Annual
REPORT TO SHAREHOLDERS
SEPTEMBER 30, 1996
AARP Investment Program
from SCUDDER
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TABLE OF CONTENTS
Letter to Shareholders 2
Special Section of the Annual Report 7
AARP Fund Reports 11
AARP High Quality Money Fund 12
AARP High Quality Tax Free Money Fund 13
AARP GNMA and U.S. Treasury Fund 14
AARP High Quality Bond Fund 16
AARP Insured Tax Free General Bond Fund 18
AARP Balanced Stock and Bond Fund 20
AARP Growth and Income Fund 22
AARP Global Growth Fund 24
AARP Capital Growth Fund 26
AARP Funds' Investment Portfolios 28
Financial Statements 74
Financial Highlights 81
Notes to Financial Statements 86
Report of Independent Accountants 92
Shareholder Meeting Results 93
Officers and Trustees 95
Service and Tax Information Back Cover
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LETTER TO SHAREHOLDERS
AARP Investment Program
from Scudder
Dear Shareholders,
The period covered by this Annual Report -- October 1, 1995
through September 30, 1996 -- was a volatile time for investors. While the
stock market soared to new heights, there were significant dips along the
way. At the same time, bond investments struggled for much of 1996, as
long-term interest rates rose. The AARP Mutual Funds were shielded from
some of this volatility because of the conservative investment strategies
we use to reduce share price fluctuation. Beginning on page 12, you can
find performance information on the AARP Mutual Funds. We think you will
be pleased that despite some fluctuation, the AARP Mutual Funds provided
generally healthy returns.
During uncertain times such as that of the period covered by this
Report, some of you may be wondering if you are invested properly --
should you have less in stocks and more in bonds, more in stocks and less
in bonds, or less invested in long-term investments and more in money
market investments? If you are reassessing your portfolio, we encourage
you to read the Special Section to the Report this year beginning on page
7. It provides a basic guide to allocating your assets.
First, though, we would like to spend a few paragraphs looking
back on the past year in the financial markets and then review some
matters specific to the AARP Investment Program.
THE U.S. ECONOMY AND THE FINANCIAL MARKETS
The volatility in the markets since the beginning of the year
underscored the uncertainty about the direction of the U.S. economy.
Though we have enjoyed a period of low inflation and low interest rates,
intermittent signs of strengthening activity have raised fears of
increasing inflation. At the same time, disappointing earnings
announcements from time to time have caused the stock market to question
the longevity of the economic expansion. Simultaneous fears of economic
strengths and weaknesses have caused both markets to react dramatically.
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THE STOCK MARKET
The stock market, as measured by the Dow Jones Industrial Average
(the price-weighted average of 30 actively traded blue-chip stocks), has
been on an upward trend for more than a year, reaching new highs. This
strong stock market has not come easily, however. In fact, there have been
a record number of days in 1996 when the Dow has been up or down 50 points
from the previous day's close. If you look to the graph on page 4, you can
see how much the Dow has fluctuated. What is 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. Back in March, for example, in
reaction to a strong employment report from the Federal Government
announcing a 509,000 increase in employed individuals, investors began
selling stocks at a furious pace fearing inflation. Consequently, the Dow
dropped 171 points in one day -- the third largest point decline in the
history of the Dow -- only to gain 110 points the next business day. From
the beginning of the period covered by this Report on October 1, 1995 to
its end on September 30, 1996, the Dow rose from 4761.26 to 5882.17,
posting a 23.5% gain.
THE BOND MARKET
Bond investors have experienced a disappointing year as fears of
inflation, fueled by strong economic growth, caused long-term interest
rates to rise. As you can see in the graph on page 4, long-term interest
rates, as measured by the 30-year Treasury bond, rose from 6.57% on
September 30, 1995 to 6.92% on September 30, 1996. If you look closely,
you will see that long-term rates were as low at 5.95% back in early
January and as high as 7.25% in July.
Unlike long-term rates, short-term interest rates are more
directly driven by actions of the Federal Reserve Board (the Fed). The Fed
lowered short-term interest rates back in January and, despite much
speculation of impending changes, has not made any moves since. Short-term
rates, in turn, have remained low over this period. Short-term rates (as
measured by the three-month Treasury bill) were 5.40% on September 30,
1995 and 5.01% on September 30, 1996.
WHAT THIS MEANS FOR INVESTORS
Stock investors should remember that while stock prices have
historically trended upward, markets do not move up in a straight line.
Volatility in the stock market, including periods when returns are
negative, cannot be predicted but are normal and should be expected. For
bonds, daily volatility remains high, but long-term interest rates have
remained within a small band (6.75% - 7.25%) over the past several months.
Yet, the direction of interest rates remains uncertain. It appears the Fed
believes that the economy is cooling down, rather than heating up. After
weeks of speculation that the Fed would take pre-emptive measures against
inflation, its officials decided not to raise the federal funds rate --
the rate which banks charge each other for overnight loans -- at their
meeting on September 24, 1996.
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LINE CHART TITLE: Stock Market
CHART PERIOD:
(PLOTTED WEEKLY FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996)
CHART DATA:
10/1/95 4789
4769
4794
4795
4755
4870
4990
5049
5074
5157
5177
5098
12/31/95 5117
5181
5061
5185
5395
5542
5503
5630
5486
5470
5585
5637
3/31/96 5587
5682
5532
5535
5567
5518
5687
5762
5643
5697
5649
5705
6/30/96 5655
5588
5511
5427
5473
5681
5689
5723
5616
5660
5839
5888
9/30/96 5873
CAPTION TO PRECEDING CHART:
The stock market, as measured by the unmanaged Dow Jones Industrial Average,
gained 23.5% over the last year.
LINE CHART TITLE: Long-Term Interest Rates
CHART PERIOD:
(PLOTTED WEEKLY FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996)
CHART DATA:
10/1/95 6.57 %
6.42
6.3
6.35
6.33
6.32
6.23
6.25
6.13
6.05
6.09
6.05
12/31/95 5.95
6.04
6.16
5.97
6.03
6.1
6.22
6.41
6.47
6.69
6.74
6.64
3/31/96 6.67
6.66
6.81
6.79
6.78
6.92
6.83
6.83
6.99
7.04
7.09
7.10
6/30/96 6.9
7.18
7.02
6.96
7.01
6.7
6.76
6.92
7.12
7.11
6.95
7.04
9/30/96 6.9
CAPTION TO PRECEDING CHART:
Long-term interest rates, as measured by the 30-year U.S. Treasury Bond, were
6.57% on October 1, 1995 and 6.92% at the end of September 1996.
Moving forward, we continue to believe there is long-term
opportunity in the stock and bond markets. New technology and global
competition are two reasons inflation should stay low. Technology also
provides exciting new products and new companies that generate equity
investment opportunities. All of this is good news for the financial
markets -- and for investors who are willing to stay committed for the
long-term.
A REMINDER FOR INVESTORS
CALLOUT: If you can accept that both the bond and stock markets will
have volatility, the inevitable declines in the markets should
not be cause for alarm.
While you may be tempted to get distracted by the day-to-day
changes in the financial markets, history tells us that long-term
investors are best served by putting the inevitable downturns of the
markets into proper perspective. If you can accept that both the bond and
stock markets will have volatility, inevitable downturns in the markets
should not be cause for alarm. In fact, these down periods 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 helps provide a degree of
protection from market volatility. Please refer to the Special Section for
more information on diversification.
THE AARP INVESTMENT PROGRAM FROM SCUDDER
The AARP Mutual Funds are distinct from many other mutual funds
that may seek higher returns, but do not focus on reducing share price
fluctuation. The AARP Mutual Funds seek to moderate the share price
volatility of your investment, while at the same time provide the
opportunity for competitive returns -- as they have over the period
covered by this Report. It is this commitment to conservative investing
that has continued to appeal to AARP members. As of September 30, 1996,
there were more than 650,000 investors participating in the Program and
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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 AARP Investment 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 developments:
o 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 can find information
about it on page 24 of this Report.
o EASY-ACCESS LINE ENHANCEMENT
Since its initial introduction in 1990, we have continued to
improve the Easy-Access Line -- the toll-free automated service line -- as
the needs of our shareholders have changed. In response to the request of
shareholders, the latest enhancement allows you to get price, yield, and
total return information more easily. 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 (no sign-on required), or enter your Social
Security number and PIN to receive information on your specific account or
to make transactions.
o STATEMENT ENHANCEMENTS
o Investment Flow Summary. The Investment Flow Summary section
was added to your consolidated statement in March to make it
easier to see how the AARP Mutual Funds are performing for you.
It summarizes the flow of your transactions and market activity
for each of the AARP Mutual Funds in your portfolio. The section
adds up all additions to your accounts (new share purchases),
your withdrawals (shares sold), and indicates how market value
changes have impacted your account.
o Average Cost Information. In January, average cost information
was added to your statement. As you know, the IRS requires you to
report any gains 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 AARP Mutual Funds investment, we now
provide you with an estimate of what you paid to obtain the
shares. This estimate now appears on each of your monthly
statements. Please refer to the January 1996 issue of Financial
Focus for more information and consult a tax advisor.
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NEW FUNDS CENTER IN NEW YORK
The newest Scudder Funds Center was 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 or
speak face-to-face with one of our AARP Mutual Fund Representatives. If
you 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 or for information on other Funds Centers, please
call us at 1-800-253-2277.
We hope you find all the information in this Report helpful. If
you have any questions or require assistance, please call us toll-free at
1-800-253-2277. One of our knowledgeable AARP Mutual Fund Representatives
will be happy to assist you between the hours of 8:00 A.M. to 8:00 P.M.
Monday through Friday, eastern time.
Sincerely,
/s/Cuyler W. Findlay /s/Linda C. Coughlin
Cuyler W. Findlay Linda C. Coughlin
Chairman President
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ASSET ALLOCATION
TAILORING YOUR INVESTMENTS TO HELP REACH YOUR GOALS
As an investor, we encourage you to examine your asset mix annually to
ensure that the investments you have chosen still meet your needs. To assist
you, we have devoted this Special Section of the Annual Report to asset
allocation. We define asset allocation and offer some guidelines that can help
you choose the right mix of investments to meet your financial goals.
UNDERSTANDING ASSET ALLOCATION
CALL OUT: Because both the financial markets and your objectives change over
time, an annual reassessment of your current investment mix is
generally a sensible exercise.
Asset allocation is simply a plan that divides money among stocks, bonds,
and cash investments. Done properly, asset allocation offers the potential of
meeting investment objectives, and reducing risk to a portfolio through
diversification. This is because different kinds of investments do not always
react the same way to shifts in the economy or financial climate. By
diversifying, an investor is not relying on a single type of investment and may
be more able to ride out the ups and downs that are part of investing.
Generally speaking, just as it is wise to spread investments across a
variety of securities, it may also make sense to spread a portion of them across
a number of countries. Since the U.S. and foreign markets do not always move in
step with each other, a portfolio that includes global investments offers the
opportunity for the poor performance of one market to be offset by another
market that did better than expected.
Generally, you can allocate your investable assets among three major
investment categories:
MONEY MARKET INVESTMENTS, such as insured CDs, savings accounts, or money
market funds, which offer stability of principal and modest income;
INCOME-ORIENTED INVESTMENTS, such as bonds or bond mutual funds, which
offer higher regular income;
GROWTH-ORIENTED INVESTMENTS, such as stocks or stock mutual funds, which
generally tend to offer long-term growth of your money.
FACTORS THAT AFFECT YOUR ASSET ALLOCATION
Before planning an asset allocation or reexamining an allocation already
in place, it is important to keep the following points in mind:
o Your Financial Situation
Many of you need your investments to provide income to help meet current
living expenses like rent, food, or health care. In this case, you may have no
choice but to focus on investments such as money markets or bond investments,
which produce a steady stream of income. On the other hand, you may have other
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sources of income that provide sufficient income to meet day-to-day expenses. In
this case, you may choose to diversify your portfolio among stocks, bonds, and
cash equivalents.
o Your Objectives
CALL OUT: It is important to consider your financial situation, your investment
objectives, your time horizon, and your tolerance for risk when
allocating your assets.
Most investors share the same basic investment objectives -- safety of
principal, income, and growth of capital -- or some combination of the three.
Investors differ as to how to pursue these objectives, which ones to emphasize
at various times, and to what degree. Are you retired and looking to earn
income? Are you looking to create a nest egg to provide a college education for
your child or grandchild? Or, are you investing to enjoy a secure, comfortable
retirement at some undetermined time in your future? Your investment objective
will help determine the mix of investments that could be right for you.
o Your Investment Time Horizon
It is also important to determine a realistic time horizon over which your
money can work for you. Investors may confuse their investment time horizon with
their expected life span or with the number of years they have until retirement.
However, it is important to have a broad view of your investment time horizon.
For example, if you are eighty years old and investing for the college education
of your newborn grandchild, your investment time horizon is at least fifteen
years. If you're fifty and saving for retirement, your investment time horizon
could be your lifespan.
o Your Risk Tolerance
To determine your tolerance for risk, you must first understand what risk
means. Broadly defined, risk is the chance of loss. However, financial risk is
multifaceted. Investments can have currency, interest rate, inflation, credit,
liquidity and prepayment risk, to name a few. Complicating the analysis of risk
even further is that each investor has his or her own tolerance and attitude
toward risk. An investment considered "high risk" by one investor may be
considered "low risk" by another. Determining your particular tolerance for risk
is important. If you do not honestly assess how much risk you are willing to
accept, you may not be able to stick to a disciplined investment plan when
market conditions inevitably change.
CHOOSING THE APPROPRIATE ASSET ALLOCATION THAT'S BEST FOR YOU
Once you review the factors described above, you need to choose the right
mix of investments for your situation. To help illustrate, we have provided a
matrix of allocations on the following page that may assist you in deciding what
type of mix would work best for you. Of course, every investor's situation is
unique and will change. Keep in mind that these models are hypothetical and are
not intended as recommendations.
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- --------------------------------------------------------------------------------
CONSERVATIVE INVESTOR
PIE CHART INSERTED HERE:
60% U.S. Bonds
5% Non-U.S. Stocks
25% U.S. Stocks
10% Money Market Instruments
If you are an income-oriented investor who is uncomfortable with too much
risk and have an investment time horizon of at least three years, the
conservative model may be of interest to you. As you can see, a majority of
the portfolio is invested in bonds for income. Approximately one third of the
portfolio is invested in stocks for growth -- 5% in non-U.S. stocks for
further diversification. The remainder of the portfolio is invested in money
market instruments for liquidity. (If your investment time horizon is less
than three years and you are looking for stability of principal and easy
access to your assets, chances are you can't afford to expose your money to
short-term risk. Therefore, you may decide to change this allocation to at
least 50% money market investments, with the remainder of the portfolio in
bonds.)
- --------------------------------------------------------------------------------
MODERATE INVESTOR
PIE CHART INSERTED HERE:
35% U.S. Bonds
10% Non-U.S. Stocks
45% U.S. Stocks
10% Money Market Instruments
If you are looking for a combination of income and growth and have an
investment time horizon of at least three to five years, you may want to use
the moderate model as an example. Unlike the conservative model, a majority
of this portfolio would be allocated to stock for growth -- 10% of which
could be in non-U.S. stocks for further diversification. A little more than a
third of the portfolio could be invested in bonds for income. The remainder
of the portfolio could be invested in money market instruments for liquidity.
- --------------------------------------------------------------------------------
AGGRESSIVE INVESTOR
PIE CHART INSERTED HERE:
20% U.S. Bonds
15% Non-U.S. Stocks
60% U.S. Stocks
5% Money Market Instruments
If you are looking for long-term growth of capital, understand the risks that
accompany high growth investments, and have an investment time horizon of
5-10 years or more, the aggressive model may be of interest to you. As you
can see, 75% of the portfolio is invested in stocks because stocks have
provided the highest returns over the long term* -- 15% in non-U.S. stocks.
Approximately 20% of the portfolio could be invested in bonds. Only a small
portion of the portfolio is in money market investments.
*Past performance is not a guarantee of future results.
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CHANGING YOUR ASSET ALLOCATION -- REBALANCING YOUR PORTFOLIO
CALL OUT: Through regular monitoring of your portfolio's asset allocation,
you can ensure that your portfolio is in line with your investment
objectives.
We suggest that you review your asset allocation at least once a year to
see if your assets are invested in a way that continues to help satisfy your
objectives. If they are not, you may want to consider shifting your allocations
to meet your changing needs. Rebalancing your portfolio is a discipline that you
may want to incorporate into your long-term investment program. Rebalancing
simply means bringing your asset allocation back to its original target. For
example, suppose you allocated 60% of your portfolio to bonds, 30% to stocks and
10% to money markets. After a year of rising stock prices, the stocks now
represent 40% of your portfolio (without adding any new money). You may want to
readjust your portfolio by transferring a portion of your stock holdings to
bonds or by directing any dividends from stocks to add to your bond investments.
It is important to rebalance your portfolio to maintain a steady
allocation between stocks, bonds, and your money market investments. Your asset
allocation is determined by the risk you are willing to accept and the potential
rewards. If, for example, your stock portion were to rise above the original
level, your risk exposure increases. If the stock portion falls below its
target, your future earnings may be lower. Through regular monitoring of your
asset allocation, you can ensure that your portfolio is kept in line with your
investment objectives.
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AARP FUND REPORTS
The following pages contain a summary of each Fund in the AARP Investment
Program from Scudder. Each AARP Mutual Fund report contains the one-year
total return, five-year total return, and ten-year total return (or, in the
case of AARP Global Growth Fund, 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
some of the Fund descriptions, 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,
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.
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AARP HIGH QUALITY MONEY FUND
FUND OVERVIEW
This Fund is designed to preserve your principal while you earn money market
returns. The AARP High Quality Money Fund has quality standards high enough to
have secured a AAAm rating from Standard & Poor's*, 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 during the period
covered by this Report. Short-term interest rates, as measured by the
three-month U.S. Treasury Bill, declined from 5.40% on September 30, 1995 to
5.01% at the end of September 1996. This trend caused a gradual decline in the
Fund's 7-day net annualized yield from 4.97% on September 30, 1995 to 4.67% as
of September 30, 1996. The Fund's one-year total return as of September 30, 1996
was 4.62%, which was made up entirely of income. The five-year cumulative total
return was 20.13%; the five-year average annualized total return was 3.74%; the
10-year cumulative total return was 65.93%; and the 10-year average annualized
total return was 5.19%. Of course past performance is not a guarantee of future
results, and yield will fluctuate.
THE FUND'S INVESTMENT STRATEGY
As of September 30, 1996, the average maturity of the Fund was 46 days,
which is shorter than the average maturity of 55 days at the beginning of
October 1995. We allowed the average maturity of the Fund to decline by
investing in securities with maturities of one month or less. We took this step
due to the uncertain outlook for the economy and interest rates. By maintaining
a more neutral average maturity we were better positioned to take advantage of
the direction of interest rates, whether they rose or declined.
We are cautious in predicting the direction of short-term interest rates,
and therefore will not likely make significant changes in the portfolio during
the coming months. We believe this is the best way to offer shareholders both
competitive yields and stability.
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AARP HIGH QUALITY TAX FREE MONEY FUND
FUND OVERVIEW
The AARP High Quality Tax Free Money Fund is designed to offer you stability of
principal, along with income free from federal taxes.^1 The quality of the Fund
is high enough to have secured a AAAm rating from Standard & Poor's (S&P).^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 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 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 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 year, 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 declined from 3.37% on September 30, 1995 to 3.01% on September 30, 1996.
This is a taxable equivalent yield of 4.98% for shareholders in the 39.6% tax
bracket. The Fund's one-year total return was 2.80%, which was made up entirely
of income. The five-year cumulative total return was 12.31%; the five-year
average annualized total return was 2.35%, the ten-year cumulative total return
was 44.62%; and the ten-year average annualized total return was 3.76%.
Please note that the 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 INVESTMENT STRATEGY
Due to the uncertain outlook for the economy and interest rates, we
shortened the average maturity of the Fund from 55 days on September 30, 1995,
to 49 days as of September 30, 1996. We decreased our holdings of securities
with maturities of six to 12 months and increased our investment in securities
with maturities of less than six months. By maintaining a more neutral average
maturity we were better positioned to take advantage of the direction of
interest rates, whether they rose or declined.
As always, all securities we bought were 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 Investors Service Inc., or Standard
& Poor's. 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, within the universe of securities that fit the S&P criteria,
Scudder credit analysts approve only a small percentage of that universe.
Therefore, the number of securities that we have to choose from is much smaller
and in most cases of better quality than other tax-free money funds.
We expect the short-term volatility of interest rates to continue over the
near term and therefore will not be extending the average maturity of the Fund.
We believe this strategy should continue to offer shareholders competitive
tax-free income and stability.
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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. 4.79% 5.88%
5 yr. 33.51% 41.70%
10 yr. 102.33% 136.10%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 4.79% 5.88%
5 yr. 5.95% 7.21%
10 yr. 7.30% 8.96%
HOW THE FUND HAS PERFORMED
As stated in the Letter to Shareholders, 1996 has been a disappointing
time for bond investors. 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 you look to the chart below, you will see that the
AARP GNMA and U.S. Treasury Fund's one-year total return of 4.79% (representing
6.63% in distributions of income and -1.84% in capital change) underperformed
the Index total return of 5.88%. Please note that the Index return does not
reflect investment in cash 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 provide high monthly income and overcome
down periods in the market. As the graph to right shows, if you invested $10,000
in the Fund on September 30, 1986, your investment would have grown to $20,233,
assuming all distributions were reinvested. If you took your distributions in
cash, the value of your investment would have been $9,325, and you would have
received $7,442 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended September 30
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- ---------------------
1986 $ 10000 $ 10000
1987 10154 10194
1988 11277 11728
1989 12199 13055
1990 13280 14288
1991 15155 16662
1992 16851 18556
1993 17843 19789
1994 17503 19548
1995 19308 22299
1996 20233 23610
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- ---------------------
1992 11.19 % 11.43 %
1993 5.89 % 6.59 %
1994 -1.90 % -1.22 %
1995 10.31 % 14.07 %
1996 4.79 % 5.88 %
- --------------------------------------------------------------------------------
^+ 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.
14
<PAGE>
The Fund's Investment Strategy
In an environment of rising long-term interest rates, such as that of most
of 1996, we favored GNMA securities with coupons of 7.5% or lower. We found
these mortgages attractive because the prepayment risk associated with such
securities is low. Moreover, the income from these mortgages is still above the
income from many other high-quality fixed-income investments such as U.S.
Treasurys. We also continued to maintain our position in older, higher-coupon
mortgages. Most of these mortgages are more than five years old and therefore
have had plenty of opportunities to be refinanced but have not been. We feel
that these securities offer high current income to shareholders while exposing
the portfolio to little risk of prepayment.
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.
To help dampen share price volatility during a period of rising interest
rates, we increased the portion of the portfolio invested in short-term U.S.
Treasury obligations. Shareholders in this Fund should feel comfortable that the
current blend of GNMA securities has the potential to 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 September 30, 1996
CHART DATA:
Government National Mortgage
Association 66%
U.S. Treasury Obligations 33%
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
15
<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. 4.59% 4.90%
5 yr. 39.31% 43.32%
10 yr. 109.70% 126.02%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 4.59% 4.90%
5 yr. 6.86% 7.46%
10 yr. 7.69% 8.49%
HOW THE FUND HAS PERFORMED
The past year was a disappointing year for bond investors, as long-term
interest rates rose. When you look to the chart below, the AARP High Quality
Bond Fund's one-year total return of 4.59% slightly underperformed the unmanaged
Lehman Brothers Aggregate Bond Index return of 4.90%. It is important to note
that the quality of the securities in the Fund is higher than the index and the
index return does not reflect investment in cash 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 earn monthly income over time. As the
graph to the right shows, if you invested $10,000 in the Fund on September 30,
1986, your investment would have grown to $20,970, assuming all distributions
were reinvested. If you took your dividends in cash, your investment would have
been $9,962, and you would have received $7,285 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended September 30
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
------------------ ----------------------
1986 $ 10000 $ 10000
1987 9991 10027
1988 11228 11360
1989 12394 12640
1990 13040 13596
1991 15053 15770
1992 16793 17749
1993 18787 19520
1994 17746 18890
1995 20049 21547
1996 20970 22602
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
----------------- ----------------------
1992 11.56 % 12.55 %
1993 11.88 % 9.98 %
1994 -5.55 % -3.22 %
1995 12.98 % 14.06 %
1996 4.59 % 4.90 %
- --------------------------------------------------------------------------------
^+ 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.
16
<PAGE>
THE FUND'S INVESTMENT STRATEGY
During the past 12-month period, we increased our investment in corporate
securities, which included issues from some of the country's leading consumer
staples, durable goods manufacturing, financial, and transportation companies.
We also continued to add income to the portfolio from attractively priced
mortgage-backed securities. We maintained a large portion of the Fund's assets
in mortgage-backed securities (approximately 20% as of September 30, 1996)
because of their high quality, income potential, and attractive prices.
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 September 30, 1996, 63% of the portfolio was invested in
government, AAA-rated or AA-rated securities; 18% of the Fund was invested in
A-rated bonds; and 19% was invested in AAA-rated cash equivalents.
We believe that the AARP High Quality Bond Fund's current portfolio is
well positioned for the current economic environment and we will always be
looking for new opportunities to add returns to the portfolio. We believe the
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 with potential price appreciation, as well as maintaining
high credit quality and diversification across various types of issues.
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of September 30, 1996
CHART DATA:
U.S. Treasury Obligations 26%
Corporate Bonds 24%
Cash Equivalents 21%
U.S. Government Agency Pass-Thrus 19%
Foreign Bonds--U.S. $ Denominated 5%
Asset Backed 5%
----
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
17
<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. 5.88% 6.04%
5 yr. 40.20% 43.23%
10 yr. 105.67% 113.71%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 5.88% 6.04%
5 yr. 6.99% 7.44%
10 yr. 7.48% 7.88%
*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 generally will be subject to federal,
state and local taxes.
HOW THE FUND HAS PERFORMED
As stated in the Letter to Shareholders, the past year has been a
disappointing time for bond investors, including those in the municipal market.
Long-term interest rates rose and as a result, the value of the securities held
by the Fund decreased. When we look at the total return, as illustrated in the
chart below, the AARP Insured Tax Free General Bond Fund's one-year total return
of 5.88% underperformed the unmanaged Lehman Brothers Municipal Bond Index's
return of 6.04%. However, it outperformed the unmanaged Lehman Brothers
Municipal Bond 10 Year Index return of 4.88%. Over the past year, the portfolio
managers have tried to reduce the Fund's volatility by shortening the average
maturity. As of September 30, 1996, the Fund's average maturity was 11 years.
This helps explain the Fund's underperformance of the Lehman Brothers Municipal
Bond Index, which has an average maturity of 14 years.
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 earn income
free from federal taxes and 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
September 30, 1986, your investment would have grown to $20,567, assuming all
distributions were reinvested. If you took your dividends in cash, your
investment would have grown to $10,725, and you would have received $6,665 in
distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended September 30
CHART DATA:
AARP Insured Tax Free General Lehman Brothers
Bond Fund Municipal Bond Index^+
------------------------------ ----------------------
1986 $ 10000 $ 10000
1987 9706 10053
1988 11102 11357
1989 12286 12343
1990 12886 13182
1991 14670 14921
1992 16140 16480
1993 18450 18580
1994 17625 18127
1995 19424 20154
1996 20567 21371
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP Insured Tax Free General Lehman Brothers
Bond Fund Municipal Bond Index^+
----------------------------- ----------------------
1992 10.01 % 10.45 %
1993 14.31 % 12.74 %
1994 -4.88 % -2.44 %
1995 10.21 % 11.18 %
1996 5.88 % 6.04 %
- --------------------------------------------------------------------------------
^+ 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.
