AARP Investment Program
from SCUDDER
Our Core Values
(four photographs)
The foundation
that has guided
the AARP Investment
Program
MID-YEAR REPORT
TO SHAREHOLDERS
March 31, 1999
<PAGE>
How to Navigate this Report
To make this semiannual report easy to navigate, we have
divided it into numbered sections. The summaries below show
each section title and number. The first page of each section
is marked with the section number, as shown to the right of
each major heading below.
Mid-Year Review /1/
-----------------------------------------------------------------
A message from Linda C. Coughlin, Chairperson, AARP Investment
Program from Scudder.
AARP Market Commentary and Individual Portfolio Reviews /2/
-----------------------------------------------------------------
Cornelia Small, President and Investment Director, gives an
overview of the financial markets and their impact on the AARP
funds for the past six months, followed by a review of each
AARP fund for the period.
AARP Funds' Investment Portfolios /3/
-----------------------------------------------------------------
A detailed listing of portfolio holdings for each fund,
including the current market value at the end of the period.
Financial Statements, Highlights, Notes, and Shareholder
Meeting Results /4/
-----------------------------------------------------------------
Financial records of the AARP Investment Program. This section
also includes the Financial Highlights, which detail
statistical per share income and ratio(s) from operations and
dividends paid to shareholders, expense ratios, and other
financial information. The Notes to Financial Statements
include detailed information regarding expenses, organization
costs, transactions, and management fees. Shareholder Meeting
Results report on the issues presented at the December 1998
meetings.
Officers and Trustees /5/
-----------------------------------------------------------------
A list of the current officers and trustees is provided in
this section.
Investor Services /6/
-----------------------------------------------------------------
Information on services available to shareholders of the AARP
Investment Program from Scudder.
Glossary /7/
-----------------------------------------------------------------
All glossary terms used in the report are highlighted in bold
italics throughout this report for easy reference to this
section.
<PAGE>
TABLE OF CONTENTS
MID-YEAR REVIEW -- A MESSAGE FROM LINDA C. COUGHLIN 2 /1/
---------------------------------------------------------------------------
AARP MARKET COMMENTARY AND INDIVIDUAL PORTFOLIO REVIEWS 7 /2/
---------------------------------------------------------------------------
Market Commentary for the six months ended March 31, 1999 8
MONEY MARKET FUNDS
AARP High Quality Money Fund 17
AARP High Quality Tax Free Money Fund 18
AARP Premium Money Fund 19
INC0ME FUNDS
AARP High Quality Short Term Bond Fund 20
AARP GNMA and U.S. Treasury Fund 22
AARP Insured Tax Free General Bond Fund 24
AARP Bond Fund for Income 26
GROWTH AND INCOME FUNDS
AARP Balanced Stock and Bond Fund 28
AARP Growth and Income Fund 30
AARP U.S. Stock Index Fund 34
GROWTH FUNDS
AARP Capital Growth Fund 36
AARP Small Company Stock Fund 38
GLOBAL FUNDS
AARP Global Growth Fund 40
AARP International Growth and Income Fund 42
MANAGED INVESTMENT PORTFOLIOS
AARP Diversified Income with Growth Portfolio 44
AARP Diversified Growth Portfolio 44
AARP FUNDS' INVESTMENT PORTFOLIOS 47 /3/
---------------------------------------------------------------------------
FINANCIAL STATEMENTS 129 /4/
---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 147 /4/
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 157 /4/
---------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS 167 /4/
---------------------------------------------------------------------------
OFFICERS AND TRUSTEES 171 /5/
---------------------------------------------------------------------------
INVESTOR SERVICES 175 /6/
---------------------------------------------------------------------------
GLOSSARY 179 /7/
---------------------------------------------------------------------------
<PAGE>
/1/
- --------------------------------------------------------------------------------
AARP Investment Program
from Scudder
THE PRINTED DOCUMENT
CONTAINS A PHOTOGRAPH
OF LINDA C. COUGHLIN
HERE
Linda C. Coughlin
Chairperson
Mid-Year Review
A Message from Linda C. Coughlin, Chairperson
AARP Investment Program from Scudder
Dear Fellow Shareholder,
Nineteen ninety-nine marks the 15th year of the AARP Investment Program
from Scudder, a period of remarkable development for the Program. In reflecting
on the major achievements over this period, we realize we couldn't have done it
without you, our shareholders. With this report, we decided it was time to
articulate those core values that have guided the development of the Program. We
introduced our core values with the mailing of our new simplified prospectus in
February. We'd like to take this opportunity to discuss the importance of these
beliefs and how they have helped shape the AARP Investment Program from Scudder
over time.
OUR CORE VALUES
The development of our core values have been strongly influenced by our
relationships with you, our shareholders, as we have come to gain a deep
understanding of your needs, expectations, and life aspirations. These beliefs
took form in 1984 at the Program's inception. Today, these values constitute the
context by which we measure how well we are meeting your expectations. They also
serve as the litmus test for the appropriateness of decisions we make about the
Program's future.
First, we seek to offer as much or as little investment guidance as you
need. Since every investor's level of experience and self-confidence is
different, our goal is to provide meaningful information and assistance that are
appropriate to your life situation and specific needs. An example of this effort
is the planned introduction of our Financial Library later this year, which will
cover a variety of investment topics related to life stage issues affecting AARP
members.
Striving to simultaneously build and manage your assets is also a core
value. Since the beginning of the AARP Investment Program, our products and
services have been designed to meet the specific needs of AARP members. While
most other mutual funds broadly target investor needs, the AARP Investment
Program is intended to meet the specific return and risk tolerances of persons
over the age of 50.
Many of you have told us that you expect your investments to keep up with
general market trends, but at the same time you are uncomfortable assuming too
much risk. As a result, each AARP fund employs a disciplined investment
management process that is designed to pursue competitive returns with less
2
<PAGE>
risk. While there have been short periods when the funds have not achieved this
goal, we believe the AARP funds have met this objective over the long term.
Providing a full range of investments that do not overlap is another
imperative of the Program. With over 7,000 mutual funds from which to choose,
selecting the right fund for your particular situation is a daunting task. The
decision is further complicated by advertisements for funds with tempting
returns of 30%, 40%, or more. However, we believe that making sound investment
decisions requires looking beyond last week's hot fund and finding a reliable
investment that delivers competitive returns with less risk over time. Rather
than offering a large selection of funds, we have focused on offering a select
list of funds in the major asset categories. The AARP funds have distinct
investment objectives that were designed to avoid overlap. As such, it is easy
to build a diversified portfolio with AARP funds because each fund provides
adequate exposure to a specific asset class without the worry of duplication
among your AARP fund holdings.
We never treat any question as too simple or too complex. Whether you are
an experienced investor or just starting out, you will likely need to contact us
for assistance at some point. Because what we say when you call can have a
significant impact, we will always answer your questions courteously, promptly,
and completely. We strive to exceed your expectations whether you speak with an
AARP Mutual Fund Representative or you inquire via fax, mail, or through the
Program's Internet Web site.
These efforts have resulted in consistently above-average grades from
shareholders according to surveys conducted by AARP. In their most recent
quarterly Member Services Quality Survey -- which measures the quality of
customer contacts, including the accuracy of transactions processed and the
effectiveness of our representatives -- shareholders reported an overall mean
satisfaction level of 8.89, with 75% of respondents rating their experience a
"9" or a "10" out of a possible "10."^1 While we are pleased with this result,
we are continually seeking improvement to ensure that we provide you with a
helpful and memorable customer experience.
We believe you expect us to keep more of your money working for you. We
take your investment in the AARP Investment Program very seriously, and we know
that your decision to invest with us is the result of an important and often
lengthy planning process. That is why all of the AARP Mutual Funds are pure
no-load(TM) and we do not charge commissions. In addition, our management fees
and total operating expenses are 34% below the mutual fund industry average,^2
and we have offered a No-Fee IRA since the start of the Program. These valuable
- --------------------------------------------------------------------------------
^1 On a quarterly basis, approximately 4,500 shareholders receive a Member
Services Quality Survey from AARP. The survey is designed to determine the
overall level of member satisfaction as it pertains to interactions with the
AARP Investment Program, and to assess the level of satisfaction with
different types and methods of interaction. The surveys are sent by AARP to
shareholders that have contacted us in some way during the previous quarter
and also to a segment that has not contacted us. Shareholders rate their
experience on a scale from 0-10, with 0 the lowest and 10 the highest rating.
The data above are from the third quarter 1998 survey, the most recent
available at the time of publication.
^2 Source: Lipper Analytical Services, Inc. for similar funds as of March 31,
1999.
3
<PAGE>
features allow you to put more of your money to work, and can help your
investment grow more quickly.
Finally, we draw on your life experiences and the expertise of AARP in
creating and refining our offerings. We are continually collecting your
perspectives and input through shareholder focus groups, surveys, and feedback
provided by our AARP Mutual Fund Representatives with whom you speak. In
addition, our colleagues at AARP, who have extensive experience serving the
needs of individuals over age 50, provide valuable guidance and feedback as we
seek to enhance the Program's products and services. This input has been
primarily responsible for the launch of six new funds in early 1997 and the
Legacy Service, which helps shareholders feel confident that their investments
will pass to their loved ones as intended.
Our core values may sound similar to popular promises made by other
companies, but we stand behind these beliefs 100 percent. As a result, we will
make every effort to help you achieve your financial goals, with these core
values serving as our beacon.
CONSISTENCY COUNTS
I'd also like to speak to the theme of consistency. I am referring not only
to the consistency of the AARP fund investment management disciplines, but also
to our portfolio management teams, our Trustees, and the employees at Scudder
Kemper Investments that manage and deliver the Program's services to you.
In a world where nothing seems to last very long, we are proud of the
tenure and extensive experience of our portfolio management teams. With the
tremendous growth and change in the mutual fund industry over the last 15 years,
consistency of management teams has generally not been the norm at other fund
companies. There can be many good reasons for changing portfolio managers, and
we have indeed made a few changes to our teams over the years. Departures of key
investment personnel (or whole teams) can upset the management of a fund. Many
of the industry's watchdogs that evaluate fund performance are often critical of
such departures, even when a proven investment process remains in place. While
the possibility of a manager change exists for any mutual fund, we believe the
experience of our portfolio management teams, combined with well-defined
investment disciplines for each fund, have been important major strengths of the
AARP Investment Program.
The Program's Trustees also have served as a consistent guiding force for
the AARP Investment Program. They provide important and objective oversight of
the Program. In addition to myself as Chairperson of the Board, two Trustees are
representatives from AARP, and the remaining ten are highly respected experts in
the fields of gerontology, health, and the finances of older Americans.
Each Trustee fulfills a fiduciary responsibility on behalf of shareholders.
Nearly all of the Trustees have been with the Program since its inception. In
the last two years, Jean Gleason Stromberg and Carol Lewis Anderson have joined
the Board, bringing their valuable experience and expertise in financial
4
<PAGE>
services to the Program. The Trustees' diverse experiences provide important
perspectives that have helped ensure that the Program is managed in your best
interests. (The Program's current Trustees and their backgrounds are listed
beginning on page 171.)
We have always understood the importance of attracting and retaining the
best people in order to achieve the Program's goals. It is not only difficult
for many organizations to achieve this consistency, it is rare. At Scudder
Kemper Investments, most of the management team and many of its employees have
many years of experience in the Program. A notable change was the retirement of
Cuyler Findlay, Chairman of the AARP Investment Program, in 1996. For those of
you who may not know, Cuyler helped create the Program in 1984 and nurtured it
with dedication for over 12 years.
I began working with Cuyler in 1986. My years with the Program have been
the most meaningful and fulfilling in my career. Today the Program is part of my
being. I am honored to be its Chairperson and to act as your champion as we work
to evolve the Program to meet the changing needs of AARP members.
WHERE DO WE GO FROM HERE?
As we look ahead, we know that you and your fellow AARP members will
continue to define changes and improvements to the Program. In this regard, we
are putting growing emphasis on the development of our personnel to assist you
with investment decisions at important points in your life. We have also put a
high priority on the development of tools, such as the Legacy Service and the
Financial Library, to help you plan and manage your finances effectively. We are
also focusing on providing better and faster access to information, whether
through our national seminar program, our knowledgeable representatives, or via
our Internet Web site (aarp.scudder.com). You can already view your account and
perform transactions at our Web site and additional features are planned for
later this year. All of these enhancements are intended to offer greater levels
of convenience to you.
We value the privilege of managing your assets and will continue to work
hard to deserve your trust and support. We aspire to build a lasting
relationship with each of you by helping you make well-informed investment
decisions.
My best,
/s/Lin Coughlin
Linda C. Coughlin
Chairperson
5
<PAGE>
This page
intentionally
left blank.
6
<PAGE>
/2/
- --------------------------------------------------------------------------------
AARP MARKET
COMMENTARY
Cornelia Small, President and Investment Director
of the AARP Investment Program from Scudder,
begins this section with an overview of the
financial markets and their impact on the funds
for the six-month period ended March 31, 1999.
Because some of the investment terms used in
various reviews require additional explanation, we
have highlighted in bold italics certain words
which appear in the Glossary beginning on page
179. We hope this helps you to better understand
the Individual Portfolio Reviews.
7
<PAGE>
Market Commentary for the six-month
period ended March 31, 1999
Cornelia Small, President and Investment Director,
AARP Investment Program from Scudder
THE PRINTED DOCUMENT
CONTAINS A PHOTOGRAPH
OF CORNELIA SMALL HERE
Cornelia Small
President and
Investment Director
Dear Fellow Shareholder,
At the time of our September 30, 1998 annual report, the world equity
markets were in turmoil. Virtually all markets had tumbled during the preceding
quarter, and prevailing investor sentiment was bleak. During the six months that
followed, all that negativity reversed. What happened? The Federal Reserve made
three quick interest rate cuts, helping to restore investor confidence, and
economic growth was much stronger than almost anyone expected.
ROBUST ECONOMIC ENVIRONMENT
Underpinning the markets' confidence was the continued strength of the U.S.
economy. Overall growth hit an impressive 6% during the fourth calendar quarter,
with housing and capital spending recording double-digit advances. Consumer
spending on big-ticket durable items, such as new cars, surged to close at a 25%
annual rate for the quarter. Preliminary indications are that the domestic
economy continued to barrel along at a growth rate well above longer-term
averages during the winter. Job growth moderated somewhat, but a record
percentage of the population is currently employed. Surveys tell us that people
feel certain that jobs are plentiful and confidence remains near all-time highs.
Despite the hearty growth, inflation remains virtually invisible. The most
popular price measure -- the Consumer Price Index -- continues to rise at less
than a 2% annual rate. While it is true that commodity prices firmed near the
end of the period, we do not expect this will ignite overall inflation.
LOW INFLATION AND GOOD MARKET LIQUIDITY
Outside the United States, it was monetary easing, not strong growth, that
stimulated the financial markets. Interest rates have fallen, inflation has
remained low, and investors have focused on the promise of growth ahead. In
Europe, the new currency -- the euro -- has declined from its introduction at
the beginning of 1999. This trimmed dollar-based returns, but European markets
still advanced a respectable 16% for the six months. The Japanese market, in an
environment of zero interest rates and less than zero growth, still managed to
forge ahead some 42%, mostly because investors began to believe in two themes:
a) Japanese authorities were going to succeed in fixing the banking system, and
b) a growing number of Japanese companies were finally going to undertake
serious restructuring. Confidence also began to
8
<PAGE>
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
---------------------------------------------------------------
THE STOCK MARKETS
---------------------------------------------------------------
CHART PERIOD:
1994-1999
CHART DATA
---------------------------------------------------------------
S&P 500 Russell 2000 MSCI EAFE
Index Index Index
---------------------------------------------------------------
1994 1.47% 10.97% 22.51%
1995 15.57 5.52 6.08
1996 32.10 29.05 12.33
1997 19.83 5.11 1.45
1998 48.00 42.01 18.61
1999 18.46 -16.26 6.06
CAPTION TO PRECEDING CHART:
One-year total returns for periods ended March 31. The S&P 500 Index is a
broad-based index of large U.S. stocks; the Russell 2000 Index is a broad-based
index of small U.S. stocks; and the MSCI EAFE Index is a broad-based index of
international stocks. Past performance is no guarantee of future results.
------
return to the Asian countries outside Japan. Currencies stabilized, interest
rates fell, and the first green shoots of demand began to peek out. Altogether,
the MSCI EAFE Index returned 22% for the six months.^1
PHENOMENAL RETURNS FROM A FEW STOCKS
In the U.S. financial markets, the Dow Jones Industrial Average broke above
the 10,000 mark for the first time, a largely symbolic milestone. While
officials at the New York Stock Exchange poured champagne and handed out
baseball caps emblazoned with "Dow 10,000," the forces that had led the major
market indices to new record highs over the six months remained a significant
concern for us.
It is no secret that the domestic equity markets have been led by a narrow
group of securities, primarily large-cap growth stocks such as Microsoft, Lucent
Technologies, and Cisco Systems. This select group of stocks has had an
important effect on the performance of the Standard & Poor's 500 Index -- a
popular benchmark for the U.S. stock market that is comprised of 500 companies
weighted according to their stock market capitalization. As a result, the bigger
a company's stock market capitalization, the greater its influence on the
movement of the index. For the six-month period, the S&P 500's return on a
market-capitalization-weighted basis was 27%. In contrast, the equal-weighted
calculation of
- --------------------------------------------------------------------------------
^1 Indices are unmanaged, market capitalization-weighted, and in U.S. dollars
for the six-month period. The MSCI (Morgan Stanley Capital International)
Europe Index represents European market returns; the MSCI Japan Index
represents Japanese market returns; and the MSCI EAFE Index is a measure of
global stock markets, including Europe, Australia, and the Far East. Index
returns assume dividends reinvested net of withholding tax and, unlike fund
returns, do net reflect any fees or expenses.
9
<PAGE>
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
---------------------------------------------------------------
THE U.S. BOND MARKETS
---------------------------------------------------------------
CHART PERIOD:
1994-1999
CHART DATA
-----------------------------------------------------------------
Lehman Brothers Lehman Brothers Lehman Brothers
Aggregate Bond GNMA Municipal Bond
Index Index Index
-----------------------------------------------------------------
1994 2.37% 1.12% 2.32%
1995 4.98 6.26 7.43
1996 10.78 10.84 8.38
1997 4.91 6.00 5.45
1998 11.99 11.16 10.72
1999 6.49 6.27 6.20
CAPTION TO PRECEDING CHART:
One-year total returns for periods ended March 31. The Lehman Brothers Aggregate
Bond Index is a broad-based index of U.S. investment-grade bonds; the Lehman
Brothers GNMA Index represents GNMA mortgage returns; the Lehman Brothers
Muncipal Bond Index is a broad-based index of municipal bonds. Past performance
is no guarantee of future results.
