Filed with the Securities and Exchange Commission on July 1, 1996.
File No. 2-91577
File No. 811-4049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 19
--
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21
--
AARP Income Trust
(Exact Name of Registrant as Specified in Charter)
--------------------------------------------------
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
X immediately upon filing pursuant to paragraph (b)
-
on ___________ pursuant to paragraph (b)
-
60 days after filing pursuant to paragraph (a)(i)
-
on pursuant to paragraph (a)(i)
- 75 days after filing pursuant to paragraph (a)(ii)
on ___________ pursuant to paragraph (a)(ii) of Rule 485
-
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on November 28, 1995.
<PAGE>
AARP INCOME TRUST
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A Items Required by Form N-1A
- ------ ---------------------------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH
AARP FUND AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE
4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH
AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
5A. NOT APPLICABLE
6. Capital Stock and ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS
Other Securities AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS
8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference-Page 1
<PAGE>
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Policies BROKERAGE AND PORTFOLIO TURNOVER
14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION
17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER
18. Capital Stock and TRUST ORGANIZATION
Other Securities
19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Pricing of PURCHASES
Securities Being REDEMPTIONS
Offered RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculations of DIVIDENDS AND YIELD
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS
February 1, 1996
As Revised July 1, 1996
There are nine pure no-load AARP Mutual Funds that have been developed to
help meet the investment needs of AARP members. The Funds are organized into
four Trusts (see page 34 for more information on the Trusts).
Trusts AARP Mutual Funds
- ------ -----------------
AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP Tax Free Income Trust AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Growth Trust AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP Global Growth Fund
AARP Capital Growth Fund
This combined Prospectus provides information about the AARP Investment
Program from Scudder that a prospective investor should know before investing.
Please keep it for future reference.
The U.S. Government does not and has never insured or guaranteed shares of
any mutual fund, including the AARP Mutual Funds. For limitations on insurance
relative to the AARP Insured Tax Free General Bond Fund, see page 20. The AARP
High Quality Money Fund and the AARP High Quality Tax Free Money Fund each seek
to maintain a constant net asset value of $1.00 per share. The Fund Manager
cannot assure investors that these funds will be able to maintain a stable $1.00
per share or constant net asset value.
You may get more detailed information in the combined Statement of
Additional Information (SAI) dated February 1, 1996, as amended from time to
time. The SAI is considered part of this Prospectus by reference to it. The SAI
is on file with the Securities and Exchange Commission (SEC).
You may get a copy of the SAI or a LARGER PRINT VERSION OF THIS PROSPECTUS
without charge. Call 1-800-253-2277, or write to Scudder Investor Services,
Inc., P.O. Box 2540, Boston, MA 02208-2540.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus
1
<PAGE>
FUND EXPENSES
The AARP Mutual Funds do not charge sales fees or commissions. 100% of your
investment goes to work for you.
* No fees to open your account
* No fees to open or maintain an AARP IRA or AARP Keogh Plan account
* No fees to buy shares
* No fees to exchange (move investments from one fund to another)
* No fees to sell (redeem) shares
* No marketing fees or distribution fees (12b-1 fees)
* No fees to reinvest dividends
There are Annual Fund Operating Expenses for each of the AARP Funds. You do not
pay these expenses directly. The AARP Funds pay these expenses before
distributing net investment income to you. These expenses include the management
fee paid to the Fund Manager as well as other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and fund
reports. The expenses are reflected in the AARP Funds' share prices or dividends
and are not directly charged to shareholder accounts.
The following tables present information on the projected costs and expenses of
investing in an AARP Fund. You may use these tables to compare the fees and
expenses of the AARP Funds with other mutual funds.
Annual Fund Operating Expenses are expressed as a percentage of each AARP Fund's
average daily net assets.
The chart shows the expenses for each of the Funds, other than the AARP Global
Growth Fund, for the fiscal year ended September 30, 1995. For the AARP Global
Growth Fund, which was introduced on February 1, 1996, expenses have been
estimated for the coming year.
<TABLE>
<CAPTION>
Effective
Management Other Total Fund
Fund Fee Rate** Expenses Operating Expenses
---- ---------- -------- ------------------
<S> <C> <C> <C>
AARP High Quality Money Fund .40% .58% .98%
AARP High Quality Tax Free Money Fund .39% .48% .87%
AARP GNMA and U.S. Treasury Fund .42% .25% .67%
AARP High Quality Bond Fund .49% .46% .95%
AARP Insured Tax Free General Bond Fund .49% .20% .69%
AARP Balanced Stock and Bond Fund .49% .52% 1.01%
AARP Growth and Income Fund .49% .23% .72%
AARP Global Growth Fund .40%* 1.35% 1.75%*
AARP Capital Growth Fund .62% .33% .95%
</TABLE>
Prospectus
2
<PAGE>
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH AARP
FUND
Based on the level of assets as of September 30, 1995 (and projected September
30, 1996 assets for the AARP Global Growth Fund), we have calculated the
forecasted total expenses of a $1,000 investment in each AARP Fund over
specified periods. These examples assume 5% annual return. There are 3 other
assumptions: (1) redemption at the end of each period, (2) reinvestment of all
dividends and distributions, and (3) total fund operating expenses noted on page
2 remain the same each year.
For additional information, including reference to a $5.00 wire service fee that
is charged in some cases, please refer to page 41.
Fund 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
AARP High Quality Money Fund $10 $31 $54 $120
AARP High Quality Tax Free Money Fund 9 28 48 107
AARP GNMA and U.S. Treasury Fund 7 21 37 83
AARP High Quality Bond Fund 10 30 53 117
AARP Insured Tax Free General Bond Fund 7 22 38 86
AARP Balanced Stock and Bond Fund 10 32 56 124
AARP Growth and Income Fund 7 23 40 89
AARP Global Growth Fund 18 55 N/A N/A
AARP Capital Growth Fund 10 30 53 117
You should not consider these examples as representations of past or future
expenses or returns. Actual fund expenses may be higher or lower in the future.
* The AARP Global Growth Fund was introduced on February 1, 1996. Fund
expenses are projected given the asset forecast as of September 30, 1996.
Until September 30, 1996, the Fund Manager has agreed to waive a portion of
its management fee for AARP Global Growth Fund to the extent necessary so
that the total annualized expenses of the Fund do not exceed 1.75% of
average daily net assets. If the Fund Manager had not agreed to waive a
portion of its fee, it is estimated that the total annualized expenses of
the Fund would be: investment management fee .85%, other expenses 1.35% and
total operating expenses 2.20% for the initial fiscal year. To the extent
that expenses fall below the current expense limitation, the Fund Manager
reserves the right to recoup, during the fiscal year incurred, amounts
waived during the period, but only to the extent that the Fund's expenses
do not exceed 1.75%.
** The AARP Funds' fee structure is designed to recognize the degree to which
the pooled resources of the Program provide economies in the management of
the AARP Funds. The fee consists of two elements: a "Base Fee" and an
"Individual Fund Fee." The combined Base Fee and Individual Fund Fee is
called the Effective Management Fee Rate. See page 36 for information on
how the Effective Management Fee Rate is calculated.
Prospectus
3
<PAGE>
FINANCIAL HIGHLIGHTS
On the next six pages you will find a variety of information about the income
and the expenses of each AARP Fund for the stated periods. You will also find
the following: (1) the net gain or loss on the investments, (2) the
distributions, if any, of income and gain, and, (3) the change in net asset
value per share from the beginning to the end of the stated periods. Price
Waterhouse LLP, the AARP Funds' independent accountants, have examined this
information. The Annual Report to Shareholders includes their report.
<TABLE>
<CAPTION>
For the Years Ended Net Asset Net Net Realized Total from Dividends Distributions Distributions
September 30 Value at Investment & Unrealized Investment from Net from Net from Tax
Beginning Income (a) Investment Operations Investment Realized Return of
of Period Gain (Loss) Income Gains Capital
- -------------------- --------- ---------- ----------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP High Quality Money Fund
1996(e) (unaudited) $ 1.00 $ .023 -- $ .023 $(.023) -- --
1995 1.00 .049 -- .049 (.049) -- --
1994 1.00 .028 -- .028 (.028) -- --
1993 1.00 .021 -- .021 (.021) -- --
1992 1.00 .040 -- .040 (.040) (c) -- --
1991 1.00 .060 -- .060 (.060) -- --
1990 1.00 .073 -- .073 (.073) -- --
1989 1.00 .080 -- .080 (.080) -- --
1988 1.00 .060 -- .060 (.060) -- --
1987 1.00 .050 -- .050 (.050) -- --
1986 1.00 .064 -- .064 (.064) -- --
AARP High Quality Tax Free Money Fund (d)
1996(e) (unaudited) $1.000 $ .014 -- $ .014 $(.014) -- --
1995 1.000 .029 -- .029 (.029) -- --
1994 1.000 .017 -- .017 (.017) -- --
1993 1.000 .016 -- .016 (.016) -- --
1992 1.000 .026 -- .026 (.026) -- --
1991 (d) .996 .055 $ .004 .059 (.055) -- --
1990 .998 .061 (.002) .059 (.061) -- --
1989 1.008 .059 (.010) .049 (.059) -- --
1988 .998 .055 .010 .065 (.055) -- --
1987 1.027 .049 (.026) .023 (.049) $(.003) --
1986 .996 .048 .031 .079 (.048) -- --
AARP GNMA and U.S. Treasury Fund
1996(e) (unaudited) $15.19 $ .51 $(.13) $ .38 $(.51) -- --
1995 14.73 1.01 .46 1.47 (.98) -- $(.03)
1994 15.96 .93 (1.23) (.30) (.93) -- --
1993 16.19 1.15 (.23) .92 (1.15) -- --
1992 15.72 1.22 .47 1.69 (1.22) -- --
1991 14.95 1.26 .77 2.03 (1.26) -- --
1990 14.98 1.31 (.03) 1.28 (1.31) -- --
1989 15.11 1.31 (.13) 1.18 (1.31) -- --
1988 14.89 1.37 .22 1.59 (1.37) -- --
1987 15.99 1.35 (1.09) .26 (1.35) $(.01) --
1986 15.52 1.54 .50 2.04 (1.54) (.03) --
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Reflects fees not imposed by the Fund Manager of $.001 per share.
(c) Includes approximately $.005 per share of net realized short-term capital gains.
Prospectus
4
<PAGE>
For a copy of the Annual Report to Shareholders which includes more detailed
information concerning the Funds' performance, complete portfolio listings and
audited financial statements, please contact an AARP Mutual Fund Representative
at 1-800-253-2277.
Total Net Asset Total Net Assets Ratio of Ratio of Net Portfolio Per Share
Distributions Value at Return % End of Period Operating Investment Turnover Reimbursement
End of ($ millions) Expenses to Income to Rate % of Expenses (a):
Period Average Net Average Net
Assets % (a) Assets %
- -------------- --------- ---------- ----------- ------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(.023) $ 1.00 2.30(f) 381 .988(g) 4.490(g) -- --
(.049) 1.00 4.99 384 .978 4.887 -- --
(.028) 1.00 2.84 333 1.125 2.889 -- --
(.021) 1.00 2.13 254 1.312 2.123 -- --
(.040) 1.00 4.12 323 1.151 3.613 -- $ .000
(.060) 1.00 6.22 357 1.053 6.050 -- .001
(.073) 1.00 7.58 376 1.058 7.319 -- .001
(.080) 1.00 8.32 324 1.071 8.061 -- .001
(.060) 1.00 6.15 224 1.097(b) 6.025 -- .001
(.050) 1.00 5.13 178 1.160 5.090 -- .004
(.064) 1.00 6.60 104 .712 6.310 -- .009
$(.014) $1.000 1.42(f) 115 .89(g) 2.82(g) -- --
(.029) 1.000 2.99 120 .87 2.94 -- --
(.017) 1.000 1.76 129 .90 1.75 -- $ .000
(.016) 1.000 1.62 134 .93 1.60 -- .002
(.026) 1.000 2.58 127 .95 2.54 -- .002
(.055) 1.000 6.10 119 1.06 5.43 -- .001
(.061) .996 6.02 98 1.12 6.06 39.88 --
(.059) .998 4.98 90 1.17 5.85 21.28 --
(.055) 1.008 6.65 79 1.27 5.47 62.73 .005
(.052) .998 2.25 70 1.31 4.80 22.20 .006
(.048) 1.027 8.07 48 1.48 4.72 23.00 --
$(.51) $15.06 2.49(f) 5,121 .64(g) 6.66(g) 56.28(g) --
(1.01) 15.19 10.31 5,252 .67 6.77 70.35 --
(.93) 14.73 (1.90) 5,585 .66 6.09 114.54 --
(1.15) 15.96 5.89 6,712 .70 7.15 105.49 --
(1.22) 16.19 11.19 5,232 .72 7.69 74.33 --
(1.26) 15.72 14.12 3,311 .74 8.23 86.64 --
(1.31) 14.95 8.86 2,583 .79 8.71 60.54 --
(1.31) 14.98 8.17 2,518 .79 8.76 48.35 --
(1.37) 15.11 11.07 2,837 .81 9.09 84.72 --
(1.36) 14.89 1.54 2,827 .88 8.76 50.68 --
(1.57) 15.99 13.62 1,963 .90 9.49 61.92 --
(d) 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
information prior to August 1, 1991 has been restated to reflect the stock
split and should not be considered representative of the present Fund.
(e) Operations for the period October 1, 1995 to March 31, 1996.
(f) Not annualized. (g) Annualized.
Prospectus
5
<PAGE>
For the Years Ended Net Asset Net Net Realized Total from Dividends Distributions Distributions
September 30 Value at Investment & Unrealized Investment from Net from Net in Excess of
Beginning Income (a) Investment Operations Investment Realized Net Realized
of Period Gain (Loss) Income Gains Gains
- -------------------- --------- ---------- ----------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP High Quality Bond Fund
1996(g) (unaudited) $16.01 $ .47 $(.09) $ .38 $(.47) -- --
1995 15.05 .94 .95 1.89 (.93) -- --
1994 17.19 .85 (1.76) (.91) (.85) -- $(.38)
1993 16.44 .93 .93 1.86 (.93) $(.18) --
1992 15.71 1.03 .73 1.76 (1.03) -- --
1991 14.63 1.10 1.08 2.18 (1.10) -- --
1990 15.04 1.17 (.41) .76 (1.17) -- --
1989 14.80 1.23 .24 1.47 (1.23) -- --
1988 14.45 1.27 .46 1.73 (1.27) (.11)(e) --
1987 15.87 1.22 (1.19) .03 (1.22) (.23) --
1986 15.31 1.41 .61 2.02 (1.41) (.05) --
AARP Insured Tax Free General Bond Fund
1996(g) (unaudited) $17.74 $ .43 $ .13 $ .56 $(.43) -- --
1995 16.93 .87 .81 1.68 (.87) -- --
1994 19.00 .86 (1.67) (.81) (.86) $(.34) $(.06)
1993 17.88 .90 1.55 2.45 (.90) (.43) --
1992 17.30 .93 .75 1.68 (.93) (.17) --
1991 16.12 1.00 1.18 2.18 (1.00) -- --
1990 16.61 1.04 (.24) .80 (1.04) (.25) --
1989 16.02 1.08 .59 1.67 (1.08) -- --
1988 15.00 1.08 1.02 2.10 (1.08) -- --
1987 16.69 1.07 (1.49) (.42) (1.07) (.20) --
1986 15.12 1.01 1.63 2.64 (1.01) (.06) --
AARP Balanced Stock and Bond Fund
1996(g) (unaudited) $16.40 $ .30 $ .99 $ 1.29 $(.32) $(.21) --
1995 14.64 .61 1.79 2.40 (.60) (.04) --
1994(d) 15.00 .25 (.37)(f) (.12) (.24) -- --
AARP Growth and Income Fund
1996(g) (unaudited) $38.36 $ .52 $ 4.52 $ 5.04 $(.54) $(.84) --
1995 34.13 1.11 5.44 6.55 (1.09) (1.23) --
1994 32.91 .94 1.62 2.56 (1.13) (.21) --
1993 28.67 .83 4.58 5.41 (.87) (.30) --
1992 26.97 .97 2.11 3.08 (.90) (.48) --
1991 22.30 1.11 4.78 5.89 (1.17) (.05) --
1990 26.11 1.11 (3.69) (2.58) (1.15) (.08) --
1989 20.94 1.01 5.20 6.21 (1.04) -- --
1988 25.54 1.04 (3.93) (2.89) (.94) (.77) --
1987 20.88 .67 5.51 6.18 (.64) (.88) --
1986 16.84 .73 4.10 4.83 (.70) (.09) --
(a) Reflects a per share reimbursement of expenses during the period by the
Fund Manager. See last column.
