunity to grow
significantly over time. As the graph to the right shows, if you invested
$10,000 in the Fund when it was introduced in February of 1994, your investment
would have grown to $12,509. If you took your distributions in cash, the value
of your investment would have grown to $11,440, and you would have received $939
in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1994
to March 31, 1996
CHART DATA:
AARP Balanced Standard & Poor's Lehman Brothers
Stock and Bond 500 Stock Price Aggregate Bond Blended
Fund Index Index Index^+
---- ----- ----- -----
2/1/94* $10000 $10000 $10000 $10000
3/31/94 9520 9304 9584 9456
6/30/94 9623 9344 9485 9450
9/30/94 9922 9800 9543 9740
12/31/94 9837 9799 9579 9761
3/31/95 10335 10753 10062 10491
6/30/95 11077 11779 10675 11308
9/30/95 11589 12716 10885 11929
12/31/95 12184 13481 11349 12543
3/31/96 12509 14205 11147 12893
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Balanced Blended
Stock and Bond Fund Index^+
------------------- -----
2/1/94*--
3/31/94 -4.8 % -5.08%
1995 8.56 10.17
1996 21.04 22.9
^+ The performance of the blended benchmark is a weighting comprised of 50%
Standard & Poor's 500 Stock Price Index (S&P), 40% Lehman Brothers
Aggregate Bond Index (LBAB), and the 3-Month Treasury Bill Index (10%). The
50/40/10 measure is meant to reflect the anticipated long range asset mix
of the Fund, which may change over time. The unmanaged Standard & Poor's
500 Stock Price Index is a market value-weighted measure of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-the-Counter market. The unmanaged Lehman Brothers
Aggregate Bond Index is a market value-weighted measure of treasury issues,
agency issues, corporate bond issues and mortgage securities. Index returns
are calculated monthly and assume reinvestment of dividends. Unlike Fund
returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all
dividends and capital gains and is not indicative of future results.
Investment return and principal value will fluctuate so an investor's
shares, when redeemed, may be worth more or less than when purchased.
^* The Fund commenced operations on February 1, 1994.
16
<PAGE>
The Fund's Recent Investment Strategy
In general, the stock portion of the Fund (representing 53% of the
portfolio as of March 31, 1996) uses an approach similar to the AARP Growth and
Income Fund. We will usually invest in stocks that are believed to have
favorable long-term capital appreciation outlooks and have above-average
dividend yields. Since the stock portion of the Fund is managed by the same team
and with the same strategy as the AARP Growth and Income Fund, refer to the AARP
Growth and Income Fund Report on page 18 for details on specific stock
selection. (The Fund may invest up to 70% of its assets in stocks.)
The portion of the Fund invested in bonds (representing 29% of the
portfolio as of March 31, 1996) can include corporate issues, U.S. Government
securities, mortgage-backed obligations, and other fixed-income securities. At
least 75% of these securities will be securities rated within the three highest
quality ratings by Moody's Investor Services Inc. or Standard & Poor's,
independent rating organizations. (At all times, at least 30% of the Fund's
assets will be a combination of bonds and cash equivalents.) We continued to
favor intermediate-term bonds over the past six months in anticipation of a
steeper yield curve (short-term yields moving down faster than long-term
yields). The remaining 18% of the portfolio as of March 31, 1996 were invested
in cash equivalents.
CALLOUT
The Fund attempts to reduce share price fluctuation by following the strict
yield discipline of the AARP Growth and Income Fund in the stock section of the
portfolio, by investing in securities with varying maturities on the bond side,
and by maintaining a significant cash position.
We continue to believe that stocks will outperform bonds and cash over
the longer term and therefore a majority of the portfolio will continue to be
invested in stocks. While we are comfortable with our current asset allocation
of 53% stocks, 29% bonds, and 18% cash equivalents, this allocation may be
gradually changed depending upon our expectations for the financial markets.
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of March 31, 1996 CHART DATA:
Stocks 53%
Bonds 29%
Cash Equivalents 18%
----
100%
====
For Whom the
Fund is Designed
This Fund is designed for investors who are seeking long-term growth of their
assets, but who want less risk than an investment solely in stocks. Investors
should be able to invest for the longer term (three years or more) and be
comfortable with the value of their principal fluctuating up and down.
Portfolio
Management Team
Robert T. Hoffman
Lead Portfolio Manager
William M. Hutchinson
Benjamin W. Thorndike
Portfolio Managers
17
<PAGE>
AARP GROWTH AND INCOME FUND
---------------------------
FUND OVERVIEW
The AARP Growth and Income Fund is a conservatively managed stock fund that
provides the potential for long-term growth and quarterly income, while still
seeking to moderate risk. It invests in above-average dividend-yielding stocks
that may offer the opportunity for long-term growth of capital.
Total Return
------------
CUMULATIVE
FUND INDEX^+
---- -------
1 yr. 31.91% 32.10%
5 yr. 109.01% 98.22%
10 yr. 235.12% 269.70%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 31.91% 32.10%
5 yr. 15.89% 14.65%
10 yr. 12.85% 13.96%
How the Fund has Performed
The AARP Growth and Income Fund performed well over the past six
months. While providing a strong one-year total return of 31.91% (representing
3.62% in distributions of income and 28.29% in capital change), it slightly
underperformed the unmanaged Standard & Poor's Stock Price Index of 32.10%. The
Fund was able to perform well relative to the index for this one-year period,
and even outperform the index during the last six months. That was because the
stock market rally during the last six months was not driven by the technology
sector, as it was during the previous six months. Our strict valuation
discipline sometimes precludes us from investing in certain sectors of the
market, such as technology stocks, which are characterized by a high degree of
price volatility and minimal or nonexistent dividends.
It is important to note that 12-month returns for the Fund will vary
from year to year. However, by maintaining a long-term focus and staying
invested through good and bad times, your investment has the opportunity to grow
significantly over time. As the graph to the right shows, if you invested
$10,000 in the Fund on March 31, 1986, your investment would have grown to
$33,512. If you took your distributions in cash, your investment would have
grown to $19,391, and you would have received $6,696 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP Growth and Standard & Poor's
Income Fund 500 Stock Price Index^+
----------- -----------------------
1986 $10000 $10000
1987 11904 12620
1988 11070 11569
1989 12587 13668
1990 14022 16302
1991 16034 18652
1992 18397 20711
1993 21279 23865
1994 22443 24217
1995 25404 27987
1996 33512 36970
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Growth and Income Standard & Poor's 500
Fund Stock Price Index+
---- ------------------
1992 14.74% 11.03%
1993 15.67 15.22
1994 5.47 1.48
1995 13.20 15.57
1996 31.91 32.10
^+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
18
<PAGE>
The Fund's Recent Investment Strategy
As always, our strict valuation discipline focused our attention on
those companies whose fundamental outlooks may have been misperceived by
investors, as reflected by such stocks' higher-than-average dividend yields.
With this in mind, over the period covered by this Report, we continued to favor
the health, finance, and manufacturing sectors. The Fund's largest holding in
the financial sector-- the Student Loan Marketing Association (Sallie Mae) --
turned in an exceptional performance. Sallie Mae was a unique opportunity where
unfavorable political and corporate developments had driven the stock to a
depressed level by late 1994. We began to buy the stock at that time and it
became one of the Fund's largest holdings. Sallie Mae returned 108% in 1995.
Health stocks, such as Eli Lilly, Schering Plough, and Baxter, added to the
Fund's favorable performance as the profit outlook for the industry continues to
be strong. The portfolio also benefited significantly from the dramatic
outperformance of such durable goods holdings as United Technologies, Lockheed
Martin and Rockwell. These stocks appreciated significantly as the market
rewarded them for strong and sustainable earnings, cash flow and dividend
growth, and superior management.
Recently we have begun to reduce our exposure to some of these top
performers because we believe that their stocks are approaching fair valuation.
We have taken some profits in Sallie Mae, and trimmed several of our bank
holdings. We also reduced our position in Lockheed Martin and United
Technologies. Within the healthcare sector, we have taken partial profits from
Eli Lilly and Schering Plough. Proceeds from these sales were used to purchase
such companies as Zeneca and Bausch and Lomb -- two undervalued healthcare
stocks that we believe offer attractive total return prospects. We also
purchased some paper and forest products stocks such as Georgia Pacific and
Weyerhaeuser. We believe that their attractive valuations are already fully
discounting the possibility of a U.S. recession. (Please note that portfolio
changes should not be considered recommendations for action by individual
investors.)
CALLOUT
The Fund focuses on stocks with above-average dividends and sound fundamentals
to help reduce share price volatility.
In general, our focus on high dividend-paying stocks tends to lead us
in the direction of value investing. This has and should continue to benefit the
Fund over time as the market recognizes the intrinsic worth of individual
stocks. We think this is a good position to be in as the economy winds down and
market leadership becomes less driven by earnings.
PIE CHART TITLE: ASSET ALLOCATION - SECTORS OF EQUITY HOLDINGS
CHART PERIOD: As of March 1, 1996
CHART DATA:
Financial 20%
Manufacturing 18%
Health 12%
Consumer Staples 9%
Energy 9%
Durables 8%
Communications 7%
Consumer Discretionary 5%
Utilities 4%
Other 8%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is suitable for investors who are seeking long-term growth of their
assets and the opportunity to keep ahead of inflation. Investors should be able
to invest for at least three years or more and be comfortable with fluctuation
to the value of their principal that is associated with investing in stocks.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Lori J. Ensinger
Kathleen T. Millard
G. Todd Silva
Benjamin W. Thorndike
Portfolio Managers
19
<PAGE>
AARP GLOBAL GROWTH FUND
-----------------------
FUND OVERVIEW
The AARP Global Growth Fund seeks to offer long-term capital growth through a
globally diversified portfolio, and to keep the value of its shares more stable
than other global stock funds.
How the Fund has Performed
Because the AARP Global Growth Fund is so new, you will not find
performance information in this Report. However, you can all us at
1-800-253-2277 for more information.
Since the Fund was introduced in February, the portfolio management
team has concentrated on getting the Fund's assets invested. The portfolio is
currently broadly diversified among 17 countries, including the United States,
Germany, and the United Kingdom, and more than 70 different companies.
The Fund's Recent Investment Strategy
The strategy of the Fund is to develop global themes and search for the
appropriate stock values to represent them, rather than weight the portfolio
according to countries or economic sectors. For example, we target companies
with new technologies that secure large market shares and set the standards to
which other companies must conform. An example in the portfolio includes SAP, a
German-based software applications developer.
Another theme focuses on corporations that are changing their structure
in order to concentrate resources on their highest value-added activities. To
succeed, these companies will also need to control the entities to whom they
outsource. Our portfolio position in Xerox currently demonstrates the successful
application of this strategy. Given the world's demographics, we believe
pharmaceutical products and health providers will continue to thrive. We favor
companies such as Sandoz and Ciba-Geigy. (Please note that portfolio changes
should not be considered recommendations for action by individual investors.)
CALLOUT
The Fund seeks to offer less share price volatility than many global growth
funds by maintaining core holdings that are from well-established companies of
mature countries.
We expect to diversify the Fund's assets further in the coming months
and adhere to a "theme approach" of investing these assets. We also expect the
shareholders in this Fund to benefit from many global trends underway: the
global economy and capital markets in aggregate are functioning well; growth,
albeit moderate, is being achieved without inflation; and new technologies are
emerging and old industries are restructuring.
20
<PAGE>
PIE CHART TITLE: Asset Allocation -- Countries of Equity Holdings
CHART PERIOD: As of March 31, 1996
CHART DATA:
United States 29%
Germany 19%
United Kingdom 10%
Switzerland 8%
The Netherlands 6%
Japan 6%
Canada 5%
Sweden 5%
Brazil 3%
Other 9%
---
100%
====
PIE CHART TITLE: Asset Allocation -- Sectors of Equity Holdings
CHART PERIOD: As of March 31, 1996
CHART DATA:
Financial 21%
Manufacturing 21%
Metals and Minerals 13%
Service Industries 7%
Construction 6%
Utilities 6%
Consumer Staples 5%
Technology 5%
Media 4%
Other 12%
---
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund, which commenced operations on February 1, 1996, is suitable for
investors who want to add worldwide stock opportunities to their portfolio.
Investors should invest for the longer term (at least five years or more) and be
comfortable with the value of their principal fluctuating up and down. Because
the Fund invests globally, it will be affected by up and down movements in U.S.
and international stock markets. The Fund will also be subject to international
investments risks such as currency exchange risk.
Since the Fund is so new, the Growth of $10,000 Investment chart and the Annual
Investment Returns are not included.
PORTFOLIO
MANAGEMENT TEAM
William E. Holzer
Lead Portfolio Manager
Nicholas Bratt
Alice Ho
Portfolio Managers
21
<PAGE>
AARP CAPITAL GROWTH FUND
------------------------
FUND OVERVIEW
The AARP Capital Growth Fund is designed to help investors take advantage of the
high growth potential of stocks while attempting to keep the value of its shares
more stable than other potentially higher returning, higher risk capital growth
mutual funds.
Total Return
------------
CUMULATIVE
FUND INDEX^+
---- ------
1 yr. 30.75% 32.10%
5 yr. 79.05% 98.22%
10 yr. 205.56% 269.70%
AVERAGE ANNUAL
FUND INDEX^+
---- ------
1 yr. 30.75% 32.10%
5 yr. 12.36% 14.65%
10 yr. 11.82% 13.96%
How the Fund has Performed
The AARP Capital Growth Fund performed well over the past six months.
It provided a strong one-year total return of 30.75% (representing 1.30% in
distributions of income and 29.45% in capital change), although it
underperformed the unmanaged Standard & Poor's 500 Stock Price Index of 32.10%.
The Fund's objective to moderate share price fluctuation may cause it to
slightly underperform the index when the stock market strongly advances, as it
has over the past six months.
It is important to note that 12-month returns for the Fund will vary
from year to year. However, by maintaining a long-term focus and staying
invested through good and bad times, your investment has the opportunity to grow
significantly over time. As the graph to the right shows, if you invested
$10,000 in the Fund on March 31, 1986, your investment would have grown to
$30,556. If you took your distributions in cash, the value of your investment
would have grown to $18,351, and you would have received $6,500 in
distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP Capital Standard &
Growth Poor's 500 Stock
Fund Price Index^+
---- ------------
1986 $10000 $10000
1987 11752 12620
1988 1122 11569
1989 14779 13668
1990 15673 16302
1991 17066 18652
1992 19663 20711
1993 22063 23865
1994 22455 24217
1995 23370 27987
1996 30556 36970
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Capital Standard &
Growth Poor's 500 Stock
Fund Price Index^+
---- ------------
1992 15.22% 11.03%
1993 12.21 15.22
1994 1.78 1.48
1995 4.08 15.57
1996 30.75 32.10
^+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
22
<PAGE>
The Fund's Recent Investment Strategy
Over the past six months, we continued to emphasize our strategy of
maintaining a quality portfolio diversified across many economic sectors. The
top sectors include health, finance, and technology. Health and finance, in
particular, were two of the top performing sectors of the market in late 1995.
While we continue to believe that healthcare still exhibits promising growth
prospects, we reduced positions that we thought were fully valued near term,
such as Johnson & Johnson and Merck. During the past six months, we have
purchased economically sensitive stocks whose valuations are currently more
attractive such as Lockheed Martin, TRW, and AMR Corp. Lockheed Martin is a
manufacturer of aircraft and space equipment and TRW manufactures defense
electronics, automotive parts and systems.
We believe technology has been and will continue to be a fruitful
sector for above-average growth opportunities. Since technology stocks are
characterized by a high degree of share price volatility, we have focused our
investments in high-quality, top-tier companies such as Hewlett-Packard, Cisco
Systems and Applied Materials -- market leaders in their particular
technological niche. (Please note that portfolio changes should not be
considered recommendations for action by individual investors.)
CALLOUT
Through a broadly diversified portfolio consisting primarily of high quality,
medium- to large-sized companies with strong competitive positions in their
industries, the Fund seeks to offer less share price volatility than many growth
funds.
Given the uncertain outlook for economic growth and individual company
profits, we continue to emphasize quality companies such as Columbia Healthcare,
McDonald's and Fannie Mae, whose profits, in our opinion, are sustainable
through varying market conditions.
PIE CHART TITLE: ASSET ALLOCATION -- SECTORS OF EQUITY HOLDINGS
CHART PERIOD: As of March 31, 1996
CHART DATA:
Financial 16%
Technology 15%
Health 14%
Manufacturing 13%
Energy 9%
Consumer Discretionary 9%
Consumer Staples 5%
Durables 5%
Transportation 3%
Other 11%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors seeking long-term growth of their principal.
Investors should be able to invest for the longer term (five years or more) and
be comfortable with the short-term fluctuation of their principal that is
associated with investing in stocks.
PORTFOLIO
MANAGEMENT TEAM
William F. Gadsden
Lead Portfolio Manager
Bruce F. Beaty
Portfolio Manager
23
<PAGE>
I N V E S T M E N T P O R T F O L I O S,
F I N A N C I A L S T A T E M E N T S
A N D A D D I T I O N A L
I N F O R M A T I O N
24
<PAGE>
AARP HIGH QUALITY MONEY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 5.1%
5,000,000 Repurchase Agreement with State Street Bank and Trust Company
dated 3/29/96 at 5% to be repurchased at $5,002,083 on
4/1/96 collateralized by a $4,120,000
U.S. Treasury Bond, 8.75%, 5/15/17 ...................... 5,000,000
14,535,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/29/96 at 5.35% to be repurchased at $14,541,480 on
4/1/96 collateralized by a $14,600,000
U.S. Treasury Note, 5.625%, 1/31/98 ..................... 14,535,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $19,535,000) ............ 19,535,000
-----------
COMMERCIAL PAPER 43.5%
HEALTH 4.3%
Pharmaceuticals
6,500,000 Warner-Lambert Co., 5.45%, 5/6/96 ......................... 6,466,849
10,000,000 Warner-Lambert Co., 4.82%, 8/16/96 ........................ 9,801,050
-----------
16,267,899
-----------
COMMUNICATIONS 8.3%
Telephone/Communications
17,000,000 American Telephone & Telegraph Co., 5.13%, 7/17/96 ........ 16,735,310
15,000,000 Ameritech Corp., 5.24%, 6/24/96 ........................... 14,814,771
-----------
31,550,081
-----------
FINANCIAL 30.9%
Banks 2.5%
10,000,000 Deutsche Bank Financial Inc., 5.18%, 9/12/96 .............. 9,762,125
-----------
Insurance 3.9%
15,000,000 Prudential, 5.06%, 4/23/96 ................................ 14,951,795
-----------
Other Financial Companies 24.5%
10,000,000 American Express Credit Corp., 5%, 8/27/96 ................ 9,785,192
6,500,000 American General Finance Corp., 5.44%, 5/10/96 ............ 6,462,589
15,000,000 Associates Corp. of North America, 5.06%, 5/8/96 .......... 14,917,983
15,000,000 E.I. duPont de Nemours & Co., 5.25%, 5/16/96 .............. 14,899,374
17,000,000 Ford Motor Credit Corp., 5.23%, 4/11/96 ................... 16,975,303
10,000,000 Nestle Capital Corp., 5.33%, 4/3/96 ....................... 9,995,635
13,500,000 New Center Asset Trust Co., 5.23%, 8/13/96 ................ 13,237,256
7,000,000 PREFCO, 5.57%, 4/25/96 .................................... 6,975,548
-----------
93,248,880
-----------
TOTAL COMMERCIAL PAPER (COST $165,820,397) ................ 165,780,780
-----------
U.S. GOVERNMENT AGENCIES 34.5%
5,000,000 Federal Home Loan Bank, 5.31%, 12/12/96 ................... 4,993,750
17,000,000 Federal National Mortgage Association, 5.17%, 7/14/99* .... 16,770,500
25,000,000 Student Loan Marketing Association, 5.34%, 4/16/96* ....... 25,007,474
20,000,000 Student Loan Marketing Association, 5.49%, 11/27/96* ...... 20,045,600
38,690,000 Student Loan Marketing Association, 5.52%, 1/23/97* ....... 38,797,171
10,000,000 Student Loan Marketing Association, 5.47%, 10/30/97* ...... 9,992,500
16,250,000 Student Loan Marketing Association, 5.17%, 7/12/99* ....... 16,046,875
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST $131,959,640) ........ 131,653,870
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
25
<PAGE>
AARP HIGH QUALITY MONEY FUND
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
<S> <C>
MEDIUM-TERM AND SHORT-TERM NOTES 16.2%
FINANCIAL 13.1%
Banks
5,000,000 Comerica Bank, Note, 6.2%, 5/28/96 ..................... 5,004,848
8,000,000 FCC National Bank, Note, 5.8%, 10/10/96 ................ 8,009,541
12,000,000 Federal Farm Credit Bank, 4.81%, 7/30/96 ............... 11,792,040
10,000,000 J.P. Morgan & Co., Inc., 6.2%, 5/13/96 ................. 10,009,086
10,000,000 NBD Bank, NA Medium Term Note, 6.15%, 6/3/96 ........... 10,011,600
5,000,000 Pittsburgh National Bank, Note, 5.65%, 9/18/96 ......... 5,001,485
-----------
49,828,600
-----------
MANUFACTURING 2.0%
Electrical Products
7,765,000 General Electric Co. Global debenture, 7.875%, 5/1/96 .. 7,778,100
-----------
ENERGY 1.1%
Oilfield Services/Equipment
4,160,000 California Petroleum Transportation Corp. 1st Mortgage,
6.71%, 4/1/96 ........................................ 4,160,153
-----------
TOTAL MEDIUM-TERM AND SHORT-TERM NOTES (COST $61,752,903) 61,766,853
-----------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $379,067,940) (a) . 99.3 378,736,503
OTHER ASSETS AND LIABILITIES, NET .................. 0.7 2,483,791
----- -----------
NET ASSETS ......................................... 100.0 381,220,294
===== ===========
</TABLE>
* Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of the
U.S. Treasury bill rate. These securities are shown at their rate as of
March 31, 1996.
(a) At March 31, 1996, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $379,067,940 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ........................................ $ 167,983
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ........................................ (499,420)
---------
Net unrealized depreciation ................................................ $(331,437)
=========
</TABLE>
From November 1, 1994 through September 30, 1995, the Fund incurred
approximately $66,921 of net realized capital losses which the Fund intends to
elect to defer and treat as arising in the fiscal year ended September 30, 1996.
Percentage breakdown of investments is based on total net assets of the Fund.
The total net assets of the Fund are comprised of the Fund's investment
portfolio, other assets and liabilities. The percentage of the investment
portfolio may be greater or less than 100% due to the inclusion of the Fund's
assets and liabilities in the calculation. The Fund's other assets and
liabilities are disclosed in the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
26
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL INVESTMENTS 99.1%
ALASKA
Alaska Housing Finance Corp., General Mortgage Revenue,
Series 1991-A, Weekly Demand Note, 3.4%, 6/1/26* .............................. 3,000,000 A-1+ 3,000,000
ARIZONA
Apache County, AZ, Industrial Development Authority, Tucson Electric
Power Co., 1983 Series C, Weekly Demand Note, 3.4%, 12/15/18* ................. 1,000,000 A-1+ 1,000,000
Maricopa County, AZ, Pollution Control Revenue, Public Service of
New Mexico, Weekly Demand Note, 3.35%, 11/1/22 * .............................. 4,000,000 A-1+ 4,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.:
Weekly Demand Note, 3.4%, 10/1/22 * ........................................... 3,900,000 A-1 3,900,000
1982 Series A, Weekly Demand Note, 3.4%, 7/1/22 * ............................. 1,000,000 A-1+ 1,000,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly
Demand Note, 3.35%, 12/1/11 * ................................................. 1,900,000 A-1+ 1,900,000
Salt River Agricultural Improvement District, Tax Exempt Commercial
Paper, 3.25%, 8/9/96 .......................................................... 1,000,000 A-1+ 1,000,000
CALIFORNIA
California School, Cash Reserve Program Authority, 1995 Series A,
4.75%, 7/3/96 (c) ............................................................. 1,000,000 SP1+ 1,002,448
California State Revenue Anticipation Warrants, Series C, 5.75%, 4/25/96 ........ 4,500,000 SP-1 4,504,454
Fontana, CA, Unified School District, Tax and Revenue Anticipation Note,
4.5%, 7/5/96 .................................................................. 2,380,000 SP1+ 2,382,067
Los Angeles County, CA, Tax and Revenue Anticipation Note, 4.5%, 7/1/96 ......... 1,500,000 MIG1 1,502,513
Los Angeles County, CA, Local Educational Agencies Pool, Tax and
Revenue Anticipation Note, 4.75%, 7/5/96 ...................................... 2,000,000 SP1+ 2,003,238
South Coast, CA, Local Education Agencies, Pooled Tax and Revenue
Anticipation Note Program, 5%, 8/14/96 ........................................ 1,000,000 SP1+ 1,001,762
COLORADO
Clear Creek County, CO, Colorado Counties Financing Program,
Series 1988, Weekly Demand Note, 3.5%, 6/1/98 * ............................... 305,000 A-1+ 305,000
Colorado Health Facilities Authority, Composite Issue for Kaiser
Permanente, 1995 Series A, Weekly Demand Note, 3.4%, 8/1/15 * ................. 3,000,000 A-1+ 3,000,000
FLORIDA
Dade County, FL, Industrial Development Authority Revenue, Dolphins
Stadium Project:
Series C, Weekly Demand Note, 3.4%, 1/1/16* ................................. 1,000,000 A-1+ 1,000,000
Series D, Weekly Demand Note, 3.4%, 1/1/16* ................................. 1,300,000 A-1+ 1,300,000
Dade County, FL, Water and Sewer System Revenue, Series 1994,
Weekly Demand Note, 3.3%, 10/5/22* (c) ........................................ 2,300,000 A-1+ 2,300,000
Orlando, FL, Waste Water System Revenues, Series 1990 A, Tax Exempt
Commercial Paper, 3.4%, 9/5/96 ................................................ 2,000,000 A-1+ 2,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-1, Weekly Demand Note, 3.4%, 3/15/14* ............ 4,250,000 A-1+ 4,250,000
GEORGIA
Gordon County, GA, Development Authority Revenue, Sara Lee Corp.