------
the S&P 500 was a comparably modest 19% for the same period. Essentially, unless
you were invested in the top 20 stocks in the S&P 500 over the six months, you
probably were disappointed with your return relative to the index. This narrow
market leadership meant that most actively managed equity mutual funds, which
tend to have more diversified portfolios, trailed the S&P 500.
By far the biggest gainers have been in the technology sector, especially
Internet stocks. While returns of 50%, 100%, or more are tempting, many of these
companies actually have little or no earnings, yet the market capitalization of
many technology stocks rivals that of large, established corporations with a
long earnings history. Among the AARP funds that invest in the technology
sector, we have preferred to concentrate on companies that are building the
foundations and systems, including those that are "building the roads" and
"laying the asphalt" for the information superhighway.
LONG-TERM BOND YIELDS RISE
In the fixed income area, long-term U.S. interest rates inched up (and
prices declined), as the economy's robust growth created concerns of
accelerating inflation. With U.S. economic growth strong and threats to global
growth receding, credit risk decreased and corporate bond prices rebounded
strongly after very weak performance in the third calendar quarter of 1998. For
many of the same reasons mortgage, high-yield bond, and municipal sectors
performed relatively well. The broad-based Lehman Brothers Aggregate Bond Index
closed the six months with a total return of virtually zero, including
reinvestment of dividends and price changes.
10
<PAGE>
OVERVIEW OF AARP FUND PERFORMANCE
As you may know, growth stocks outdistanced value stocks by a wide margin
over the six months. In fact, the disparity in performance between growth and
value stocks stood at its widest point in 20 years, with the Russell 1000 Growth
Index returning 35% while the Russell 1000 Value Index returned 18% for the six
months. This environment especially benefited funds that invest in large-cap
growth stocks.
THE PRINTED DOCUMENT CONTAINS
A CALLOUT TO PRECEDING PARAGRAPH
--------------------------------------
MORNINGSTAR ON THE AARP
GROWTH AND INCOME FUND
"This offering's conservative
approach has led to respectable
returns. Although the fund has
lagged its large-value peers
somewhat in 1998, its long-term
record remains solid."
Morningstar Mutual Funds, 12/6/98
--------------------------------------
Two of our most aggressive domestic equity funds have exposure in this area
and provided impressive returns -- AARP Capital Growth Fund and AARP U.S. Stock
Index Fund. The AARP Capital Growth Fund's 31% six-month return reflects the
fund's "growth at a reasonable price" investment discipline, which led it to
invest in many dominant, well-run companies. The AARP U.S. Stock Index, which
seeks to mirror the performance of the S&P 500 with less risk than other index
funds, not only performed generally in line with its benchmark by returning 26%,
but exceeded the returns of comparable index funds.
With a few large-cap growth stocks dominating market returns for most of
the six months, value-oriented strategies faced a challenging environment. One
of our flagship funds, the AARP Growth and Income Fund, delivered a modest
return of 12% compared to the S&P 500. While this fund historically has provided
competitive returns with less risk, its emphasis on stocks with attractive
valuations (value stocks) and above-average dividend yields precluded it from
investing in many of the more highly valued stocks that led performance over the
six months. However, the fund's performance has already benefited significantly
from a rebound in value stocks in April.
We have begun to see some promising signs for value stocks. First, we
believe that modestly higher long-term interest rates will hurt growth stocks
more than value stocks. When long-term interest rates rise, growth stocks
typically do not perform as well as value stocks. Second, we've begun to see
some improvement in certain commodity prices, which tends to benefit some of the
companies in the fund's investment universe, such as paper and oil stocks.
Third, we believe that investors' expectations for many companies in the value
universe are so low that when their earnings do improve, the stocks are poised
to jump. Conversely, expectations for earnings at many growth and technology
companies are so high that it is a challenge for companies to continue to meet
them. Finally, we are not comfortable with the high valuations assigned to
certain companies in the technology sector -- especially Internet stocks. Many
of these high-flyers are very new and yet unproven companies. Internet companies
operate in a fiercely competitive environment where the barriers to entry are
few. Certainly, there will be big winners, but the survival rate will likely be
low. While we will continue to take advantage of opportunities in the technology
sector, we believe that value stocks look very attractive by comparison.
11
<PAGE>
Notwithstanding short-term performance, the AARP Growth and Income Fund's
long-term record remains intact. In fact, the fund maintained an overall
four-star risk-adjusted Morningstar Rating(TM) among 2,947 domestic equity funds
as of March 31, 1999.^2
Small-cap stocks, while reporting a respectable 10% return for the six
months as measured by the Russell 2000 Index, trailed the huge gains of
larger-cap issues. The AARP Small Company Stock Fund lagged the performance of
the Russell 2000 Index due to its tilt toward value stocks, which underperformed
growth stocks for the six months. Having reached a 20-year low versus large-cap
stocks, small-caps have become even more attractively valued than at the
beginning of the six-month period.
In the international area, AARP Global Growth Fund earned its first
Morningstar Rating(TM) in February, and on March 31, 1999 the fund was assigned
an overall four-star rating for its risk-adjusted performance among 918
international funds.^3 We believe this performance reflects the fund's
continuing commitment to competitive returns with less risk. Reflecting the
unfavorable environment for value stocks abroad, AARP International Growth and
Income Fund provided a modest return, but continued to exceed the performance of
its benchmark since inception.
In the fixed income area, all four AARP income funds outperformed their
peers for the six-month period. The AARP GNMA and U.S. Treasury Fund continued
its long-term record, earning an overall four-star risk-adjusted Morningstar
Ratingt among 1,521 taxable bond funds as of March 31, 1999.^4
IN PERSPECTIVE
While the Program's conservative approach can lag the overall market during
certain periods, we believe each fund's investment discipline has added value
over the long term. The funds are designed this way because AARP members have
requested it.
As with any investment approach, we have witnessed periods when proven
long-term strategies do not live up to expectations. When this occurs, we
attempt to determine if the environment has temporarily or permanently changed
and if our investment theses still remain valid. Often unfavorable periods give
way to a market rebound such as that experienced over the six-month period ended
March 31st. Already we have begun to witness a similar reversal of growth and
value investment styles since the end of the report period.
- --------------------------------------------------------------------------------
^2 Morningstar proprietary ratings reflect historical risk-adjusted performance
through 3/31/99. The ratings are subject to change every month. Morningstar
ratings are calculated from the fund's three-, five-, and ten-year returns
(with fee adjustments) in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day T-bill returns. The AARP
Growth and Income Fund received three stars for the three-year period and
four stars for the five- and ten-year periods among 2,947, 1,810, and 743
domestic equity funds, respectively. The top 10% of funds in its broad asset
class receive five stars and the next 22.5% receive four stars. Past
performance is no guarantee of future results.
^3 The AARP Global Growth Fund received four stars for the three-year period
among 918 international funds. See footnote 2 for additional information.
^4 The AARP GNMA and U.S. Treasury Fund received four stars for the three-,
five-, and ten-year periods among 1,521, 1,048, and 371 taxable bond funds,
respectively. See footnote 2 for additional information.
12
<PAGE>
I know that this has been a frustrating environment for some shareholders
whose returns have not kept pace with the S&P 500. However, investors should
remember that the index's recent gains reflect the stocks of a few companies.
Investing in these companies alone, especially given their exceptionally strong
performance and relatively high valuations, may significantly increase one's
risk. We believe that if you can accept additional risk and are willing to
commit to a long-term investment of at least five years, the AARP Capital Growth
Fund and AARP U.S. Stock Fund can provide you with exposure to these
opportunities.
THE PRINTED DOCUMENT CONTAINS A
CALLOUT TO PRECEDING PARAGRAPH
--------------------------------------
". . . Investors should remember
that the index's recent gains
reflect the stocks of a few
companies. Investing in these
companies alone, especially
given their exceptionally strong
performance and relatively high
valuations, may significantly
increase one's risk. "
-- Cornelia Small
--------------------------------------
If you believe that other sectors of the U.S. stock market have largely
been overlooked during the recent rally and you are seeking additional downside
protection over the long term, AARP Balanced Stock and Bond Fund and AARP Growth
and Income Fund may be appropriate. Our other equity funds, such as AARP Small
Company Stock Fund, AARP Global Growth Fund, and AARP International Growth and
Income Fund, can provide improved diversification, especially if your investment
portfolio is primarily concentrated in the domestic large-cap stocks.
Since each person's life-stage and financial situation is different, I
encourage you to discuss these funds in more detail by calling one of our
knowledgeable representatives at 1-800-253-2277. They can provide you with
current fund information and assist you with determining which fund(s) are most
appropriate given your goals.
LOOKING AHEAD
We believe this is an exciting period for investors. As we survey the
markets, we see many attractive possibilities. The wide divergence between
growth and value styles of investing has created tremendous opportunities.
Small-cap stocks, too, remain compelling values in our opinion, and global and
international investments offer the opportunity to broaden portfolio
diversification. At the same time, fixed income securities can provide
attractive current income and an anchor in this environment of increased
volatility in the equity markets.
Our forecast calls for the economy to slow enough to keep inflation at bay,
which should bode well for the financial markets. Whatever the environment
brings, we continue to believe that the AARP Investment Program's goal of
seeking competitive returns with less risk will prove valuable over the long
term.
Thank you for your continued support of the AARP Investment Program from
Scudder.
Sincerely,
/s/Cornelia Small
Cornelia Small
President and Investment Director
13
<PAGE>
This page
intentionally
left blank.
14
<PAGE>
/2/
-------------------------------------------------------------------------------
AARP
INDIVIDUAL
PORTFOLIO REVIEWS
Individual Portfolio Reviews for each AARP fund from Scudder
detail the individual fund objective, performance, portfolio
composition, asset allocation, and sector diversification.
In addition, each portfolio management team comments on how
its fund performed during the period in relation to the
market.
Because some investment terms require additional
explanation, we have highlighted in bold italics certain
words which appear in the Glossary beginning on page 179. We
hope this helps you to better understand the Individual
Portfolio Reviews.
15
<PAGE>
This page
intentionally
left blank.
16
<PAGE>
AARP HIGH QUALITY MONEY FUND
- ----------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide current income and liquidity, consistent with
stability and safety of principal, while maintaining a constant share price of
$1. The fund pursues its goal by investing principally in short-term debt
securities issued by U.S. corporations and financial institutions, and the U.S.
government and its agencies.
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 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 investments 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
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
Jerri I. Cohen
Portfolio Manager
- --------------------------------------------------------------------------------
Market turmoil at the beginning of the period prompted the Federal Reserve
to lower a key short-term interest rate (the federal funds rate) by a quarter of
a percent on October 15 and again on November 17. The Fed took these actions in
an effort to restore liquidity and investor confidence to the domestic markets.
In the end, the concerns were overstated and U.S. growth was underestimated, as
the fourth calendar quarter was one of the strongest on record. While the Fed's
rate cuts were largely successful, it resulted in lower yields for money market
instruments.
FUND PERFORMANCE
For the six-month period ended March 31, 1999, the AARP High Quality Money
Fund returned 2.20%, reflecting the low interest rate environment. Longer term,
the fund returned 4.67% for the one-year period.
THE FUND'S INVESTMENT STRATEGY
Throughout the six months, the fund maintained a relatively short average
maturity, as yields on longer-term securities did not provide adequate
compensation for the additional time commitment required. As of the end of the
period, the portfolio's average maturity was 24 days, nearly unchanged from 32
days at the beginning of the period. A short average maturity provides
flexibility since portfolio holdings mature more quickly, thus providing the
opportunity to reinvest in higher-yielding opportunities when available.
We continued to purchase only securities that were rated within the highest
quality category by at least one of three leading national statistical rating
organizations: Fitch Investors Service, Inc., Moody's Investors Service, Inc.,
or Standard & Poor's Corporation (S&P). We also met the guidelines for
maintaining our AAAm rating from S&P, the highest rating available.^1 In
addition, our credit analysts adhere to even stricter guidelines within the
universe of securities that meet S&P criteria, approving only a small percentage
of securities for purchase. As a result, the universe of securities from which
the fund's portfolio is constructed is smaller and generally of better quality
than most other money market funds.
PORTFOLIO STATISTICS
Number of Issues ........ 32
7-Day Effective Yield..4.18%
Average Maturity.....24 days
Average Quality ....... AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return ......... 4.67%
Five-Year Average
Annual Total Return .. 4.63%
Ten-Year Average
Annual Total Return .. 4.85%
Five-Year Cumulative
Total Return .........25.40%
Ten-Year Cumulative
Total Return ........ 60.55%
- --------------------------------------------------------------------------------
^1 Ratings are assigned to approximately one-third of all money market funds,
which provides an added degree of assurance for investors concerned with
safety of principal. The rating for the fund is historical and is based on an
analysis of the portfolio's credit quality, market price exposure, and
management.
An investment in this fund is not insured or guaranteed by the FDIC or any
other government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the fund.
17
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- -------------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide liquidity and current income that is free from federal
income tax,* consistent with stability and safety of principal, while
maintaining a constant share price of $1. The fund pursues its goal by investing
at least 80% of assets in tax-exempt, short-term municipal securities.
FOR WHOM THE
FUND IS DESIGNED
This fund may be appropriate for investors seeking tax-free income or those who
do not want the risks associated with investing in stocks or bonds. These
investors include those seeking tax-free 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
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
Jerri I. Cohen
Portfolio Manager
* 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.
- --------------------------------------------------------------------------------
Market turmoil at the beginning of the period prompted the Federal Reserve
to lower short-term interest rates by a quarter of a percent on October 15 and
again on November 17. The Fed was attempting to restore liquidity and investor
confidence. In the end, these concerns were overstated and U.S. growth was
underestimated. In this environment, the tax free money market sector remained
"rich," meaning that prices were high (and yields low) versus comparable taxable
securities for most of the period.
FUND PERFORMANCE
For the six-month period ended March 31, 1999, the fund returned 1.13%,
reflecting the low interest rate environment. The fund's 7-day effective yield
of 2.16% translated into taxable equivalent yields of 3.38% and 3.58% for
investors in the 36% and 39.6% federal tax brackets, respectively.
THE FUND'S INVESTMENT STRATEGY
For most of the six months, a lack of supply and limited new issuance of
tax free money market instruments kept yields relatively low. As supply
increased in March, we began to lengthen the portfolio's average maturity by
adding securities with longer maturities. This helped to increase the fund's
yield in March as higher-yielding instruments were added to the portfolio. As a
result, the fund's average maturity rose from 15 days at the beginning of the
period to 32 days as of March 31, 1999.
We continued to purchase only securities that were rated within the highest
quality category by at least one of three leading national statistical rating
organizations. We also met the guidelines for maintaining our AAAm rating from
S&P, the highest rating available.^1 In addition, our credit analysts adhere to
even stricter guidelines within the universe of securities that meet S&P
criteria, approving only a small percentage of securities for purchase. As a
result, the universe of securities from which the fund's portfolio is
constructed is smaller and generally of better quality than most other money
market funds.
PORTFOLIO STATISTICS
Number of Issues...........58
7-Day Effective Yield...2.16%
Average Maturity..... 32 Days
Average Quality ........ AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return .......... 2.55%
Five-Year Average
Annual Total Return.....2.70%
Ten-Year Average
Annual Total Return.....3.42%
Five-Year Cumulative
Total Return...........14.27%
Ten-Year Cumulative
Total Return ..........39.94%
- --------------------------------------------------------------------------------
^1 Ratings are assigned to approximately one-third of all money market funds,
which provides an added degree of assurance for investors concerned with
safety of principal. The rating for the fund is historical and is based on an
analysis of the portfolio's credit quality, market price exposure, and
management.
An investment in this fund is not insured or guaranteed by the FDIC or any
other government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the fund.
18
<PAGE>
AARP PREMIUM MONEY FUND
- -----------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide high current income and liquidity, consistent
with stability and safety of principal, while maintaining a constant share price
of $1. The fund pursues its goal by investing in short-term debt securities
issued by U.S. corporations and financial institutions, and the U.S. government
and its agencies.
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 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 investments 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
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
Jerri I. Cohen
Portfolio Manager
- --------------------------------------------------------------------------------
This first report to shareholders of the AARP Premium Money Fund covers
the abbreviated fiscal period from February 1, 1999 to March 31, 1999. By
design, the fund seeks higher yields than the AARP High Quality Money Fund
primarily through a lower expense structure, which is possible due to higher
investment requirements.
The fund began operations during a period of relatively low short-term
interest rates. The benchmark federal funds rate has hovered at 4.75% since
November 17 when the Fed lowered it by a quarter of one percent for the third
time in as many months. The cuts helped restore liquidity and investor
confidence to the domestic markets, but resulted in lower yields for money
market securities.
PORTFOLIO STATISTICS
Number of Issues...........46
7-Day Effective Yield...4.60%
Average Quality......... AAAm
FUND PERFORMANCE
For the two-month period ended March 31, 1999, the fund returned 0.72%. The
fund's 7-day effective annualized yield was 4.60% as of the end of the period.
THE FUND'S INVESTMENT STRATEGY
For the abbreviated period, the fund maintained an average maturity of
less than 25 days, as yields on longer-term securities did not provide adequate
compensation for the additional time commitment required. A short average
maturity provides flexibility since portfolio holdings mature more quickly, thus
providing the opportunity to reinvest in higher-yielding opportunities when
available.
While the fund has slightly more flexibility to invest in a broader
range of money market securities than the AARP High Quality Money Fund, we have
only purchased securities rated within the highest quality category by at least
one of three leading national statistical rating organizations: Fitch Investors
Service, Inc., Moody's Investors Service, Inc., or Standard & Poor's
Corporation. In addition, our credit analysts adhere to strict guidelines within
the universe of securities that meet our eligibility requirements for purchase,
approving only a small percentage of securities for purchase. As a result, the
universe of securities from which the fund's portfolio is constructed is limited
to highly creditworthy issues with a proven ability to repay their debt.
- --------------------------------------------------------------------------------
An investment in this fund is not insured or guaranteed by the FDIC or any
other government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the fund.
19
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to produce a high level of current income while actively seeking
to reduce downside risk as compared with other short-term bond mutual funds. The
fund pursues its goal by investing principally in short-term debt securities and
by maintaining a weighted average portfolio duration of less than three years.