(b) Not Annualized.
(c) Annualized.
(d) Operations for the period of February 1, 1994 (commencement of operations)
to September 30, 1994.
(e) Includes $0.06 of distributions from paid-in capital.
Prospectus
6
<PAGE>
Total Net Asset Total Net Assets Ratio of Ratio of Net Portfolio Average Per Share
Distributions Value at Return % End of Operating Investment Turnover Commission Reimbursement
End of Period Expenses to Income to Rate % Rate Paid(h) of
Period ($ millions) Average Net Average Net Expenses (a):
Assets %(a) Assets %
- ------------ --------- ---------- ----------- ----------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (.47) $15.92 2.35(b) 529 .95(c) 5.78(c) 199.17(c) --
(.93) 16.01 12.98 533 .95 6.13 201.07 --
(1.23) 15.05 (5.55) 568 .95 5.31 63.75 --
(1.11) 17.19 11.88 604 1.01 5.64 100.98 --
(1.03) 16.44 11.56 384 1.13 6.40 63.00 --
(1.10) 15.71 15.44 201 1.17 7.26 90.43 --
(1.17) 14.63 5.21 151 1.14 7.86 47.39 $.009
(1.23) 15.04 10.38 129 1.16 8.33 57.69 .007
(1.38) 14.80 12.38 123 1.17 8.55 23.57 .005
(1.45) 14.45 (.09) 108 1.18 7.81 192.80 .034
(1.46) 15.87 13.60 88 1.30 8.86 62.72 .011
$ (.43) $17.87 3.15(b) 1,786 .67(c) 4.75(c) 41.37(c) --
(.87) 17.74 10.21 1,807 .69 5.06 17.45 --
(1.26) 16.93 (4.48) 1,914 .68 4.80 38.39 --
(1.33) 19.00 14.31 2,087 .72 4.90 47.96 --
(1.10) 17.88 10.01 1,487 .74 5.31 62.45 --
(1.00) 17.30 13.85 1,068 .77 5.92 32.18 --
(1.29) 16.12 4.89 771 .80 6.29 48.24 --
(1.08) 16.61 10.66 527 .84 6.52 148.94 --
(1.08) 16.02 14.39 312 .92 6.95 163.51 --
(1.27) 15.00 (2.94) 238 1.00 6.58 135.32 --
(1.07) 16.69 17.96 129 1.13 6.40 35.99 --
$ (.53) $17.16 7.94(b) 319 1.01(c) 3.66(c) 40.57(c) $.0551 --
(.64) 16.40 16.80 247 1.01 4.12 63.77 --
(.24) 14.64 (.78)(b) 175 1.31(c) 3.58(c) 49.32(c) --
$(1.38) $42.02 13.34(b) 3,669 .70(c) 2.66(c) 30.45(c) $.0499 --
(2.32) 38.36 20.43 3,007 .72 3.28 31.26 --
(1.34) 34.13 7.99 2,312 .76 3.00 31.82 --
(1.17) 32.91 19.38 1,560 .84 3.08 17.44 --
(1.38) 28.67 11.59 748 .91 3.84 36.40 --
(1.22) 26.97 27.19 392 .96 4.61 53.68 --
(1.23) 22.30 (10.19) 248 1.03 4.76 58.47 --
(1.04) 26.11 30.58 236 1.04 4.19 55.21 --
(1.71) 20.94 (10.75) 228 1.06 4.52 61.34 --
(1.52) 25.54 30.92 358 1.08 3.81 43.25 $.007
(.79) 20.88 29.00 99 1.21 4.55 37.44 --
(f) 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.
(g) Operations for the period October 1, 1995 to March 31, 1996.
(h) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
Prospectus
7
<PAGE>
For the Years Ended Net Asset Net Net Realized Total from Dividends Distributions
September 30 Value at Investment & Unrealized Investment from Net from Net
Beginning Income (a) Investment Operations Investment Realized Total
of Period Gain (Loss) Income Gains Distributions
- -------------------- --------- ---------- ----------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Global Growth Fund
1996 (b) (unaudited) $15.00 $ .02 $ .25 $ .27 -- -- --
AARP Capital Growth Fund
1996(g) (unaudited) $38.36 $ .18 $ 3.32 $ 3.50 $(.39) $(.51) $(.90)
1995 31.74 .36 6.91 7.27 (.01) (.64) (.65)
1994 36.20 .00 (1.51) (1.51) (.05) (2.90) (2.95)
1993 30.30 .06 7.19 7.25 (.14) (1.21) (1.35)
1992 30.23 .15 1.09 1.24 (.23) (.94) (1.17)
1991 23.32 .24 9.05 9.29 (.59) (1.79) (2.38)
1990 34.17 .54(f) (9.27) (8.73) (.19) (1.93) (2.12)
1989 23.88 .21 10.17 10.38 (.09) -- (.09)
1988 27.55 .10 (1.97) (1.87) (.15) (1.65) (1.80)
1987 21.13 .11 7.40 7.51 (.19) (.90) (1.09)
1986 16.95 .18 4.28 4.46 (.09) (.19) (.28)
(a) Reflects a per share reimbursement of expenses during the period by the
Fund Manager. See last column.
(b) Operations for the period of February 1, 1996 (commencement of operations)
to March 31, 1996.
(c) Not Annualized.
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
AARP is a nonprofit organization dedicated to addressing the needs and
interests of persons aged 50 and older. It seeks through education,
advocacy, and service to enhance the quality of life for all by promoting
independence, dignity, and purpose. In the early 1980s, research conducted
by AARP indicated that many members were not taking steps to invest
adequately for their future. To encourage members to plan for their
retirement and beyond, AARP decided to make available a family of mutual
funds. The family of funds would provide members with a limited number of
distinct investment choices that were managed by an experienced investment
adviser. AARP sought an investment management firm to develop and manage
the funds. After interviewing a number of investment managers, AARP
selected Scudder, Stevens & Clark, Inc., who will be referred to in this
prospectus as Scudder or the Fund Manager.
Who is Scudder, Stevens & Clark?
Scudder, Stevens & Clark is America's oldest independent investment counsel
firm. Its founder, Theodore T. Scudder, established the profession of
long-term, fee-based investment counsel in 1919 at a time when investment
firms were focused on short-term, commission-based trading. In the more
than 75 years that have passed since then, Scudder has grown to be one of
America's largest independent investment managers. Today, Scudder manages
more than $100 billion in assets for clients around the world. Scudder
manages corporate funds, pension plans, and endowments for institutions,
and provides an array of investment products and services for individual
clients and other investors. These include the Scudder Funds, a family of
no-load mutual funds; a no-load variable annuity; 401(k) Plans; and several
closed-end funds.
Scudder brings decades of experience and innovation to mutual fund
investing. In 1928, Scudder offered America's first no-load mutual fund.
Scudder was the first company to offer an international mutual fund to U.S.
investors. In 1984, Scudder was selected by AARP to develop and manage the
AARP Mutual Funds.
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Net Asset Total Net Assets Ratio of Ratio of Net Portfolio Average Per Share
Value at Return % End of Operating Investment Turnover Commission Reimbursement
End of Period Expenses to Income to Rate % Rate Paid(h) of
Period ($ millions) Average Net Average Net Expenses (a):
Assets %(a) Assets %
- --------- ---------- ----------- ----------- ------------ --------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$15.27 1.80(c) 28 1.75(d) 2.06(d) -- $.0172 $ .07
$40.96 9.27(c) 762 .91(d) .93(d) 75.90(d) $.0617 --
38.36 23.47 692 .95 1.00 98.44 --
31.74 (4.70) 683 .97 .02 79.65 --
36.20 24.53 607 1.05 .22 100.63 --
30.30 3.94 424 1.13 .61 89.20 --
30.23 42.81 242 1.17 .90 99.62 --
23.32 (26.94) 160 1.11 2.00 83.28 $.009
34.17 43.62 180 1.16 .89 63.51 --
23.88 (5.44) 91 1.23 .37 45.37 .044
27.55 37.02 116 1.24 .62 53.61 .025
21.13 26.65 56 1.44 1.27 46.32 --
(d) Annualized.
(e) Average commission rate paid per share is calculated for fiscal years
beginning on or after September 1, 1995.
(f) Net investment income per share includes non recurring dividend income
amounting to $.18 per share.
(g) Operations for the period October 1, 1995 to March 31, 1996.
</TABLE>
What are the roles of AARP and Scudder?
The AARP Investment Program from Scudder was established in accordance with
criteria set by AARP. Specifically, these criteria include providing
members with competitive investment performance, allowing easy access to
investments, offering easy-to-understand information concerning investing,
and delivering superior service. Fulfilling this mandate is the mission of
AARP and Scudder. Both organizations work closely to ensure these criteria
are met. Scudder provides investment management and administrative services
for the AARP Funds and brings to the Program more than 75 years of
investment counseling and management experience. AARP provides insight into
the diversity and changing character of AARP members. Association staff
closely monitor Program services and review all Program materials to ensure
conformity to AARP's high standards. Members of AARP leadership also serve
as Trustees for the AARP Funds.
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?
The Program was created to address the investment concerns of AARP members
and to help you make informed investment decisions. It features several
benefits that may make investing advantageous and give you greater
confidence that you've made decisions appropriate for your needs:
* A Unique Family of Funds: The Program offers a range of mutual funds
which recognize the needs of AARP members. Each of the AARP Funds is
conservatively managed, seeking to moderate share price volatility,
while seeking competitive returns. This makes the AARP Funds distinct
from other mutual funds, which may seek higher returns but do not
focus on reducing share price volatility.
* No Sales Fees or Commissions: Unlike most other mutual funds, the AARP
Funds are pure no-loadt so you don't pay any sales fees or commissions
to purchase, exchange or sell (redeem) shares. In addition, the Funds
do not charge 12b-1 fees, which are a form of a sales charge that
covers marketing and distribution expenses.
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* No Fees to open and maintain an AARP IRA or AARP Keogh Plan account:
You'll pay no separate fees to open or maintain your retirement plan
account. All your money goes to work for your retirement.
* Low initial investment: Open an account for just $500 for each AARP
Fund ($2,500 for the AARP High Quality Tax Free Money Fund) or $250
for each AARP Fund in an AARP IRA or AARP Keogh Plan account. So it's
easy to get started. See page 38 of this prospectus for more
information on minimum investments.
* Professional investment management by Scudder, Stevens & Clark:
Scudder brings over 75 years of investment management experience to
the AARP Funds.
* Responsive Service from AARP Mutual Fund Representatives: Our
knowledgeable representatives are ready to answer your questions,
initiate transactions or help you select the AARP Fund which meets
your needs--call them toll-free. They are available Monday through
Friday, from 8 a.m. to 8 p.m. Eastern time.
* Access to your investment when you need it. You'll be able to redeem
your investment at no charge by simply calling toll-free or
writing--your investment is not locked in. See page 41 of this
prospectus for more information.
You'll also benefit from:
* Informative Communications, such as newsletters and free educational
guides;
* Consolidated Monthly Statements or Quarterly AARP IRA or AARP Keogh
Plan Statements;
* Prompt transaction confirmations;
* Special Services designed to make investing simple and convenient; and
* AARP's commitment to represent your interests.
WHAT DO THE AARP MUTUAL FUNDS OFFER?
The nine AARP Mutual Funds offer members a choice of conservatively managed
investments which vary in the potential returns and risk they offer. The
Funds address four major investment needs: stability of principal, income,
tax-free income and growth. Each of the AARP Mutual Funds is managed to
offer you competitive returns. In addition, each AARP Fund follows a
conservative investment approach which seeks to moderate share price
volatility, so you can feel confident when you invest. The AARP Funds are
managed with the needs of AARP investors always in mind. Other mutual funds
not designed and managed for AARP investors may have higher share price
volatility and have higher returns.
While the AARP Funds are conservatively managed, it is important to 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 share price of a mutual fund, other than a money market fund,
typically moves up and down on a day-to-day basis. Share price volatility
reflects the level of fluctuation in the value of a Fund's shares over
relatively short time periods. A mutual fund that experiences large changes
in its share price on a daily basis would be considered to have high share
price volatility. The AARP Funds will be managed to seek to reduce share
price volatility as compared to other mutual funds or securities described
in a Fund's investment objective and policies. This does not mean a Fund's
share price will not be affected by market forces. Market forces may
include downward and upward movements of the stock market or interest
rates. The result will be upward or downward movements in the Fund's share
price. For a more detailed discussion of each AARP Fund, please read the
"Investment Objectives and Policies" section.
Information on each AARP Fund is included in this Prospectus, focusing on
how the AARP Funds differ in their potential return and risk. Before
investing, you should determine your investment objectives and personal
time horizons. This will help you decide which Fund or combination of AARP
Funds fits your investment needs.
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10
<PAGE>
The following is a brief summary of the diversity of investment needs the
AARP Funds seek to meet. The differing nature of an investment in each Fund
will affect the length of time for which you should be planning to invest.
If you are investing for stability of principal and income:
Consider the AARP High Quality Money Fund or the AARP High Quality Tax Free
Money Fund. Each provides opportunities to meet short-term needs (1 year or
less) while providing a modest level of income. Both seek to provide
investors with stability of principal through a constant $1.00 share price,
although this may not always be achieved. Like other money funds, the AARP
Money Funds invest in short-term securities whose yields tend to follow
changes in short-term interest rates. If short-term interest rates rise or
fall dramatically, so could the yields of the AARP Money Funds in
relatively short periods of time. Keep in mind that the two AARP Money
Funds differ in that the income paid by the AARP High Quality Money Fund is
taxable, whereas the income paid by the AARP High Quality Tax Free Money
Fund is normally free from federal income taxes.
If you are investing for the longer term and are interested in monthly
income:
Consider the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond
Fund or the AARP Insured Tax Free General Bond Fund. When you choose one of
these conservatively managed funds, remember that both the value of your
shares and the yield will change daily, generally in reaction to shifting
interest rates. In most cases, as interest rates rise, the value of
investments in bond funds like these tends to fall. As interest rates fall,
the value of investments in these bond funds tends to rise. Investing in
these Funds offers the opportunity for gain through potential appreciation
in the value of your investment and from the monthly income that the
investment earns. While each of these Funds is managed to attempt to
moderate share price volatility, the value of your investment can decline.
That's why you should be prepared to tolerate some fluctuation in the value
of your investment and in the income you earn and to invest for the longer
term (at least 1 year or more).
If you are investing for the long term and you are interested in growth:
Consider the AARP Balanced Stock and Bond Fund, the AARP Growth and Income
Fund, the AARP Global Growth Fund or the AARP Capital Growth Fund. When you
invest in one of these Funds, remember that any investment in stocks
involves risk and that the value of your shares will fluctuate daily. The
share price of these AARP Funds will tend to rise when the stock market
rises and decline when the stock market declines. Investing in these Funds
offers the opportunity for gain through potential appreciation in the value
of your investment as well as from the income that the investment earns.
While each of these Funds is managed to attempt to moderate share price
volatility, the value of your investment can decline. That's why you should
consider your investment as one that you can afford to let work for you
over time--generally for a period of 3 to 5 years or more.