Project, Series 1989, Weekly Demand Note, 3.45%, 3/1/02* ...................... 1,400,000 A-1+ 1,400,000
ILLINOIS
State of Illinois, Revenue Anticipation Certificates, Series 1995, 4.5%, 6/10/96 1,000,000 MIG1 1,002,253
INDIANA
City of Sullivan, IN, National Rural Utilities Cooperative Finance Corp.,
Hoosier Energy Rural Electric, Commercial Paper, 3.45%, 9/10/96 ............... 3,000,000 A-1+ 3,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
27
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public
Service, Variable Rate Demand Bond, 3.85%, 6/1/13* .................... 600,000 A-1+ 600,000
IOWA
Iowa School Corporation Warrant Certificates, Cash Anticipation Program:
Series B, 4.25%, 1/30/97 (c) .......................................... 1,750,000 SP1+ 1,761,970
Series A, Daily Demand Note, Capital Guaranty Insured, 4.75%, 6/28/96* 1,500,000 SP1+ 1,503,123
West Des Moines, IA, Commercial Development Revenue, Greyhound
Lines, Weekly Demand Note, 3.35%, 12/1/14* ............................ 6,400,000 A-1+ 6,400,000
KENTUCKY
Kentucky Development Finance Authority, Healthcare System, Appalachian
Regional Health Care, Series 1991, Weekly Demand Note, 3.45%, 9/1/06* . 7,300,000 MIG1 7,300,000
MAINE
State of Maine, Tax Anticipation Notes, Series 1994, 4.5%, 6/28/96 ............ 1,000,000 SP1+ 1,001,740
MARYLAND
Anne Arundel County, MD, Baltimore Gas and Electric, Tax Exempt
Commercial Paper, 3.3%, 4/24/96 ....................................... 1,000,000 A-1 1,000,000
Montgomery County, MD, General Obligation, Tax Exempt Commercial Paper,
3.2%, 4/11/96 ......................................................... 2,000,000 A-1+ 2,000,000
MICHIGAN
Michigan State General Obligation, Unlimited Tax Notes, 4%, 9/30/96 ........... 1,000,000 MIG1 1,004,897
MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982,
Weekly Demand Note, 3.57%, 8/1/12 * ................................... 300,000 A-1+ 300,000
MISSISSIPPI
Perry County, MS, Pollution Control Revenue, Leaf River Forest Products,
Daily Demand Note, 3.75%, 3/1/02* ..................................... 800,000 P1 800,000
MISSOURI
Missouri State Environmental Improvement and Energy Resource Authority, Union
Electric Company, 1984 Series A, Optional Put, 4%, 6/1/14 ............. 2,000,000 A-1+ 2,000,000
NEVADA
Clark County, NV, Airport System, McCarran International Airport, Series A,
Weekly Demand Note, 3.3%, 7/1/12* (c) ................................. 3,000,000 A-1 3,000,000
NEW HAMPSHIRE
New Hampshire Business Finance Authority, Connecticut Light & Power,
Weekly Demand Note, 3.35%, 12/1/22* ................................... 1,700,000 A-1+ 1,700,000
NEW YORK
New York City, NY, Revenue Anticipation Note, 4.5%, 4/11/96 ................... 2,000,000 MIG1 2,000,342
PENNSYLVANIA
Allegheny County, PA, General Obligation, Tender Option Bond,
Weekly Coupon Reset, Series C38, 3.4%, 9/1/04* (c) .................... 1,000,000 MIG1 1,000,000
Emmaus, PA, General Authority, Local Government Revenue Bond Pool Program:
1989 Series E, Weekly Demand Note, 3.45%, 3/1/24* ..................... 1,800,000 A-1 1,800,000
1989 Series E-6, Weekly Demand Note, 3.4%, 3/1/24* .................... 2,000,000 A-1+ 2,000,000
1989 Series E-8, Weekly Demand Note, 3.4%, 3/1/24* .................... 1,200,000 A-1+ 1,200,000
1989 Series G, Weekly Demand Note, 3.4%, 3/1/24* ...................... 200,000 A-1+ 200,000
Pennsylvania Higher Education Facilities Authority, Temple University,
Series 1995, 5%, 5/22/96 .............................................. 2,000,000 SP1+ 2,001,870
TENNESSEE
Franklin, TN, Industrial Development Revenue, Franklin Oaks Apartments,
Weekly Demand Note, 3.3%, 12/1/07* .................................... 5,000,000 MIG1 5,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
28
<PAGE>
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS
Lone Star, TX, Airport Improvement Authority, 1995 Series A-3,
Daily Demand Note, 3.8%, 12/1/14* ................................ 200,000 MIG1 200,000
Port Development Corp., TX, Marine Terminal Refunding Revenue, Stolt
Terminals, Series 1989, Weekly Demand Note, 3.3%, 1/15/14* ....... 2,500,000 A-1+ 2,500,000
San Antonio, TX, Electric and Gas, City Public Services, Series 1995 A,
Tax Exempt Commercial Paper, 3.05%, 10/25/96 ..................... 1,500,000 A-1+ 1,500,000
San Antonio, TX, Water System Revenue, Series 1995, Tax Exempt
Commercial Paper, 3.4%, 8/22/96 .................................. 1,000,000 A-1+ 1,000,000
State of Texas, Tax and Revenue Anticipation Notes, 4.75%, 8/30/96 ....... 2,800,000 SP1+ 2,808,302
State of Texas, General Obligation, Veterans Housing Assistance
Refunding Bonds, Series 1995, Weekly Demand Note, 3.3%, 12/1/16* . 1,500,000 A-1+ 1,500,000
WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note,
3.3%, 11/1/18* ................................................... 1,900,000 A-1+ 1,900,000
Washington General Obligation, Various Purpose, Series B-2, Topstar
Custodial Receipts, Weekly Demand Note, 3.4%, 8/1/02* ............ 2,100,000 A-1+ 2,100,000
Washington Healthcare Facilities Authority, Yakima Valley Memorial
Hospital Association, Series 1996, 3.6%, 12/1/96 ................. 800,000 AAA 800,000
Washington Public Power Supply Authority, Projects #1 & #3,
Series 1993, Weekly Demand Note, 3.200%, 7/1/18* ................. 1,995,000 A-1+ 1,995,000
Washington Public Power Supply System, Nuclear Project #1, Series 1993B,
4.1%, 7/1/96 ..................................................... 1,225,000 AA 1,226,900
WISCONSIN
Milwaukee, WI, Promissory Notes, General Obligation, Series 1996 B-6,
3.8%, 2/15/97 .................................................... 1,495,000 AA 1,503,281
WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding, Pacificorp
Project, 1990 Series A, Weekly Demand Note, 3.4%, 7/1/15* ........ 2,000,000 MIG1 2,000,000
-----------
TOTAL MUNICIPAL INVESTMENTS (COST $114,361,160) 114,361,160
-----------
% OF NET
SUMMARY ASSETS
TOTAL INVESTMENT PORTFOLIO (COST $114,361,160) (a).................. 99.1 114,361,160
OTHER ASSETS AND LIABILITIES, NET................................... 0.9 1,004,087
----- -----------
NET ASSETS.......................................................... 100.0 115,365,247
===== ===========
</TABLE>
* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of the
U.S. Treasury bill rate. Variable rate demand notes are securities whose
interest rates are reset periodically at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit or line of credit from a major bank. Since these securities
are payable on demand, they are valued at 100% of their principal.
(a) At March 31, 1996, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $114,570,635 was as follows:
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value.................. $(209,475)
=========
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings
shown are either Standard & Poor's Ratings Group, Moody's Investors Service,
Inc. or Fitch Investors Service, Inc. Unrated securities (NR) and securities
rated by Scudder (SS&C) have been determined to be of comparable quality to
rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA, or MBIA.
The accompanying notes are an integral part of the financial statements
29
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
At September 30, 1995, and to the extent provided in regulations, the Fund had
capital loss carryforwards of approximately $1,221,584 of which $618,345 expires
September 30, 1996, $170,432 expires September 30, 1997, $19,559 expires
September 30, 1999, $323,801 expires September 30, 2000, $401 expires September
30, 2001, $89,046 expires September 30, 2003. In addition, from November 1, 1994
through September 30, 1995, the Fund incurred approximately $5,140 of net
realized capital losses which the Fund intends to elect to defer and treat as
arising in the fiscal year ended September 30, 1996.
Percentage breakdown of investments is based on total net assets of the Fund.
The total net assets of the Fund are comprised of the Fund's investment
portfolio, other assets and liabilities. The percentage of the investment
portfolio may be greater or less than 100% due to the inclusion of the Fund's
assets and liabilities in the calculation. The Fund's other assets and
liabilities are disclosed in the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
30
<PAGE>
AARP FNMA AND U.S. TREASURY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 0.7%
34,918,000 Repurchase Agreement with State Street Bank and Trust
Company dated 3/29/96 at 5.15% to be repurchased at
$34,932,986 on 4/1/96, collateralized by a
$36,070,000 U.S. Treasury Bill, 6/27/96,
(COST $34,918,000) .................................. 34,918,000
-------------
U.S. TREASURY OBLIGATIONS 29.1%
150,000,000 U.S. Treasury Note, 6.875%, 10/31/96 ................. 151,266,000
150,000,000 U.S. Treasury Note, 4.75%, 2/15/97 ................... 149,086,500
300,000,000 U.S. Treasury Note, 6.625%, 3/31/97 .................. 303,186,000
200,000,000 U.S. Treasury Note, 5.625%, 8/31/97 .................. 199,844,000
175,000,000 U.S. Treasury Note, 6.125%, 5/15/98 .................. 176,011,500
268,000,000 U.S. Treasury Note, 5%, 1/31/99 ...................... 261,592,120
250,000,000 U.S. Treasury Note, 5.5%, 2/28/99 .................... 247,147,500
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $1,494,088,360) 1,488,133,620
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 69.6%
833,316,460 6.50% with various maturities to 10/15/25 ............ 789,350,265
1,050,515,001 7.00% with various maturities to 11/15/25 ............ 1,023,565,759
60,437,329 7.50% with various maturities to 9/15/22 ............. 60,635,951
202,582,589 8.00% with various maturities to 7/15/24 ............. 207,461,859
223,648,091 8.50% with various maturities to 9/15/22 ............. 234,543,672
504,383,170 9.00% with various maturities to 11/15/25 ............ 538,712,558
344,392,434 9.50% with various maturities to 9/15/24 ............. 373,695,815
259,222,839 10.00% with various maturities to 3/15/25 ............ 286,565,357
208,493 10.25% with various maturities to 12/15/98 ........... 217,222
22,645,727 10.50% with various maturities to 1/20/21 ............ 24,870,958
5,060,232 11.50% with various maturities to 2/15/16 ............ 5,727,254
9,268,659 12.00% with various maturities to 9/15/15 ............ 10,640,209
6,972,43 12.50% with various maturities to 8/15/15 ............ 8,107,983
1,781,662 13.00% with various maturities to 11/15/15 ........... 2,091,809
1,002,780 13.50% with various maturities to 12/15/14 ........... 1,193,148
336,216 14.00% with various maturities to 11/15/14 ........... 406,236
96,312 14.50% with various maturities to 10/15/14 ........... 116,867
255,549 15.00% with various maturities to 10/15/12 ........... 309,007
325,676 16.00% with various maturities to 2/15/12 ............ 383,991
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COST $3,549,159,375) .............................. 3,568,595,920
-------------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $5,078,165,735)(a) 99.4 5,091,647,540
OTHER ASSETS AND LIABILITIES, NET .................. 0.6 29,432,387
----- -------------
NET ASSETS ......................................... 100.0 5,121,079,927
===== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
31
<PAGE>
AARP FNMA AND U.S. TREASURY FUND
* Effective maturities will be shorter due to amortization and prepayments.
(a) At March 31, 1996, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $5,078,165,735 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ......................................................... $ 57,942,542
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value ............................................................ (44,460,737)
-------------
Net unrealized appreciation ...................................... $ 13,481,805
=============
</TABLE>
Purchases and sales of investment securities, all of which were U.S. Government
obligations and U.S. Government Agencies (excluding short-term investments), for
six months ended March 31, 1996, aggregated $1,829,665,187 and $1,445,069,328,
respectively.
At September 30, 1995, and to the extent provided in regulations, the Fund had
capital loss carryforwards of approximately $348,540,975 all of which expires
September 30, 2003. In addition, from November 1, 1994 through September 30,
1995, the Fund incurred approximately $10,756,284 of net realized capital losses
which the Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1996.
Percentage breakdown of investments is based on total net assets of the Fund.
The total net assets of the Fund are comprised of the Fund's investment
portfolio, other assets and liabilities. The percentage of the investment
portfolio may be greater or less than 100% due to the inclusion of the Fund's
assets and liabilities in the calculation. The Fund's other assets and
liabilities are disclosed in the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
32
<PAGE>
AARP HIGH QUALITY BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER 17.0%
26,211,795 American Express Credit Corp., 5.4%, 4/1/96 ................. 26,211,795
26,211,795 Associates Corp. of North America, 5.4%, 4/1/96 ............. 26,211,795
11,496,413 Ford Motor Credit Co., 5.38%, 4/1/96 ........................ 11,496,413
26,210,795 Household Finance Corp., 5.4%, 4/1/96 ....................... 26,210,795
-----------
TOTAL COMMERCIAL PAPER (COST $90,130,797) ................... 90,130,798
-----------
U.S. TREASURY OBLIGATIONS 28.3%
30,000,000 U.S. Treasury Note, 6.75%, 5/31/99 .......................... 30,646,800
25,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ......................... 25,652,250
25,000,000 U.S. Treasury Note, 6.875%, 8/31/99 ......................... 25,656,250
22,500,000 U.S. Treasury Note, 6.375%, 1/15/00 ......................... 22,770,675
15,000,000 U.S. Treasury Note, 6.25%, 5/31/00 .......................... 15,093,750
30,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ......................... 30,018,600
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $152,054,689) ......... 149,838,325
-----------
U.S. GOVERNMENT AGENCY PASS-THRUS* 31.8%
24,480,503 Federal Home Loan Mortgage Corp., 6.5%, 1/1/26 .............. 23,271,656
7,493,821 Federal National Mortgage Association, 8%, 5/1/07 ........... 7,725,605
10,484,618 Federal National Mortgage Association, 8.5%, 11/1/09 ........ 10,939,965
19,645,281 Federal National Mortgage Association, 6.5%, 2/1/24 ......... 18,650,640
30,000,000 Federal National Mortgage Association, 7%, 3/1/24 ........... 29,231,100
6,914,076 Federal National Mortgage Association, 6.5%, 10/1/25 ........ 6,564,016
29,460,695 Federal National Mortgage Association, 6.5%, 11/1/25 ........ 27,969,100
40,956,071 Government National Mortgage Association, 9%, 2/15/21 ....... 43,724,702
-----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS (COST $168,783,903) . 168,076,784
-----------
FOREIGN BONDS - U.S.$ DENOMINATED 5.4%
15,000,000 Abbey National PLC, Global Medium Term Note, 6.69%, 10/17/05 14,625,000
15,000,000 Province of Ontario, Global Medium Term Note, 6%, 2/21/06 ... 14,061,150
-----------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $29,928,700) .. 28,686,150
-----------
ASSET BACKED 0.9%
MANUFACTURED HOUSING
4,500,000 Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D,
9.85%, 7/15/11 (COST $4,459,219) ............................ 4,723,560
-----------
CORPORATE BONDS 20.3%
CONSUMER STAPLES 3.2%
15,000,000 Coca Cola Enterprises, Inc., 8.5%, 2/1/22 ................... 16,720,650
-----------
FINANCIAL 4.1%
1,500,000 American Express Credit Corp., 11.625%, 12/12/00 ............ 1,657,500
20,000,000 Fleet Financial Group Inc., 6%, 10/26/98 .................... 19,923,600
-----------
21,581,100
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
33
<PAGE>
AARP HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------
<S> <C>
MANUFACTURING 2.4%
10,000,000 ARCO Chemical Co., 9.8%, 2/1/20 ........................... 12,470,700
-----------
TECHNOLOGY 2.6%
15,000,000 International Business Machines Corp., 7%, 10/30/45 ....... 13,979,400
-----------
ENERGY 6.3%
15,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 .................... 17,944,950
15,000,000 Norsk Hydro AS, 7.75%, 6/15/23 ............................ 15,368,550
-----------
33,313,500
-----------
UTILITIES 1.7%
10,000,000 Public Service Electric & Gas Co., 1st Refunding Mortgage,
6.25%, 1/1/07 ............................................. 9,314,400
-----------
TOTAL CORPORATE BONDS (COST $107,123,958) ................. 107,379,750
-----------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $552,481,266) (a) .. 103.7 548,835,367
OTHER ASSETS AND LIABILITIES, NET ................... (3.7) (19,717,984)
----- -----------
NET ASSETS .......................................... 100.0 529,117,383
===== ===========
<FN>
* Effective maturities will be shorter due to amortization
and prepayments.
(a) At March 31, 1996, the net unrealized depreciation on
investments based on cost for federal income tax
purposes of $552,481,266 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ........................................................... $ 2,932,523
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value .............................................................. (6,578,422)
------------
Net unrealized depreciation ........................................ $ (3,645,899)
============
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1996 was $1,340,675,474 and $1,340,675,474,
respectively.
For the six months ended March 31, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $74,533,500 and
$53,358,630, respectively. Purchases and sales of U.S. Government
obligations and U.S. Government Agencies aggregated $415,460,419 and
$443,696,208, respectively.
At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $8,691,826 which expires
September 30, 2003. In addition, from November 1, 1994 through September 30,
1995, the Fund incurred approximately $1,533,583 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in the
fiscal year ended September 30, 1996.
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
34
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS (Under 1 year) - 6.2%
ALABAMA
Phenix City, AL, Industrial Development Bond, Mead Coated Board Project,
Daily Demand Note, 3.85%, 10/1/25* ................................. 2,100,000 A-1 2,100,000
CALIFORNIA
State of California Revenue Anticipation Warrants:
Series C, 5.75%, 4/25/96 ........................................... 15,000,000 SP-1 15,019,800
Series D, 6.5%, 4/25/96 ............................................ 5,000,000 SP-2 5,005,900
Irvine, CA, Improvement Bond, Assessment District 89-10, Daily
Demand Bond, 3.5%, 9/2/15* ......................................... 100,000 MIG-1 100,000
DELAWARE
Wilmington DE, Hospital Revenue, Franciscan Health System, Series B,
Daily Demand Note, 3.8%, 7/1/11* ................................... 400,000 A-1+ 400,000
DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Refunding Bonds:
Series A-2, Daily Demand Note, 3.85%, 10/1/07* ..................... 100,000 MIG-1 100,000
Series A-6, Daily Demand Note, 3.85%, 10/1/07* ..................... 400,000 MIG-1 400,000
FLORIDA
Halifax Hospital Medical Center, FL, Hospital Revenue, Auction Reset
Security, Series A, 3.9%, 10/1/19 (c) .............................. 10,000,000 AAA 10,000,000
ILLINOIS
Illinois Educational Facilities Authority, University Pooled Finance Program,
Weekly Demand Note, 4.35%, 12/1/05* (c) ............................ 9,325,000 MIG-1 9,325,000
Illinois Health Facilities Authority Rush Presbyterian, Series 1989 A, Tax
Exempt Commercial Paper, 3.1%, 4/8/96 .............................. 1,100,000 A-1+ 1,100,000
KANSAS
Burlington, KS, Environmental Improvement Revenue, Kansas City
Power & Light, Series B, Municipal Auction Security, 3.47%, 12/1/23 5,000,000 A 5,000,000
LOUISIANA
Louisiana Public Facilities Authority, Industrial Development Authority,
Daily Demand Note, 3.85%, 12/1/15* ................................. 400,000 P-1 400,000
Louisiana Recovery District, Sales Tax Revenue Bonds, Series 1988,
Daily Demand Note, 3.8%, 7/1/97* (c) ............................... 2,200,000 MIG-1 2,200,000
MASSACHUSETTS
Commonwealth of Massachusetts, General Obligation, Dedicated Income Tax:
Series B, Daily Demand Note, 3.5%, 12/1/97* ........................ 1,300,000 MIG-1 1,300,000
Series E, Daily Demand Note, 3.5%, 12/1/97* ........................ 300,000 MIG-1 300,000
MICHIGAN
Michigan State Strategic Funds, Pollution Control Revenue:
Consumers Power Company, Series 1988 A, Daily Demand Note,
3.7%, 4/15/18* ................................................... 300,000 P-1 300,000
Detroit Edison, Daily Demand Note, 3.65%, 9/1/30* .................. 6,100,000 A-1+ 6,100,000
MINNESOTA
Regents of the University of Minnesota, Series 1996 A, Tax Exempt
Commercial Paper, 3.15%, 4/4/96 .................................... 1,000,000 A-1+ 999,980
MISSISSIPPI
Jackson County, MI, Chevron USA Project, Pollution Control Revenue Bonds,
Daily Demand Notes, 3.7%, 12/1/16* ................................. 600,000 MIG-1 600,000
NEW YORK
New York City, NY, Municipal Water Finance Authority:
Series C, Daily Demand Note, 3.8%, 6/15/23* (c) .................... 10,200,000 AAA 10,200,000
Series 4, Tax Exempt Commercial Paper, 3.35%, 5/3/96 ............... 3,400,000 AA-2 3,400,000
</TABLE>
The accompanying notes are an integral part of the financial statements
35
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1994 G, Variable Rate Demand Note, 3.7%, 6/15/24* (c) ......... 3,500,000 MIG-1 3,500,000
New York City, NY, General Obligation, Series A-4, Daily Demand Note,
3.85%, 8/1/22* ....................................................... 800,000 P-1 800,000
New York State Energy Research and Development, Brooklyn Union Gas,
Select Auction Variable Rate Securities, Series 1993, 3.45%, 4/1/20 .. 10,000,000 A 10,000,000
TENNESSEE
Clarksville, TN, Public Building Authority, Pooled Financing Revenue,
Series 1990, Weekly Demand Note, 3.05%, 12/1/00* (c) ................. 1,100,000 AAA 1,100,000
Metropolitan Nashville Airport Authority, TN, Special Facilities Authority,
Daily Demand Note, 3.8%, 10/1/12* .................................... 500,000 A-1+ 500,000
TEXAS
Brazos, TX, Harbor Industrial Development Corporation, Dow Chemical Co.,
Tax Exempt Commercial Paper, 3.15%, 5/8/96 ........................... 3,500,000 P-1 3,500,000
Grapevine, TX, Industrial Development Authority Corp.:
Series A1, Daily Demand Notes, 3.8%, 12/1/24* ........................ 100,000 P-1 100,000
Series B1, Daily Demand Notes, 3.8%, 12/1/24* ........................ 400,000 P-1 400,000
Lone Star, TX, Airport Improvement Authority, Series 1984 B1, Daily
Demand Bond, 3.8%, 12/1/14* .......................................... 600,000 MIG-1 600,000
Texas Tax and Revenue Anticipation Notes, 4.75%, 8/30/96 ..................... 8,000,000 SP-1+ 8,042,880
VIRGINIA
Henrico County, VA, Industrial Development Authority, Health Facility,
Hermitage Project, Daily Demand Note, 3.85%, 5/1/24* ................. 200,000 MIG-1 200,000
Peninsula Port Authority of Virginia, Shell Oil, Daily Demand Note,
3.75%, 12/1/05* ...................................................... 400,000 AAA 400,000
WASHINGTON
Washington Health Care Facilities Authority, Fred Hutchinson Cancer
Research Center, Series A, Daily Demand Note, 3.85%, 1/1/18* ......... 575,000 MIG-1 575,000
WYOMING
Lincoln County, WY, Pollution Control Revenue, Exxon Project:
Series 1984 A, Daily Demand Note, 3.8%, 11/1/14* ..................... 500,000 A-1+ 500,000
Series 1984 B, Daily Demand Note, 3.8%, 11/1/14* ..................... 1,000,000 A-1+ 1,000,000
Daily Demand Note, 3.8%, 8/1/15* ..................................... 700,000 A-1+ 700,000
Sweetwater County, WY, Pollution Control Revenue, PACIFICORP
Project, Series 1984, Daily Demand Note, 3.7%, 12/1/14* .............. 700,000 A-1+ 700,000
Uinta County, WY, Pollution Control Revenue, Chevron U.S.A. Project,
Daily Demand Note, Series 1993, 3.7%, 8/15/20* ....................... 3,100,000 P-1 3,100,000
-----------
Total Short-Term Municipal Investments (COST $110,031,433) ................... 110,068,560
-----------
LONG-TERM MUNICIPAL INVESTMENTS (Over 1 year) - 93.4%
ALASKA
Alaska State Housing Finance Corp., Veterans Mortgage Project,
GNMA Collateralized, Series F, 8.1%, 9/1/20 .......................... 6,050,000 AAA 6,350,080
Anchorage, AK, Electric Utility Revenue, Senior Lien, 6.5%, 12/1/07 (c) ...... 2,620,000 AAA 2,927,169
North Slope Borough, AK, General Obligation:
Capital Appreciation, Series A, Zero Coupon, 6/30/06 (c) ............. 4,000,000 AAA 2,323,280
Capital Appreciation, Series B, Zero Coupon, 6/30/04 (c) ............. 15,500,000 AAA 10,090,035
Capital Appreciation, Series B, Zero Coupon, 6/30/05 (c) ............. 25,600,000 AAA 15,678,208
Series B, Zero Coupon, 1/1/03 (c) .................................... 16,000,000 AAA 11,483,840
ARIZONA
Arizona Municipal Finance Program, Certificate of Participation, Series 25,
7.875%, 8/1/14 (c) ................................................... 3,500,000 AAA 4,485,565
Maricopa County, AZ:
School District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/04
(c) ................................................................ 6,000,000 AAA 4,084,680
</TABLE>
The accompanying notes are an integral part of the financial statements
36
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
School District #6, Washington Elementary, Series B, 4.1%, 7/1/13 (c) ... 2,950,000 AAA 2,440,801
School District #41, Gilbert School, Capital Appreciation Refunding,
Zero Coupon, 1/1/05 (c) ......................................... 5,280,000 AAA 3,391,555
Unified School District #68, Alhambra Elementary, Zero Coupon:
7/1/03 (c) ...................................................... 2,860,000 AAA 1,995,880
7/1/04 (c) ...................................................... 2,860,000 AAA 1,884,111
7/1/05 (c) ...................................................... 2,850,000 AAA 1,768,938
Scottsdale, AZ, Industrial Development Authority, Scottsdale Memorial Hospital,
8.5%, 9/1/17 (c) ........................................................ 1,050,000 AAA 1,127,039
CALIFORNIA
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/09 (c) ...................................................... 10,415,000 AAA 10,351,052
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/19 (c) .......................................................... 960,000 AAA 1,239,418
8%, 1/1/19 (c) .......................................................... 1,080,000 AAA 1,394,345
California Housing Finance Agency Revenue:
5.3%, 8/1/14 (c) ........................................................ 4,000,000 AAA 3,930,200
5.7%, 8/1/16 (c) ........................................................ 7,210,000 AAA 7,048,208
California State Department of Water Resources, Central Valley Project,
Series M, 4.9%, 12/1/09 (c) ............................................. 4,485,000 AAA 4,227,561
California State Public Works Board, Lease Revenue:
Department of Corrections:
Del Norte/Imperial, Series 1993 C, 5%, 12/1/07 (c) .............. 6,000,000 AAA 5,900,700
Series A, 5.25%, 12/1/07 (c) .................................... 9,000,000 AAA 8,991,540
Series A, 5.25%, 12/1/08 (c) .................................... 3,000,000 AAA 2,983,320
Secretary of State, Series A, 6.3%, 12/1/06 (c) ......................... 8,095,000 AAA 8,914,214
California Statewide Communities Development Corporation,
Certificate of Participation, Children's Hospital, 5%, 6/1/06 (c) ....... 2,035,000 AAA 2,010,926
Escondido, CA, Joint Powers Financing Authority, Lease Revenue, Capital
Appreciation, Center for the Arts Projects, Zero Coupon, 9/1/05 (c) ..... 3,255,000 AAA 1,981,091
Irvine Ranch, CA, Water District, Joint Powers Agency, 7.875%, 2/15/23 .......... 3,000,000 A 3,159,660
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/06 (c) .................. 9,000,000 AAA 9,690,300
Los Angeles County, CA, Convention & Exhibition Center Authority:
Certificate of Participation, Zero Coupon, 8/15/02 (c) .................. 5,000,000 AAA 3,640,000
Certificate of Participation, Zero Coupon, 8/15/03 (c) .................. 6,270,000 AAA 4,311,754
Los Angeles County, CA, Public Works Finance Authority, Lease
Revenue, Multiple Projects IV, 4.75%, 12/1/10 (c) ....................... 11,140,000 AAA 10,158,566
Madera County, CA, Certificates of Participation, Valley Children's