The fund modified its investment objective on February 1, 1998 and changed its
name from the AARP High Quality Bond Fund. The previous objective was to invest
in high quality securities regardless of maturity length.
PORTFOLIO
MANAGEMENT TEAM
Stephen A. Wohler
Lead Portfolio Manager
Robert S. Cessine
Portfolio Manager
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX++
----------------------
1 yr. 5.28% 6.18%
5 yr. 36.36% 35.47%
10 yr.113.85% 103.70%
AVERAGE ANNUAL
FUND INDEX++
----------------------
1 yr. 5.28% 6.18%
5 yr. 6.40% 6.26%
10 yr. 7.90% 7.37%
- --------------------------------------------------------------------------------
Foreign market turmoil gave way to stronger than expected growth and
fears of inflation over the six-month period, causing yields on long-term
Treasury bonds to inch up and prices to decline. Treasuries maturing in less
than one year provided the best total returns, while longer-term bonds reported
negative total returns for the period.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP HIGH QUALITY LEHMAN BROTHERS SALOMON BROTHERS INC.
SHORT TERM BOND AGGREGATE BOND TREASURY/GOVERNMENT
FUND INDEX+ SPONSORED CORPORATE
INDEX (1-3 YEARS)++
------------------------------------------------------------------------
1989 $10000 $10000 $10000
1990 10978 11232 11056
1991 12212 12679 12287
1992 13499 14127 13466
1993 15255 16005 14623
1994 15683 16382 15036
1995 16176 17201 15702
1996 17829 19054 16927
1997 18572 19990 17846
1998 20313 22386 19184
1999 21386 23836 20370
FUND PERFORMANCE
For the six-month period ended March 31, 1999, the fund returned 0.59%,
which consisted of 2.72% in income distributions and -2.13% in capital change.
The fund's 30-day SEC yield was 5.25% as of the end of the period. The fund's
benchmark, the Salomon Brothers Government/Corporate 1-3 Year Bond Index,
returned 1.57% for the same six-month period.
THE FUND'S INVESTMENT STRATEGY
Over the six months, the fund's duration declined slightly from 2.4 to 2.3
years. In the portfolio, we increased our holdings in the corporate sector, an
area we believe offers some of the greatest potential for income-oriented
investors over the long term. Our relatively small position in mortgage-backed
securities reflected concerns about the negative effects of high rates of
refinancings. Overall, we maintained the portfolio's relatively high average
credit quality rating of AA.
In the corporate sector we have been emphasizing non-cyclical industries.
While U.S. growth hit a record in the fourth quarter, which typically favors
cyclical issues, our overall position in non-cyclicals performed well. We added
corporates with 2-5 year maturities in the finance sector, such as Capital One
Bank, AT&T Capital, and NBD Bank of Michigan, which are continuing to benefit
from mergers and industry consolidations.
- --------------------------------------------------------------------------------
+ The unmanaged Lehman Brothers Aggregate Bond Index is a
market-value-weighted measure of Treasury issues, agency issues, corporate
bond issues, and mortgage securities.
++ Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1-3
years) is composed of Treasury, Government Sponsored Agency, and Corporate
securities with maturities of one to three years. With this report, the
fund has adopted the Salomon Brothers Inc. Treasury/Government Sponsored
Corporate Index (1-3 years) for its primary securities market index over
the Lehman Brothers Aggregate Bond Index, as the Salomon Brothers Inc.
Treasury/Government Sponsored Corporate Index (1-3 years) better represents
the securities and markets in which the fund typically invests. 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.
20
<PAGE>
We also added to our holdings in the food industry, including Safeway,
Racers-Kellogg, and Pepsi Bottling.
Asset-backed securities continued to play an important role in the
portfolio, providing good liquidity and better yields than comparable corporates
without assuming additional risk. While asset-backed securities typically
represent revolving credit and are more difficult to value, these securities are
high quality and, unlike bonds, pay income monthly.
OUTLOOK
We have a neutral outlook for the fixed income markets. However, as bond
managers we remain concerned about the strong U.S. economy and tight labor
markets -- factors that could result in a higher inflation rate. While inflation
has remained nearly non-existent, it is important to remember that an
acceleration of inflation might be more significant to the bond markets than its
current low level because it could signal a change from the current environment.
Portfolio Diversification
As of March 31, 1999
Corporate Bonds 59%
Asset-Backed 21%
U.S. Government-Agency
Pass-Throughs 10%
U.S. Treasury Obligations 6%
Cash Equivalents 3%
Government National
Mortgage Association 1%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want a source of regular monthly income
o Desire an income component for diversification
o Can invest for at least three years
o Can handle some ups and downs in investment performance
MATURITY STRUCTURE
As of March 31, 1999
Under 2 Years...........36.4%
2 to 3 Years ...........21.4%
3 to 4 Years ...........27.1%
4 to 5 Years ........... 9.7%
5 to 7 Years ........... 3.1%
Over 7 Years ........... 2.3%
-----
100%
=====
PORTFOLIO STATISTICS
Number of Issues.......... 68
30-Day SEC Yield....... 5.25%
Average Coupon......... 6.59%
Yield to Maturity...... 4.28%
Average Maturity...2.95 Years
Average Duration...2.34 Years
Average Quality........... AA
21
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to produce a high level of income while actively seeking to
reduce downside risk as compared with other GNMA mutual funds. The fund pursues
its goal by investing primarily in high quality GNMA and U.S. Treasury
securities. While GNMAs and Treasuries are guaranteed as to timely payment of
principal and interest, the guarantee does not apply to the fund's yield or
share price, both of which will fluctuate daily.
PORTFOLIO
MANAGEMENT TEAM
Richard L. Vandenberg
Lead Portfolio Manager
Scott E. Dolan
Portfolio Manager
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 5.70% 6.26%
5 yr. 37.56% 47.47%
10 yr.109.99% 141.73%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 5.70% 6.26%
5 yr. 6.59% 8.07%
10 yr. 7.70% 9.22%
- --------------------------------------------------------------------------------
In October, foreign market turmoil and expectations of slowing growth
prompted a "flight to quality" from higher- yielding securities into Treasuries.
Although GNMAs are backed by the full faith and credit of the U.S. government,
investors avoided these securities, which have been affected by accelerating
mortgage refinancings. Market conditions improved significantly in the months
following, as long-term Treasury yields crept up (and prices declined), causing
mortgage rates to rise and refinancings to slow.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP GNMA AND LEHMAN BROTHERS
U.S. TREASURY FUND GNMA INDEX+
------------------ -----------
1989 $10000 $10000
1990 11067 11433
1991 12425 13026
1992 13736 14559
1993 15209 16210
1994 15266 16392
1995 15926 17418
1996 17299 19308
1997 18156 20466
1998 19866 22748
1999 20999 24173
FUND PERFORMANCE
The environment improved significantly for GNMA and Treasury securities
toward the end of the six-month period, which helped the fund rank in the top
50% of 56 GNMA funds for the six months according to Lipper Analytical Services,
Inc., an independent analyst of investment performance. Longer term, the fund
ranked in the top 33% of 51 funds for the one-year period, in the top 74% of 34
funds for the five-year period, and in the top 87% of 23 funds for the ten-year
period. Due to a conservative strategy aimed at limiting losses when the market
declines, the fund may lag behind other funds in its category and its benchmark.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP GNMA and U.S. Treasury Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------- Over the three years, this
Lipper GNMA fund is among the best 25% of
Return Peer Group Risk similar funds for monthly
----------------------------------- downside risk and in the
Highest Lowest fourth quartile of similar
Return Best 25% XXXX Risk funds for total return.
------------ -----------
Next 25% The monthly averages for risk
------------ ----------- and return are for 28 similar
funds for the period April 1,
Next 25% 1996 through March 31, 1999.
------------ -----------
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------
Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>
- --------------------------------------------------------------------------------
+ The unmanaged Lehman Brothers GNMA Index is a market-value-weighted measure
of all fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association. 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>
For the six-month period ended March 31, 1999, the fund returned 0.96%.
This return consisted of 3.10% in income distributions and -2.14% in capital
change. Its 30-day SEC yield was 5.51% as of the end of the period. The fund's
benchmark, the Lehman Brothers GNMA Index, returned 1.90% for the same six-month
period.
THE FUND'S INVESTMENT STRATEGY
As the yield spread for GNMAs over Treasuries improved over the six months,
we increased the duration of our mortgage holdings and reduced duration in the
Treasury sector. This approach helped to mitigate some of the fund's price
volatility. The fund's duration rose to 3.4 years from 2.5 years six months ago
due primarily to the fact that GNMA durations lengthen when rates rise.
We have continued to reduce exposure to high-coupon mortgages, which are
particularly susceptible to refinancing since homeowners are more likely to
refinance when the interest rate they are paying exceeds the market rate by a
wide margin. Over the six-month period, we trimmed the fund's weighting in GNMAs
with coupons of 8% or higher (reduced from 25% to 16% of assets), and increased
exposure to GNMAs with coupons of less than 7% (increased from 20% to 30% of
assets). At the end of the period, our higher weight in lower coupon GNMAs
reflected our view that these securities continue to offer an attractive
potential return for the risk assumed. We have also maintained an emphasis on
newly issued GNMAs, since these securities generally have slower prepayment risk
than mortgages issued one to two years ago.
OUTLOOK
Even though GNMAs have rebounded in recent months, we remain optimistic
about the potential for further gains in this sector. In the aggregate, GNMAs
and U.S. Treasuries are attractive on a global basis due to their relatively
high yields in the low inflation environment. We believe GNMAs, in particular,
stand to benefit from yields that remain close to historical highs in relation
to Treasuries. Although seasonal factors are likely to cause a rise in
prepayments as the summer approaches, we are encouraged by the fact that
prepayment activity has begun to flatten recently.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want a source of regular monthly income
o Desire an income component for diversification
o Can invest for at least three years
o Can handle some ups and downs in investment performance
PORTFOLIO DIVERSIFICATION
As of March 31, 1999
Government National
Mortgage Association 89%
Cash Equivalents 6%
U.S. Treasury Obligations 5%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues........2,388
30-Day Yield............5.51%
Average Coupon..........7.10%
Yield to Maturity.......5.51%
Average Maturity...6.92 Years
Average Duration...3.43 Years
Average Quality...........AAA
23
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- ---------------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to produce a high level of income that is free from federal
income taxes1 while actively seeking to reduce downside risk as compared with
other insured tax-free bond mutual funds. The fund pursues its goal by investing
at least 80% of its assets in high quality, tax-exempt municipal securities,
most of which carry insurance that would pay the principal and interest in the
event of default. This insurance does not apply to the fund's yield or share
price, both of which will fluctuate daily.
PORTFOLIO
MANAGEMENT TEAM
Philip G. Condon
Co-Lead Portfolio Manager
Ashton P. Goodfield
Co-Lead Portfolio Manager
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 5.14% 6.20%
5 yr. 38.57% 44.40%
10 yr.109.11% 120.83%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 5.14% 6.20%
5 yr. 6.74% 7.62%
10 yr. 7.66% 8.24%
- ----------
^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. Gains on sales of
fund shares and distributions of capital gains generally will be subject to
federal, state, and local taxes.
- --------------------------------------------------------------------------------
Over the six months, market sentiment turned from expectations of
deflation to fears of a surging U.S. economy and the potential for interest rate
hikes. In this environment, municipal bonds performed better than Treasuries due
to a tendency for municipals to lag Treasuries and a 19% decrease in the supply
of municipals in the first quarter of 1999 compared with the same period in
1998. While the yield ratio of 30-year municipals to Treasuries declined from
97% to 89% over the six months, it remained above its three-year average. At
this level, we consider municipals attractive values relative to Treasuries.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP INSURED LEHMAN BROTHERS
TAX FREE MUNICIPAL
GENERAL BOND FUND BOND INDEX+
----------------- -----------
1989 $10000 $10000
1990 10931 11056
1991 11898 12075
1992 13004 13283
1993 14823 14947
1994 15090 15293
1995 16104 16430
1996 17268 17807
1997 18091 18779
1998 19888 20793
1999 20911 22083
FUND PERFORMANCE
The fund performed well versus its peers, ranking in the top 21% of 48
insured municipal debt funds for the six-month period according to Lipper
Analytical Services, Inc., an independent analyst of investment performance.
Longer term, the fund ranked in the top 42% of 48 funds for the one-year period,
in the top 42% of 31 funds for the five-year period, and in the top 35% of 17
funds for the ten-year period. Due to a conservative strategy aimed at limiting
losses when the market declines, the fund may lag behind other funds in its
category and its benchmark.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Insured Tax Free General Bond Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Lipper Over the three years, this
Return Insured Muni Risk fund is among the best 50% of
Debt Peer similar funds for monthly
Group downside risk and in the third
----------------------------------- quartile ofsimilar funds for
Highest Lowest total return.
Return Best 25% Risk
------------ ----------- The monthly averages for risk
and return are for 19 similar
Next 25% XXXX funds for the period April 1,
------------ ----------- 1996 through March 31, 1999.
XXXX Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>
- ------------------------------
+ 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.
24
<PAGE>
For the six-month period ended March 31, 1999, the fund returned 1.00%.
This return consisted of 2.27% in income distributions and -1.27% in capital
change. The fund's 30-day SEC yield of 3.79% translated into taxable equivalent
yields of 5.49%, 5.92%, and 6.27% for investors in the 31%, 36%, and 39.6%
federal tax brackets, respectively. The fund's benchmark, the Lehman Brothers
Municipal Bond Index, returned 1.49% for the same period.
THE FUND'S INVESTMENT STRATEGY
In the portfolio, we maintained exposure to a broad range of geographically
diversified high quality insured municipal securities. We continued to pursue
the fund's objective of producing a high level of tax-free income with less risk
by maintaining shorter portfolio duration than other insured funds. Over the six
months, duration rose from 6.6 to 6.8 years.
Throughout the period, we continued to focus on AAA-rated municipal bonds
with 5-15 year maturities. Our exposure to long-term bonds (20-30 year
maturities), which were the weakest performers in this environment, was limited
to less than 5% of assets.
Historically, a major part of the portfolio has been invested in
non-callable bonds (88%). However, we began to emphasize "cushion" bonds -- high
coupon bonds trading at a premium to face value that can be redeemed prior to
maturity. We added selected cushion bonds, believing that the extra yield
adequately compensated us for the call feature in the current environment.
While we were able to avoid some of the price declines of longer-term
bonds, the fund's significant weighting in bonds with 10-year maturities held
back performance somewhat. Since we take a long-term approach to managing the
portfolio, we maintained these positions, which we believe should provide
attractive tax-free income and total return over time.
OUTLOOK
We believe municipalities are in good shape. Nearly all states have a
budget surplus and a number are lowering tax rates due to healthy local
economies. With little meaningful threat of inflation and rising credit quality,
we have a favorable outlook for the municipal bond market overall.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want a source of regular monthly income
o Desire tax-free income1
o Can invest for at least three years
o Can handle some ups and downs in investment performance
MUNICIPAL BOND
EFFECTIVE MATURITIES
ALLOCATION
As of March 31, 1999
Less than 1 year...........4%
1 to less than 5 years....10%
5 to less than 10 years...42%
10 to less than 15 years..31%
Greater than 15 years.....13%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues..........373
30-Day SEC Yield........3.79%
Average Coupon..........4.55%
Average Maturity...9.49 Years
Effective Duration..6.8 Years
Average Quality...........AAA
25
<PAGE>
AARP BOND FUND FOR INCOME
- -------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to produce a high level of current income while actively seeking
to reduce downside risk as compared with other long-term bond mutual funds. The
fund pursues its goal by investing at least 65% of its assets in high quality
bonds of any maturity with credit ratings of investment grade. The fund may also
invest up to 35% in high yield, low quality bonds.
PORTFOLIO
MANAGEMENT TEAM
Stephen A. Wohler
Lead Portfolio Manager
Kelly D. Babson
Robert S. Cessine
Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 4.97% 6.48%
Life of
Fund* 15.83% 18.21%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 4.97% 6.48%
Life of
Fund* 7.04% 8.05%
- --------------------------------------------------------------------------------
Foreign market turmoil gave way to stronger than expected growth and fears
of inflation over the six-month period, causing yields on long-term Treasury
bonds to inch up and prices to decline. In this environment, mortgages and
corporate -- especially higher- yielding, lower-rated -- bonds provided some of
the best total returns. Meanwhile, Treasuries and bonds with longer maturities
lagged the performance of the overall U.S. bond market.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
AARP BOND FUND LEHMAN BROTHERS
FOR INCOME AGGREGATE BOND INDEX+
---------- ---------------------
2/1/97* $10000 $10000
3/97 9882 9914
6/97 10226 10279
9/97 10565 10621
12/97 10833 10933
3/98 10992 11102
6/98 11217 11362
9/98 11460 11842
12/98 11527 11882
3/99 11538 11821
FUND PERFORMANCE
The AARP Bond Fund for Income performed well relative to its peers in the
corporate BBB-rated bond category, ranking in the top 30% of 120 funds for the
six months according to Lipper Analytical Services, Inc., an independent analyst
of investment performance. Longer term, the fund ranked in the top 44% of 108
funds for the one-year period. Due to a conservative strategy aimed at limiting
losses when the market declines, the fund may lag behind other funds in its
category and its benchmark.
For the six-month period ended March 31, 1999, the fund returned 0.68%.
This return consisted of 3.32% in income distributions and -2.64% in capital
change. Its 30-day SEC yield was 6.34% as of the end of the period. The fund's
benchmark, the Lehman Brothers Aggregate Bond Index, returned -0.17% for the
same six-month period.
THE FUND'S INVESTMENT STRATEGY
Over the period, the fund's duration remained relatively short at 5.4
years, essentially unchanged from six months ago. We increased our holdings in
the corporate sector, an area we believe offers some of the greatest potential
for income-oriented investors over the long term. Our relatively small position
in mortgage-backed securities reflects our concern about the negative effects of
high rates of refinancings.
- --------------------------------------------------------------------------------
+ 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, 1997.
26
<PAGE>
In the corporate sector, we have been emphasizing non-cyclical industries.
While U.S. growth hit a record in the fourth quarter, which typically favors
cyclical issues, our overall position in non-cyclicals performed well. We added
a number of intermediate-term (3-10 year) corporate bonds in several sectors
that are continuing to benefit from industry consolidations, including finance
and telecommunications. In finance, we added Bank United and Morgan Stanley and
in telecommunications, we added Qwest, Sprint, Charter Communications, and AT&T
- -- part of the largest new offering ever. AT&T's successful issuance was a
signal to many of a healthy corporate bond market.