How is my investment managed?
The AARP Mutual Funds are managed to seek both competitive returns and to
moderate share price volatility. Each of the AARP Mutual Funds is managed
by a team of investment professionals at Scudder. Professional portfolio
managers develop investment strategies and select securities for each AARP
Fund's portfolio. They are supported by Scudder's dedicated staff of
economists, research analysts, traders, and other investment specialists
who work in offices across the United States and abroad. At Scudder, there
has always been a strong partnership between research analysts and
portfolio managers. Scudder's large staff of independent research analysts
helps the portfolio managers assess
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<PAGE>
economic and industry trends as they make their investment decisions.
Because of this emphasis on "fundamentals," the portfolio managers do not
take a short-term approach to investing. Instead, they seek to add value
over the long term, carefully selecting investments they believe have
superior potential for achieving each Fund's objectives.
INVESTMENT OBJECTIVES AND POLICIES
The following pages provide detail on the investment objectives and
policies of the nine AARP Mutual Funds. Included are each Fund's
objectives, whom it is designed for, what it offers investors, what it can
invest in, the risks involved, when distributions are paid and who at
Scudder manages the Fund. As with any investment, there is no guarantee
that the AARP Funds will successfully meet their investment objectives. Be
sure to read the section titled "Other Investment Policies and Risk
Factors" on page 28.
Each Trust's Trustees can modify a Fund's objectives without the approval
of a majority of that Fund's shareholders. Shareholders will be informed in
writing of any changes in objectives. In that event, they should consider
whether the Fund is still an appropriate investment given their then
current financial position and needs.
AARP HIGH QUALITY MONEY FUND
Fund Objective:
From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and
safety of principal while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances
under which this goal cannot be achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors who have short-term needs or who
do not want the risk that accompanies investing in stocks or bonds. These
include:
* Investors creating a diversified portfolio who want a portion of their
assets in a conservative investment designed to offer safety and
stability.
* Investors seeking a short-term investment prior to making longer-term
investment choices.
* Investors seeking money market income to meet regular day-to-day
needs.
* Investors who need immediate access to their money through free
checkwriting services.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income, while maintaining stability
and safety of principal. In addition, it provides a convenient way to
easily access your money through checkwriting.
What does the Fund invest in?
The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including
bankers' acceptances, certificates of deposit, deposit notes and time
deposits; obligations of savings and loan institutions; instruments whose
credit has been enhanced by: banks (letters of credit), insurance companies
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12
<PAGE>
(surety bonds), or other corporate entities (corporate guarantees);
corporate obligations, including commercial paper, notes, bonds, loans and
loan participations; securities with variable or floating interest rates;
asset-backed securities, including certificates, participations and notes;
municipal securities including notes, bonds and participation interests,
either taxable or tax-free, as described in more detail for the AARP High
Quality Tax Free Money Fund; securities with put features; and repurchase
agreements.
These securities will have remaining maturities of 397 calendar days or
less, except for U.S. Government securities, which may have maturities up
to 762 calendar days. The average dollar-weighted maturity of the Fund's
investments is 90 days or less.
All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. Generally, the
Fund may purchase only securities rated, or issued by an entity with
comparable securities rated, within the two highest quality rating
categories of one or more rating agencies such as: Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), and Fitch Investors
Service, Inc. (Fitch). Securities rated by only one agency may be purchased
if the rating falls within the categories above. Unrated securities may be
purchased if the Fund Manager judges them to be comparable in quality to
securities described above. Generally, the Fund will invest in securities
rated in the highest quality rating by at least two of these rating
agencies.
All of the securities purchased are U.S. dollar-denominated. The securities
must meet credit standards applied by the Fund Manager following procedures
established by the Trustees. If a security ceases to be rated or is reduced
below the Fund's standards, it will be sold unless the Trustees determine
that disposing of the security would not be in the best interests of the
Fund.
The Fund has certain nonfundamental policies designed to maintain
diversification. These policies may be changed without shareholder
approval. With limited exceptions, the Fund may not invest more than 5% of
its assets in the securities of a single issuer, except for U.S. Government
securities. Nor may it invest more than 10% of its total assets in
securities subject to unconditional puts by a single issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began in June 1985, there may be situations under which this
goal cannot be achieved. The level of income you receive will be affected
by movements up and down in short-term interest rates. By investing
generally in highest-quality securities, the Fund may offer less income
than a money market fund investing in other high-quality securities in
which money market funds are allowed to invest. See "Other Investment
Policies and Risk Factors."
When are distributions paid?
Dividends are declared daily and distributed monthly to investors.
Generally, net realized capital gain or loss is included in the daily
declaration of income. See page 33 for additional information on
distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Stephen L. Akers assumed responsibility for setting
the Fund's investment strategy and for overseeing the Fund's day-to-day
management in February 1996. Mr. Akers has been a member of the AARP High
Quality Money Fund team since 1995 and has managed several other
fixed-income portfolios since joining Scudder in 1984. Robert T. Neff,
Portfolio Manager, focuses on securities selection and assists with the
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13
<PAGE>
creation and implementation of investment strategy for the Fund. Mr. Neff
joined Scudder in 1972 and has more than 20 years of experience managing
short-term fixed-income assets. Debra A. Hanson, Portfolio Manager, assists
with the development and execution of investment strategy and has been with
Scudder since 1983. K. Sue Cote, Portfolio Manager, joined Scudder in 1983
and has over 10 years of experience in the investment industry.
AARP HIGH QUALITY TAX FREE MONEY FUND
Fund Objective:
From investments in high quality municipal securities, the Fund is designed
to provide current income free from federal income taxes. The Fund also
seeks to maintain stability and safety of principal, while offering
liquidity. The Fund seeks to maintain a constant net asset value of $1.00
per share. There may be circumstances under which this goal cannot be
achieved.
For whom is the Fund designed?
The Fund may be appropriate for investors in high tax brackets who have
short-term investment needs or who do not want the risk that accompanies
investing in stocks or bonds. These include:
* Investors creating a diversified portfolio who want a portion of their
assets in a conservative investment designed to offer safety and
stability.
* Investors seeking a short-term investment prior to making longer-term
investment choices.
* Investors seeking tax free money market income to meet regular
day-to-day expenses.
* Investors who need immediate access to their money through free
checkwriting services.
This Fund is not available for AARP IRA, AARP SEP-IRA or AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income free from federal income tax,
while providing you with stability and safety of principal. Depending on
your tax bracket, the after-tax income from the Fund may be higher than
from a taxable investment of comparable quality and risk. In addition, it
provides a convenient way to easily access your money through checkwriting.
What does the Fund invest in?
The Fund invests in high-quality, short-term municipal securities. These
securities will have remaining maturities of 397 calendar days or less. The
average dollar-weighted maturity of its investments is 90 days or less.
These municipal securities may include obligations issued by or on behalf
of states, territories and possessions of the United States and the
District of Columbia. Interest from these securities is, in the opinion of
the issuer's bond counsel, exempt from federal income taxes. The Fund has
no current intention to invest in securities whose income is subject to
federal income tax, including the individual alternative minimum tax (AMT).
Municipal securities may include municipal notes such as tax anticipation
notes, revenue anticipation notes, bond anticipation notes and construction
loan notes; municipal bonds, which include general obligation bonds secured
by the issuer's pledge of its faith, credit and taxing power for payment of
principal and interest; and revenue bonds (including private activity
bonds), which are generally paid from the revenues of a particular
facility, a specific excise tax, or other source. The Fund's municipal
investments may also include participation interests in bank holdings of
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14
<PAGE>
municipal securities, municipal lease obligations, securities with variable
or floating interest rates, demand obligations, and tax-exempt commercial
paper. The Fund may also purchase securities on a "when-issued" or "forward
delivery" basis, and may enter into stand-by commitments, which are
securities that may be sold back to the seller at the Fund's option.
All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. These securities
are generally rated or issued by an issuer rated within the two highest
quality ratings of two or more rating agencies such as: Moody's (Aaa and
Aa, M1G1 and M1G2, and P1), S&P (AAA and AA, SP1+ and SP1, A1+ and A1) and
Fitch (AAA and AA, F1 and F2). The Fund may purchase a security rated by
only one rating agency if it meets the above rating standards. An unrated
security may be purchased if the Fund Manager judges it to be of comparable
quality to securities described above. Generally, the Fund will invest in
securities rated in the highest quality rating by at least two of these
rating agencies.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
in federally tax-exempt securities.
As a fundamental policy, under normal circumstances, at least 80% of the
Fund's net assets will be invested in tax-exempt securities. Up to 20% of
the Fund's net assets may be invested in taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in taxable securities may exceed 20% when the Fund
Manager deems such a position advisable in light of economic or market
conditions.
All of the securities purchased are U.S. dollar-denominated. The securities
must meet credit standards applied by the Fund Manager, following
procedures established by the Trustees. If a security ceases to be rated,
or its rating is reduced below the Fund's standard, it will be sold unless
the Trustees determine that disposing of the security would not be in the
best interests of the Fund. As a matter of nonfundamental policy, which may
be changed without a shareholder vote, the Fund, with respect to 75% of its
total assets, may not invest more than 5% of its total assets in securities
subject to puts from any one issuer.
What are the risks?
The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began operating as a tax-free money fund in August 1991,
there may be situations under which this goal cannot be achieved. The level
of income you receive will be affected by movements up and down in
short-term interest rates. By investing generally in highest-quality
securities, the Fund may offer less income than a money market fund
investing in other high-quality securities in which money market funds are
allowed to invest. See "Other Investment Policies and Risk Factors."
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. However, income may be subject to state and local income
taxes. Each year you will be provided with a breakdown of the Fund's
investments on a state by state basis so that you can determine your state
and local income tax liability. Your state or local Department of Revenue
or tax advisor can answer questions regarding taxability of distributions.
Should there be any income from taxable securities, it would not be exempt
from federal income taxes.
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<PAGE>
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 33 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager K. Sue Cote has been responsible for setting the
Fund's investment strategy and has overseen the Fund's day-to-day
management since 1991. Ms. Cote joined Scudder in 1983 and has over 10
years of experience in the investment industry. Donald C. Carleton,
Portfolio Manager, focuses on securities selection and assists with the
creation and implementation of investment strategy for the Fund. Mr.
Carleton has more than 20 years' experience in tax-free investing and has
been at Scudder since 1983.
AARP GNMA AND U.S. TREASURY FUND
Fund Objective:
To produce a high level of current income and to keep the price of its
shares more stable than that of a long-term bond. The Fund pursues this
objective by investing principally in U.S. Government-guaranteed GNMA
securities and U.S. Treasury obligations.
For whom is the Fund designed?
The Fund is suitable for conservative investors who want high current
income but want a degree of protection from bond market price risk.
Investors should be seeking to invest for the longer term and be
comfortable with fluctuation in the value of their principal.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer current income from a portfolio of
high-quality securities. The level of income should generally be higher
than available from fixed-price money market mutual funds,
government-insured bank accounts and fixed-rate, government-insured CDs. By
including short-term U.S. Treasury securities in its portfolio, the Fund
seeks to offer less share price volatility than long-term bonds or many
GNMA mutual funds, although its yield may be lower.
What does the Fund invest in?
The Fund invests principally in U.S. Treasury bills, notes, and bonds, and
other securities issued or backed by the full faith and credit of the U.S.
Government. These include Government National Mortgage Association (GNMA)
securities. GNMA securities represent part ownership of a pool of U.S.
Government-guaranteed mortgage loans each of which is insured by the
Federal Housing Administration or guaranteed by the Veterans
Administration. Each pool of mortgages is also guaranteed by GNMA as to the
timely payment of principal and interest (regardless of whether the
mortgagors actually make their payments). This guarantee by GNMA represents
the full faith and credit of the U.S. Government. However, this guarantee
is not related to the Fund's yield or the value of shareholders'
investments, which will fluctuate daily.
The maturities and types of securities held by the Fund may vary with
current market conditions. At any time, the Fund may invest a substantial
portion of its assets in securities of a particular maturity. With GNMA
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<PAGE>
securities, principal is paid back to the Fund over the life of the bond,
rather than at maturity. The Fund will receive monthly scheduled payments
of principal and interest and may receive unscheduled principal payments
resulting from prepayments of the underlying mortgages. The Fund may
realize a gain or loss upon receiving principal payments. The Fund
typically reinvests all payments and prepayments of principal in additional
GNMA securities or other U.S. Government-guaranteed securities. The Fund
may also purchase "when-issued" securities and invest in repurchase
agreements.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. The level of income you receive will be affected by movements
up or down in interest rates. Like bonds, the value of mortgage-backed
securities decreases when interest rates rise. However, when interest rates
fall their value may not rise as much as does the value of bonds because of
the anticipation of prepayment of the underlying mortgages. This prepayment
may expose the Fund to a lower rate of return upon reinvestment. Thus, the
prepayment rate may also tend to limit any increase in net asset value. See
"Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
The Fund actively seeks to reduce fluctuation, or price volatility to your
principal, by investing in a combination of short-, intermediate-, and
long-term securities. The Fund may also, on occasion, use portfolio
management techniques to seek to reduce volatility. These techniques, which
are subject to applicable regulatory guidelines, may include limited
transactions in financial futures contracts and related option transactions
which are unrated (see "Other Investment Policies and Risk Factors"). The
Fund may write (sell) covered call options to enhance investment returns.
These techniques will be entered into to reduce risk, but such techniques
involve risks themselves and under certain conditions may reduce current
income.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 33 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has been responsible for setting the
Fund's investment strategy and overseeing security selection for the Fund's
portfolio since its inception in 1985. Mr. Glen has 15 years' experience in
finance and investing. Mark S. Boyadjian, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Boyadjian joined the Fund's team in
1995 and has been involved in investment management since joining Scudder
in 1989.
AARP HIGH QUALITY BOND FUND
Fund Objective:
Consistent with investments primarily in high quality securities, the Fund
seeks to provide a high level of income and to keep the value of its shares
more stable than that of a long-term bond.
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<PAGE>
For whom is the Fund designed?
The Fund is suitable for investors who want high current income with
moderate risk from a high quality portfolio. Investors should be seeking to
invest for the longer term (at least 1 year or more) and be comfortable
with fluctuation in the value of their principal.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer a high level of current income from a
portfolio of high-quality securities. Normally the level of return should
be higher than that available from the AARP GNMA and U.S. Treasury Fund,
with greater fluctuation in the value of your principal.
By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many long-term
bond funds, although its yield may be lower.
What does the Fund invest in?
Under normal circumstances, at least 65% of the assets of the Fund are
invested in U.S. Government, corporate and other fixed-income securities.
All the Fund's securities will be rated or judged by the Fund Manager to be
the equivalent of those rated in the three highest rating categories of
Moody's (Aaa, Aa, and A) or S&P (AAA, AA, and A) and at least 65% of the
Fund's assets must be in securities rated in the two highest rating
categories by Moody's or S&P.
The Fund may invest in any investment eligible for the AARP GNMA and U.S.
Treasury Fund. It may also purchase corporate notes and bonds, including
convertible issues, and obligations of federal agencies that are not backed
by the full faith and credit of the U.S. Government. Additionally, the Fund
may also purchase obligations of international agencies, U.S.
dollar-denominated foreign debt securities, mortgage-backed and other
asset-backed securities, and money market instruments such as commercial
paper, banker's acceptances, and certificates of deposit issued by domestic
and foreign branches of U.S. banks. The Fund may also purchase
"when-issued" securities and invest in repurchase agreements.
The Fund will invest in a broad range of short-, intermediate- and
long-term securities. The maturities and types of securities held by the
Fund will vary with current market conditions. The Fund may have a
substantial portion of its assets in securities of a particular maturity.
The non-governmental investments of the Fund will be spread among a variety
of companies and will not be concentrated in any one industry.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will fluctuate up and down with changes in interest rates and other market
conditions. Due to the greater market price risk of the securities in which
it invests, the Fund may have a more variable share price than the AARP
GNMA and U.S. Treasury Fund. See "Other Investment Policies and Risk
Factors."