Hospital Project, Series 1995, 6.5%, 3/15/10 (c) ........................ 2,840,000 AAA 3,102,558
Oakland, CA, Redevelopment Agency, Tax Allocation, 6%, 2/1/07 (c) ............... 2,000,000 AAA 2,137,980
Palomar Pomerado, CA, Health Systems, Series B, Zero Coupon, 11/1/02 (c) ........ 3,080,000 AAA 2,233,092
Riverside, CA, Transportation Commission, Sales Tax Revenue:
Series A, 5.7%, 6/1/06 (c) .............................................. 5,400,000 AAA 5,649,858
Series A, 5.75%, 6/1/07 (c) ............................................. 3,000,000 AAA 3,140,850
San Diego County, CA, Regional Transportation, Community Sales Tax Revenue,
Series A, 5.25%, 4/1/07 (c) ............................................. 2,500,000 AAA 2,497,925
San Diego Water Authority, CA, Certificate of Participation:
5.632%, 4/25/07 (c) ..................................................... 6,300,000 AAA 6,472,053
5.681%, 4/22/09 (c) ..................................................... 4,500,000 AAA 4,574,565
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue Refunding,
6.75%, 7/1/10 (c) ....................................................... 2,000,000 AAA 2,274,420
San Joaquin, CA, Certificate of Participation, County Public Facilities Project,
5.5%, 11/15/13 (c) ...................................................... 2,000,000 AAA 1,962,260
State of California General, General Obligation, 6.4%, 2/1/06 (c) ............... 4,500,000 AAA 4,962,465
</TABLE>
The accompanying notes are an integral part of the financial statements
37
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sweetwater, CA, Water Revenue, 5.25%, 4/1/10 (c) ............................... 13,240,000 AAA 12,944,880
Three Valleys Municipal Water District, Certificates of Participation,
5%, 11/1/14 (c) ........................................................ 3,000,000 AAA 2,725,830
Whittier, CA, Presbyterian Intercommunity Hospital, Health Facilities Revenue,
6.25%, 6/1/08 (c) ...................................................... 1,780,000 AAA 1,940,129
COLORADO
Castle Rock Ranch, CO, Public Facilities Revenue, Series 1996:
6.3%, 12/1/07 .......................................................... 3,115,000 AA 3,258,913
6.4%, 12/1/08 .......................................................... 3,310,000 AA 3,470,998
6.375%, 12/1/11 ........................................................ 2,000,000 AA 2,040,600
DISTRICT OF COLUMBIA
District of Columbia, General Obligation:
Series A1, 6.5%, 6/1/10 (c) ............................................ 2,270,000 AAA 2,526,828
Refunding, 1993 Series B, 5.875%, 6/1/05 (c) ........................... 4,750,000 AAA 4,931,973
Series A, Prerefunded 6/1/99 at 102, 7.5%, 6/1/09 (c)*** ............... 5,000,000 AAA 5,556,700
Series B, Zero Coupon, 6/1/00 (c) ...................................... 3,500,000 AAA 2,863,385
Series B, 6.125%, 6/1/03 (c) ........................................... 4,000,000 AAA 4,233,520
Series B, 5.4%, 6/1/06 (c) ............................................. 18,905,000 AAA 18,801,212
Series B, 5.4%, 6/1/06 (c) ............................................. 10,000,000 AAA 9,945,100
Series B, 5.5%, 6/1/07 (c) ............................................. 25,000,000 AAA 24,936,000
Series B, 5.5%, 6/1/08 (c) ............................................. 21,300,000 AAA 21,111,921
Series B, 5.5%, 6/1/09 (c) ............................................. 15,150,000 AAA 14,953,353
Series B, 5.5%, 6/1/09 (c) ............................................. 2,840,000 AAA 2,803,137
Series B, 5.5%, 6/1/10 (c) ............................................. 15,590,000 AAA 15,258,713
Series B, 5.5%, 6/1/12 (c) ............................................. 1,050,000 AAA 1,011,812
District of Columbia, Georgetown University, 7.1%, 4/1/12 ...................... 3,000,000 A 3,209,880
FLORIDA
Florida Department of Environmental Preservation, Series A, 4.75%, 7/1/12 ...... 10,000,000 AAA 8,913,200
Florida Municipal Power Agency, Stanton II Project, 4.5%, 10/1/16 .............. 4,400,000 AAA 3,682,008
Orange County, FL, Health Facilities Authority Refunding Program,
1985 Series A, 7.875%, 12/1/25 (c) ..................................... 16,880,000 AAA 17,786,456
Orlando, FL, Utility Commission, Water & Electric Refunding Revenue,
5.9%, 10/1/08 .......................................................... 4,000,000 AA 4,249,040
Sarasota County, FL, School Board Finance Corp., Lease Revenue:
Refunding Revenue, 5%, 7/1/09 (c) ...................................... 5,595,000 AAA 5,389,719
5%, 7/1/10 (c) ......................................................... 5,750,000 AAA 5,473,425
GEORGIA
Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%, 4/1/11 (c) .. 5,305,000 AAA 5,337,095
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central Georgia,
Series C, 5.25%, 8/1/11 (c) ............................................ 10,225,000 AAA 9,941,052
Municipal Electric Authority of Georgia:
5th Crossover, Project #1, 6.4%, 1/1/13 (c) ............................ 3,500,000 AAA 3,801,420
Power Revenue, 5.5%, 1/1/12 (c) ........................................ 1,600,000 AAA 1,583,248
Putnam County, GA, 7.25%, 7/1/21 (c) ........................................... 3,000,000 AAA 3,083,760
ILLINOIS
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue:
Zero Coupon, 5/1/02 (c) ................................................ 2,245,000 AAA 1,659,998
5.3%, 5/1/06 (c) ....................................................... 2,120,000 AAA 2,143,002
5.4%, 5/1/07 (c) ....................................................... 2,280,000 AAA 2,293,498
Chicago O'Hare International Airport, IL, Revenue Refunding,
Series C, 5%, 1/1/11 (c) ............................................... 6,500,000 AAA 6,117,540
Chicago, IL, Board of Education, 6.125%, 1/1/06 (c) ............................ 4,000,000 AAA 4,286,240
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/09 (c) ....................................................... 11,990,000 AAA 12,010,743
</TABLE>
The accompanying notes are an integral part of the financial statements
38
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5.5%, 1/1/10 (c) ...................................................... 7,220,000 AAA 7,178,052
Chicago, IL, School Finance Authority ,Series A, 5%, 6/1/09 (c) ............... 5,425,000 AAA 5,167,855
Chicago, IL, General Obligation:
6.25%, 1/1/11 (c) ..................................................... 3,000,000 AAA 3,234,540
Emergency Telephone System, 5.55%, 1/1/08 (c) ......................... 5,820,000 AAA 5,925,167
Series A, 5.375%, 1/1/13 (c) .......................................... 15,410,000 AAA 14,856,473
Series B, 5%, 1/1/08 (c) .............................................. 3,485,000 AAA 3,391,149
Series B, 5%, 1/1/10 (c) .............................................. 5,200,000 AAA 4,946,136
Series B, 5%, 1/1/11 .................................................. 1,620,000 AAA 1,524,679
Series B, 5%, 1/1/12 (c) .............................................. 5,000,000 AAA 4,663,450
Series B, 5.125%, 1/1/15 (c) .......................................... 9,550,000 AAA 8,807,774
Chicago, IL, General Obligation Lease, Board of Education, Series A:
6.25%, 1/1/15 (c) ..................................................... 23,000,000 AAA 24,036,840
6.25%, 1/1/10 (c) ..................................................... 6,800,000 AAA 7,369,160
6%, 1/1/16 (c) ........................................................ 11,025,000 AAA 11,426,200
6%, 1/1/20 (c) ........................................................ 36,625,000 AAA 37,799,198
Chicago, IL, Motor Fuel Tax Revenue, Prerefunded 1/1/01 at 100, 6.5%, 1/1/16
(c)*** ................................................................ 2,000,000 AAA 2,164,020
Chicago, IL, Public Building Commission, Building Revenue, Series A:
5.25%, 12/1/07 (c) .................................................... 3,500,000 AAA 3,499,720
5.25%, 12/1/09 (c) .................................................... 10,420,000 AAA 10,239,838
5.25%, 12/1/11 (c) .................................................... 9,705,000 AAA 9,343,101
Chicago, IL, Public Building Commission, Board of Education, Series A,
Zero Coupon, 1/1/06 (c) ............................................... 2,430,000 AAA 1,462,909
Chicago, IL, School Finance Authority, General Obligation,
Series A, 4.8%, 6/1/01 (c) ............................................ 2,255,000 AAA 2,274,370
Cook County, IL, General Obligation:
Zero Coupon, 11/1/04 (c) .............................................. 3,205,000 AAA 2,072,641
Series C, 6%, 11/15/07 (c) ............................................ 5,000,000 AAA 5,345,400
Decatur, IL, General Obligation, Series 1991:
Zero Coupon, 10/1/03 (c) .............................................. 1,455,000 AAA 995,569
Zero Coupon, 10/1/04 (c) .............................................. 1,415,000 AAA 912,873
Decatur, IL, Public Building Commission, General Obligation,
Certificate of Participation:
6.5%, 1/1/03 (c) .............................................. 1,725,000 AAA 1,881,941
6.5%, 1/1/06 (c) .............................................. 1,500,000 AAA 1,648,785
Illinois Dedicated Tax Revenue, Civic Center Project:
Series A, 6.5%, 12/15/07 .............................................. 3,000,000 AAA 3,352,560
Series A, 6.5%, 12/15/08 (c) .......................................... 5,255,000 AAA 5,889,331
6.25%, 12/15/11 (c) ................................................... 3,000,000 AAA 3,244,230
6.25%, 12/15/20 (c) ................................................... 6,975,000 AAA 7,317,682
Illinois Educational Facilities Authority, Loyola University:
Zero Coupon, 7/1/05 (c) ............................................... 4,000,000 AAA 2,460,440
1991 Series A, Zero Coupon, 7/1/04 (c) ................................ 2,860,000 AAA 1,869,010
Illinois Health Facilities Authority, Brokaw-Mennonite Healthcare:
6%, 8/15/06 (c) ....................................................... 1,380,000 AAA 1,466,443
6%, 8/15/07 (c) ....................................................... 1,460,000 AAA 1,545,103
6%, 8/15/08 (c) ....................................................... 1,550,000 AAA 1,637,358
6%, 8/15/09 (c) ....................................................... 1,640,000 AAA 1,723,181
Illinois Health Facilities Authority:
Children's Memorial Hospital, 6.25%, 8/15/13 (c) ...................... 2,000,000 AAA 2,113,340
Felician Healthcare Inc., Series A, 6.25%, 12/1/15 (c) ................ 17,000,000 AAA 18,006,230
Memorial Medical Center, 6.75%, 10/1/11 (c) ........................... 2,135,000 AAA 2,263,997
Methodist Health Service, Series 1985 G, 8%, 8/1/15 (c) ............... 10,110,000 AAA 11,191,669
Sherman Hospital, 6.75%, 8/1/11 (c) ................................... 2,700,000 AAA 2,886,705
</TABLE>
The accompanying notes are an integral part of the financial statements
39
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSM Healthcare System, 6.4%, 6/1/08 (c) ................................ 1,350,000 AAA 1,488,470
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus
Extension Center, 6.7%, 9/1/12 (c) ..................................... 2,500,000 AAA 2,824,450
Kendall,Kane and Will Counties, IL, Community Unit School District Number 308,
Oswego:
Zero Coupon, 3/1/02 (c) ........................................ 1,055,000 AAA 786,566
Zero Coupon, 3/1/05 (c) ........................................ 1,540,000 AAA 963,994
Zero Coupon, 3/1/06 (c) ........................................ 1,595,000 AAA 938,243
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project:
Zero Coupon, 12/15/03 (c) .............................................. 3,200,000 AAA 2,166,944
Zero Coupon, 6/15/04 (c) ............................................... 10,300,000 AAA 6,746,500
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply System
Revenue, 6.45%, 5/1/07 (c) ............................................. 2,575,000 AAA 2,829,822
Rosemont, IL, Tax Increment, Series C:
Zero Coupon, 12/1/05 (c) ............................................... 4,455,000 AAA 2,681,019
Zero Coupon, 12/1/07 (c) ............................................... 2,655,000 AAA 1,398,203
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/03 (c) ............................................................ 2,750,000 AAA 1,881,660
University of Illinois, Board of Trustees, Series 1991:
Zero Coupon, 4/1/03 (c) ................................................ 3,890,000 AAA 2,729,846
Zero Coupon, 4/1/05 (c) ................................................ 3,830,000 AAA 2,386,971
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/00 (c) ...................................... 1,325,000 AAA 1,063,564
Zero Coupon, 12/15/01 (c) ...................................... 1,730,000 AAA 1,310,665
INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, Series A, 6.5%, 11/15/12 (c) ....... 1,400,000 AAA 1,477,364
Indiana Health Facilities Finance Authority, Hospital Revenue:
Ancilla Systems Inc., Series A, 6%, 7/1/18 (c) ......................... 27,635,000 AAA 28,388,054
Community Hospital Project, 6.4%, 5/1/12 (c) ........................... 5,000,000 AAA 5,204,300
Indiana Municipal Power Agency:
Power Supply Revenue, 5.8%, 1/1/08 (c) ................................. 10,000,000 AAA 10,484,200
Power Supply System, Series B, 6%, 1/1/12 (c) .......................... 2,000,000 AAA 2,106,440
Indiana University:
Student Fee Revenue, Series J, 5%, 8/1/18 (c) .......................... 4,200,000 AAA 3,729,012
Revenue Refunding:
Series H, Zero Coupon, 8/1/06 (c) .............................. 8,500,000 AAA 4,889,795
Student Fee Revenue, Series H, Zero Coupon, 8/1/08 (c) ......... 10,000,000 AAA 5,016,400
Madison County, IN, Community Hospital of Anderson, Prerefunded 1/1/98
at 102, 8%, 1/1/14 (c)*** .............................................. 7,055,000 AAA 7,661,025
Merrillville, IN, Multiple School Building Corp., First Mortgage,
Zero Coupon, 1/15/11 (c) ............................................... 4,000,000 AAA 1,687,360
Porter County, IN, Hospital Authority, Porter Memorial Hospital, Series 1993,
5.25%, 6/1/14 (c) ...................................................... 8,750,000 AAA 8,111,163
IOWA
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c) ............................ 5,000,000 AAA 5,469,950
KANSAS
Kansas City, KS, Utility System Revenue:
ETM, Zero Coupon, 9/1/04** ............................................. 3,575,000 AAA 2,350,777
ETM, Zero Coupon, 9/1/05** ............................................. 5,300,000 AAA 3,291,565
Zero Coupon, 9/1/04 .................................................... 2,640,000 AAA 1,717,531
Zero Coupon, 9/1/05 .................................................... 3,950,000 AAA 2,419,573
Zero Coupon, 9/1/06 .................................................... 1,875,000 AAA 1,092,206
Zero Coupon, 9/1/06 .................................................... 1,375,000 AAA 791,491
</TABLE>
The accompanying notes are an integral part of the financial statements
40
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOUISIANA
Louisiana Public Facilities Authority, Prerefunded 2/15/08 at 100, 4.75%,
5/1/16*** ............................................................... 5,765,000 AAA 5,527,078
New Orleans, LA, General Obligation:
Zero Coupon, 7/15/06 .................................................... 2,750,000 AAA 1,472,598
Zero Coupon, 9/1/07 (c) ................................................. 10,000,000 AAA 5,368,900
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986,
5.95%, 11/1/14 (c) ...................................................... 2,000,000 AAA 2,001,560
MASSACHUSETTS
Massachusetts Bay Transportation Authority, General Transportation System,
Series A, 5.4%, 3/1/07 (c) .............................................. 5,000,000 AAA 5,104,900
Massachusetts, General Obligation:
Series A, 7%, 3/1/99 (c) ................................................ 4,850,000 AAA 5,198,909
Series A, 6%, 7/1/05 (c) ................................................ 4,000,000 AAA 4,290,080
Series D, Prerefunded 10/1/99 at 102, 7%, 10/1/03 (c)*** ................ 7,000,000 AAA 7,724,710
Massachusetts Municipal Wholesale Electric Company, Power Supply System
Revenue, Series A, 5.1%, 7/1/07 (c) ..................................... 1,640,000 AAA 1,620,943
MICHIGAN
Brighton, MI, Area School District, Series I, Zero Coupon, Prerefunded 5/1/05
at 34.134, 5/1/20 (c)*** ................................................ 22,000,000 AAA 4,659,820
Detroit, MI, General Obligation, Distributable State Aid Refunding:
5.2%, 5/1/07 (c) ........................................................ 3,000,000 AAA 2,969,730
5.25%, 5/1/08 (c) ....................................................... 1,500,000 AAA 1,477,515
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue, Borgess
Medical Center, Series A, Prerefunded 7/1/99 at 100, 6%, 7/1/09 (c)*** .. 8,250,000 AAA 8,671,245
Michigan Hospital Finance Authority, Sisters of Mercy Healthcorp
Obligated Group, Series P:
5.1%, 8/15/07 (c) ............................................... 3,000,000 AAA 2,967,450
5.25%, 8/15/08 (c) .............................................. 8,655,000 AAA 8,569,142
Michigan Housing Development Authority, Rental Revenue, Series B,
5.7%, 4/1/12 (c) ........................................................ 6,275,000 A+ 6,146,112
MISSISSIPPI
Mississippi Hospital Equipment Facilities Authority, North Mississippi
Health Services, 5.5%, 5/15/09 (c) ...................................... 4,350,000 AAA 4,317,593
MISSOURI
Missouri Health & Educational Facilities Authority, SSM Healthcare, 1992 Series
AA:
6.35%, 6/1/08 (c) ....................................................... 8,125,000 AAA 8,919,138
6.4%, 6/1/09 (c) ........................................................ 8,640,000 AAA 9,514,800
NEVADA
Clark County, NV, School District, General Obligation, Series B,
Zero Coupon, 3/1/05 (c) ................................................. 8,070,000 AAA 5,073,528
NEW JERSEY
New Jersey Housing and Finance Agency, Home Mortgage Purchase Revenue,
Zero Coupon, 10/1/16 (c) ................................................ 5,155,000 AAA 608,084
New Jersey Turnpike Authority, 6.5%, 1/1/09 (c) ................................. 5,000,000 AAA 5,600,050
NEW YORK
New York City, NY, General Obligation:
5.8%, 8/1/04 ............................................................ 5,000,000 AAA 5,300,450
5.9%, 2/1/05 ............................................................ 5,500,000 AAA 5,843,255
Prerefunded 11/1/97 at 101.50, 8.125%, 11/1/05 (c)*** ................... 1,400,000 AAA 1,513,120
Series A, Prerefunded 11/1/97 at 101.50, 8%, 11/1/01 (c)*** ............. 760,000 AAA 819,956
Series A, ETM, 8%, 11/1/01 (c)** ........................................ 740,000 AAA 813,016
Series A, 3%, 8/15/02 (c) ............................................... 9,000,000 AAA 8,202,240
Series C, 6.4%, 8/1/04 (c) .............................................. 500,000 AAA 545,180
Series C, 6.4%, 8/1/05 (c) .............................................. 430,000 AAA 466,408
</TABLE>
The accompanying notes are an integral part of the financial statements
41
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series C, Prerefunded 8/1/02 at 101.50, 6.4%, 8/1/05 (c)*** ......... 10,000,000 AAA 11,085,800
Series D, 8%, 8/1/05 ................................................ 170,000 AAA 180,880
Series D, Prerefunded 8/1/97 at 102, 8%, 8/1/05*** .................. 830,000 AAA 893,196
Series D, 6%, 8/1/06 (c) ............................................ 140,000 AAA 144,984
Series D, 6%, 8/1/08 (c) ............................................ 370,000 AAA 379,161
Series E, ETM, 7%, 12/1/07 (c)** .................................... 1,385,000 AAA 1,469,042
Series E, 7%, 12/1/07 (c) ........................................... 115,000 AAA 121,211
New York State Dormitory Authority:
College and University Pooled Capital Program, 7.8%, 12/1/05 (c) .... 10,890,000 AAA 11,812,819
State University of New York, 6%, 7/1/09 (c) ........................ 2,000,000 AAA 2,127,980
New York State Dormitory Authority Revenue, City University:
Series C, 7.5%, 7/1/10 (c) .......................................... 5,750,000 AAA 6,964,975
Series D, 7%, 7/1/09 (c) ............................................ 4,000,000 AAA 4,653,720
New York State Energy Research and Development Authority, Pollution
Control Revenue, Electric and Gas, 5.9%, 12/1/06 (c) ................ 5,300,000 AAA 5,638,034
New York State Urban Development Corporation, Correctional Facilities:
Series A, 5%, 1/1/07 (c) ............................................ 4,315,000 AAA 4,279,272
6.5%, 1/1/11 ........................................................ 4,500,000 AAA 4,955,085
Suffolk County, NY, Industrial Development Agency, Southwest Sewer System,
6%, 2/1/07 (c) ...................................................... 8,000,000 AAA 8,593,200
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency:
5.5%, 1/1/07 (c) .................................................... 2,000,000 AAA 2,020,860
Power System Revenue, Series B, 6%, 1/1/18 (c) ...................... 8,775,000 AAA 9,099,938
North Carolina Municipal Power Agency, Catawba Electric Revenue:
5%, 1/1/08 (c) ...................................................... 2,500,000 AAA 2,488,950
6%, 1/1/11 (c) ...................................................... 8,235,000 AAA 8,697,889
7.5%, 1/1/17 ........................................................ 4,520,000 A 4,794,002
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/02 (c) ............................................. 2,850,000 AAA 2,107,347
OHIO
Cleveland, OH, Waterworks Revenue Authority, 5.3%, 1/1/05 .................. 3,000,000 AAA 3,073,620
Cleveland, OH, Refunding Revenue, Series 1993, 5.2%, 9/1/06 ................. 4,000,000 AAA 4,070,720
Hamilton County, OH, Electric System Mortgage Revenue, Series B,
Prerefunded 10/15/98 at 102, 8%, 10/15/22 (c)*** .................... 3,720,000 AAA 4,132,250
Ohio Air Quality Development Authority, Ohio Power Company, Series B,
7.4%, 8/1/09 (c) .................................................... 5,000,000 AAA 5,470,200
OKLAHOMA
Tulsa, OK, Industrial Development Authority:
St. John's Medical Center, Zero Coupon, 12/1/02 (c) ................. 3,930,000 AAA 2,813,919
Hospital Revenue, St. John's Medical Center, Zero Coupon, 12/1/04 (c) 5,430,000 AAA 3,487,852
PENNSYLVANIA
Pennsylvania Industrial Development Authority, Economic Development Revenue:
5.8%, 1/1/08 (c) .................................................... 4,250,000 AAA 4,455,785
5.8%, 7/1/08 (c) .................................................... 4,875,000 AAA 5,118,263
5.8%, 1/1/09 (c) .................................................... 2,500,000 AAA 2,606,575
Philadelphia, PA, Water & Wastewater Refunding Revenue, 5.625%, 6/15/09 ..... 20,000,000 AAA 20,466,800
Philadelphia, PA, Water & Wastewater Revenue:
5.5%, 6/15/07 (c) ................................................... 5,000,000 AAA 5,079,050
5.625%, 6/15/08 (c) ................................................. 2,100,000 AAA 2,165,373
5.625%, 6/15/09 (c) ................................................. 10,855,000 AAA 11,108,356
Philadelphia, PA, Municipal Authority Revenue, Justice Lease, Series B,
Prerefunded 11/15/01 at 102, 6.9%, 11/15/03 (c)*** .................. 2,000,000 AAA 2,260,900
</TABLE>
The accompanying notes are an integral part of the financial statements
42
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/11 (c) ........................ 7,300,000 AAA 7,150,642
PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation Authority Revenue,
5.5%, 7/1/09 .......................................................... 10,940,000 AAA 11,145,453
RHODE ISLAND
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/15 (c) ........................... 2,000,000 AAA 1,916,280
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993 B, 5%, 5/15/10 (c) ........................................ 5,000,000 AAA 4,779,950
1993 Series B, 5.25%, 5/15/15 (c) ..................................... 22,000,000 AAA 20,517,200
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, 8/1/10 (c) ............................................ 6,200,000 AAA 6,394,742
Series B, 5.8%, 8/1/11 (c) ............................................ 4,525,000 AAA 4,631,021
Series B, 5.8%, 8/1/12 (c) ............................................ 2,500,000 AAA 2,547,475
Series B, 5.8%, 8/1/13 ................................................ 7,340,000 AAA 7,443,788
Rhode Island Public Building Authority, Public Projects, Series A,
Prerefunded 2/1/98 at 102, 8.2%, 2/1/08 (c)*** ........................ 2,200,000 AAA 2,403,390
SOUTH CAROLINA
Piedmont Municipal Power Agency, SC, Electric Revenue:
5.5%, 1/1/08 .......................................................... 1,915,000 AAA 1,948,015
Series A, 6.5%, 1/1/16 (c) ............................................ 3,000,000 AAA 3,293,310
Series C, 5.5%, 1/1/12 (c) ............................................ 5,000,000 AAA 4,937,350
SOUTH DAKOTA
South Dakota Building Authority, Certificate of Participation, Series A,
7.5%, 12/1/16 ......................................................... 15,000,000 A 15,563,100
TENNESSEE
Knox County, TN, Health & Educational Hospital Facilities Board,
Fort Sanders Alliance:
5.75%, 1/1/11 (c) ............................................. 15,405,000 AAA 15,726,656
5.75%, 1/1/12 (c) ............................................. 17,880,000 AAA 18,175,378
6.25%, 1/1/13 (c) ............................................. 4,000,000 AAA 4,307,000
7.25%, 1/1/09 (c) ............................................. 3,150,000 AAA 3,723,584
Knox County, TN, Health, Education and Housing Facilities Board,
5.75%, 1/1/14 (c) ..................................................... 2,000,000 AAA 2,028,780
TEXAS
Austin, TX, Utility System, Zero Coupon, 11/15/12 (c) ......................... 3,300,000 AAA 1,254,924
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,
Zero Coupon, 10/1/16 (c) .............................................. 7,450,000 AAA 878,802
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c) .................................................... 1,000,000 AAA 1,177,370
7.8%, 11/1/05 (c) ..................................................... 2,000,000 AAA 2,341,400
7.8%, 11/1/06 (c) ..................................................... 2,025,000 AAA 2,373,604
7.375%, 11/1/08 (c) ................................................... 4,500,000 AAA 5,134,455
7.375%, 11/1/10 (c) ................................................... 3,500,000 AAA 3,981,075
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c) ................... 9,035,000 AAA 5,177,868
Flood Control District, Zero Coupon, 10/1/00 (c) ...................... 1,000,000 AAA 812,210
Toll Road Authority, Subordinate Lien:
Series A, Zero Coupon, 8/15/04 ................................ 2,050,000 AAA 1,336,703
Series A, Zero Coupon, 8/15/05 ................................ 4,025,000 AAA 2,471,229
Series A, Zero Coupon, 8/15/06 (c) ............................ 4,010,000 AAA 2,313,730
Houston, TX, Water & Sewer System Authority, Series C:
Zero Coupon, 12/1/06 (c) .............................................. 14,575,000 AAA 8,279,329
</TABLE>
The accompanying notes are an integral part of the financial statements
43
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Coupon, 12/1/08 (c) ............................................... 19,000,000 AAA 9,412,980
Zero Coupon, 12/1/09 (c) ............................................... 14,750,000 AAA 6,822,023
Lubbock, TX, Health Facilities Development Corp.:
Methodist Hospital, Series B:
5.5%, 12/1/06 (c) .............................................. 3,945,000 AAA 4,037,431
5.6%, 12/1/07 (c) .............................................. 2,415,000 AAA 2,483,634
5.625%, 12/1/08 (c) ............................................ 4,400,000 AAA 4,540,668
Series B, 5.625%, 12/1/09 .............................................. 4,640,000 AAA 4,750,896
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c) ................................................ 3,475,000 AAA 2,396,430
Zero Coupon, 9/1/04 (c) ................................................ 3,475,000 AAA 2,260,766
Zero Coupon, 9/1/05 (c) ................................................ 3,475,000 AAA 2,128,611
North Central Texas Health Facilities Development Corp., Presbyterian
Hospital, Prerefunded 12/1/97 at 102, 8.75%, 12/1/15 (c)*** ............ 5,000,000 AAA 5,499,950