Although some would consider the oil sector cyclical, we have continued to
maintain a significant position in this area because of what we believe are
compelling values, solid financials, and attractive yields. With the price of
oil rebounding this year, our oil holdings performed relatively well.
OUTLOOK
We have a neutral outlook for the fixed income markets. However, as bond
managers we remain concerned about the strong U.S. economy and tight labor
markets -- factors that could result in a higher inflation rate. While inflation
has remained nearly non-existent, it is important to remember that an
acceleration of inflation might be more significant to the bond markets than its
current low level because it could signal a change from the current environment.
Portfolio Allocation
As of March 31, 1999
Corporate Bonds 62%
U.S. Treasury Obligations 20%
U.S. Government-Backed
Mortgages 6%
Asset-Backed Securities 5%
Cash Equivalents 3%
Government National
Mortgage Association 2%
Foreign Bonds -- U.S. $
Denominated 2%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want a source of regular monthly income
o Desire an income component for diversification
o Can invest for at least three years
o Can handle some ups and downs in investment performance
MATURITY STRUCTURE
As of March 31, 1999
Under One Year.............2%
1 to 5 Years..............30%
5 to 8 Years..............26%
Over 8 Years..............42%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues..........108
30-Day SEC Yield........6.34%
Average Coupon..........7.33%
Yield to Maturity.......6.33%
Average Maturity...9.15 Years
Average Duration....5.4 Years
Average Quality............AA
27
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- ---------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth and income while actively
seeking to reduce downside risk as compared with other balanced mutual funds.
The fund pursues its goal by investing primarily in a diversified mix of stocks
with above-average dividend yields, high quality bonds, and cash reserves.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Lori J. Ensinger
Stephen A. Wohler
Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. -1.72% 12.79%
5 yr. 89.34% 115.94%
Life of
Fund* 80.24% 104.93%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. -1.72% 12.79%
5 yr. 13.62% 16.64%
Life of
Fund* 12.09% 14.90%
- --------------------------------------------------------------------------------
The strong performance of a few high risk stocks provided a challenging
environment for mutual funds that pursue a conservative strategy and invest in a
broad range of securities, such as the AARP Balanced Stock and Bond Fund.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Annual Periods from February 1, 1994*
to March 31, 1999
CHART DATA:
<TABLE>
<CAPTION>
AARP BALANCED STOCK STANDARD & POOR'S LEHMAN BROTHERS BLENDED
AND BOND FUND 500 INDEX AGGREGATE BOND INDEX INDEX+
------------- --------- -------------------- ------
<S> <C> <C> <C> <C>
2/94* $10000 $10000 $10000 $10000
3/94 9642 9305 9583 9490
3/95 10467 10752 10062 10461
3/96 12669 14203 11146 12602
3/97 14250 17019 11694 14157
3/98 18575 25191 13095 18168
3/99 18256 29841 13944 20493
</TABLE>
FUND PERFORMANCE
For the six-month period ended March 31, 1999, the fund returned 6.66%.
The fund's blended index returned 13.23% for the same six-month period. Due to a
conservative strategy aimed at limiting losses when the market declines, the
fund may lag behind other funds in its category and its benchmark during periods
of strong stock market performance.
THE FUND'S INVESTMENT STRATEGY
The stock portion of the fund follows a similar investment strategy to
the AARP Growth and Income Fund. In this part of the portfolio, we continued to
invest in dividend-paying stocks, which have outperformed
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Balanced Stock and Bond Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Lipper
Return Balanced Risk Over the three years, this
Peer Group fund is among the best 25% of
----------------------------------- similar funds for monthly
Highest Lowest downside risk and in the
Return Best 25% XXXX Risk fourth quartile of similar
------------ ----------- funds for total return.
Next 25%
------------ ----------- The monthly averages for risk
and return are for 159 similar
Next 25% funds for the period April 1,
------------ ----------- 1996 through March 31, 1999.
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------
Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>
- --------------------------------------------------------------------------------
+ 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 10% the 3-Month Treasury Bill Index. The
50/40/10 measure is meant to reflect the anticipated long-range asset mix
of the fund, which may change over time. The Standard & Poor's 500 Index is
a capitalization-weighted index of 500 stocks. The index is designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. 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.
28
<PAGE>
stocks that pay little or no dividends over the long term. This approach, which
tends to emphasize value stocks, was out of favor during the first four months
of the period, as the large-cap growth stocks dominated stock market returns.
The environment began to change in the last two months of the period, as
investors showed renewed interest in value stocks, especially certain cyclical
issues.
Overall, many of our top equity holdings made important contributions to
performance over the six months. Chase Manhattan Bank, Ford, Xerox, and American
Home Products all played significant roles. On a sector basis, we emphasized
telecommunications companies that are building infrastructure, including Alltel,
Sprint, and Frontier. While our equity strategy tends to preclude us from heavy
weightings in the technology sector, we participated indirectly through holdings
such as Corning, which is the leading producer of fiber optic glass and
photonics -- the electronics that light fiber optic networks. Our significant
holdings in the energy area made the largest single contribution to performance
due primarily to rising oil prices. Areas that detracted from performance
included manufacturing and specialty chemicals, which suffered until the end of
the period when many cyclical issues began to attract more interest from
investors.
For fixed income investors, foreign market turmoil at the beginning of the
period gave way to stronger than expected growth and fears of inflation causing
yields on long-term Treasury bonds to inch up and prices to decline. In this
environment, mortgages and corporate bonds provided some of the best total
returns. The fund's overweighting in corporates benefited the bond portion of
the portfolio significantly. At the same time, Treasuries and bonds with longer
maturities lagged the overall U.S. bond market. Over the period, we maintained a
relatively short duration of 5.3 years.
OUTLOOK
We are seeing increasing evidence that value stocks are beginning to return
to favor. In addition, the large growth companies that had performed so well
over the six months are now not nearly as attractive from a valuation standpoint
as the value-oriented companies in the fund's investment universe. With growth
expected to slow in the months ahead and volatility on the rise recently, we
believe that the fund's broad diversification in dividend-paying stocks and
quality bonds will provide a valuable buffer for shareholders.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want long-term growth with less risk than a purely growth-oriented
investment
o Can invest for at least three to five years
o Can handle some ups and downs in investment performance
o Are building a diversified portfolio with a few core investments
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 63%
Bond Holdings 36%
Cash Equivalents 1%
---
100%
====
STOCK ALLOCATION
As of March 31, 1999
Financial 19%
Manufacturing 17%
Communications 15%
Energy 10%
Durables 8%
Health 8%
Utilities 5%
Transportation 5%
Consumer Staples 4%
Other 9%
----
100%
====
29
<PAGE>
AARP GROWTH AND INCOME FUND
- ---------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth and income while actively
seeking to reduce downside risk as compared with other growth and income mutual
funds. The fund pursues its goal by investing primarily in common stocks and
securities convertible into common stocks.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Lori J. Ensinger
Benjamin W. Thorndike
Kathleen T. Millard
Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. -6.03% 18.46%
5 yr.138.61% 220.71%
10 yr.325.43% 468.33%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. -6.03% 18.46%
5 yr. 19.00% 26.23%
10 yr.15.58% 18.96%
- --------------------------------------------------------------------------------
Many investors have theorized that the spectacular performance of growth
and technology stocks is indicative of a new paradigm for investing. With
technology becoming increasingly important in our global economy, they believe
these stocks warrant a high price. However, we do not believe that the
exceptional performance of growth stocks represents a permanent shift in the
market. In fact, in February, we saw increasing evidence that value stocks and
the fund's investment discipline are beginning to return to favor.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP GROWTH AND STANDARD & POOR'S
INCOME FUND 500 INDEX+
----------- ----------
1989 $10000 $10000
1990 11140 11927
1991 12738 13645
1992 14616 15154
1993 16905 17465
1994 17830 17721
1995 20182 20478
1996 26623 27050
1997 31368 32412
1998 45273 47977
1999 42543 56833
A number of factors are contributing to this shift, including reduced
uncertainty over Asia, marginally higher long-term interest rates, and
brightening outlooks for many manufacturing and basic materials companies. In
addition, sales and earnings for some technology companies are actually
decelerating. While many growth companies reported strong results over the six
months, we believe that the fundamental environment for these richly valued
companies is not nearly as compelling as it is for value stocks.
FUND PERFORMANCE
The fund maintained its long-term record of outperformance relative to its
peers, ranking it in the top 41% of 150 growth and income funds for the
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Growth and Income Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Morningstar
Return Large Risk Over the three years, this
Blend Peer fund is among the best 25% of
----------------------------------- similar funds for monthly
Highest Lowest downside risk and in the
Return Best 25% XXXX Risk fourth quartile Group of
------------ ----------- similar funds for total
return.
Next 25%
------------ -----------
The monthy averages for risk
Next 25% and return are for 290 similar
------------ ----------- funds for the period April 1,
Lowest Highest 1996 through March 31, 1999.
Return XXXX Worst 25% Risk
------------ -----------
Morningstar is the source for the peer group
information of similar funds.
</TABLE>
- --------------------------------------------------------------------------------
+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. 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.
30
<PAGE>
ten-year period ended March 31, 1999, according to Lipper Analytical
Services, Inc., an independent analyst of investment performance. Reflecting the
recent strong performance of growth stocks compared to value stocks, the fund
has underperformed over shorter periods. For the five-year period the fund
ranked in the top 60% of 321 funds, for the one-year period the fund ranked in
the top 85% of 808 funds, and for the six-month period the fund ranked in the
top 83% of 872 funds.
The fund's 11.81% six-month return, which had improved substantially in the
final two months of the period ended March 31, 1999, trailed the 27.34% return
of the S&P 500. This performance difference was primarily due to the dominance
of a few very large-cap growth stocks in the index, which were among the best
performers during the first four months of the period. These results are
consistent with the weak performance of value (versus growth) stocks that
persisted throughout 1998 and into January 1999.
THE FUND'S INVESTMENT STRATEGY
Our investment strategy continued to focus on dividend-paying stocks and a
careful analysis of individual company fundamentals. We seek out companies with
attractive fundamentals and the potential for growth. Over the six months, the
best performing stocks were those with essentially little or no yield, while
stocks with above-average yields -- typically value stocks in which the fund
invests -- were among the weakest performers.
Overall, many of the fund's top ten holdings performed better than our
investment universe of dividend-paying stocks for the six months. Chase
Manhattan Bank, a top ten holding, was one of the best-performing stocks in our
universe. Other top ten success stories include Ford, Xerox, and American Home
Products.
Our emphasis on dividend-paying stocks tends to preclude us from investing
in many of the well-known technology names, but we believe it's not always the
obvious ones that have the best long-term prospects. We have preferred to
participate in the companies that "collect the tolls" and produce the "asphalt"
for the information superhighway. Our decision to overweight the "toll taker"
telecommunication companies is helping the portfolio significantly. Our holdings
in this area included Alltel, Sprint, and Frontier, which announced its plan to
be acquired by Global Crossing Ltd. at a 40% premium to its prior day closing
price. We believe telecommunications stocks are still attractive, as demand for
services ranging from caller I.D. to high-speed data continues to grow.
(Continued on next page)
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want long-term growth with less risk than a purely growth-oriented
investment
o Can invest for at least five years
o Can handle some ups and downs in investment performance
o Are building a diversified portfolio with a few core investments
31
<PAGE>
AARP GROWTH AND INCOME FUND (CONTINUED)
- ---------------------------------------
SIDEBAR TEXT:
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1999
Financial 20%
Manufacturing 16%
Communications 16%
Energy 12%
Durables 8%
Health 7%
Consumer Staples 6%
Construction 4%
Utilities 4%
Other 7%
----
100%
====
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 99%
Cash Equivalents 1%
----
100%
====
- --------------------------------------------------------------------------------
In the "asphalt" category, we are focusing on the increasing demand for
bandwidth, or "the number of lanes on the highway" through which electronic
information passes. As the Internet has grown, an increasing amount of
information must travel over conventional copper phone lines. These lines were
not designed to carry the large volumes of data coming from the Internet and do
not offer enough speed to keep up with faster computers. The wider bandwidth of
fiber optic cable provides a solution. We think this will benefit Corning, which
has traditionally been identified with glass cookware. Today the company is the
major producer of fiber optics and a leader in photonics components -- the
electronics that light fiber optic networks. We built our position in Corning
over the course of 1998 at prices below its current price, and now the stock is
the fund's number one holding. We believe Corning's recent strong performance is
just the beginning of a period of dramatic outperformance for the stock.
The fund benefited most significantly from its exposure to the energy
sector over the six months. Rising crude oil prices and excellent stock
selection among U.S.-based and international oil companies resulted in
performance that was more than double the return of the S&P energy sector. In
aggregate, our energy holdings returned 15% in the final three months of the
period. In the paper industry, our holdings -- such as Georgia Pacific, Boise
Cascade, Temple Inland, and Weyerhaeuser -- continued to contribute to fund
performance, as reductions in industry capacity helped to return supply and
demand to equilibrium.
Two areas detracted from the fund's return, with our overweight position in
the manufacturing sector the most significant. In particular, our specialty
chemical holdings, including Olin, Witco, Lyondell, and Akzo Nobel, dramatically
underperformed during the six months because of weak demand and pricing caused
by the slowing global economy and unrealized benefits from existing
restructuring programs. Our second material source of weak performance was stock
selection within the finance sector. Our overweight position in this area is
comprised of money center and regional banks, insurance companies, and real
estate investment trusts (REITs). While our finance holdings overall performed
in line with the market, the sub-industries performed very differently. In
general, our money center banks performed well, our regional banks and insurance
companies did not, and our REITs matched the finance sector's performance.
Among our REIT holdings, Equity Office Properties and Boston Properties
have been solid performers so far this year. Especially in the office sector, we
continue to see very positive growth from increasing rents rolling over from the
early 1990s. Health care REITs such as Health Care Properties and Nationwide
Health Properties, however, have no such
32
<PAGE>
internal boosts in place, and the nursing home operators who "pay the rent"
continue to come under pressure from federal reimbursement programs. While we
believe that health care REITs have attractive valuations, the catalyst for
share price appreciation is not there, and we have eliminated these two
holdings.
OUTLOOK
While the strong performance of growth stocks provided a substantial head
wind for the fund over the six months, we believe this is the wrong time to
abandon our investment discipline, which focuses on dividend-paying stocks. In
fact, in the 15 years we have been using this investment approach, many value
stocks have reached some of the most attractive levels ever. As the stock
markets continue to experience sharp turns in the months ahead, we believe this
fund, in particular, will live up to its long-term record of competitive returns
with less risk than comparable funds.
- -------------------------------------------------------------------
10 Largest Equity Holdings
(27% of Portfolio as of 3/31/99)
1. Corning Inc. 6. BankAmerica Corp.
2. Xerox Corp. 7. Ford Motor Co.
3. American Home Products Corp. 8. Avon Products, Inc.
4. Bell Atlantic Corp. 9. Frontier Corp.
5. Sprint Corp. 10. Chase Manhattan Corp.
- -------------------------------------------------------------------
33
<PAGE>
AARP U.S. STOCK INDEX FUND
- --------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other S&P 500 Index mutual funds. The fund
pursues its goal by investing at least 95% of its assets in stocks of companies
in the S&P 500 Index, as well as futures contracts and options based on the
index.
PORTFOLIO MANAGEMENT TEAM
Frank Salerno
Lead Portfolio Manager
James M. Eysenbach
Robert Tymoczko
Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 18.05% 18.46%
Life of
Fund* 67.90% 69.45%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 18.05% 18.46%
Life of
Fund* 27.13% 27.63%
- --------------------------------------------------------------------------------
The U.S. stock market continued into record territory over the six
months, as a handful of large-cap growth stocks, especially technology shares,
drove large-cap indices -- including the S&P 500 Index -- to new record highs.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
AARP U.S. STOCK STANDARD & POOR'S
INDEX FUND 500 STOCK PRICE INDEX+
---------- ----------------------
2/1/97* $10000 $10000
3/97 9658 9664
6/97 11293 11352
9/97 12122 12202
12/97 12464 12553
3/98 14223 14304
6/98 14654 14777
9/98 13260 13306
12/98 15997 16141
3/99 16789 16945
FUND PERFORMANCE
The fund's concentration in the largest-cap stocks caused it to surpass the
returns of its peers for the six-month period with a ranking in the top 20% of
872 growth and income funds according to Lipper Analytical Services, Inc., an
independent analyst of investment performance. Longer term, the fund ranked in
the top 10% of 808 funds for the one-year period.
For the six-month period ended March 31, 1999, the fund returned 26.62%,
which compares to the 27.34% return of the S&P 500 Index. The fund's
conservative strategy, which emphasizes dividend-paying stocks in the index, may
cause the fund to lag behind other funds in its category and its benchmark
during periods of strong market performance.
Similar to the index, the fund's strong performance was led by a few of the
biggest stocks in terms of market capitalization, including Microsoft, General
Electric, and Wal-Mart. In fact, the largest 100 stocks in the S&P 500 make up
over 70% of the weight of the index and accounted for 93% of the index's return.
In the first quarter alone, five stocks accounted for half of the index's
performance. Illustrative of the significant disparity of returns in the index,
55% of the stocks in the S&P 500 produced negative returns for the quarter.
THE FUND'S INVESTMENT STRATEGY
Bankers Trust Company has been retained as subadviser to the fund. The
subadviser handles the day-to-day investment and trading functions. The
portfolio managers are in regular contact with the subadviser, receive records
of daily transactions, monitor returns and relative risk, and scrutinize
portfolio activity.
- --------------------------------------------------------------------------------
+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. 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, 1997.
34
<PAGE>
The fund is designed to track the performance of the unmanaged S&P 500
Index (typically within 1% per year before expenses), while offering slightly
less downside risk. The fund's investment characteristics, such as sector
weightings and average market capitalization, are kept roughly in line with the
index. Similar to the S&P 500 Index, the fund gives more weight to the largest
companies. This strategy was very beneficial for the fund over the six-month
period, as the largest stocks have performed substantially better than other
stocks. In periods when the largest capitalization stocks are not dominating
performance, however, the fund is likely to perform less well relative to funds
that do not follow an index-based strategy.
The fund also seeks to reduce downside risk by adhering to a "yield tilt
strategy." This strategy entails investing in a large majority of the S&P 500
companies, but gives slightly more weight to stocks paying relatively high
dividends. Dividend-paying stocks historically tend to provide improved
stability, especially in periods of market decline.