The level of income provided will be affected by movements up and down in
interest rates. Also, income from high-quality securities the Fund
purchases may be lower than income from lower-quality securities.
How does the Fund seek to manage risk?
The Fund actively seeks to reduce fluctuation, or the price volatility of
your investment, by investing in securities with varying maturities. Also,
the Fund may use approved portfolio management techniques, if appropriate,
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such as limited transactions in financial futures contracts and related
option transactions which are unrated (see "Other Investment Policies and
Risk Factors"). The Fund may write (sell) covered call options to enhance
investment returns. These techniques will be entered into to reduce risk,
but such techniques involve risks themselves and under certain conditions
may reduce current income.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 33 for additional information on distributions and
taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager David H. Glen has set the Fund's overall investment
strategy and has overseen its day-to-day operations since 1995. Mr. Glen,
who started at Scudder in 1982 and has been a portfolio manager since 1985,
has 15 years' experience in finance and investing. William M. Hutchinson,
Portfolio Manager, who is also responsible for implementing the Fund's
strategy, has been involved with the Fund since 1987. Mr. Hutchinson joined
Scudder in 1986 as a portfolio manager and has over 20 years of investment
experience. Stephen A. Wohler, Portfolio Manager, focuses on securities
selection for the Fund. Mr. Wohler joined Scudder in 1979 as a portfolio
manager and has over 15 years' experience managing fixed-income
investments.
AARP INSURED TAX FREE GENERAL BOND FUND
Fund Objective:
From a portfolio consisting primarily of municipal securities covered by
insurance, the Fund seeks to provide high income free from federal income
taxes and to keep the value of its shares more stable than that of a
long-term municipal bond.
For whom is the Fund designed?
The Fund is suitable for investors in higher tax brackets who want high
income free from federal income taxes. Investors should invest for the
longer term (at least 1 year or more) and be comfortable with fluctuation
in the value of their principal.
The Fund is not available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund is designed to offer high income free from federal tax. Depending
on an investor's tax bracket, the after-tax income from the Fund may be
higher than from a taxable investment of comparable quality and risk. The
Fund will typically pay higher income than the AARP High Quality Tax Free
Money Fund, although yield and principal value will fluctuate up and down
with market conditions. By including short- and medium-term bonds in its
portfolio, the Fund seeks to offer less share price volatility than
long-term municipal bonds or many long-term municipal bond funds, although
its yield may be lower.
The Fund is one of a distinct group of tax-free mutual funds with insurance
on the majority of its investments. Insurance on its securities protects
the Fund against loss from default by the municipal issuer. However, it
does not protect the investor from fluctuation in the yield or share price.
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What does the Fund invest in?
The Fund invests primarily in a mix of short-, intermediate-, and long-term
municipal securities that are insured against default by private insurers.
The municipal securities purchased by the Fund will be only high-grade
securities or repurchase agreements on such securities. These may include
obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia to raise money for public
purposes. Interest from these securities is, in the opinion of the issuer's
bond counsel, exempt from federal income taxes. The Fund has no current
intention of investing in securities whose income is subject to federal
income tax, including the individual alternative minimum tax (AMT).
However, under unusual circumstances, the Fund may invest in taxable
securities for defensive purposes or to benefit from disparities in the
financial markets.
Municipal securities may include municipal notes, municipal bonds,
municipal lease obligations, participation interests in bank holdings of
municipal securities, securities with variable or floating interest rates,
demand obligations, and tax-exempt commercial paper. The Fund may purchase
securities on a "when-issued" or "forward delivery" basis, and may enter
into stand-by commitments in which securities may be sold back to the
seller at the Fund's option. Also, the Fund may use approved portfolio
techniques, if appropriate, such as limited use of financial futures
contracts and related options transactions (see "Other Investment Policies
and Risk Factors").
What portion of the securities is insured?
At least 65% of the Fund's assets are fully insured by private insurers as
to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by
the U.S. Government are purchased and expected to be held for 60 days or
more, insurance will be obtained within 30 days to ensure that 65% of the
Fund's assets are insured by the issuer or arranged for by the Fund. If at
least 65% of its assets are not insured securities, the Fund will obtain
insurance for a portion of its U.S. Government guaranteed or backed
securities so that the 65% standard is achieved.
What are the risks?
The Fund is not a fixed price money market fund, so the value of its shares
will move up and down as interest rates and other market conditions change.
The level of income you receive will be affected by movements up and down
in interest rates. Income from the high-quality securities which the Fund
purchases may be lower than the income from lower-quality securities. See
"Other Investment Policies and Risk Factors."
How does the Fund seek to manage risk?
The Fund actively seeks to manage fluctuation, or the price volatility of
your investment, by investing in securities of varying maturities. The Fund
may also use approved portfolio management techniques.
Insurance on the securities held by the Fund protects the Fund as to
default by the municipal issuer. It does not protect an investor from
fluctuation in the Fund's yield or value per share, which change daily.
Insurance also involves a cost to the Fund which will reduce yield.
Historically, the yields on insured securities have been attractive in
comparison to the yields on uninsured securities of comparable quality.
There can be no assurance, however, that this relationship will continue.
Moreover, to the extent the Fund must purchase insurance on U.S. Government
securities, this will involve a cost to the Fund while not increasing the
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quality rating since U.S. Government-guaranteed or backed securities are
already high quality. Although the financial condition of each insurer of
its securities is periodically reviewed by the Fund, there can be no
guarantee that insurers can honor their obligations under all
circumstances. See "Other Investment Policies and Risk Factors."
Will I be subject to taxes on this fund?
All income distributed by the Fund is expected to be exempt from federal
income taxes. However, income may be subject to state and local income
taxes. Ordinarily, the Fund expects that 100% of its portfolio securities
will be in federally tax-exempt securities. As a fundamental policy, under
normal circumstances, at least 80% of the Fund's net assets will be
invested in federally tax-exempt securities. Up to 20% of the Fund's net
assets may be invested in federally taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in federally taxable securities may exceed 20%. Each year
you will be provided with a breakdown of the Fund's investments on a state
by state basis so that you can determine your state and local income tax
liability. Your state or local Department of Revenue or tax advisor can
answer questions regarding the taxability of distributions.
In the event there is income from taxable securities, it would not be
exempt from federal income taxes. In addition, any capital gains earned by
the Fund are usually taxable.
When are distributions paid?
Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 33 for additional information
on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Donald C. Carleton has been responsible for setting
the Fund's investment strategy and has overseen the Fund's day-to-day
management since 1990. Mr. Carleton has over 20 years' experience in
tax-free investing. Philip G. Condon, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Condon has been with Scudder since
1983 and has more than 17 years of investment experience.
AARP BALANCED STOCK AND BOND FUND
Fund Objective:
To seek to provide long-term growth of capital and income while attempting
to keep the value of its shares more stable than other balanced mutual
funds. The Fund pursues these objectives by investing in a combination of
stocks, bonds, and cash reserves.
For whom is the Fund designed?
This Fund is suitable for conservative investors who are seeking long-term
growth of their assets, but want less risk than an investment solely in
stocks. Investors should invest for the longer term (at least 3 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP
Keogh Plan accounts.
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What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal through a
single investment combining stocks, bonds, and cash reserves. Growth will
come from possible appreciation in the value of common stocks and other
equity investments. Bonds and other fixed-income investments provide
current income and may, over time, help reduce fluctuation in the Fund's
share price. Through a broadly diversified portfolio consisting primarily
of stocks with above average dividend yields and investment-grade bonds,
the Fund seeks to offer less share price volatility than many balanced
mutual funds. The Fund should typically have less risk and a lower return
than the AARP Growth and Income Fund, the AARP Global Growth Fund and the
AARP Capital Growth Fund.
The Fund does not take extreme investment positions as part of an effort to
"time the market." Shifts between stocks and fixed-income investments are
expected to occur in generally small increments. On occasion, the Fund will
adjust its investment mix. The Fund Manager will do so after analyzing
factors such as the level and direction of interest rates, capital flows,
inflationary expectations, anticipated growth of corporate profits, and the
financial climate worldwide.
What does the Fund invest in?
The Fund seeks to manage fluctuation by investing in a broadly diversified
mix of equity securities, bonds, and cash reserves. The Fund may invest up
to 70% of its assets in equity securities (stocks). At least 30% of the
Fund will be in investment-grade fixed-income securities and cash reserves.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments when the Fund Manager deems such a
position advisable in light of economic or market conditions. These include
commercial paper, bankers' acceptances, certificates of deposit issued by
domestic and foreign branches of U.S. banks, and repurchase agreements.
Equity securities consist of common stocks, securities convertible into
common stocks, and preferred stocks. A research-oriented approach to
investing is used by the Fund, taking advantage of Scudder's large research
department. The Fund emphasizes securities of companies that offer the
opportunity for capital growth and growth of earnings while providing
dividends. The Fund will generally invest in companies domiciled in the
U.S.; it may invest, however, in foreign securities without limit.
All of the Fund's debt securities will be investment-grade, i.e., rated at
the time of purchase Baa or higher by Moody's or BBB or higher by S&P, or
deemed of comparable quality by the Fund's Manager. At least 75% of these
will be securities rated within the three highest quality ratings of
Moody's (Aaa, Aa and A) or S&P (AAA, AA, and A) or those the Fund Manager
judges are of equivalent quality (high-grade). Securities rated BBB by S&P
or Baa by Moody's are neither highly protected nor poorly secured. These
securities normally pay higher yields but involve potentially greater price
variability than higher-quality securities and are regarded as having
adequate capacity to repay principal and pay interest. Moody's considers
bonds it rates Baa to have speculative elements as well as investment-grade
characteristics. If the rating agencies downgrade a security, the Fund
Manager will determine whether to keep it or eliminate it based on the best
interests of the Fund. The Fund does not purchase securities rated below
investment-grade, commonly known as junk bonds.
The Fund can invest in a broad range of corporate bonds and notes,
convertible bonds, and preferred and convertible preferred securities. The
Fund may also invest in U.S. Government securities, obligations of federal
agencies, and instruments not backed by the full faith and credit of the
U.S. Government. The latter include obligations of the Federal Home Loan
Banks, Farm Credit Banks, and the Federal Home Loan Mortgage Corporation.
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The Fund may also invest in obligations of international agencies, U.S. and
non-U.S. dollar denominated foreign debt securities, mortgage-backed and
other asset-backed securities, municipal obligations, zero-coupon
securities, and restricted securities issued in private placements.
The Fund may make limited use of financial futures contracts and related
options and may also invest in forward foreign currency exchange contracts.
The Fund may write (sell) covered call options to enhance investment
returns and may purchase and sell options on stock indices for hedging
purposes. It may also invest in securities on a "when-issued" or forward
delivery basis.
What are the risks?
The risk to principal is consistent with an investment primarily in stocks
and bonds. The value of shares will fluctuate up and down with changes in
interest rates and other market conditions. Investors should focus on the
longer-term and be comfortable with fluctuation in the value of their
principal.
The level of income will be affected by movements up and down in interest
rates and by dividends paid on the stocks held by the Fund. See "Other
Investment Policies and Risk Factors."
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 33 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman is responsible for managing the
stock portion of the Fund. Mr. Hoffman, who joined Scudder in 1990, has 10
years of experience in the investment industry. William M. Hutchinson,
Portfolio Manager, is responsible for the bond portion of the Fund. Messrs.
Hutchinson and Hoffman have been Portfolio Managers for the Fund since it
commenced operations on February 1, 1994. Benjamin W. Thorndike, Portfolio
Manager, focuses on asset allocation strategy and stock selection. Mr.
Thorndike, who has more than 15 years of investment experience, joined
Scudder in 1986.
AARP GROWTH AND INCOME FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth and
income, and to keep the value of its shares more stable than other growth
and income mutual funds.
For whom is the Fund designed?
The Fund is suitable for investors who are seeking long-term growth of
their assets to keep ahead of inflation. Investors should invest for the
longer-term (at least 3 years or more) and be comfortable with fluctuation
to their principal that is associated with investing in stocks.
The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal with some
income. This growth will come from possible appreciation in the value of
shares, as well as quarterly dividend distributions if they are reinvested
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in additional shares of the Fund. Dividends can also produce current income
for investors. Through a broadly diversified portfolio consisting primarily
of stocks with above average dividend yields, the Fund seeks to offer less
share price volatility than many growth and income funds. The Fund should
offer a greater opportunity for share price appreciation, over time, with
less income and with greater share price fluctuation than the AARP Balanced
Stock and Bond Fund.
What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stock. The Fund
emphasizes securities of companies that offer the opportunity for capital
growth and growth of earnings while providing dividends. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department.
The Fund will invest in a variety of industries and companies. Generally,
the Fund will invest in companies domiciled in the United States. It may
invest, however, in foreign securities without limit. Also, the Fund may
write (sell) covered call options to enhance investment return, and may
purchase and sell options on stock indices for hedging purposes. See "Other
Investment Policies and Risk Factors."
The Fund's policy is to remain substantially invested in stocks and
securities convertible into stocks. However, for temporary defensive
purposes, the Fund may invest without limit in high quality money market
securities when the Fund Manager deems such a position advisable in light
of economic or market conditions. These include U.S. Treasury bills,
commercial paper, certificates of deposit issued by domestic and foreign
branches of U.S. banks, bankers' acceptances, and repurchase agreements.
What are the risks?
The risk to principal is consistent with an investment in stocks. The stock
market doesn't go up every year, and can rise and fall--sometimes quite
dramatically over a short period of time. Investors should focus on the
longer term (at least 3 years or more) and be comfortable with fluctuation
in the value of their principal. See "Other Investment Policies and Risk
Factors."
The level of income you receive will be affected by dividends paid on the
securities held by the Fund.
When are distributions paid?
Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 33 for
additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting
the Fund's stock investment strategy and has overseen the Fund's day-to-day
management since 1991. Mr. Hoffman, who joined Scudder in 1990, has 10
years of experience in the investment industry. Benjamin W. Thorndike,
Portfolio Manager, is the Fund's chief analyst and strategist for
convertible securities. Mr. Thorndike, who has more than 15 years of
investment experience, joined Scudder and the Fund in 1986. Kathleen T.
Millard, Portfolio Manager, focuses on stock investing strategy and stock
selection. Ms. Millard has worked in the investment industry since 1983 and
at Scudder since 1991. Lori Ensinger, Portfolio Manager, joined the Fund in
1996 and focuses on stock selection and investment strategy. Ms. Ensinger
has worked in the investment industry since 1983 and at Scudder since 1993.
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AARP GLOBAL GROWTH FUND
Fund Objective:
From investments primarily in equity securities of corporations worldwide,
the Fund seeks to offer long-term capital growth in a globally diversified
portfolio, and to keep the value of its shares more stable than other
global equity funds.
For whom is the Fund designed?
This new Fund, which commenced operations on February 1, 1996, is suitable
for investors who want to add worldwide equity opportunities to their
portfolio. The Fund is designed for investors seeking long-term growth of
their principal. Investors should invest for the longer term (at least 5
years or more) and be comfortable with the value of their principal
fluctuating up and down. The Fund is also available for AARP IRA, AARP
SEP-IRA, and AARP Keogh Plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal from a
professionally managed portfolio of securities selected from the U.S. and
foreign equity markets. It also offers the opportunity for investors to
further diversify their portfolios which could help to lower their overall
risk.
Global investing takes advantage of the investment opportunities created by
the growing integration of economies around the world. The world has become
highly integrated in economic, industrial and financial terms. Companies
increasingly operate globally as they purchase raw materials, produce and
sell their products and raise capital. The Fund affords investors access to
opportunities wherever they arise, without being constrained by the
location of a company's headquarters or the trading market for its shares.
Because the Fund's portfolio invests globally, it provides the potential to
augment returns available from the U.S. stock market. In addition, since
U.S. and foreign markets do not always move in step with each other, a
global portfolio will be more diversified than one invested solely in U.S.
securities.