18
<PAGE>
THE FUND'S INVESTMENT STRATEGY
Purchasing bonds with call protection remained a fundamental part of
the Fund's investment strategy over the past year. Generally, a bond is called
in by its issuer so that it can be refinanced at a lower prevailing rate. Our
call-protection strategy provided a more reliable income stream than would have
existed if the Fund held a significant amount of bonds that could be called in
before their stated maturity. As of September 30, 1996, 84% of the portfolio was
invested in non-callable bonds.
CALLOUT: Investing in insured securities of varying maturities helps dampen the
share price volatility of this Fund.
We also continued to favor intermediate-term bonds, with 41% of the Fund
invested in bonds maturing in 10 to 15 years. This strategy added to the Fund's
performance because bonds with maturities in the 15-year range that were
non-callable performed better than longer-term bonds. In addition, 22% of the
portfolio was invested in the hospital sector, 16% in municipal bonds of large
urban cities, and 16% in electric utilities.
As of September 30, 1996, 90% of the portfolio was invested in insured
securities (or securities escrowed in U.S. Treasurys that 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.
We believe that the Fund's strategy outlined above reflects our commitment
to providing high tax-free income while seeking to keep its share price more
stable than that of a long-term municipal bond.
PIE CHART TITLE: ASSET ALLOCATION -- MUNICIPAL BOND EFFECTIVE MATURITIES
CHART PERIOD: As of September 30, 1996
CHART DATA:
Less than 1 year 8%
1 to less than 5 years 10%
5 to less than 10 years 21%
10 to less than 15 years 41%
Greater than 15 years 20%
----
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
19
<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. 13.08% 14.50%
Life of
Fund* 31.04% 36.84%
AVERAGE ANNUAL
BLENDED
FUND INDEX^+
---- -------
1 yr. 13.08% 14.50%
Life of
Fund* 10.69% 12.49%
HOW THE FUND HAS PERFORMED
The AARP Balanced Stock and Bond Fund performed well. The Fund's solid
one-year total return of 13.08% underperformed the blended index's total return
of 14.50%, primarily because of the Fund's conservative investment strategy to
reduce share price volatility. The blended index is made up of the unmanaged
Standard & Poor's 500 Index 50%, the unmanaged Lehman Brothers Aggregate Bond
Index 40%, and the 3-month Treasury Bill Index 10%. Please note that the Fund
was introduced on February 1, 1994. Therefore, five-year and ten-year data are
not available.
We would also like to note that 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 $13,104 by September 30, 1996, assuming all
distributions were reinvested. If you took your distributions as cash, your
investment would have grown to $11,753, and you would have received $1,166 in
distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Semiannual Periods from February 1, 1994
to September 30, 1996
CHART DATA:
<TABLE>
<CAPTION>
Standard & Poor's Lehman
AARP Balanced Stock 500 Stock Price Brothers Blended
and Bond Fund Index Aggregate Bond Index Index^+
------------------- ----------------- -------------------- ------------
<S> <C> <C> <C> <C>
2/1/94* $ 10000 $ 10000 $ 10000 $ 10000
3/31/94 9642 9304 9584 9452
9/30/94 10050 9800 9543 9742
3/31/95 10467 10753 10062 10498
9/30/95 11738 12716 10885 11951
3/31/96 12669 14205 11147 12930
9/30/96 13272 15302 11418 13684
</TABLE>
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP Balanced Stock Blended
and Bond Fund Index^+
------------------- -------
2/1/94*- -0.78% -3.83%
9/30/94
1995 16.80% 20.43%
1996 13.08% 14.50%
THE FUND'S INVESTMENT STRATEGY
In general, the stock portion of the Fund (representing 57% of the
- --------------------------------------------------------------------------------
^+ 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.
20
<PAGE>
portfolio as of September, 30 1996) uses an approach similar to the AARP Growth
and Income Fund. The Fund 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 60 for details on specific stock
selection. (The Fund may invest up to 70% of its assets in stocks.)
CALLOUT: The Fund attempts to reduce share price fluctuation by following a
strict discipline for stocks, by investing in bonds with varying
maturities, and by maintaining a significant cash position.
The portion of the Fund invested in bonds (representing 40% of the
portfolio as of September 30, 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 (AAA, AA, and A) by Moody's or S&P, independent
rating organizations. (At all times, at least 30% of the Fund's assets will be a
combination of bonds and cash equivalents.) Over this period, we favored
corporate debt issues whose values stand to benefit from signs of economic
strength and the accompanying perception of lower credit risk. We also focused
on mortgage-backed securities, which had experienced price weakness and
presented relative value. Corporates and mortgage-backed securities represented
12% and 13% of the portfolio as of September 30, 1996. The remaining 3% of the
Fund's assets were invested in cash equivalents.
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 57% stocks, 40% bonds, and 3% 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 September 30, 1996
CHART DATA:
Stocks 57%
Bonds 40%
Cash Equivalents 3%
----
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 or more years) 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
21
<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 share price volatility. It invests in stocks with
above-average dividend yields that may offer the opportunity for long-term
growth of capital.
Total Return
CUMULATIVE
FUND INDEX^+
---- -------
1 yr. 20.20% 20.34%
5 yr. 108.24% 103.15%
10 yr. 262.51% 304.29%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 20.20% 20.34%
5 yr. 15.80% 15.21%
10 yr. 13.74% 14.98%
HOW THE FUND HAS PERFORMED
The AARP Growth and Income Fund performed well over the past year. Its
one-year total return of 20.20% (representing 3.22% in distributions of income
and 16.98% in capital change) slightly underperformed the unmanaged Standard &
Poor's Stock Price Index of 20.34%. Due to the Fund's conservative investment
strategy, the Fund will often lag the index when the stock market rallies
strongly, as it did over the past 12 months, and outperform when the market
declines.
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 of 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 September 30, 1986, your investment would have grown to
$36,251 by September 30, 1996, assuming reinvestment of any distributions. If
you took your distributions as cash, your investment would have grown to
$21,044, and you would have received $7,145 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended September 30
CHART DATA:
AARP Growth and Standard & Poor's
Income Fund 500 Stock Price Index^+
--------------- -----------------------
1986 $ 10000 $ 10000
1987 13089 14342
1988 11677 12569
1989 15241 16717
1990 13687 15173
1991 17408 19901
1992 19425 22100
1993 23189 24974
1994 25041 25894
1995 30158 33596
1996 36251 40429
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP Growth and Standard & Poor's
Income Fund 500 Stock Price Index^+
--------------- -----------------------
1992 11.59 % 11.04 %
1993 19.38 % 12.97 %
1994 7.99 % 3.68 %
1995 20.43 % 29.75 %
1996 20.20 % 20.34 %
THE FUND'S INVESTMENT STRATEGY
Stocks had a much higher degree of volatility over the period covered by
this Report than we have seen in the recent past, but yet closer to historical
norm. Because of the volatile nature of the stock market, we did not make great
strategic shifts in the portfolio over this period. Instead, we continued to
employ some of the strategies we initiated late last year. We favored cyclical
stocks that we believe were historically undervalued. New or increased portfolio
- --------------------------------------------------------------------------------
^+ 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>
positions in cyclicals include Ford Motor Company, PACCAR (a heavy duty truck
manufacturer), Weyerhaeuser and Westvaco (two paper/forest product stocks), and
Phelps Dodge and Allegheny Teledyne (two metals companies). We also continued to
look for opportunities in consumer cyclicals, namely in retail-oriented stocks.
Valuations in this group have looked appealing for quite some time given the
sector's less-than-favorable performance in 1994 and 1995. We added to existing
holdings of May Department Stores and Sears. We also established a position in
KMart, via its new convertible preferred issue. This offered us an attractive
way to participate in the anticipated turnaround of this company.
CALLOUT: The Fund focuses on stocks with above-average dividends and sound
fundamentals to help reduce share price volatility.
We were able to buy these cyclical stocks by taking profits from many of
the non-economically sensitive consumer stocks that have done well for the Fund.
We also took profits in several strong-performing consumer staples such as Avon,
Colgate, and Clorox, and redirected proceeds into more attractively valued
stocks in the same sector such as Duracell. Duracell's stock had fallen as
investors questioned the sustainability of the company's historical growth rate.
The stock subsequently moved up sharply after the company announced in
mid-September that it plans to merge with Gillette. (Please note that portfolio
changes should not be considered recommendations for action by individual
investors.)
Over the near term, we do not envision any radical shifts in the Fund's
composition. 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.
PIE CHART TITLE: ASSET ALLOCATION -- SECTORS OF EQUITY HOLDINGS
CHART PERIOD: As of September 30, 1996
CHART DATA:
Financial 20%
Manufacturing 19%
Health 11%
Consumer Staples 9%
Durables 8%
Energy 8%
Communications 6%
Consumer Discretionary 6%
Utilities 5%
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
in 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
Benjamin W. Thorndike
Portfolio Managers
23
<PAGE>
AARP GLOBAL GROWTH FUND
FUND OVERVIEW
The AARP Global Growth 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 stock funds.
Total Return
FUND INDEX^+
---- -------
Life of
Fund* 3.27% 6.60%
HOW THE FUND HAS PERFORMED
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 in mature countries.
The AARP Global Growth Fund was introduced to shareholders on February 1,
1996. For the life of the Fund -- February 1, 1996 through September 30, 1996 --
the total return of 3.27% (not annualized) underperformed the MSCI World Index
of 6.60% for the same time period. This underperformance was due to the high
cash flows into this new Fund, occurring simultaneously with rapidly rising
markets, especially in the U.S. The short-term impact of these conditions was
reinforced by the Fund's underweighting in the U.S. relative to the Index and to
the Fund's peers. This relative underweighting reflects the view of the
portfolio management team that more long-term investment values lie in other
markets, which have not appreciated as much. We expect this short-term
performance distortion to wash out over time.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Monthly Periods from February 1, 1996*
to September 30, 1996
CHART DATA:
AARP Global MSCI World
Growth Fund Index^+
----------- -------
2/1/96^* $ 10000 $ 10000
10000 10059
3/31/96 10180 10224
10320 10462
5/31/96 10407 10469
10280 10520
7/31/96 9980 10146
10213 10261
9/30/96 10327 10660
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP Global MSCI World
Growth Fund Index^+
----------- ----------
2/1/96^*-
9/30/96 3.27 % 6.6 %
THE FUND'S INVESTMENT STRATEGY
Since the Fund was introduced in February, we have adhered to a "theme
approach" of investing. What this means is that we 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
targeted companies with new technologies and secure large market shares.
Portfolio examples include Reuters, and First Data. Another theme focuses on the
world's demographics. Due to an aging population, we believe pharmaceutical
- --------------------------------------------------------------------------------
^+ The MSCI (Morgan Stanley Capital International) World Index is an unmanaged
capitalization-weighted measure of global stock markets, including the U.S.,
Canada, Europe, Australia, and the Far East. Index returns assume dividends
reinvested net of withholding tax and, unlike Fund 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, 1996.
24
<PAGE>
products and health providers will continue to thrive. We therefore favor
companies such as Astra, Sandoz, and Ciba-Geigy. A third theme focuses on German
and French companies that are restructuring and joining the global capital
markets. We believe stocks such as Daimler-Benz (an automobile and truck
manufacturer) and Hoechst (a chemical producer) should benefit from this trend.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
The portfolio is currently broadly invested among more than 20 countries
and over 110 different companies. The largest allocations by country are the
United States, Germany, and the United Kingdom. We expect this diversified
portfolio to benefit from many global trends underway: the global economy and
capital markets in aggregate are functioning well; growth is being achieved
without inflation; and new technologies are emerging and old industries are
restructuring.
PIE CHART TITLE: ASSET ALLOCATION -- COUNTRIES OF EQUITY HOLDINGS
CHART PERIOD: As of September 30, 1996
CHART DATA:
United States 23%
Germany 18%
United Kingdom 11%
Switzerland 9%
Japan 9%
Sweden 8%
Canada 4%
France 4%
Australia 3%
Other 11%
----
100%
====
PIE CHART TITLE: ASSET ALLOCATION -- SECTORS OF EQUITY HOLDINGS
CHART PERIOD: As of September 30, 1996
CHART DATA:
Manufacturing 26%
Financial 19%
Metals and Minerals 10%
Consumer Staples 8%
Technology 6%
Energy 5%
Construction 5%
Service Industries 5%
Durables 4%
Other 12%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The new 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 5 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
investment risks such as currency exchange risk.
PORTFOLIO
MANAGEMENT TEAM
William E. Holzer
Lead Portfolio Manager
Nicholas Bratt
Alice Ho
Portfolio Managers
25
<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. 15.97% 20.34%
5 yr. 76.63% 103.15%
10 yr. 242.55% 304.29%
AVERAGE ANNUAL
FUND INDEX^+
---- -------
1 yr. 15.97% 20.34%
5 yr. 12.05% 15.21%
10 yr. 13.10% 14.98%
HOW THE FUND HAS PERFORMED
The AARP Capital Growth Fund performed well over the past year. It
provided a one-year total return of 15.97%, (representing 1.15% in distributions
of income and 14.82% in capital change), although it underperformed the
unmanaged Standard & Poor's 500 Stock Price Index of 20.34%. The Fund's
valuation disciplines and focused diversification kept it from participating
more fully in the strong rise of the broad market index.
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 September 30, 1986, your investment would have grown to
$34,255 by September 30, 1996, assuming you reinvested any distributions. If you
took your distributions as cash, your investment would have grown to $20,573,
and you would have received $6,865 in distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended September 30
CHART DATA:
AARP Capital Standard & Poor's
Growth Fund 500 Stock Price Index^+
----------- -----------------------
1986 $ 10000 $ 10000
1987 13697 14342
1988 12946 12569
1989 18593 16717
1990 13580 15173
1991 19393 19901
1992 20158 22100
1993 25102 24974
1994 23923 25894
1995 29538 33596
1996 34255 40429
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended September 30
(Total Return%)
CHART DATA:
AARP Capital Standard & Poor's
Growth Fund 500 Stock Price Index^+
----------- -----------------------
1992 3.94 % 11.04 %
1993 24.53 % 12.97 %
1994 -4.70 % 3.68 %
1995 23.47 % 29.75 %
1996 15.97 % 20.34 %
THE FUND'S INVESTMENT STRATEGY
We continued to emphasize our strategy of maintaining a quality
portfolio diversified across many sectors of the market. The top sectors include
technology, health care, and finance. 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,
- --------------------------------------------------------------------------------
^+ 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.
26
<PAGE>
we have focused our investments in quality companies such as Hewlett-Packard and
Intel -- market leaders in their particular market segment.
CALLOUT: Through a broadly diversified portfolio consisting primarily of
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.
Over the past few months, we began to focus on aerospace stocks due to the
restructuring throughout the industry as a whole. We see strong growth potential
in companies such as Rockwell, Lockheed Martin, and Textron. We also continued
to favor the financial sector of the market. We believe that many financial
stocks were attractively priced with price earnings multiples equal to or less
than their earnings growth rates. We anticipate attractive earnings growth from
stocks such as Federal National Mortgage Assn., American Express, and Citicorp
- -- three of the Fund's top five holdings. (Please note that portfolio changes
should not be considered recommendations for action by individual investors.)
Given the uncertain outlook for economic growth and individual company
profits, we continue to emphasize quality companies such as Pfizer and
McDonalds, in addition to those mentioned above, whose profits in our opinion
are sustainable through varying market conditions.
PIE CHART TITLE: ASSET ALLOCATION -- Sectors of Equity Holdings
CHART PERIOD: As of September 30, 1996
CHART DATA:
Financial 17%
Technology 16%
Health 15%
Manufacturing 12%
Energy 11%
Consumer Staples 7%
Consumer Discretionary 7%
Durables 5%
Service Industries 4%
Other 6%
----
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 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
27
<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
28
<PAGE>
AARP HIGH QUALITY MONEY FUND
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount($) Value($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 9.7%
- --------------------------------------------------------------------------------------------------------------------
35,000,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/96 at 5.7%
to be repurchased at $35,005,542 on 10/1/96 collateralized by a $32,832,000
U.S. Treasury Note, 8.5%, 2/15/00 .............................................. 35,000,000
4,998,000 Repurchase Agreement with State Street Bank dated 9/30/96 at 5.3%
to be repurchased at $4,998,736 on 10/1/96 collateralized by a $5,065,000
U.S. Treasury Note, 6%, 8/31/97 ................................................ 4,998,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $39,998,000) ................................... 39,998,000
-----------
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 50.0%
- --------------------------------------------------------------------------------------------------------------------
HEALTH 3.4%
Pharmaceuticals
14,000,000 Eli Lilly & Co., 5.38%, 12/11/96 ................................................. 13,850,964
-----------
FINANCIAL 41.3%
Business Finance 3.6%
15,000,000 CIT Group Holdings Inc., 5.16%, 10/9/96 .......................................... 14,980,680
-----------
Other Financial Companies 37.7%
16,000,000 AIG Funding Inc., 5.51%, 1/7/97 .................................................. 15,761,080
10,000,000 American Express Credit Corp., 3.51%, 10/3/96 .................................... 9,997,072
14,000,000 American General Finance Corp., 5.38%, 12/18/96 .................................. 13,836,643
16,000,000 Associates Corp. of North America, 5.38%, 12/18/96 ............................... 15,813,306
10,000,000 Beneficial Corp., 5.59%, 4/9/97 .................................................. 9,711,908
10,000,000 Chevron Oil Finance Co., 5.14%, 10/9/96 .......................................... 9,987,168
10,000,000 Ciesco L.P., 4.61%, 10/7/96 ...................................................... 9,991,050
13,000,000 Credit Agricole USA Inc., 5.43%, 12/5/96 ......................................... 12,871,777
10,000,000 Dresdner U.S. Finance Inc., 4.91%, 10/2/96 ....................................... 9,997,271
10,000,000 General Electric Capital Corp., 5.32%, 3/19/97 ................................... 9,743,583
5,000,000 General Electric Capital Services Inc., 5.59%, 4/7/97 ............................ 4,857,463
17,000,000 New Center Asset Trust, 5.14%, 10/23/96 .......................................... 16,944,369
16,000,000 Private Export Funding Corp., 5.39%, 11/14/96 .................................... 15,892,979
-----------
155,405,669
-----------
MEDIA 1.5%
Broadcasting & Entertainment
6,100,000 Walt Disney Co., 5.38%, 12/10/96 ................................................. 6,035,955
-----------
DURABLES 3.8%
Automobiles
16,000,000 Ford Motor Credit Co., 5.40%, 11/26/96 ........................................... 15,864,467
-----------
TOTAL COMMERCIAL PAPER (COST $206,154,345) ....................................... 206,137,735
-----------
- --------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 4.9%
- --------------------------------------------------------------------------------------------------------------------
5,000,000 Mellon Bank Corp., 6.13%, 9/9/97 ................................................. 5,025,415
15,000,000 United States National Bank of Oregon, 5.36%, 10/22/96 ........................... 15,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT (COST $20,000,000) ................................. 20,025,415
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
29
<PAGE>
AARP HIGH QUALITY MONEY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Principal
Amount($) Value($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 26.4%
- --------------------------------------------------------------------------------------------------------------------
5,000,000 Federal Home Loan Bank, 5.31%, 12/12/96 .......................................... 5,000,000
2,900,000 Federal Home Loan Mortgage Corp., 5.7%, 10/1/96 .................................. 2,900,000
17,000,000 Federal National Mortgage Association, 5.149%, 7/14/99* .......................... 16,872,500
20,000,000 Student Loan Marketing Association, 5.695%, 11/27/96* ............................ 20,026,813
38,690,000 Student Loan Marketing Association, 5.56%, 1/23/97* .............................. 38,760,416
10,000,000 Student Loan Marketing Association, 5.51%, 10/30/97* ............................. 10,013,900
15,500,000 Student Loan Marketing Association, 5.14%, 7/12/99* .............................. 15,377,550
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST $109,098,204) ............................... 108,951,179
-----------
- --------------------------------------------------------------------------------------------------------------------
SHORT_TERM NOTES 8.4%
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL 6.8%
Banks 5.6%
5,000,000 Bank of America Illinois, 5.7%, 5/28/97 .......................................... 5,001,291
8,000,000 FCC National Bank Note, 5.8%, 10/10/96 ........................................... 7,999,959
10,000,000 Pittsburgh National Bank, 5.322%, 7/1/97* ........................................ 9,992,000
-----------
22,993,250
-----------
Other Financial Companies 1.2%
5,000,000 General Electric Capital Corp., 5.35%, 10/22/96 .................................. 5,000,000
-----------
AUTOMOBILE RECEIVABLES 1.6%
6,605,783 Ford Motor Credit Co., 5.67%, 7/15/97 ............................................ 6,605,584
-----------
TOTAL SHORT_TERM NOTES (COST $34,595,734) ........................................ 34,598,834
-----------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $409,846,283)(a) .......... 99.4 409,711,163
OTHER ASSETS AND LIABILITIES, NET .......................... 0.6 2,415,030
----- -----------
NET ASSETS ................................................. 100.0 412,126,193
===== ===========
- --------------------------------------------------------------------------------------------------------------------
* 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
September 30, 1996.
(a) At September 30, 1996, the net unrealized depreciation on investments based on cost for federal income tax
purposes of $409,846,283 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ......................................................... $ 142,758
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ......................................................... (277,878)
---------
Net unrealized depreciation ................................................................. $(135,120)
=========
- --------------------------------------------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the Fund had capital loss carryforwards of
approximately $74,841 which expire September 30, 2004. In addition, from November 1, 1995 through September
30, 1996, the Fund incurred approximately $57,258 of net realized capital losses which the Fund intends to
elect to defer and treat as arising in the fiscal year ended September 30, 1997.
- --------------------------------------------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the Fund. The total net assets of the
Fund are comprised of the Fund's investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion of the Fund's assets and
liabilities in the calculation. The Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
30
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principle Credit
Amount($) Rating(b) Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
MUNICIPAL INVESTMENTS 99.3%
- -----------------------------------------------------------------------------------------------------------------------
ALASKA
Alaska Housing Finance Corp., General Mortgage Revenue, Series 1991-A, Weekly
Demand Note, 3.85%, 6/1/26* ...................................................... 3,000,000 A-1+ 3,000,000
ARIZONA
Apache County, AZ, Industrial Development Authority, Tucson Electric Power Co.,
Series 1983 C, Weekly Demand Note, 3.85%, 12/15/18* .............................. 1,000,000 A-1 1,000,000
Maricopa County, AZ, Pollution Control Revenue, Palos Verde Project,
Series 1985 G, Tax Exempt Commercial Paper, 3.6%, 10/16/96 ....................... 2,000,000 A-1 2,000,000
Maricopa County, AZ, Pollution Control Revenue, Public Service of New Mexico,
Weekly Demand Note, 3.9%, 11/1/22* ............................................... 4,000,000 A-1+ 4,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.,
Weekly Demand Note, 3.8%, 10/1/22* ............................................... 3,900,000 A-1+ 3,900,000
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.
Series 1982 A, Weekly Demand Note, 3.8%, 7/1/22* ................................. 1,000,000 A-1+ 1,000,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly Demand
Note, 3.9%, 12/1/11* ............................................................. 1,900,000 A-1 1,900,000
CALIFORNIA
Anaheim, CA, Multi-Family Housing Revenue, Harbor Cliff Project,
Variable Rate Demand Note, 3.55%, 7/1/06* ........................................ 1,000,000 MIG1 1,000,000
California State Revenue Anticipation Note, Series 1996, 4.5%, 6/30/97 ............ 1,000,000 SP1+ 1,003,798
Orange County, CA, Irvine Ranch Water District, Series 1985 B,
Variable Rate Demand Bond, 3.65%, 10/1/05* ....................................... 1,000,000 A-1 1,000,000
Los Angeles County, CA, Tax and Revenue Anticipation Notes, Series 1996 A,
4.5%, 6/30/97 .................................................................... 2,000,000 MIG1 2,009,326
Southern California Pollution Control Revenue, Edison Co., Series 1986 A,
Daily Demand Note, 3.85%, 2/28/08* ............................................... 1,000,000 A-1+ 1,000,000
COLORADO
Clear Creek County, CO, Colorado Counties Financing Program, Series 1988,
Weekly Demand Note, 3.9%, 6/1/98* ................................................ 155,000 A-1+ 155,000
Colorado Health Facilities Authority, Composite Issue for Kaiser Permanente,
Series 1995 A, Weekly Demand Note, 3.9%, 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, 3.85%, 1/1/16* ................................... 1,000,000 A-1+ 1,000,000
Series D, Weekly Demand Note, 3.85%, 1/1/16* ................................... 1,300,000 A-1+ 1,300,000
Jacksonville, FL, Pollution Control Revenue, Florida Power and Light, Series 1994,
Tax Exempt Commercial Paper, 3.6%, 10/10/96 ...................................... 1,000,000 MIG1 1,000,000
Orlando, FL, Wastewater Systems Revenue, Series 1990 A, Tax Exempt
Commercial Paper, 3.5%, 11/19/96 ................................................. 2,000,000 A-1+ 2,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric, Cooperative
Finance Corp., Series 1984 H-1, Weekly Demand Note, 3.4%, 3/15/14* ............... 4,250,000 A-1+ 4,250,000
Sarasota County, FL, Public Hospital District, Sarasota Memorial, Series 1985 A
Tax Exempt Commercial Paper, 3.6%, 10/18/96 ...................................... 2,500,000 P1 2,500,000
GEORGIA
Gordon County, GA, Industrial Development Authority Revenue, Sara Lee Corp.