San Antonio, TX, Electric and Gas, Revenue Refunding, Series A:
Zero Coupon, 2/1/05 (c) ................................................ 2,500,000 AAA 1,578,550
Zero Coupon, 2/1/05 (c) ................................................ 8,000,000 AAA 5,051,360
Zero Coupon, 2/1/06 (c) ................................................ 17,900,000 AAA 10,627,230
San Antonio, TX, Electric and Gas, Zero Coupon, 2/1/08 (c) ..................... 8,115,000 AAA 4,210,387
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c) ................................................ 4,615,000 AAA 4,854,426
6%, 5/15/21 (c) ................................................ 6,235,000 AAA 6,457,278
Texas General Obligation:
Capital Appreciation Bond, Super Collider, Series C, Zero Coupon,
4/1/06 (c) ............................................................. 7,385,000 AAA 4,345,925
Superconductor Revenue, Series C, Zero Coupon, 4/1/05 (c) .............. 8,390,000 AAA 5,251,888
Texas Municipal Power Agency:
6.1%, 9/1/07 (c) ....................................................... 9,250,000 AAA 10,001,285
5.25%, 9/1/07 (c) ...................................................... 1,500,000 AAA 1,514,055
6.1%, 9/1/09 (c) ....................................................... 4,435,000 AAA 4,794,679
5.25%, 9/1/09 (c) ...................................................... 6,235,000 AAA 6,187,302
Texas Municipal Power Agency Revenue, 5.25%, 9/1/12 ............................ 2,900,000 AAA 2,747,083
Texas State Public Finance Authority, Building Authority:
Zero Coupon, 2/1/06 (c) ................................................ 13,915,000 AAA 8,261,336
Series B, 6.25%, 2/1/08 (c) ............................................ 5,190,000 AAA 5,662,031
Texas Turnpike Authority, North Dallas Thruway Revenue, Zero Coupon,
1/1/08 (c) ............................................................. 2,500,000 AAA 1,310,575
UTAH
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:
Zero Coupon, 7/1/00 (c) ................................................ 2,755,000 AAA 2,258,935
Zero Coupon, 7/1/02 (c) ................................................ 5,200,000 AAA 3,801,720
Zero Coupon, 7/1/04 (c) ................................................ 5,895,000 AAA 3,836,938
Zero Coupon, 7/1/05 (c) ................................................ 5,900,000 AAA 3,612,806
Zero Coupon, 7/1/06 (c) ................................................ 5,895,000 AAA 3,389,448
Zero Coupon, 7/1/07 (c) ................................................ 3,750,000 AAA 2,009,550
Intermountain Power Agency, UT, Power Supply Revenue:
Series A, Zero Coupon, 7/1/02 (c) ...................................... 1,655,000 AAA 1,213,678
Series A, Zero Coupon, 7/1/03 (c) ...................................... 1,000,000 AAA 692,940
Series A, Zero Coupon, 7/1/04 (c) ...................................... 1,730,000 AAA 1,130,555
Series B, Zero Coupon, 7/1/02 (c) ...................................... 8,230,000 AAA 6,035,388
5%, 7/1/12 (c) ......................................................... 1,000,000 AAA 923,370
Intermountain Power Agency, UT, Special Obligation, 2nd Crossover,
7.5%, 7/1/16 (c) ....................................................... 5,000,000 AA 5,138,750
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15** .................... 1,800,000 AAA 2,508,408
</TABLE>
The accompanying notes are an integral part of the financial statements
44
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial
Hospital, Series B, 6.125%, 7/1/17 (c) .................................. 5,500,000 AAA 5,792,270
Southeastern Public Service Authority, VA, Refunding Revenue,
Series A, 5.25%, 7/1/10 (c) ............................................. 7,380,000 AAA 7,270,259
Virginia Beach, VA, Development Authority, Virginia Beach General
Hospital Project:
5%, 2/15/06 (c) ................................................. 1,750,000 AAA 1,752,608
5%, 2/15/07 (c) ................................................. 1,800,000 AAA 1,787,976
5.1%, 2/15/08 (c) ............................................... 1,345,000 AAA 1,333,460
6%, 2/15/11 (c) ................................................. 1,595,000 AAA 1,688,531
5.125%, 2/15/18 (c) ............................................. 3,000,000 AAA 2,761,050
Winchester County, VA, Industrial Development Authority, Hospital Revenue,
6%, 1/1/15 (c) .......................................................... 5,700,000 AAA 5,427,939
WASHINGTON
Clark County, WA, Public Utility District No. 1, 6%, 1/1/06 (c) ................. 7,500,000 AAA 7,965,675
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c) ........................................... 3,500,000 AAA 3,282,335
North Shore, WA, General Obligation, School District #417, 5.6%, 12/1/10 (c) .... 1,650,000 AAA 1,669,652
Snohomish County, WA, School District #6, 6.5%, 12/1/07 (c) ..................... 3,325,000 AAA 3,699,362
Snohomish County, WA, Public Utilities District #1, 5.5%, 1/1/15 (c) ............ 1,350,000 AAA 1,289,088
Tacoma, WA, Electric System Revenue, 6.514%, 1/2/15 (c) ......................... 6,000,000 AAA 6,282,960
Washington Health Care Facilities Authority, Empire Health Services-Spokane:
5.65%, 11/1/05 (c) ...................................................... 2,155,000 AAA 2,242,234
5.7%, 11/1/06 (c) ....................................................... 3,440,000 AAA 3,581,350
5.75%, 11/1/07 (c) ...................................................... 3,675,000 AAA 3,826,337
5.8%, 11/1/09 (c) ....................................................... 4,595,000 AAA 4,771,908
5.8%, 11/1/10 (c) ....................................................... 2,100,000 AAA 2,177,490
Washington Public Power Supply System, Revenue Refunding:
Nuclear Project #1, Series A, Prerefunded 7/1/99 at 102, 7.5%,
7/1/15 (c)*** ......................................................... 2,405,000 AAA 2,678,136
Nuclear Project #1, Series A, 7%, 7/1/11 (c) ............................ 3,830,000 AAA 4,182,054
Nuclear Project #1, Series A, 7.5%, 7/1/15 (c) .......................... 1,595,000 AAA 1,747,992
Nuclear Project #1, Series B, 7.25%, 7/1/12 (c) ......................... 10,895,000 AAA 11,946,803
Nuclear Project #2, Series A, 7.25%, 7/1/03 (c) ......................... 2,000,000 AAA 2,206,840
Nuclear Project #2, Series A, 5.7%, 7/1/08 (c) .......................... 5,000,000 AAA 5,078,000
Nuclear Project #2, Series C, 7%, 7/1/01 (c) ............................ 10,000,000 AAA 10,995,600
Nuclear Project #2, Series C, Prerefunded 1/1/01 at 120, 7.375%,
7/1/11 (c)*** ......................................................... 1,370,000 AAA 1,555,183
Nuclear Project #3, Series A, Prerefunded 7/1/99 at 102, 7.25%,
7/1/16 (c)*** ......................................................... 3,630,000 AAA 4,014,962
Nuclear Project #3, Series A, Zero Coupon, 7/1/04 (c) ................... 3,625,000 AAA 2,359,440
Nuclear Project #3, Series A, Zero Coupon, 7/1/05 (c) ................... 4,125,000 AAA 2,537,329
Nuclear Project #3, 7.5%, 7/1/08 ........................................ 4,000,000 AAA 4,733,560
Washington State Housing Finance, Series A, 7.1%, 12/1/17 ....................... 10,125,000 AAA 10,512,281
WEST VIRGINIA
West Virginia, School Building Authority Revenue, Series B, 6.75%, 7/1/10 ....... 4,000,000 AAA 4,282,000
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c) .............. 3,475,000 AAA 2,289,782
Wisconsin Health & Educational Facilities Authority:
Aurora Medical, 5.75%, 11/15/06 ......................................... 2,000,000 AAA 2,080,520
Aurora Medical, 5.75%, 11/15/07 ......................................... 1,500,000 AAA 1,551,345
Aurora Medical, 6%, 11/15/08 (c) ........................................ 4,085,000 AAA 4,249,993
Aurora Medical, 6%, 11/15/09 (c) ........................................ 4,330,000 AAA 4,552,389
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c) ................... 5,285,000 AAA 5,615,101
Hospital Sisters Services Inc., Obligated Group, 5.375%, 6/1/18 ......... 4,800,000 AAA 4,439,889
Riverview Hospital Association Project, 9%, 5/1/11 (c) .................. 2,500,000 AAA 2,560,275
</TABLE>
The accompanying notes are an integral part of the financial statements
45
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSM Healthcare, Series 1992 AA, 6.4%, 6/1/08 (c) .................. 2,335,000 AAA 2,571,862
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/09 (c) ................. 2,485,000 AAA 2,743,291
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/10 (c) ................. 2,650,000 AAA 2,920,088
SSM Healthcare, Series 1992 AA, 6.5%, 6/1/12 (c) .................. 3,000,000 AAA 3,321,750
SSM Healthcare, Series 1992 AA, 6.5%, 6/1/22 (c) .................. 2,820,000 AAA 3,067,793
St. Luke's Medical Center, 7.1%, 8/15/11 (c) ...................... 2,000,000 AAA 2,199,540
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c) ............... 9,230,000 AAA 9,806,506
Wheaton Franciscan Services, 6.1%, 8/15/08 ........................ 4,580,000 AAA 4,948,095
-------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (COST $1,588,859,499) ............... 1,668,852,111
-------------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $1,698,890,932) (a) ................ 99.6 1,778,920,671
OTHER ASSETS AND LIABILITIES, NET ................................... 0.4 6,919,149
----- -------------
NET ASSETS .......................................................... 100.0 1,785,839,820
===== =============
</TABLE>
* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of the
U.S. Treasury bill rate. Variable rate demand notes are securities whose
interest rates are reset periodically at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit or line of credit from a major bank. Since these securities
are payable on demand, they are valued at 100% of their principal.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
*** Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issue and to retire the bonds in full at the earliest
refunding date.
(a) At March 31, 1996, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $1,699,187,591 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost................................................................. $ 85,381,864
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value.................................................................... (5,648,784)
------------
Net unrealized appreciation.............................................. $ 79,733,080
============
</TABLE>
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings
shown are either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. Unrated securities (NR) and securities rated by Scudder (SS&C)
have been determined to be of comparable quality to rated eligible
securities.
(c) Bond is insured by one of these companies: AMBAC, MBIA, FGIC, FSA or Capital
Guaranty
(d) At March 31, 1996, these securities, in whole or in part, have been pledged
to cover initial margin requirements for open futures contracts.
At March 31, 1996, open futures contracts sold short were as follows
(Note 1):
<TABLE>
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
- ------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Bond ...... June 1996 1,150 129,513,875 128,189,063
----------- -----------
Total net unrealized appreciation on open futures contracts sold short ...... 1,324,812
===========
</TABLE>
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1996 was $471,760,636 and $513,132,497,
respectively.
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended March 31, 1996, aggregated
$356,038,954 and $375,096,784, respectively.
At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $3,587,586 which expires
September 30, 2003. In addition, from November 1, 1994 through September 30,
1995, the Fund incurred approximately $12,265,621 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in the
fiscal year ended September 30, 1996.
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
46
<PAGE>
AARP BALANCED STOCK AND BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 8.7%
27,910,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/29/96 at 5.35% to be repurchased at $27,922,443
on 4/1/96, collateralized by a $28,265,000
U.S. Treasury Bill, 4/18/96 (COST $27,910,000) ................ 27,910,000
----------
COMMERCIAL PAPER 9.4%
10,000,000 American Telephone & Telegraph Co., 5.09%, 5/3/96 ............... 9,951,875
10,000,000 General Electric Capital Corp., 5.16%, 4/25/96 .................. 9,963,056
10,000,000 Prudential Funding Corp., 5.32%, 4/24/96 ........................ 9,964,533
----------
TOTAL COMMERCIAL PAPER (COST $29,886,367) ....................... 29,879,464
----------
U.S. TREASURY OBLIGATIONS 17.5%
4,600,000 U.S. Treasury Bond, 7.25%, 5/15/16 .............................. 4,799,088
750,000 U.S. Treasury Bond, 7.875%, 2/15/21 ............................. 837,420
2,500,000 U.S. Treasury Bond, 6.25%, 8/15/23 .............................. 2,311,325
4,000,000 U.S. Treasury Note, 5.5%, 9/30/97 ............................... 3,990,000
2,500,000 U.S. Treasury Note, 5.13%, 4/30/98 .............................. 2,467,175
2,500,000 U.S. Treasury Note, 5.875%, 3/31/99 ............................. 2,495,300
3,000,000 U.S. Treasury Note, 6.75%, 5/31/99 .............................. 3,064,680
6,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ............................. 6,156,540
4,500,000 U.S. Treasury Note, 6%, 10/15/99 ................................ 4,501,395
2,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ............................. 2,001,240
9,000,000 U.S. Treasury Note, 5.75%, 10/31/00 ............................. 8,869,230
5,000,000 U.S. Treasury Note, 6.375%, 8/15/02 ............................. 5,028,900
4,600,000 U.S. Treasury Note, 5.75%, 8/15/03 .............................. 4,442,588
3,500,000 U.S. Treasury Note, 5.875%, 2/15/04 ............................. 3,395,000
3,500,000 U.S. Treasury Separate Trading Registered Interest and Principal,
2/15/09 (4.67%***) ............................................ 1,479,800
----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $55,644,008) .............. 55,839,681
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION** 0.9%
2,438,030 Government National Mortgage Association, 10%,
2/15/25 (COST $2,624,693) ....................................... 2,698,582
----------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS** 3.4%
5,186,449 Federal National Mortgage Association, 7%, 9/1/25 ............... 5,053,520
2,946,709 Federal National Mortgage Association, 6.5%, 11/1/25 ............ 2,797,517
1,970,731 Federal National Mortgage Association, 6.5%, 1/1/26 ............. 1,870,953
1,221,575 Federal National Mortgage Association, 6.5%, 2/1/26 ............. 1,159,727
----------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS (COST $11,156,300) 10,881,717
----------
FOREIGN BONDS - U.S. DENOMINATED 1.2%
1,000,000 ABN-AMRO Bank NV, Subordinated Note, 7.13%, 10/15/2093 ......... 930,790
</TABLE>
The accompanying notes are an integral part of the financial statements
47
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C>
3,000,000 Province of Ontario, Global Medium Term Note, 6%, 2/21/06 .... 2,812,230
----------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $3,842,211) .... 3,743,020
----------
FOREIGN BONDS - NON-U.S. DENOMINATED 0.7%
DEM 3,400,000 Federal Republic of Germany, 6.5%, 7/15/03 (COST $2,426,307) . 2,348,115
----------
ASSET BACKED 0.6%
CREDIT CARD RECEIVABLES 0.6%
2,000,000 Sears Credit Account Master Trust Series 1995-4, 6.25%,
1/15/03 (COST $ 1,997,500) ................................. 2,006,860
----------
CORPORATE BONDS 5.0%
CONSUMER STAPLES 0.5%
2,000,000 Borden Inc., 7.875%, 2/15/23 ................................. 1,727,500
----------
COMMUNICATIONS 1.3%
2,000,000 360 Communications Co., 7.5%, 3/1/06 ......................... 1,951,620
2,000,000 TCI Communications, Inc., 8%, 8/1/05 ......................... 2,051,860
----------
4,003,480
----------
FINANCIAL 1.1%
2,000,000 Capital One Bank Medium Term Note, 5.95%, 2/15/01 ............ 1,924,700
1,000,000 General Electric Capital Services, 7.5%, 8/21/35 ............. 1,025,020
575,000 Royal Bank of Scotland, 6.375%, 2/1/11 ....................... 527,988
----------
3,477,708
----------
DURABLES 1.6%
1,000,000 Boeing Co., 6.875%, 10/15/43 ................................. 924,580
1,000,000 Comdisco, Inc., Senior Note, 5.75%, 2/15/01 .................. 962,610
1,000,000 Ford Motor Co., 8.875%, 1/15/22 .............................. 1,139,670
1,000,000 General Motors Acceptance Corp., 5.75%, 4/4/96 ............... 1,000,010
1,000,000 McDonnell Douglas Corp., 9.75%, 4/1/12 ....................... 1,214,530
----------
5,241,400
----------
TECHNOLOGY 0.5%
1,500,000 Loral Corp., 8.375%, 6/15/24 ................................. 1,618,140
----------
TOTAL CORPORATE BONDS (COST $16,032,215) ..................... 16,068,228
----------
CONVERTIBLE BONDS 0.5%
HEALTH 0.1%
Pharmaceuticals
290,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ......................... 321,900
----------
FINANCIAL 0.1%
Other Financial Companies
200,000 First Financial Management Corp., 5%, 12/15/99 ............... 338,340
----------
SERVICE INDUSTRIES 0.2%
Miscellaneous Commercial Services
1,000,000 ADT Operations Inc., Zero Coupon, Liquid Yield Option
Note, 7/6/10 ............................................... 522,500
----------
TECHNOLOGY 0.1%
Computer Software
410,000 Softkey International, Inc., 5.5%, 11/1/00 ................... 328,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
48
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------
<S> <C>
CONSTRUCTION 0.0%
Homebuilding
30,000 Empresa ICA Sociedad Controladora S.A., 5%,
3/15/04 ......................................... 17,925
---------
TOTAL CONVERTIBLE BONDS (COST $1,300,816) ........... 1,528,665
---------
CONVERTIBLE PREFERRED STOCKS 1.5%
Shares
- ------
HEALTH 0.6%
Health Industry Services
70,400 FHP International Corp.,"A", Cum. $1.25 ............. 1,971,200
---------
FINANCIAL 0.5%
Consumer Finance
33,100 Advanta Corp. 6.75% ................................. 1,539,150
---------
SERVICE INDUSTRIES 0.1%
Miscellaneous Commercial Services
260,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ....... 288,600
---------
MANUFACTURING 0.3%
Containers & Paper 0.1%
3,300 Boise Cascade Corp. "G", Cum $1.58 .................. 113,850
4,100 Bowater, Inc. 7% "B" ................................ 129,150
2,100 International Paper Co. 5.25% ....................... 97,125
---------
340,125
---------
Industrial Specialty 0.2%
31,300 Cooper Industries, Inc. 6% .......................... 504,713
---------
ENERGY 0.0%
Oil & Gas Production
4,200 Parker & Parsley Capital Corp. ...................... 206,850
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,170,800) 4,850,638
---------
PREFERRED STOCKS 0.1%
FINANCIAL 0.1%
Real Estate
14,600 Security Capital Industrial Trust "B" (COST $365,402) 343,100
---------
COMMON STOCKS 52.0%
CONSUMER DISCRETIONARY 2.7%
Department & Chain Stores 2.4%
43,500 J.C. Penney Co., Inc. ............................... 2,164,125
18,600 May Department Stores ............................... 897,450
21,800 Melville Corp. ...................................... 782,075
57,400 Rite Aid Corp. ...................................... 1,772,225
44,700 Sears, Roebuck & Co. ................................ 2,179,125
---------
7,795,000
---------
Specialty Retail 0.3%
43,000 Intimate Brands, Inc. ............................... 833,125
---------
CONSUMER STAPLES 5.5%
Alcohol & Tobacco 0.6%
26,600 Anheuser Busch Companies, Inc. ...................... 1,792,175
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------
<S> <C>
3,510 Schweitzer-Mauduit International, Inc.* . 96,525
----------
1,888,700
----------
Food & Beverage 2.3%
1,064 Earthgrains Co.* ........................ 31,787
33,800 General Mills, Inc. ..................... 1,973,075
90,250 H.J. Heinz Co. .......................... 2,989,531
66,800 Quaker Oats Co. ......................... 2,229,450
----------
7,223,843
----------
Package Goods/Cosmetics 2.6%
21,900 Avon Products Inc. ...................... 1,877,925
21,000 Clorox Co. .............................. 1,808,614
11,500 Colgate-Palmolive Co. ................... 895,563
35,100 Kimberly-Clark Corp. .................... 2,614,950
23,300 Tambrands Inc. .......................... 1,089,275
----------
8,286,327
----------
HEALTH 6.9%
Health Industry Services 0.1%
9,300 U.S. HealthCare, Inc. ................... 426,638
----------
Medical Supply & Specialty 0.8%
63,000 Bausch & Lomb, Inc. ..................... 2,331,000
----------
Pharmaceuticals 6.0%
19,200 American Home Products Corp. ............ 2,080,800
67,600 Baxter International Inc. ............... 3,058,900
25,300 Bristol-Myers Squibb Co. ................ 2,166,313
33,100 Eli Lilly & Co. ......................... 2,151,500
47,700 Schering-Plough Corp. ................... 2,772,563
39,200 SmithKline Beecham PLC (ADR) ............ 2,018,800
23,400 Warner-Lambert Co. ...................... 2,416,050
122,100 Zeneca Group PLC ........................ 2,530,786
----------
19,195,712
----------
COMMUNICATIONS 3.6%
Cellular Telephone 0.1%
13,533 360 Communications Co.* ................. 323,100
----------
Telephone/Communications 3.5%
80,600 Alltel Corp. ............................ 2,498,600
51,200 GTE Corp. ............................... 2,246,400
54,600 Hong Kong Telecommunications Ltd. (ADR) . 1,092,000
40,400 Koninklijke PTT Nederland ............... 1,589,492
17,600 NYNEX Corp. ............................. 877,800
47,700 Sprint Corp. ............................ 1,812,600
29,900 Tele Danmark A/S (ADR) .................. 773,663
75,000 Telecom Corp. of New Zealand ............ 337,169
----------
11,227,724
----------
FINANCIAL 10.7%
Banks 3.7%
36,600 Bankers Trust New York Corp. ............ 2,594,025
34,000 Chemical Banking Corp. .................. 2,397,000
54,900 CoreStates Financial Corp. .............. 2,326,388
36,800 First Bank System Inc. .................. 2,194,200
27,300 J.P. Morgan & Co., Inc. ................. 2,265,900
----------
11,777,513
----------
Insurance 2.1%
25,029 Allstate Corp. .......................... 1,054,347
</TABLE>
The accompanying notes are an integral part of the financial statements
50
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- --------------------------------------------------------------------------
<S> <C>
25,800 EXEL, Ltd. ..................................... 1,780,200
17,400 Hartford Steam Boiler Inspection & Insurance Co. 880,875
3,360 Highlands Insurance Group* ..................... 66,360
56,700 Lincoln National Corp. ......................... 2,877,525
---------
6,659,307
---------
Other Financial Companies 2.0%
69,500 Federal National Mortgage Association .......... 2,215,313
53,800 Student Loan Marketing Association ............. 4,115,700
---------
6,331,013
---------
Real Estate 2.9%
65,000 DeBartolo Realty Corp. (REIT) .................. 975,000
11,400 Developers Diversified Realty Corp. (REIT) ..... 334,875
31,872 HGI Realty, Inc. (REIT) ........................ 673,296
57,000 Health Care Property Investment Inc. (REIT) .... 1,795,500
61,700 Meditrust SBI (REIT) ........................... 2,090,088
101,600 Nationwide Health Properties Inc. (REIT) ....... 2,133,600
26,000 Omega Healthcare Investors (REIT) .............. 744,250
32,200 Security Capital Industrial Trust (REIT) ....... 563,500
---------
9,310,109
---------
MEDIA 0.2%
Print Media
17,200 Reader's Digest Association Inc. "A" ........... 812,700
---------
SERVICE INDUSTRIES 1.3%
Miscellaneous Consumer Services 0.8%
70,100 H & R Block Inc. ............................... 2,532,363
---------
Printing/Publishing 0.5%
28,100 Deluxe Corp. ................................... 881,638
11,800 Dun & Bradstreet Corp. ......................... 715,375
---------
1,597,013
---------
DURABLES 4.3%
Aerospace 2.9%
25,700 AAR Corp. ...................................... 523,638
32,672 Lockheed Martin Corp. .......................... 2,478,988
47,900 Rockwell International Corp. ................... 2,820,113
31,400 United Technologies Corp. ...................... 3,524,650
---------
9,347,389
---------
Automobiles 1.4%
33,800 Dana Corp. ..................................... 1,128,075
15,000 Eaton Corp. .................................... 903,750
55,700 Ford Motor Co. ................................. 1,914,688
9,400 Genuine Parts Co. .............................. 423,000
---------
4,369,513
---------
Construction/Agricultural Equipment 0.0%
1,900 PACCAR, Inc. ................................... 92,625
---------
MANUFACTURING 8.3%
Chemicals 2.1%
19,300 Dow Chemical Co. ............................... 1,676,688
36,200 E.I. du Pont de Nemours & Co. .................. 3,004,600
7,000 Lubrizol Corp. ................................. 206,500
55,400 Lyondell Petrochemical Co. ..................... 1,689,700
---------
6,577,488
---------
Containers & Paper 0.4%
30,200 Stone Container Corp. .......................... 422,800
</TABLE>
The accompanying notes are an integral part of the financial statements
51
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------
<S> <C>
26,100 Westvaco Corp. ........................... 766,688
----------
1,189,488
----------
Diversified Manufacturing 2.2%
56,100 Dresser Industries Inc. .................. 1,711,050
15,200 Olin Corp. ............................... 1,322,400
46,200 TRW Inc. ................................. 4,117,575
----------
7,151,025
----------
Electrical Products 0.7%
17,300 Philips NV (New York shares) ............. 629,288
21,600 Thomas & Betts Corp. ..................... 1,620,000
----------
2,249,288
----------
Industrial Specialty 0.2%
16,100 Corning Inc. ............................. 563,500
----------
Machinery/Components/Controls 0.2%
10,400 Timken Co. ............................... 479,700
----------
Office Equipment/Supplies 1.4%
36,000 Xerox Corp. .............................. 4,518,000
----------
Specialty Chemicals 1.0%
41,900 Betz Laboratories Inc. ................... 1,948,350
38,700 Witco Corp. .............................. 1,364,175
----------
3,312,525
----------
Wholesale Distributors 0.1%
4,700 Alco Standard Corp. (b) .................. 446,500
----------
ENERGY 4.5%
Oil Companies 4.3%
15,000 Exxon Corp. .............................. 1,224,375
41,800 Murphy Oil Corp. ......................... 1,792,175
29,200 Pennzoil Co. ............................. 1,160,700
30,500 Repsol SA (ADR) .......................... 1,139,938
13,800 Royal Dutch Petroleum Co. (New York shares) 1,949,250
47,281 Societe Nationale Elf Aquitaine (ADR) .... 1,601,644
15,700 Texaco Inc. .............................. 1,350,200
49,490 Total SA (ADR) ........................... 1,682,660
95,200 YPF S.A. "D" (ADR) ....................... 1,915,900
----------
13,816,842
----------
Oilfield Services/Equipment 0.2%
8,700 Halliburton Co. .......................... 494,813
----------
METALS & MINERALS 1.1%
Steel & Metals
64,800 Freeport McMoRan Copper & Gold, Inc. "A" . 1,992,600
101,500 Oregon Steel Mills Inc. .................. 1,433,688
----------
3,426,288
----------
CONSTRUCTION 0.7%
Forest Products
23,200 Georgia Pacific Corp. .................... 1,609,500
15,300 Weyerhaeuser Co. ......................... 705,713
----------
2,315,213
----------
TRANSPORTATION 0.3%
Railroads
59,100 Canadian National Railway Co. ............ 1,019,475
----------
UTILITIES 1.9%
Electric Utilities
25,200 CINergy Corp. ............................ 756,000
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------
<S> <C>
20,700 CMS Energy Corp. .......................... 610,650
42,500 National Power PLC (ADR) .................. 871,250
26,100 PacifiCorp ................................ 544,838
9,800 Pacific Gas & Electric Co. ................ 221,725
44,400 PowerGen PLC (ADR) ........................ 1,065,600
30,900 Southern Company .......................... 737,738
10,500 Texas Utilities Co., Inc. ................. 434,438
35,100 Unicom Corp. .............................. 947,700
-----------
6,189,939
-----------
TOTAL COMMON STOCKS (COST $134,812,021) ... 166,110,798
-----------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO
(COST $292,168,640) (a) .......... 101.5 324,208,868
OTHER ASSETS AND LIABILITIES, NET .. (1.5) (4,873,568)
----- -----------
NET ASSETS.......................... 100.0 319,335,300
===== ===========
<FN>
REIT Real Estate Investment Trust
* Nonincome producing security.