Investing directly in foreign securities is usually impractical for most
investors because it presents complications and extra costs. Investors
often find it difficult to arrange purchases and sales, to obtain current
information, to hold securities in safekeeping and to convert the value of
their investments from foreign currencies into dollars. The Fund manages
these problems for the investor. With a single investment, the investor has
a diversified worldwide investment portfolio which is managed actively by
experienced professionals. Scudder has had many years of experience
investing globally and dealing with trading, custody and currency
transactions around the world. Scudder has the benefit of information it
receives from worldwide research and believes the Fund affords investors an
efficient and cost-effective method of investing worldwide.
Through a broadly diversified portfolio consisting primarily of stocks of
established companies which are incorporated in the U.S. or in foreign
countries, and applying a strategy of relatively low portfolio turnover,
the Fund seeks to offer less share price volatility than many global growth
funds. However, in pursuing long-term growth, the Fund typically will have
more share price fluctuation than other AARP Funds, except the AARP Capital
Growth Fund. See "What are the risks?" below. Growth will come primarily
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from possible appreciation in the value of shares. The Fund is not expected
to provide regular income.
What does the Fund invest in?
The Fund will invest in securities of companies that the Fund Manager
believes will benefit from global economic trends, promising technologies
or products and changing geopolitical, currency or economic relationships.
The Fund will normally invest at least 65% of its total assets in
securities of at least three different countries. Typically it is expected
that the Fund will invest in a wide variety of regions and countries,
including both foreign and U.S. issues. Under normal circumstances it is
expected that both foreign and U.S. investments will be represented in the
Fund's portfolio. However, the Fund may be invested 100% in non-U.S.
issues, and for temporary defensive purposes may be invested 100% in U.S.
issues. For temporary defensive purposes, the Fund may invest without limit
in high quality money market securities, including U.S. Treasury bills,
repurchase agreements, commercial paper, certificates of deposit issued by
domestic and foreign branches of U.S. banks, bankers' acceptances and other
debt securities, such as U.S. Government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
The Fund generally invests in equity securities of established companies
listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible
preferred stock. Also, fixed-income securities of governments, government
agencies, supranational agencies and companies may be used when Scudder
believes the potential for appreciation for these investments will equal or
exceed that available from investments in equity securities. These debt and
fixed-income securities will be exclusively investment-grade securities,
that is, those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by
S&P or those of equivalent quality as determined by Scudder. Securities
rated BBB by S&P or Baa by Moody's are neither highly protected nor poorly
secured. Moody's considers bonds it rates Baa to have speculative elements
as well as investment-grade characteristics.
The Fund may invest in zero coupon securities and closed-end investment
companies holding foreign securities. The Fund may make limited use of
financial futures contracts and related options and may also invest in
forward foreign currency exchange contracts. The Fund may write (sell)
covered call options to enhance investment return, and may purchase and
sell options on stock indices for hedging purposes. See "Other Investment
Policies and Risk Factors."
What is Scudder's international investing experience?
Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced Scudder International Fund, the first
mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. Today, Scudder manages over $22
billion in assets invested in foreign markets.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth through global investing. Global investing involves
economic and political considerations not typically found in U.S. markets.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in both U.S. and
foreign securities markets, changes in the Fund's share price may have a
low correlation with movements in the U.S. markets. The Fund's share price
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will reflect the movements of both the different stock and bond markets in
which it is invested and the currencies in which the investments are
denominated: The strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance.
Investors should focus on the longer term (at least 5 years or more) and be
comfortable with fluctuation to the value of their principal. Because of
the Fund's global investment policies and the investment considerations
discussed above, investment in shares of the Fund should be considered as
part of a broadly diversified portfolio. See "Other Investment Policies and
Risk Factors."
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30. See
page 33 for additional information on distributions and taxes.
Who at Scudder manages my investment?
William E. Holzer is the Lead Portfolio Manager for the Fund. Mr. Holzer
has day-to-day responsibility for setting the Fund's worldwide strategy and
investment themes. Mr. Holzer has over 20 years' experience in global
investing and joined Scudder in 1980. Nicholas Bratt, Portfolio Manager,
directs Scudder's overall global equity investment strategies. Mr. Bratt
joined Scudder in 1976. Alice Ho, Portfolio Manager, is also responsible
for implementing the Fund's strategy. Ms. Ho, who joined Scudder in 1986 as
a member of the institutional and private investment counsel area, has
worked as a portfolio manager since 1989.
AARP CAPITAL GROWTH FUND
Fund Objective:
From investments primarily in common stocks and securities convertible into
common stocks, the Fund seeks to provide long-term capital growth, and to
keep the value of its shares more stable than other capital growth mutual
funds.
For whom is the Fund designed?
The Fund is suitable for investors seeking high long-term growth of their
principal. Investors should invest for the longer term (at least 5 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP
Keogh Plan accounts.
What does the Fund offer to investors?
The Fund offers the opportunity for long-term growth of principal. This
growth will come primarily from possible appreciation in the value of
shares. The Fund is not expected to provide regular income.
In pursuing long-term growth, the Fund will typically have more share price
fluctuation than the AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund and AARP Global Growth Fund.
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.
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What does the Fund invest in?
The Fund invests primarily in common stocks and securities convertible into
common stocks. The Fund may also invest in preferred stocks. The Fund's
policy is to remain substantially invested in these securities.
In seeking capital growth, the Fund will invest in stocks which will offer
above-average potential for long-term growth of market value as represented
by the Standard & Poor's 500 Composite Stock Price Index. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department. The Fund will invest in a
variety of industries and companies. Generally, the Fund will invest in
companies domiciled in the U.S. It may invest, however, in foreign
securities without limit. Also, the Fund may write (sell) covered call
options to enhance investment return, and may purchase and sell options on
stock indices for hedging purposes. See "Other Investment Policies and Risk
Factors."
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic
and foreign branches of U.S. banks, bankers' acceptances, and other debt
securities, such as U.S. Government obligations and corporate debt
instruments when the Fund Manager deems such a position advisable in light
of economic or market conditions.
What are the risks?
The risk to principal is consistent with the Fund's objective of seeking
long-term growth. The Fund generally has greater share price fluctuation
than the other AARP Funds. The stock market doesn't go up every year, and
can rise and fall--sometimes quite dramatically over a short period of
time. Some of the securities selected may have above-average stock market
risk. Investors should focus on the longer term (at least 5 years or more)
and be comfortable with fluctuation to the value of their principal. See
"Other Investment Policies and Risk Factors."
When are distributions paid?
Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30. See
page 33 for additional information on distributions and taxes.
Who at Scudder manages my investment?
Lead Portfolio Manager William F. Gadsden has set the Fund's overall
investment strategy since 1994 and has been part of the Fund's day-to-day
management since 1989. He has 14 years of investment industry experience
and joined Scudder in 1983. Bruce F. Beaty, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. He has 15 years of investment industry
experience and joined Scudder in 1991.
OTHER INVESTMENT POLICIES AND RISK FACTORS
Below are some detailed descriptions of several types of securities and
investment techniques referred to in this prospectus.
Maintaining $1.00 Constant Share Price in Money Funds
The AARP High Quality Money Fund and the AARP High Quality Tax Free Money Fund
attempt to maintain a constant net asset value per share. To do so, they operate
in accordance with a rule of the Securities and Exchange Commission (SEC) that
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requires all assets to be cash, cash items, and high-quality U.S.
dollar-denominated investments having a remaining maturity of generally not more
than 397 calendar days from the date of purchase. The AARP High Quality Money
Fund, however, may invest in U.S. Government securities having maturities of up
to 762 calendar days. The SEC also requires that the average dollar-weighted
maturity of these Funds not exceed 90 days.
When-Issued Securities
All AARP Funds, except the AARP Growth and Income Fund, the AARP Global Growth
Fund, and the AARP Capital Growth Fund, may purchase securities on a when-issued
or forward delivery basis. That means payment and delivery of the security will
be at a later date. The price and yield are generally fixed on the date of
commitment to purchase. The Fund does not earn interest before delivery of the
security. At the time of settlement, the market value of the security may be
more or less than the purchase price.
Repurchase Agreements
This is an agreement under which a Fund may buy one or more U.S. Government
obligations which the seller simultaneously agrees to repurchase at a specified
time and price. The Fund can earn income for periods as short as overnight. Such
an agreement may enhance liquidity since it is normally a short-term commitment.
If the seller under a repurchase agreement becomes insolvent, the Fund's right
to sell the securities may be restricted. Also, the value of such securities may
decline before the Fund can sell them. The Fund might also incur transaction
costs by selling the securities.
Each of the AARP Funds may enter into repurchase agreements only with Federal
Reserve member banks or broker-dealers recognized as reporting government
securities dealers.
Mortgage and other asset-backed securities
The AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond Fund, and the
AARP Balanced Stock and Bond Fund may invest in mortgage-backed securities,
which are securities representing interests in pools of mortgage loans. These
securities provide shareholders with payments consisting of both interest and
principal as the mortgages in the underlying mortgage pools are paid off.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of a Fund's shares. Also, GNMA and
other mortgage-backed securities may be purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs. In addition, the AARP High Quality Bond Fund and the
AARP Balanced Stock and Bond Fund may invest in mortgage-backed securities
issued by other issuers, such as the Federal National Mortgage Association
(FNMA), which are not guaranteed by the U.S. Government. Moreover, the Funds may
invest in debt securities which are secured with collateral consisting of
mortgage-backed securities and in other types of mortgage-related securities.
The AARP High Quality Bond Fund and the AARP Balanced Stock and Bond Fund may
also invest in securities representing interests in pools of certain other
consumer loans, such as automobile loans or credit card receivables. In some
cases, principal and interest payments are partially guaranteed by a letter of
credit from a financial institution.
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Zero Coupon Securities
The AARP Balanced Stock and Bond Fund and the AARP Global Growth Fund may invest
in zero coupon securities which pay no cash income and are issued at substantial
discounts from their value at maturity. Zero coupon securities are subject to
greater market value fluctuations from changing interest rates than debt
obligations of comparable maturities which make current cash distributions of
interest.
Foreign Securities
Each of the Funds in the AARP Growth Trust and the AARP High Quality Bond Fund
may invest without limit in foreign securities.
Investments in foreign securities may benefit a Fund by providing access to
different markets and opportunities. It may also help to reduce risk by
increasing diversification. However, foreign securities involve special
considerations. Brokerage costs are higher. Information about foreign securities
is more limited. Foreign companies or securities often have different and less
stringent government regulations, different accounting standards, slower
settlement of transactions, and more limited and volatile trading markets.
Investments in foreign securities may also involve other risks. These include
possible imposition of withholding, confiscatory and other taxes; possible
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; and the difficulty of
enforcing obligations in other countries. A Fund may incur currency conversion
costs of purchases made in foreign currencies. There may also be favorable or
unfavorable consequences from the changes in the value of foreign currencies
against the U.S. dollar.
Derivatives
The following descriptions of Forward Foreign Currency Exchange Contracts,
Options Transactions, Futures Contracts and Related Options discuss the types of
derivatives in which certain of the AARP Funds may invest.
Forward Foreign Currency Exchange Contracts
Each of the Funds in the AARP Growth Trust may enter into forward foreign
currency exchange contracts. These contracts, which involve costs, permit the
funds to purchase or sell a specific amount of a particular currency at a
specified price on a specified future date. They may be used by a Fund only to
hedge against possible variations in exchange rates of currencies in countries
in which it may invest.
A Fund will realize a benefit only to the extent that the relevant currencies
move as anticipated. If the currencies do not move as anticipated, the use of
these contracts may result in losses greater than if they had not been used.
Options Transactions
In an attempt to enhance investment returns, Funds in the AARP Growth Trust and
the AARP Income Trust may each write covered call options. These are agreements
to sell a particular security in the Fund's portfolio at a specified price on or
before the expiration date of the option. Covered call options may be written on
portfolio securities worth up to 25% of the Fund's net assets.
There are risks associated with writing covered options. These include the
possible inability to make closing transactions at favorable prices or because
an exercise notice has been received. The Funds also risk giving up appreciation
on the underlying security in excess of the exercise price.
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Each of the Funds in the AARP Growth Trust may purchase and sell exchange-traded
options on stock indices. In addition, these Funds may engage in
over-the-counter options transactions with broker-dealers who make markets in
these options. Over-the-counter options may be more difficult to terminate than
exchange-traded options. They are frequently illiquid, and involve counterparty
credit risk. The Fund Manager will engage in such transactions to hedge against
unfavorable price movements which can adversely affect the value of the Fund's
securities or securities the Fund intends to buy. These transactions involve
risk, including the risk that market prices may move in unanticipated directions
or will not correlate well with a Fund's portfolio, causing a Fund to lose the
value of the option premium and to fail to realize any benefit from the
transaction. Further, a closing transaction may not be available when a Fund
wishes to close out a transaction.
Futures Contracts and Related Options
To a limited extent, the Funds in the AARP Income Trusts and the AARP Insured
Tax Free General Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP
Global Growth Fund may enter into financial futures contracts including futures
contracts on securities indices, may purchase and write related put and call
options, and may engage in related closing transactions. These techniques are
used to attempt to protect against adverse effects of interest rates changes or
currency changes in the case of the AARP Global Growth Fund. For example, a
particular index-based futures contract may be used when the Fund Manager
believes that correlation exists between price movements in an index-based
futures contract and securities in a Fund's portfolio. Such correlation is not
likely to be perfect. That is because a Fund's portfolio is not likely to
contain the same securities used in the index.
The margin deposits for futures contracts and premiums paid for related options
may not be more than 5% of a Fund's total assets. These transactions require a
Fund to segregate assets (such as liquid securities and cash) to cover contracts
that would require it to purchase securities. These transactions also result in
brokerage costs.
These techniques involve some risk. A Fund may be precluded from realizing a
benefit from favorable price movements in the related portfolio position of the
Fund and could lose the expected benefit of the transactions if interest rates
or currency changes in the case of AARP Global Growth Fund, move in an
unanticipated manner. To the extent that the Fund Manager's view of market
movements is incorrect, the use of such instruments may result in losses greater
than if they had not been used. In addition, if the AARP Insured Tax Free
General Bond Fund purchases futures contracts on taxable securities or indices
of such securities, their value may not fluctuate in proportion to the value of
the Fund's securities. This would limit that Fund's ability to hedge effectively
against interest rate risk. Further, while a Fund buys a futures contract only
if there appears to be a liquid secondary market for such contracts, there can
be no assurance that a Fund will be able to close out any particular futures
contract.
Segregated Accounts
Each Fund may be required to segregate assets (such as cash, U.S. Government
securities and other high grade debt obligations) or otherwise provide coverage
consistent with applicable regulatory policies. This would be in respect to the
Fund's permissible obligations under the call and put options it writes, the
forward foreign currency exchange contracts it enters into and the futures
contracts it enters into.
Convertible Securities
Convertible securities include convertible bonds, notes and debentures,
convertible preferred stocks, and other securities that give the holder the
right to exchange the security for a specific number of shares of common stock.
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<PAGE>
Convertible securities entail less credit risk than the issuer's common stock
because they are considered to be "senior" to common stock. Convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.
Demand Obligations
Each of the AARP Funds may purchase demand obligations. Demand obligations
permit the holder to demand payment of a specified amount prior to maturity. The
holder's right to payment depends upon the issuer's ability to pay principal and
interest on demand. A Fund will purchase demand notes only to enhance liquidity.
The Fund Manager will continuously monitor the creditworthiness of issuers of
such obligations.
Stand-by Commitments
The AARP Tax Free Funds may enter into stand-by commitments (also known as puts)
to facilitate liquidity. Stand-by commitments permit a Fund to resell municipal
securities to the original seller at a specified price and generally involve no
cost. Costs, in any event, are limited to .5% of a Fund's total assets. To
minimize the risk that the seller may not be able to repurchase the security,
the Fund Manager will monitor the creditworthiness of the seller.