Project, Series 1989, Weekly Demand Note, 3.85%, 3/1/02* ......................... 1,400,000 A-1+ 1,400,000
INDIANA
City of Sullivan, IN, National Rural Utilities Cooperative Finance Corp.,
Hoosier Energy Rural Electric, Tax Exempt Commercial Paper, 3.5%, 11/21/96 ........ 2,000,000 A-1+ 2,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
31
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Principle Credit
Amount($) Rating(b) Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hoosier City of Sullivan, IN, Cooperative Finance Corporation, Series, 1985 L4,
Tax Exempt Commercial Paper, 3.55%, 10/8/96 ...................................... 2,200,000 A-1+ 2,200,000
IOWA
Iowa School Corporation Warrant Certificates, Iowa Schools Cash Anticipation
Program, Series B, 4.25%, 1/30/97(c) ............................................. 1,750,000 SP1+ 1,754,764
West Des Moines, IA, Commercial Development Revenue, Greyhound Lines,
Weekly Demand Note, 3.8%, 12/1/14* ............................................... 6,400,000 A-1+ 6,400,000
KENTUCKY
Kentucky Development Finance Authority, Health Care System, Appalachian
Regional Health Care, Series 1991, Weekly Demand Note, 3.85%, 9/1/06* ............ 6,800,000 MIG1 6,800,000
MARYLAND
Ann Arrundel County, MD, Baltimore Electric & Gas Company, Tax Exempt
Commercial Paper, 3.65%, 12/10/96 ................................................ 900,000 A-1 900,000
MASSACHUSETTS
Massachusetts Bay Transportation Authority, MA, Series B, 4.75%, 9/5/97 ........... 2,000,000 SP-1 2,014,284
MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982,
Weekly Demand Note, 3.79%, 8/1/12* ............................................... 300,000 A-1+ 300,000
MISSISSIPPI
Jackson County, MS, Pollution Control Revenue Refunding, Chevron USA Project,
Series 1993, Daily Demand Note 3.7%, 6/1/23* ..................................... 900,000 P1 900,000
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 HEFA School District Advance Funding Note, Series 1996 C, Kansas City
School District, 4.5%, 9/8/97 .................................................... 1,000,000 SP1+ 1,005,416
NEVADA
Clark County, NV, Airport System, McCarran International Airport, Series A,
Weekly Demand Note, 3.8%, 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, 3.9%, 12/1/22* ............................................... 1,700,000 A-1+ 1,700,000
NEW MEXICO
Albuquerque, NM, Gross Receipts/Lodger's Tax, Series 19991 A, Weekly Demand
Note, 3.9%, 7/1/22* .............................................................. 2,000,000 A-1+ 2,000,000
Farmington, NM, Pollution Control Revenue, Arizona Public Service Co.,
Series 1994 B, Daily Demand Note, 3.75%, 9/1/24* ................................. 300,000 P1 300,000
NEW YORK
New York State Energy Research & Development Authority, Pollution Control,
NYS Electric and Gas, Daily Demand Note, 3.75%, 6/1/29* .......................... 500,000 A-1+ 500,000
New York Municipal Water Authority, Series 1994 G, 3.75%, 6/15/24*(c) ............. 350,000 MIG1 350,000
New York City General Obligation, Series 1994 H-3, Tax Exempt
Commercial Paper, 3.75%, 11/12/96(c) ............................................. 1,000,000 A-1+ 1,000,000
New York City, NY, General Obligation, Series A-4, Daily Demand Note,
4%, 8/1/22* ...................................................................... 900,000 MIG1 900,000
PENNSYLVANIA
Allegheny County, PA, General Obligation, Tender Option Bond, Weekly Demand
Note, Series C38, 3.9%, 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, 3.95%, 3/1/24* ................................ 1,800,000 A-1 1,800,000
1989 Series E-6, Weekly Demand Note, 3.95%, 3/1/24* .............................. 2,000,000 A-1+ 2,000,000
1989 Series E-8, Weekly Demand Note, 3.95%, 3/1/24* .............................. 1,200,000 A-1+ 1,200,000
</TABLE>
The accompanying notes are an integral part of the financial statements
32
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Principle Credit
Amount($) Rating(b) Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Langhorne, PA, Franciscan Health System Pooled Financing, Saint Mary Hospital
Authority, Series A, Daily Demand Note, 3.85%, 12/1/24* .......................... 200,000 A-1+ 200,000
Philadelphia, PA, Tax and Revenue Anticipation Notes, Series 1996 A, 4.5%,
6/30/97 .......................................................................... 2,000,000 MIG1 2,007,874
Philadelphia, PA, School District, Tax and Revenue Anticipation Notes,
Series 1996-1997, 4.5%, 6/30/97 .................................................. 3,000,000 SP1 3,010,763
TENNESSEE
Franklin, TN, Industrial Development Revenue, Franklin Oaks Apartments,
Weekly Demand Note, 3.65%, 12/1/07* .............................................. 5,000,000 MIG1 5,000,000
TEXAS
Brazos, TX, Harbor Institutional Project, Series 1986, Tax Exempt
Commercial Paper, 3.6%, 10/9/96 .................................................. 960,000 A-1 960,000
Grapevine, TX, Industrial Development Corp., American Airlines, Series B2
Daily Demand Note, 3.9%, 12/1/24* ................................................ 500,000 P1 500,000
Grapevine, TX, Industrial Development Corp., American Airlines, Series B4,
Daily Demand Note, 3.9%, 12/1/24* ................................................ 600,000 P1 600,000
Harris County, TX, Tax Anticipation Notes, Series 1996, 4.5%, 2/28/97 ............. 1,000,000 MIG1 1,002,973
Lone Star, TX, Airport Improvement Authority, 1995 Series A-3, Daily Demand
Note, 3.9%, 12/1/14* ............................................................. 200,000 MIG1 200,000
San Antonio, TX, Electric and Gas, City Public Services, Series 1995 A, Tax Exempt
Commercial Paper, 3.1%, 10/25/96 ................................................. 1,500,000 A-1+ 1,500,000
Texas General Obligation, Veterans Housing Assistance Refunding Bonds,
Series 1995, Weekly Demand Note, 3.8%, 12/1/16* .................................. 1,500,000 A-1+ 1,500,000
State of Texas, Tax and Revenue Anticipation Notes, Series 1996, 4.75%, 8/29/97 ... 2,000,000 SP1+ 2,014,612
UTAH
Salt Lake City UT, Pooled Hospital Financing, Tax Exempt Commercial Paper,
3.5%, 10/15/96 ................................................................... 1,000,000 A-1+ 1,000,000
VERMONT
Vermont Educational and Health Buildings Financing Agency, Revenue
Capital Asset Financing, Series 2005 A, 3.8%, 8/1/05* ............................ 3,600,000 MIG1 3,600,000
WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note,
3.9%, 11/1/18* ................................................................... 1,900,000 A-1+ 1,900,000
Washington Health Care Facilities Authority:
Sisters of Providence, Series 1985-E, Daily Demand Note, 3.75%, 10/1/05* ......... 1,000,000 A-1+ 1,000,000
Yakima Valley Memorial Hospital Association, Series 1996, 3.6%, 12/1/96 .......... 800,000 AAA 800,000
WISCONSIN
Milwaukee, WI, Promissory Notes, General Obligation, Series 1996 B-6,
3.8%, 2/15/97 .................................................................... 1,495,000 AA 1,498,545
WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding, Pacificorp Project,
Series 1990 A, Weekly Demand Note, 3.8%, 7/1/15* ................................. 2,000,000 MIG1 2,000,000
-----------
TOTAL MUNICIPAL INVESTMENTS (COST $110,537,355) ................................... 110,537,355
-----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $110,537,355)(a) .................... 99.3 110,537,355
OTHER ASSETS AND LIABILITIES, NET .................................... 0.7 727,373
----- -----------
NET ASSETS ........................................................... 100.0 111,264,728
===== ===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
33
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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 September 30, 1996, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $110,631,317 was as
follows:
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... $(93,962)
========
(b) (Unaudited) 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) (Unaudited) Bond is insured by one of these companies: AMBAC, FGIC, FSA,
or MBIA.
- --------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the
Fund had capital loss carryforwards of approximately $608,379 of which
$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, $5,140 expires September 30, 2004. In
addition, from November 1, 1995 through September 30, 1996, the Fund
incurred approximately $217,594 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
34
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- ----------------------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.5%
- ----------------------------------------------------------------------------------------------------------------------
26,622,000 Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 9/30/96 at 5.70%
to be repurchased at $26,626,215 on 10/1/96, collateralized by a $27,114,000
U.S. Treasury Note, 6.125%, 9/30/00, (COST $26,622,000) ...................... 26,622,000
-------------
- ----------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 33.1%
- ----------------------------------------------------------------------------------------------------------------------
150,000,000 U.S. Treasury Note, 5.625%, 10/31/97 ............................................ 149,649,000
300,000,000 U.S. Treasury Note, 5.25%, 12/31/97 ............................................. 297,609,000
175,000,000 U.S. Treasury Note, 6.125%, 5/15/98 ............................................. 175,218,750
200,000,000 U.S. Treasury Note, 5.0%, 1/31/99 ............................................... 194,938,000
250,000,000 U.S. Treasury Note, 5.50%, 2/28/99 .............................................. 246,132,500
200,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ............................................. 202,968,000
360,000,000 U.S. Treasury Note, 6.0%, 8/15/99 ............................................... 357,469,200
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $1,630,584,011) ........................... 1,623,984,450
-------------
- ----------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 65.9%
- ----------------------------------------------------------------------------------------------------------------------
618,529,061 6.50% with various maturities to 5/15/26 ........................................ 580,354,367
673,093,309 7.00% with various maturities to 7/15/25 ........................................ 651,628,516
207,213,441 7.50% with various maturities to 6/15/26 ........................................ 205,020,978
188,611,417 8.00% with various maturities to 11/15/23 ....................................... 191,260,566
444,138,044 8.50% with various maturities to 9/15/26 ........................................ 458,101,856
496,933,743 9.00% with various maturities to 4/15/26 ........................................ 525,485,170
299,492,348 9.50% with various maturities to 9/15/24 ........................................ 322,676,078
227,243,557 10.00% with various maturities to 12/15/24 ...................................... 248,342,764
141,203 10.25% with a maturity of 12/15/98 .............................................. 148,087
19,246,842 10.50% with various maturities to 1/20/21 ....................................... 21,319,891
4,025,582 11.50% with various maturities to 2/15/16 ....................................... 4,593,671
7,952,389 12.00% with various maturities to 7/15/15 ....................................... 9,258,471
6,109,038 12.50% with various maturities to 8/15/15 ....................................... 7,171,566
1,441,856 13.00% with various maturities to 8/20/15 ....................................... 1,707,313
865,092 13.50% with various maturities to 10/15/14 ...................................... 1,041,010
331,829 14.00% with various maturities to 12/15/14 ...................................... 404,767
95,793 14.50% with a maturity of 10/15/14 .............................................. 118,214
237,143 15.00% with various maturities to 10/15/12 ...................................... 292,642
276,833 16.00% with a maturity of 2/15/12 ............................................... 344,458
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COST $3,225,098,366) ......................................................... 3,229,270,385
-------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $4,882,304,377)(a) ................ 99.5 4,879,876,835
OTHER ASSETS AND LIABILITIES, NET .................................. 0.5 24,563,009
----- -------------
NET ASSETS ......................................................... 100.0 4,904,439,844
===== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
35
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
<TABLE>
(a) At September 30, 1996, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $4,882,304,377 was as
follows:
<CAPTION>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 33,904,328
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (36,331,870)
------------
Net unrealized depreciation ............................... $ (2,427,542)
============
</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 the year ended September 30, 1996, aggregated
$5,937,809,268 and $4,285,162,696, respectively.
- --------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the
Fund had capital loss carryforwards of approximately $322,435,519 all of
which expires September 30, 2003.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
36
<PAGE>
AARP HIGH QUALITY BOND FUND
<TABLE>
- ----------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- ----------------------------------------------------------------------------------------------
<CAPTION>
Principal Market
Amount($) Value($)
- ----------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 9.7%
- ----------------------------------------------------------------------------------------------
27,994,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 9/30/96 at 5.7% to be repurchased at
$27,998,432 on 10/1/96 collateralized by a
$26,773,000 U.S. Treasury Note, 7.75%, 1/31/00 ............... 27,994,000
21,940,000 Repurchase Agreement with State Street Bank dated
9/30/96 at 5.3% to be repurchased at $21,943,230
on 10/1/96 collateralized by a $22,233,000 U.S.
Treasury Note, 6%, 8/31/97 ................................... 21,940,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $49,934,000) ................. 49,934,000
-----------
- ----------------------------------------------------------------------------------------------
SHORT-TERM NOTES 7.6%
- ----------------------------------------------------------------------------------------------
20,000,000 Federal Farm Credit Bank, 4.63%, 10/9/96 ....................... 19,976,889
19,000,000 Federal Home Loan Bank, 2.59%, 10/2/96 ......................... 18,997,271
-----------
TOTAL SHORT-TERM NOTES (COST $38,974,160) ...................... 38,974,160
-----------
- ----------------------------------------------------------------------------------------------
COMMERCIAL PAPER 3.9%
- ----------------------------------------------------------------------------------------------
20,000,000 Associates Corp. of North America, 5.21%, 10/29/96
(COST $19,916,000) ........................................... 19,916,000
-----------
- ----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 25.9%
- ----------------------------------------------------------------------------------------------
40,000,000 U.S. Treasury Note, 5.75%, 10/31/97 (c) ........................ 39,962,400
30,000,000 U.S. Treasury Note, 6.75%, 5/31/99 (c) ......................... 30,360,900
12,500,000 U.S. Treasury Note, 6.875%, 7/31/99 ............................ 12,685,500
25,000,000 U.S. Treasury Note, 5.75%, 8/15/03 ............................. 23,847,750
25,000,000 U.S. Treasury Note, 7.25%, 8/15/04 (c) ......................... 25,898,500
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $133,291,993) ............ 132,755,050
-----------
- ----------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY PASS-THRUS* 19.9%
- ----------------------------------------------------------------------------------------------
10,122,945 Federal Home Loan Mortgage Corp., 8%, 4/1/08 ................... 10,355,570
6,576,814 Federal National Mortgage Association, 8%, 5/1/07 .............. 6,725,910
9,025,211 Federal National Mortgage Association, 8.5%, 11/1/09 ........... 9,372,049
8,718,803 Federal National Mortgage Association, 8%, 12/1/09 ............. 8,916,459
6,822,599 Federal National Mortgage Association, 6.5%, 10/1/25 ........... 6,413,243
24,106,730 Federal National Mortgage Association, 6.5%, 11/1/25 ........... 22,660,327
2,440,099 Federal National Mortgage Association, 6.5%, 11/1/25 ........... 2,291,400
2,381,781 Federal National Mortgage Association, 6.5%, 11/1/25 ........... 2,238,875
32,000,000 Federal National Mortgage Association, 8.5%, TBA (b) ........... 32,819,840
-----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS (COST $103,052,596) .... 101,793,673
-----------
- ----------------------------------------------------------------------------------------------
FOREIGN BONDS - U.S.$ DENOMINATED 5.5%
- ----------------------------------------------------------------------------------------------
15,000,000 Abbey National PLC Global Medium Term Note, 6.69%, 10/17/05 .... 14,441,250
15,000,000 Province of Ontario Global, 6%, 2/21/06 ........................ 13,829,100
-----------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $29,928,700) ..... 28,270,350
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
37
<PAGE>
AARP HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
Principal Market
Amount($) Value($)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
ASSET BACKED 5.4%
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
HOME EQUITY LOANS 4.5%
22,727,121 The Money Store Inc. Home Equity Trust Series
1996-B A1, 6.72%, 3/15/10 ................................... 22,762,632
MANUFACTURED HOUSING 0.9%
4,500,000 Merrill Lynch Mortgage Investors Inc., "B", Series
1991-D, 9.85%, 7/15/11 ...................................... 4,734,810
-----------
TOTAL ASSET BACKED (COST $27,186,340) ......................... 27,497,442
-----------
- ----------------------------------------------------------------------------------------------
CORPORATE BONDS 24.0%
- ----------------------------------------------------------------------------------------------
CONSUMER STAPLES 3.2%
15,000,000 Coca Cola Enterprises, Inc., 8.5%, 2/1/22 ..................... 16,362,450
-----------
FINANCIAL 9.9%
1,500,000 American Express Credit Corp., 11.625%, 12/12/00 .............. 1,606,875
15,000,000 Associates Corp. of North America, 6.625%, 5/15/01 ............ 14,849,400
7,550,000 BankAmerica Corp., 7.125%, 5/1/06 ............................. 7,431,465
20,000,000 Fleet Financial Group Inc., 6%, 10/26/98 ...................... 19,842,400
7,450,000 Wells Fargo & Co., 6.875%, 4/1/06 ............................. 7,193,869
-----------
50,924,009
-----------
TECHNOLOGY 2.7%
15,000,000 In-ternational Business Machines Corp., 7%, 10/30/45 .......... 13,704,600
-----------
ENERGY 6.4%
15,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 ........................ 17,619,000
15,000,000 Norsk Hydro AS, 7.75%, 6/15/23 ................................ 14,919,300
-----------
32,538,300
-----------
UTILITIES 1.8%
10,000,000 Public Service Electric & Gas Co. 1st Refunding
Mortgage, 6.25%, 1/1/07 ..................................... 9,145,800
-----------
TOTAL CORPORATE BONDS (COST $124,101,989) ..................... 122,675,159
-----------
- ----------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $526,385,778) (a) ... 101.9 521,815,834
OTHER ASSETS AND LIABILITIES, NET .................... (1.9) (9,910,668)
----- -----------
NET ASSETS ........................................... 100.0 511,905,166
===== ===========
- ----------------------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
TBA To be announced
<CAPTION>
<S> <C>
(a) At September 30, 1996, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $526,385,778 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ....................................... $ 1,610,998
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ....................................... (6,180,942)
-----------
Net unrealized depreciation ............................................... $(4,569,944)
===========
(b) Security purchased on a when-issued basis (See Note 1 of Notes to the Financial Statements).
</TABLE>
The accompanying notes are an integral part of the financial statements
38
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(c) At September 30, 1996, these securities, in whole or in part, have been
segregated to cover when-issued securities.
- -------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
year ended September 30, 1996 was $2,745,543,197 and $2,745,543,197,
respectively.
- -------------------------------------------------------------------------------
For the year ended September 30, 1996, purchases and sales of investment
securities (excluding short-term and U.S. Government obligations and U.S.
Government agencies) aggregated $135,968,590 and $74,784,828, respectively.
Purchases and sales of U.S. Government obligations and U.S. Government
Agencies aggregated $639,930,969 and $725,671,135, respectively. In
addition, the Fund wrote and closed options on U.S. Treasury Bonds
(premiums received $268,688).
- -------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the Fund
had a capital loss carryforward of approximately $7,897,530 which expires
September 30, 2003. In addition, from November 1, 1995 through September
30, 1996, the Fund incurred approximately $860,534 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in the
fiscal year ended September 30, 1997.
- -------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
39
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
- -------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS (Under 1 year) - 6.6%
- -------------------------------------------------------------------------------------------------------------
ALABAMA
Phoenix City, AL, Industrial Development Bond, Mead Coated
Board Project, Daily Demand Note, 4.1%, 10/1/25* ....................... 3,100,000 A1 3,100,000
CALIFORNIA
San Diego County, California, Water Authority, Certificate of Participation:
5.632%, 4/25/07*(c) .................................................... 6,300,000 AAA 6,481,629
5.681%, 4/22/09*(c) .................................................... 4,500,000 AAA 4,605,795
DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Refunding Bonds,
Series A6, Daily Demand Note, 4.1%, 10/1/07* ........................... 400,000 A 400,000
FLORIDA
Halifax Hospital Medical Center, FL, Hospital Revenue, Auction
Reset Security, Series A, 3.7%, 10/1/19*(c) ............................ 11,000,000 AAA 11,000,000
Volusia County, FL, Health Facility Authority Revenue Health
FAC-S Alliance Community, Variable Rate Demand Note, 4%, 9/1/20* ....... 1,000,000 A1+ 1,000,000
ILLINOIS
Illinois Educational Facilities Authority, University Pooled
Finance Program, Weekly Demand Note, 3.9%, 12/1/05*(c) ................. 5,000,000 MIG1 5,000,000
Illinois Health Facilities Authority, Rush Presbyterian St.
Luke's Hospital, Tax Exempt Commercial Paper,
Series 1989, 3.5%, 10/22/96 ............................................ 1,100,000 A1+ 1,100,000
INDIANA
Trustees of Purdue University Student Fee Revenue Bonds,
Series 1995K, Weekly Demand Bond, 3.8%, 7/1/20* ........................ 5,000,000 MIG1 5,000,000
KANSAS
Burlington, KS, Environmental Improvement Revenue, Kansas City
Power & Light, Municipal Auction Security,
Series B, 3.64%, 12/1/23* .............................................. 16,000,000 A 16,000,000
MASSACHUSETTS
Massachusetts Education Loan Authority Revenues, Issue E,
Series 1996A, Weekly Demand Note, 3.8%, 7/1/14* ........................ 1,000,000 A1+ 1,000,000
Massachusetts Health & Educational Facilities Authority, Capital
Asset Program:
Series 1989G-1, Weekly Demand Note, 3.7%, 1/1/19*(c) ................... 800,000 AAA 800,000
Series D, Weekly Demand Note, 3.75%, 1/1/35*(c) ........................ 100,000 SP1+ 100,000
Massachusetts Industrial Finance Agency, Resource Recovery,
Ogden Haverhill Project, Weekly Demand Note, 3.8%, 12/1/06* ............ 1,600,000 MIG1 1,600,000
Massachusetts State Health and Educational Facilities,
Boston University, Select Auction Variable Rate
Securities, 3.53%, 10/1/31*(c) ......................................... 1,000,000 AAA 1,000,000
MICHIGAN
Grand Rapids, MI, Water Supply Revenue Bonds, Series 1993,
Weekly Demand Note, 3.7%, 1/1/20*(c) .................................. 3,000,000 MIG1 3,000,000
NEW YORK
New York City Municipal Water Finance Authority, Series 1994G
Variable Rate Demand Note, 3.75%, 6/15/24*(c) ......................... 300,000 MIG1 300,000
New York City, NY, General Obligation, Unlimited Tax
Series A4, 3.9%, 8/1/21* .............................................. 7,600,000 MIG1 7,600,000
New York State Energy, Brooklyn Union Gas, Select Auction
Variable Rate Securities, 3.59%, 4/1/20* .............................. 10,000,000 A 10,000,000
New York State General Obligation, Tax Exempt Commercial Paper,
Series R, 3.45%, 10/9/96 .............................................. 4,000,000 A 4,000,000
NORTH CAROLINA
Durham, NC, General Obligation, Variable Rate
Demand Note, 3.8%, 2/1/12* ............................................ 100,000 A1 100,000
</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>
OHIO
Cuyahoga County, OH, Health & Education, University Hospital
of Cleveland, Daily Demand Note, 3.95%, 1/1/16* ........................ 1,300,000 MIG1 1,300,000
PENNSYLVANIA
Philadelphia, PA, Hospital and Higher Education Facilities Authority, Daily
Demand Note, 4%, 3/1/27* .................................................. 5,300,000 A1+ 5,300,000
PUERTO RICO
Puerto Rico, Series 1996, Variable Rate Demand Bond, 3.65%, 7/1/01*(c) .... 3,000,000 AAA 3,000,000
SOUTH CAROLINA
Charleston, SC, Industrial Refunding Revenue Bonds, Massey Coal
Terminal, Daily Demand Bond, 3.75%, 1/1/07* ............................ 450,000 P1 450,000
TEXAS
Grapevine, TX, Industrial Development Authority Corp., Series A4,
Daily Demand Note, 3.9%, 12/1/24* ...................................... 1,700,000 P1 1,700,000
UTAH
Intermountain Power Agency, UT, Power Supply Revenue,
Series 1993, 5.55%, 7/1/11* ............................................ 7,000,000 AAA 6,760,250
VIRGINIA
Peninsula Port Authority, VA, Shell Oil, Daily
Demand Note, 3.75%, 12/1/05* ........................................... 3,600,000 SS&C 3,600,000
Winchester County, VA, Industrial Development Authority,
Hospital Revenue, 6.3%, 1/1/15*(c) ..................................... 5,700,000 AAA 5,432,442
WASHINGTON
Tacoma, WA, Electric System Revenue, 6.51%, 1/2/15*(c) .................... 6,000,000 AAA 6,268,620
-----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (COST $116,519,925) ................ 116,998,736
-----------
- -------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS (Over 1 year) - 92.5%
- -------------------------------------------------------------------------------------------------------------
ALASKA
Alaska State Housing Finance Corp., Veterans Mortgage, First
Program, Series F, GNMA Collateralized, 8.1%, 9/1/20 ................... 4,340,000 AAA 4,455,227
Anchorage, AK, Electric Utility Revenue, Senior Lien, 6.5%, 12/1/07 (c) ... 2,620,000 AAA 2,910,296
North Slope Borough, AK, General Obligation:
Capital Appreciation, Series A, Zero Coupon, 6/30/06 (c) .............. 4,000,000 AAA 2,343,360
Capital Appreciation, Series B, Zero Coupon:
6/30/05 (c) ........................................................ 25,600,000 AAA 15,978,496
6/30/04 (c) ........................................................ 15,500,000 AAA 10,287,350
Series B, Zero Coupon, 1/1/03 (c) ..................................... 16,000,000 AAA 11,557,440
ARIZONA
Arizona State, Municipal Finance Program, Certificate of
Participation, Series 25, 7.875%, 8/1/14 (c) .......................... 3,500,000 AAA 4,436,740
Maricopa County, AZ:
School District #28, Kyrene Elementary,
Series B, Zero Coupon, 1/1/04(c) .................................. 6,000,000 AAA 4,152,360
School District #6, Washington Elementary,
Series B, 4.1%, 7/1/13 (c) ........................................ 2,950,000 AAA 2,443,574
Unified School District #41, Gilbert School,
Zero Coupon, 1/1/05 (c) ........................................... 5,280,000 AAA 3,445,411
Unified School District #68, Alhambra Elementary,
Zero Coupon, 7/1/05 (c) ........................................... 2,850,000 AAA 1,812,258
Scottsdale, AZ, Industrial Development Authority, Scottsdale Memorial
Hospital, 8.5%, 9/1/17 (c) ........................................ 1,050,000 AAA 1,114,050
CALIFORNIA
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/09 .................................................... 10,415,000 AAA 10,385,734
Banning, CA, Water System, Certificate of Participation, 8%, 1/1/19 (c) ... 960,000 AAA 1,245,053
Banning, CA, Wastewater, Certificate of Participation, 8%, 1/1/19 (c) ..... 1,080,000 AAA 1,400,684
</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>
Big Bear Lake, California Department of Water and Power, Series 1996,
6%, 4/1/11 (c) .................................................... 3,800,000 AAA 4,015,498
State of California, General Obligation, 6.4%, 2/1/06 (c) ................. 4,500,000 AAA 4,936,860
California Housing Finance Agency Revenue, 5.7%, 8/1/16 ................... 7,210,000 AAA 7,083,392
California Housing Finance Authority Revenue, 5.3%, 8/1/14 (c) ............ 4,000,000 AAA 4,002,120
California State Public Works Board, Lease Revenue,
Series A, 6.3%, 12/1/06 (c) ........................................... 8,095,000 AAA 8,918,504
Irvine Ranch, California Water District, Joint Powers Agency
Local Pool Revenue, 7.875%, 2/15/23 ................................... 3,000,000 AA 3,128,820
Los Angeles County, CA, Convention & Exhibition Center Authority,
Certificate of Participation:
Zero Coupon, 8/15/02 (c) ......................................... 5,000,000 AAA 3,738,650
Zero Coupon, 8/15/03 (c) ......................................... 6,270,000 AAA 4,435,085
Los Angeles County, CA, Public Works Financing Authority Lease Revenue,
Series 1996B, 5.25%, 9/1/11 (c) ................................... 3,000,000 AAA 2,921,220
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/06 (c) ............ 9,000,000 AAA 9,702,450