** Effective maturities will be shorter due to amortization and prepayments.
*** Yield; bond equivalent yield to maturity; not a coupon rate.
(a) At March 31, 1996, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $292,302,744 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ...................................... $34,816,838
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ...................................... (2,910,714)
-----------
Net unrealized appreciation ........................ $31,906,124
===========
(b) Security valued in good faith by the Valuation Committee of the Board of
Trustees amounted to $446,500 (0.14% of net assets). The cost of this
security at March 31, 1996 was $363,663.
For the six months ended March 31, 1996, purchases and sales of
investment securities (excluding short-term investments) aggregated
$55,166,965 and $28,972,951, respectively. Purchases and sales of U.S.
Government obligations and U.S. Government Agencies aggregated
$42,069,174 and $18,428,081, respectively.
The aggregate face value of future contracts closed during the six months
ended March 31, 1996 was $3,641,641.
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP GROWTH AND INCOME FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 1.2%
45,076,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/29/96 at 5.35% to be repurchased at
$45,096,096 on 4/1/96, collateralized by a
$38,098,000 U.S. Treasury Note, 8.5%, 2/15/20 (COST
$45,076,000) ....................................... 45,076,000
----------
COMMERCIAL PAPER 2.6%
20,000,000 American Express Credit Corp., 5.22%, 8/28/96 ........ 19,567,500
30,000,000 American Telephone & Telegraph Co., 5.24%, 7/24/96 ... 29,502,625
15,000,000 Associates Corp. of North America, 5.67%, 4/16/96 .... 14,964,533
10,000,000 Corporate Asset Funding Co., Inc., 5.37%, 5/14/96 .... 9,935,833
20,000,000 Ford Motor Credit Co., 5.31%, 6/6/96 ................. 19,805,328
----------
TOTAL COMMERCIAL PAPER (COST $93,815,822) ........................ 93,775,819
----------
FOREIGN BONDS - NON-U.S. DENOMINATED 0.1%
GBP 2,500,000 National Power PLC, 6.25%, 9/23/08 (COST $4,425,505) . 4,149,627
----------
CORPORATE BONDS 0.2%
FINANCIAL
4,500,000 Siemens Capital Corp. with warrants, 8%, 6/24/02
(COST $5,885,818) .................................. 6,277,500
----------
CONVERTIBLE BONDS 2.6%
CONSUMER DISCRETIONARY 0.1%
Department & Chain Stores
4,000,000 Federated Department Stores, Inc., debenture,
5%, 10/1/03 ........................................ 4,460,000
----------
HEALTH 0.2%
Pharmaceuticals
6,260,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ................. 6,948,600
----------
COMMUNICATIONS 0.0%
Telephone/Communications
1,000,000 Compania de Telefonos de Chile, S.A., 4.5%, 1/15/03 .. 1,110,000
----------
FINANCIAL 0.7%
Banks 0.5%
17,290,000 MBL International Finance Bermuda, 3%, 11/30/02 ...... 19,062,225
----------
Other Financial Companies 0.2%
5,200,000 First Financial Management Corp., 5%, 12/15/99 ....... 8,796,840
----------
SERVICE INDUSTRIES 0.4%
Miscellaneous Commercial Services
25,000,000 ADT Operations Inc., Zero Coupon, Liquid Yield Option
Note, 7/6/10 ....................................... 13,062,500
----------
DURABLES 0.0%
Automobiles
1,500,000 Magna International, Inc., 5%, 10/15/02 .............. 1,552,500
----------
MANUFACTURING 0.2%
Diversified Manufacturing
5,000,000 Thermo Electron Corp., 4.25%, 1/1/03 ................. 6,050,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
54
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY 0.4%
Computer Software 0.2%
8,710,000 Softkey International, Inc., 5.5%, 11/1/00 ........ 6,968,000
----------
Electronic Data Processing 0.1%
8,000,000 Silicon Graphics Inc., 11/5/13 .................... 4,080,000
----------
Precision Instruments 0.1%
1,000,000 Thermo Instruments Systems Inc., 6.625%, 8/15/01 .. 3,200,000
----------
CONSTRUCTION 0.2%
Homebuilding
10,670,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04 6,375,325
----------
TRANSPORTATION 0.4%
Airlines
13,500,000 Delta Air Lines, Inc., 3.23%, 6/15/03 ............. 13,871,250
----------
TOTAL CONVERTIBLE BONDS (COST $85,121,323) ........ 95,537,240
----------
CONVERTIBLE PREFERRED STOCKS 2.7%
Shares
-----------
HEALTH 0.8%
Health Industry Services 0.8%
1,091,200 FHP International Corp., "A", Cum. $1.25 .......... 30,553,600
----------
Medical Supply & Specialty 0.0%
25,000 US Surgical Corp. "A" ............................. 815,625
----------
FINANCIAL 0.2%
Consumer Finance
129,000 Advanta Corp. 6.75% ............................... 5,998,500
----------
SERVICE INDUSTRIES 0.2%
Miscellaneous Commercial Services
7,036,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/2049 ... 7,809,960
----------
MANUFACTURING 0.7%
Containers & Paper 0.1%
61,900 Boise Cascade Corp. "G", Cum $1.58 ................ 2,135,550
50,200 International Paper Co. 5.25% ..................... 2,321,750
----------
4,457,300
----------
Industrial Specialty 0.3%
652,400 Cooper Industries, Inc. 6% ........................ 10,519,950
----------
Wholesale Distributors 0.3%
102,800 Alco Standard Corp. 6.50% (b) ..................... 9,766,000
----------
TECHNOLOGY 0.1%
Electronic Data Processing
50,000 Ceridian Corp. 5.5% ............................... 4,825,000
----------
ENERGY 0.3%
Oil & Gas Production
215,300 Parker & Parsley Capital Corp. .................... 10,603,525
----------
METALS & MINERALS 0.4%
Precious Metals
500,000 Freeport McMoRan Copper & Gold, Inc., Cum. $1.25 .. 14,000,000
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $86,215,116) .............................. 99,349,460
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
55
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------
<S> <C>
PREFERRED STOCKS 0.2%
COMMUNICATIONS 0.0%
Telephone/Communications
37,100 Philippine Long Distance Telephone Co. ....... 1,919,925
-----------
FINANCIAL 0.2%
Real Estate
302,400 Security Capital Industrial Trust "B" ........ 7,106,400
-----------
TOTAL PREFERRED STOCKS (COST $9,423,310) ..... 9,026,325
-----------
COMMON STOCKS 89.9%
CONSUMER DISCRETIONARY 4.3%
Department & Chain Stores 3.8%
880,200 J.C. Penney Co., Inc. ........................ 43,789,950
126,600 May Department Stores ........................ 6,108,450
426,800 Melville Corp. ............................... 15,311,450
1,165,100 Rite Aid Corp. ............................... 35,972,463
812,900 Sears, Roebuck & Co. ......................... 39,628,875
-----------
140,811,188
-----------
Specialty Retail 0.5%
919,700 Intimate Brands, Inc. ........................ 17,819,188
-----------
CONSUMER STAPLES 9.0%
Alcohol & Tobacco 1.2%
631,300 Anheuser Busch Companies, Inc. ............... 42,533,837
-----------
Consumer Specialties 0.1%
320,900 A.T. Cross Co. "A" ........................... 5,054,175
-----------
Food & Beverage 3.4%
25,252 Earthgrains Co. .............................. 754,404
598,400 General Mills, Inc. .......................... 34,931,600
1,683,900 H.J. Heinz Co. ............................... 55,779,188
1,039,700 Quaker Oats Co. .............................. 34,699,988
-----------
126,165,180
-----------
Package Goods/Cosmetics 4.3%
419,000 Avon Products Inc. ........................... 35,929,250
402,100 Clorox Co. ................................... 34,630,862
136,500 Colgate-Palmolive Co. ........................ 10,629,938
701,300 Kimberly-Clark Corp. ......................... 52,246,850
480,800 Tambrands Inc. ............................... 22,477,400
-----------
155,914,300
-----------
HEALTH 10.9%
Health Industry Services 0.3%
221,900 U.S. HealthCare, Inc. ........................ 10,179,663
-----------
Medical Supply & Specialty 1.3%
1,224,800 Bausch & Lomb, Inc. .......................... 45,317,600
-----------
Pharmaceuticals 9.3%
386,400 American Home Products Corp. ................. 41,876,100
1,166,300 Baxter International Inc. .................... 52,775,075
464,300 Bristol-Myers Squibb Co. ..................... 39,755,686
670,600 Eli Lilly & Co. .............................. 43,589,000
905,500 Schering-Plough Corp. ........................ 52,632,188
661,300 SmithKline Beecham PLC (ADR) ................. 34,056,950
</TABLE>
The accompanying notes are an integral part of the financial statements
56
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------
<S> <C>
463,300 Warner-Lambert Co. ............................ 47,835,725
1,446,900 Zeneca Group PLC .............................. 29,990,126
300 Zeneca Group PLC (ADR) ........................ 19,125
-----------
342,529,975
-----------
COMMUNICATIONS 6.4%
Cellular Telephone 0.2%
275,400 360 Communications Co. ........................ 6,575,175
-----------
Telephone/Communications 6.2%
1,465,300 Alltel Corp. .................................. 45,424,300
1,068,500 GTE Corp. ..................................... 46,880,438
1,170,500 Hong Kong Telecommunications Ltd. (ADR) ....... 23,410,000
862,000 Koninklijke PTT Nederland ..................... 33,914,412
363,800 NYNEX Corp. ................................... 18,144,525
880,200 Sprint Corp. .................................. 33,447,600
802,100 Tele Danmark A/S (ADR) ........................ 20,754,338
1,565,390 Telecom Corp. of New Zealand .................. 7,037,354
-----------
229,012,967
-----------
FINANCIAL 17.9%
Banks 7.8%
286,000 AmSouth Bancorp. .............................. 11,118,250
590,000 Argentaria Corporacion Bancaria de Espana ..... 24,956,693
804,600 Bankers Trust New York Corp. .................. 57,026,025
649,200 Chemical Banking Corp. ........................ 45,768,600
983,800 CoreStates Financial Corp. .................... 41,688,525
807,200 First Bank System Inc. ........................ 48,129,300
574,800 J.P. Morgan & Co., Inc. ....................... 47,708,400
128,500 Nordbanken AB* ................................ 2,121,840
295,300 Wilmington Trust Corp. ........................ 9,523,425
-----------
288,041,058
-----------
Insurance 3.5%
477,423 Allstate Corp. ................................ 20,111,446
489,550 EXEL, Ltd. .................................... 33,778,950
306,600 Hartford Steam Boiler Inspection & Insurance Co. 15,521,625
71,770 Highlands Insurance Group ..................... 1,417,458
1,110,200 Lincoln National Corp. ........................ 56,342,650
-----------
127,172,129
-----------
Other Financial Companies 3.6%
1,463,900 Federal National Mortgage Association ......... 46,661,813
1,107,700 Student Loan Marketing Association ............ 84,739,050
-----------
131,400,863
-----------
Real Estate 3.0%
245,800 Avalon Properties, Inc. (REIT) ................ 5,284,700
386,200 Camden Property Trust (REIT) .................. 8,930,875
88,500 Charles E. Smith Residential Realty, Inc. (REIT) 2,101,875
235,000 Developers Diversified Realty Corp. (REIT) .... 6,903,125
28,000 Equity Residential Properties Trust (REIT) .... 875,000
836,100 General Growth Properties, Inc. (REIT) ........ 19,648,350
409,800 Health Care Property Investment Inc. (REIT) ... 12,908,700
31,100 Mark Centers Trust (REIT) ..................... 338,213
457,900 Meditrust SBI (REIT) .......................... 15,511,363
680,800 Nationwide Health Properties Inc. (REIT) ...... 14,296,800
71,200 Post Properties Inc. (REIT) ................... 2,314,000
398,500 Security Capital Industrial Trust (REIT) ...... 6,973,750
451,200 South West Property Trust Inc. (REIT) ......... 6,034,800
</TABLE>
The accompanying notes are an integral part of the financial statements
57
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------
<S> <C>
150,000 Spieker Properties, Inc. (REIT) ......... 3,806,250
102,100 Vornado Realty Trust (REIT) ............. 3,879,800
-----------
109,807,601
-----------
MEDIA 0.5%
Print Media
336,400 Reader's Digest Association Inc. "A" .... 15,894,900
-----------
SERVICE INDUSTRIES 2.4%
Miscellaneous Consumer Services 1.5%
1,531,000 H & R Block Inc. ........................ 55,307,375
-----------
Printing/Publishing 0.9%
579,600 Deluxe Corp. ............................ 18,184,950
242,200 Dun & Bradstreet Corp. .................. 14,683,375
-----------
32,868,325
-----------
DURABLES 7.5%
Aerospace 4.9%
459,600 AAR Corp. ............................... 9,364,349
604,700 Lockheed Martin Corp. ................... 45,881,613
934,300 Rockwell International Corp. ............ 55,006,913
638,200 United Technologies Corp. ............... 71,637,950
-----------
181,890,825
-----------
Automobiles 2.5%
706,800 Dana Corp. .............................. 23,589,450
322,000 Eaton Corp. ............................. 19,400,500
1,145,700 Ford Motor Co. .......................... 39,383,438
206,000 Genuine Parts Co. ....................... 9,270,000
-----------
91,643,388
-----------
Construction/Agricultural Equipment 0.1%
59,200 PACCAR, Inc. ............................ 2,886,000
-----------
MANUFACTURING 16.0%
Chemicals 4.0%
518,300 Dow Chemical Co. ........................ 45,027,313
730,400 E.I. du Pont de Nemours & Co. ........... 60,623,200
160,000 Lubrizol Corp. .......................... 4,720,000
1,211,000 Lyondell Petrochemical Co. .............. 36,935,500
-----------
147,306,013
-----------
Containers & Paper 0.7%
842,400 Stone Container Corp. ................... 11,793,600
565,100 Westvaco Corp. .......................... 16,599,813
-----------
28,393,413
-----------
Diversified Manufacturing 3.9%
1,232,300 Dresser Industries Inc. ................. 37,585,150
292,900 Olin Corp. .............................. 25,482,300
887,300 TRW Inc. ................................ 79,080,613
-----------
142,148,063
-----------
Electrical Products 1.3%
209,000 Philips Electronics N.V. ................ 7,602,990
313,700 Philips NV (New York shares) ............ 11,410,838
377,100 Thomas & Betts Corp. .................... 28,282,500
-----------
47,296,328
-----------
Industrial Specialty 0.5%
525,600 Corning Inc. ............................ 18,396,000
-----------
Machinery/Components/Controls 0.8%
925,000 S.K.F. AB "B" (Free) .................... 20,388,302
</TABLE>
The accompanying notes are an integral part of the financial statements
58
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------
<S> <C>
214,500 Timken Co. ............................... 9,893,813
-----------
30,282,115
-----------
Office Equipment/Supplies 2.5%
730,700 Xerox Corp. .............................. 91,702,850
-----------
Specialty Chemicals 2.3%
204,800 ARCO Chemical Co. ........................ 10,624,000
709,000 Betz Laboratories Inc. ................... 32,968,500
306,400 Petrolite Corp. .......................... 9,268,600
849,200 Witco Corp. .............................. 29,934,300
-----------
82,795,400
-----------
ENERGY 7.8%
Oil Companies 7.5%
309,500 Exxon Corp. .............................. 25,262,938
395,300 Murphy Oil Corp. ......................... 16,948,488
564,500 Pennzoil Co. ............................. 22,438,875
545,900 Repsol SA (ADR) .......................... 20,403,013
264,700 Royal Dutch Petroleum Co. (New York shares) 37,388,875
488,800 Societe Nationale Elf Aquitaine .......... 33,136,516
305,100 Texaco Inc. .............................. 26,238,600
544,061 Total SA "B" ............................. 36,720,742
554,825 Total SA (ADR) ........................... 18,864,050
1,941,300 YPF S.A. "D" (ADR) ....................... 39,068,663
-----------
276,470,760
-----------
Oilfield Services/Equipment 0.3%
189,700 Halliburton Co. .......................... 10,789,188
-----------
METALS & MINERALS 0.8%
Precious Metals 0.3%
405,000 De Beers Consolidated Mines Ltd. (ADR) ... 12,757,500
-----------
Steel & Metals 0.5%
579,010 Freeport McMoRan Copper & Gold, Inc. "A" . 17,804,558
-----------
CONSTRUCTION 1.4%
Forest Products
509,600 Georgia Pacific Corp. .................... 35,353,500
353,000 Weyerhaeuser Co. ......................... 16,282,125
-----------
51,635,625
-----------
TRANSPORTATION 1.2%
Railroads
1,200,900 Canadian National Railway Co. ............ 20,715,525
141,100 Norfolk Southern Corp. ................... 11,993,500
165,600 Union Pacific Corp. ...................... 11,364,300
-----------
44,073,325
-----------
UTILITIES 3.8%
Electric Utilities
519,300 CINergy Corp. ............................ 15,579,000
261,200 CMS Energy Corp. ......................... 7,705,400
1,468,800 China Light & Power Co., Ltd. (ADR) ...... 6,653,662
250,000 National Power PLC (ADR) ................. 5,125,000
553,600 PacifiCorp ............................... 11,556,400
237,800 Pacific Gas & Electric Co. ............... 5,380,225
3,256,000 PowerGen PLC ............................. 19,480,964
942,503 PowerGen PLC (ADR) ....................... 22,620,072
636,400 Southern Company ......................... 15,194,050
</TABLE>
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C>
224,600 Texas Utilities Co., Inc. ................... 9,292,824
723,900 Unicom Corp. ................................ 19,545,300
-------------
138,132,897
-------------
TOTAL COMMON STOCKS (COST $2,491,658,519).... 3,298,809,747
-------------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO
(COST $2,821,621,413) (a)................. 99.5 3,652,001,718
OTHER ASSETS AND LIABILITIES, NET........... 0.5 16,649,957
----- -------------
NET ASSETS.................................. 100.0 3,668,651,675
===== =============
<FN>
REIT Real Estate Investment Trust
* Nonincome producing security.
(a) At March 31, 1996, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $2,819,638,846 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost.................................................. $854,718,471
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value................................................ (22,355,599)
------------
Net unrealized appreciation............................... $832,362,872
============
(b) Security valued in good faith by the Valuation Committee of the Board of
Trustees amounted to $9,766,000 (0.27% of net assets). The cost of this
security at March 31, 1996 was $7,954,150.
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1996, aggregated
$691,052,550 and $481,803,581 respectively.