"Put" Bonds
The AARP Tax Free Funds may also purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution. This
allows the Funds to tender (or "put") bonds to the institution at specified
intervals and receive the face value of them. For the AARP High Quality Tax Free
Money Fund, an interval can not exceed 397 calendar days. These third party puts
are available in several different forms. They may be custodial receipts or
trust certificates, and may be combined with other features such as interest
rate swaps.
Tax-exempt Participation Interests
The AARP Tax Free Funds may purchase tax-exempt participation interests from a
bank representing a fully-insured portion of the bank's holdings of municipal
securities. The Fund will obtain an irrevocable letter of credit or guarantee
from the bank and will have, under certain circumstances, the right to resell
the participation to the bank on 7 days' notice. To the extent any participation
interest is illiquid, it is subject to the Fund's limit on restricted and not
readily marketable securities.
Municipal Lease Obligations
The AARP Tax Free Funds may also invest in municipal lease obligations generally
as a participation interest in a municipal obligation from a bank or other
financial intermediary. Municipal lease obligations are issued by state and
local governments to acquire land, equipment or facilities. Unlike general
obligation or revenue bonds, these contracts are not secured by the issuer's
credit, and if the issuing state or local government does not appropriate
payments, the lease may terminate, leaving the funds with property that may
prove costly to dispose of. In deciding which contracts to invest in, the Fund
Manager evaluates the likelihood of the governmental issuer discontinuing
appropriation for the leased property.
Portfolio Turnover
Each of the AARP Funds may buy and sell securities to take advantage of
investment opportunities. The Fund Manager will do so to improve overall
investment return consistent with that Fund's objectives. These transactions
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<PAGE>
involve transaction costs in the form of spreads or brokerage commissions.
Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the AARP High Quality Bond
Fund. A higher rate involves greater transaction costs to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed.
In the case of AARP Global Growth Fund, it is anticipated, under normal
investment conditions, that the Fund's portfolio turnover rate will not exceed
75% for the initial fiscal year. However, economic and market conditions may
necessitate more active trading, resulting in a higher portfolio turnover rate.
INVESTMENT RESTRICTIONS
To help reduce investment risk, each of the AARP Funds has adopted certain
investment policies. Only the shareholders can approve changes to the following
policies:
* A Fund may not make loans. (A purchase of a debt security is not a
loan for this purpose.) However, the Fund may lend its portfolio
securities and enter into repurchase agreements.
* A Fund may borrow money only for temporary or emergency purposes.
The following policies may be changed without shareholder approval if applicable
legal requirements change.
* Each AARP Fund may not invest more than 10% of its net assets in
restricted or not readily marketable securities. These "illiquid
securities" include repurchase agreements maturing in more than 7
days. Funds in the AARP Growth Trust may not invest more than 5% of
their net assets in restricted securities.
A complete description of these and other policies and restrictions is contained
in the Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES
Are taxes withheld?
Generally, taxes are not withheld on purchases, redemptions, or distributions.
However, federal tax law requires the AARP Funds to withhold 31% of taxable
dividends, capital gain distributions and redemption or exchange proceeds for
accounts without a certified social security or tax identification number, or
other certified information. To avoid this withholding, make sure you complete
and sign the Signature and Investor Information Section of your Enrollment Form.
AARP IRA, AARP SEP-IRA and AARP Keogh Plan accounts are exempt from withholding
regulations.
The AARP Funds reserve the right to reject Enrollment Forms or close accounts
without a certified Social Security or tax identification number. In such cases,
Enrollment Forms received without this information will be returned to the
investor with a check for the amount invested.
What else should I know about distributions and taxes?
* You can receive your dividend and capital gain distributions in one of
three ways:
1. You can have a check sent to your address or to your bank;
2. You can reinvest them in additional shares of an AARP Fund; or
3. You can invest them in shares of another AARP Fund.
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<PAGE>
* If your investment is in the form of an AARP IRA, AARP SEP-IRA or AARP
Keogh Plan account, all distributions are automatically reinvested.
* If you reinvest your dividends and capital gains, you will be
purchasing shares at the current share price.
* All taxable dividends from net investment income are taxable to you as
ordinary income. This is so whether you receive dividends as cash or
additional shares.
* Capital gains distributions are also currently taxable, whether
received in cash or reinvested.
* Distributions of short-term capital gains by all the AARP Funds are
taxable as ordinary income.
* Distributions of long-term capital gains are taxable for federal
income tax purposes as long-term capital gains regardless of the
length of time you have owned shares. Any capital gain distributed by
the AARP Tax Free Funds are generally taxable in the same manner as
distributions by other Funds.
* The AARP Tax Free Funds are managed to pay you dividends free from
federal income taxes, including the Alternative Minimum Tax (AMT).
However, these dividends may be subject to state and local income
taxes. Also, these dividends are taken into account in determining
whether your income is large enough to subject a portion of your
Social Security benefits and certain Railroad Retirement benefits, if
any, to federal income taxes.
* If you are a shareholder in the AARP Global Growth Fund, you may be
able to claim a credit or deduction on your income tax return for your
pro rata portion of qualified taxes paid by the Fund to foreign
countries.
* Each AARP Fund annually sends you detailed tax information about the
amount and type of its distributions.
* A redemption involves a sale of shares and may result in a capital
gain or loss for federal income tax purposes. Exchanges are treated as
redemptions for federal income tax purposes. Exchanges occur when you
sell shares in one AARP Fund and purchase shares in another AARP Fund.
* The AARP Funds reserve the right to make extra distributions for tax
purposes.
FUND ORGANIZATION
The AARP Investment Program Trusts
The nine mutual funds described in this prospectus are organized as four
Massachusetts business trusts--AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and AARP Growth Trust. Each trust is a diversified,
open-end management investment company registered under the Investment Company
Act of 1940. The AARP Cash Investment Funds was organized in January 1983, and
the other trusts were organized in June 1984. The AARP Tax Free Income Trust
(formerly the AARP Insured Tax Free Income Trust) was renamed effective August
1, 1991.
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<PAGE>
General Management
The Trustees have overall responsibility for the management of their respective
Trusts under Massachusetts law. Under their direction, the Fund
Manager--Scudder, Stevens & Clark, Inc.--provides general investment management
of the AARP Funds. The Trustees supervise each Trust's activities. The
shareholders elect the Trustees and may remove them. Shareholders have one vote
per share held on matters on which they are entitled to vote.
The Trusts are not required to hold annual shareholder meetings and have no
current intention to do so. There may be special meetings for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment advisory contract. The Fund Manager will help shareholders to
communicate with other shareholders in connection with removing a Trustee as if
Section 16(c) of the Investment Company Act of 1940 applied.
Since the Trusts use a combined prospectus, it is possible that one Trust or
AARP Fund might become liable for a misstatement in this prospectus regarding
another Trust or AARP Fund. The Trustees of each Trust considered this risk when
approving the use of a combined prospectus.
The right of the Trusts and AARP Funds to use the AARP name will end upon
termination of the member services agreement with the Fund Manager unless AARP
otherwise agrees to let the AARP Funds continue to use the AARP name.
Management Fees
Each AARP Fund pays the Fund Manager a fee for management and administrative
services. 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. 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 table below shows the annual Base Fee Rate
at specified levels of Program assets:
Annual Base Fee Rate Program Assets
-------------------- --------------
.350% First $2 billion
.330% Next $2 billion
.300% Next $2 billion
.280% Next $2 billion
.260% Next $3 billion
.250% Next $3 billion
.240% Thereafter
In addition to the Base Fee Rate, each AARP Fund pays a flat Individual Fund Fee
based on the net assets of that Fund. This fee rate is not linked to the total
assets of the Program. The Individual Fee Rate recognizes the different
characteristics of each AARP Fund, the varying levels of complexity of
investment research and securities trading required to manage each Fund, as well
as the relative value that can be, and has been, added by the Fund Manager.
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The following table shows the Individual Fund Fee Rate for each of the AARP
Funds:
Fund Individual Fee Rate
---- -------------------
AARP High Quality Money Fund .10%
AARP High Quality Tax Free Money Fund .10%
AARP GNMA and U.S. Treasury Fund .12%
AARP High Quality Bond Fund .19%
AARP Insured Tax Free General Bond Fund .19%
AARP Balanced Stock and Bond Fund .19%
AARP Growth and Income Fund .19%
AARP Global Growth Fund .55%
AARP Capital Growth Fund .32%
Under this fee structure, the combined Base Fee and the Individual Fund Fee,
called the "Effective Management Fee Rate," would be reduced if total Program
assets increase to certain levels, regardless of whether an individual AARP
Fund's assets increase or decrease. The converse is also true--if assets
decrease to certain levels, the Effective Management Fee Rate increases,
regardless of any increase or decrease in assets of an individual AARP Fund. For
the fiscal year ended September 30, 1995, fees paid to the Fund Manager totaled
.40 of 1% of the average daily net assets of the AARP High Quality Money Fund,
.39 of 1% of the AARP High Quality Tax Free Money Fund, .42 of 1% of the AARP
GNMA and U.S. Treasury Fund, .62 of 1% of the AARP Capital Growth Fund, and .49
of 1% for each of the AARP High Quality Bond Fund, AARP Insured Tax Free General
Bond Fund, AARP Growth and Income Fund, and AARP Balanced Stock and Bond Fund.
The Fund Manager pays a portion of the management fee to AARP Financial Services
Corporation (AFSC). AFSC provides the Fund Manager with advice and other
services relating to AARP Fund investment by AARP members.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.
Under the Investment Management Agreements with the Fund Manager, the Funds are
responsible for all of their expenses, including fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and executive employees of the Trusts who are not affiliated
with the Fund Manager; the cost of printing and distributing reports and notices
to shareholders; and the fees and disbursements of custodians.
UNDERSTANDING FUND PERFORMANCE
Performance of an AARP Fund may be included in advertisements, sales literature
or shareholder reports. Important components of performance are yield, total
return and cumulative total return. These components vary based on changes in
market conditions, the level of interest rates and the level of the Fund's
expenses. Yield, total return, and cumulative total return are based on
historical earnings and are not intended to indicate future performance.
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What is Yield?
For the AARP High Quality Money Fund, the AARP Income Funds and the AARP Tax
Free Funds, yield is a measure of income. Yield refers to the net investment
income generated over a specific period of time. It is always calculated using a
standard industry formula so it is a useful way to compare the income produced
by different mutual funds. For non-money market funds, the "SEC yield" is an
annualized expression of net investment income generated by the investments in
the fund over a specified 30-day period. This income is then annualized and then
expressed as a percentage. This yield is calculated according to methods
required by the SEC, and may not equate to the level of income paid to
shareholders. For money market funds, yield refers to the net investment income
generated by the fund over a specified 7-day period. This income is then
annualized and expressed as a percentage. For the money market funds, effective
yield is expressed similarly but, when annualized, the income earned by an
investment in the fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
For GNMA securities, net investment income includes realized gains or losses
based on historic cost for principal repayments received. For other securities,
net investment income includes the amortization of market premium or market
discount.
What is Total Return?
The total return of a mutual fund refers to the average annual percentage change
in value of an investment in the fund assuming that the investment has been held
for the stated period. Total return quotations are expressed in terms of average
annual compound rates of return for all periods quoted and assume that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is Cumulative Total Return?
Cumulative total return of a mutual fund represents the cumulative change in
value of an investment in a fund for various periods. It assumes that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.
What is meant by Tax-Equivalent Yield and how is it calculated?
To determine if tax-free investing is right for you, it is helpful to convert a
yield from a tax-free mutual fund to its equivalent taxable yield. The
tax-equivalent yields of the AARP Tax Free Funds, which may be quoted from time
to time, let you determine the yield you would have to receive from a fully
taxable investment to produce an after-tax yield equivalent to a tax-free fund.
The calculation is as follows:
Tax-Free Yield = Tax-Equivalent Yield
--------------------
100% - your tax rate
Example: If a tax-free mutual fund has a 30-day average annualized yield of
5.30% and you are in the 31% tax bracket, the calculation would be:
5.30% = 7.68%
----------
100% - 31%
You would need to earn 7.68% with a taxable investment to equal the 5.30% yield
of a tax-free fund. The tax-equivalent yield will vary depending upon your
income tax bracket.
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UNDERSTANDING SHARE PRICE
How is a Fund's share price determined?
Share price is based on a Fund's net assets. It is calculated by dividing the
current market value (amortized cost in the case of the AARP High Quality Tax
Free Money Fund) of total fund assets, less all liabilities, by the total number
of shares outstanding. Scudder Fund Accounting Corporation, a subsidiary of the
Fund Manager, determines net asset value per share of each Fund as of the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern
time on each day the Exchange is open for trading. The Trusts reserve the right
to suspend the sale of Fund shares after appropriate notice to shareholders if
the Trustees determine that it is in the best interest of shareholders.
OPENING AN ACCOUNT
How do I get started?
Decide on the AARP Fund or Funds which meets your needs. Then fill out, sign and
return your Enrollment Form with your check in the postage paid envelope
provided. Once your Enrollment Form is received, an account number will be
assigned to you. Your check should only be drawn on a U.S. bank and be payable
to the AARP Investment Program.
If you don't want to send your check through the mail, you can send a bank wire.
Simply fill out and return your Enrollment Form in the mail. Then, before you
send the wire, call an AARP Mutual Fund Representative. The Representative will
set up the account and contact you to provide you with your account number and
further wiring instructions. To complete the wire transfer, follow the special
wire transfer instructions below. Please note you cannot open AARP IRA or AARP
Keogh Plan accounts by wire.
What is the minimum investment?
The minimum is $500 for each AARP Fund, except for the AARP High Quality Tax
Free Money Fund, which has a minimum investment of $2,500. You can open an AARP
IRA with as little as $250 for each applicable AARP Fund.
What happens if my investment falls below its minimum balance?
The Funds reserve the right to redeem accounts below the minimum balance and
return the proceeds to you if you do not increase an account above the minimum
within 60 days after notice. However, if your account falls below the minimum
solely as a result of market activity, your account will not be closed.
What is the normal processing time of checks when purchasing shares?
If checks are drawn on a Federal Reserve System member bank, the Program will
normally execute checks (and wire transfers) received in good order on the same
business day that they are received.
When do I start earning income on this purchase?
For AARP Funds paying daily dividends (AARP Money Funds, AARP Income Funds and
the AARP Insured Tax Free General Bond Fund), income begins to accrue on the
business day following actual execution of the order.
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Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
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WIRE TRANSFER INSTRUCTIONS
* To open an account (mail Enrollment Form first and make sure to call a
Representative to obtain an account number--AARP IRA and AARP Keogh
Plan accounts cannot be opened by wire)
* To add to your account
Contact your bank with the following information:
1) the names(s) on your account;
2) your AARP Fund account number;
3) the name of the Fund(s) you want to invest in;
4) the following name and address: State Street Bank and Trust Company,
Boston MA 02101;
5) the routing numbers ABA Number 011000028 and AC-99035420.
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Can I add another AARP Fund to my account?
You can open another AARP Fund at any time. The new investment must meet the
minimum initial investment described above. Your new AARP Fund will have the
same account number and registration as your existing one(s). You can open a new
AARP Fund in a number of ways:
- --------------------------------------------------------------------------------
Mail your request Send a letter stating your
request and naming the new AARP Fund.
Include a check made payable to the AARP
Investment Program.
- --------------------------------------------------------------------------------
Wire the money Have your account number ready and follow
the wire instructions above.
- --------------------------------------------------------------------------------
Exchange from See instructions on how to exchange--page 40.
an AARP Fund
- --------------------------------------------------------------------------------
Telephone Transactions
When you open an account you automatically become eligible to exchange shares by
telephone and to redeem by telephone up to $50,000 to your registered address.