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue,
Multiple Projects IV, 4.75%, 12/1/10 (c) .......................... 11,140,000 AAA 10,201,009
Madera, CA, Certificates of Participation, Valley Children's
Hospital Project, Series 1995, 6.5%, 3/15/10 (c) ...................... 2,840,000 AAA 3,127,408
Oakland, CA, Redevelopment Agency, Tax Allocation, Central District,
6%, 2/1/07 (c) ........................................................ 2,000,000 AAA 2,138,080
Riverside, CA, Transportation Commission, Sales Tax Revenue:
Series A, 5.7%, 6/1/06 (c) ............................................ 5,400,000 AAA 5,648,670
Series A, 5.75%, 6/1/07 (c) ........................................... 3,000,000 AAA 3,146,100
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax,
Revenue Refunding, 6.75%, 7/1/10 (c) .................................. 2,000,000 AAA 2,263,660
San Joaquin, CA, Certificates of Participation, County Public
Facilities Project, 5.5%, 11/15/13 (c) ................................ 2,000,000 AAA 1,997,660
Sweetwater, CA, Water Revenue, 5.25%, 4/1/10 (c) .......................... 13,240,000 AAA 13,051,330
Three Valleys, CA, Municipal Water District, Certificates
of Participation, 5%, 11/1/14 (c) ..................................... 3,000,000 AAA 2,774,310
Whittier, CA, Presbyterian Intercommunity Hospital, Health
Facilities Revenue, 6.25%, 6/1/08 (c) ................................. 1,780,000 AAA 1,936,943
COLORADO
Castle Rock Ranch Colorado Public Improvements Authority,
Public Facilities Revenue:
Series 1996, 6.3%, 12/1/07 ......................................... 3,115,000 AA 3,286,014
Series 1996, 6.4%, 12/1/08 ......................................... 3,310,000 AA 3,502,079
Series 1996, 6.375%, 12/1/11 ....................................... 2,000,000 AA 2,088,020
CONNECTICUT
Connecticut Resource Recovery Authority:
Series 1996, 6.25%, 11/15/05 (c) ...................................... 2,000,000 AAA 2,166,000
Series 1996A, 6.25%, 11/15/06 (c) ..................................... 4,525,000 AAA 4,895,009
Connecticut State Housing Authority, Housing Mortgage
Finance Program, Series 1992B, 6.15%, 11/15/04 ........................ 5,000,000 AA 5,194,000
DISTRICT OF COLUMBIA
District of Columbia, General Obligation:
Series A1, 6.5%, 6/1/10 (c) ........................................... 2,270,000 AAA 2,483,630
Refunding, 1993 Series A, 5.875%, 6/1/05 (c) .......................... 4,750,000 AAA 4,924,135
Series A, Prerefunded 6/1/99 at 102, 7.5%, 6/1/09***(c) ............... 5,000,000 AAA 5,481,600
Series B, Zero Coupon, 6/1/00 (c) ..................................... 3,500,000 AAA 2,929,325
Series B, 6.125%, 6/1/03 (c) .......................................... 4,000,000 AAA 4,219,760
Series B, 5.4%, 6/1/06 (c) ............................................ 18,905,000 AAA 18,861,329
Series B3, 5.4%, 6/1/06 (c) ........................................... 10,000,000 AAA 9,976,900
</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>
Series B, 5.5%, 6/1/07 (c) ............................................. 25,000,000 AAA 25,058,000
Series B, 5.5%, 6/1/08 (c) ............................................. 21,300,000 AAA 21,279,978
Series B, 5.5%, 6/1/09 (c) ............................................. 15,150,000 AAA 15,039,708
Series B, 5.5%, 6/1/09 (c) ............................................. 2,840,000 AAA 2,819,325
Series B, 5.5%, 6/1/10 (c) ............................................. 15,590,000 AAA 15,382,653
Series B, 5.5%, 6/1/12 (c) ............................................. 1,050,000 AAA 1,024,097
District of Columbia, Georgetown University, Series B, 7.1%, 4/1/12 ....... 3,000,000 AAA 3,202,440
FLORIDA
Florida State Department of Natural Resources, Preservation 2000-A,
4.75%, 7/1/12 (c) ...................................................... 10,000,000 AAA 9,039,400
Florida Municipal Power Agency, Stanton II Project, Refunding
Revenue Bonds, Series 1993, 4.5%, 10/1/16 (c) .......................... 4,400,000 AAA 3,732,652
Orange County, FL, Health Facilities Authority Refunding Program,
Series A, 7.875%, 12/1/25 (c) .......................................... 16,830,000 AAA 17,545,107
Sarasota County, FL, School Board Finance Corp., Lease Revenue,
Refunding, 5%, 7/1/09 (c) .............................................. 5,595,000 AAA 5,355,366
GEORGIA
Cobb County, GA, Kennestone Hospital Authority,
Series A, 5.625%, 4/1/11 (c) ........................................... 5,305,000 AAA 5,370,676
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/11 (c) ................................... 8,225,000 AAA 8,074,894
Municipal Electric Authority of Georgia, 5th Crossover,
Project #1, 6.4%, 1/1/13 (c) ........................................... 3,500,000 AAA 3,807,615
ILLINOIS
Central Lake County, IL, Joint Action Water Agency,
Refunding Revenue, Zero Coupon, 5/1/02 (c) ............................. 2,245,000 AAA 1,698,185
Chicago O'Hare International Airport, IL, Refunding Revenue:
Series 1996A, Passenger Facilities Charge, 6%, 1/1/06 (c) .............. 2,000,000 AAA 2,104,140
Series C, 5%, 1/1/11 (c) ............................................... 6,500,000 AAA 6,071,520
Chicago, IL, Board of Education, Certificate of Participation,
Series 1992A, Non Callable, 6.125% 1/1/06 (c) .......................... 4,000,000 AAA 4,268,640
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/09 (c) ....................................................... 11,990,000 AAA 12,010,023
5.5%, 1/1/10 (c) ....................................................... 7,220,000 AAA 7,212,563
Chicago, IL, General Obligation:
6.25%, 1/1/11 (c) ...................................................... 3,000,000 AAA 3,201,600
Series A, 5.375%, 1/1/13 (c) ........................................... 15,410,000 AAA 15,009,648
Series B, 5%, 1/1/08 (c) ............................................... 3,485,000 AAA 3,374,003
Series B, 5%, 1/1/10 (c) ............................................... 5,200,000 AAA 4,910,360
Series B, 5%, 1/1/11 ................................................... 1,620,000 AAA 1,528,324
Series B, 5%, 1/1/12 (c) ............................................... 5,000,000 AAA 4,679,950
Series B, 5.125%, 1/1/15 (c)(d) ........................................ 9,550,000 AAA 8,993,044
Emergency Telephone System, 5.55%, 1/1/08 .............................. 5,820,000 AAA 5,898,279
Chicago, IL, General Obligation Lease, Board of Education:
Series 1996, 6.25%, 12/1/11 (c) ........................................ 1,600,000 AAA 1,711,984
Series A, 6.25%, 1/1/15 (c) ............................................ 23,000,000 AAA 24,583,780
Series A, 6.25%, 1/1/10 (c) ............................................ 11,550,000 AAA 12,345,218
Series A 6%, 1/1/16 (c) ................................................ 11,025,000 AAA 11,473,166
Series A, 6%, 1/1/20 (c)(d) ............................................ 36,625,000 AAA 38,027,005
Chicago, IL, Motor Fuel Tax Revenue, Prerefunded 1/1/01 at
100, 6.5%, 1/1/16***(c) ................................................ 2,000,000 AAA 2,138,720
Chicago, IL, Public Building Commission, Building Revenue:
Series A, 5.25%, 12/1/07 (c) ........................................... 3,500,000 AAA 3,482,220
Series A, 5.25%, 12/1/09 (c) ........................................... 10,420,000 AAA 10,158,250
</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>
Series A, 5.25%, 12/1/11 (c) ........................................... 9,705,000 AAA 9,331,358
Series A, Zero Coupon, 1/1/06 (c) 2,430,000 AAA 1,478,849
Cook & Dupage Counties, Illinois High School District Number 210, Zero Coupon:
12/1/07 (c) ............................................................ 2,550,000 AAA 1,385,033
12/1/08 (c) ............................................................ 2,625,000 AAA 1,334,051
12/1/09 (c) ............................................................ 2,860,000 AAA 1,357,356
Cook County, IL, General Obligation:
Zero Coupon, 11/1/04 (c) ............................................... 3,205,000 AAA 2,132,928
Series C, 6%, 11/15/07 (c) ............................................. 5,000,000 AAA 5,334,350
Decatur, IL, General Obligation, Series 1991:
Zero Coupon, 10/1/03 (c) ............................................... 1,455,000 AAA 1,019,111
Zero Coupon, 10/1/04 (c) ............................................... 1,415,000 AAA 935,372
Decatur, IL, Public Building Commission, Certificate of Participation:
6.5%, 1/1/03 (c) ....................................................... 1,725,000 AAA 1,871,936
6.5%, 1/1/06 (c) ....................................................... 1,500,000 AAA 1,641,630
Evergreen Park, Illinois Hospital Facilities, Little County
Mary's Hospital, 7.75%, 2/15/09 (c) .................................... 2,935,000 AAA 3,120,257
Illinois State, Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/11 (c) .................................................... 3,000,000 AAA 3,229,530
6.25%, 12/15/20 (c) .................................................... 6,975,000 AAA 7,493,801
Series A, 6.5%, 12/15/07 ............................................... 4,765,000 AAA 5,285,719
Series A, 6.5%, 12/15/08 (c) ........................................... 5,255,000 AAA 5,816,024
Illinois Educational Facilities Authority, Loyola University:
Zero Coupon, 7/1/05 (c) ................................................ 4,000,000 AAA 2,521,920
Revenue Refunding, Series 1991A, Zero Coupon, 7/1/04 (c) ............... 2,860,000 AAA 1,915,170
Illinois Health Facilities Authority:
Brokaw-Mennonite Healthcare:
6%, 8/15/06 (c) .................................................... 1,380,000 AAA 1,450,187
6%, 8/15/07 (c) .................................................... 1,460,000 AAA 1,526,342
6%, 8/15/08 (c) .................................................... 1,550,000 AAA 1,611,318
6%, 8/15/09 (c) .................................................... 1,640,000 AAA 1,694,924
Children's Memorial Hospital, 6.25%, 8/15/13 (c) ....................... 3,400,000 AAA 3,593,120
Felician Healthcare Inc., Series A, 6.25%, 1/1/15 (c) .................. 17,000,000 AAA 18,050,430
Memorial Medical Center, 6.75%, 10/1/11 (c) ............................ 2,135,000 AAA 2,311,351
Methodist Health Service, Series 1985G, 8%, 8/1/15 (c) ................. 10,015,000 AAA 11,025,614
Sherman Hospital, 6.75%, 8/1/11 (c) .................................... 2,700,000 AAA 2,960,172
SSM Healthcare System, Series AA, 6.4%, 6/1/08 (c) ..................... 1,350,000 AAA 1,474,200
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus
Extension Center, 6.7%, 9/1/12 (c) ..................................... 2,500,000 AAA 2,809,675
Kane County, Illinois School District -129 Aurora West Side,
Series 1996A, 6.5%, 2/1/10 (c) ......................................... 1,775,000 AAA 1,939,276
Kendall, Kane and Will Counties, IL, Community Unit School
District Number 308, Oswego:
Zero Coupon, 3/1/02 (c) ............................................ 1,055,000 AAA 804,712
Zero Coupon, 3/1/05 (c) ............................................ 1,540,000 AAA 988,156
Zero Coupon, 3/1/06 (c) ............................................ 1,595,000 AAA 962,040
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion
Project:
Zero Coupon, 12/15/03 (c) .......................................... 3,200,000 AAA 2,218,048
Zero Coupon, 6/15/04 (c) ........................................... 10,300,000 AAA 6,913,154
State of Illinois, Northwest Suburban Municipal Joint Action
Water Agency, Supply System Revenue, 6.45%, 5/1/07 (c) ................. 2,575,000 AAA 2,812,415
Rosemont, IL, Tax Increment, Series C:
Zero Coupon, 12/1/05 (c) ............................................... 4,455,000 AAA 2,747,799
</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>
Zero Coupon, 12/1/07 (c) ............................................... 2,655,000 AAA 1,442,063
State University Retirement System, IL, Special Revenue,
Zero Coupon, 10/1/03 (c) ............................................... 2,750,000 AAA 1,926,155
University of Illinois, Board of Trustees, Series 1991:
Zero Coupon, 4/1/03 (c) ................................................ 3,890,000 AAA 2,794,771
Zero Coupon, 4/1/05 (c) ................................................ 3,830,000 AAA 2,446,796
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/00 (c) .......................................... 1,325,000 AAA 1,087,017
Zero Coupon, 12/15/01 (c) .......................................... 1,730,000 AAA 1,340,369
INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, 6.5%, 11/15/12 (c) ............ 1,400,000 AAA 1,488,564
Indiana Health Facility Finance Authority, Hospital Revenue:
Ancilla Systems Inc., Series A, 6%, 7/1/18 (c) ......................... 27,635,000 AAA 28,588,131
Community Hospital Project, 6.4%, 5/1/12 (c) ........................... 5,000,000 AAA 5,275,750
Indiana Municipal Power Agency, Power Supply System,
Series B, 6%, 1/1/12 (c) ............................................... 2,000,000 AAA 2,095,800
Indiana University:
Student Fees Revenue, Series H, Zero Coupon, 8/1/06 (c) ................ 8,500,000 AAA 5,013,470
Series H, Zero Coupon, 8/1/08 (c) ...................................... 10,000,000 AAA 5,177,200
Student Fee Bonds, Series J, 5%, 8/1/18 (c) ............................ 4,200,000 AAA 3,801,042
Madison County, IN, Community Hospital of Anderson,
Prerefunded 1/1/98 at 102, 8%, 1/1/14***(c) ............................ 7,055,000 AAA 7,530,366
Merrillville, IN, Multiple School Building Corp., First Mortgage,
Zero Coupon, 1/15/11 (c) ............................................... 4,000,000 AAA 1,757,000
IOWA
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c) ....................... 5,000,000 AAA 5,462,600
KANSAS
Kansas City, KS, Utility System Revenue:
ETM, Zero Coupon, 9/1/04** ............................................. 3,575,000 AAA 2,421,562
ETM, Zero Coupon, 9/1/05** ............................................. 5,300,000 AAA 3,393,961
ETM, Zero Coupon, 9/1/06** ............................................. 1,875,000 AAA 1,130,081
Zero Coupon, 9/1/04 .................................................... 2,640,000 AAA 1,766,266
Zero Coupon, 9/1/05 .................................................... 3,950,000 AAA 2,490,159
Zero Coupon, 9/1/06 .................................................... 1,375,000 AAA 815,224
LOUISIANA
Louisiana Public Facilities Authority, Prerefunded 2/15/08
at 100, 4.75%, 5/1/16***(c) ............................................ 5,765,000 AAA 5,548,813
New Orleans, Louisiana Exhibition Hall Authority, Series 1993,
Zero Coupon, 7/15/06 ................................................... 4,350,000 AAA 2,392,457
New Orleans, LA, General Obligation, Zero Coupon, 9/1/07 (c) .............. 10,000,000 AAA 5,565,000
Orleans, LA, Levee District, Levee Improvement Bonds,
Series 1986, 5.95%, 11/1/14 (c) ........................................ 2,000,000 AAA 2,034,480
MASSACHUSETTS
Commonwealth of Massachusetts, General Obligation:
Series A, 7%, 3/1/99 (c) ............................................... 4,850,000 AAA 5,143,037
Series D, 7%, 10/1/03 (c) .............................................. 7,000,000 AAA 7,631,680
Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue, Series A, 5.1%, 7/1/07 (c) ................ 1,640,000 AAA 1,610,611
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 4,861,120
Detroit, MI, General Obligation, Distributable State
Aid Refunding, 5.2%, 5/1/07 (c) ........................................ 3,000,000 AAA 2,971,470
</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>
Detroit, MI, Unlimited Tax, General Obligation, Distributable
State Aid, 5.25%, 5/1/08 (c) .......................................... 1,500,000 AAA 1,478,190
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue,
Borgess Medical Center, Series A, 6%, 7/1/09 (c) ...................... 8,250,000 AAA 8,585,858
Michigan State Hospital Finance Authority, Sisters of Mercy
Healthcorp Obligated Group, Series P, 5.25%, 8/15/08 (c) .............. 8,655,000 AAA 8,571,566
Michigan State Housing Development Authority, Rental Revenue,
Series B, 5.7%, 4/1/12 ................................................ 6,275,000 AAA 6,161,109
MINNESOTA
Northern Minnesota Municipal Power Agency, Series A, 7.25%, 1/1/16 ........ 7,500,000 AAA 7,998,675
MISSOURI
MissouriHealth & Educational Facilities Authority, SSM Healthcare,
1992 Series 1992AA:
6.35%, 6/1/08 (c) .................................................. 8,125,000 AAA 8,837,481
6.4%, 6/1/09 (c) ................................................... 8,640,000 AAA 9,408,010
NEVADA
Clark County, NV, School District, General Obligation,
Zero Coupon, 3/1/05 (c) ................................................ 8,070,000 AAA 5,199,420
NEW JERSEY
New Jersey Highway Authority, Garden State Parkway
General Revenue, ETM 6.5%, 1/1/11** .................................... 5,055,000 AAA 5,404,048
New Jersey Housing and Mortgage Finance Agency, Home
Mortgage Purchase Revenue, Zero Coupon, 10/1/16 (c) .................... 5,155,000 AAA 648,138
New Jersey Turnpike Authority:
6.5%, 1/1/09 (c) ....................................................... 5,000,000 AAA 5,501,950
IBC Series 1991A, 6.3%, 1/1/01 (c) ..................................... 1,250,000 AAA 1,329,638
NEW YORK
New York City, New York, General Obligation:
Unlimited Series 1987A, 8%, 11/1/01 (c) ................................ 760,000 AAA 804,559
Unlimited Series 1994H, Subseries H-1, 5.8%, 8/1/04 (c) ................ 5,000,000 AAA 5,270,250
Series G, 5.9%, 2/1/05 ................................................. 5,500,000 AAA 5,772,470
Series 1989E, 7%, 12/1/07 .............................................. 115,000 AAA 120,791
8.125%, 11/1/05 (c) .................................................... 1,400,000 AAA 1,483,930
Series A, ETM, 8%, 11/1/01** ........................................... 740,000 AAA 803,892
Series A, 3%, 8/15/02 (c) .............................................. 9,000,000 AAA 8,230,860
Series C, 6.4%, 8/1/04 (c) ............................................. 500,000 AAA 541,955
Series C, 6.4%, 8/1/05 (c) ............................................. 430,000 AAA 463,811
Series C, Prerefunded 8/1/02 at 101.50, 6.4%, 8/1/05***(c) ............. 10,000,000 AAA 11,004,800
Series D, 8%, 8/1/05 (c) ............................................... 170,000 AAA 178,826
Series D, Prerefunded 8/1/97 at 102, 8%, 8/1/05***(c) .................. 830,000 AAA 874,803
Series D, 6%, 8/1/06 (c) ............................................... 140,000 AAA 143,760
Series D, 6%, 8/1/08 (c) ............................................... 370,000 AAA 377,777
Series E, ETM, 7%, 12/1/07**(c) ........................................ 1,385,000 AAA 1,429,486
New York State Dormitory Authority:
College and University Pooled Capital Program, 7.8%, 12/1/05 (c) ....... 9,905,000 AAA 10,728,106
Revenue, City University, 7%, 7/1/09 (c) ............................... 4,000,000 AAA 4,604,000
Revenue, City University, 7.5%, 7/1/10 (c) ............................. 5,750,000 AAA 6,898,333
Lease Revenue Bonds, Dormitory Facilities, Series A, 6%, 7/1/09 (c) .... 2,000,000 AAA 2,101,840
New York State Energy Research and Development Authority, Pollution
Control Revenue, Electric and Gas, 5.9%, 12/1/06 (c) ................... 5,300,000 AAA 5,622,399
New York State, Urban Development Corporation Revenue,
Correctional Capital Facilities, Series A, 6.5%, 1/1/11 ................ 4,500,000 AAA 4,935,420
Suffolk County, NY, Industrial Development Agency, Southwest Sewer
System, 6%, 2/1/07 (c) ................................................. 8,000,000 AAA 8,585,520
</TABLE>
The accompanying notes are an integral part of the financial statements
46
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency:
Refunding Link Certificate, 5.5%, 1/1/07 (c) ........................... 2,000,000 AAA 2,024,840
Refunding Link Certificate, 6%, 1/1/18 (c) ............................. 8,775,000 AAA 9,195,849
Power System Revenue Bond, 7.25%, 1/1/21 ............................... 1,505,000 AAA 1,541,782
North Carolina Municipal Power Agency, Catawba Electric Revenue:
7.5%, 1/1/17 ........................................................... 4,520,000 A 4,740,621
5.25%, 1/1/08 (c) ...................................................... 2,500,000 AAA 2,497,675
6%, 1/1/11 (c) ......................................................... 8,235,000 AAA 8,687,431
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/02 (c) ................................................ 2,850,000 AAA 2,161,725
OHIO
Cleveland, OH, Water Works Revenue, Series 1993G,
5.5%, 1/1/13 (c) ....................................................... 10,000,000 AAA 9,988,400
Hamilton County, OH, Electric System Mortgage Revenue,
Series B, Prerefunded 10/15/98 at 102, 8%, 10/15/22***(c) .............. 3,720,000 AAA 4,060,826
Ohio Air Quality Development Authority, Ohio Power Company,
Series B, 7.4%, 8/1/09 (c) ............................................. 5,000,000 AAA 5,475,350
OKLAHOMA
Tulsa, OK, Industrial Development Authority:
Hospital Revenue, St. John's Medical Center, Zero Coupon, 12/1/04 (c) .. 5,430,000 AAA 3,558,605
St. John's Medical Center, Zero Coupon, 12/1/02 (c) .................... 3,930,000 AAA 2,887,371
PENNSYLVANIA
Pennsylvania Industrial Development Authority, Economic Development
Revenue:
5.8%, 1/1/08 (c) ................................................... 4,250,000 AAA 4,429,435
5.8%, 7/1/08 (c) ................................................... 4,875,000 AAA 5,087,501
5.8%, 1/1/09 (c) ................................................... 2,500,000 AAA 2,591,725
Philadelphia, PA, Water & Wastewater Refunding Revenue,
5.625%, 6/15/09 (c) .................................................... 20,000,000 AAA 20,398,800
Philadelphia, PA, Water & Wastewater Revenue:
5.625%, 6/15/08 (c) .................................................... 2,100,000 AAA 2,156,028
5.625%, 6/15/09 (c) .................................................... 10,855,000 AAA 11,071,449
5.5%, 6/15/07 (c) ...................................................... 5,000,000 AAA 5,088,650
Philadelphia, PA Municipal Authority Revenue, Justice Lease,
Series B, 6.9%, 11/15/03 (c) ........................................... 2,000,000 AAA 2,235,540
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/11 (c) ......................... 7,300,000 AAA 7,164,585
PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation
Authority Revenue, 5.5%, 7/1/09 ........................................ 10,940,000 AAA 11,089,331
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 1,930,920
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993B, 5%, 5/15/10 (c) .......................................... 5,000,000 AAA 4,776,000
1993 Series B, 5.25%, 5/15/15 (c) ...................................... 22,000,000 AAA 20,871,400
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, 8/1/10 (c) ............................................. 6,200,000 AAA 6,380,420
Series B, 5.8%, 8/1/11 (c) ............................................. 4,525,000 AAA 4,639,799
Series B, 5.8%, 8/1/12 (c) ............................................. 2,500,000 AAA 2,560,825
Series B, 5.8%, 8/1/13 (c) ............................................. 7,340,000 AAA 7,493,259
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 2,354,330
</TABLE>
The accompanying notes are an integral part of the financial statements
47
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH CAROLINA
Piedmont Municipal Power Agency, SC, Electric Revenue:
Series A, 6.5%, 1/1/16 (c) ............................................ 3,000,000 AAA 3,326,640
Series C, 5.5%, 1/1/12 (c) ............................................ 5,000,000 AAA 5,004,650
5.5%, 1/1/08 (c) ...................................................... 1,915,000 AAA 1,946,981
SOUTH DAKOTA
South Dakota Building Authority, Certificate of Participation,
Series A, 7.5%, 12/1/16 ............................................... 15,000,000 AAA 15,390,000
TENNESSEE
Knox County, TN, Health, Educational Hospital Housing Facilities Board,
Fort Sanders Alliance:
6.25%, 1/1/13 (c) ................................................. 4,000,000 AAA 4,301,320
7.25%, 1/1/09 (c) ................................................. 3,750,000 AAA 4,374,713
5.75%, 1/1/11 (c) ................................................. 15,405,000 AAA 15,780,574
5.75%, 1/1/12 (c) ................................................. 17,880,000 AAA 18,298,571
Knox County, TN, Health, Education and Housing Facilities
Board, Fort Sanders Alliance, Series 1995, 5.75%, 1/1/14 (c) .......... 2,000,000 AAA 2,039,380
TEXAS
Austin, TX, Combined Utility Systems Revenue, Series A,
Zero Coupon, 11/15/08 (c) ............................................. 3,460,000 AAA 1,783,665
Cedar Hill, Texas Independent School District, Zero Coupon:
Series 1996, 8/15/07 .................................................. 1,500,000 AAA 819,225
Series 1996, 8/15/09 .................................................. 1,500,000 AAA 714,855
Series 1996, 8/15/10 .................................................. 3,130,000 AAA 1,389,376
Dallas, TX, Housing Finance Corp., Single Family, Capital Appreciation,
Zero Coupon, 10/1/16 (c) .............................................. 6,805,000 AAA 855,593
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c) .................................................... 1,000,000 AAA 1,168,180
7.8%, 11/1/05 (c) ..................................................... 2,000,000 AAA 2,378,720
7.8%, 11/1/06 (c) ..................................................... 2,025,000 AAA 2,411,309
7.375%, 11/1/08 (c) ................................................... 4,500,000 AAA 5,223,285
7.375%, 11/1/10 (c) ................................................... 3,500,000 AAA 4,050,515
Harris County, TX, Health Facilities:
Texas Medical Center Project, Series 1996, 6.25%, 5/15/08 (c) ......... 2,785,000 AAA 2,972,319
6.25%, 5/15/09 (c) .................................................... 2,965,000 AAA 3,151,380
Harris County, TX, General Obligation;
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c) ................... 9,035,000 AAA 5,333,270
Flood Control District, Zero Coupon, 10/1/00 (c) ...................... 1,000,000 AAA 831,610
Toll Road Authority, Subordinate Lien, Unlimited Tax,
Series A, Zero Coupon, 8/15/04 ................................... 2,050,000 AAA 1,374,628
Toll Road Authority, Subordinate Lien, Series A,
Zero Coupon, 8/15/05 ............................................. 4,025,000 AAA 2,543,317
Toll Road Revenue, Subordinate Lien, Series A,
Zero Coupon, 8/15/06 (c) ......................................... 4,010,000 AAA 2,383,063
Houston, TX, Water & Sewer System Authority, Series C:
Zero Coupon, 12/1/06 (c) .............................................. 14,575,000 AAA 8,528,270
Zero Coupon, 12/1/08 (c) .............................................. 19,000,000 AAA 9,770,940
Zero Coupon, 12/1/09 (c) .............................................. 14,750,000 AAA 7,090,620
Houston,TX, Water & Sewer System Revenue Compound Interest,
Junior Lien, Zero Coupon, Series 1991C:
12/1/10 (c) ...................................................... 5,000,000 AAA 2,242,450
12/1/12 (c) ...................................................... 3,350,000 AAA 1,331,156
</TABLE>
The accompanying notes are an integral part of the financial statements
48
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital, Series B:
5.5%, 12/1/06 (c) ...................................................... 3,945,000 AAA 4,056,091
5.6%, 12/1/07 (c) ...................................................... 2,415,000 AAA 2,480,205
5.625%, 12/1/08 (c) .................................................... 4,400,000 AAA 4,504,852
5.625%, 12/1/09 (c) .................................................... 4,640,000 AAA 4,713,034
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c) ................................................ 3,475,000 AAA 2,460,821
Zero Coupon, 9/1/04 (c) ................................................ 3,475,000 AAA 2,324,914
Zero Coupon, 9/1/05 (c) ................................................ 3,475,000 AAA 2,190,710
North Central Texas Health Facilities Development Corp. Hospital Revenue,
Presbyterian Hospital, Prerefunded 12/1/97 at 102,
8.75%, 12/1/15***(c) ............................................... 5,000,000 AAA 5,372,250
San Antonio, TX, Electric and Gas, Revenue Refunding, Series A:
Zero Coupon, 2/1/06 (c) ................................................ 17,900,000 AAA 10,944,060
Zero Coupon, 2/1/05 (c) ................................................ 2,500,000 AAA 1,624,350
Zero Coupon, 2/1/05 (c) ................................................ 8,000,000 AAA 5,197,920
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/06 (c) .............. 2,000,000 AAA 2,125,400
San Antonio, TX, Electric and Gas, Series 1991B, Zero Coupon, 2/1/08 (c) .. 8,115,000 AAA 4,367,655
San Antonio, TX, Zero Coupon, 2/1/09 (c) .................................. 4,400,000 AAA 2,215,488
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c) .................................................... 4,615,000 AAA 4,830,244
6%, 5/15/21 (c) .................................................... 6,235,000 AAA 6,505,786
Texas General Obligation, Superconductor Revenue, Series C,
Zero Coupon, 4/1/05 (c) ................................................ 8,390,000 AAA 5,404,502
Texas General Obligation, Capital Appreciation Bond, Super Collider,
Series C, Zero Coupon, 4/1/06 (c) ...................................... 7,385,000 AAA 4,475,679
Texas Municipal Power Agency:
6.1%, 9/1/07 (c) ....................................................... 9,250,000 AAA 9,960,493
5.25%, 9/1/07 .......................................................... 1,500,000 AAA 1,509,855
6.1%, 9/1/09 ........................................................... 4,435,000 AAA 4,733,609
Texas State Public Finance Authority, Building Authority:
Zero Coupon, 2/1/06 (c) ................................................ 13,915,000 AAA 8,507,631
Series B, 6.25%, 2/1/08 (c) ............................................ 5,190,000 AAA 5,610,286
UTAH
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:
Zero Coupon, 7/1/00 (c) ................................................ 2,755,000 AAA 2,309,158
Zero Coupon, 7/1/02 (c) ................................................ 5,200,000 AAA 3,900,832
Zero Coupon, 7/1/04 (c) ................................................ 5,895,000 AAA 3,947,528
Zero Coupon, 7/1/05 (c) ................................................ 5,900,000 AAA 3,719,832