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
60
<PAGE>
AARP GLOBAL GROWTH FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 6.8%
1,913,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
3/29/96 at 5.35% to be repurchased at $1,913,853 on 4/1/96,
collateralized by a $1,902,000 U.S. Treasury Note, 6.25%,
1/31/97 (COST $1,913,000) ...................................... 1,913,000
---------
COMMERCIAL PAPER 10.5%
750,000 E.I. duPont de Nemours & Co., 5.25%, 5/16/96 ..................... 744,969
1,000,000 Ford Motor Credit Co., 5.34%, 4/25/96 ............................ 996,306
700,000 General Electric Capital Corp., 5.1%, 5/29/96 .................... 693,977
500,000 Prudential Funding Corp., 5.46%, 4/3/96 .......................... 499,778
---------
TOTAL COMMERCIAL PAPER (COST $2,935,614) ......................... 2,935,030
---------
FIXED TIME DEPOSITS 2.7%
750,000 American Express Credit Corp., 5.06%, 7/30/96 (COST $750,000)..... 749,669
---------
CONVERTIBLE BONDS 0.0%
13,000 Ashanti Capital Corp., 5.5%, 3/15/03 (COST $13,000) .............. 13,390
---------
PREFERRED STOCKS 3.0%
<CAPTION>
Shares
- ------
GERMANY
<S> <C>
17,322 RWE AG (Producer and marketer of petroleum and chemical
products) ........................................................ 523,878
2,125 SAP AG (Computer software manufacturer) .......................... 306,008
---------
TOTAL PREFERRED STOCKS (COST $831,199) ........................... 829,886
---------
COMMON STOCKS 84.4%
AUSTRALIA 1.7%
3,400 Ampol Exploration Ltd.* (Oil and gas exploration company) ........ 11,425
271,698 Foster's Brewing Group, Ltd. (Leading brewery) ................... 469,224
---------
480,649
---------
BERMUDA 0.5%
3,450 Mid Ocean Limited (Property and casualty insurance company) ...... 133,256
---------
BRAZIL 2.3%
36,900 Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft
pulp) ............................................................ 295,200
1,275,000 Centrais Eletricas Brasileiras S/A "B" (Electric utility)......... 332,996
771,000 Companhia Energetica de Minas Gerais (Electric power utility) .... 21,619
---------
649,815
---------
CANADA 4.8%
14,960 Barrick Gold Corp. (Gold exploration and production in
North and South America) ......................................... 455,412
21,610 Canadian Pacific Ltd. (Ord.) (Transportation and natural
resource conglomerate) ........................................... 429,981
15,620 Placer Dome Inc. (Gold, silver and copper mining company) ........ 446,859
---------
1,332,252
---------
FRANCE 0.6%
1,825 Alcatel Alsthom (Manufacturer of transportation, telecommunication
and energy equipment) ............................................ 169,150
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
61
<PAGE>
AARP GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------
<S> <C>
GERMANY 13.3%
1,410 Bayer AG (Leading chemical producer) ........................... 480,299
14,215 Bayerische Vereinsbank Girozentrale (Commercial bank) .......... 436,170
938 Daimler-Benz AG (Automobile and truck manufacturer) ............ 510,187
1,410 Hoechst AG (Chemical producer) ................................. 499,495
1,189 Mannesmann AG (Bearer) (Diversified construction and technology
company) ..................................................... 433,286
263 Muenchener Rueckversicherungs AG (Insurance company) ........... 463,169
745 Siemens AG (Bearer) (Manufacturer of electrical and electronic
equipment) ................................................... 410,006
10,016 VEBA AG (Electric utility, distributor of oil and chemicals) ... 486,773
---------
3,719,385
---------
GHANA 1.4%
11,300 Ashanti Goldfields Co., Ltd. (ADS) (Leading gold producer) ..... 282,500
4,100 Ashanti Goldfields Co., Ltd. (GDS) ............................. 102,500
---------
385,000
---------
HONG KONG 1.8%
40,000 Hutchison Whampoa, Ltd. (Container terminal and real estate
company) ..................................................... 251,358
69,000 Television Broadcasts, Ltd. (Television broadcasting) .......... 253,821
---------
505,179
---------
INDONESIA 0.1%
38,500 Indah Kiat Pulp & Paper (Foreign registered) (Producer
of pulp and paper) ........................................... 30,052
1,000 Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper factory).. 973
---------
31,025
---------
JAPAN 5.4%
25,000 Canon Inc. (Leading producer of visual image and information
equipment) ................................................... 476,858
14,000 Hitachi Ltd. (General electronics manufacturer) ................ 136,138
28,000 Matsushita Electrical Industrial Co., Ltd. (Consumer electronic
products manufacturer) ....................................... 455,540
1,000 Nichiei Co., Ltd. (Finance company for small- and medium-sized
firms) ....................................................... 66,854
38,000 Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and
copper mining company) ....................................... 365,965
---------
1,501,355
---------
KOREA 0.6%
3,900 Korea Electric Power Corp. (ADR) (Electric utility) ............ 89,700
5,250 Korea Express Co., Ltd. (EDR) (General freight transport
company) ..................................................... 90,563
---------
180,263
---------
NETHERLANDS 5.4%
11,239 AEGON Insurance Group NV (Insurance company) ................... 530,623
7,273 Internationale-Nederlanden Groep CVA (Banking and insurance
holding company) ............................................. 528,273
3,163 Royal Dutch Petroleum Co. (Majority shareholder of Royal
Dutch/Shell Group of companies, involved in all phases of the
petroleum industry) .......................................... 448,001
54 Royal Dutch Petroleum Co. (New York shares) .................... 7,628
---------
1,514,525
---------
NEW ZEALAND 0.6%
37,400 Telecom Corp. of New Zealand (Telecommunication services) ...... 168,135
---------
SWEDEN 4.4%
10,445 Astra AB "A" (Free) (Pharmaceutical company) ................... 483,077
18,815 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ......... 414,709
15,522 Skandia Foersaekrings AB (Free) (Financial conglomerate) ....... 342,127
---------
1,239,913
---------
SWITZERLAND 6.9%
260 Ciba-Geigy AG (Bearer) (Pharmaceutical company) ................ 322,486
545 Micronas Semiconductor Holding AG* (Bearer) (Developer and
producer of mixed-signal integrated circuits and systems) .... 390,464
374 Nestle SA (Registered) (Food manufacturer) ..................... 422,055
</TABLE>
The accompanying notes are an integral part of the financial statements
62
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C>
2 Sandoz Ltd. AG (Bearer) (Pharmaceutical company) .................. 2,328
102 Sandoz Ltd. AG (Registered) (Pharmaceutical company) .............. 119,652
226 Swiss Reinsurance (Registered) (Life, accident and health insurance
company) ........................................................ 229,193
1,539 Zurich Insurance Group (Registered) (Insurance company) ........... 442,598
----------
1,928,776
----------
UNITED KINGDOM 9.0%
77,208 Carlton Communications PLC (Television post production
products and services) .......................................... 536,184
57,670 Grand Metropolitan PLC (Food and drink producer and retailer) ..... 371,452
68,715 Lonrho PLC (Widely diversified industrial holding company) ........ 224,967
55,455 PowerGen PLC (Electric utility) ................................... 451,560
34,600 RTZ Corp. PLC (Mining and finance company) ........................ 501,167
41,221 Reuters Holdings PLC (International news agency) .................. 447,330
----------
2,532,660
----------
UNITED STATES 25.6%
6,950 AT&T (Telecommunication services and business systems) ............ 425,686
5,960 EXEL, Ltd. (Provider of liability insurance) ...................... 411,240
11,610 Enron Corp. (Major natural gas pipeline system) ................... 428,119
11,650 First Data Corp. (Credit-card processing services) ................ 821,325
1,700 General Re Corp. (Property and casualty reinsurance) .............. 247,775
23,850 Homestake Mining Co. (Major international gold producer) .......... 462,094
3,450 International Business Machines Corp. (Principal manufacturer
and servicer of business and computing machines) ................ 383,381
5,100 J.P. Morgan & Co., Inc. (Commercial banking and financial
services) ....................................................... 423,300
22,400 LaFarge Corp. (Leading cement producer) ........................... 422,800
22,770 Louisiana-Pacific Corp. (Producer of lumber, plywood and
pulp) ........................................................... 555,019
5,510 MBIA Inc. (Insurer of municipal bonds) ............................ 413,250
11,300 National Semiconductor Corp.* (Manufacturer of integrated
circuits and transistors) ....................................... 156,788
7,600 Newmont Mining Corp. (International gold exploration and
mining company) ................................................. 430,350
3,800 Times Mirror Co. "A" (Newspaper publisher) ........................ 149,625
8,600 UNUM Corp. (Provider of disability, health and life insurance
and group pension products) ..................................... 511,700
14,950 WMX Technologies Inc. (Solid and chemical waste management
services) ....................................................... 474,663
3,650 Xerox Corp. (Leading manufacturer of copiers and duplicators) ..... 458,075
----------
7,175,190
----------
TOTAL COMMON STOCKS (COST $23,257,214) ............................ 23,646,528
==========
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $29,700,027) (a) ..... 107.4 30,087,503
OTHER ASSETS AND LIABILITIES, NET ..................... (7.4) (2,078,893)
----- ----------
NET ASSETS ............................................ 100.0 28,008,610
===== ==========
<FN>
* Nonincome producing security.
(a) At March 31, 1996, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $29,700,027 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ................................................... $ 603,012
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................. (215,536)
---------
Net unrealized appreciation ................................ $ 387,476
=========
Purchases of investment securities, (excluding short-term investments)
from February 1, 1996 through March 31, 1996, aggregated $24,101,413.
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
Sector breakdown of the Fund's equity securities is noted on page 21.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
63
<PAGE>
AARP CAPITAL GROWTH FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 2.9%
21,996,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/29/96 at 5.35% to be repurchased at $22,005,807
on 4/1/96, collateralized by a $22,471,000 U.S.
Treasury Bill, 6/20/96 (COST $21,996,000) .............. 21,996,000
----------
PREFERRED STOCKS 0.3%
Shares
- ------
TECHNOLOGY
Computer Software
16,200 SAP AG (COST $2,524,657) ...................................... 2,332,861
----------
COMMON STOCKS 97.8%
CONSUMER DISCRETIONARY 8.4%
Department & Chain Stores 3.6%
200,000 J.C. Penney Co., Inc. ......................................... 9,950,000
200,000 May Department Stores ......................................... 9,650,000
250,000 Walgreen Co. .................................................. 8,156,250
----------
27,756,250
----------
Hotels & Casinos 0.9%
235,000 Grand Casinos Inc.* ........................................... 7,050,000
----------
Restaurants 2.0%
310,000 McDonald's Corp. .............................................. 14,880,000
----------
Specialty Retail 1.9%
346,800 Intimate Brands, Inc. ......................................... 6,719,250
300,000 Toys "R" Us Inc.* ............................................. 8,100,000
----------
14,819,250
----------
CONSUMER STAPLES 4.9%
Food & Beverage 0.9%
185,000 Albertson's Inc. .............................................. 6,868,125
----------
Package Goods/Cosmetics 3.5%
150,000 Clorox Co. .................................................... 12,918,750
145,600 Estee Lauder Companies "A" .................................... 5,205,200
100,000 Procter & Gamble Co. .......................................... 8,475,000
----------
26,598,950
----------
Textiles 0.5%
87,500 Gucci Group* (New York Shares) ................................ 4,200,000
----------
HEALTH 14.2%
Health Industry Services 1.0%
300,000 Bergen Brunswig Corp. "A" ..................................... 7,837,500
----------
Hospital Management 3.2%
420,000 Columbia/HCA Healthcare Corp. ................................. 24,255,000
----------
Medical Supply & Specialty 3.0%
179,000 Becton, Dickinson & Co. ....................................... 14,655,625
134,000 Medtronic Inc. ................................................ 7,989,750
----------
22,645,375
----------
Pharmaceuticals 7.0%
115,000 American Home Products Corp. .................................. 12,463,125
315,000 Astra AB "B" (Free) ........................................... 14,474,481
90,000 Johnson & Johnson ............................................. 8,302,500
</TABLE>
The accompanying notes are an integral part of the financial statements
64
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------
<S> <C>
150,000 Merck & Co. Inc. ..................... 9,337,500
150,000 Schering-Plough Corp. ................ 8,718,750
----------
53,296,356
----------
COMMUNICATIONS 0.8%
Telephone/Communications
225,000 Tele Danmark A/S (ADR) ............... 5,821,875
----------
FINANCIAL 15.5%
Banks 4.0%
125,000 First Chicago NBD Corp. .............. 5,187,500
80,000 J.P. Morgan & Co., Inc. .............. 6,640,000
141,600 MBNA Corp. ........................... 4,194,900
200,000 Norwest Corp. ........................ 7,350,000
160,000 Wachovia Corp. ....................... 7,160,000
----------
30,532,400
----------
Insurance 6.4%
180,000 American International Group, Inc. ... 16,852,500
26,900 Chubb Corp. .......................... 2,525,238
180,000 EXEL, Ltd. ........................... 12,420,000
24,000 General Re Corp. ..................... 3,498,000
176,000 MBIA Inc. ............................ 13,200,000
----------
48,495,738
----------
Other Financial Companies 5.1%
330,000 American Express Credit Corp. ........ 16,293,750
720,000 Federal National Mortgage Association 22,950,000
----------
39,243,750
----------
MEDIA 2.8%
Broadcasting & Entertainment 2.3%
280,000 Walt Disney Co. ...................... 17,885,000
----------
Print Media 0.5%
56,000 Gannett Co., Inc. .................... 3,766,000
----------
SERVICE INDUSTRIES 2.8%
Environmental Services 0.2%
145,500 Destec Energy Inc.* .................. 1,800,563
----------
Investment 2.6%
75,000 Dean Witter, Discover & Co. .......... 4,293,750
265,000 Franklin Resources Inc. .............. 15,105,000
----------
19,398,750
----------
DURABLES 4.8%
Aerospace 4.4%
100,000 Lockheed Martin Corp. ................ 7,587,500
235,000 Rockwell International Corp. ......... 13,835,625
110,000 United Technologies Corp. ............ 12,347,500
----------
33,770,625
----------
Telecommunications Equipment 0.4%
95,000 DSC Communications Corp.* ............ 2,565,000
----------
MANUFACTURING 12.4%
Chemicals 2.8%
140,000 E.I. du Pont de Nemours & Co. ........ 11,620,000
98,700 Praxair Inc. ......................... 3,935,663
100,000 Sigma-Aldrich Corp. .................. 5,725,000
----------
21,280,663
----------
Diversified Manufacturing 4.4%
300,000 Canadian Pacific Ltd. ................ 6,000,000
95,000 General Electric Co. ................. 7,398,125
</TABLE>
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------
<S> <C>
120,000 TRW Inc. .................................. 10,695,000
120,000 Textron, Inc. ............................. 9,600,000
----------
33,693,125
----------
Electrical Products 2.7%
60,000 ASEA AB (ADR) ............................. 6,195,000
83,000 Emerson Electric Co. ...................... 6,702,250
200,000 Philips NV (New York shares) .............. 7,275,000
----------
20,172,250
----------
Machinery/Components/Controls 2.5%
200,000 Ingersoll-Rand Co. ........................ 8,150,000
297,000 Parker-Hannifin Group ..................... 11,137,500
----------
19,287,500
----------
TECHNOLOGY 14.4%
Computer Software 0.1%
9,700 Xylan Corp.* .............................. 504,400
----------
Diverse Electronic Products 3.3%
475,000 Applied Materials, Inc.* .................. 16,565,625
140,000 General Motors Corp. "H" .................. 8,855,000
----------
25,420,625
----------
Electronic Components/Distributors 0.0%
72 Samsung Electronics Co., Ltd. ............. 8,468
21 Samsung Electronics Co., Ltd. (New) ....... 2,292
----------
10,760
----------
Electronic Data Processing 4.6%
150,000 Compaq Computer Corp.* .................... 5,793,750
275,000 Hewlett-Packard Co. ....................... 25,850,000
35,000 International Business Machines Corp. ..... 3,889,373
----------
35,533,123
----------
Office/Plant Automation 4.2%
150,000 3Com Corp.* ............................... 5,981,250
110,000 Cabletron Systems Inc.* ................... 7,287,500
400,000 Cisco Systems, Inc.* ...................... 18,550,000
----------
31,818,750
----------
Semiconductors 2.2%
280,000 Atmel Corp.* .............................. 7,140,000
82,900 Intel Corp. ............................... 4,714,938
91,000 Texas Instruments Inc. .................... 4,629,625
----------
16,484,563
----------
ENERGY 9.2%
Engineering 1.0%
110,000 Fluor Corp. ............................... 7,507,500
----------
Oil Companies 7.2%
175,000 Amoco Corp. ............................... 12,643,750
135,000 Exxon Corp. ............................... 11,019,375
70,000 Mobil Corp. ............................... 8,111,250
204,800 Repsol SA (ADR) ........................... 7,654,400
110,000 Royal Dutch Petroleum Co. (New York shares) 15,537,500
----------
54,966,275
----------
Oil/Gas Transmission 1.0%
200,000 Enron Corp. ............................... 7,375,000
----------
CONSTRUCTION 1.1%
Forest Products
330,000 Louisiana-Pacific Corp. ................... 8,043,750
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
66
<PAGE>
LIST OF INVESTMENTS AS OF MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------
<S> <C>
TRANSPORTATION 3.3%
Airlines 1.9%
160,000 AMR Corp.* ............................................. 14,320,000
-----------
Railroads 1.4%
100,000 Consolidated Rail Corp. ................................ 7,162,500
60,000 Wisconsin Central Transportation Co.* .................. 3,990,000
-----------
11,152,500
-----------
UTILITIES 3.2%
Electric Utilities
350,000 Eastern Utilities Association .......................... 7,525,000
130,000 Houston Industries Inc. ................................ 2,811,250
60,000 Illinova Corp. ......................................... 1,687,500
150,000 NIPSCO Industries Inc. ................................. 5,587,500
285,000 PowerGen PLC (ADR)* .................................... 6,840,000
-----------
24,451,250
-----------
TOTAL COMMON STOCKS (COST $596,126,467)................. 745,508,541
-----------
<CAPTION>
% OF NET
SUMMARY ASSETS
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $620,647,124)(a)..... 101.0 769,837,402
OTHER ASSETS AND LIABILITIES, NET..................... (1.0) (7,404,668)
----- -----------
NET ASSETS............................................ 100.0 762,432,734
===== ===========
- -------------------------------------------------------------------------------------
<FN>
* Nonincome producing security.
(a) At March 31, 1996, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $620,647,124 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ...................................................... $161,253,197
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .................................................... (12,062,919)
------------
Net unrealized appreciation ................................... $149,190,278
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term
investments), for the six months ended March 31, 1996, aggregated
$276,713,787 and $267,858,048, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements
67
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AARP HIGH AARP HIGH AARP GNMA AARP HIGH
QUALITY QUALITY TAX FREE AND U.S. QUALITY
MARCH 31, 1996 (UNAUDITED) MONEY FUND MONEY FUND TREASURY FUND BOND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios).......... $ 378,736,503 $ 114,361,160 $ 5,091,647,540 $ 548,835,367
Cash.................................................... 385,786 24,782 1,067,574 1,001
Receivable on investments sold.......................... - - - 5,317,119
Dividends and interest receivable....................... 2,728,121 1,126,097 46,805,780 5,673,174
Receivable on Fund shares sold.......................... 1,249,065 113,486 1,020,549 298,662
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3).................... - - - -
Deferred organization expenses (Note 1)................. - - - -
Due from Fund Manager (Note 2).......................... - - - -
Other assets............................................ 3,624 1,214 46,575 1,969
------------- --------------- ----------------- --------------
Total assets............................................ 383,103,099 115,626,739 5,140,588,018 560,127,292
LIABILITIES
Investments purchased................................... - - 1,010,246 29,341,146
Fund shares redeemed.................................... 1,334,345 97,377 3,629,252 351,765
Dividends payable....................................... 131,857 48,204 11,605,999 738,899
Management fee (Note 2)................................. 126,752 38,561 1,799,820 219,312
Transfer and dividend disbursing agent (Note 2)......... 127,633 25,130 618,939 135,150
Daily variation margin on open futures
contracts (Note 1).................................... - - - -
Other accrued expenses.................................. 162,218 52,220 843,835 223,637
------------- --------------- ----------------- --------------
Total liabilities....................................... 1,882,805 261,492 19,508,091 31,009,909
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 381,220,294 $ 115,365,247 $ 5,121,079,927 $ 529,117,383
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed (overdistributed)
net investment income................................. $ - $ - $ - $ 304,913
Net unrealized appreciation (depreciation) on:
Investments........................................... (331,437) - 13,481,805 (3,645,899)
Futures contracts..................................... - - - -
Foreign currency related transactions................. - - - -
Accumulated net realized capital gain (loss)............ (64,327) (1,226,724) (301,359,596) (6,527,894)
Shares of beneficial interest, at par................... 3,815,517 115,372 3,400,767 332,413
Additional paid-in capital.............................. 377,800,541 116,476,599 5,405,556,951 538,653,850
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 381,220,294 $ 115,365,247 $ 5,121,079,927 $ 529,117,383
- ---------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01
par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value........... 381,551,731 115,372,286 340,076,707 33,241,292
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption
price per share (net assets at value, per
fund, divided by the respective shares
of beneficial interest outstanding)............. $ 1.00 $ 1.00 $ 15.06 $ 15.92
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
68
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
AARP INSURED AARP BALANCED AARP GROWTH
TAX FREE GENERAL STOCK AND BOND AND INCOME
MARCH 31, 1996 (UNAUDITED) BOND FUND FUND FUND
<S> <C> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios).......... $ 1,778,920,671 $ 324,208,868 $ 3,652,001,718
Cash.................................................... 51,090 448,940 135,281
Receivable on investments sold.......................... -- 373,450 17,794,237
Dividends and interest receivable....................... 23,260,940 2,049,902 11,289,154
Receivable on Fund shares sold.......................... 403,402 -- 3,959,447
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3).................... -- 4,157 --
Deferred organization expenses (Note 1)................. -- 25,269 --
Due from Fund Manager (Note 2).......................... -- -- --
Other assets............................................ 4,388 -- 4,287
---------------- ------------- ---------------
Total assets............................................ 1,802,640,491 327,110,586 3,685,184,124
LIABILITIES
Investments purchased................................... 11,210,000 7,313,392 12,859,956
Fund shares redeemed.................................... 701,276 -- 1,052,818
Dividends payable....................................... 2,862,555 -- --
Management fee (Note 2)................................. 735,974 139,400 1,485,762
Transfer and dividend disbursing agent (Note 2)......... 161,930 62,008 331,518
Daily variation margin on open futures
contracts (Note 1).................................... 862,500 -- --
Other accrued expenses.................................. 266,436 260,486 802,395
---------------- ------------- ---------------
Total liabilities....................................... 16,800,671 7,775,286 16,532,449
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 1,785,839,820 $ 319,335,300 $ 3,668,651,675
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed (overdistributed)
net investment income................................. $ -- $ (56,851) $ 4,901,544
Net unrealized appreciation (depreciation) on:
Investments........................................... 80,029,739 32,040,228 830,380,305
Futures contracts..................................... 1,324,812 -- --
Foreign currency related transactions................. -- (5,857) (37,717)
Accumulated net realized capital gain (loss)............ (17,368,574) 3,807,649 103,034,483
Shares of beneficial interest, at par................... 999,560 186,051 873,176
Additional paid-in capital.............................. 1,720,854,283 283,364,080 2,729,499,884
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 1,785,839,820 $ 319,335,300 $ 3,668,651,675
- ----------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01
par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value........... 99,955,966 18,605,061 87,317,641
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption
price per share (net assets at value, per
fund, divided by the respective shares
of beneficial interest outstanding)............. $ 17.87 $ 17.16 $ 42.02
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP GLOBAL AARP CAPITAL
GROWTH GROWTH
MARCH 31, 1996 (UNAUDITED) FUND FUND
<S> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios).......... $ 30,087,503 $769,837,402
Cash.................................................... 143 45
Receivable on investments sold.......................... -- 2,158,991
Dividends and interest receivable....................... 19,825 759,401
Receivable on Fund shares sold.......................... 677,806 369,914
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3).................... -- --
Deferred organization expenses (Note 1)................. 14,507 --
Due from Fund Manager (Note 2).......................... 120,693 --
Other assets............................................ -- --
------------ ------------
Total assets............................................ 30,920,477 773,125,753
LIABILITIES
Investments purchased................................... 2,777,550 9,608,479
Fund shares redeemed.................................... 5,063 375,466
Dividends payable....................................... -- --
Management fee (Note 2)................................. 12,238 395,440
Transfer and dividend disbursing agent (Note 2)......... 42,284 100,396
Daily variation margin on open futures
contracts (Note 1).................................... -- --
Other accrued expenses.................................. 74,732 213,238
------------ ------------
Total liabilities....................................... 2,911,867 10,693,019
- ---------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 28,008,610 $762,432,734
- ---------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed (overdistributed)
net investment income................................. $ 29,187 $ 2,690,900
Net unrealized appreciation (depreciation) on:
Investments........................................... 387,476 149,190,278
Futures contracts..................................... -- --
Foreign currency related transactions................. (2,273) --
Accumulated net realized capital gain (loss)............ (11,269) 48,045,507
Shares of beneficial interest, at par................... 18,344 186,136
Additional paid-in capital.............................. 27,587,145 562,319,913
- ---------------------------------------------------------------------------------------------------------
Net assets at value..................................... $ 28,008,610 $762,432,734
- ---------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01
par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value........... 1,834,377 18,613,576
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption
price per share (net assets at value, per
fund, divided by the respective shares
of beneficial interest outstanding)............. $ 15.27 $ 40.96
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
69
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AARP HIGH AARP HIGH AARP GNMA AARP HIGH
SIX MONTHS ENDED MARCH 31, 1996 QUALITY QUALITY TAX FREE AND U.S. QUALITY
(UNAUDITED) MONEY FUND MONEY FUND TREASURY FUND BOND FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest....................................... $ 10,613,268 $ 2,176,139 $ 190,927,048 $ 18,100,411
Dividends...................................... - - - -
------------ ----------- -------------- --------------
10,613,268 2,176,139 190,927,048 18,100,411
------------ ----------- -------------- --------------
Less foreign taxes withheld.................... - - - -
------------ ----------- -------------- --------------
10,613,268 2,176,139 190,927,048 18,100,411
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fee (Note 2)........................ 751,538 231,336 10,831,770 1,305,675
Services to shareholders:
Transfer and dividend disbursing
expense (Note 2)..................... 755,473 155,238 3,743,410 799,397
Other expenses......................... 201,319 35,180 817,443 226,313
Trustees' fees and expenses (Note 2)........... 9,295 13,576 13,394 13,406
Shareholder communications..................... 81,258 23,700 614,964 79,305
Legal.......................................... 4,321 3,751 4,783 3,961
Auditing....................................... 14,000 14,000 34,000 25,450
Custodian and accounting fees (Note 2)......... 42,786 27,289 598,330 68,564
Registration expenses.......................... 40,591 11,385 48,965 15,029
Amortization of organization expenses
(Note 1)..................................... - - - -