OUTLOOK
The S&P 500 has now achieved an impressive 20%+ return in each of the last
four years. While the fund has been a direct beneficiary of the exceptional
return of the S&P 500 Index over the two-plus years since inception, investors
should remember that these gains are attributable to a limited number of stocks
in the index. Diversifying your portfolio into several different asset classes,
such as bonds, small-cap stocks, and international stocks, can help mitigate
some of the recent increased volatility of this sector and can provide the
potential for gains in other areas when market conditions change.
- ----------------------------------------------------------------------------
10 Largest Equity Holdings
(22% of Portfolio as of 3/31/99)
1. Microsoft Corp. 6. AT&T Corp.
2. General Electric Co. 7. Cisco Systems, Inc.
3. Wal-Mart Stores Inc. 8. Pfizer Inc.
4. Intel Corp. 9. America Online, Inc.
5. Merck & Co., Inc. 10. International Business Machines Corp.
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want long-term growth with less risk than a purely growth-oriented
investment
o Can invest for at least five years
o Can handle some ups and downs in investment performance
o Are building a diversified portfolio with a few core investments
SECTOR DIVERSIFICATION
As of March 31, 1999
Technology 16%
Financial 15%
Health 13%
Manufacturing 9%
Consumer Staples 8%
Communications 7%
Consumer Discretionary 7%
Durables 7%
Energy 7%
Other 11%
----
100%
====
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 97%
Cash Equivalents 3%
----
100%
====
35
<PAGE>
AARP CAPITAL GROWTH FUND
- ------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other growth mutual funds. The fund
pursues its goal by utilizing individual stock selection to invest primarily in
the common stocks and securities convertible into common stocks of established
medium- to large-sized companies.
PORTFOLIO
MANAGEMENT TEAM
Bruce F. Beaty
William F. Gadsden
Co-Lead Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 3.73% 28.11%
5 yr. 168.61% 249.14%
10 yr.308.11% 545.28%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 13.73% 28.11%
5 yr. 21.85% 28.39%
10 yr. 15.10% 20.48%
- ----------
++ The Russell 1000 Growth Index is an unmanaged capitalization-
weighted price index of the 1,000 largest U.S. growth companies traded on the
NYSE, AMEX, and NASDAQ. With this report, the fund has adopted the Russell
1000 Growth Index for its primary securities market index over the S&P 500
Index, as the Russell 1000 Growth Index better represents the securities and
markets in which the fund typically invests.
- --------------------------------------------------------------------------------
As corporate pricing power has been constrained by an environment of
declining prices and increased global competition, profit growth for domestic
companies has slowed significantly. However, a few companies have emerged as the
winners in this challenging environment by building market share and continuing
to grow earnings. Those that have done so have been rewarded with a sharply
higher stock price, while those that have not have been punished.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP CAPITAL STANDARD & POOR'S RUSSELL 1000
GROWTH FUND 500 STOCK PRICE INDEX+ GROWTH INDEX++
----------- ---------------------- --------------
1989 $10000 $10000 $10000
1990 10605 11927 12239
1991 11547 13645 14950
1992 13304 15154 17009
1993 14928 17465 18632
1994 15193 17721 18482
1995 15813 20478 21738
1996 20675 27050 28693
1997 24012 32412 33703
1998 35884 47977 50371
1999 40811 56833 64528
FUND PERFORMANCE
The fund performed well for the six months relative to its peers in the
growth fund category, ranking it in the top 38% of 1,105 growth funds according
to Lipper Analytical Services, Inc., an independent analyst of investment
performance. Longer term, the fund ranked in the top 53% of 1,022 funds for the
one-year period, in the top 42% of 384 funds for the five-year period, and in
the top 68% of 171 funds for the ten-year period.
For the six-month period ended March 31, 1999, the fund returned
31.22%, which exceeded the 27.34% return of the S&P 500 Index, and is comparable
to the 34.79% return of the Russell 1000 Growth Index. Due to a conservative
strategy aimed at limiting losses when the market declines, the fund may lag
behind other funds in its category and its benchmark at times.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Capital Growth Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Morningstar
Return Large Growth Risk Over the three years, this
Peer Group fund is among the best 50% of
----------------------------------- similar funds for monthly
Highest Lowest downside risk and in the third
Return Best 25% Risk quartile of Peer Group similar
------------ ----------- funds for total return.
Next 25% XXXX
------------ ----------- The monthly averages for risk
and return are for 167 similar
XXXX Next 25% funds for the period April 1,
------------ ----------- 1996 through March 31, 1999.
Lowest Highest
Return Worst 25% Risk
------------ -----------
Morningstar is the source for the peer group
information of similar funds.
</TABLE>
- ------------------------------
+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries.
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.
36
<PAGE>
THE FUND'S INVESTMENT STRATEGY
The fund's strategy focuses on investing in "growth at a reasonable price."
Essentially, we are using a valuation-sensitive approach to select the strongest
candidates from a growth universe. This approach led us to emphasize Home Depot,
Wal-Mart, and Dayton Hudson in the retail sector. These growing companies have
dominant market positions that are difficult to compete against, and are
directly benefiting from rising real incomes, low unemployment, and booming
consumer spending.
The phenomenal performance of technology -- especially Internet -- stocks
fixated investors throughout the six months. However, our investment discipline
precluded us from investing in high-flying stocks such as Yahoo! and Amazon.com.
Instead, we participated through companies that are "building the roads" and
"laying the asphalt" for the explosion of technology, such as MCI WorldCom. With
its entrepreneurial management team, this company is building state-of-the-art
infrastructure that we expect will capitalize on the rapid growth of Internet
data traffic. Other holdings in this area, EMC and Sun Microsystems, also made
important contributions to performance.
We had a few holdings that disappointed us, due essentially to a lack of
execution by company management. Most of our weak performers had problems
specific to the individual companies, such as Service Corporation International,
HealthSouth, Suiza Foods, and Lockheed Martin. Although we closely monitor fund
holdings for signs of fundamental deterioration, such surprises typically occur
among growth stocks.
OUTLOOK
The markets now have delivered four straight years of returns in excess of
20%, and while the economy remained strong and inflation low, only a select
group of stocks have been going up. Given this scenario, we believe that the
dominant, growing companies in the portfolio are among the best positioned to
benefit from the current environment.
10 Largest Equity Holdings
(29% of Portfolio as of 3/31/99)
1. MCI WorldCom, Inc. 6. Intel Corp.
2. Home Depot, Inc. 7. Pfizer, Inc.
3. American International Group, Inc. 8. AT&T Corp. - Liberty Media Group
4. Dayton Hudson Corp. 9. Federal National Mortgage Association
5. Microsoft Corp. 10. United Technologies Corp.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want long-term growth of principal
o Are not looking for a source of regular income
o Can invest for at least five years
o Can handle potentially large ups and downs in investment performance
o Are looking for a fund to invest for the growth portion of their portfolio
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1999
Technology 17%
Health 15%
Consumer Discretionary 14%
Financial 14%
Media 8%
Manufacturing 6%
Consumer Staples 6%
Durables 6%
Energy 6%
Other 8%
----
100%
====
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 96%
Cash Equivalents 4%
----
100%
====
37
<PAGE>
AARP SMALL COMPANY STOCK FUND
- -----------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other small company stock funds. The fund
pursues its goal by investing primarily in stocks of small U.S. companies with
potential for above-average long-term capital growth.
PORTFOLIO
MANAGEMENT TEAM
James M. Eysenbach
Lead Portfolio Manager
Calvin S. Young
Portfolio Manager
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr.-23.62% -16.26%
Life of
Fund* 9.89% 10.55%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr.-23.62% -16.26%
Life of
Fund* 4.47% 4.75%
- --------------------------------------------------------------------------------
The difference between large- and small-cap stock returns over the past
year is one of the widest in the 20th century. This environment proved
challenging for small-cap stock investors and especially for small-cap funds
with a value-orientation, such as this fund. Nevertheless, the current
historically low valuation level of small-cap stocks relative to large-cap
stocks is compelling.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
AARP SMALL COMPANY RUSSELL
STOCK FUND 2000 INDEX+
---------- -----------
2/1/97* $10000 $10000
3/97 9940 9297
6/97 11660 10805
9/97 13353 12413
12/97 13368 11997
3/98 14387 13202
6/98 13723 12586
9/98 11362 10050
12/98 12533 11690
3/99 10989 11055
FUND PERFORMANCE
For the six-month period ended March 31, 1999, the fund returned -3.28%
versus the 10.00% return of the Russell 2000 Index. The fund trailed the
performance of its benchmark and other small-cap funds due to an emphasis on
stocks with stronger value characteristics, e.g., lower price/earnings (P/E) or
price/book (P/B) ratios. For example, the fund's typical holding has a P/E of
12x compared to 19x for the index. These small-cap value stocks had lower
returns than the average small-cap stock in this environment. While the fund had
strong returns in health care and transportation -- with fund holdings in these
sectors up more than 20% -- our valuation discipline limited our participation
in the media, communications, and technology sectors. These sectors surged 30%
to 50%, driven largely by spectacular returns among some Internet companies.
The fund is managed using a set of investment disciplines designed to add
value over the long term. We recognize that this approach will at times be out
of favor with current market trends. However, we resist the temptation to adjust
the fund's approach by adding more technology stocks to the portfolio or by
increasing the fund's market capitalization during periods of weak performance
because we believe that a consistent and disciplined approach will result in
better returns over the long term.
THE FUND'S INVESTMENT STRATEGY
Within the small-cap stock universe, we seek to add value through
comprehensive stock research, disciplined portfolio construction, and efficient
trading. Our intent is to leverage the inherent long-term advantages
- --------------------------------------------------------------------------------
+ The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. 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, 1997.
38
<PAGE>
of this asset class through a systematic evaluation of risk and return.
Ultimately we expect this will result in competitive returns with less risk.
This approach leads to a more informed decision-making process: Before we
buy or sell any stock we assess its effect on the whole portfolio in terms of
risk and expected return. Furthermore, our strategy does not focus on picking a
few big winners or sectors, but on building a portfolio with attractive overall
characteristics, including diversification among more than 150 stocks and no
position representing more than 2% of assets.
Our sector weights are a by-product of our stock selection process. Our
search for compelling values often turns up more stocks within sectors that are
currently out of favor. As a result, the fund has recently emphasized stocks in
the manufacturing and consumer discretionary sectors. While the consumer
discretionary sector has been a positive, manufacturing -- hurt by the
anticipation of weaker demand -- has held back performance over the six months.
We have maintained significant weighting in the manufacturing sector, as we
believe this area has been unduly impacted by fears of an economic slowdown.
OUTLOOK
At some point, the dominance of large-cap stocks will likely come to an
end. While it is difficult to predict the timing of such changes, we believe
small-cap stocks remain an important component of a properly diversified
investment portfolio, offering higher return potential over the long term than
domestic large-cap stocks.
Largest Equity Holdings by Sector
(25% of Portfolio as of 3/31/99)
1. Manufacturing (19%) 6. Service Industries (8%)
Lawson Products, Inc. ABM Industries, Inc.
2. Consumer Discretionary (16%) 7. Technology (7%)
Ames Department Stores, Inc. CTS Corp.
3. Utilities (13%) 8. Construction (7%)
Northwestern Corp. Skyline Corp.
4. Financial (9%) 9. Consumer Staples (4%)
American Heritage Life Riviana Foods, Inc.
Investment Corp. 10. Other (8%)
5. Durables (9%) Bindley Western Industries, Inc.
Simpson Industries, Inc.
- ----------
* Source: Morningstar
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Want long-term growth of principal
o Are not looking for a source of regular income
o Can invest for at least five years
o Can handle potentially large ups and downs in investment performance
o Are looking for a fund to invest in for the growth portion of one's
portfolio
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 98%
Cash Equivalents 2%
----
100%
====
39
<PAGE>
AARP GLOBAL GROWTH FUND
- -----------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other global growth funds. The fund
pursues its goal by investing primarily in stocks issued by established
companies in countries around the world including the United States.
PORTFOLIO
MANAGEMENT TEAM
William E. Holzer
Lead Portfolio Manager
Diego Espinosa
Nicholas Bratt
Portfolio Managers
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. -0.71% 12.64%
Life of
Fund* 39.10% 66.19%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. -0.71% 12.64%
Life of
Fund* 11.00% 17.41%
Rebounding from the sharp downturn in the third quarter of 1998, world
markets recovered strongly by year-end. In Europe, growth continued to slow and
unemployment remained high. In the Far East, Japan remained mired in a deep
recession. Back home, stronger than expected U.S. growth and a few big stocks
propelled the markets to new highs.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Semiannual Periods from February 1, 1996*
to March 31, 1999
CHART DATA:
AARP GLOBAL GROWTH FUND MSCI WORLD INDEX+
----------------------- -----------------
2/1/96* $10000 $10000
3/96 10180 10224
9/96 10327 10661
3/97 11141 11181
9/97 12874 13231
3/98 14010 14754
9/98 12592 13248
3/99 13910 16619
FUND PERFORMANCE
We are pleased to report that Morningstar rated your fund for the first
time in February 1999. For that month, and as of March 31, 1999, the fund was
assigned an overall four-star Morningstar Ratingt for its risk-adjusted
performance among 918 international funds.^1
For the six-month period ended March 31, 1999, the fund returned 10.47%,
versus the 25.44% return of the MSCI World Index for the same period. In an
environment where returns were narrowly concentrated in high-risk stocks, the
fund would have had to invest an extraordinarily large proportion of assets in a
very limited number of highly valued stocks to surpass its benchmark.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Global Growth Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Morningstar
Return World Stock Risk Over the three years, this
Peer Group fund is among the best 25% of
----------------------------------- similar funds for monthly
Highest Lowest downside risk and in the
Return Best 25% XXXX Risk fourth quartile of similar
------------ ----------- funds for total return.
Next 25% The monthly averages for risk
------------ ----------- and return are for 69 similar
funds for the period April 1,
Next 25% 1996 through March 31, 1999.
------------ -----------
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------
Morningstar is the source for the peer group
information of similar funds.
</TABLE>
- --------------------------------------------------------------------------------
+ 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.
1 Morningstar proprietary ratings reflect historical risk-adjusted performance
through 3/31/99. The ratings are subject to change every month. Morningstar
ratings are calculated from the fund's three-, five-, and ten-year returns
(with fee adjustments) in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day T-bill returns. The fund
received four stars for the three-year period among 918 international funds.
The top 10% of funds in its broad asset class receive five stars and the next
22.5% receive four stars. Past performance is no guarantee of future results.
40
<PAGE>
THE FUND'S INVESTMENT STRATEGY
Our top-down strategy uses a theme-based approach to locate those companies
which will benefit from long-term social, economic, and demographic trends. Four
themes were important contributors to fund performance: "Secure Streams of
Income," "Darkside Restructurings," "Empowerment of the Consumer," and
"Inevitability Arrives." "Secure Streams of Income" focuses on baby boomers'
demand for stable, income-producing securities in an environment of shrinking
supply. One example is Peco Energy, which pursued an aggressive stock buyback
plan and lowered its debt costs.
Many opportunities still exist for "Darkside Restructurings," especially in
Europe. In our opinion, the region has further to go before the process is
completed and valuations there are generally more reasonable than those in the
United States.
New technologies that create more efficient ordering and delivery systems
have "Empowered Consumers" to obtain lower prices and better service. Two prime
examples are Sun Microsystems, which manufactures the products that make
Internet access possible, and America Online, the dominant Internet service
provider.
In Japan, we began to increase our exposure under a theme called
"Inevitability Arrives." This theme is based on the consequences of loose
monetary policy in Japan. Fund holdings in this theme include Mitsubishi Estate,
Bank of Tokyo-Mitsubishi, Mitsui Fudosan, and Sanwa Bank.
OUTLOOK
The U.S. market's performance over the six months has been impressive, but
we remain cautious since market volatility and concentration suggest that the
risks have not abated. At the same time, we are seeking additions to our themes
that will allow the fund to benefit not only from technology itself, but also
from changes in the traditional economy.
<TABLE>
<CAPTION>
10 Largest Equity Holdings
(17% of Portfolio as of 3/31/99)
<S> <C>
1. International Business Machines Corp. (U.S.) 6. AT&T Corp. (U.S.)
2. Reuters Group PLC (U.K.) 7. UNUM Corp. (U.S.)
3. Peco Energy Co. (U.S.) 8. General Electric Co., PLC (U.K.)
4. USEC Inc. (U.S.) 9. Nestle SA (Switzerland)
5. XL Capital Ltd. (U.S.) 10. Sun Microsystems, Inc. (U.S.)
</TABLE>
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Have a well-balanced portfolio of domestic investments and would like to
gain some exposure to foreign markets
o Are not looking for a source of regular income
o Can invest for at least five years
o Can handle potentially large ups and downs in investment performance
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1999
Financial 20%
Manufacturing 14%
Energy 12%
Technology 9%
Health 7%
Metals and Minerals 7%
Utilities 6%
Communications 6%
Service Industries 4%
Other 15%
----
100%
====
GEOGRAPHICAL
DIVERSIFICATION --
EXCLUDES 6%
CASH EQUIVALENTS
As of March 31, 1999
U.S. & Canada 41%
Europe 40%
Japan 11%
Pacific Basin 5%
Latin America 2%
Africa 1%
----
100%
====
41
<PAGE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
- -----------------------------------------
SIDEBAR TEXT:
GOAL
The fund seeks to provide long-term capital growth and income while
actively seeking to reduce downside risk as compared with other international
mutual funds. The fund pursues its goal by investing primarily in common stocks
and bonds of companies from developed countries outside the United States. The
fund changed its name from the AARP International Stock Fund on February 1,
1998.
PORTFOLIO
MANAGEMENT TEAM
Sheridan Reilly
Lead Portfolio Manager
Lauren Lambert
Portfolio Manager
TOTAL RETURN
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. -7.93% 6.03%
Life of
Fund* 19.15% 28.27%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. -7.93% 6.03%
Life of
Fund* 8.45% 12.21%
- --------------------------------------------------------------------------------
Rebounding from the sharp downturn in the third calendar quarter of 1998,
the world markets recovered strongly over the six-month period. In Europe,
growth continued to slow and unemployment remained high. In the Far East, Japan
remained mired in a deep recession, but sentiment improved, as many believed the
downward spiral of the economy had slowed. The devaluation of Brazil's currency
at the beginning of the year unleashed a rally in Latin American stocks.