Zero Coupon, 7/1/06 (c) ................................................ 5,895,000 AAA 3,492,552
Zero Coupon, 7/1/07 (c) ................................................ 3,750,000 AAA 2,083,725
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/12 (c) ......................................................... 1,000,000 AAA 927,770
Series A, Zero Coupon, 7/1/02 (c) ...................................... 1,655,000 AAA 1,245,007
Series A, Zero Coupon, 7/1/03 (c) ...................................... 1,000,000 AAA 711,720
Series A, Zero Coupon, 7/1/04 (c) ...................................... 1,730,000 AAA 1,162,854
Series B, Zero Coupon, 7/1/02 (c) ...................................... 8,230,000 AAA 6,191,182
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15**(c) ............ 1,800,000 AAA 2,482,740
VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial Hospital,
Series B, 6.125%, 7/1/17 (c) ........................................... 5,500,000 AAA 5,851,175
Southeastern Public Service Authority, VA, Refunding Revenue,
5.25%, 7/1/10 (c) ...................................................... 7,380,000 AAA 7,301,108
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virginia Beach, VA, Development Authority, Virginia Beach
General Hospital Project:
5%, 2/15/06 (c) ................................................... 1,750,000 AAA 1,748,600
5%, 2/15/07 (c) ................................................... 1,800,000 AAA 1,784,106
6%, 2/15/11 (c) ................................................... 1,595,000 AAA 1,679,902
5.125%, 2/15/18 (c) ............................................... 3,000,000 AAA 2,798,730
5.1%, 2/15/08 (c) ................................................. 1,345,000 AAA 1,330,071
WASHINGTON
Clark County, WA, Public Utility District #1:
6%, 1/1/06 (c) ........................................................ 7,500,000 AAA 7,935,525
6%, 1/1/08 (c) ........................................................ 2,200,000 AAA 2,306,238
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c) ......................................... 3,500,000 AAA 3,332,840
North Shore, WA, General Obligation, School
District #417, 5.6%, 12/1/10 (c) ...................................... 1,650,000 AAA 1,668,876
Snohomish County, WA, School District #6, 6.5%, 12/1/07 (c) ............... 3,325,000 AAA 3,672,596
Washington Health Care Facilities Authority, Empire Health Services-Spokane:
5.65%, 11/1/05 (c) .................................................... 2,155,000 AAA 2,230,727
5.7%, 11/1/06 (c) ..................................................... 3,440,000 AAA 3,570,754
5.75%, 11/1/07 (c) .................................................... 7,350,000 AAA 7,605,486
5.8%, 11/1/09 (c) ..................................................... 4,595,000 AAA 4,736,894
5.8%, 11/1/10 (c) ..................................................... 2,100,000 AAA 2,168,166
Washington State 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 2,638,093
Nuclear Project #1, Series A, 7%, 7/1/11 (c) .......................... 3,830,000 AAA 4,203,540
Nuclear Project #1, Series A, 7.5%, 7/1/15 (c) ........................ 1,595,000 AAA 1,746,956
Nuclear Project #1, Series B, 7.25%, 7/1/12 (c) ....................... 10,895,000 AAA 12,086,368
Nuclear Project #2, Series A, 7.25%, 7/1/03 (c) ....................... 2,000,000 AAA 2,216,500
Nuclear Project #2, Series A, 5.7%, 7/1/08 (c) ........................ 5,000,000 AAA 5,077,450
Nuclear Project #2, Series C, 7.375%, 7/1/11 (c) ...................... 1,370,000 AAA 1,533,263
Nuclear Project #2, Series C, 7%, 7/1/01 (c) .......................... 10,000,000 AAA 10,884,200
Nuclear Project #3, Series A, Prerefunded 7/1/99 at 102,
7.25%, 7/1/16***(c) ................................................ 3,630,000 AAA 3,958,551
Nuclear Project #3, Series A, Zero Coupon, 7/1/04 (c) ................. 3,625,000 AAA 2,427,445
Nuclear Project #3, Series A, Zero Coupon, 7/1/05 (c) ................. 4,125,000 AAA 2,600,730
Nuclear Project #3, 7.5%, 7/1/08 ...................................... 4,000,000 AAA 4,692,880
Washington Public Power Supply System, Nuclear Power Project #1,
6%, 7/1/08 (c) ........................................................ 5,000,000 AAA 5,187,450
Washington Public Power Supply System, Nuclear Project #1,
Series 1989A, 7.5%, 7/1/15 ............................................ 1,500,000 AAA 1,647,015
Washington State Housing Finance, Series A, 7.1%, 12/1/17 ................. 7,930,000 AAA 8,167,900
WEST VIRGINIA
West Virginia, School Building Authority Revenue,
Series B, 6.75%, 7/1/10 (c) ........................................... 4,000,000 AAA 4,340,160
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c) ........ 3,475,000 AAA 2,354,591
Wisconsin Health & Educational Facilities Authority Aurora Medical:
Series 1996, 5.75%, 11/15/06 (c) ...................................... 2,000,000 AAA 2,064,930
Series 1996, 5.75%, 11/15/07 (c) ...................................... 1,500,000 AAA 1,534,545
Series 1996, 6%, 11/15/08 (c) ......................................... 4,085,000 AAA 4,249,013
Series 1996, 6%, 11/15/09 (c) ......................................... 4,330,000 AAA 4,476,917
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c) ................. 5,285,000 AAA 5,685,867
Hospital Sisters Services Inc. - Obligated Group, 5.375%, 6/1/18 ...... 4,800,000 AAA 4,527,168
6.1%, 8/15/09 (c) ..................................................... 2,000,000 AAA 2,092,580
Riverview Hospital Association Project, 9%, 5/1/11 .................... 2,500,000 AAA 2,560,900
</TABLE>
The accompanying notes are an integral part of the financial statements
50
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount($) Rating(b) Value($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSM Healthcare:
Series 1992A, 6.4%, 6/1/08 ........................................ 2,335,000 AAA 2,543,445
Series 1992AA, 6.45%, 6/1/09 (c) .................................. 2,485,000 AAA 2,710,017
Series 1992AA, 6.45%, 6/1/10 (c) .................................. 2,650,000 AAA 2,886,778
Series 1992AA, 6.5%, 6/1/11 (c) ................................... 2,820,000 AAA 3,053,665
Series 1992AA, 6.5%, 6/1/12 (c) ................................... 3,000,000 AAA 3,312,060
St. Luke's Medical Center, 7.1%, 8/15/11 (c) .......................... 2,000,000 AAA 2,220,200
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c) ................... 9,230,000 AAA 9,930,096
Wheaton Franciscan Services, Series 1993, 6.1%, 8/15/08 (c) ........... 4,580,000 AAA 4,862,174
-------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (COST $1,544,992,355) ............... 1,623,395,173
-------------
- -------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $1,661,512,280) (a) .............. 99.1 1,740,393,909
OTHER ASSETS AND LIABILITIES, NET ................................. 0.9 15,018,313
----- -------------
NET ASSETS ........................................................ 100.0 1,755,412,222
===== =============
- -------------------------------------------------------------------------------------------------------------
* 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 issues and to retire the bonds in full at the earliest refunding date.
(a) At September 30, 1996, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$1,661,808,939 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost .................................................... $ 83,434,667
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .................................................... (4,849,697)
------------
Net unrealized appreciation ............................................................ $ 78,584,970
============
(b) (Unaudited) 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) (Unaudited) Bond is insured by one of these companies: AMBAC, MBIA, FGIC, FSA or Capital Guaranty
(d) At September 30, 1996, this security, in whole or in part, has been pledged to cover initial margin requirements for open
futures contracts.
At September 30, 1996, open futures contracts sold short were as follows (Note 1):
Aggregate Market
Futures Expiration Contracts Face Value($) Value($)
- ------- ---------- --------- ------------- --------
U.S. Treasury Bond ..... December 1996 1,150 123,673,550 125,565,625
----------- -----------
Total net unrealized depreciation on open futures contracts sold short ...... (1,892,075)
===========
</TABLE>
The aggregate face value of futures contracts opened and closed during the
year ended September 30, 1996 was $730,013,519 and $777,225,705,
respectively.
- -------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended September 30, 1996, aggregated
$314,764,373 and $409,484,784, respectively.
- -------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
51
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.9%
- -----------------------------------------------------------------------------------------------------------------------
11,492,000 Repurchase Agreement with Donaldson, Lufkin, and Jenrette dated 9/30/96
at 5.7% to be repurchased at $11,493,820 on 10/1/96, collateralized by
a $11,336,000 U.S. Treasury Note, 7.125%, 9/30/99 (COST $11,492,000) ........... 11,492,000
----------
- -----------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 11.0%
- -----------------------------------------------------------------------------------------------------------------------
8,000,000 U.S. Treasury Note, 5.5%, 9/30/97 ................................................ 7,980,000
5,000,000 U.S. Treasury Note, 5.13%, 4/30/98 ............................................... 4,932,800
2,500,000 U.S. Treasury Note, 5.875%, 3/31/99 .............................................. 2,481,250
3,000,000 U.S. Treasury Note, 6.75%, 5/31/99 ............................................... 3,036,090
6,000,000 U.S. Treasury Note, 6.875%, 7/31/99 .............................................. 6,089,040
4,500,000 U.S. Treasury Note, 6%, 10/15/99 ................................................. 4,464,855
2,000,000 U.S. Treasury Note, 6.125%, 7/31/00 .............................................. 1,981,560
1,500,000 U.S. Treasury Note, 5.75%, 10/31/00 .............................................. 1,463,910
4,500,000 U.S. Treasury Note, 5.875%, 2/15/04 .............................................. 4,305,240
750,000 U.S. Treasury Bond, 7.875%, 2/15/21 .............................................. 819,143
6,000,000 U.S. Treasury Bond, 6.25%, 8/15/23 ............................................... 5,421,540
3,500,000 U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/09
(7.01%***) ..................................................................... 1,492,295
----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $44,435,599) ............................... 44,467,723
----------
- -----------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION** 3.3%
- -----------------------------------------------------------------------------------------------------------------------
4,543,846 Government National Mortgage Association, 10%, with various maturities to
2/15/25 ........................................................................ 4,965,355
8,111,741 Government National Mortgage Association, 8.5%, 11/15/25 ......................... 8,342,358
----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (COST $13,258,632) ................ 13,307,713
----------
- -----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS** 9.7%
- -----------------------------------------------------------------------------------------------------------------------
15,091,192 Federal National Mortgage Association, 6.5%, with various
maturities to 3/1/26 ........................................................... 14,175,178
26,015,434 Federal National Mortgage Association, 7%, with various
maturities to 8/1/26 ........................................................... 25,099,772
----------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS (COST $39,549,999) .............. 39,274,950
----------
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S.$ DENOMINATED 1.0%
- -----------------------------------------------------------------------------------------------------------------------
1,000,000 ABN-AMRO Bank NV, Subordinated Note, 7.13%, 10/15/93 ............................. 904,590
3,000,000 Province of Ontario, Global Medium Term Note, 6%, 2/21/06 ........................ 2,765,820
575,000 Royal Bank of Scotland, 6.375%, 2/1/11 ........................................... 515,223
----------
TOTAL FOREIGN BONDS -- U.S.$ DENOMINATED (COST $4,410,708) ....................... 4,185,633
----------
- -----------------------------------------------------------------------------------------------------------------------
ASSET BACKED 3.2%
- -----------------------------------------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 1.7%
4,000,000 Ford Credit Automobile Trust Series 1996-A A4, 6.75%, 9/15/00 ................... 4,027,480
3,000,000 Premier Auto Trust Asset Backed Certificate Series 1996-3 A4, 6.75%,
11/6/00 ........................................................................ 3,018,750
----------
7,046,230
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CREDIT CARD RECEIVABLES 1.5%
4,000,000 Chase Manhattan Credit Card Master Trust, Series 1996-4A, 6.73%, 2/15/02 ......... 4,022,480
2,000,000 Sears Credit Account Master Trust Series 1995-4, 6.25%, 1/15/03 .................. 1,999,360
---------
6,021,840
----------
TOTAL ASSET BACKED (COST $12,997,645) ............................................ 13,068,070
----------
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 11.6%
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 0.9%
4,000,000 ITT Corp., 7.375%, 11/15/15 ...................................................... 3,720,640
----------
CONSUMER STAPLES 0.4%
2,000,000 Borden Inc., 7.875%, 2/15/23 ..................................................... 1,634,080
----------
FINANCIAL 4.7%
5,850,000 Associates Corp. of North America, 6.625%, 5/15/01 .............................. 5,791,266
4,000,000 Capital One Bank Medium Term Note, 5.95%, 2/15/01 ................................ 3,819,160
1,000,000 General Electric Capital Services Inc., 7.5%, 8/21/35 ............................ 990,780
2,500,000 Societe Generale, 7.4%, 6/1/06 ................................................... 2,497,075
4,000,000 Southern National Corp., 7.05%, 5/23/03 .......................................... 3,976,960
2,000,000 Wells Fargo & Co., 6.875%, 4/1/06 ................................................ 1,931,240
----------
19,006,481
----------
MEDIA 2.4%
2,000,000 News America Holdings Inc., 8.5%, 2/15/05 ........................................ 2,116,600
4,000,000 Tele-Communications, Inc., 8%, 8/1/05 ............................................ 3,909,360
3,500,000 Time Warner Inc., 9.125%, 1/15/13 ................................................ 3,710,420
----------
9,736,380
----------
DURABLES 2.0%
1,000,000 Boeing Co., 6.875%, 10/15/43 ..................................................... 907,820
3,000,000 Comdisco, Inc., Senior Note, 5.75%, 2/15/01 ...................................... 2,876,310
1,000,000 Ford Motor Co., 8.875%, 1/15/22 .................................................. 1,117,940
2,000,000 Lockheed Martin Corp., 7.75%, 5/1/26 ............................................. 2,011,540
1,000,000 McDonnell Douglas Corp., 9.75%, 4/1/12 ........................................... 1,190,960
----------
8,104,570
----------
TECHNOLOGY 0.4%
1,500,000 Loral Corp., 8.375%, 6/15/24 ..................................................... 1,604,520
----------
TRANSPORTATION 0.8%
2,500,000 AMR Corp., 9.75%, 8/15/21 ........................................................ 2,935,650
----------
TOTAL CORPORATE BONDS (COST $46,912,533) ......................................... 46,742,321
----------
- -----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.4%
- -----------------------------------------------------------------------------------------------------------------------
HEALTH 0.1%
Pharmaceuticals
290,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ............................................. 324,075
----------
FINANCIAL 0.1%
Other Financial Companies
200,000 First Financial Management Corp., 5%, 12/15/99 ................................... 384,000
----------
SERVICE INDUSTRIES 0.2%
Miscellaneous Commercial Services
1,000,000 ADT Operations Inc., Liquid Yield Option Note, 7/6/10 ............................ 567,500
260,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 .................................... 282,100
----------
849,600
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION 0.0%
Homebuilding
30,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04 .................... 21,000
----------
TOTAL CONVERTIBLE BONDS (COST $1,201,871) .............................. 1,578,675
----------
- --------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 1.6%
- --------------------------------------------------------------------------------------------------------
Shares
- ---------
CONSUMER DISCRETIONARY 0.3%
Department & Chain Stores
23,500 Kmart 7.75% ............................................................ 1,148,563
----------
HEALTH 0.3%
Health Industry Services
45,600 FHP International Corp.,"A", Cum. $1.25 ................................ 1,419,300
----------
FINANCIAL 0.4%
Consumer Finance 0.3%
33,100 Advanta Corp. 6.75% .................................................... 1,381,925
----------
REAL ESTATE 0.1%
14,600 Security Capital Industrial Trust "B" 7% ............................... 357,700
----------
MANUFACTURING 0.5%
Containers & Paper 0.2%
3,300 Boise Cascade Corp. "G", Cum. $1.58 .................................... 92,400
15,400 Bowater, Inc. 7% "B" ................................................... 483,175
2,100 International Paper Co. 5.25% .......................................... 99,750
----------
675,325
----------
Industrial Specialty 0.2%
31,300 Cooper Industries, Inc. 6% ............................................. 641,650
----------
Wholesale Distributors 0.1%
4,700 Alco Standard Corp. 6.5% ............................................... 427,700
----------
ENERGY 0.1%
Oil & Gas Production
4,200 Parker & Parsley Capital Corp. 6.25% ................................... 227,325
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $5,563,150) ................... 6,279,488
----------
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS 55.2%
- --------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 2.5%
Department & Chain Stores
54,200 J.C. Penney Co., Inc. .................................................. 2,933,575
38,000 May Department Stores .................................................. 1,847,750
89,800 Rite Aid Corp. ......................................................... 3,255,250
48,100 Sears, Roebuck & Co. ................................................... 2,152,475
----------
10,189,050
----------
CONSUMER STAPLES 5.4%
Alcohol 0.6%
67,600 Anheuser Busch Companies, Inc. ......................................... 2,543,450
----------
Consumer Electronic & Photographic Products 0.6%
11,700 Duracell International Inc. ............................................ 750,263
33,800 Whirlpool Corp. ........................................................ 1,711,125
----------
2,461,388
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
54
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food & Beverage 2.0%
43,900 General Mills, Inc. .................................................. 2,650,463
114,550 H.J. Heinz Co. ....................................................... 3,866,063
9,200 Unilever NV (New York shares) ........................................ 1,450,150
----------
7,966,676
----------
Package Goods/Cosmetics 2.2%
36,000 Avon Products Inc. ................................................... 1,786,500
11,400 Clorox Co. ........................................................... 1,092,975
48,900 Kimberly-Clark Corp. ................................................. 4,309,313
37,700 Tambrands Inc. ....................................................... 1,588,113
----------
8,776,901
----------
HEALTH 7.0%
Medical Supply & Specialty 0.8%
84,200 Bausch & Lomb, Inc. .................................................. 3,094,350
----------
Pharmaceuticals 6.2%
47,600 American Home Products Corp. ......................................... 3,034,500
67,600 Baxter International Inc. ............................................ 3,160,300
32,600 Bristol-Myers Squibb Co. ............................................. 3,141,825
28,400 Eli Lilly & Co. ...................................................... 1,831,800
68,200 Schering-Plough Corp. ................................................ 4,194,300
39,200 SmithKline Beecham PLC (ADR) ......................................... 2,386,300
64,800 Warner-Lambert Co. ................................................... 4,276,800
122,100 Zeneca Group PLC ..................................................... 3,034,936
----------
25,060,761
----------
COMMUNICATIONS 3.6%
Telephone/Communications
72,700 Alltel Corp. ......................................................... 2,026,513
30,200 Bell Atlantic Corp. .................................................. 1,808,225
65,600 GTE Corp. ............................................................ 2,525,600
33,000 Hong Kong Telecommunications Ltd. (ADR) .............................. 594,000
40,400 Koninklijke PTT Nederland ............................................ 1,389,524
54,500 NYNEX Corp. .......................................................... 2,370,750
22,000 SBC Communications, Inc. ............................................. 1,058,750
56,600 Sprint Corp. ......................................................... 2,200,325
100,000 Telecom Corp. of New Zealand ......................................... 469,762
----------
14,443,449
----------
FINANCIAL 11.0%
Banks 4.5%
44,300 Bankers Trust New York Corp. ......................................... 3,483,088
41,100 Chase Manhattan Corp. (New) .......................................... 3,293,138
67,400 CoreStates Financial Corp. ........................................... 2,915,050
42,900 First Bank System Inc. ............................................... 2,868,938
34,100 J.P. Morgan & Co., Inc. .............................................. 3,030,638
54,200 KeyCorp (New) ........................................................ 2,384,800
----------
17,975,652
----------
Insurance 1.9%
30,728 Allstate Corp. ....................................................... 1,513,404
62,600 EXEL, Ltd. ........................................................... 2,175,345
17,400 Hartford Steam Boiler Inspection & Insurance Co. ..................... 778,650
73,300 Lincoln National Corp. ............................................... 3,216,038
----------
7,683,437
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
55
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other Financial Companies 1.7%
74,600 Federal National Mortgage Association .................................. 2,601,675
55,300 Student Loan Marketing Association ..................................... 4,126,763
----------
6,728,438
----------
Real Estate 2.9%
15,500 Developers Diversified Realty Corp. .................................... 497,938
46,800 Equity Residential Properties Trust (REIT) ............................. 1,673,100
66,600 Health Care Property Investment Inc. (REIT) ............................ 2,172,825
61,700 Meditrust SBI (REIT) ................................................... 2,136,363
101,600 Nationwide Health Properties Inc. (REIT) ............................... 2,235,200
26,000 Omega Healthcare Investors (REIT) ...................................... 780,000
53,083 Security Capital Industrial Trust ...................................... 968,765
54,128 Simon DeBartolo Group, Inc. ............................................ 1,380,264
----------
11,844,455
----------
MEDIA 0.2%
Print Media
20,900 Reader's Digest Association Inc. "A" ................................... 854,288
----------
SERVICE INDUSTRIES 0.2%
Printing/Publishing
13,900 Dun & Bradstreet Corp. ................................................. 828,788
----------
DURABLES 4.7%
Aerospace 2.9%
7,200 AAR Corp. .............................................................. 166,500
40,972 Lockheed Martin Corp. .................................................. 3,692,602
4,000 Northrop Grumman Corp. ................................................. 321,000
62,900 Rockwell International Corp. ........................................... 3,545,988
32,900 United Technologies Corp. .............................................. 3,952,113
----------
11,678,203
----------
Automobiles 1.5%
53,200 Dana Corp. ............................................................. 1,609,300
15,000 Eaton Corp. ............................................................ 905,625
70,700 Ford Motor Co. ......................................................... 2,209,375
28,900 Genuine Parts Co. ...................................................... 1,264,375
----------
5,988,675
----------
Construction/Agricultural Equipment 0.3%
20,300 PACCAR, Inc. ........................................................... 1,111,425
----------
MANUFACTURING 9.3%
Chemicals 2.8%
46,500 DSM NV (ADR) ........................................................... 1,139,250
22,800 Dow Chemical Co. ....................................................... 1,829,700
45,800 E.I. du Pont de Nemours & Co. .......................................... 4,041,850
26,400 Eastman Chemical Co. ................................................... 1,541,100
11,000 Imperial Chemical Industries PLC (ADR) (New) ........................... 580,250
93,300 Lyondell Petrochemical Co. ............................................. 2,169,225
----------
11,301,375
----------
Containers & Paper 0.7%
81,500 Stone Container Corp. .................................................. 1,273,438
48,400 Westvaco Corp. ......................................................... 1,433,850
----------
2,707,288
----------
Diversified Manufacturing 1.9%
47,100 Dresser Industries Inc. ................................................ 1,401,225
21,400 Olin Corp. ............................................................. 1,797,600
50,200 TRW Inc. ............................................................... 4,668,600
----------
7,867,425
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
56
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Market
Shares Value($)
- ------------------------------------------------------------------------------
<S><C> <C> <C>
Electrical Products 0.9%
32,200 Philips NV (New York shares) .......................... 1,155,175
57,100 Thomas & Betts Corp. .................................. 2,341,100
----------
3,496,275
----------
Industrial Specialty 0.2%
16,100 Corning Inc. .......................................... 627,900
----------
Machinery/Components/Controls 0.1%
10,400 Timken Co. ............................................ 408,200
----------
Office Equipment/Supplies 1.8%
135,900 Xerox Corp. ........................................... 7,287,633
----------
Specialty Chemicals 0.9%
55,300 Betz Laboratories Inc. ................................ 2,903,250
24,900 Witco Corp. ........................................... 818,583
----------
3,721,833
----------
ENERGY 4.6%
Oil Companies
20,400 Exxon Corp. ........................................... 1,698,300
55,500 Murphy Oil Corp. ...................................... 2,677,875
31,400 Pennzoil Co. .......................................... 1,660,275
39,900 Repsol SA (ADR) ....................................... 1,321,688
15,000 Royal Dutch Petroleum Co. (New York shares) ........... 2,341,875
61,981 Societe Nationale Elf Aquitaine (ADR) ................. 2,440,502
12,400 Texaco Inc. ........................................... 1,140,800
60,701 Total SA (ADR) ........................................ 2,374,927
123,500 YPF S.A. "D" (ADR) .................................... 2,825,061
----------
18,481,303
----------
METALS & MINERALS 1.9%
Steel & Metals
99,335 Allegheny Teledyne Inc. ............................... 2,247,454
84,000 Freeport McMoRan Copper & Gold, Inc. "A" .............. 2,478,000
101,500 Oregon Steel Mills, Inc. .............................. 1,560,563
21,900 Phelps Dodge Corp. .................................... 1,404,338
----------
7,690,355
----------
CONSTRUCTION 1.1%
Forest Products
30,700 Georgia Pacific Corp. ................................. 2,429,138
48,600 Louisiana-Pacific Corp. ............................... 1,105,650
22,400 Weyerhaeuser Co. ...................................... 1,033,200
----------
4,567,988
----------
TRANSPORTATION 0.7%
Railroads
59,100 Canadian National Railway Co. ......................... 1,211,550
19,500 Union Pacific Corp. ................................... 1,428,375
----------
2,639,925
----------
UTILITIES 3.0%
Electric Utilities
32,900 CINergy Corp. ......................................... 1,015,788
20,700 CMS Energy Corp. ...................................... 623,588
59,300 National Power PLC (GDR) .............................. 1,475,088
26,100 PacifiCorp ............................................ 538,313
50,800 Pacific Gas & Electric Co. ............................ 1,104,900
57,000 PowerGen PLC (ADR) .................................... 1,759,875
30,900 Southern Company ...................................... 699,113
</TABLE>
The accompanying notes are an integral part of the financial statements
57
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
124,600 TNP Enterprises Inc. ................................. 3,083,850
10,500 Texas Utilities Co., Inc. ............................ 416,063
63,600 Unicom Corp. ......................................... 1,597,950
-----------
12,314,528
-----------
TOTAL COMMON STOCKS (COST $181,331,287) .............. 222,341,414
===========
<CAPTION>
- --------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Investment Portfolio (Cost
$361,153,424) (a) ....................... 99.9 402,737,987
Other Assets and Liabilities, Net ......... 0.1 441,952
----- -----------
Net Assets ................................ 100.0 403,179,939
===== ===========
- --------------------------------------------------------------------------------
REIT Real Estate Investment Trust
** Effective maturities will be shorter due to prepayments.
*** Yield (unaudited); bond equivalent yield to maturity; not a coupon
rate.