You may also request by telephone that redemption proceeds be wired to a bank
account you select. When exchange or redemption requests are made over the
telephone, procedures are in place to give reasonable assurance that telephone
instructions are genuine, including recording telephone calls, testing a
caller's identity and sending written confirmation of such transactions. If an
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Trusts and their agents
each reserve the right to modify, interrupt, suspend, or terminate any of the
telephone services at any time, without notice.
Prospectus
39
<PAGE>
ADDING TO YOUR INVESTMENT
How do I add to my investment?
After your account is opened, you can add to your AARP Fund investment in any
amount in the following ways:
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Mail your request Send your check with a
personalized investment slip or with a
letter naming your account number and
AARP Fund.
- -----------------------------------------------------------------------------------------------------------
Call Toll-Free If you selected the Transact By Phone service, you'll be able to call and have
money transferred from your checking account to cover the purchase. See page
43.
- -----------------------------------------------------------------------------------------------------------
Wire the purchase Have your account number ready and follow the wire instructions on page 39.
- -----------------------------------------------------------------------------------------------------------
Exchange from an See Exchanging below.
AARP Fund
- -----------------------------------------------------------------------------------------------------------
Invest See page 44 for information on the Automatic Investment Plan.
Automatically
- -----------------------------------------------------------------------------------------------------------
</TABLE>
EXCHANGING
What is an exchange?
You make an exchange when you sell shares in one AARP Fund to purchase shares in
another. This is technically two transactions, a sale and a purchase of shares.
If the value of the shares sold in the exchange was higher or lower than your
original purchase price, you may have a capital gain or loss. This is important
to note for tax planning purposes. You may exchange all or part of your shares
in one AARP Fund for shares in another AARP Fund. Exchanges between existing
AARP Funds can be for any amount. Exchanges that open a new AARP Fund must meet
the minimum balance.
How can I exchange shares?
There are several ways to exchange, including:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
Mail or fax your request Tell us the AARP Fund from which to take the money and the AARP Fund to
exchange to. Include your account number, registered name(s) and address,
and either the dollar amount or number of shares you want to exchange. Be
sure to sign your name(s) exactly as it appears on the account statement.
- ---------------------------------------------------------------------------------------------------------------------
Call Toll-Free Call us before 4:00 p.m. Eastern time to exchange by close of business the
same day.
- ---------------------------------------------------------------------------------------------------------------------
Call the You can exchange shares through this automated toll-free line. It is available
Easy-Access Line 24 hours a day, 7 days a week. Simply call toll-free and follow the recorded
voice instructions.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
40
<PAGE>
ACCESS TO YOUR INVESTMENT
How do I redeem?
You can sell (redeem) fund shares in a number of ways. The share price may be
more or less than your original purchase price. Therefore, you may have either a
taxable capital gain or loss. Keep in mind that you can redeem shares of your
AARP IRA or AARP Keogh Plan account only by sending your request in writing.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Mail or Fax your request Tell us the name of the AARP Fund and the number of shares or dollar amount
you wish to sell. Make sure to give us your account number, registered name(s)
and where you want the proceeds sent. If you want the proceeds to go to an
address other than your registered address, to your bank, or to someone else,
please provide complete details. Under certain circumstances, this may require
a special type of authorization called a Signature Guarantee (see page 42).
Sign the letter exactly as it appears on your account statement. If your
request requires a Signature Guarantee, you must mail the request instead of
faxing it.
- -------------------------------------------------------------------------------------------------------------------
Call Toll-Free Call before 4:00 p.m. Eastern time business days and redeem up to $50,000 per
AARP Fund. The proceeds will be mailed to your registered address or to your
bank (unless you declined the Telephone Redemption to your Bank feature on
your Enrollment Form). The proceeds can also be wired to your bank if it is a
member of the Federal Reserve System. A $5.00 fee will be charged for each
wire to your bank. Your bank may also charge you for receiving a wire. In the
event that you are unable to reach us by telephone, you should write to the
AARP Investment Program; see "Service Information" for the address. If you
elected the Transact by Phone option on your Enrollment Form, you can have the
proceeds sent electronically to your checking account. See page 43 for more
information on Transact By Phone.
- -------------------------------------------------------------------------------------------------------------------
Call the You can redeem shares through this automated toll-free line. Initiate
Easy-Access Line redemptions any time--24 hours a day. Simply call toll-free and follow the
recorded voice instructions.
- -------------------------------------------------------------------------------------------------------------------
Sell See page 44 for information on the Automatic Withdrawal Plan or
Automatically Systematic Withdrawal Plan for AARP IRA or AARP Keogh Plan accounts.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
When are redemptions processed?
Any redemption request received in good order prior to 4:00 p.m. Eastern time
during normal business operations will be processed on that day. The request
will be processed at that night's closing share price. Normally, requests
received in good order after 4:00 p.m. Eastern time will be processed on the
next business day.
Prospectus
41
<PAGE>
Shares redeemed from Funds in the AARP Income Trust, AARP Tax Free Income Trust
or the AARP High Quality Money Fund will earn a dividend on the day of
redemption.
Normally, proceeds of your redemption will be sent on the business day following
a redemption request in good order. In any event, the AARP Funds may take no
more than 7 calendar days to send your redemption proceeds.
When can I expect to receive my money?
We will mail your redemption proceeds promptly. If you purchase shares by check
or by telephone and then redeem them by letter within 7 business days of the
purchase, the redemption proceeds may be held until the purchase check has
cleared the banking system. When the check has cleared, we will mail your
redemption proceeds promptly.
We will not accept redemption requests by telephone or by checkwriting prior to
the expiration of the 7 business day period. You may avoid this delay by
purchasing shares by wire.
- --------------------------------------------------------------------------------
Short-Term Trading
You should make purchases and sales for long-term investment purposes only. The
AARP Funds do not permit a pattern of frequent purchases and sales in response
to short-term changes in share price.
When such a pattern occurs, the AARP Funds and Scudder Investor Services, Inc.
reserve the right to restrict purchases or exchanges. This restriction does not
apply to the AARP money funds. This right extends to individual purchasers or
groups of related purchasers.
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEES
What is a "Signature Guarantee"?
A "Signature Guarantee" is a certification of your signature. We require this
for your protection and to prevent fraudulent redemptions. In effect, the
appropriate institution (see below) guarantees that you are authorized to make
certain requests.
When do I need one?
A "Signature Guarantee" from each person on the account registration is needed
for the following redemption requests:
1) Redemptions of more than $50,000;
2) When redemption proceeds are payable to someone other than the
registered shareholder(s);
3) When redemption proceeds are to be sent to an address other than the
registered address; or
4) If the account's registered address has changed during the last 15
days.
Transactions requiring signature guarantees cannot be faxed.
Where can I get one?
You can get your signature guaranteed through most banks, credit unions or
savings associations, or from broker-dealers, government securities
broker-dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the Securities and
Exchange Commission. Signature Guarantees by notary publics are not acceptable.
Prospectus
42
<PAGE>
INVESTOR SERVICES
To make investing simpler and more convenient there are many free investor
services available to you.
Easy-Access Line
- --------------------------------------------------------------------------------
* Exchange between AARP Funds CALL TOLL-FREE
* Exchange to open a new AARP Fund 1-800-631-4636
* Redeem money to your registered address 24 HOURS A DAY
* Get current performance information 7 DAYS A WEEK
* Get current account balance information
* Confirm your last transaction
- --------------------------------------------------------------------------------
With the Easy-Access Line you can get performance, and account information. If
you have a touch-tone phone, you can also exchange or redeem shares worth up to
$50,000. Simply call toll-free 1-800-631-4636 using a touch-tone phone and
follow the easy pre-recorded voice instructions.
Transact By Phone
- --------------------------------------------------------------------------------
* Add to an AARP Fund by transfer from
your bank checking or NOW account CALL TOLL-FREE
* Redeem and send the proceeds to your 1-800-253-2277
checking or NOW account
- --------------------------------------------------------------------------------
Transact By Phone allows you to call toll-free to purchase and redeem shares.
The money will be automatically transferred to or from your bank checking
account. Your bank must be a member of the Automated Clearing House for you to
take advantage of this service.
- --------------------------------------------------------------------------------
Buying Shares through Call us before 4:00 p.m. Eastern time,
Transact By Phone: business days, when you want to buy additional
shares, and money will be transferred from
your bank account to your AARP Fund account to
cover the purchase. Purchases must be for at
least $250 but not more than $250,000. Your
purchase will generally be completed in 2
business days at the closing share price on
the day of your call. Requests received after
4:00 p.m. will be purchased at the next
business day's closing price. Shares purchased
in this manner will not be redeemable for a
period of up to 7 business days.
- --------------------------------------------------------------------------------
Selling Shares through Call us before 4:00 p.m. Eastern time,
Transact By Phone: business days, when you want to sell shares.
We'll sell your shares and transfer the
proceeds to your bank account--generally
within 2 business days from the day of your
request. You can redeem any amount greater
than $250. Shares will be sold at that night's
closing price on the day of your request.
Requests received after 4:00 p.m. will be sold
at the next business day's closing price.
- --------------------------------------------------------------------------------
Prospectus
43
<PAGE>
Free Checkwriting
Shareholders in the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund have free checkwriting privileges. There is no charge to
shareholders for this service, but the AARP Funds reserve the right to impose a
charge in the future. To enroll, you must fill out a signature card on the
Enrollment Form. If shares were purchase by your personal check, you may only
write checks against your purchase 7 business days from the day that the
purchase took place. Keep in mind that you cannot close your account by writing
a check. This service may be suspended or terminated at any time upon notice to
shareholders.
Distributions Direct
You may choose to have dividend and capital gain distributions automatically
deposited into your bank checking or NOW account. To enroll in this service,
your bank must be a member of the Automated Clearing House (ACH) network. Once
you enroll, your dividends and capital gains will be automatically deposited
into your personal bank account within 3 business days of the distribution date.
You'll receive a statement confirming the amount. There is no charge to
shareholders for the service.
Systematic Plans
Several other investor services are available. These include:
* Automatic Investment Plan: Arrange for regular investments into your
AARP Fund through automatic deductions from your bank checking
account. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is
not paid, or by written notice to the shareholder at least thirty days
prior to the next scheduled payment to the Automatic Investment Plan.
* Direct Deposit: At your direction, your Social Security, U.S.
Government or any regular income checks (pension, dividend, interest
or payroll) will be automatically deposited into your AARP Fund.
* Automatic Withdrawal Plan: At your direction, we will automatically
send a monthly redemption of $50 or more directly to you when you have
at least $10,000 or more in an AARP Fund.
* Direct Payment of Fixed Bills: With $10,000 or more in an AARP Fund,
you can arrange for us to automatically pay regular bills of a fixed
amount. Pay your rent, mortgage or other payments of $50 or more.
* Systematic Retirement Withdrawal Plan: You can receive periodic
distributions from an AARP IRA or AARP Keogh Plan account.
STATEMENTS AND REPORTS
What kinds of statements do I receive?
You will receive a prompt confirmation statement for your transactions. You will
also receive a monthly Consolidated Statement. AARP IRA or AARP Keogh Plan
accounts will receive a quarterly Consolidated Statement.
The Consolidated Statement details the market value of all the AARP Funds in
your account. It also includes a listing of recent transactions. You should keep
these statements for your records.
Prospectus
44
<PAGE>
What other reports do I get?
Each year, you will receive a current prospectus, mid year report and annual
report. To reduce the volume of mail, we will only send one copy of most reports
to a household (same surname, same address). Please contact us if you wish to
receive additional reports.
SERVICE PROVIDERS OF THE AARP FUNDS
Legal Counsel
Dechert Price & Rhoads,
Washington, DC
Independent Accountants
Price Waterhouse LLP, Boston, MA
Underwriter
Scudder Investor Services, Inc., Two International Place, Boston, MA (a
subsidiary of Scudder) is principal underwriter of the AARP Funds.
Scudder Investor Services, Inc. offers for sale and confirms as agent all
purchases of shares of the AARP Funds.
Custodians
Brown Brothers Harriman & Co., Boston, MA
State Street Bank and Trust Company, Boston, MA
Fund Accounting Agent
Scudder Fund Accounting Corporation, Two International Place, Boston, MA (a
subsidiary of Scudder) is responsible for determining the daily net asset value
per share and maintaining the general accounting records of the AARP Funds.
Transfer and Dividend-Disbursing Agent
Scudder Service Corporation, P.O. Box 2540, Boston, MA 02208-2540 (a subsidiary
of Scudder)
Investment Adviser
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York is
investment adviser for the AARP Funds.
TRUSTEES AND OFFICERS
CAROLE LEWIS ANDERSON, Trustee (1,2), President, MASDUN Capital Advisors;
Formerly Principal, Suburban Capital Markets, Inc.; 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 (2,4), Consultant, Gerontology; Commissioner, County of
Nassau, New York, Department of Senior Citizen Affairs (1971-1991); Chairperson,
Federal Council on Aging (1981-1986).
CYRIL F. BRICKFIELD, Trustee (2,3,4), Honorary Trustee (1); Honorary President
and Special Counsel, American Association of Retired Persons.
ROBERT N. BUTLER, M.D., Trustee (2,4), 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.
Prospectus
45
<PAGE>
ESTHER CANJA, Trustee (5), Vice President, American Association of Retired
Persons; Trustee and Chair, AARP Group Health Insurance Plan; Board Liaison,
National Volunteer Leadership Network Advisory Committee; Chair, Board
Operations Committee; AARP State Director of Florida (1990-1992).
LINDA C. COUGHLIN, President and Trustee (5), Managing Director, Scudder,
Stevens & Clark, Inc., Director, Scudder Investor Services, Inc.*
HORACE B. DEETS, Vice Chairman and Trustee (5), Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.
EDGAR R. FIEDLER, Trustee (1,2,3), Vice President and Economic Counselor, The
Conference Board, Inc.
CUYLER W. FINDLAY, Chairman and Trustee (5), Managing Director, Scudder, Stevens
& Clark, Inc., Senior Vice President and Director, Scudder Investor Services,
Inc.*
EUGENE P. FORRESTER, Trustee (2,3), Lt. General (Retired) U.S. Army;
International Trade Counselor; Consultant.
WAYNE F. HAEFER, Trustee (2,3,4), 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 L. MADDOX, JR., Trustee (2,3), Professor Emeritus and Director, Long Term
Care Resources Program, Duke University Medical Center; Professor Emeritus of
Sociology, Departments of Sociology and Psychiatry, Duke University.
ROBERT J. MYERS, Trustee (1,2,4), Actuarial Consultant; Formerly Executive
Director, National Commission on Social Security Reform; Formerly Chairman,
Commission on Railroad Retirement Reform.
JAMES H. SCHULZ, Trustee (3,4), Professor of Economics and Kirstein Professor of
Aging Policy, Policy Center on Aging, Florence Heller School, Brandeis
University.
GORDON SHILLINGLAW, Trustee (1,3,4), Professor Emeritus of Accounting, Columbia
University Graduate School of Business.
MARGARET D. HADZIMA*, Vice President (5)
THOMAS W. JOSEPH*, Vice President (5)
DAVID S. LEE*, Vice President and Assistant Treasurer (5)
THOMAS F. McDONOUGH*, Vice President and Assistant Secretary (5)
PAMELA A. McGRATH*, Vice President and Treasurer (5)
EDWARD J. O'CONNELL*, Vice President and Assistant Treasurer (5)
JAMES W. PASMAN*, Vice President (5)
KATHRYN L. QUIRK*, Vice President and Secretary (5)
HOWARD SCHNEIDER*, Vice President (5)
CORNELIA M. SMALL*, Vice President (5)
*Scudder, Stevens & Clark, Inc.
(1) AARP Cash Investment Funds
(2) AARP Income Trust
(3) AARP Tax Free Income Trust
(4) AARP Growth Trust
(5) All Funds
Prospectus
46
<PAGE>
Part B (the Statement of Additional Information)
Part B of this Post-Effective Amendment No. 19 to the Registration Statement is
incorporated by reference in its entirety to the Funds' current Post-Effective
Amendment No. 18 on Form N-1A filed on January 19, 1996 and to its definitive
Rule 497(c) filed on February 9, 1996.