Overall, higher risk investments, such as large-cap growth stocks, reported the
best gains for the period.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
AARP INTERNATIONAL
GROWTH AND
INCOME FUND MSCI EAFE INDEX+
----------- ----------------
2/1/97* $10000 $10000
3/97 10140 10201
6/97 10960 11524
9/97 11573 11443
12/97 11147 10546
3/98 1294 12097
6/98 13524 12225
9/98 11208 10487
12/98 12415 12652
3/99 11915 12827
FUND PERFORMANCE
While the fund generated positive returns for the six months, its
investment discipline that is intended to limit risk and reduce price volatility
caused it to trail the world markets. The fund's approach, which tends to
emphasize value stocks, generated modest returns compared to the substantial
gains of the very largest growth stocks. For the six-month period ended March
31, 1999, the Fund returned 6.31%, versus the 22.34% return of the MSCI EAFE
Index for the same period.
THE FUND'S INVESTMENT STRATEGY
Throughout the six months, we maintained a major emphasis in Europe, which
returned 16.22%, while remaining underweight in Japan, up 42.28%. From a sector
standpoint, telecommunications stocks have been significant contributors to
performance. With valuations in this sector weighed down by fears that
deregulation would have a negative effect on earnings, we emphasized selected
telecommunications stocks based on our fundamental research that revealed a
number of companies with attractive growth characteristics.
- --------------------------------------------------------------------------------
+ All indices are unmanaged, capitalization-weighted, and in U.S. dollar
terms. The MSCI (Morgan Stanley Capital International) EAFE Index is a
measure of global stock markets, including Europe, Australia, and the Far
East. The MSCI Europe Index represents the European market return; the MSCI
Japan Index represents the Japanese market return. Index returns assume
dividends are 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, 1997.
42
<PAGE>
In an attempt to broaden the portfolio's diversification, we reduced our
significant exposure to commodity-oriented cyclicals such as oils, chemicals,
and basic materials and increased the weighting in consumer goods and capital
equipment sectors. We found a number of stocks selling at attractive valuations,
including Adidas, which we believe is well positioned for a recovery, and
Michelin, whose restructuring initiatives should have a positive impact on the
company's bottom line.
Since the fund's inception, we have maintained an underweight position in
Japan. Believing that the country's recession is nearing a bottom, we have begun
to add Japanese companies that we think will benefit from at least one of three
trends: monetary stimulus, restructuring, and the possibility of a weaker yen.
This focus has led us to invest in homebuilders that stand to benefit from an
increase in the money supply, such as Sekisui House, as well as highly
competitive exporters, such as Sony. We intend to maintain a weighting in Japan
that is similar to that of our index, as we believe that there are encouraging
signs of restructuring and returning confidence.
OUTLOOK
While we are not satisfied with the fund's total return performance to
date, we continue to believe in the fund's investment discipline of investing in
stocks with a dividend yield 25% higher than the median yield of the local
market (or 25% higher than the stock's three-year average yield). Over longer
periods, this relative yield approach has uncovered a number of attractive
values in many markets around the globe. We believe the current emphasis on
large-cap growth stocks is a short-term phenomenon in a longer-term global
cycle. As such, we expect this cycle to turn, benefiting the fund's
value-oriented approach. Already we have begun to see indications of renewed
interest in lower-risk stocks that are selling at attractive valuation levels.
While it is always difficult to predict the exact timing of market sentiment
changes (and still harder to remain patient as investors), we continue to
believe that the fund will add value for investors seeking diversification from
an actively managed international fund.
10 Largest Equity Holdings
(32% of Portfolio as of 3/31/99)
1. HSBC Holdings PLC (Hong Kong) 6. UBS A.G. (Switzerland)
2. Sakura Bank, Ltd. (Japan) 7. Bayer A.G. (Germany)
3. BCE, Inc. (Canada) 8. Nintendo Co., Ltd. (Japan)
4. Sony Corp. (Japan) 9. Dexia France (France)
5. Accor S.A. (France) 10. Scor S.A. (France)
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The fund is designed for investors who:
o Have a well-balanced portfolio of domestic investments and would like to
gain some exposure to foreign markets
o Are not looking for a source of regular income
o Can invest for at least five years
o Can handle potentially large ups and downs in investment performance
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1999
Financial 31%
Consumer Discretionary 16%
Manufacturing 12%
Communications 10%
Service Industries 7%
Energy 7%
Consumer Staples 4%
Durables 4%
Utilities 3%
Other 6%
----
100%
====
ASSET ALLOCATION
As of March 31, 1999
Stock Holdings 100%
----
100%
====
43
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS:
- -----------------------------------
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
GOAL
The AARP Diversified Income with Growth Portfolio seeks current income with
modest long-term appreciation. The portfolio pursues its goal by investing in at
least five underlying AARP mutual funds, with an emphasis on income funds.
The AARP Diversified Growth Portfolio seeks to provide long-term growth of
capital. The portfolio pursues its goal by investing in at least five underlying
AARP mutual funds, with an emphasis on the growth funds.
In managing allocations among the underlying funds, each portfolio will
generally make incremental adjustments.
PORTFOLIO
MANAGEMENT TEAM
Philip S. Fortuna
Lead Portfolio Manager
Salvatore J. Bruno
Shahram Tajbakhsh
Portfolio Managers
TOTAL RETURN
DIVERSIFIED INCOME WITH
GROWTH PORTFOLIO
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 3.71% 10.49%
Life of
Fund* 20.03% 32.69%
TOTAL RETURN
DIVERSIFIED GROWTH
PORTFOLIO
As of March 31, 1999
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 0.63% 15.32%
Life of
Fund* 27.72% 53.26%
- --------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
For the six-month period ended March 31, 1999, the Diversified Income with
Growth Portfolio returned 4.17%, representing 2.46% in distributions of income
and 1.71% in capital change. The portfolio's benchmark is a blended index
comprised of the S&P 500 Index (30%) and the Lehman Brothers Aggregate Bond
Index (70%), which returned 7.56% for the same period.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
<TABLE>
<CAPTION>
AARP DIVERSIFIED STANDARD & POOR'S 500 LEHMAN BROTHERS
GROWTH PORTFOLIO STOCK PRICE INDEX AGGREGATE BOND INDEX BLENDED INDEX+
---------------- ----------------- -------------------- --------------
<S> <C> <C> <C> <C>
2/97* $10000 $10000 $10000 $10000
3/97 9973 9664 9914 9739
6/97 10927 11352 10279 11026
9/97 11600 12202 10621 11720
12/97 11673 12553 10933 12065
3/98 12691 14304 11102 13290
6/98 12766 14777 11362 13693
9/98 11742 13306 11842 12926
12/98 12807 16141 11882 14833
3/99 12772 16945 11821 15326
</TABLE>
For the six-month period ended March 31, 1999, the Diversified Growth
Portfolio returned 8.77%, representing 2.90% in distributions of income and
5.87% in capital change. The portfolio's benchmark is a blended index comprised
of the S&P 500 Index (70%) and the Lehman Brothers Aggregate Bond Index (30%),
which returned 18.56% for the same period.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
AARP DIVERSIFIED GROWTH PORTFOLIO
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1999
CHART DATA:
<TABLE>
<CAPTION>
AARP DIVERSIFIED
INCOME WITH GROWTH STANDARD & POOR'S 500 LEHMAN BROTHERS
PORTFOLIO STOCK PRICE INDEX AGGREGATE BOND INDEX BLENDED INDEX+
--------- ----------------- -------------------- --------------
<S> <C> <C> <C> <C>
2/97* 10000 10000 10000 10000
3/97 9897 9664 9914 9839
6/97 10548 11352 10279 10597
9/97 10935 12202 10621 11087
12/97 11100 12553 10933 11416
3/98 11574 14304 11102 12009
6/98 11722 14777 11362 12327
9/98 11522 13306 11842 12336
12/98 11951 16141 11882 13120
3/99 12003 16945 11821 13269
</TABLE>
THE PORTFOLIOS' INVESTMENT STRATEGIES
The six-month period was challenging for managed asset allocation funds, as
a limited number of large-cap U.S. growth stocks led the
- --------------------------------------------------------------------------------
+ The performance of the blended benchmark is a weighting comprised of the
Standard & Poor's 500 Stock Price Index (S&P), and the Lehman Brothers
Aggregate Bond Index. The 30/70 measure of the Diversified Income with
Growth Portfolio and 70/30 measure of the Diversified Growth Portfolio is
meant to reflect the anticipated long-range asset mix of each portfolio,
which may change over time. The Standard & Poor's 500 Index is a
capitalization-weighted index of 500 stocks. The index is designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. 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.
* These portfolios commenced operations on February 1, 1997.
44
<PAGE>
domestic stock market averages to record levels. This narrow market leadership
meant that many investors pursuing conservative strategies or holding broadly
diversified portfolios experienced comparatively modest returns.
The Diversified Income with Growth Portfolio essentially maintained its
weightings in fixed income funds over the period, but decreased holdings in High
Quality Money Market Fund in favor of U.S. Stock Index Fund. This move helped
the portfolio exceed the performance of the Lehman Brothers Aggregate Index,
which declined 0.16% for the six months.
The Diversified Growth Portfolio increased its weighting in funds investing
in large-cap growth stocks -- one of the best performing areas of the stock
market for the six months. While the portfolio's holdings of U.S. Stock Index
Fund and Capital Growth Fund essentially matched or exceeded the 27.34% return
of the S&P 500, a limited exposure to these funds and a significant weight in
Growth and Income Fund, which underperformed, held back performance. In
addition, the portfolio's holding of International Growth and Income Fund also
held back performance, as international stocks trailed the S&P 500 and the
portfolio underperformed for the six months.
DIVERSIFIED INCOME WITH GROWTH
PORTFOLIO ALLOCATION
As of March 31, 1999
AARP GNMA and U.S. Treasury Fund 31%
AARP Bond Fund for Income 30%
AARP U.S. Stock Index Fund 11%
AARP High Quality Money Fund 10%
AARP Growth and Income Fund 7%
AARP High Quality Short Term
Bond Fund 5%
AARP Global Growth Fund 4%
AARP Small Company Stock Fund 2%
----
100%
====
DIVERSIFIED GROWTH
PORTFOLIO ALLOCATION
As of March 31, 1999
AARP U.S. Stock Index Fund 22%
AARP Bond Fund for Income 18%
AARP Growth and Income Fund 18%
AARP GNMA and U.S. Treasury Fund 16%
AARP Small Company Stock Fund 8%
AARP International Growth and
Income Fund 6%
AARP Global Growth Fund 6%
AARP Capital Growth Fund 5%
AARP High Quality Money Fund 1%
----
100%
====
OUTLOOK
While the unusually strong performance of a few large-cap growth stocks
has persisted, price volatility has also been on the rise, prompting renewed
interest in asset allocation strategies, such as those employed by these
portfolios. Over the long term, we believe these portfolios will provide
attractive returns with less volatility.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
PORTFOLIOS ARE DESIGNED
The Managed Investment Portfolios are designed for investors who:
o Would like to build an overall portfolio with only one or a few investments
o Can invest for at least three years in the AARP Diversified Income with
Growth Portfolio, or for at least five years in the AARP Diversified Growth
Portfolio
o Can handle some ups and downs in investment performance
ASSET ALLOCATION
AARP DIVERSIFIED
INCOME WITH GROWTH
PORTFOLIO
As of March 31, 1999
Stock Fund Holdings 24%
Bond Fund Holdings 66%
Money Fund 10%
----
100%
====
ASSET ALLOCATION
AARP DIVERSIFIED
GROWTH PORTFOLIO
As of March 31, 1999
Stock Fund Holdings 65%
Bond Fund Holdings 34%
Money Fund 1%
----
100%
====
45
<PAGE>
This page
intentionally
left blank.
46
<PAGE>
/3/
- --------------------------------------------------------------------------------
AARP FUNDS'
INVESTMENT PORTFOLIOS
List of investments as of March 31: A detailed
breakdown of the investments in each fund
portfolio at the close of the reporting period.
Principal amount/shares: The face value of a bond
or the shares held by the fund.
Cost: The amount the fund actually paid for the
listed securities.
In addition, the tax-free funds include the credit
ratings (unaudited) for each bond holding. Moody's
Investors Service, Inc., Fitch Investors Service,
Inc., and Standard & Poor's Corporation -- three
independent rating services -- have developed
credit rating systems that are designed to
indicate a bond issuer's ability to meet its
obligations. For example, bonds with the lowest
risk of default receive a rating of "AAA," while
bonds involving greater risk receive progressively
lower ratings. Bonds rated "BBB" or better are
considered investment grade ("AAA" ratings are
assigned only to bonds with the highest credit
quality).
The Portfolios also show the coupon rates and
maturity dates of the funds' bond holdings. The
coupon rate is the interest rate on a debt
security the bond issuer promises to pay to the
bond holder until maturity. The maturity date is
the date on which a bond issuer is scheduled to
repay the principal to the bond holder.
Market value: The current value of the securities
held in a fund's portfolio.
47
<PAGE>
This page
intentionally
left blank.
48
<PAGE>
AARP High Quality Money Fund
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 0.6%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $3,390,460 on 4/1/1999, collateralized by a
$3,385,000 U.S. Treasury Note, 5.5%, 12/31/2000 (Cost $3,390,000) ........................ 3,390,000 3,390,000
---------------
COMMERCIAL PAPER 48.4%
- -----------------------------------------------------------------------------------------------------------------------------
Barton Capital Corp., 5.12%, 4/1/1999 ....................................................... 22,354,000 22,354,000
Coca-Cola Enterprises, Inc., 4.85%, 5/14/1999 ............................................... 16,057,000 15,963,981
CXC Inc., 4.83%, 4/6/1999 ................................................................... 22,000,000 21,985,242
Falcon Asset Securitization Corp., 4.87%, 4/27/1999 ......................................... 25,000,000 24,912,069
Frontier Corp., 4.85%, 4/19/1999 ............................................................ 15,000,000 14,963,625
Goldman Sachs & Co., 5.0%, 4/20/1999 ........................................................ 9,000,000 8,976,250
GTE Corp., 4.87%, 4/6/1999 .................................................................. 25,000,000 24,983,090
International Securitization Corp., 4.9%, 5/27/1999 ......................................... 20,000,000 19,847,556
Lexington Parker Capital Corp., 4.84%, 4/8/1999 ............................................. 20,000,000 19,981,178
Merita North America, 4.87%, 5/3/1999 ....................................................... 15,000,000 14,935,000
Mont Blanc Capital Corp., 4.87%, 4/7/1999 ................................................... 20,000,000 19,983,767
Monte Rosa Capital Corp., 4.84%, 4/15/1999 .................................................. 22,716,000 22,673,243
Twin Towers, Inc., 4.88%, 4/21/1999 ......................................................... 12,185,000 12,151,965
WCP Funding Inc., 4.9%, 5/4/1999 ............................................................ 12,000,000 11,946,100
WCP Funding Inc., 4.9%, 5/19/1999 ........................................................... 15,000,000 14,902,000
---------------
Total Commercial Paper (Cost $270,559,066) .................................................. 270,559,066
---------------
CERTIFICATES OF DEPOSIT 11.6%
- -----------------------------------------------------------------------------------------------------------------------------
Bankers Trust Co., 4.85%, 4/30/1999* ........................................................ 20,000,000 19,999,355
Royal Bank of Canada, 4.78%, 7/6/1999* ...................................................... 20,000,000 19,996,423
Toronto-Dominion Bank, 4.809%, 8/13/1999* ................................................... 25,000,000 24,992,740
---------------
Total Certificates of Deposit (Cost $64,988,518) ............................................ 64,988,518
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 9.4%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 4.511%, 7/14/1999* ................................... 17,000,000 17,000,000
Federal National Mortgage Association, 4.511%, 7/26/1999* ................................... 20,000,000 19,978,808
Student Loan Marketing Association, 4.511%, 7/12/1999* ...................................... 15,500,000 15,500,000
---------------
Total U.S. Government Agency Obligations (Cost $52,478,808) ................................. 52,478,808
---------------
SHORT-TERM AND MEDIUM-TERM NOTES 30.0%
- -----------------------------------------------------------------------------------------------------------------------------
Abbey National North America, 4.822%, 7/20/1999* ............................................ 10,000,000 9,996,895
Bank of America, 4.823%, 6/1/1999* .......................................................... 20,000,000 19,997,079
Countrywide Home Loan, 5.185%, 10/14/1999* .................................................. 28,000,000 28,000,000
Export Development Corp., 8.125%, 8/10/1999 ................................................. 9,260,000 9,361,995
General Electric Capital Corp., 4.98%, 9/9/1999* ............................................ 10,000,000 10,000,000
IBM Corp., 5.07%, 3/22/2000 ................................................................. 10,000,000 9,995,096
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE>
AARP High Quality Money Fund
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Merrill Lynch & Co., 4.915%, 10/21/1999* .................................................... 20,500,000 20,500,000
Northern Trust Corp., 4.855%, 9/8/1999* ..................................................... 25,000,000 24,993,425
Sigma Finance Corp., 4.88%, 4/26/1999* ...................................................... 20,000,000 20,000,000
Transamerica Finance Corp., 5.221%, 10/22/1999* ............................................. 15,000,000 15,000,000
---------------
Total Short-Term and Medium-Term Notes (Cost $167,844,490) .................................. 167,844,490
---------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $559,260,882) (a) .................................. 559,260,882
===============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of
the U.S. Treasury bill rate. These securities are shown at their rate as
of March 31, 1999.
(a) At March 31, 1999, the cost for federal income tax purposes was
$559,260,882.
- --------------------------------------------------------------------------------
At September 30, 1998, and to the extent provided in regulations, the fund
had capital loss carryforwards of approximately $129,347, of which $71,958
expires September 30, 2004, and $57,389 expires September 30, 2005.