(a) At September 30, 1996, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $361,182,456 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................... $44,701,820
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ......................................... (3,146,289)
-----------
Net unrealized appreciation ............................. $41,555,531
===========
- --------------------------------------------------------------------------------
For the year ended September 30, 1996, purchases and sales of
investment securities (excluding short-term investments, U.S.
Government obligations and U.S. Government Agencies) aggregated
$169,718,696 and $55,986,876, respectively. Purchases and sales of U.S.
Government obligations and U.S. Government Agencies aggregated
$96,989,449 and $44,895,774, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of future contracts closed during the year
ended September 30, 1996 was $3,641,641.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</TABLE>
The accompanying notes are an integral part of the financial statements
58
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Market
Amount($) Value($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.1%
- --------------------------------------------------------------------------------------------------------------------
2,188,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/96
at 5.7% to be repurchased at $2,188,346 on 10/1/96, collateralized
by a $1,635,000 U.S. Treasury Note, 11.625%, 11/15/04 (COST $2,188,000) ........ 2,188,000
-----------
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 2.6%
- --------------------------------------------------------------------------------------------------------------------
35,000,000 American Express Credit Corp., 11/21/96 .......................................... 34,731,044
20,000,000 Associates Corp. of North America, 10/17/96 ...................................... 19,949,756
20,000,000 General Electric Capital Services Inc., 12/4/96 .................................. 19,805,722
15,300,000 Pitney Bowes Credit Corp., 10/15/96 .............................................. 15,266,085
20,000,000 Walt Disney Co. Discount Note, 10/23/96 .......................................... 19,932,022
-----------
TOTAL COMMERCIAL PAPER (COST $109,704,595) ....................................... 109,684,629
-----------
- --------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 0.1%
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL
4,500,000 Siemens Capital Corp. with warrants, 8%, 6/24/02 (COST $5,885,818) ............... 6,075,000
-----------
- --------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 3.3%
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 1.0%
Department & Chain Stores
4,000,000 Federated Department Stores, Inc. debenture, 5%, 10/1/03 ......................... 4,480,000
34,500,000 Home Depot Inc. Convertible until 10/1/01, 3.25%, 10/1/01 ........................ 35,103,750
..................................................................................................... -----------
39,583,750
-----------
HEALTH 0.2%
Pharmaceuticals
6,260,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ............................................. 6,995,550
-----------
COMMUNICATIONS 0.0%
Telephone/Communications
1,000,000 Compania de Telefonos de Chile, S.A., 4.5%, 1/15/03 .............................. 1,200,000
-----------
FINANCIAL 1.1%
Banks 0.5%
17,290,000 MBL International Finance Bermuda, 3.0%, 11/30/02 ................................ 19,624,150
-----------
Real Estate 0.4%
18,250,000 Security Capital Corp., 6.5%, 3/29/16(b)(c) ...................................... 18,250,000
-----------
Other Financial Companies 0.2%
5,200,000 First Financial Management Corp., 5.0%, 12/15/99 ................................. 9,984,000
-----------
SERVICE INDUSTRIES 0.5%
Miscellaneous Commercial Services
25,000,000 ADT Operations Inc., Liquid Yield Option Note, 7/6/10 ............................ 14,187,500
7,036,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 .................................... 7,634,060
-----------
21,821,560
-----------
DURABLES 0.1%
Automobiles
4,000,000 Magna International, Inc., 5.0%, 10/15/02 ........................................ 4,300,000
-----------
MANUFACTURING 0.1%
Diversified Manufacturing
5,000,000 Thermo Electron Corp., 4.25%, 1/1/03 ............................................. 6,000,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Principal Market
Amount($) Value($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY 0.1%
Electronic Data Processing
8,000,000 Silicon Graphics Inc., Zero Coupon, 11/2/13 ...................................... 3,980,000
-----------
CONSTRUCTION 0.2%
Homebuilding
10,670,000 Empresa ICA Sociedad Controladora S.A., 5.0%, 3/15/04 ............................ 7,469,000
-----------
TOTAL CONVERTIBLE BONDS (COST $127,964,368) ...................................... 139,208,010
-----------
- --------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 2.8%
- --------------------------------------------------------------------------------------------------------------------
Shares
- ---------------
CONSUMER DISCRETIONARY 0.5%
Department & Chain Stores
439,800 Kmart 7.75% ...................................................................... 21,495,225
-----------
HEALTH 0.7%
Health Industry Services 0.7%
848,700 FHP International Corp.,"A", Cum. $1.25 .......................................... 26,415,788
-----------
Medical Supply & Specialty 0.0%
25,000 U.S. Surgical Corp. "A", Cum. $2.20 .............................................. 1,034,375
-----------
FINANCIAL 0.3%
Consumer Finance 0.1%
129,000 Advanta Corp. 6.75% .............................................................. 5,385,750
-----------
Real Estate 0.2%
302,400 Security Capital Industrial Trust "B" 7% ......................................... 7,408,800
-----------
MANUFACTURING 0.6%
Containers & Paper 0.1%
61,900 Boise Cascade Corp. "G", Cum $1.58 ............................................... 1,733,200
50,200 International Paper Co. 5.25% .................................................... 2,384,500
-----------
4,117,700
-----------
Industrial Specialty 0.3%
652,400 Cooper Industries, Inc. 6.0% ..................................................... 13,374,200
-----------
Wholesale Distributors 0.2%
102,800 Alco Standard Corp. 6.5% ......................................................... 9,354,800
-----------
TECHNOLOGY 0.1%
Electronic Data Processing 0.1%
50,000 Ceridian Corp. 5.5% .............................................................. 5,462,500
-----------
ENERGY 0.3%
Oil & Gas Production
215,300 Parker & Parsley Capital Corp. 6.25% ............................................. 11,706,938
-----------
METALS & MINERALS 0.3%
Precious Metals
500,000 Freeport McMoRan Copper & Gold, Inc., Cum.$1.25 .................................. 13,875,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $102,560,937) ........................... 119,631,076
-----------
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.7%
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 4.3%
Department & Chain Stores
909,800 J.C. Penney Co., Inc. ............................................................ 49,242,925
577,200 May Department Stores ............................................................ 28,066,350
1,855,200 Rite Aid Corp. ................................................................... 67,251,000
</TABLE>
The accompanying notes are an integral part of the financial statements
60
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
812,900 Sears, Roebuck & Co. ......................... 36,377,275
-----------
................................................................. 180,937,550
-----------
CONSUMER STAPLES 8.7%
Alcohol 1.1%
1,262,600 Anheuser-Busch Companies, Inc. ............... 47,505,325
-----------
Consumer Electronic & Photographic Products 1.1%
218,000 Duracell International Inc. .................. 13,979,250
605,600 Whirlpool Corp. .............................. 30,658,500
-----------
44,637,750
-----------
Consumer Specialties 0.0%
159,200 A.T. Cross Co. "A" ........................... 1,810,900
-----------
Food & Beverage 3.1%
598,400 General Mills, Inc. .......................... 36,128,400
2,064,900 H.J. Heinz Co. ............................... 69,690,375
165,200 Unilever NV (New York shares) ................ 26,039,650
-----------
131,858,425
-----------
Package Goods/Cosmetics 3.4%
618,100 Avon Products Inc. ........................... 30,673,213
215,300 Clorox Co. ................................... 20,641,888
701,300 Kimberly-Clark Corp. ......................... 61,802,063
713,000 Tambrands Inc. ............................... 30,035,125
-----------
143,152,289
-----------
HEALTH 10.4%
Medical Supply & Specialty 1.2%
1,347,200 Bausch & Lomb, Inc. .......................... 49,509,600
-----------
Pharmaceuticals 9.2%
772,800 American Home Products Corp. ................. 49,266,000
1,166,300 Baxter International Inc. .................... 53,816,300
577,000 Bristol-Myers Squibb Co. ..................... 55,608,375
546,600 Eli Lilly & Co. .............................. 35,255,700
905,500 Schering-Plough Corp. ........................ 55,688,250
661,300 SmithKline Beecham PLC (ADR) ................. 40,256,638
926,600 Warner-Lambert Co. ........................... 61,155,600
1,446,900 Zeneca Group PLC ............................. 35,964,369
300 Zeneca Group PLC (ADR) ....................... 22,275
-----------
387,033,507
-----------
COMMUNICATIONS 5.9%
Telephone/Communications
1,374,000 Alltel Corp. ................................. 38,300,250
502,700 Bell Atlantic Corp. .......................... 30,099,163
1,068,500 GTE Corp. .................................... 41,137,250
591,800 Hong Kong Telecommunications Ltd. (ADR) ...... 10,652,400
862,000 Koninklijke PTT Nederland .................... 29,647,766
1,043,100 NYNEX Corp. .................................. 45,374,850
1,127,000 Sprint Corp. ................................. 43,812,125
2,036,000 Telecom Corp. of New Zealand ................. 9,564,345
-----------
248,588,149
-----------
FINANCIAL 18.3%
Banks 8.9%
286,000 AmSouth Bancorp. ............................. 12,727,000
590,000 Argentaria Corporacion Bancaria de Espana .... 24,428,360
125,500 BankAmerica Corp. ............................ 10,306,688
</TABLE>
The accompanying notes are an integral part of the financial statements
61
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
804,600 Bankers Trust New York Corp. .................... 63,261,675
649,200 Chase Manhattan Corp. (New) ..................... 52,017,150
983,800 CoreStates Financial Corp. ...................... 42,549,350
712,300 First Bank System Inc. .......................... 47,635,063
299,400 First Chicago NBD Corp. ......................... 13,547,850
574,800 J.P. Morgan & Co., Inc. ......................... 51,085,350
980,200 KeyCorp (New) ................................... 43,128,800
120,900 NationsBank Corp. ............................... 10,503,188
128,500 Nordbanken AB ................................... 3,293,630
-----------
374,484,104
-----------
Insurance 2.9%
477,423 Allstate Corp. .................................. 23,513,085
979,100 EXEL, Ltd. ...................................... 34,023,725
306,600 Hartford Steam Boiler Inspection &
Insurance Co. ................................. 13,720,350
1,110,200 Lincoln National Corp. .......................... 48,710,025
-----------
119,967,185
-----------
Other Financial Companies 2.8%
1,237,800 Federal National Mortgage Association ........... 43,168,275
1,045,000 Student Loan Marketing Association .............. 77,983,125
-----------
121,151,400
-----------
Real Estate 3.7%
245,800 Avalon Properties, Inc. (REIT) .................. 5,714,850
386,200 Camden Property Trust (REIT) .................... 9,896,375
88,500 Charles E. Smith Residential Realty, Inc. (REIT) 2,135,063
235,000 Developers Diversified Realty Corp. (REIT) ...... 7,549,375
28,000 Equity Residential Properties Trust (REIT) ...... 1,001,000
1,716,600 General Growth Properties, Inc. (REIT) .......... 42,700,425
409,800 Health Care Property Investment Inc. (REIT) ..... 13,369,725
31,100 Mark Centers Trust (REIT) ....................... 338,213
457,900 Meditrust SBI (REIT) ............................ 15,854,788
680,800 Nationwide Health Properties Inc. (REIT) ........ 14,977,600
71,200 Post Properties Inc. (REIT) ..................... 2,607,700
17,398 Security Capital Corp.(b)(c) .................... 18,510,962
431,708 Security Capital Industrial Trust (REIT) ........ 7,878,671
451,200 South West Property Trust Inc. (REIT) ........... 6,260,400
150,000 Spieker Properties, Inc. (REIT) ................. 4,406,250
102,100 Vornado Realty Trust (REIT) ..................... 4,135,050
-----------
157,336,447
-----------
MEDIA 0.3%
Print Media
336,400 Reader's Digest Association Inc. "A" ............ 13,750,350
-----------
SERVICE INDUSTRIES 0.3%
Printing/Publishing
242,200 Dun & Bradstreet Corp. .......................... 14,441,175
-----------
DURABLES 7.5%
Aerospace 4.3%
128,700 AAR Corp. ....................................... 2,976,188
604,700 Lockheed Martin Corp. ........................... 54,498,588
79,000 Northrop Grumman Corp. .......................... 6,339,750
934,300 Rockwell International Corp. .................... 52,671,163
546,900 United Technologies Corp. ....................... 65,696,363
-----------
182,182,052
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
62
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobiles 2.7%
941,900 Dana Corp. ..................................... 28,492,475
444,100 Eaton Corp. .................................... 26,812,538
1,145,700 Ford Motor Co. ................................. 35,803,125
471,400 Genuine Parts Co. .............................. 20,623,750
-----------
111,731,888
-----------
Construction/Agricultural Equipment 0.5%
383,400 PACCAR, Inc. ................................... 20,991,150
-----------
MANUFACTURING 18.0%
Chemicals 5.2%
390,900 DSM Group NV ................................... 38,348,146
518,300 Dow Chemical Co. ............................... 41,593,575
823,600 E.I. du Pont de Nemours & Co. .................. 72,682,700
489,900 Eastman Chemical Co. ........................... 28,597,913
800,000 Imperial Chemical Industries PLC ............... 10,581,083
1,254,000 Lyondell Petrochemical Co. ..................... 29,155,500
-----------
220,958,917
-----------
Containers & Paper 1.9%
566,900 Bowater, Inc. .................................. 21,542,200
2,150,500 Stone Container Corp. .......................... 33,601,563
883,900 Westvaco Corp. ................................. 26,185,538
-----------
81,329,301
-----------
Diversified Manufacturing 3.1%
941,000 Dresser Industries Inc. ........................ 27,994,750
299,900 Olin Corp. ..................................... 25,191,600
833,100 TRW Inc. ....................................... 77,478,300
-----------
130,664,650
-----------
Electrical Products 2.0%
815,000 Philips Electronics N.V. ....................... 29,411,387
367,300 Philips NV (New York shares) ................... 13,176,888
1,014,600 Thomas & Betts Corp. ........................... 41,598,600
-----------
84,186,875
-----------
Industrial Specialty 0.5%
525,600 Corning Inc. ................................... 20,498,400
-----------
Machinery/Components/Controls 0.7%
925,000 S.K.F. AB "B" (Free)* .......................... 22,244,629
214,500 Timken Co. ..................................... 8,419,125
-----------
30,663,754
-----------
Office Equipment/Supplies 2.8%
2,192,100 Xerox Corp. .................................... 117,551,363
-----------
Specialty Chemicals 1.8%
204,800 ARCO Chemical Co. .............................. 10,240,000
709,000 Betz Laboratories Inc. ......................... 37,222,500
306,400 Petrolite Corp. ................................ 10,264,400
501,600 Witco Corp. .................................... 16,490,100
-----------
74,217,000
-----------
ENERGY 7.2%
Oil Companies
309,500 Exxon Corp. .................................... 25,765,875
395,300 Murphy Oil Corp. ............................... 19,073,225
527,100 Pennzoil Co. ................................... 27,870,413
545,900 Repsol SA (ADR) ................................ 18,082,938
264,700 Royal Dutch Petroleum Co. (New York shares) .... 41,326,288
</TABLE>
The accompanying notes are an integral part of the financial statements
63
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Shares Value($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
488,800 Societe Nationale Elf Aquitaine .............. 38,220,176
255,900 Texaco Inc. .................................. 23,542,800
558,448 Total SA "B" ................................. 43,947,171
569,496 Total SA (ADR) ............................... 22,281,531
1,941,300 YPF S.A. "D" (ADR) ........................... 44,407,238
-------------
304,517,655
-------------
METALS & MINERALS 2.5%
Precious Metals 0.3%
405,000 De Beers Consolidated Mines Ltd. (ADR) ....... 12,555,000
-------------
STEEL & METALS 2.2%
1,815,310 Allegheny Teledyne Inc. ...................... 41,071,389
579,010 Freeport McMoRan Copper & Gold, Inc. "A" ..... 17,080,795
1,061,900 J & L Specialty Steel, Inc. .................. 14,468,388
297,500 Phelps Dodge Corp. ........................... 19,077,188
-------------
91,697,760
-------------
CONSTRUCTION 1.4%
Forest Products
509,600 Georgia Pacific Corp. ........................ 40,322,100
394,900 Weyerhaeuser Co. ............................. 18,214,763
-------------
58,536,863
-------------
TRANSPORTATION 1.8%
Airlines 0.3%
171,180 Delta Air Lines, Inc. ........................ 12,324,960
-------------
Railroads 1.5%
1,200,900 Canadian National Railway Co. ................ 24,618,450
141,100 Norfolk Southern Corp. ....................... 12,893,013
339,200 Union Pacific Corp. .......................... 24,846,400
-------------
62,357,863
-------------
UTILITIES 5.1%
Electric Utilities
519,300 CINergy Corp. ................................ 16,033,388
261,200 CMS Energy Corp. ............................. 7,868,650
1,468,800 China Light & Power Co. Ltd. (ADR) ........... 6,829,920
577,367 National Power PLC ........................... 3,560,669
250,000 National Power PLC (GDR) ..................... 6,218,750
553,600 PacifiCorp ................................... 11,418,000
824,500 Pacific Gas & Electric Co. ................... 17,932,875
8,586,000 PowerGen PLC ................................. 65,045,862
942,503 PowerGen PLC (Sponsored ADR) ................. 29,099,780
636,400 Southern Company ............................. 14,398,550
224,600 Texas Utilities Co., Inc. .................... 8,899,775
1,035,400 Unicom Corp. ................................. 26,014,410
-------------
213,320,629
-------------
TOTAL COMMON STOCKS (COST $2,933,400,128) .... 3,866,450,236
-------------
<CAPTION>
- --------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST
$3,281,703,846)(a) ................ 100.6 4,243,236,951
OTHER ASSETS AND LIABILITIES, NET ... (0.6) (24,253,553)
----- -------------
NET ASSETS .......................... 100.0 4,218,983,398
===== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REIT Real Estate Investment Trust
<TABLE>
(a) At September 30, 1996, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$3,279,384,207 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an excess of value
over tax cost ................................................................................... $989,964,050
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over value ................................................................................. (26,111,306)
------------
Net unrealized appreciation ....................................................................... $963,852,744
============
</TABLE>
(b) Securities valued in good faith by the Valuation Committee of the
Board of Trustees amounted to $36,760,962 (.87% of net assets). The
cost of these securities at September 30, 1996 was $36,500,000.
<TABLE>
(c) Restricted Securities -- securities which have not been registered
with the Securities and Exchange Commission under the Securities Act
of 1933. Information concerning such restricted securities at
September 30, 1996 is as follows:
<CAPTION>
Security Acquisition Date Cost ($)
-------- ---------------- --------
<S> <C> <C>
Security Capital Corp. 4/19/96 18,250,000
Security Capital Corp., 6.5%, 3/29/16 4/19/96 18,250,000
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
At September 30, 1996, outstanding written call options were as follows (Note 1):
<CAPTION>
Number of Expiration Strike Market
Contracts Date Price ($) Value ($)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Xerox Corp.
(Premiums received $19,199) ... 400 Nov. 96 60.00 20,000
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short#term
investments) for the year ended September 30, 1996, aggregated
$1,515,643,194 and $863,095,769, respectively. In addition the Fund wrote a
call option on Xerox Corp. (premium received $19,199).
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP GLOBAL GROWTH FUND
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 8.4%
- ------------------------------------------------------------------------------------------------------------------------------------
6,496,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/96 at 5.7% to be
repurchased at $6,497,029 on 10/1/96, collateralized by a $6,488,000 U.S. Treasury Note,
5.875%, 7/31/97 (COST $6,496,000) ........................................................... 6,496,000
---------
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
GHANA
13,000 Ashanti Capital Corp., 5.5%, 3/15/03 (COST $13,000) ........................................... 11,765
---------
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 2.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ---------------
GERMANY
36,582 RWE AG (Producer and marketer of petroleum and chemical products) ............................. 1,117,474
4,455 SAP AG (Computer software manufacturer) ....................................................... 748,261
---------
TOTAL PREFERRED STOCKS (COST $1,782,317) ...................................................... 1,865,735
---------
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.6%
- ------------------------------------------------------------------------------------------------------------------------------------
ARGENTINA 0.2%
8,300 YPF S.A. "D" (ADR) (Petroleum company) ........................................................ 189,863
---------
AUSTRALIA 2.9%
46,619 Broken Hill Proprietary Co. Ltd. (Petroleum, minerals and steel) .............................. 597,952
493,058 Fosters Brewing Group Ltd. (Leading brewery) .................................................. 886,160
118,000 Woodside Petroleum Ltd. (Major oil and gas producer) .......................................... 782,914
---------
2,267,026
---------
AUSTRIA 1.0%
14,100 Flughafen Wien AG (Operator of terminals and facilities at Vienna International Airport) ...... 743,003
---------
BERMUDA 0.2%
3,450 Mid Ocean Limited (Property and casualty insurance company) ................................... 147,052
---------
BRAZIL 2.2%
77,300 Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp) ............................... 676,375
3,071,000 Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility) .............................. 809,068
6,200,000 Companhia Energetica de Minas Gerais (Electric power utility) ................................. 210,097
771,000 Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) .......................... 23,031
---------
1,718,571
---------
CANADA 3.6%
26,505 Barrick Gold Corp. (Gold exploration and production in North and South America) ............... 662,552
16,200 Canadian National Railway Co. (Operator of one of Canada's two principal railroads) ........... 332,100
49,650 Canadian Pacific Ltd. (Ord.) (Transportation and natural resource conglomerate) ............... 1,151,811
28,145 Placer Dome Inc. (Gold, silver and copper mining company) ..................................... 665,322
---------
2,811,785
---------
FRANCE 3.5%
5,051 Alcatel Alsthom (Manufacturer of transportation, telecommunication and energy equipment) ...... 425,847
9,328 Compagnie Financiere de Paribas (Finance and investment company) .............................. 599,535
11,800 Lafarge SA (Leading producer of cement, concrete and aggregates) .............................. 695,596
21,466 Schneider SA (Manufacturer of electronic components and automated manufacturing systems) ...... 1,009,822
---------
2,730,800
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GERMANY 14.3%
365 Allianz AG Holding (Insurance holding company) ................................................ 643,886
51,510 BASF AG (Leading international chemical producer) ............................................. 1,619,016
43,320 Bayer AG (Leading chemical producer) .......................................................... 1,588,528
18,740 Bayerische Vereinsbank Girozentrale (Commercial bank) ......................................... 650,375
17,300 Daimler-Benz AG (Automobile and truck manufacturer)* .......................................... 950,444
43,550 Hoechst AG (Chemical producer) ................................................................ 1,587,836
2,537 Mannesmann AG (Bearer) (Diversified construction and technology) .............................. 950,243
525 Muenchener Rueckversicherungs AG (Insurance company) .......................................... 928,200
8,860 Schering AG (Pharmaceutical and chemical producer) ............................................ 684,595
12,350 Siemens AG (Leading electrical engineering and electronics company) ........................... 650,677
16,036 VEBA AG (Electric utility, distributor of oil and chemicals) .................................. 838,998
----------
11,092,798
----------
GHANA 1.1%
51,600 Ashanti Goldfields Co., Ltd. (ADS) (Leading gold producer) .................................... 864,300
----------
HONG KONG 1.8%
136,000 Hutchison Whampoa, Ltd. (Container terminal and real estate company) .......................... 914,522
131,000 Television Broadcasts, Ltd. (Television broadcasting) ......................................... 487,036
----------
1,401,558
----------
INDONESIA 0.9%
2,730 Asia Pulp & Paper Co., Ltd. (ADR) (Producer of pulp and paper)* ............................... 32,419
53,500 HM Sampoerna (Foreign registered) (Tobacco company) ........................................... 520,715
184,071 Indah Kiat Pulp & Paper (Foreign registered) (Producer of pulp and paper) ..................... 140,709
5,775 Indah Kiat Pulp & Paper Warrants* ............................................................. 2,363
18,000 Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper factory) ................................ 17,636
----------
713,842
----------
JAPAN 8.1%
33,000 Bridgestone Corp. (Leading automobile tire manufacturer) ...................................... 594,302
46,000 Canon Inc. (Leading producer of visual image and information equipment) ....................... 902,607
44,000 Hitachi Ltd. (General electronics manufacturer) ............................................... 425,768
6,000 Japan Associated Finance Co. (Venture capital company) ........................................ 542,962
52,000 Matsushita Electrical Industrial Co., Ltd. (Leading manufacturer of consumer
electronic products) ........................................................................ 871,248
1,000 Nichiei Co., Ltd. (Finance company for small- and medium-sized firms) ......................... 65,765
10,300 SMC Corp. (Leading maker of pneumatic equipment) .............................................. 719,828
1,300 Shohkoh Fund & Co., Ltd. (Finance company for small- and medium-sized firms) .................. 292,357
10,000 Sony Corp. (Consumer electronic products manufacturer) ........................................ 629,872
128,000 Sumitomo Metal Industries, Ltd. (Leading integrated crude steel producer) ..................... 362,405
101,000 Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper mining company) .............. 851,546
----------
6,258,660
----------
KOREA 2.1%
24,600 Korea Electric Power Co. (ADR) (Electric utility) ............................................. 464,325
25,250 Korea Express Co., Ltd. (EDR) ................................................................. 366,125
32,000 Yukong, Ltd. (Korea's leading oil refiner) .................................................... 813,559
752 Yukong, Ltd. Rights* .......................................................................... 4,916
----------
1,648,925
----------
NETHERLANDS 1.7%
13,299 AEGON Insurance Group NV (Insurance company) .................................................. 656,213
21,607 Internationale Nederland Groep NV (Insurance and financial services) .......................... 673,760
----------
1,329,973
----------
NEW ZEALAND 0.7%
108,700 Telecom Corp. of New Zealand (Telecommunication services) ..................................... 510,631
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
67
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH AFRICA 0.9%
24,343 Rustenburg Platinum Holdings, Ltd. (ADR) (Leading platinum producer) .......................... 374,274
29,030 Sasol Ltd. (Coal mining and processing, crude oil exploration and refining,
petrochemical production) ................................................................... 342,358
---------
716,632
---------
SWEDEN 7.2%
53,000 AGA AB Free "B" (Producer and distributor of industrial and medical gases) .................... 863,023
19,585 Astra AB "A" (Free) (Pharmaceutical company) .................................................. 826,807
10,600 Autoliv AB (Manufacturer of automobile safety bags) ........................................... 457,083
11,078 Diligentia AB (Real estate investment co.)* ................................................... 131,951
38,765 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ........................................ 932,230
33,252 Skandia Foersaekrings AB (Free) (Financial conglomerate) ...................................... 919,976
127,585 Skandinaviska Enskilda Banken (Commercial bank) ............................................... 1,115,708
15,100 Volvo AB "B" (Free) (Automobile manufacturer) ................................................. 324,425
---------
5,571,203
---------
SWITZERLAND 8.2%
11,748 CS Holdings (Registered) (Provider of bank services, management services and life insurance) .. 1,160,944
680 Ciba-Geigy AG (Bearer) (Pharmaceutical company) ............................................... 865,445
1,605 Holderbank Financiere Glaris AG (Bearer) (Cement producer) .................................... 1,163,970
1,257 Nestle SA (Registered) (Food manufacturer) .................................................... 1,400,451
2 Sandoz AG (Bearer) (Pharmaceutical company) ................................................... 2,391
702 Sandoz Ltd. AG (Registered) (Pharmaceutical company) .......................................... 842,534
226 Swiss Reinsurance (Registered) (Life, accident and health insurance company) .................. 238,103
2,354 Zurich Insurance Group (Registered) (Insurance company) ....................................... 650,971
---------
6,324,809
---------
UNITED KINGDOM 9.9%
66,700 BOC Group PLC (Producer of industrial gases) .................................................. 914,040
105,333 Carlton Communications PLC (Television post production products and services) ................. 796,334
96,800 General Electric Co., PLC (Manufacturer of power, communications and defense
equipment and other various electrical components) .......................................... 599,246
126,620 Grand Metropolitan PLC (Food and drink producer and retailer) ................................. 944,384
61,190 Kingfisher PLC (Retailer of wide range of consumer goods and merchandise) ..................... 606,751
224,915 Lonrho PLC (Widely diversified industrial holding company) .................................... 600,242
75,605 PowerGen PLC (Electric utility) ............................................................... 572,769
54,354 RTZ Corp., PLC (Mining and finance company) ................................................... 832,484
57,941 Reuters Holdings PLC (International news agency) .............................................. 669,761
76,300 Shell Transport & Trading PLC (Part owner of Royal Dutch Shell Co.) ........................... 1,165,735
---------
7,701,746
---------
UNITED STATES 21.1%
30,000 Anheuser-Busch Companies, Inc. (Leading brewery) .............................................. 1,128,750
4,100 Boeing Co. (Manufacturer of jet airplanes) .................................................... 387,450
15,000 Champion International Corp. (Manufacturer of wood-based products) ............................ 688,125
15,500 Charles Schwab Corp. (Discount brokerage services) ............................................ 358,438
30,520 EXEL, Ltd. (Provider of liability insurance) .................................................. 1,060,570
22,010 Enron Corp. (Major natural gas pipeline system) ............................................... 896,908
11,650 First Data Corp. (Credit-card processing services) ............................................ 950,931
1,700 General Re Corp. (Property and casualty reinsurance) .......................................... 240,975
39,250 Homestake Mining Co. (Major international gold producer) ...................................... 574,031
7,750 International Business Machines Corp. (Principal manufacturer and servicer of
business and computing machines) ............................................................ 964,875
8,800 J.P. Morgan & Co., Inc. (Commercial banking and financial services) ........................... 782,100
36,470 Louisiana-Pacific Corp. (Producer of lumber, plywood and pulp) ................................ 829,693
</TABLE>
The accompanying notes are an integral part of the financial statements
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
18,110 MBIA Inc. (Insurer of municipal bonds) ........................................................ 1,552,933
24,600 National Semiconductor Corp. (Manufacturer of integrated circuits and transistors)* ........... 495,075
14,200 Newmont Mining Corp. (International gold exploration and mining company) ...................... 670,950
7,800 Parametric Technology Corp. (Mechanical design software producer)* ............................ 385,125
8,700 Parker-Hannifin Group (Fluid control components) .............................................. 365,400
17,000 Praxair Inc. (Producer of industrial gases and specialized coatings) .......................... 731,000
32,400 Stillwater Mining Co. (Exploration and development of mines in Montana producing
platinum, palladium and associated metals)* ................................................. 607,500
14,900 UNUM Corp. (Provider of disability, health and life insurance and group pension products) ..... 955,463
25,650 WMX Technologies Inc. (Solid and chemical waste management services) .......................... 843,244
17,250 Xerox Corp. (Leading manufacturer of copiers and duplicators) ................................. 925,031
----------
16,394,567
----------
TOTAL COMMON STOCKS (COST $70,237,701) ........................................................ 71,137,744
----------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $78,529,018) (a) .......................... 102.4 79,511,244
OTHER ASSETS AND LIABILITIES, NET .......................................... (2.4) (1,859,266)
----- ----------
NET ASSETS ................................................................. 100.0 77,651,978
===== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
* Non income producing security.