Other.......................................... 13,983 6,314 97,558 13,097
------------ ----------- -------------- --------------
Total Expenses before reductions....................... 1,914,564 521,769 16,804,617 2,550,197
Expense reductions (Note 2)............................ - - - -
------------ ----------- -------------- --------------
Expenses, net.......................................... 1,914,564 521,769 16,804,617 2,550,197
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income.................................. 8,698,704 1,654,370 174,122,431 15,550,214
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investments............................ 2,594 - 57,937,663 2,053,849
Futures contracts (Note 1)............. - - - 1,704,048
Foreign currency related transactions
(Note 1)............................. - - - -
Net unrealized appreciation (depreciation) on:
Investments............................ 159,278 - (101,174,657) (6,920,280)
Futures contracts...................... - - - -
Foreign currency related transactions - - - -
------------ ----------- -------------- --------------
Net gain (loss) on investments......................... 161,872 - (43,236,994) (3,162,383)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................................... $ 8,860,576 $ 1,654,370 $ 130,885,437 $ 12,387,831
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
70
<PAGE>
<TABLE>
<CAPTION>
AARP Insured AARP Balanced AARP Growth AARP Global AARP Capital
SIX MONTHS ENDED MARCH 31, 1996 Tax Free General Stock and Bond and Income Growth Growth
(UNAUDITED) Bond Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest....................................... $ 49,444,772 $ 4,021,249 $ 5,991,254 $ 34,588 $ 565,746
Dividends...................................... -- 2,513,398 49,522,879 20,923 6,155,206
------------ ------------ ------------- --------- ------------
49,444,772 6,534,647 55,514,133 55,511 6,720,952
------------ ------------ ------------- --------- ------------
Less foreign taxes withheld.................... -- (13,630) (330,767) (1,526) (74,588)
------------ ------------ ------------- --------- ------------
49,444,772 6,521,017 55,183,366 53,985 6,646,364
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fee (Note 2)........................ 4,423,663 688,877 7,966,962 12,238 2,218,024
Services to shareholders:
Transfer and dividend disbursing
expense (Note 2)..................... 980,156 320,261 1,806,427 42,284 573,478
Other expenses......................... 217,053 35,941 728,490 6,127 190,087
Trustees' fees and expenses (Note 2)........... 13,576 13,539 13,522 4,473 13,002
Shareholder communications..................... 172,376 179,117 448,574 13,417 122,624
Legal.......................................... 4,491 1,945 5,769 1,421 7,063
Auditing....................................... 30,250 7,888 24,650 1,000 23,250
Custodian and accounting fees (Note 2)......... 172,139 30,779 322,543 28,776 125,074
Registration expenses.......................... 36,060 101,097 95,480 33,269 1,329
Amortization of organization expenses
(Note 1)..................................... -- 4,466 -- 500 --
Other.......................................... 37,609 22,128 61,888 1,986 7,997
------------ ------------ ------------- --------- ------------
Total Expenses before reductions....................... 6,087,373 1,406,038 11,474,305 145,491 3,281,928
Expense reductions (Note 2)............................ -- -- -- (120,693) --
------------ ------------ ------------- --------- ------------
Expenses, net.......................................... 6,087,373 1,406,038 11,474,305 24,798 3,281,928
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income.................................. 43,357,399 5,114,979 43,709,061 29,187 3,364,436
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investments............................ 12,712,046 4,791,863 117,785,191 (491) 53,543,930
Futures contracts (Note 1)............. (1,156,315) 34,435 -- -- --
Foreign currency related transactions
(Note 1)............................. -- 304,147 (256,070) (10,778) (27,653)
Net unrealized appreciation (depreciation) on:
Investments............................ (7,242) 10,965,134 250,177,706 387,476 7,474,671
Futures contracts...................... 1,954,701 3,391 -- -- --
Foreign currency related transactions -- (165,806) (43,545) (2,273) 4,789
------------ ------------ ------------- --------- ------------
Net gain (loss) on investments......................... 13,503,190 15,933,164 367,663,282 373,934 60,995,737
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................................... $ 56,860,589 $ 21,048,143 $ 411,372,343 $ 403,121 $ 64,360,173
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
71
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AARP HIGH AARP HIGH
QUALITY QUALITY TAX FREE
MONEY FUND MONEY FUND
INCREASE (DECREASE) IN NET ASSETS:
Six Months Ended Year Six Months Ended Year
March 31, Ended March 31, Ended
1996 Sept. 30, 1996 Sept. 30,
(Unaudited) 1995 (Unaudited) 1995
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income .......................... $ 8,698,704 $ 18,316,417 $ 1,654,370 $ 3,691,193
Net realized gain (loss) from:
Investments ............................ 2,594 (2,594) -- (5,140)
Futures contracts ...................... -- -- -- --
Foreign currency related transactions .. -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ............................ 159,278 (235,013) -- --
Futures contracts ...................... -- -- -- --
Foreign currency related transactions .. -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ 8,860,576 18,078,810 1,654,370 3,686,053
------------- ------------- ------------- -------------
Distributions to shareholders:
Net investment income .......................... (8,698,704) (18,316,417) (1,654,370) (3,691,193)
Net realized gains ............................. -- -- -- --
Tax return of capital .......................... -- -- -- --
------------- ------------- ------------- -------------
(8,698,704) (18,316,417) (1,654,370) (3,691,193)
------------- ------------- ------------- -------------
Fund share transactions:
Proceeds from sale of shares ................... 169,270,293 405,381,235 15,149,738 41,129,795
Net asset value of shares issued to
shareholders in reinvestment of
distributions .......................... 7,761,867 16,274,697 1,315,720 2,929,152
Cost of shares redeemed ........................ (179,869,790) (370,960,332) (20,846,182) (53,717,481)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (2,837,630) 50,695,600 (4,380,724) (9,658,534)
------------- ------------- ------------- -------------
Increase (decrease) in net assets ...................... (2,675,758) 50,457,993 (4,380,724) (9,663,674)
Net assets at beginning of period ...................... 383,896,052 333,438,059 119,745,971 129,409,645
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ........................ $ 381,220,294 $ 383,896,052 $ 115,365,247 $ 119,745,971
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning of period .............. 384,389,361 333,693,761 119,753,010 129,411,544
------------- ------------- ------------- -------------
Shares sold .................................... 169,270,293 405,381,235 15,149,738 41,129,795
Shares issued to shareholders in
reinvestment of distributions ......... 7,761,867 16,274,697 1,315,720 2,929,152
Shares redeemed ................................ (179,869,790) (370,960,332) (20,846,182) (53,717,481)
------------- ------------- ------------- -------------
Net increase (decrease) in Fund shares ................. (2,837,630) 50,695,600 (4,380,724) (9,658,534)
------------- ------------- ------------- -------------
Shares outstanding at end of period .................... 381,551,731 384,389,361 115,372,286 119,753,010
- ---------------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed (overdistributed)
net investment income .............................. $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
AARP GNMA AARP High
and U.S. Quality
Treasury Fund Bond Fund
INCREASE (DECREASE) IN NET ASSETS:
Six Months Ended Year Six Months Ended Year
March 31, Ended March 31, Ended
1996 Sept. 30, 1996 Sept. 30,
(Unaudited) 1995 (Unaudited) 1995
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income .......................... $ 174,122,431 $ 358,090,095 $ 15,550,214 $ 32,695,491
Net realized gain (loss) from:
Investments ............................ 57,937,663 (68,679,536) 2,053,849 6,264,433
Futures contracts ...................... -- -- 1,704,048 462,444
Foreign currency related transactions .. -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ............................ (101,174,657) 224,571,191 (6,920,280) 25,349,000
Futures contracts ...................... -- -- -- (235,464)
Foreign currency related transactions .. -- -- -- --
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ 130,885,437 513,981,750 12,387,831 64,535,904
--------------- --------------- --------------- ---------------
Distributions to shareholders:
Net investment income .......................... (174,122,431) (347,262,513) (15,550,214) (32,238,660)
Net realized gains ............................. -- -- -- --
Tax return of capital .......................... -- (10,827,582) -- --
--------------- --------------- --------------- ---------------
(174,122,431) (358,090,095) (15,550,214) (32,238,660)
--------------- --------------- --------------- ---------------
Fund share transactions:
Proceeds from sale of shares ................... 182,586,082 313,574,493 32,979,906 38,133,943
Net asset value of shares issued to
shareholders in reinvestment of
distributions .......................... 101,305,738 209,361,883 11,015,827 22,872,960
Cost of shares redeemed ........................ (371,625,373) (1,012,262,747) (45,138,264) (127,867,757)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (87,733,553) (489,326,371) (1,142,531) (66,860,854)
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets ...................... (130,970,547) (333,434,716) (4,304,914) (34,563,610)
Net assets at beginning of period ...................... 5,252,050,474 5,585,485,190 533,422,297 567,985,907
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ........................ $ 5,121,079,927 $ 5,252,050,474 $ 529,117,383 $ 533,422,297
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning of period .............. 345,829,087 379,121,168 33,312,382 37,734,181
--------------- --------------- --------------- ---------------
Shares sold .................................... 11,966,664 21,222,249 2,030,000 2,475,377
Shares issued to shareholders in
reinvestment of distributions ......... 6,644,158 14,034,160 678,509 1,481,640
Shares redeemed ................................ (24,363,202) (68,548,490) (2,779,599) (8,378,816)
--------------- --------------- --------------- ---------------
Net increase (decrease) in Fund shares ................. (5,752,380) (33,292,081) (71,090) (4,421,799)
--------------- --------------- --------------- ---------------
Shares outstanding at end of period .................... 340,076,707 345,829,087 33,241,292 33,312,382
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed (overdistributed)
net investment income .............................. $ -- $ -- $ 304,913 $ 304,913
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
AARP Insured AARP Balanced
Tax Free General Stock and Bond
Bond Fund Fund
INCREASE (DECREASE) IN NET ASSETS:
Six Months Ended Year Six Months Ended Year
March 31, Ended March 31, Ended
1996 Sept. 30, 1996 Sept. 30,
(Unaudited) 1995 (Unaudited) 1995
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income .......................... $ 43,357,399 $ 91,515,925 $ 5,114,979 $ 8,110,687
Net realized gain (loss) from:
Investments ............................ 12,712,046 1,141,498 4,791,863 2,922,966
Futures contracts ...................... (1,156,315) (22,927,127) 34,435 66,437
Foreign currency related transactions .. -- -- 304,147 (8,944)
Net unrealized appreciation (depreciation) on:
Investments ............................ (7,242) 102,468,526 10,965,134 20,344,202
Futures contracts ...................... 1,954,701 (843,714) 3,391 (3,391)
Foreign currency related transactions .. -- -- (165,806) 159,949
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ 56,860,589 171,355,108 21,048,143 31,591,906
--------------- --------------- --------------- ---------------
Distributions to shareholders:
Net investment income .......................... (43,357,399) (91,515,925) (5,493,796) (7,923,700)
Net realized gains ............................. -- -- (3,378,368) (479,306)
Tax return of capital .......................... -- -- -- --
--------------- --------------- --------------- ---------------
(43,357,399) (91,515,925) (8,872,164) (8,403,006)
--------------- --------------- --------------- ---------------
Fund share transactions:
Proceeds from sale of shares ................... 62,059,896 128,807,008 71,213,172 82,046,020
Net asset value of shares issued to
shareholders in reinvestment of
distributions .......................... 26,371,919 56,102,941 8,119,521 7,595,827
Cost of shares redeemed ........................ (123,142,507) (371,972,763) (19,380,327) (41,121,662)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (34,710,692) (187,062,814) 59,952,366 48,520,185
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets ...................... (21,207,502) (107,223,631) 72,128,345 71,709,085
Net assets at beginning of period ...................... 1,807,047,322 1,914,270,953 247,206,955 175,497,870
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ........................ $ 1,785,839,820 $ 1,807,047,322 $ 319,335,300 $ 247,206,955
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning of period .............. 101,872,699 113,066,680 15,074,610 11,983,629
--------------- --------------- --------------- ---------------
Shares sold .................................... 3,420,940 7,482,591 4,192,246 5,336,478
Shares issued to shareholders in
reinvestment of distributions ......... 1,452,204 3,261,074 480,340 497,020
Shares redeemed ................................ (6,789,877) (21,937,646) (1,142,135) (2,742,517)
--------------- --------------- --------------- ---------------
Net increase (decrease) in Fund shares ................. (1,916,733) (11,193,981) 3,530,451 3,090,981
--------------- --------------- --------------- ---------------
Shares outstanding at end of period .................... 99,955,966 101,872,699 18,605,061 15,074,610
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed (overdistributed)
net investment income .............................. $ -- $ -- $ (56,851) $ 321,966
</TABLE>
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
AARP GROWTH AARP GLOBAL
AND INCOME GROWTH
FUND FUND
INCREASE (DECREASE) IN NET ASSETS:
Six Months Ended Year For the Period
March 31, Ended February 1, 1996 (b) to
1996 Sept. 30, March 31, 1996
(Unaudited) 1995 (Unaudited)
----------- ---- -----------
<S> <C> <C> <C>
Operations:
Net investment income ........................ $ 43,709,061 $ 83,288,031 $ 29,187
Net realized gain (loss) from:
Investments .......................... 117,785,191 82,525,735 (491)
Futures contracts .................... -- -- --
Foreign currency related transactions (256,070) 23,310 (10,778)
Net unrealized appreciation (depreciation) on:
Investments .......................... 250,177,706 331,251,054 387,476
Futures contracts .................... -- -- --
Foreign currency related transactions (43,545) 5,828 (2,273)
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations .............................. 411,372,343 497,093,958 403,121
--------------- --------------- ---------------
Distributions to shareholders:
Net investment income ........................ (44,879,985) (81,086,105) --
Net realized gains ........................... (67,064,704) (85,015,819) --
Tax return of capital ........................ -- -- --
--------------- --------------- ---------------
(111,944,689) (166,101,924) --
--------------- --------------- ---------------
Fund share transactions:
Proceeds from sale of shares ................. 444,194,008 589,883,371 27,771,879
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................ 101,703,065 149,554,221 --
Cost of shares redeemed ...................... (183,191,629) (376,048,965) (167,890)
--------------- --------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ........................... 362,705,444 363,388,627 27,603,989
--------------- --------------- ---------------
Increase (decrease) in net assets .................... 662,133,098 694,380,661 28,007,110
Net assets at beginning of period .................... 3,006,518,577 2,312,137,916 1,500
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ...................... $ 3,668,651,675 $ 3,006,518,577 $ 28,008,610
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning of period ............ 78,371,684 67,740,274 100
--------------- --------------- ---------------
Shares sold .................................. 10,950,533 17,103,571 1,845,356
Shares issued to shareholders in
reinvestment of distributions ....... 2,540,844 4,523,324 --
Shares redeemed .............................. (4,545,420) (10,995,485) (11,079)
--------------- --------------- ---------------
Net increase (decrease) in Fund shares ............... 8,945,957 10,631,410 1,834,277
--------------- --------------- ---------------
Shares outstanding at end of period .................. 87,317,641 78,371,684 1,834,377
- ---------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
(overdistributed) net investment income .......... $ 4,901,544 $ 6,072,468 $ 29,187
(b) Commencement of Operations
<CAPTION>
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
AARP CAPITAL
GROWTH
FUND
INCREASE (DECREASE) IN NET ASSETS:
Six Months Ended Year
March 31, Ended
1996 Sept. 30,
(Unaudited) 1995
----------- ----
<S> <C> <C>
Operations:
Net investment income ........................ $ 3,364,436 $ 6,448,989
Net realized gain (loss) from:
Investments .......................... 53,543,930 3,854,142
Futures contracts .................... -- --
Foreign currency related transactions (27,653) (49,230)
Net unrealized appreciation (depreciation) on:
Investments .......................... 7,474,671 124,391,488
Futures contracts .................... -- --
Foreign currency related transactions 4,789 (4,789)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations .............................. 64,360,173 134,640,600
--------------- ---------------
Distributions to shareholders:
Net investment income ........................ (7,038,882) (216,094)
Net realized gains ........................... (9,204,690) (13,160,374)
Tax return of capital ........................ -- --
--------------- ---------------
(16,243,572) (13,376,468)
--------------- ---------------
Fund share transactions:
Proceeds from sale of shares ................. 64,912,037 68,276,671
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................ 15,425,567 12,786,953
Cost of shares redeemed ...................... (58,030,417) (193,118,723)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ........................... 22,307,187 (112,055,099)
--------------- ---------------
Increase (decrease) in net assets .................... 70,423,788 9,209,033
Net assets at beginning of period .................... 692,008,946 682,799,913
- ---------------------------------------------------------------------------------------------
Net assets at end of period (a) ...................... $ 762,432,734 $ 692,008,946
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning of period ............ 18,041,977 21,513,985
--------------- ---------------
Shares sold .................................. 1,645,004 2,055,946
Shares issued to shareholders in
reinvestment of distributions ....... 400,664 424,681
Shares redeemed .............................. (1,474,069) (5,952,635)
--------------- ---------------
Net increase (decrease) in Fund shares ............... 571,599 (3,472,008)
--------------- ---------------
Shares outstanding at end of period .................. 18,613,576 18,041,977
- ---------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
(overdistributed) net investment income .......... $ 2,690,900 $ 6,365,346
(b) Commencement of Operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
FINANCIAL HIGHLIGHTS
AARP HIGH QUALITY MONEY FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 -----------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
--------------------------------------------------------------
Net investment income (a) .............................. .023 .049 .028 .021 .040 .060
Distributions from net investment income ............... (.023) (.049) (.028) (.021) (.040)(b) (.060)
--------------------------------------------------------------
Net asset value, end of period ................................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
--------------------------------------------------------------
TOTAL RETURN (%)(c) ............................................ 2.30(d) 4.99 2.84 2.13 4.12 6.22
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ......................... 381 384 333 254 323 357
Ratio of operating expenses to average net assets (%)(a) ....... .988(e) .978 1.125 1.312 1.151 1.053
Ratio of net investment income to average net assets (%) ....... 4.490(e) 4.887 2.889 2.123 3.613 6.050
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of: .................. $ -- $ -- $ -- $ -- $ .000 $ .001
(b) Includes approximately $.005 per share of net realized
short--term capital gains.
(c) Total returns would have been lower had certain expenses
not been reduced.
(d) Not Annualized (e) Annualized
</TABLE>
AARP HIGH QUALITY TAX FREE MONEY FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 -------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991(b)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $1.000 $1.000 $1.000 $1.000 $1.000 $.996
--------------------------------------------------------------
Income from investment operations:
Net investment income (a) ......................... .014 .029 .017 .016 .026 .055
Net realized and unrealized gain on investments ... -- -- -- -- -- .004
--------------------------------------------------------------
Total from investment operations .......................... .014 .029 .017 .016 .026 .059
--------------------------------------------------------------
Less distributions from net investment income ............. (.014) (.029) (.017) (.016) (.026) (.055)
--------------------------------------------------------------
Net asset value, end of period ............................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
--------------------------------------------------------------
TOTAL RETURN (%)(c) 1.42(d) 2.99 1.76 1.62 2.58 6.10
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 115 120 129 134 127 119
Ratio of operating expenses to average net assets (%)(a)... .89(e) .87 .90 .93 .95 1.06
Ratio of net investment income to average net assets (%)... 2.82(e) 2.94 1.75 1.60 2.54 5.43
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of: ............. $ -- $ -- $ .000 $ .002 $ .002 $ .001
(b) On August 1, 1991 the Fund implemented a 15.17 to 1.00
stock split and adopted its present name and investment
objectives. Prior to that date, the Fund was known as
the AARP Insured Tax Free Short Term Fund. Financial
Highlights, for the year ended September 30, 1991, have
been restated to reflect the stock split and should not
be considered representative of the present Fund.
(c) Total returns would have been lower had certain expenses
not been reduced.
(d) Not Annualized (e) Annualized
</TABLE>
75
<PAGE>
FINANCIAL HIGHLIGHTS
AARP GNMA AND U.S. TREASURY FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 15.19 $ 14.73 $ 15.96 $ 16.19 $15.72 $14.95
-----------------------------------------------------------------
Income from investment operations:
Net investment income ................................ .51 1.01 .93 1.15 1.22 1.26
Net realized and unrealized gain (loss) on investments (.13) .46 (1.23) (.23) .47 .77
-----------------------------------------------------------------
Total from investment operations ............................. .38 1.47 (.30) .92 1.69 2.03
-----------------------------------------------------------------
Less distributions:
Net investment income ................................ (.51) (.98) (.93) (1.15) (1.22) (1.26)
Tax return of capital ................................ -- (.03) -- -- -- --
-----------------------------------------------------------------
Total distributions .................................. (.51) (1.01) (.93) (1.15) (1.22) (1.26)
-----------------------------------------------------------------
Net asset value, end of period ............................... $ 15.06 $ 15.19 $ 14.73 $ 15.96 $16.19 $15.72
-----------------------------------------------------------------
TOTAL RETURN (%) ............................................. 2.49(a) 10.31 (1.90) 5.89 11.19 14.12
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ....................... 5,121 5,252 5,585 6,712 5,232 3,311
Ratio of operating expenses to average net assets (%) ........ .64(b) .67 .66 .70 .72 .74
Ratio of net investment income to average net assets (%) ..... 6.66(b) 6.77 6.09 7.15 7.69 8.23
Portfolio turnover rate (%) .................................. 56.28(b) 70.35 114.54 105.49 74.33 86.64
(a) Not Annualized (b) Annualized
</TABLE>
AARP HIGH QUALITY BOND FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 16.01 $ 15.05 $ 17.19 $ 16.44 $ 15.71 $ 14.63
-----------------------------------------------------------------
Income from investment operations:
Net investment income ................................. .47 .94 .85 .93 1.03 1.10
Net realized and unrealized gain (loss) on investments (.09) .95 (1.76) .93 .73 1.08
-----------------------------------------------------------------
Total from investment operations .............................. .38 1.89 (.91) 1.86 1.76 2.18
-----------------------------------------------------------------
Less distributions:
Net investment income ................................. (.47) (.93) (.85) (.93) (1.03) (1.10)
Net realized gains on investments ..................... -- -- -- (.18) -- --
In excess of net realized gains on investments ........ -- -- (.38) -- -- --
-----------------------------------------------------------------
Total distributions ........................................... (.47) (.93) (1.23) (1.11) (1.03) (1.10)
-----------------------------------------------------------------
Net asset value, end of period ................................ $ 15.92 $ 16.01 $ 15.05 $ 17.19 $ 16.44 $ 15.71
-----------------------------------------------------------------
TOTAL RETURN (%) .............................................. 2.35(a) 12.98 (5.55) 11.88 11.56 15.44
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ........................ 529 533 568 604 384 201
Ratio of operating expenses to average net assets (%) ......... .95(b) .95 .95 1.01 1.13 1.17
Ratio of net investment income to average net assets (%) ...... 5.78(b) 6.13 5.31 5.64 6.40 7.26
Portfolio turnover rate (%) ................................... 199.17(b) 201.07 63.75 100.98 63.00 90.43
(a) Not Annualized (b) Annualized
</TABLE>
76
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 ----------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $ 17.74 $ 16.93 $ 19.00 $ 17.88 $ 17.30 $ 16.12
-------------------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .43 .87 .86 .90 .93 1.00
Net realized and unrealized gain (loss) on
investments .................................... .13 .81 (1.67) 1.55 .75 1.18
-------------------------------------------------------------------------
Total from investment operations ............... .56 1.68 (.81) 2.45 1.68 2.18
-------------------------------------------------------------------------
Less distributions:
Net investment income .......................... (.43) (.87) (.86) (.90) (.93) (1.00)
Net realized gains on investments .............. -- -- (.34) (.43) (.17) --
In excess of net realized gains on investments . -- -- (.06) -- -- --
-------------------------------------------------------------------------
Total distributions .................................... (.43) (.87) (1.26) (1.33) (1.10) (1.00)
-------------------------------------------------------------------------
Net asset value, end of period ......................... $ 17.87 $ 17.74 $ 16.93 $ 19.00 $ 17.88 $ 17.30
-------------------------------------------------------------------------
TOTAL RETURN (%) ....................................... 3.15(a) 10.21 (4.48) 14.31 10.01 13.85
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................. 1,786 1,807 1,914 2,087 1,487 1,068
Ratio of operating expenses to average net assets (%) .. .67(b) .69 .68 .72 .74 .77
Ratio of net investment income to average net assets (%) 4.75(b) 5.06 4.80 4.90 5.31 5.92
Portfolio turnover rate (%) ............................ 41.37(b) 17.45 38.39 47.96 62.45 32.18
(a) Not Annualized (b) Annualized
</TABLE>
AARP BALANCED STOCK AND BOND FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR FOR THE PERIOD
MARCH 31, ENDED FEBRUARY 1, 1994(a)
1996 SEPTEMBER 30, TO SEPTEMBER 30,
(UNAUDITED) 1995 1994
----------- ------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......................... $ 16.40 $ 14.64 $ 15.00
------------------------------------------------------
Income from investment operations:
Net investment income ................................ .30 .61 .25
Net realized and unrealized gain (loss) on investments .99 1.79 (.37)(b)
------------------------------------------------------
Total from investment operations ............................. 1.29 2.40 (.12)
------------------------------------------------------
Less distributions:
Net investment income ................................ (.32) (.60) (.24)
Net realized gains on investments .................... (.21) (.04) --
------------------------------------------------------
Total distributions .......................................... (.53) (.64) (.24)
------------------------------------------------------
Net asset value, end of period ............................... $ 17.16 $ 16.40 $ 14.64
------------------------------------------------------
TOTAL RETURN (%) ............................................. 7.94(d) 16.80 (.78)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ....................... 319 247 175
Ratio of operating expenses to average net assets (%) ........ 1.01(e) 1.01 1.31(e)
Ratio of net investment income to average net assets (%) ..... 3.66(e) 4.12 3.58(e)
Portfolio turnover rate (%) .................................. 40.57(e) 63.77 49.32(e)
Average commission rate paid (c) ............................. $ .0551 $ -- $ --
</TABLE>
(a) Commencement of operations
(b) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Fund shares in relation to fluctuating market values during the period.