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
Supplement to the Statement of Additional Information dated February 1, 1996
The following text replaces the text under "Financial Statements" on page 71.
FINANCIAL STATEMENTS
The financial statements and notes, including the investment portfolio
of each AARP Fund, together with the Financial Highlights, are incorporated by
reference and attached hereto on pages 25 through 84 inclusive, in the Mid-Year
Report to Shareholders of the Funds dated March 31, 1996, and are hereby deemed
to be part of the Statement of Additional Information.
July 1, 1996
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
- 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
<PAGE>
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
<PAGE>
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
82
<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
83
<PAGE>
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>
84
<PAGE>
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
85
<PAGE>
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.
86
<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.
87
<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
<PAGE>
AARP INCOME TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for ten fiscal years
ended September 30, 1995 and for the six
months ended March 31, 1996.
Included in Part B of this Registration Statement:
Lists of Investments as of March 31, 1996
Statements of Assets and Liabilities as of
March 31, 1996
Statements of Operations for
the six months ended March 31, 1996
Statements of Changes in Net Assets for the
fiscal year ended September 30, 1995 and for
the six month period ended March 31, 1996
Financial Highlights for the five fiscal
years ended September 30, 1995 and for the
six month period ended March 31, 1996
Notes to Financial Statements
Statements, schedules and historical information
other than those listed above have been omitted since
they are either not applicable or are not required.
b. Exhibits:
1. (a)(1) Declaration of Trust dated June 8, 1984, as amended November 1, 1984.
(Previously filed as Exhibit 1(a) to Post-Effective Amendment No. 15
to the Registration Statement.)
(a)(2) Certificate of Amendment dated September 15, 1989 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(2) to Post-Effective Amendment No.
11 to the Registration Statement.)
(a)(3) Certificate of Amendment dated January 25, 1994 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(3) to Post-Effective Amendment No.
17 to the Registration Statement.)
(b)(1) Establishment of Series dated November 27, 1984.
(Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 5
to the Registration Statement.)
(b)(2) Redesignation of Series dated March 28, 1990.
(Previously filed as Exhibit 1(b)(2) to Post-Effective Amendment No.
13 to the Registration Statement.)
2. (a)(1) By-Laws of the Registrant as amended June 17, 1992.
(Previously filed as Exhibit 2 to Post-Effective Amendment No. 14 to
the Registration Statement.)
Part C - Page 1
<PAGE>
(a)(2) By-Laws of the Registrant as amended March 17, 1993.
(Previously filed as Exhibit 2(a)(2) to Post-Effective Amendment No.
15 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest
having a par value of $.01 per share. (Previously filed as Exhibit
4 to Post-Effective Amendment No. 1 to the Registration Statement.)
5. (a) Investment Management and Advisory Agreement between the Registrant
and AARP/Scudder Financial Management Company dated January 2, 1987.
(Previously filed as Exhibit 5(a) to Post-Effective Amendment No. 11
to the Registration Statement.) Terminated February 1, 1994.
(a)(1) Investment Management Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. dated February 1, 1994.
(Previously filed as Exhibit 5(a)(1) to Post-Effective Amendment No.
17 to the Registration Statement.)
(b) Subadvisory Agreement among AARP/Scudder Financial Management
Company, Scudder, Stevens & Clark, Inc., the Registrant, AARP Growth
Trust and AARP Insured Tax Free Income Trust dated December 16, 1985.
(Previously filed as Exhibit 5(b) to Post-Effective Amendment No. 6
to the Registration Statement.) Terminated February 1, 1994.
6. Underwriting Agreement between the Registrant and Scudder Fund
Distributors, Inc. dated September 4, 1985. (Previously filed as
Exhibit 6 to Post-Effective Amendment No. 5 to the Registration
Statement.)
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(1) to Post-Effective Amendment No.
5 to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 8(a)(l).
(Previously filed as Exhibit 8(a)(2) to Post-Effective Amendment No.
5 to the Registration Statement.)
(a)(3) Additional Provision to Custodian Agreement between the Registrant
and State Street Bank and Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(3) to Post-Effective Amendment No.
5 to the Registration Statement.)
(a)(4) Amendment No. 1 dated July 29, 1985 to the Custodian Contract
between the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(4) to Post-Effective Amendment No.
5 to the Registration Statement.)
Part C - Page 2
<PAGE>
(a)(5) Amendment dated September 23, 1987 to Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(5) to Post-Effective Amendment No.
10 to the Registration Statement.)
(a)(6) Amendment dated September 15, 1988 to Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(6) to Post-Effective Amendment No.
10 to the Registration Statement.)
(a)(7) Form of revised fee schedule for Exhibit 8(a)(1).
(Previously filed as Exhibit 8(a)(7) to Post-Effective Amendment No.
18 to the Registration Statement.)
9. (a) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Previously filed as Exhibit 9(a) to Post-Effective Amendment No. 11
to the Registration Statement.)
(b) Member Services Agreement among AARP/Scudder Financial Management
Company, AARP Financial Services Corp., the Registrant, AARP Growth
Trust and AARP Insured Tax Free Income Trust dated November 30, 1984.
(Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 6
to the Registration Statement.) Terminated February 1, 1994.
(b)(1) Member Services Agreement between AARP Financial Services Corp. and
Scudder, Stevens & Clark, Inc. dated February 1, 1994.
(Previously filed as Exhibit 9(b)(1) to Post-Effective Amendment No.
17 to the Registration Statement.)
(c) Service Mark License Agreement among Scudder, Stevens & Clark,
American Association of Retired Persons, the Registrant, AARP Growth
Trust and AARP Insured Tax Free Income Trust dated November 30, 1984.
(Previously filed as Exhibit 9(c) to Post-Effective Amendment No. 6
to the Registration Statement.)
(d) Shareholder Service Agreement between the Registrant and Scudder
Service Corporation dated June 1, 1988.
(Previously filed as Exhibit 9(d) to Post-Effective Amendment No. 10
to the Registration Statement.)
(e) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP GNMA and U.S. Treasury Fund and Scudder Fund Accounting
Corporation dated November 10, 1995.
(Previously filed as Exhibit 9(e) to Post-Effective Amendment No. 18
to the Registration Statement.)
(f) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP High Quality Bond Fund and Scudder Fund Accounting
Corporation dated October 10, 1995.
(Previously filed as Exhibit 9(f) to Post-Effective Amendment No. 18
to the Registration Statement.)
Part C - Page 3
<PAGE>
10. Inapplicable.
11. Inapplicable.
12. Inapplicable.
13. Inapplicable.
14. (a) Individual Retirement Account (IRA).
(Previously filed as Exhibit 14(a) to Post-Effective Amendment No. 1
to the Registration Statement.)
(b) Harvest Plan for Self-Employed Persons and Corporations.
(Previously filed as Exhibit 14(b) to Post-Effective Amendment No. 1
to the Registration Statement.)
15. Inapplicable.
16. Schedule for Computation of Performance Data.
(Previously filed as Exhibit 16 to Post-Effective Amendment No. 11
to the Registration Statement.)
17. Financial Data Schedules are filed herein.
18. Inapplicable.
Power of Attorney for Cuyler W. Findlay, Adelaide Attard, Cyril F. Brickfield,
Robert N. Butler, Edgar R. Fiedler, Eugene P. Forrester, George L. Maddox, Jr.,
and Robert J. Myers is incorporated by reference to the Signature Page of
Post-Effective Amendment No. 9.
Power of Attorney for Carole Lewis Anderson, Linda C. Coughlin, Horace Deets and
Wayne F. Haefer is incorporated by reference to the Signature Page of
Post-Effective Amendment No. 18 to the Registration Statement.
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of May 31, 1996).
- -------- -----------------------------------------------------
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial interest
with par value of $.01
AARP High Quality Bond Fund 56,710
AARP GNMA and U.S. Treasury Fund 262,771
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its affiliates, including Scudder Investor Services, Inc., and
all of the registered investment companies advised by Scudder,
Stevens & Clark, Inc. insures the Registrant's Trustees and
officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.
</TABLE>
Part C - Page 4
<PAGE>
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of Trust provide
as follows:
Section 4.1 No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than to the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with
respect to such Person; and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on
account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims
and liabilities, to which such Shareholder may become subject by reason of
his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability, provided that any such
expenses shall be paid solely out of the funds and property of the series
of the Trust with respect to which such Shareholders Shares are issued. The
rights accruing to a Shareholder under this Section 4.1 shall not exclude
any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 4.2 Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to
any Shareholder, Trustee, officer, employee, agent or service provider
thereof for any action or failure to act by him (or her) or any other such
Trustee, officer, employee, agent or service provider (including without
limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of the duties involved
in the conduct of his office. The term "service provider" as used in this
Section 4.2, shall include any investment adviser, principal underwriter or
other person with whom the Trust has an agreement for provision of
services.
Section 4.3 Mandatory Indemnification.
----------- --------------------------
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or
other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
Part C - Page 5
<PAGE>
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(i) resulting in a
payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office;
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed
to a full trial-type inquiry) by (x) vote of a majority of
the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office
act on the matter) or (y) written opinion of independent
legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the
heirs, executors, administrators and assigns of such a person. Nothing
contained herein shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a)
of this Section 4.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 4.3 provided
that either:
(i) such undertaking is secured by a surety bond or some
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such advances:
or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not
(i) an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
Part C - Page 6
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Administrative Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown,
Grand Cayman, Cayman Islands
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Part C - Page 7
<PAGE>
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)*
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Juris Padegs Director, Secretary, Chief Legal Officer & Chief Compliance Officer, Scudder, Stevens &
Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Trustee, Scudder Funds Trust (investment company)*
Part C - Page 8
<PAGE>
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Trustee, Scudder Securities Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (until 5/96) (broker/dealer)*
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Supervisory Director, Sovereign High Yield Investment Company N.V. (investment company)+
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)*
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
Part C - Page 9
<PAGE>
President & Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Scudder Realty Holdings Corporation (a real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Edmond D. Villani Director, President & Chief Investment Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Manager S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Part C - Page 10
<PAGE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Part C - Page 11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President President and Trustee
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk None
Two International Place
Boston, MA 02110
Paul J. Elmlinger Senior Vice President None
345 Park Avenue
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer Vice President
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Vice President and
Two International Place Treasurer Assistant Treasurer
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Part C - Page 12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Kathryn L. Quirk Senior Vice President Vice President and
345 Park Avenue Secretary
New York, NY 10154
Edmund J. Thimme Director and Vice President None
345 Park Avenue
New York, NY 10154
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other Compensation
Underwriter Commissions and Repurchases Commissions
----------- ----------- --------------- ----------- ------------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 1st day of July, 1996.
AARP INCOME TRUST
By /s/Thomas F. McDonough
------------------------------
Thomas F. McDonough, Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Cuyler W. Findlay
- --------------------------------------
Cuyler W. Findlay* Chairman and Trustee July 1, 1996
/s/Carole Lewis Anderson
- --------------------------------------
Carole Lewis Anderson* Trustee July 1, 1996
/s/ Adelaide Attard
- --------------------------------------
Adelaide Attard* Trustee July 1, 1996
/s/Cyril F. Brickfield
- --------------------------------------
Cyril F. Brickfield* Trustee July 1, 1996
/s/ Robert N. Butler
- --------------------------------------
Robert N. Butler* Trustee July 1, 1996
- --------------------------------------
Esther Canja Trustee July 1, 1996
/s/ Linda C. Coughlin
- --------------------------------------
Linda C. Coughlin* President and Trustee July 1, 1996
/s/ Horace Deets
- --------------------------------------
Horace Deets* Vice Chairman and Trustee July 1, 1996
/s/ Edgar R. Fiedler
- --------------------------------------
Edgar R. Fiedler* Trustee July 1, 1996
/s/ Eugene P. Forrester
- --------------------------------------
Eugene P. Forrester* Trustee July 1, 1996
/s/ Wayne F. Haefer
- --------------------------------------
Wayne F. Haefer* Trustee July 1, 1996
/s/ George L. Maddox, Jr.
- --------------------------------------
George L. Maddox, Jr.* Trustee July 1, 1996
/s/ Robert J. Myers
- --------------------------------------
Robert J. Myers* Trustee July 1, 1996
/s/ Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Treasurer (Principal Financial and July 1, 1996
Accounting Officer)
</TABLE>
*By /s/ Thomas F. McDonough
-----------------------
Thomas F. McDonough
Attorney-in-fact pursuant to a power of
attorney contained in the signature page of
Post-Effective Amendment No. 9 to the
Registration Statement filed December 4,
1987 and pursuant to a power of attorney
contained in the signature page of
Post-Effective Amendment No. 18 to the
Registration Statement filed January 19,
1996.
<PAGE>
File No. 2-91577
File No. 811-4049
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 19
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 21
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP INCOME TRUST
<PAGE>
AARP INCOME TRUST
EXHIBIT INDEX
Exhibit 17
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
High Quality Bond Fund Semiannual Report for the fiscal period ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER>1
<NAME> AARP HIGH QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 552,481,266
<INVESTMENTS-AT-VALUE> 548,835,367
<RECEIVABLES> 11,288,955
<ASSETS-OTHER> 2,970
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 560,127,292
<PAYABLE-FOR-SECURITIES> 29,341,146
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,668,763
<TOTAL-LIABILITIES> 31,009,909
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 538,986,263
<SHARES-COMMON-STOCK> 33,241,292
<SHARES-COMMON-PRIOR> 33,312,382
<ACCUMULATED-NII-CURRENT> 304,913
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,527,894)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,645,899)
<NET-ASSETS> 529,117,383
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,100,411
<OTHER-INCOME> 0
<EXPENSES-NET> 2,550,197
<NET-INVESTMENT-INCOME> 15,550,214
<REALIZED-GAINS-CURRENT> 3,757,897
<APPREC-INCREASE-CURRENT> (6,920,280)
<NET-CHANGE-FROM-OPS> 12,387,831
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,550,214)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,030,000
<NUMBER-OF-SHARES-REDEEMED> (2,779,599)
<SHARES-REINVESTED> 678,509
<NET-CHANGE-IN-ASSETS> (4,304,914)
<ACCUMULATED-NII-PRIOR> 304,913
<ACCUMULATED-GAINS-PRIOR> (10,285,791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,305,675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,550,197
<AVERAGE-NET-ASSETS> 538,026,659
<PER-SHARE-NAV-BEGIN> 16.01
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.92
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
GNMA & U.S. Treasury Fund Semiannual Report for the fiscal period ended March
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER>2
<NAME> AARP GNMA & U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5,078,165,735
<INVESTMENTS-AT-VALUE> 5,091,647,540
<RECEIVABLES> 47,826,329
<ASSETS-OTHER> 1,114,149
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,140,588,018
<PAYABLE-FOR-SECURITIES> 1,010,246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,497,845
<TOTAL-LIABILITIES> 19,508,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,408,957,718
<SHARES-COMMON-STOCK> 340,076,707
<SHARES-COMMON-PRIOR> 345,829,087
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (301,359,596)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,481,805
<NET-ASSETS> 5,121,079,927
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 190,927,048
<OTHER-INCOME> 0
<EXPENSES-NET> 16,804,617
<NET-INVESTMENT-INCOME> 174,122,431
<REALIZED-GAINS-CURRENT> 57,937,663
<APPREC-INCREASE-CURRENT> (101,174,657)
<NET-CHANGE-FROM-OPS> 130,885,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (174,122,431)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,966,664
<NUMBER-OF-SHARES-REDEEMED> (24,363,202)
<SHARES-REINVESTED> 6,644,158
<NET-CHANGE-IN-ASSETS> (130,970,547)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (359,297,259)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,831,770
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,804,617
<AVERAGE-NET-ASSETS> 5,226,656,548
<PER-SHARE-NAV-BEGIN> 15.19
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.06
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