</TABLE>
<TABLE>
(a) At September 30, 1996, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$78,552,697 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an excess of
value over tax cost ............................................................................ $ 3,538,505
Aggregate gross unrealized depreciation for all investments in which there is an excess of
tax cost over value ............................................................................ (2,579,958)
-----------
Net unrealized appreciation ...................................................................... $ 958,547
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities, (excluding short-term
investments) from February 1, 1996 through September 30, 1996, aggregated
$75,990,024 and $3,917,974, respectively.
- --------------------------------------------------------------------------------
From February 1, 1996 through September 30, 1996, the Fund incurred
approximately $33,467 of net realized capital losses which the Fund intends
to elect to defer and treat as arising in the fiscal year ended September
30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
- --------------------------------------------------------------------------------
Sector breakdown of the Fund's equity securities is noted on page 25.
The accompanying notes are an integral part of the financial statements
69
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
- -----------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------------
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.0%
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
16,328,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 9/30/96 at 5.7% to be repurchased at $16,330,585
on 10/1/96, collateralized by a $15,967,000 U.S.
Treasury Note, 6.5%, 4/30/97 (COST $16,328,000) .......... 16,328,000
------------
- -----------------------------------------------------------------------------------------------
COMMON STOCKS 98.0%
- -----------------------------------------------------------------------------------------------
Shares
- ------
CONSUMER DISCRETIONARY 6.4%
Department & Chain Stores 3.6%
200,000 J.C. Penney Co., Inc. ...................................... 10,825,000
200,000 May Department Stores ...................................... 9,725,000
250,000 Walgreen Co. ............................................... 9,250,000
------------
29,800,000
------------
Restaurants 2.0%
350,000 McDonald's Corp. ........................................... 16,581,250
------------
Specialty Retail 0.8%
346,800 Intimate Brands, Inc. ...................................... 6,329,100
------------
CONSUMER STAPLES 7.1%
Alcohol 1.5%
330,000 Anheuser-Busch Companies, Inc. ............................. 12,416,250
------------
Food & Beverage 2.1%
185,000 Albertson's Inc. ........................................... 7,793,125
200,000 ConAgra Inc. ............................................... 9,850,000
------------
17,643,125
------------
Package Goods/Cosmetics 3.5%
130,000 Clorox Co. ................................................. 12,463,750
145,600 Estee Lauder Companies "A" ................................. 6,533,800
100,000 Procter & Gamble Co. ....................................... 9,750,000
------------
28,747,550
------------
HEALTH 14.3%
Health Industry Services 1.2%
300,000 Bergen Brunswig Corp. "A" .................................. 9,525,000
------------
Hospital Management 1.7%
250,000 Columbia/HCA Healthcare Corp. .............................. 14,218,750
------------
Medical Supply & Specialty 1.6%
308,000 Becton, Dickinson & Co. .................................... 13,629,000
------------
Pharmaceuticals 9.8%
180,000 American Home Products Corp. ............................... 11,475,000
180,000 Johnson & Johnson .......................................... 9,225,000
150,000 Merck & Co. Inc. ........................................... 10,556,250
215,000 Pfizer, Inc. ............................................... 17,011,875
197,100 Sandoz Ltd. AG (ADR) ....................................... 11,813,681
115,000 Schering-Plough Corp. ...................................... 7,072,500
210,000 Warner-Lambert Co. ......................................... 13,860,000
------------
81,014,306
------------
FINANCIAL 16.8%
Banks 5.0%
225,000 Citicorp ................................................... 20,390,625
125,000 First Chicago NBD Corp. .................................... 5,656,250
</TABLE>
The accompanying notes are an integral part of the financal statements.
70
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
80,000 J.P. Morgan & Co., Inc. .................................... 7,110,000
200,000 Norwest Corp. .............................................. 8,175,000
------------
41,331,875
------------
Insurance 5.5%
180,000 American International Group, Inc. ......................... 18,135,000
360,000 EXEL, Ltd. ................................................. 12,510,000
176,000 MBIA Inc. .................................................. 15,092,000
------------
45,737,000
------------
Consumer Finance 1.1%
211,700 Associates First Capital Corp. ............................. 8,679,700
------------
Other Financial Companies 5.2%
410,000 American Express Credit Corp. .............................. 18,962,500
700,000 Federal National Mortgage Association ...................... 24,412,500
------------
43,375,000
------------
MEDIA 1.0%
Broadcasting & Entertainment
130,000 Walt Disney Co. ............................................ 8,238,750
------------
SERVICE INDUSTRIES 3.7%
Investment 2.5%
200,000 Franklin Resources Inc. .................................... 13,275,000
120,000 Merrill Lynch & Co., Inc. .................................. 7,875,000
------------
21,150,000
------------
Miscellaneous Commercial Services 1.2%
291,000 Manpower, Inc. ............................................. 9,675,750
------------
DURABLES 4.9%
Aerospace 4.3%
100,000 Lockheed Martin Corp. ...................................... 9,012,500
235,000 Rockwell International Corp. ............................... 13,248,125
110,000 United Technologies Corp. .................................. 13,213,750
------------
35,474,375
------------
Telecommunications Equipment 0.6%
80,000 Ascend Communications, Inc.* ............................... 5,290,000
------------
MANUFACTURING 11.7%
Chemicals 3.5%
140,000 E.I. du Pont de Nemours & Co. .............................. 12,355,000
195,700 Praxair Inc. ............................................... 8,415,100
145,000 Sigma-Aldrich Corp. ........................................ 8,265,000
------------
29,035,100
------------
Diversified Manufacturing 3.6%
95,000 General Electric Co. ....................................... 8,645,000
120,000 TRW Inc. ................................................... 11,160,000
120,000 Textron, Inc. .............................................. 10,200,000
------------
30,005,000
------------
Electrical Products 1.9%
75,000 ABB AB (ADR) ............................................... 7,875,000
83,000 Emerson Electric Co. ....................................... 7,480,375
------------
15,355,375
------------
Machinery/Components/Controls 2.7%
200,000 Ingersoll-Rand Co. ......................................... 9,500,000
297,000 Parker-Hannifin Group ...................................... 12,474,000
------------
21,974,000
------------
</TABLE>
The accompanying notes are an integral part of the financal statements.
71
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 16.1%
Diverse Electronic Products 3.5%
485,000 Applied Materials, Inc.* ................................... 13,398,125
270,000 General Motors Corp. "H" ................................... 15,592,500
------------
28,990,625
------------
Electronic Data Processing 5.5%
510,000 Hewlett-Packard Co. ........................................ 24,862,500
35,000 International Business Machines Corp. ...................... 4,357,500
260,000 Sun Microsystems, Inc. * ................................... 16,152,500
------------
45,372,500
------------
Military Electronics 1.0%
150,000 Raytheon Co. ............................................... 8,343,750
------------
Office/Plant Automation 2.0%
120,000 Cabletron Systems Inc.* .................................... 8,205,000
126,400 Cisco Systems, Inc.* ....................................... 7,844,700
------------
16,049,700
------------
Semiconductors 4.1%
410,000 Atmel Corp.* ............................................... 12,658,750
225,000 Intel Corp. ................................................ 21,473,438
------------
34,132,188
------------
ENERGY 11.1%
Engineering 0.8%
110,000 Fluor Corp. ................................................ 6,765,000
------------
Oil Companies 8.8%
125,000 Amoco Corp. ................................................ 8,812,500
100,000 Atlantic Richfield Co. ..................................... 12,750,000
143,000 Exxon Corp. ................................................ 11,904,750
105,000 Mobil Corp. ................................................ 12,153,750
254,800 Repsol SA (ADR) ............................................ 8,440,250
116,000 Royal Dutch Petroleum Co. (New York shares) ................ 18,110,500
------------
72,171,750
------------
Oil/Gas Transmission 1.5%
220,000 Enron Corp. ................................................ 8,965,000
70,000 Williams Cos., Inc. ........................................ 3,570,000
------------
12,535,000
------------
TRANSPORTATION 2.9%
Airlines 1.3%
135,000 AMR Corp.* ................................................. 10,749,375
------------
Railroads 1.6%
300,000 Canadian Pacific Ltd. ...................................... 6,937,500
173,300 Wisconsin Central Transportation Co.* ...................... 6,217,137
------------
13,154,637
------------
UTILITIES 2.0%
Electric Utilities
350,000 Eastern Utilities Association .............................. 5,906,250
60,000 Illinova Corp. ............................................. 1,590,000
285,000 PowerGen PLC (Sponsored ADR) ............................... 8,799,375
------------
16,295,625
------------
TOTAL COMMON STOCKS (COST $635,558,418) ................... 809,786,406
------------
</TABLE>
The accompanying notes are an integral part of the financal statements.
72
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Market
Value ($)
- -----------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $651,886,418) (a) ....... 100.0 826,114,406
OTHER ASSETS AND LIABILITIES, NET ........................ 0.0 22,307
----- -----------
NET ASSETS ............................................... 100.0 826,136,713
===== ===========
- -----------------------------------------------------------------------------------------------
* Nonincome producing security.
(a) At September 30, 1996, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $651,886,418 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ......................................... $186,762,238
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ......................................... (12,534,250)
------------
Net unrealized appreciation ................................................. $174,227,988
============
- -----------------------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term investments), for the
year ended September 30, 1996, aggregated $505,361,929 and $477,699,166, 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.
</TABLE>
The accompanying notes are an integral part of the financal statements.
73
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP HIGH AARP HIGH AARP GNMA AARP HIGH
QUALITY QUALITY TAX FREE AND U.S. QUALITY
SEPTEMBER 30, 1996 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). $409,711,163 $110,537,355 $4,879,876,835 $521,815,834
Cash .......................................... 615,980 94,688 713 396
Receivable on investments sold ................ -- -- -- 17,818,066
Dividends and interest receivable ............. 1,794,041 544,805 40,856,909 6,387,797
Receivable on Fund shares sold ................ 1,798,471 389,494 1,507,742 158,373
Daily variation margin on futures
contracts (Note 1) .......................... -- -- -- 32,687
Deferred organization expenses (Note 1) ....... -- -- -- --
Other assets .................................. 3,624 1,215 46,575 1,968
------------ ------------ -------------- ------------
Total assets .................................. 413,923,279 111,567,557 4,922,288,774 546,215,121
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------
Investments purchased (Note 1) ................ -- -- -- 32,903,000
Fund shares redeemed .......................... 1,294,574 151,000 3,738,944 270,184
Dividends payable ............................. 144,916 49,223 11,149,116 704,498
Management fee (Note 2) ....................... 131,854 35,772 1,674,064 201,910
Transfer and dividend disbursing agent (Note 2) 128,559 24,379 583,890 127,309
Written options, at market (Note 1) ........... -- -- -- --
Other accrued expenses ........................ 97,183 42,455 702,916 103,054
------------ ------------ -------------- ------------
Total liabilities ............................. 1,797,086 302,829 17,848,930 34,309,955
- ------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $412,126,193 $111,264,728 $4,904,439,844 $511,905,166
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net
investment income ..................... $ -- $ -- $ -- $ 176,290
Net unrealized appreciation (depreciation) on:
Investments ................................. (135,120) -- (2,427,542) (4,569,944)
Futures contracts ........................... -- -- -- --
Options ..................................... -- -- -- --
Foreign currency related transactions ....... -- -- -- --
Accumulated net realized capital gain (loss) .. (64,326) (825,973) (322,435,519) (8,938,091)
Paid-in capital ............................... 412,325,639 112,090,701 5,229,302,905 525,236,911
- ------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $412,126,193 $111,264,728 $4,904,439,844 $511,905,166
- ------------------------------------------------------------------------------------------------------------------------
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 ....... 412,261,312 111,270,214 328,879,292 32,366,706
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption
price per share ............................. $ 1.00 $ 1.00 $ 14.91 $ 15.82
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
74
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AARP INSURED AARP BALANCED AARP GROWTH AARP GLOBAL AARP CAPITAL
TAX FREE GENERAL STOCK AND BOND AND INCOME GROWTH GROWTH
BOND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$1,740,393,909 $402,737,987 $4,243,236,951 $79,511,244 $826,114,406
34,236 505 19,171 954 688
3,256,885 1,755,752 36,747,825 -- 18,840,209
22,192,373 2,525,052 12,475,946 136,433 777,228
344,041 636,205 4,127,346 128,702 451,210
323,437 -- -- -- --
-- 21,057 -- 13,013 --
4,388 -- 4,287 -- 1,395
- -------------- ------------ -------------- ----------- ------------
1,766,549,269 407,676,558 4,296,611,526 79,790,346 846,185,136
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
6,074,420 3,870,932 72,648,281 1,671,784 18,645,035
1,258,613 267,646 2,262,116 70,499 711,333
2,783,961 -- -- -- --
691,980 156,076 1,633,200 91,130 404,190
153,812 65,804 341,417 178,759 99,288
-- -- 20,000 -- --
174,261 136,161 723,114 126,196 188,577
- -------------- ------------ -------------- ----------- ------------
11,137,047 4,496,619 77,628,128 2,138,368 20,048,423
- -------------------------------------------------------------------------------------------------------
$1,755,412,222 $403,179,939 $4,218,983,398 $77,651,978 $826,136,713
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
$ -- $ 535,899 $ 7,239,912 $ 288,631 $ 7,179,969
78,881,629 41,584,563 961,533,105 982,226 174,227,988
(1,892,075) -- -- -- --
-- -- (801) -- --
-- 163 (10,386) (336) 74
(10,611,830) 4,039,132 149,472,235 (33,467) 66,173,430
1,689,034,498 357,020,182 3,100,749,333 76,414,924 578,555,252
- -------------------------------------------------------------------------------------------------------
$1,755,412,222 $403,179,939 $4,218,983,398 $77,651,978 $826,136,713
- -------------------------------------------------------------------------------------------------------
98,088,821 22,865,594 96,018,596 5,012,508 19,005,749
- -------------------------------------------------------------------------------------------------------
$ 17.90 $ 17.63 $ 43.94 $ 15.49 $ 43.47
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
75
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP HIGH AARP HIGH AARP GNMA AARP HIGH
YEAR ENDED SEPTEMBER 30, 1996 QUALITY QUALITY TAX FREE AND U.S. QUALITY
MONEY FUND MONEY FUND TREASURY FUND BOND FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------
Income:
Interest .............................................. $21,267,455 $4,174,016 $ 366,995,391 $35,170,631
Dividends ............................................. -- -- -- --
----------- ---------- ------------- -----------
21,267,455 4,174,016 366,995,391 35,170,631
Less foreign taxes withheld ........................... -- -- -- --
----------- ---------- ------------- -----------
21,267,455 4,174,016 366,995,391 35,170,631
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------------------------------------------------
Management fee (Note 2) ............................... 1,522,929 453,559 21,113,592 2,550,245
Services to shareholders:
Transfer and dividend disbursing
expense (Note 2) .................................. 1,526,580 304,924 7,340,012 1,586,232
Other expenses ...................................... 297,429 37,433 1,801,487 219,955
Trustees' fees and expenses (Note 2) .................. 19,028 25,712 29,609 29,612
Shareholder communications ............................ 150,104 43,965 1,211,761 173,354
Legal ................................................. 11,258 11,829 11,787 8,672
Auditing .............................................. 29,100 27,600 67,550 48,950
Custodian and accounting fees (Note 2) ................ 84,436 54,551 1,051,789 139,911
Registration expenses ................................. 61,916 13,885 42,116 16,194
Amortization of organization expenses
(Note 1) ............................................ -- -- -- --
Other ................................................. 21,199 9,303 174,069 21,990
----------- ---------- ------------- -----------
Total Expenses before reductions ........................ 3,723,979 982,761 32,843,772 4,795,115
Expense reductions (Note 2) ............................. -- -- -- --
----------- ---------- ------------- -----------
Expenses, net ........................................... 3,723,979 982,761 32,843,772 4,795,115
- ------------------------------------------------------------------------------------------------------------------------
Net investment income ................................... 17,543,476 3,191,255 334,151,619 30,375,516
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................... 2,595 1,553 23,690,016 (2,756,840)
Futures contracts (Note 1) .......................... -- -- -- 4,190,615
Options (Note 1) .................................... -- -- -- (214,688)
Foreign currency related transactions
(Note 1) .......................................... -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ....................................... 355,595 -- (117,084,004) (7,844,325)
Futures contracts ................................. -- -- -- --
Options ........................................... -- -- -- --
Foreign currency related transactions ............. -- -- -- --
----------- ---------- ------------- -----------
Net gain (loss) on investments .......................... 358,190 1,553 (93,393,988) (6,625,238)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations ....................................... $17,901,666 $3,192,808 $ 240,757,631 $23,750,278
- ------------------------------------------------------------------------------------------------------------------------
(a) The AARP Global Growth Fund commenced operations on February 1, 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements
76
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
AARP INSURED AARP BALANCED AARP GROWTH AARP GLOBAL AARP CAPITAL
TAX FREE GENERAL STOCK AND BOND AND INCOME GROWTH GROWTH
BOND FUND FUND FUND FUND (A) FUND
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 98,356,689 $ 9,549,607 $ 13,744,132 $ 253,066 $ 1,040,466
-- 6,619,276 118,199,105 684,211 13,894,916
- ------------ ----------- ------------ ---------- ------------
98,356,689 16,168,883 131,943,237 937,277 14,935,382
-- (126,777) (1,440,225) (60,508) (291,581)
- ------------ ----------- ------------ ---------- ------------
98,356,689 16,042,106 130,503,012 876,769 14,643,801
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
8,665,253 1,560,129 17,423,770 266,155 4,626,894
1,925,762 724,796 3,850,612 178,759 1,176,990
308,444 208,777 1,515,869 43,414 435,337
25,715 24,005 24,002 15,157 24,009
336,591 114,481 851,852 23,459 212,913
7,957 8,292 18,364 8,015 11,779
60,000 33,550 49,000 8,000 46,200
344,648 132,564 740,183 121,145 189,744
33,718 19,409 187,847 59,009 7,837
-- 8,926 -- 1,995 --
64,193 8,886 94,181 1,212 19,991
- ------------ ----------- ------------ ---------- ------------
11,772,281 2,843,815 24,755,680 726,320 6,751,694
-- -- -- (175,025) --
- ------------ ----------- ------------ ---------- ------------
11,772,281 2,843,815 24,755,680 551,295 6,751,694
- -------------------------------------------------------------------------------------------------
86,584,408 13,198,291 105,747,332 325,474 7,892,107
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
15,073,015 4,984,143 161,815,047 (33,467) 71,644,200
3,404,797 34,436 -- -- --
-- -- -- -- --
-- 334,451 (411,014) (36,843) (38,602)
(1,155,352) 20,509,469 381,330,506 982,226 32,512,381
(1,262,186) 3,391 -- -- --
-- -- (801) -- --
-- (159,786) (16,214) (336) 4,863
- ------------ ----------- ------------ ---------- ------------
16,060,274 25,706,104 542,717,524 911,580 104,122,842
- -------------------------------------------------------------------------------------------------
$102,644,682 $38,904,395 $648,464,856 $1,237,054 $112,014,949
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
77
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP HIGH AARP HIGH
QUALITY QUALITY TAX FREE
MONEY FUND MONEY FUND
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------
Years Ended Years Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................ $ 17,543,476 $ 18,316,417 $ 3,191,255 $ 3,691,193
Net realized gain (loss) from:
Investments ................................ 2,595 (2,594) 1,553 (5,140)
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ................................ 355,595 (235,013) -- --
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- -- -- --
------------- ------------- ------------ ------------
Net increase (decrease) in net assets resulting
from operations ............................... 17,901,666 18,078,810 3,192,808 3,686,053
------------- ------------- ------------ ------------
Distributions to shareholders:
Net investment income ........................ (17,543,476) (18,316,417) (3,191,255) (3,691,193)
Net realized gains ........................... -- -- -- --
Tax return of capital ........................ -- -- -- --
------------- ------------- ------------ ------------
(17,543,476) (18,316,417) (3,191,255) (3,691,193)
------------- ------------- ------------ ------------
Fund share transactions:
Proceeds from sale of shares ................. 370,605,211 405,381,235 30,976,787 41,129,795
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 15,692,224 16,274,697 2,545,162 2,929,152
Cost of shares redeemed ...................... (358,425,484) (370,960,332) (42,004,745) (53,717,481)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets from Fund
share transactions ........................... 27,871,951 50,695,600 (8,482,796) (9,658,534)
------------- ------------- ------------ ------------
Increase (decrease) in net assets .............. 28,230,141 50,457,993 (8,481,243) (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) ................ $ 412,126,193 $ 383,896,052 $111,264,728 $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 .................................. 370,605,211 405,381,235 30,976,787 41,129,795
Shares issued to shareholders in
reinvestment of distributions ............. 15,692,224 16,274,697 2,545,162 2,929,152
Shares redeemed .............................. (358,425,484) (370,960,332) (42,004,745) (53,717,481)
------------- ------------- ------------ ------------
Net increase (decrease) in Fund shares ......... 27,871,951 50,695,600 (8,482,796) (9,658,534)
------------- ------------- ------------ ------------
Shares outstanding at end of period ............ 412,261,312 384,389,361 111,270,214 119,753,010
- ------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income .................... $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
78
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP GNMA AARP HIGH AARP INSURED AARP BALANCED
AND U.S. QUALITY TAX FREE GENERAL STOCK AND BOND
TREASURY FUND BOND FUND BOND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Years Ended Years Ended Years Ended Years Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995 1996 1995 1996 1995
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 334,151,619 $ 358,090,095 $ 30,375,516 $ 32,695,491 $ 86,584,408 $ 91,515,925 $ 13,198,291 $ 8,110,687
23,690,016 (68,679,536) (2,756,840) 6,264,433 15,073,015 1,141,498 4,984,143 2,922,966
-- -- 4,190,615 462,444 3,404,797 (22,927,127) 34,436 66,437
-- -- (214,688) -- -- -- -- --
-- -- -- -- -- -- 334,451 (8,944)
(117,084,004) 224,571,191 (7,844,325) 25,349,000 (1,155,352) 102,468,526 20,509,469 20,344,202
-- -- -- (235,464) (1,262,186) (843,714) 3,391 (3,391)
-- -- -- -- -- -- -- --
-- -- -- -- -- -- (159,786) 159,949
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
240,757,631 513,981,750 23,750,278 64,535,904 102,644,682 171,355,108 38,904,395 31,591,906
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
(334,151,619) (347,262,513) (30,375,516) (32,238,660) (86,584,408) (91,515,925) (12,975,460) (7,923,700)
-- -- -- -- -- -- (3,378,368) (479,306)
-- (10,827,582) -- -- -- -- -- --
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
(334,151,619) (358,090,095) (30,375,516) (32,238,660) (86,584,408) (91,515,925) (16,353,828) (8,403,006)
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
346,027,868 313,574,493 64,115,868 38,133,943 124,978,818 128,807,008 164,077,214 82,046,020
193,739,502 209,361,883 21,458,457 22,872,960 52,441,004 56,102,941 14,941,233 7,595,827
(793,984,012) (1,012,262,747) (100,466,218) (127,867,757) (245,115,196) (371,972,763) (45,596,030) (41,121,662)
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
(254,216,642) (489,326,371) (14,891,893) (66,860,854) (67,695,374) (187,062,814) 133,422,417 48,520,185
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
(347,610,630) (333,434,716) (21,517,131) (34,563,610) (51,635,100) (107,223,631) 155,972,984 71,709,085
5,252,050,474 5,585,485,190 533,422,297 567,985,907 1,807,047,322 1,914,270,953 247,206,955 175,497,870
- ---------------------------------------------------------------------------------------------------------------------------------
$4,904,439,844 $ 5,252,050,474 $ 511,905,166 $ 533,422,297 $1,755,412,222 $1,807,047,322 $403,179,939 $247,206,955
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
345,829,087 379,121,168 33,312,382 37,734,181 101,872,669 113,066,680 15,074,610 11,983,629
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
22,947,708 21,222,249 4,006,214 2,475,377 6,963,608 7,482,591 9,582,056 5,336,478
12,859,585 14,034,160 1,341,850 1,481,640 2,918,782 3,261,074 873,110 497,020
(52,757,088) (68,548,490) (6,293,740) (8,378,816) (13,666,268) (21,937,646) (2,664,182) (2,742,517)
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
(16,949,795) (33,292,081) (945,676) (4,421,799) (3,783,878) (11,193,981) 7,790,984 3,090,981
- -------------- --------------- ------------- ------------- -------------- -------------- ------------ ------------
328,879,292 345,829,087 32,366,706 33,312,382 98,088,821 101,872,699 22,865,594 15,074,610
- ---------------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ 176,290 $ 304,913 $ -- $ -- $ 535,899 $ 321,966
</TABLE>
The accompanying notes are an integral part of the financial statements
79
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP GROWTH AARP GLOBAL AARP CAPITAL
AND INCOME GROWTH GROWTH
FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended For the Period Years Ended
Sept. 30, February 1, 1996 (b) to Sept. 30,
1996 1995 September 30, 1996 1996 1995
-------------- -------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income ........................ $ 105,747,332 $ 83,288,031 $ 325,474 $ 7,892,107 $ 6,448,989
Net realized gain (loss) from:
Investments ................................ 161,815,047 82,525,735 (33,467) 71,644,200 3,854,142
Futures contracts .......................... -- -- -- -- --
Options .................................... -- -- -- -- --
Foreign currency related transactions ...... (411,014) 23,310 (36,843) (38,602) (49,230)
Net unrealized appreciation (depreciation) on:
Investments ................................ 381,330,506 331,251,054 982,226 32,512,381 124,391,488
Futures contracts .......................... -- -- -- -- --
Options .................................... (801) -- -- -- --
Foreign currency related transactions ...... (16,214) 5,828 (336) 4,863 (4,789)
-------------- -------------- ----------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................. 648,464,856 497,093,958 1,237,054 112,014,949 134,640,600
-------------- -------------- ----------- ------------- -------------
Distributions to shareholders:
Net investment income ........................ (102,016,492) (81,086,105) -- (7,038,882) (216,094)
Net realized gains ........................... (67,064,704) (85,015,819) -- (9,204,690) (13,160,374)
Tax return of capital ........................ -- -- -- -- --
-------------- -------------- ----------- ------------- -------------
(169,081,196) (166,101,924) -- (16,243,572) (13,376,468)
-------------- -------------- ----------- ------------- -------------
Fund share transactions:
Proceeds from sale of shares ................. 960,952,133 589,883,371 82,274,150 133,269,510 68,276,671
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 153,099,566 149,554,221 -- 15,425,567 12,786,953
Cost of shares redeemed ...................... (380,970,538) (376,048,965) (5,860,726) (110,338,687) (193,118,723)
-------------- -------------- ----------- ------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ........................... 733,081,161 363,388,627 76,413,424 38,356,390 (112,055,099)
-------------- -------------- ----------- ------------- -------------
Increase (decrease) in net assets .............. 1,212,464,821 694,380,661 77,650,478 134,127,767 9,209,033
Net assets at beginning of period .............. 3,006,518,577 2,312,137,916 1,500 692,008,946 682,799,913
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................ $4,218,983,398 $3,006,518,577 $77,651,978 $ 826,136,713 $ 692,008,946
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 78,371,684 67,740,274 100 18,041,977 21,513,985
-------------- -------------- ----------- ------------- -------------
Shares sold .................................. 23,131,229 17,103,571 5,395,570 3,299,011 2,055,946
Shares issued to shareholders in
reinvestment of distributions ............. 3,734,230 4,523,324 -- 400,664 424,681
Shares redeemed .............................. (9,218,547) (10,995,485) (383,162) (2,735,903) (5,952,635)
-------------- -------------- ----------- ------------- -------------
Net increase (decrease) in Fund shares ......... 17,646,912 10,631,410 5,012,408 963,772 (3,472,008)
-------------- -------------- ----------- ------------- -------------
Shares outstanding at end of period ............ 96,018,596 78,371,684 5,012,508 19,005,749 18,041,977
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income ...................... $ 7,239,912 $ 6,072,468 $ 288,631 $ 7,179,969 $ 6,365,346
(b) Commencement of Operations
</TABLE>
The accompanying notes are an integral part of the financial statements
80
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $1.000 $1.000 $1.000 $1.000 $1.000
---------------------------------------------------
Net investment income .................................... .045 .049 .028 .021 .040
Distributions from net investment income ................. (.045) (.049) (.028) (.021) (.040)(a)
---------------------------------------------------
Net asset value, end of period ............................... $1.000 $1.000 $1.000 $1.000 $1.000
---------------------------------------------------
TOTAL RETURN (%) (b) ......................................... 4.62 4.99 2.84 2.13 4.12
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ....................... 412 384 333 254 323
Ratio of operating expenses, net to average net assets (%) .963 .978 1.125 1.312 1.151
Ratio of operating expenses before expense reductions,
to average net assets (%) ................................ .963 .978 1.125 1.312 1.190
Ratio of net investment income to average net assets (%) ..... 4.535 4.887 2.889 2.123 3.613
(a) Includes approximately $.005 per share of net realized short-term capital gains.