(c) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(d) Not Annualized (e) Annualized
77
<PAGE>
FINANCIAL HIGHLIGHTS
AARP GROWTH AND INCOME FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1996 ----------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
--------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $38.36 $34.13 $32.91 $ 28.67 $ 26.97 $ 22.30
----------------------------------------------------------------------------
Income from investment operations:
Net investment income............ .52 1.11 .94 .83 .97 1.11
Net realized and unrealized
gain on investments............ 4.52 5.44 1.62 4.58 2.11 4.78
----------------------------------------------------------------------------
Total from investment operations......... 5.04 6.55 2.56 5.41 3.08 5.89
----------------------------------------------------------------------------
Less distributions from:
Net investment income............ (.54) (1.09) (1.13) (.87) (.90) (1.17)
Net realized gains on investments (.84) (1.23) (.21) (.30) (.48) (.05)
----------------------------------------------------------------------------
Total distributions...................... (1.38) (2.32) (1.34) (1.17) (1.38) (1.22)
----------------------------------------------------------------------------
Net asset value, end of period........... $42.02 $38.36 $34.13 $ 32.91 $ 28.67 $ 26.97
----------------------------------------------------------------------------
TOTAL RETURN (%).......................... 13.34(b) 20.43 7.99 19.38 11.59 27.19
RATIOS AND SUPPLEMENTAL DATA..............
Net assets, end of period ($ millions).... 3,669 3,007 2,312 1,560 748 392
Ratio of operating expenses to average
net assets (%).......................... .70(c) .72 .76 .84 .91 .96
Ratio of net investment income to average
net assets (%).......................... 2.66(c) 3.28 3.00 3.08 3.84 4.61
Portfolio turnover rate (%)............... 30.45(c) 31.26 31.82 17.44 36.40 53.68
Average commission rate paid (a).......... $.0499 $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(b) Not Annualized (c) Annualized
AARP GLOBAL GROWTH FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 1, 1996
(COMMENCEMENT)
OF OPERATIONS)
TO MARCH 31, 1996
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period......................................... $ 15.00
-----------
Income from investment operations:
Net investment income (a)............................................ .02
-----------
Net realized and unrealized gain (loss) on investments............... .25
-----------
Total from investment operations............................................. .27
-----------
Net asset value, end of period............................................... $ 15.27
-----------
Total Return (%) (b)......................................................... 1.80(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions)....................................... 28
Ratio of operating expenses to average net assets (%) (a).................... 1.75(e)
Ratio of net investment income to average net assets (%)..................... 2.06(e)
Portfolio turnover rate (%).................................................. --
Average commission rate paid (c)............................................. $ .0172
(a) Reflects a per share reimbursement of expenses during the period by the
Fund Manager of:........................................................ $ .07
Operating expense ratio including expense reductions (%)............. 10.27(e)
</TABLE>
(b) Total returns would have been lower had certain expenses not been
reduced.
(c) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(d) Not Annualized (e) Annualized
78
<PAGE>
AARP CAPITAL GROWTH FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, -------------------------------------------------
1996
(UNAUDITED) 1995 1994 1993 1992 1991
--------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 38.36 $31.74 $36.20 $ 30.30 $ 30.23 $ 23.32
------- ------ ------ ------- -------- -------
Income from investment operations:
Net investment income............... .18 .36 .00 .06 .15 .24
Net realized and unrealized
gain (loss) on investments........ 3.32 6.91 (1.51) 7.19 1.09 9.05
---------------------------------------------------------------
Total from investment operations............ 3.50 7.27 (1.51) 7.25 1.24 9.29
---------------------------------------------------------------
Less distributions from:
Net investment income............... (.39) (.01) (.05) (.14) (.23) (.59)
Net realized gains on investments... (.51) (.64) (2.90) (1.21) (.94) (1.79)
---------------------------------------------------------------
Total distributions......................... (.90) (.65) (2.95) (1.35) (1.17) (2.38)
---------------------------------------------------------------
Net asset value, end of period.............. $ 40.96 $38.36 $ 31.74 $ 36.20 $ 30.30 $ 30.23
---------------------------------------------------------------
TOTAL RETURN (%)............................ 9.27(b) 23.47 (4.70) 24.53 3.94 42.81
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)...... 762 692 683 607 424 242
Ratio of operating expenses to average
net assets (%)............................ .91(c) .95 .97 1.05 1.13 1.17
Ratio of net investment income to
average net assets (%).................... .93(c) 1.00 .02 .22 .61 .90
Portfolio turnover rate (%)................. 75.90(c) 98.44 79.65 100.63 89.20 99.62
Average commission rate paid (a)............ $ .0617 $ - $ - $ - $ - $ -
</TABLE>
(a) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(b) Not Annualized
(c) Annualized
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.
The AARP Cash Investment Funds, consisting of the AARP High Quality
Money Fund, the AARP Income Trust, consisting of the AARP GNMA and U.S. Treasury
Fund and the AARP High Quality Bond Fund, the AARP Tax Free Income Trust,
consisting of the AARP High Quality Tax Free Money Fund, (formerly AARP Insured
Tax Free Short Term Fund), and the AARP Insured Tax Free General Bond Fund, and
the AARP Growth Trust, consisting of the AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Global Growth Fund, and the AARP Capital Growth
Fund are each Massachusetts business trusts and are registered under the
Investment Company Act of 1940, as amended, as open-end management investment
companies. All funds are diversified. The AARP Cash Investment Funds, has one
series, the AARP Growth Trust has four series and each of the other Trusts have
two series. The Declaration of Trust of each Trust permits its Trustees to
create an unlimited number of series and to issue an unlimited number of full
and fractional shares of each separate series.
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of management
estimates. The policies described below are followed consistently by the funds
in preparation of their financial statements.
A. SECURITY VALUATION. The AARP High Quality Money Fund uses the penny
rounding method of security valuation as permitted under Rule 2a-7 of the
Investment Company Act of 1940. Under this method, securities for which market
quotations are readily available and which have remaining maturities of
sixty-one days or more from the date of valuation are valued at the mean between
the over-the-counter bid and asked prices by an independent registered
broker/dealer. On the sixtieth day prior to maturity and thereafter until
maturity, securities originally purchased with more than sixty days remaining to
maturity are valued at amortized cost calculated daily, based upon the market
valuation of the securities on the sixty-first day prior to maturity. The AARP
High Quality Tax Free Money Fund uses the amortized cost method of security
valuation as permitted under Rule 2a-7 of the Investment Company Act of 1940.
Under this method, the value of a security is determined by adjusting its
original cost to face value through the amortization of any acquisition discount
or premium at a constant rate until maturity, which approximates market.
Security valuation with respect to each of the remaining funds is performed in
the following manner:
Common and preferred stocks traded on national securities exchanges are
valued at the most recent sale price on such exchange where the security is
principally traded. If no sale occurred, the security is valued at the mean
between the most recent bid and asked quotations on such exchanges. If there is
no such bid and asked quotations the most recent bid quotation is used. Unlisted
securities quoted on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System, for which there have been sales, are valued at the
most recent sale price reported on such system. If there are no such sales, the
value is the high or "inside" bid quotation. Unlisted securities which are not
quoted on the NASDAQ System but are traded in another over-the-counter market
are valued at the most recent sale price on such market. If no sale occurred,
the security is valued at the mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations the most recent bid
quotation is used.
Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the Trustees, which prices reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used.
Short-term investments with remaining maturities of 60 days or less
are valued at amortized cost. Variable rate demand notes are carried at cost
which together with accrued interest approximates market.
80
<PAGE>
The value of all other securities is determined in good faith under the
direction of the Trustees.
B. REPURCHASE AGREEMENTS. The AARP High Quality Money Fund, AARP Growth
Funds and AARP GNMA and U.S. Treasury Fund regularly invest in repurchase
agreements. Each of the AARP funds may enter into repurchase agreements with
selected banks and broker/dealers whereby each fund, through its custodian,
receives delivery of the securities collateralizing repurchase agreements, the
amount of which at the time of purchase and each subsequent business day is
required to be maintained at such a level that the market value, depending on
the maturity of the underlying collateral, is equal to at least 101% of the
resale price.
C. FUTURES CONTRACTS. Each of the funds in the AARP Income Trust, the
AARP Insured Tax Free General Bond Fund, the AARP Balanced Stock and Bond Fund,
and AARP Global Growth Fund may enter into futures contracts. A futures contract
is an agreement between a buyer or seller and an established futures exchange or
its clearinghouse in which the buyer or seller agrees to take or make a delivery
of a specific amount of an item at a specified price on a specific date
(settlement date). During the period the AARP Balanced Stock and Bond Fund sold
interest rate futures as a temporary substitute for selling selected
investments. Also, during the period, the AARP High Quality Bond Fund and the
AARP Insured Tax Free General Bond Fund purchased and sold interest rate futures
to hedge against declines in the value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit
with a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out a futures contract prior to the settlement date and that a change in
the value of a futures contract may not correlate exactly with changes in the
value of the securities or currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of the funds in the
AARP Growth Trust, in connection with portfolio purchases and sales of
securities denominated in a foreign currency, may enter into forward foreign
currency exchange contracts ("forward contracts"). Additionally, from time to
time, each fund may enter into contracts to hedge certain foreign currency
denominated assets. A forward contract is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the period,
the AARP Balanced Stock and Bond Fund utilized forward contracts as a hedge
against changes in exchange rates relating to foreign currency denominated
assets. Also, during the period, the AARP Balanced Stock and Bond Fund and the
AARP Growth and Income Fund utilized forward contracts as a hedge in connection
with portfolio purchases and sales of securities denominated in foreign
currencies.
Forward contracts are valued at the prevailing forward exchange rate of
the underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS
their contracts. Additionally, when utilizing forward contracts to hedge, the
Fund gives up the opportunity to profit from favorable exchange rate movements
during the term of the contract.
E. FOREIGN CURRENCY TRANSLATIONS. Foreign currency transactions from
foreign investment activity are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The Funds do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
F. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security. Acquisition discount is
accreted on taxable securities purchased with original maturity dates of one
year or less. Premium on securities purchased by the AARP Tax Free Income Trust
is amortized on an effective yield basis over the life of the security.
Each fund uses the specific identification method for determining the
realized gain or loss on investments sold for both financial and federal income
tax reporting purposes.
G. FEDERAL INCOME TAXES. Each of the funds is treated as a single entity
for federal income tax purposes. It is the policy of each fund to comply with
the requirements of the Internal Revenue Code as amended which are applicable to
regulated investment companies, and to distribute all of its taxable and tax
exempt income to its shareholders. Accordingly, the funds paid no U.S. federal
income taxes, and no provisions for federal income taxes were required.
H. DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of
each fund is declared as a dividend to shareholders. The dividends from AARP
High Quality Money Fund and each of the funds in the AARP Income Trust and the
AARP Tax Free Income Trust are declared daily and distributed monthly. The
dividends from AARP Balanced Stock and Bond Fund and AARP Growth and Income Fund
are declared and paid quarterly. The dividends from AARP Global Growth Fund and
AARP Capital Growth Fund are declared and paid annually. During any particular
year, net realized gains from securities transactions for each fund which are in
excess of any available capital loss carryforwards, would be taxable to the fund
if not distributed and, therefore, will be distributed to shareholders in the
following fiscal year. The AARP High Quality Money Fund takes into account
realized gains and losses on the sales of securities held less than one year in
its daily distributions. An additional distribution may be made by each fund to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments, mortgage backed
securities, REITs and certain securities sold at a loss. As a result, net
investment income and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its
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<PAGE>
capital accounts without impacting the net asset value of the Fund.
I. EXPENSES. Each fund is charged for those expenses that are directly
attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a fund,
such as reports to shareholders, portions of Trustees' and legal fees, are
allocated among all the funds.
J. ORGANIZATION COST. Costs incurred by the AARP Balanced Stock and Bond
Fund and the AARP Global Growth Fund in connection with its organization and
initial registration of shares have been deferred and are being amortized on a
straight-line basis over a five-year period.
K. PORTFOLIO INSURANCE. The cost of premiums paid by the AARP Insured
Tax Free General Bond Fund for insurance, which covers individual securities, is
non-cancellable and runs the life of such securities, is added to the cost basis
of such securities. This insurance provides for the timely payment of principal
and interest on these securities when due and protects the fund against loss
from default by the Municipal issuer. It does not protect the investor from
losses due to changes in market values.
L. SECURITIES PURCHASED ON A FORWARD DELIVERY OR WHEN-ISSUED BASIS. The
AARP High Quality Money Fund, each of the funds in the AARP Income Trust and
AARP Tax Free Income Trust, and AARP Balanced Stock and Bond Fund may purchase
securities on a forward delivery or when-issued basis. Municipal, corporate and
government securities are frequently offered on a forward delivery or
when-issued basis. At the time the fund makes the commitment to purchase a
security on a forward delivery or when-issued basis, the price of the underlying
security is fixed. The fund will record the transaction at the time of the
commitment and reflect the value of the security in determining its net asset
value. The settlement date of the transaction can occur within one month or more
after the date the commitment was made. During the period between purchase and
settlement date, no payment is made on behalf of the fund and no interest
accrues to the fund.
NOTE 2. MANAGEMENT FEE AND OTHER RELATED TRANSACTIONS.
Under the investment management and advisory agreement (the "Management
Agreement") between each Trust and Scudder, Stevens & Clark, Inc. (the "Fund
Manager") the management fee consists of two elements: a Base Fee and an
Individual Fund Fee. The Base Fee is calculated as a percentage of the combined
net assets of all of the AARP Funds ("Program Assets"). Each AARP Fund pays, as
its portion of the Base Fee, an amount equal to the ratio of its daily net
assets to the daily net assets of all of the AARP Funds. The Annual Base Fee is
calculated as follows: .35%, of the first $2.0 billion of such assets, .33% of
the next $2.0 billion of such assets, .30% of the next $2.0 billion of such
assets, .28% of the next $2.0 billion of such assets, .26% of the next $3.0
billion of such assets, .25% of the next $3.0 billion of such assets, .24% of
such assets thereafter.
In addition to the Base Fee Rate, each Fund agrees to pay the Fund
Manager a flat Individual Fund Fee based on the average daily net assets of that
Fund. The Individual Fund Fee Rate recognizes the different characteristics of
each Fund, the varying levels of complexity of investment research and
securities trading required to manage each Fund. The Individual Fund Fee Rate is
calculated at the following percentages of the average daily net assets of each
fund: .10% for AARP High Quality Money Fund and AARP High Quality Tax Free Money
Fund; .12% for AARP GNMA and U.S. Treasury Fund; .19% for AARP High Quality Bond
Fund, AARP Insured Tax Free General Bond Fund, AARP Balanced Stock and Bond Fund
and AARP Growth and Income Fund; .55% for AARP Global Growth Fund; .32% for AARP
Capital Growth Fund. The amount for each fund is shown in the Statement of
Operations as Management Fee.
As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund Manager
under the Management Agreement will provide certain administrative services in
accordance with such Agreement. The Fund Manager has also entered into a Member
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NOTES TO FINANCIAL STATEMENTS
Services Agreement with AARP Financial Services Corp. ("AFSC"), a subsidiary of
AARP, and pays portions of its investment management and advisory fee to AFSC.
The Management Agreement also provides that the Fund Manager will
reimburse the funds for annual expenses in excess of the lowest state
limitations imposed, exclusive of taxes, brokerage commissions, interest and
extraordinary expenses. The Fund Manager agreed to maintain the annualized
expenses of the AARP High Quality Tax Free Money Fund at not more than 0.90% of
average daily net assets until February 1, 1996. Effective February 1, 1996, the
Fund Manager agreed to maintain the annualized expenses of the AARP Global
Growth Fund at not more than 1.75% of average net assets until September 30,
1996. The amount of expenses reimbursed by the Fund Manager, if any, for each
fund has been shown in the Statement of Operations as Expense Reductions.
Each Trust has a shareholder servicing agreement with Scudder Service
Corporation ("SSC"), a subsidiary of Scudder. As shareholder servicing agent,
SSC provides various transfer agent, dividend disbursing, and shareholder
communication functions. The amount for each fund has been shown in the
Statement of Operations as Transfer and Dividend Disbursing Expense.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Fund
Manager, is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of AARP Growth and
Income Fund, AARP Global Growth Fund and AARP Capital Growth Fund. For the six
months ended March 31, 1996, the amount charged to the Funds by SFAC aggregated
$133,845, $8,313, and $54,768, respectively, of which $21,210, $8,313, and
$8,057, respectively, is unpaid at March 31, 1996. Effective October 6, 1995,
for AARP High Quality Money Fund and AARP High Quality Tax Free Money Fund;
October 10, 1995, for AARP High Quality Bond Fund; October 20, 1995, for AARP
Balanced Stock and Bond Fund; November 10, 1995, for AARP GNMA and U.S. Treasury
Fund; and November 13, 1995 for AARP Insured Tax Free General Bond Fund, SFAC
assumed responsibility for determining the daily net asset value per share and
maintaining the portfolio and general accounting records. For the six months
ended March 31, 1996, the amount charged to the Funds by SFAC aggregated
$23,765, $15,176, $39,459, $33,669, $229,083 and $66,916, respectively, of which
$4,112, $2,612, $7,230, $6,737, $49,456, and $14,185, respectively, is unpaid at
March 31, 1996.
Each fund pays each Trustee not affiliated with Scudder or AARP $2,000
annually, $270 for each Trustees' meeting, $200 for each audit committee meeting
attended, and $100 for other committee meetings, plus expenses, subject to
certain maximums per Trustee for meetings held jointly with other funds. The
amount for each fund has been shown in the Statement of Operations as Trustees'
fees and expenses.
NOTE 3. COMMITMENTS
As of March 31, 1996, the AARP Balanced Stock and Bond Fund had entered into
the following forward currency exchange contracts resulting in net unrealized
appreciation of $4,157.
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (U.S.$)
- -------------------- --------------- --------------- -------
<S> <C> <C> <C> <C> <C>
DEM 625,588 USD 426,324 6/24/96 512
DEM 2,840,141 USD 1,936,812 6/24/96 3,645
-----
4,157
=====
</TABLE>
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O F F I C E R S A N D T R U S T E E S
A N D S E R V I C E I N F O R M A T I O N
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OFFICERS AND TRUSTEES
---------------------
CAROLE LEWIS ANDERSON
Trustee of AARP Cash Investment Funds and AARP Income Trust; President,
MASDUN Capital Advisors; Formerly Principal, Suburban Capital Markets;
Director, VICORP Restaurants, Inc.; Member of the Board, Association for
Corporate Growth of Washington, D.C.; Trustee, Hasbro Children's
Foundation and Mary Baldwin College.
ADELAIDE ATTARD
Trustee of AARP Income Trust and AARP Growth Trust; Member, New York
City Department of Aging Advisory Council--Appointed by Mayor (1995);
Consultant, Gerontology; Commissioner, County of Nassau, NY, Department
of Senior Citizen Affairs (1971-1991); Board Member, American
Association of International Aging (1981 to present); Member, NYS
Community Services for the Elderly Advisory Council--Appointed by
Governor (1987-1991); Chairperson, Federal Council on Aging (1981-1986);
U.S. Delegate to 1982 United Nations World Assembly on Aging.
CYRIL F. BRICKFIELD
Trustee of AARP Income Trust, AARP Tax Free Income Trust, AARP Growth
Trust; Honorary Trustee, AARP Cash Investment Funds; Honorary President
and Special Counsel, American Association of Retired Persons; Board
Member: American Association of International Aging, National
Alzheimer's Association, and American Federation of Aging Research
(AFAR).
ROBERT N. BUTLER, M.D.
Trustee of AARP Income Trust and AARP Growth Trust; Director,
International Longevity Center and Professor of Geriatrics and Adult
Development; Chairman, Henry L. Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical Center; Formerly Director,
National Institute on Aging, National Institute of Health (1976-1982).
LINDA C. COUGHLIN
President and Trustee of AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and AARP Growth Trust; Managing Director and
Member, Board of Directors of Scudder, Stevens & Clark, Inc.; Director
of Scudder Investor Services, Inc.
HORACE B. DEETS
Vice Chairman and Trustee of AARP Cash Investment Funds, AARP Income
Trust, AARP Tax Free Income Trust and AARP Growth Trust; Executive
Director, American Association of Retired Persons; Member, Board of
Councilors, Andrus Gerontology Center; Member of the Board, HelpAge
International.
MARY JOHNSTON EVANS
Trustee of AARP Cash Investment Funds, AARP Tax Free Income Trust and
AARP Growth Trust; Director: Baxter International, Inc., Delta Air
Lines, Inc., Household International, Inc., The Sun Company, Dun &
Bradstreet Corporation and Saint-Gobain Corporation.
EDGAR R. FIEDLER
Trustee of AARP Cash Investment Funds, AARP Income Trust and AARP Tax
Free Income Trust; Vice President and Economic Counselor, The Conference
Board, Inc.; Director: The Stanley Works, Zurich-American Insurance
Company, HT Insight Funds, and Emerging Mexico Fund.
CUYLER W. FINDLAY
Chairman and Trustee of AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust, and AARP Growth Trust; Managing Director of
Scudder, Stevens & Clark, Inc., Senior Vice President and Director,
Scudder Investor Services, Inc.
EUGENE P. FORRESTER
Trustee of AARP Income Trust and AARP Tax Free Income Trust; Consultant;
International Trade Counselor; Lt. General (Retired), U.S. Army; Command
General, U.S. Army Western Command, Honolulu; Consultant: Digital
Equipment Corp., DHI, Philip Morris, PICS Previews, and Whittle
Communications.
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<PAGE>
WAYNE F. HAEFER
Trustee of AARP Income Trust, AARP Tax Free Income Trust, and AARP Growth
Trust; Director, Membership Division of AARP; Formerly Secretary,
Employee's Pension and Welfare Trusts of AARP and Retired Persons
Services, Inc.; Formerly Director, Administration and Data Management
Division of AARP.
GEORGE I. MADDOX, JR.
Trustee of AARP Income Trust and AARP Tax Free Income Trust; Professor
Emeritus and Director, Long Term Care Resources Program, Duke University
Medical Center; Senior Fellow, Center for the Study of Aging and Human
Development, Duke University; Professor Emeritus of Sociology, Departments
of Sociology and Psychiatry, Duke University.
ROBERT J. MYERS
Trustee of AARP Cash Investment Funds, AARP Income Trust and AARP Growth
Trust; Actuarial Consultant; Formerly Executive Director, National
Commission on Social Security Reform; Director: NASL Series Trust, Inc.
and North American Funds, Inc.; Formerly Director, Board of Pensions,
Evangelical Lutheran Church in America; Formerly Chairman, Commission
on Railroad Retirement Reform; Member, U.S. Office of Technology
Assessment, Prospective Payment Assessment Commission.
JOSEPH S. PERKINS
Trustee of AARP Cash Investment Funds, AARP Income Trust, AARP Tax Free
Income Trust, and AARP Growth Trust; Director, American Association of
Retired Persons; Formerly Corporate Retirement Manager, Polaroid
Corporation.
JAMES H. SCHULZ
Trustee of AARP Tax Free Income Trust and AARP Growth Trust; Professor of
Economics and Kirstein Professor of Aging Policy, Policy Center of Aging,
Florence Heller School, Brandeis University.
GORDON SHILLINGLAW
Trustee of AARP Cash Investment Funds, AARP Tax Free Income Trust, AARP
Growth Trust; Professor Emeritus of Accounting, Columbia University
Graduate School of Business; Formerly Director and Treasurer,
FERIS Foundation of America.
<TABLE>
<C> <C>
EDWARD V. CREED* PAMELA A. MCGRATH*
Vice President Vice President and Treasurer
THOMAS W. JOSEPH* EDWARD J. O'CONNELL*
Vice President Vice President and Assistant Treasurer
DAVID S. LEE* KATHRYN L. QUIRK*
Vice President and Assistant Treasurer Vice President and Secretary
DOUGLAS M. LOUDON* HOWARD SCHNEIDER*
Vice President Vice President
THOMAS F. MCDONOUGH* CORNELIA M. SMALL*
Vice President and Assistant Secretary Vice President
*Scudder, Stevens & Clark, Inc.
</TABLE>
Effective January 1, 1995, each member of and nominee for the Board of
Trustees must own shares of one or more of the Funds within the AARP
Investment Program of which he/she serves as Trustee.
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<PAGE>
SERVICE INFORMATION
-------------------
<TABLE>
<S> <C>
SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives are available
SERVICE LINE to answer questions about the Program or your account Monday
1-800-253-2277 through Friday, between 8:00 a.m. and 8:00 p.m., eastern time.
Transactions can be made Monday through Friday between 8:00 a.m.
and 4:00 p.m., eastern time.
Write: AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
For overnight AARP Investment Program from Scudder
and certified mail: 42 Longwater Drive
Norwell, MA 02061-1612
EASY-ACCESS LINE Shareholders with a touch-tone telephone may call this automated
1-800-631-4636 line to obtain AARP Fund performance and account information or to
exchange or sell (redeem) AARP Mutual Fund shares. This service is
available 24 hours a day, 7 days a week.
TRANSACTIONS BY FAX If you have access to a fax machine, you can fax transaction requests.
1-800-821-6234 Any exchange or redemption request received after 4:00 p.m.
business days or on weekends, will be processed the next business
day. All faxes are kept confidential.
TDD (TELECOMMUNICATIONS AARP members with hearing or speech impairments and access to
DEVICE FOR THE DEAF AND TDD equipment can communicate with the AARP Investment
SPEECH IMPAIRED) Program Monday through Friday between 8:00 a.m. and 6:00 p.m.,
1-800-634-9454 eastern time. Transactions can be made between 8:00 a.m. and
4:00 p.m., eastern time.
</TABLE>
88