(b) Total returns would have been lower had certain expenses not been reduced.
</TABLE>
<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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $1.000 $1.000 $1.000 $1.000 $1.000
-------------------------------------------------
Net investment income .................................. .028 .029 .017 .016 .026
Distributions from net investment income ............... (.028) (.029) (.017) (.016) (.026)
-------------------------------------------------
Net asset value, end of period ............................. $1.000 $1.000 $1.000 $1.000 $1.000
-------------------------------------------------
TOTAL RETURN (%) (a) ....................................... 2.80 2.99 1.76 1.62 2.58
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ..................... 111 120 129 134 127
Ratio of operating expenses, net to average net assets (%) .85 .87 .90 .93 .95
Ratio of operating expenses before expense reductions,
to average net assets (%) .............................. .85 .87 .91 1.15 1.13
Ratio of net investment income to average net assets (%) ... 2.77 2.94 1.75 1.60 2.54
(a) Total returns would have been lower had certain expenses not been reduced.
</TABLE>
81
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $15.19 $14.73 $15.96 $16.19 $15.72
------------------------------------------------------
Income from investment operations:
Net investment income ................................ .99 1.01 .93 1.15 1.22
Net realized and unrealized gain (loss) on investments (.28) .46 (1.23) (.23) .47
------------------------------------------------------
Total from investment operations ......................... .71 1.47 (.30) .92 1.69
------------------------------------------------------
Less distributions:
Net investment income ................................ (.99) (.98) (.93) (1.15) (1.22)
Tax return of capital ................................ -- (.03) -- -- --
------------------------------------------------------
Total distributions ...................................... (.99) (1.01) (.93) (1.15) (1.22)
------------------------------------------------------
Net asset value, end of period ........................... $14.91 $15.19 $14.73 $15.96 $16.19
------------------------------------------------------
TOTAL RETURN (%) ......................................... 4.79 10.31 (1.90) 5.89 11.19
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 4,904 5,252 5,585 6,712 5,232
Ratio of operating expenses to average net assets (%) .64 .67 .66 .70 .72
Ratio of net investment income to average net assets (%) . 6.55 6.77 6.09 7.15 7.69
Portfolio turnover rate (%) .............................. 83.44 70.35 114.54 105.49 74.33
</TABLE>
<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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $16.01 $15.05 $17.19 $16.44 $15.71
----------------------------------------------------------
Income from investment operations:
Net investment income ................................ .92 .94 .85 .93 1.03
Net realized and unrealized gain (loss) on investments (.19) .95 (1.76) .93 .73
----------------------------------------------------------
Total from investment operations ......................... .73 1.89 (.91) 1.86 1.76
----------------------------------------------------------
Less distributions:
Net investment income ................................ (.92) (.93) (.85) (.93) (1.03)
Net realized gains on investments .................... -- -- -- (.18) --
In excess of net realized gains on investments ....... -- -- (.38) -- --
----------------------------------------------------------
Total distributions ...................................... (.92) (.93) (1.23) (1.11) (1.03)
----------------------------------------------------------
Net asset value, end of period ........................... $15.82 $16.01 $15.05 $17.19 $16.44
----------------------------------------------------------
TOTAL RETURN (%) ......................................... 4.59 12.98 (5.55) 11.88 11.56
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 512 533 568 604 384
Ratio of operating expenses to average net assets (%) .91 .95 .95 1.01 1.13
Ratio of net investment income to average net assets (%) . 5.76 6.13 5.31 5.64 6.40
Portfolio turnover rate (%) .............................. 169.96 201.07 63.75 100.98 63.00
</TABLE>
82
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $17.74 $16.93 $19.00 $17.88 $17.30
---------------------------------------------
Income from investment operations:
Net investment income ................................ .87 .87 .86 .90 .93
Net realized and unrealized gain (loss) on investments .16 .81 (1.67) 1.55 .75
---------------------------------------------
Total from investment operations ......................... 1.03 1.68 (.81) 2.45 1.68
---------------------------------------------
Less distributions:
Net investment income ................................ (.87) (.87) (.86) (.90) (.93)
Net realized gains on investments .................... -- -- (.34) (.43) (.17)
In excess of net realized gains on investments ....... -- -- (.06) -- --
---------------------------------------------
Total distributions ...................................... (.87) (.87) (1.26) (1.33) (1.10)
---------------------------------------------
Net asset value, end of period ........................... $17.90 $17.74 $16.93 $19.00 $17.88
---------------------------------------------
TOTAL RETURN (%) ......................................... 5.88 10.21 (4.48) 14.31 10.01
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 1,755 1,807 1,914 2,087 1,487
Ratio of operating expenses to average net assets (%) .66 .69 .68 .72 .74
Ratio of net investment income to average net assets (%) . 4.83 5.06 4.80 4.90 5.31
Portfolio turnover rate (%) .............................. 18.69 17.45 38.39 47.96 62.45
</TABLE>
<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.
<CAPTION>
FOR THE PERIOD
YEARS ENDED SEPTEMBER 30, FEBRUARY 1, 1994 (a)
------------------------- TO SEPTEMBER 30,
1996 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 ................................ .66 .61 .25
Net realized and unrealized gain (loss) on investments 1.44 1.79 (.37)(b)
----------------------------------------------
Total from investment operations ......................... 2.10 2.40 (.12)
----------------------------------------------
Less distributions:
Net investment income ................................ (.66) (.60) (.24)
Net realized gains on investments .................... (.21) (.04) --
----------------------------------------------
Total distributions ...................................... (.87) (.64) (.24)
----------------------------------------------
Net asset value, end of period ........................... $17.63 $16.40 $14.64
----------------------------------------------
TOTAL RETURN (%) ......................................... 13.08 16.80 (.78)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 403 247 175
Ratio of operating expenses to average net assets (%) .88 1.01 1.31(e)
Ratio of net investment income to average net assets (%) . 4.09 4.12 3.58(e)
Portfolio turnover rate (%) .............................. 35.22 63.77 49.32(e)
Average commission rate paid (c) ......................... $.0549 $ -- $ --
(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 of common and preferred stocks is calculated for fiscal years
beginning on or after September 1, 1995.
(d)Not Annualized (e) Annualized
</TABLE>
83
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $38.36 $34.13 $32.91 $28.67 $26.97
------------------------------------------------
Income from investment operations:
Net investment income ................................ 1.17 1.11 .94 .83 .97
Net realized and unrealized gain on investments ...... 6.40 5.44 1.62 4.58 2.11
------------------------------------------------
Total from investment operations ......................... 7.57 6.55 2.56 5.41 3.08
------------------------------------------------
Less distributions from:
Net investment income ................................ (1.15) (1.09) (1.13) (.87) (.90)
Net realized gains on investments .................... (.84) (1.23) (.21) (.30) (.48)
------------------------------------------------
Total distributions ...................................... (1.99) (2.32) (1.34) (1.17) (1.38)
------------------------------------------------
Net asset value, end of period ........................... $43.94 $38.36 $34.13 $32.91 $28.67
------------------------------------------------
TOTAL RETURN (%) ......................................... 20.20 20.43 7.99 19.38 11.59
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 4,219 3,007 2,312 1,560 748
Ratio of operating expenses to average net assets (%) .69 .72 .76 .84 .91
Ratio of net investment income to average net assets (%) . 2.94 3.28 3.00 3.08 3.84
Portfolio turnover rate (%) .............................. 25.02 31.26 31.82 17.44 36.40
Average commission rate paid (a) ......................... $.0542 $ -- $ -- $ -- $ --
(a)Average commission rate paid per share of common and preferred stocks is calculated for fiscal years beginning
on or after September 1, 1995.
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
FOR THE PERIOD
FEBRUARY 1, 1996
(COMMENCEMENT)
OF OPERATIONS)
TO SEPTEMBER 30, 1996
---------------------
<S> <C>
Net asset value, beginning of period ........................................... $15.00
------
Income from investment operations:
Net investment income ...................................................... .06
Net realized and unrealized gain (loss) on investments ..................... .43
------
Total from investment operations ............................................... .49
------
Net asset value, end of period ................................................. $15.49
------
TOTAL RETURN (%) (a) ........................................................... 3.27(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ......................................... 78
Ratio of operating expenses, net to average net assets (%) ..................... 1.75(d)
Ratio of operating expenses before expense reductions, to average net assets (%) 2.31(d)
Ratio of net investment income to average net assets (%) ....................... 1.03(d)
Portfolio turnover rate (%) .................................................... 12.56(d)
Average commission rate paid (b) ............................................... $.0150
(a)Total returns would have been lower had certain expenses not been reduced.
(b)Average commission rate paid per share of common and preferred stocks is calculated for fiscal
years beginning on or after September 1, 1995.
(c)Not Annualized (d) Annualized
</TABLE>
84
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
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.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $38.36 $31.74 $36.20 $ 30.30 $30.23
--------------------------------------------------------
Income from investment operations:
Net investment income ................................ .42 .36 .00 .06 .15
Net realized and unrealized gain (loss) on investments 5.59 6.91 (1.51) 7.19 1.09
--------------------------------------------------------
Total from investment operations ......................... 6.01 7.27 (1.51) 7.25 1.24
--------------------------------------------------------
Less distributions from:
Net investment income ................................ (.39) (.01) (.05) (.14) (.23)
Net realized gains on investments .................... (.51) (.64) (2.90) (1.21) (.94)
--------------------------------------------------------
Total distributions ...................................... (.90) (.65) (2.95) (1.35) (1.17)
--------------------------------------------------------
Net asset value, end of period ........................... $43.47 $38.36 $31.74 $ 36.20 $30.30
--------------------------------------------------------
TOTAL RETURN (%) ......................................... 15.97 23.47 (4.70) 24.53 3.94
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................... 826 692 683 607 424
Ratio of operating expenses to average net assets (%) .90 .95 .97 1.05 1.13
Ratio of net investment income to average net assets (%) . 1.05 1.00 .02 .22 .61
Portfolio turnover rate (%) .............................. 64.84 98.44 79.65 100.63 89.20
Average commission rate paid (a) ......................... $.0614 $ -- $ -- $ -- $ --
(a)Average commission rate paid per share of common and preferred stocks is calculated for fiscal years beginning on or
after September 1, 1995.
</TABLE>
85
<PAGE>
NOTES TO FINANCIAL STATEMENT
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, 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 Funds' 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 U.S. or foreign 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
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<PAGE>
accrued interest approximates market.
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. OPTIONS. 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 the AARP
Global Growth Fund may enter into options on futures contracts and may also
(except for the Insured Tax Free General Bond Fund) write covered call options.
Each of the Funds in the AARP Growth Trust may purchase put and call options on
stock indices. In an option contract, the writer of the option grants the buyer
of the option the right to purchase from (call option), or sell to (put option),
the writer a designated instrument at a specified price within a specified
period of time. Certain options, including options on indices, will require cash
settlement by the Fund if the option is exercised. During the period, the AARP
Growth and Income Fund and the AARP High Quality Bond Fund wrote call options on
securities as a hedge against potential adverse price movements in the value of
portfolio assets. Also, during the period, the AARP High Quality Bond Fund
purchased call options on securities as a temporary substitute for purchasing
selected investments and the AARP Insured Tax Free General Bond Fund purchased
put options on futures as a hedge against potential adverse price movements
in the value of portfolio assets.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between
87
<PAGE>
NOTES TO FINANCIAL STATEMENTS
the cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
E. 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, the AARP
Growth and Income Fund and the AARP Global Growth 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 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.
F. 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
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<PAGE>
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.
G. 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.
H. 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.
I. 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 may take into account
realized gains and losses on the sales of securities 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, REIT 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 Funds may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
J. 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.
K. 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
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
amortized on a straight-line basis over a five-year period.
L. 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.
M. 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
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
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<PAGE>
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 January 1, 1997. 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 the Fund Manager. 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 year
ended September 30, 1996, the amount charged to the Funds by SFAC aggregated
$266,385, $43,116, and $103,618, respectively, of which $23,261, $43,116, and
$8,132, respectively, is unpaid at September 30, 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
period ended September 30, 1996, the amount charged to the Funds by SFAC
aggregated $48,622, $30,620, $84,969, $76,639, $480,771 and $150,802,
respectively, of which $4,253, $2,552, $6,867, $7,197, $41,759, and $14,015,
respectively, is unpaid at September 30, 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.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Trustees and Shareholders of
AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and
AARP Growth Trust
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of each
of the funds constituting the AARP Cash Investment Funds, the AARP Income
Trust, the AARP Tax Free Income Trust and the AARP Growth Trust (hereafter
referred to as the "Trusts") at September 30, 1996, the results of each of
their operations, the changes in each of their net assets and the
financial highlights for the periods indicated, in conformity with
generally acepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trusts' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material mistatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at September 30,
1996 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 14, 1996
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<PAGE>
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of the AARP Funds was held on Friday,
September 13, 1996, at the offices of Scudder, Stevens & Clark, Inc., Two
International Place, Boston, Massachusetts. The four matters voted upon by
Shareholders and the resulting votes for each matter are presented below.
<TABLE>
<CAPTION>
1. The election of 15 Trustees to hold office until their respective successors shall have been duly elected and qualified.
AARP Cash Investment Funds AARP Tax Free Income Trust
Trustee: Number of Votes: Number of Votes:
-------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Broker Broker
For Withheld Non-Votes* For Withheld Non-Votes*
--- -------- ---------- --- -------- ----------
Carole L. Anderson 216,925,576 4,141,954 0 118,843,284 1,685,682 0
Adelaide Attard 216,799,827 4,267,703 0 118,848,543 1,680,422 0
Cyril F. Brickfield 216,472,867 4,594,663 0 118,796,747 1,732,219 0
Robert N. Butler 216,701,084 4,366,446 0 118,708,693 1,820,273 0
Esther Canja 216,468,497 4,599,032 0 118,748,570 1,780,396 0
Linda C. Coughlin 216,720,499 4,347,030 0 118,827,130 1,701,836 0
Horace B. Deets 216,374,353 4,693,177 0 118,593,830 1,935,136 0
Edgar R. Fiedler 216,731,994 4,335,536 0 118,935,082 1,593,884 0
Cuyler W. Findlay 216,855,762 4,211,767 0 118,850,091 1,678,875 0
Eugene P. Forrester 216,656,850 4,410,680 0 118,850,506 1,678,460 0
Wayne F. Haefer 216,955,003 4,112,526 0 118,951,350 1,577,615 0
George L. Maddox, Jr. 216,846,314 4,221,215 0 118,751,209 1,777,757 0
Robert J. Myers 216,694,683 4,372,846 0 118,604,347 1,924,619 0
James H. Schulz 216,926,200 4,138,329 0 118,964,697 1,564,268 0
Gordon Shillinglaw 216,705,519 4,362,010 0 118,767,221 1,761,745 0
2. Ratification or rejection of the action taken by the Board of Trustees
in selecting Price Waterhouse LLP as independent accountants for the
fiscal year ending September 30, 1997.
AARP Cash Investment Funds AARP Tax Free Income Trust
Number of Votes: Number of Votes:
-------------------------- --------------------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- --------- --- ------- ------- ---------
215,375,499 1,703,689 3,988,341 0 117,630,211 531,450 2,367,304 0
3. Approval or disapproval of Amended and Restated Declarations of Trust.
AARP Cash Investment Funds AARP Tax Free Income Trust
Number of Votes: Number of Votes:
-------------------------- --------------------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- --------- --- ------- ------- ---------
202,397,479 10,317,597 8,352,452 0 110,916,660 4,866,055 4,727,112 19,138
4. Approval or disapproval of modifications to the current fundamental diversification policies.#
AARP High Quality Money Fund AARP High Quality Tax Free Money Fund
Number of Votes: Number of Votes:
-------------------------- -------------------------------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- --------- --- ------- ------- ---------
205,891,068 6,861,270 8,315,191 0 55,243,653 1,670,969 2,157,905 0
- -----------------------------------------------------------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
# For Shareholders of the AARP High Quality Money Fund and AARP High Quality Tax Free Money Fund only.
</TABLE>
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<PAGE>
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of the AARP Funds was held on Friday,
September 13, 1996, at the offices of Scudder, Stevens & Clark, Inc., Two
International Place, Boston, Massachusetts. The three matters voted upon by
Shareholders and the resulting votes for each matter are presented below.
<TABLE>
<CAPTION>
1. The election of 15 Trustees to hold office until their respective successors shall have been duly elected and qualified.
AARP Income Trust AARP Growth Trust
Trustee: Number of Votes: Number of Votes:
-------- ------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Broker Broker
For Withheld Non-Votes* For Withheld Non-Votes*
--- -------- ---------- --- -------- ----------
Carole L. Anderson 198,108,986 2,676,743 0 78,688,236 1,122,407 0
Adelaide Attard 198,022,054 2,763,675 0 78,643,514 1,167,129 0
Cyril F. Brickfield 197,880,680 2,905,049 0 78,541,412 1,269,231 0
Robert N. Butler 197,861,574 2,924,155 0 78,584,607 1,226,036 0
Esther Canja 197,771,606 3,014,123 0 78,536,178 1,274,465 0
Linda C. Coughlin 197,998,716 2,787,013 0 78,634,270 1,176,373 0
Horace B. Deets 197,509,529 3,276,200 0 78,463,163 1,347,480 0
Edgar R. Fiedler 198,038,088 2,747,641 0 78,594,205 1,216,438 0
Cuyler W. Findlay 197,986,735 2,798,994 0 78,666,715 1,143,928 0
Eugene P. Forrester 197,994,539 2,791,190 0 78,662,033 1,148,610 0
Wayne F. Haefer 198,150,546 2,635,183 0 78,713,230 1,097,413 0
George L. Maddox, Jr. 198,053,152 2,732,577 0 78,677,375 1,133,268 0
Robert J. Myers 197,782,143 3,003,586 0 78,550,076 1,260,567 0
James H. Schulz 198,208,487 2,577,242 0 78,762,753 1,047,890 0
Gordon Shillinglaw 197,909,746 2,875,983 0 78,567,180 1,243,463 0
2. Ratification or rejection of the action taken by the Board of Trustees
in selecting Price Waterhouse LLP as independent accountants for the
fiscal year ending September 30, 1997.
AARP Income Trust AARP Growth Trust
Number of Votes: Number of Votes:
-------------------------- --------------------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- --------- --- ------- ------- ---------
196,218,751 1,008,945 3,558,033 0 78,015,861 530,915 1,263,866 0
3. Approval or disapproval of Amended and Restated Declarations of Trust.
AARP Income Trust AARP Growth Trust
Number of Votes: Number of Votes:
-------------------------- --------------------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- --------- --- ------- ------- ---------
186,179,562 6,964,391 7,577,717 64,058 72,967,248 3,867,254 2,931,868 44,273
- -----------------------------------------------------------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
</TABLE>
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<PAGE>
OFFICERS AND TRUSTEES
CAROLE LEWIS ANDERSON
Trustee of AARP Funds; 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 Funds; 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 Funds; Honorary President and Special Counsel, American
Association of Retired Persons; Former 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 Funds; 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).
ESTHER CANJA
Trustee of AARP Funds; 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 of AARP Funds; Managing Director and Member, Board of
Directors of Scudder, Stevens & Clark, Inc.
HORACE B. DEETS
Vice Chairman and Trustee of AARP Funds; Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus
Gerontology Center; Member of the Board, HelpAge International.
EDGAR R. FIEDLER
Trustee of AARP Funds; Senior Fellow 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 Funds; Managing Director of Scudder, Stevens &
Clark, Inc., Senior Vice President and Director, Scudder Investor Services,
Inc.
EUGENE P. FORRESTER
Trustee of AARP Funds; Consultant; International Trade Counselor;
Lt. General (Retired), U.S. Army; Command General, U.S. Army Western
Command, Honolulu; Consultant: Digital Equipment Corp., DHI, Philip Morris,
PICS Previews, and Whittle Communications.
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OFFICERS AND TRUSTEES
WAYNE F. HAEFER
Trustee of AARP Funds; Director, Membership Division of AARP; Trustee,
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 of AARP Funds; 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 Funds; 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.
JAMES H. SCHULZ
Trustee of AARP Funds; Professor of Economics and Kirstein Professor of
Aging Policy, Policy Center of Aging, Florence Heller School, Brandeis
University.
GORDON SHILLINGLAW
Trustee of AARP Funds; Professor Emeritus of Accounting, Columbia University
Graduate School of Business; Formerly Director and Treasurer, FERIS
Foundation of America.
<TABLE>
<C> <C>
MARGARET D. HADZIMA* EDWARD J. O'CONNELL*
Vice President Vice President and Assistant Treasurer
THOMAS W. JOSEPH* JAMES W. PASMAN*
Vice President Vice President
DAVID S. LEE* KATHRYN L. QUIRK*
Vice President and Assistant Treasurer Vice President and Secretary
THOMAS F. MCDONOUGH* HOWARD SCHNEIDER*
Vice President and Assistant Secretary Vice President
PAMELA A. MCGRATH* CORNELIA M. SMALL*
Vice President and Treasurer Vice President
</TABLE>
*Scudder, Stevens & Clark, Inc.
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.
96
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SERVICE AND TAX INFORMATION
SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives
SERVICE LINE are available to answer questions about the Program
or your account Monday through Friday, between
1-800-253-2277 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 42 Longwater Drive
mail: Norwell, MA 02061-1612
EASY-ACCESS LINE Shareholders with a touch-tone telephone may call
this automated line to obtain AARP Fund performance
1-800-631-4636 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. Any exchange or redemption
1-800-821-6234 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
DEVICE FOR THE DEAF AND access to TDD equipment can communicate with the
SPEECH IMPAIRED) AARP Investment Program Monday through Friday
between 8:00 a.m. and 6:00 p.m., eastern time.
1-800-634-9454 Transactions can be made between 8:00 a.m. and 4:00
p.m., eastern time.
TAX INFORMATION Of the dividends paid from net investment income by
the AARP High Quality Tax Free Money Fund and the
AARP Insured Tax Free General Bond Fund for the
Funds' fiscal years ending September 30, 1996, 100%
constituted exempt-interest dividends for regular
federal income tax purposes.
Pursuant to Section 852 of the Internal Revenue
Code, the AARP Balanced Stock and Bond Fund, the
AARP Growth and Income Fund, the AARP Capital Growth
Fund, and the AARP Insured Tax Free General Bond
Fund designate $3,574,697, $132,329,293,
$52,397,990, and $3,762,709, respectively, as
capital gain dividends for their fiscal years ended
September 30, 1996.
Pursuant to Section 853 of the Internal Revenue
Code, AARP Global Growth Fund designates $0.012 per
share (representing a total of $60,508) of foreign
taxes and $0.046 per share (representing a total of
$229,904) of foreign source income as having been
paid in the fiscal year ended 9/30/96.
Pursuant to Section 854 of the Internal Revenue
Code, the percentages of ordinary income dividends
paid qualify for the dividends received deduction
for corporations are as follow: AARP Balanced Stock
and Bond Fund 40.72%, AARP Capital Growth Fund 100%
and AARP Growth and Income Fund 94.47%.
In January 1997 you will receive federal tax
information on all distributions paid to your
account in calendar year 1996.