The accompanying notes are an integral part of the financial statements
50
<PAGE>
AARP High Quality Tax Free Money Fund
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL INVESTMENTS 100.0%
- -----------------------------------------------------------------------------------------------------------------------------
Alaska
Alaska Housing Finance Corp., General Mortgage Revenue, Series
1991-A, Weekly Demand Note, 2.95%, 6/1/2026* ................................ 3,000,000 A1+ 3,000,000
Arizona
Apache County, AZ, Industrial Development Authority, Tucson
Electric Power Co., 1983 Series C, Weekly Demand Note, 3.05%,
12/15/2018* ................................................................. 1,000,000 A1+ 1,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric
Power Co., Series 1982A, Weekly Demand Note, 3.05%, 10/1/2022* .............. 3,900,000 A1+ 3,900,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly
Demand Note, 3.0%, 12/1/2011* ............................................... 1,900,000 A1 1,900,000
Salt River, AZ, Agricultural Improvement & Power District, Tax Exempt
Commercial Paper, 2.9%, 5/14/1999 ........................................... 2,000,000 A1+ 2,000,000
Colorado
Platte River, CO, Power Authority, Tax Exempt Commercial Paper,
3.25%, 5/7/1999 ............................................................. 1,500,000 MIG1 1,500,000
Smith Creek, CO, Metropolitan District, Weekly Demand Note,
3.15%, 10/1/2035* ........................................................... 1,500,000 A1+ 1,500,000
District of Columbia
District of Columbia, General Obligation, Refunding Bonds:
Series A1, Daily Demand Note, 3.30%, 10/1/2007* ............................. 1,500,000 A1+ 1,500,000
Series A2, Daily Demand Note, 3.30%, 10/1/2007* ............................. 2,200,000 A1+ 2,200,000
Series A6, Daily Demand Note, 3.30%, 10/1/2007* ............................. 1,000,000 A1+ 1,000,000
Florida
Dade County, FL, Industrial Development Authority Revenue, Dolphins
Stadium Project:
Series C, Weekly Demand Note, 3.05%, 1/1/2016* ........................... 1,000,000 A1+ 1,000,000
Series D, Weekly Demand Note, 3.05%, 1/1/2016* ........................... 1,300,000 A1+ 1,300,000
Dade County, FL, Water and Sewer System Revenue, Series 1994,
Weekly Demand Note, 2.90%, 10/5/2022* (c) ................................... 1,500,000 A1+ 1,500,000
Florida Municipal Power Agency, Tax Exempt Commercial Paper,
3.15%, 8/12/1999 ............................................................ 1,100,000 P1 1,100,000
Orange County, FL, Health Facilities Authority Revenue, Presbyterian
Retirement Communities, Weekly Demand Note, 3.05%, 11/1/2028* ............... 1,000,000 A1+ 1,000,000
Orlando, FL, Capital Improvement, Tax Exempt Commercial Paper, 3%,
5/13/1999 ................................................................... 1,000,000 P1 1,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric
Cooperative Finance Corp., 1984 Series H-1, Weekly Demand Note,
3.05%, 3/15/2014* ........................................................... 3,950,000 A1+ 3,950,000
Sunshine State Governmental Financing Commission, FL, Tax Exempt
Commercial Paper, 3.1%, 7/13/1999 (c) ....................................... 1,500,000 MIG1 1,500,000
Georgia
DeKalb County, GA, Development Authority, Pollution Control
Revenue, General Motors Corp. Project, Weekly Demand Note,
2.95%, 11/1/2003* ........................................................... 1,000,000 VMIG1 1,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
51
<PAGE>
AARP High Quality Tax Free Money Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gainsville Redevelopment Authority, Riverside Military Academy Project,
Weekly Demand Note, 3.15%, 1/1/2023* ........................................ 1,000,000 A1+ 1,000,000
Municipal Electric Authority of Georgia, Tax Exempt Commercial Paper,
Series 1985A, 2.90%, 5/14/1999 .............................................. 2,200,000 VMIG1 2,200,000
Illinois
Illinois Development Finance Authority, Pollution Control Revenue,
Illinois Power Co. Project, Series A, Weekly Demand Note, 3%,
11/1/2028* .................................................................. 1,500,000 A1+ 1,500,000
Illinois Educational Facilities Authority, Tax Exempt Commercial Paper,
3.15%, 5/11/1999 ........................................................... 2,400,000 A1+ 2,400,000
Illinois Health Facilities Authority, Tax Exempt Commercial Paper,
Series 97B, 3.05%, 5/13/1999 ................................................ 1,000,000 MIG1 1,000,000
Iowa
West Des Moines, IA, Commercial Development Revenue, Greyhound
Lines, Weekly Demand Note, 2.95%, 12/1/2014* ................................ 3,400,000 A1+ 3,400,000
Kentucky
Danville County, KY, Tax Exempt Commercial Paper, Series 89, 2.75%,
5/12/1999 ................................................................... 1,060,000 MIG1 1,060,000
Kentucky Economic Development Finance Authority, Hospital Facilities
Revenue, Health Alliance, Series C, Weekly Demand Note, 3.075%,
1/1/2022* (c) ............................................................... 2,000,000 MIG1 2,000,000
Pendleton County, KY, Multi-County Lease Revenue:
Seires 1989, Tax Exempt Commercial Paper, 3.1%, 7/19/1999 ................... 2,000,000 A1+ 2,000,000
Series 1989, Tax Exempt Commercial Paper, 3.1%, 7/21/1999 ................... 1,000,000 A1+ 1,000,000
Maryland
Anne Arundel County, MD, Baltimore Gas & Electric, Tax Exempt
Commercial Paper, 2.85%, 5/7/1999 ........................................... 1,300,000 MIG1 1,300,000
Maryland Health & Educational Facilities Authority, Weekly Demand
Note, Series 1985A, 3.05%, 4/1/2035* ........................................ 3,000,000 MIG1 3,000,000
Minnesota
Cottage Grove, MN, Environmental Control Revenue, Minnesota Mining
and Manufacturing, Series 1982, Weekly Demand Note, 3.315%,
8/1/2012* ................................................................... 300,000 A1+ 300,000
Minnesota Hospital Facilities Revenue, New Ulm Hospital Center, Weekly
Demand Note, 3.05%, 8/14/2014* .............................................. 1,000,000 A1+ 1,000,000
Nevada
Clark County, NV, Airport System, McCarran International Airport,
Series A, Weekly Demand Note, 2.90%, 7/1/2012* (c) .......................... 3,000,000 A1+ 3,000,000
Las Vegas, NV, Water Authority District, Tax Exempt Commercial Paper,
3.15%, 7/20/1999 ............................................................ 1,200,000 P1 1,200,000
New Mexico
Albuquerque, NM, Gross Receipts/Lodgers Tax, Series 1991, Weekly
Demand Note, 3.05%, 7/1/2022* ............................................... 2,000,000 A1+ 2,000,000
New York
Nassau County, NY, Tax Anticipation Note:
Series 1998 B, 3.5%, 8/18/1999 .............................................. 900,000 SP1 901,513
Series 1998 C, 3.5%, 12/22/1999 ............................................. 400,000 SP1 401,124
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina
North Carolina Municipal Power Agency, Tax Exempt Commercial Paper,
3.25%, 5/11/1999 ............................................................ 1,190,000 NR 1,190,000
Wake County, NC, Pollution Control Revenue, Tax Exempt Commercial
Paper, Series 1990A, 3.15%, 4/7/1999 ........................................ 1,500,000 P1 1,500,000
Ohio
Ohio Water Development Authority, Tax Exempt Commercial Paper,
Series 88A, 2.85%, 5/10/1999 (c) ............................................ 1,000,000 MIG1 1,000,000
Pennsylvania
Allegheny County, PA, Health Care Department, Tax Exempt
Commercial Paper, 3.2%, 7/22/1999 (c) ....................................... 1,000,000 NR 1,000,000
Pennsylvania Higher Educational Facilities Authority, University of
Pennsylvania Health Services, Series B, Weekly Demand Note, 3.20%,
1/1/2026* ................................................................... 2,000,000 A1+ 2,000,000
Schuylkill County, PA, Industrial Development Authority, Gilberton
Power Project, Weekly Demand Note, 2.95%, 12/1/2002* ........................ 1,800,000 A1+ 1,800,000
Tennessee
Clarksville, TN, Public Building Authority, Pooled Financing, Weekly
Demand Note, 3.00%, 6/1/2024* ............................................... 2,000,000 A1+ 2,000,000
Texas
Harris County, TX, Health Facilities Authority, Saint Lukes Episcopal
Hospital, Daily Demand Note, 3.10%, 2/15/2007* .............................. 300,000 A1+ 300,000
Harris County, TX, School District 97A, Tax Exempt Commercial Paper,
3.15%, 7/20/1999, 11/1/2018 ................................................. 2,000,000 VMIG1 2,000,000
Harris County, TX, Toll Road, Series 1994G, Weekly Demand Note,
3.00%, 8/1/2020* ............................................................ 1,000,000 A1+ 1,000,000
State of Texas, General Obligation, Veterans Housing Assistance
Refunding Bonds, Series 1995, Weekly Demand Note, 2.90%,
12/1/2016* .................................................................. 1,465,000 A1+ 1,465,000
Texas A&M University, Higher Education, Series B, Tax Exempt
Commercial Paper, 3%, 5/11/1999 ............................................. 2,000,000 A1+ 2,000,000
Texas Municipal Power Authority, Tax Exempt Commercial Paper:
3.2%, 7/20/1999 ............................................................. 1,100,000 P1 1,100,000
3.15%, 7/21/1999 ............................................................ 2,100,000 P1 2,100,000
Texas Public Finance Authority, Series 1993A, Tax Exempt Commercial
Paper, 3.1%, 7/20/1999 ...................................................... 2,000,000 P1 2,000,000
Vermont
Vermont Educational & Health Buildings Financing Agency, Capital Asset
Financing, Series 2005-A, Weekly Demand Note, 3.0%, 8/1/2005* ............... 2,044,000 MIG1 2,044,000
Virginia
Louisa, VA, Virginia Energy and Power Company, Tax Exempt
Commercial Paper, 3.25%, 5/12/1999 .......................................... 1,000,000 VMIG1 1,000,000
Washington
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note,
3.05%, 11/1/2018* ........................................................... 1,900,000 A1+ 1,900,000
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP High Quality Tax Free Money Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin
Wisconsin State Health Care Facilities Authority, Francisan Memorial
Hospital, Series 1985 A-1, Weekly Demand Note, 3.05%, 1/1/2016* ............. 2,000,000 A1+ 2,000,000
Wyoming
Sweetwater County, WY, Pollution Control Revenue Refunding,
Pacificorp Project, 1990 Series A, Weekly Demand Note, 2.90%,
7/1/2015* ................................................................... 2,000,000 MIG1 2,000,000
Total Municipal Investments (Cost $94,911,637) ................................. 94,911,637
---------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $94,911,637) (a) ...................... 94,911,637
===============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Floating rate and monthly, weekly, or daily 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. These notes are carried, for purposes of
calculating average weighted maturity, at the longer of the period
remaining until the next rate change or to the extent of the demand
period. These securities are shown at their current rate as of March 31,
1999.
(a) At March 31, 1999, the cost for federal income tax purposes was
$94,911,637.
(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 Kemper 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,
BIG, or MBIA.
- --------------------------------------------------------------------------------
At September 30, 1998, and to the extent provided in regulations, the fund
had capital loss carryforwards of approximately $758,220, of which $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, $217,594 expires September 30, 2005, and
$102,679 expires September 30, 2006. In addition, from November 1, 1997
through September 30, 1998, the fund incurred approximately $222 of net
realized capital losses. As permitted by tax regulations, the fund intends
to elect to defer these losses and treat them as arising in the fiscal
year ended September 30, 1999.
The accompanying notes are an integral part of the financial statements
54
<PAGE>
AARP Premium Money Fund
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 2.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $382,052 on 4/1/1999, collateralized by a
$390,000 U.S. Treasury Note, 4.0%, 10/31/2000 (Cost $382,000) ............................ 382,000 382,000
---------------
COMMERCIAL PAPER 97.9%
- -----------------------------------------------------------------------------------------------------------------------------
Ace Overseas Corp., 4.95%, 4/1/1999 ......................................................... 600,000 600,000
Alpine Securitization Corp., 5.0%, 4/13/1999 ................................................ 750,000 748,750
American General Finance Corp., 4.82%, 4/6/1999 ............................................. 100,000 99,933
American Honda Finance Corp., 4.88%, 4/9/1999 ............................................... 340,000 339,631
Amsterdam Funding Corp., 4.88%, 4/12/1999 ................................................... 430,000 429,359
Associates First Capital Corp., 4.84%, 4/16/1999 ............................................ 120,000 119,758
Banque National de Paris, 4.95%, 4/8/1999 ................................................... 700,000 699,326
Barton Capital Corp., 4.88%, 6/3/1999 ....................................................... 500,000 495,730
Baxter International Inc., 4.95%, 5/7/1999 .................................................. 400,000 398,020
Centric Capital Corp., 4.87%, 4/22/1999 ..................................................... 700,000 698,011
Ciesco L.P., 4.9%, 4/23/1999 ................................................................ 250,000 249,251
Clipper Receivables Corp., 4.9%, 4/16/1999 .................................................. 484,000 483,012
Coca-Cola Enterprises, Inc., 4.86%, 6/10/1999 ............................................... 450,000 445,747
Countrywide Home Loans, 4.89%, 4/16/1999 .................................................... 385,000 384,738
Dresdner U.S. Finance Corp., 4.86%, 4/5/1999 ................................................ 450,000 449,757
Enterprise Funding Corp., 4.92%, 4/1/1999 ................................................... 458,000 458,000
Eureka Securitization, Inc., 4.87%, 4/23/1999 ............................................... 444,000 442,679
FINOVA Capital Corp., 4.89%, 4/20/1999 ...................................................... 100,000 99,742
Ford Motor Credit Co., 4.82%, 4/7/1999 ...................................................... 100,000 99,920
Ford Motor Credit Co., 4.84%, 4/9/1999 ...................................................... 350,000 349,624
Fountain Square Commercial Funding, 4.95%, 5/14/1999 ........................................ 477,000 474,180
General Electric Capital Corp., 4.85%, 5/20/1999 ............................................ 500,000 496,699
General Mills, Inc., 4.84%, 4/5/1999 ........................................................ 285,000 284,847
General Motors Acceptance Corp., 4.87%, 4/6/1999 ............................................ 450,000 449,696
General Motors Acceptance Corp., 4.87%, 4/15/1999 ........................................... 255,000 254,517
GTE Corp., 4.91%, 4/5/1999 .................................................................. 340,000 339,814
GTE Corp., 4.93%, 5/7/1999 .................................................................. 500,000 497,535
Household International, 4.86%, 4/13/1999 ................................................... 200,000 199,676
Lehman Brothers Holding Corp., 4.95%, 4/26/1999 ............................................. 700,000 697,590
Lexington Parker Capital Corp., 5.0%, 4/20/1999 ............................................. 250,000 249,340
Merrill Lynch & Co., 4.85%, 4/7/1999 ........................................................ 150,000 149,879
Merrill Lynch & Co., 4.85%, 4/9/1999 ........................................................ 195,000 194,790
Moat Funding LLC, 4.88%, 4/12/1999 .......................................................... 212,000 211,684
Moat Funding LLC, 4.91%, 4/23/1999 .......................................................... 450,000 448,650
Monte Rosa Capital Corp., 4.95%, 4/15/1999 .................................................. 425,000 424,182
PACCAR Financial Corp., 4.82%, 4/20/1999 .................................................... 750,000 748,092
Prudential Funding Corp., 4.82%, 4/5/1999 ................................................... 100,000 99,946
Quincy Capital Corp., 4.90%, 4/21/1999 ...................................................... 561,000 559,473
Receivables Capital Corp., 4.90%, 4/23/1999 ................................................. 432,000 430,706
Sheffield Receivables Corp., 4.90%, 4/15/1999 ............................................... 500,000 499,047
Sigma Finance, 4.95%, 4/30/1999 ............................................................. 300,000 298,804
</TABLE>
The accompanying notes are an integral part of the financial statements
55
<PAGE>
AARP Premium Money Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Special Purpose Accounts Receivable Cooperative Corp., 4.88%, 4/5/1999 ...................... 300,000 299,837
Thunder Bay Funding Inc., 4.88%, 4/12/1999 .................................................. 385,000 384,426
UBS Finance Corp., 4.90%, 4/9/1999 .......................................................... 350,000 349,619
WCP Funding Inc., 4.90%, 5/4/1999 ........................................................... 800,000 796,407
---------------
Total Commercial Paper (Cost $17,930,424) ................................................... 17,930,424
---------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $18,312,424) ....................................... 18,312,424
===============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
56
<PAGE>
AARP High Quality Short Term Bond Fund
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 3.3%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $14,100,911 on 4/1/1999, collateralized by a
$13,815,000 U.S. Treasury Note, 8.5%, 2/15/2000
(Cost $14,099,000) ....................................................................... 14,099,000 14,099,000
---------------
U.S. TREASURY OBLIGATIONS 5.9%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 6.375%, 5/15/2000 ....................................................... 20,000,000 20,306,200
U.S. Treasury Note, 5.875%, 11/30/2001 ...................................................... 5,000,000 5,096,100
---------------
Total U.S. Government & Agencies (Cost $25,828,906) ......................................... 25,402,300
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
8.0% with various maturities to 8/15/2012 (Cost $4,347,572) ................................. 4,190,431 4,331,858
---------------
U.S. GOVERNMENT AGENCY PASS-THRUS* 5.7%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.53%, 2/3/2000 ..................................................... 20,000,000 20,075,000
Federal Home Loan Mortgage Corp., 8.0% with various maturities to 4/1/2008 .................. 4,423,709 4,527,313
---------------
Total U.S. Government Agency Pass-thrus (Cost $24,550,358) .................................. 24,602,313
---------------
U.S. GOVERNMENT BACKED MORTGAGES* 4.2%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 6.0%, REMIC, 11/25/2008 .............................. 6,602,831 6,588,387
Federal National Mortgage Association, 8.5%, 11/1/2009 ...................................... 3,965,271 4,123,446
Federal National Mortgage Association, 8.0%, with various maturities to
12/1/2009 ................................................................................ 6,926,923 7,110,001
---------------
Total U. S. Government Backed Mortgages (Cost $17,823,914) .................................. 17,821,834
---------------
ASSET BACKED 20.6%
- -----------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.1%
Capital Automobile Receivable Asset Trust, Series 1999-1 A2, 5.58%, 6/15/2002 ............... 2,800,000 2,803,938
Ford Credit Automobile Trust Series 1996-B A3, 6.1%, 3/15/2000 .............................. 1,782,168 1,783,273
---------------
4,587,211
---------------
Credit Card Receivables 4.9%
Advanta Corp. Series 1997-1 A4, 7.65%, 5/25/2027 ............................................ 5,000,000 5,164,062
Citibank Credit Card Master Trust I, Series 1991-1 A, 5.5%, 2/15/2006 ....................... 5,000,000 4,931,250
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ............................................. 6,000,000 6,003,720
Proffitt's, Inc. Credit Card Master Trust, 6.0%, 9/15/2004 .................................. 5,000,000 5,021,184
---------------
21,120,216
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements
57
<PAGE>
AARP High Quality Short Term Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment Lease Receivables 1.9%
PBG Equipment Trust, 6.27%, 1/20/2012 ....................................................... 8,132,528 8,183,031
---------------
Home Equity Loans 5.8%
Contimortgage Home Equity Loan Trust Series 1997-3 M1-F, 7.31%, 8/15/2028 ................... 10,000,000 10,071,875
First Plus Series 1998-1 A4, 6.2%, 3/10/2015 ................................................ 10,000,000 9,875,000
The Money Store Inc., Home Equity Series 1997-A A6, 7.21%, 10/15/2021 ....................... 5,000,000 5,079,688
---------------
25,026,563
---------------
Manufactured Housing Receivables 6.9%
Associated Manufactured Housing Corp. Series 1997-1 B1, 7.6%, 6/15/2028 ..................... 3,750,000 3,626,074
Green Tree Financial Corp. Series 1995-6 B1, 7.7%, 9/15/2026 ................................ 4,500,000 4,394,520
Green Tree Financial Corp. Series 1995-10 B1, 7.05%, 2/15/2027 .............................. 3,730,000 3,515,816
Green Tree Financial Corp. Series 1997-1 B1, 7.23%, 3/15/2028 ............................... 4,000,000 3,706,719
Green Tree Financial Corp. Series 1997-1 B2, 7.76%, 3/15/2028 ............................... 2,600,000 2,123,875
Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 6/15/2028 ............................... 1,500,000 1,246,699
Green Tree Financial Corp. Series 1996, 7.74%, 11/15/2028 ................................... 8,000,000 6,424,960
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/2011 ................. 4,488,009 4,517,450
---------------
29,556,113
---------------
Total Asset Backed (Cost $91,336,466) ...................................................... 88,473,134
---------------
CORPORATE BONDS 59.3%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.9%
Wal-Mart Stores Inc., 5.85%, 6/1/2000 ....................................................... 8,000,000 8,048,080
---------------
Consumer Staples 8.4%
Bass America Inc., 6.625%, 3/1/2003 ......................................................... 10,000,000 10,124,400
Gillette Company, 5.75%, 8/3/2001 ........................................................... 7,500,000 7,517,850
Pepsi Bottling Holding, Inc., 5.625%, 2/17/2009 ............................................. 5,000,000 4,804,650
Safeway Inc., 5.875%, 11/15/2001 ............................................................ 3,000,000 3,004,770
Sony Corp., 6.125%, 3/4/2003 ................................................................ 10,500,000 10,620,015
---------------
36,071,685
---------------
Health 0.9%
Columbia/HCA Healthcare Corp., 6.41%, 6/15/2000 ............................................. 4,000,000 3,949,560
---------------
Financial 30.5%
American Express Credit Corp. Senior Note, 6.125%, 11/15/2001 ............................... 5,000,000 5,047,150
Associates Corp. of North America, 5.85%, 1/15/2001 ......................................... 5,000,000 5,024,450
Associates Corp. of North America, 6.625%, 5/15/2001 ........................................ 15,000,000 15,301,500
AT&T Capital Corp., 6.75%, 2/4/2002 ......................................................... 4,000,000 4,077,600
Bank One Milwaukee N.A., 6.625%, 4/15/2003 .................................................. 5,000,000 5,099,100
BankAmerica Corp., 5.75%, 3/1/2004 .......................................................... 5,000,000 4,930,950
CIT Group Holdings Inc., 6.375%, 8/1/2002 ................................................... 5,940,000 6,036,228
Capital One Bank, 6.57%, 1/27/2003 .......................................................... 4,000,000 4,006,000
Citicorp, 8.03%, 2/15/2000 .................................................................. 10,000,000 10,223,900
Continental Bank N.A., 7.875%, 2/1/2003 ..................................................... 12,000,000 12,774,840
EOP Operating L.P., 6.375%, 2/15/2003 ....................................................... 6,000,000 5,956,440
First USA Bank, 5.85%, 2/22/2001 ............................................................ 10,000,000 10,031,800
Ford Motor Credit Co., 6.125%, 4/28/2003 .................................................... 5,000,000 5,036,300
General Electric Capital Corp., 6.02%, 5/4/2001 ............................................. 6,000,000 6,037,500
</TABLE>
The accompanying notes are an integral part of the financial statements
58
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Savings of America, 6%, 11/1/2000 ...................................................... 4,000,000 4,016,480
NBD Bank NA Michigan, 6.25%, 8/15/2003 ...................................................... 3,000,000 3,021,510
Norwest Financial Inc., 6.375%, 9/15/2002 ................................................... 10,000,000 10,194,900
Pitney Bowes Credit Corp., 5.65%, 1/15/2003 ................................................. 9,000,000 8,986,770
Racers-Kellogg, 5.75%, 2/2/2001 ............................................................. 5,000,000 5,009,750
---------------
130,813,168
---------------
Media 3.7%
Cox Communications, Inc., 6.375%, 6/15/2000 ................................................. 5,000,000 5,044,800
Tele-Communications Inc., 6.375%, 9/15/1999 ................................................. 10,500,000 10,559,850
---------------
15,604,650
---------------
Service Industries 1.2%
USA Waste Services, Inc., 6.125%, 7/15/2001 ................................................. 5,000,000 5,031,250
---------------
Manufacturing 2.1%
Champion International Corp., 9.875%, 6/1/2000 .............................................. 5,000,000 5,224,750
Xerox Corp., 5.5%, 11/15/2003 ............................................................... 4,000,000 3,940,724
---------------
9,165,474
---------------
Technology 2.1%
Raytheon Co., 6.45%, 8/15/2002 .............................................................. 9,000,000 9,149,400
---------------
Energy 4.2%
Amoco Canada Petroleum Co., 7.25%, 12/1/2002 ................................................ 6,000,000 6,262,980
Anadarko Petroleum Corp., 6.75%, 3/15/2003 .................................................. 1,500,000 1,524,090
Enron Corp., 6.45%, 11/15/2001 .............................................................. 10,000,000 10,106,900
---------------
17,893,970
---------------
Construction 3.4%
Housing Securities International, 6.625%, 1/25/2009 ......................................... 14,256,000 14,362,920
---------------
Utilities 0.9%
Detroit Edison Co., 5.93%, 2/1/2001 ......................................................... 4,000,000 4,006,800
---------------
Total Corporate Bonds (Cost $253,986,438) 254,096,957
---------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $431,972,654) (a) .................................. 428,827,396
===============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1999, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $431,972,654 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ............................................ $1,999,153
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .......................................... (5,144,411)
------------
Net unrealized depreciation ......................... $ (3,145,258)
============
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP High Quality Short Term Bond Fund
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
period ended March 31, 1999 was $92,791,094.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the year
ended March 31, 1999 aggregated $57,437,182 and $57,109,332, respectively.
Purchases and sales of direct obligations of the U.S. Government
aggregated $5,247,656 and $4,124,375, respectively.
- --------------------------------------------------------------------------------
At September 30, 1998, and to the extent provided in regulations, the fund
had a capital loss carryforward of approximately $1,181,657, all of which
expires September 30, 2005.
The accompanying notes are an integral part of the financial statements
60
<PAGE>
AARP GNMA and U.S. Treasury Fund
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 5.5%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/1999 at 4.9%
to be repurchased at $100,013,611 on 4/1/1999, collateralized by a
$50,000,000 U.S. Treasury Note, 3.625%, 4/15/2028, and a $49,363,000 U.S.
Treasury Note, 3.625%, 1/15/2008 .................................................... 100,000,000 100,000,000
Repurchase Agreement with State Street Bank and Trust Company dated
3/31/1999 at 4.88% to be repurchased at $160,523,757 on 4/1/1999,
collateralized by a $10,345,000 U.S. Treasury Note, 7.75%, 1/31/2000, a
$50,750,000 U.S. Inflationary Index Note, 3.375%, 1/15/2007, and a
$101,370,000 U.S. Inflationary Index Note, 3.875%, 1/15/2009 ........................ 160,502,000 160,502,000
---------------
Total Repurchase Agreements (Cost $260,502,000) ........................................ 260,502,000
---------------
U.S. TREASURY OBLIGATIONS 5.2%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 6.125%, 8/15/2007 .................................................. 40,000,000 41,874,800
U.S. Treasury Bond, 8.125%, 8/15/2021 (c) .............................................. 158,200,000 201,086,438
---------------
Total U.S. Treasury Obligations (Cost $246,081,867) .................................... 242,961,238
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 89.3%
- -----------------------------------------------------------------------------------------------------------------------------
6.0% with various maturities to 3/1/2029 (b) ........................................... 130,508,754 126,777,026
6.5% with various maturities to 3/1/2029 (b) (c) ....................................... 1,178,066,703 1,168,529,496
7.0% with various maturities to 3/1/2029 (b) (c) ....................................... 1,423,216,122 1,445,299,262
7.5% with various maturities to 4/1/2029 (c) ........................................... 729,072,126 750,665,422
8.0% with various maturities to 4/1/2029 (b) (c) ....................................... 578,029,013 603,033,864
8.5% with various maturities to 5/15/2022 .............................................. 80,598,887 85,235,560
9%, 4/20/2025 .......................................................................... 5,074,397 5,404,182
9.5% with various maturities to 12/15/2021 ............................................. 7,341,708 7,889,483
10.5% with various maturities to 1/20/2021 ............................................. 8,078,248 8,836,022
11.5% with various maturities to 2/15/2016 ............................................. 1,867,738 2,101,641
12.0% with various maturities to 7/15/2015 ............................................. 4,183,644 4,736,073
12.5%, 5/15/2015 ....................................................................... 11,676 13,409
12.5% with various maturities to 8/15/2015 ............................................. 3,041,676 3,479,524
13.0% with various maturities to 7/15/2015 ............................................. 356,107 411,138
13.5% with various maturities to 10/15/2014 ............................................ 453,967 531,736
14.0% with various maturities to 12/15/2014 ............................................ 223,075 259,392
14.5% with various maturities to 10/15/2014 ............................................ 91,932 108,394
15.0% with various maturities to 10/15/2012 ............................................ 176,092 209,473
16.0% with various maturities to 2/15/2012 ............................................. 64,930 76,001
---------------
Total Government National Mortgage Association (Cost $4,215,500,217) ................... 4,213,597,098
---------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,722,084,084) (a) ........................... 4,717,060,336
===============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
61
<PAGE>
AARP GNMA and U.S. Treasury Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1999, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $4,722,084,084 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ....................................... $ 7,043,768
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .......................................... (12,067,516)
------------
Net unrealized depreciation ......................... $ (5,023,748)
============
(b) When issued or forward delivery pools included.
(c) At March 31, 1999, these pools, in part or in whole, have been
segregated to cover initial margin requirements for open futures
contracts or when issued or forward delivery pools.
At March 31, 1999, open futures contracts sold short were as
follows:
<TABLE>
<CAPTION>
Unrealized
Number of Aggregate Market Appreciation/
Futures Expiration Date Contracts Face Value ($) Value ($) Depreciation
------- --------------- --------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Note June 19, 1999 231 26,433,676 26,492,812 (59,136)
U.S. Treasury Bond June 21, 1999 693 83,746,624 83,549,812 196,812
------------- ------------
Total net unrealized appreciation on open futures contracts sold short ............................. 137,676
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the
six months ended March 31, 1999 aggregated $3,290,349,969 and
$3,225,338,407, respectively. Purchases and sales of direct
obligations of the U.S. Government aggregated $1,827,218,320 and
$1,886,415,069, respectively.
- --------------------------------------------------------------------------------
At September 30, 1998, and to the extent provided in regulations,
the fund had capital loss carryforwards of approximately
$246,961,294, all of which expire September 30, 2003.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed
during the six months ended March 31, 1999 was $2,523,125,903 and
$2,412,945,603, respectively.
The accompanying notes are an integral part of the financial statements
62
<PAGE>
AARP Insured Tax Free General Bond Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS 2.0%
- -----------------------------------------------------------------------------------------------------------------------------
Alaska
Valdez, AK, Marine Terminal Revenue, Exxon Pipeline:
Project A, Daily Demand Note, 3.1%, 12/1/2033* .............................. 2,500,000 A1+ 2,500,000
Project B, Daily Demand Note, 3.1%, 12/1/2033* .............................. 4,500,000 A1+ 4,500,000
Arizona
Maricopa County, AZ, Pollution Control Revenue:
Arizona Public Service Corporation, Series F, Daily Demand Note,
3.05%, 5/1/2029* ......................................................... 3,000,000 A1+ 3,000,000
Series A, Daily Demand Note, 3.15%, 5/1/2029* ............................... 2,100,000 A1+ 2,100,000
Illinois
Chicago, IL, O'Hare International Airport Revenue Bonds, American
Airlines Project, Series 1983 C, Daily Demand Note, 3.1%, 12/1/2017* ........ 1,000,000 A1+ 1,000,000
Indiana
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public
Service, Daily Demand Note, 3.15%, 6/1/2013* ................................ 1,000,000 A1+ 1,000,000
New Mexico
Farmington, NM, Pollution Control Revenue, Arizona Public Service,
Four Corners Project, 1994 Series A, Daily Demand Note,
3.05%, 5/1/2024* ............................................................ 1,000,000 A1+ 1,000,000
New York
New York, NY, General Obligation:
Daily Demand Note, 3.4%, 8/1/2017* .......................................... 1,000,000 A1+ 1,000,000
Daily Demand Note, 3.4%, 8/15/2020* ......................................... 5,000,000 A1+ 5,000,000
Texas
Harris County, TX, Health Facilities Authority, Saint Lukes Episcopal
Hospital, Series A, Daily Demand Note, 3.1%, 2/15/2027* ..................... 7,000,000 A1+ 7,000,000
Washington
Washington Health Care Facilities Authority:
Sisters of Providence, Daily Demand Note, 1985 Series B, 3.15%,
10/1/2005* ............................................................... 3,300,000 A1+ 3,300,000
Daily Demand Note, Series 1985 D, 3.15%, 10/1/2005* ......................... 1,300,000 A1+ 1,300,000
Series C, Daily Demand Note, 3.15%, 10/1/2005* .............................. 1,000,000 A1+ 1,000,000
-------------
Total Short-Term Municipal Investments (Cost $33,700,000) ...................... 33,700,000
-------------
LONG-TERM MUNICIPAL INVESTMENTS 98.0%
- -----------------------------------------------------------------------------------------------------------------------------
Alaska
Anchorage, AK, Electric Utility Revenue, 6.5%, 12/1/2007 (c) ................... 2,620,000 AAA 3,031,104
North Slope Borough, AK, General Obligation:
Series 1997A, Zero Coupon, 6/30/2008 (c) .................................... 7,000,000 AAA 4,600,330
Series B, Zero Coupon, 1/1/2003 (c) ......................................... 16,000,000 AAA 13,761,280
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series A, Zero Coupon, 6/30/2006 (c) ........................................ 4,000,000 AAA 2,919,640
Series B, Zero Coupon, 6/30/2004 (c) ........................................ 15,500,000 AAA 12,467,580
Series B, Zero Coupon, 6/30/2005 (c) ........................................ 25,600,000 AAA 19,634,688
</TABLE>
The accompanying notes are an integral part of the financial statements
63
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona
Arizonia Municipal Finance Program, Certificate of Participation,
Series 25, 7.875%, 8/1/2014 (c) ............................................. 3,500,000 AAA 4,580,800
Maricopa County, AZ, School District #28, Kyrene Elementary, Series B,
Zero Coupon, 1/1/2004 (c) ................................................... 4,000,000 AAA 3,298,640
Maricopa County, AZ, School District #6, Washington Elementary,
Series B, 4.1%, 7/1/2013 (c) ................................................ 2,950,000 AAA 2,744,798
Maricopa County, AZ, Unified School District #41, Gilbert School,
Zero Coupon, 1/1/2005 (c) ................................................... 5,280,000 AAA 4,157,578
California
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/2009 (c) (d) .................................................... 8,995,000 AAA 9,745,453
Banning, CA, Wastewater, Certificate of Participation, 8%, 1/1/2019 (c) ........ 2,040,000 AAA 2,688,070
Big Bear Lake, CA, Series 1996, 6%, 4/1/2011 (c) ............................... 3,800,000 AAA 4,335,458
California Housing Finance Agency:
5.3%, 8/1/2014 (c) .......................................................... 2,375,000 AAA 2,443,519
5.7%, 8/1/2016 (c) .......................................................... 825,000 AAA 844,775
California State Public Works Board, Lease Revenue, Series A,
6.3%, 12/1/2006 (c) ......................................................... 8,095,000 AAA 9,324,873
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/2006 (c) ............... 9,000,000 AAA 10,127,250
Los Angeles County, CA, Public Works Authority, Series 1996B,
5.25%, 9/1/2011 (c) ......................................................... 3,000,000 AAA 3,185,250
Los Angeles County, CA, Public Works Finance Authority, Lease
Revenue, Multiple Projects IV, 4.75%, 12/1/2010 (c) ......................... 11,140,000 AAA 11,375,500
Madera County, CA, Certificates of Participation, Valley Childrens
Hospital, 6.5%, 3/15/2010 (c) ............................................... 2,840,000 AAA 3,356,681
Oakland, CA, Redevelopment Agency, Tax Allocation, 6%,
2/1/2007 (c) ................................................................ 2,000,000 AAA 2,252,280
San Diego County, CA, Water Authority Revenue, Certificate of
Participation, 5.632%, 4/25/2007 (c) ........................................ 6,300,000 AAA 6,928,236
San Diego, CA, Water Utility Funding Network System Revenue,
5.375%, 8/1/2014 (c) ........................................................ 3,000,000 AAA 3,184,860
San Diego, CA, Water Authority, Certificate of Participation, 5.681%,
4/22/2009 (c) ............................................................... 4,500,000 AAA 5,010,345
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue
Refunding, 6.75%, 7/1/2010 (c) .............................................. 2,000,000 AAA 2,415,340
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Capital Appreciation, Refunding, Series 1997 A, Zero
Coupon, 1/15/2012 (c) ....................................................... 3,000,000 AAA 1,649,940
San Joaquin, CA, Certificate of Participation, County Public Facilities
Project, 5.5%, 11/15/2013 (c) ............................................... 2,000,000 AAA 2,176,580
Sweetwater Authority, CA, Water Revenue, 5.25%, 4/1/2010 (c) ................... 10,000,000 AAA 10,744,000
Colorado
Mesa County, CO, Residual Revenue, Single Family Housing, Series 1992,
Zero Coupon, ETM, 12/1/2011** ............................................... 6,435,000 AAA 3,581,528
Connecticut
Connecticut Resource Recovery Authority:
Series 1996, 6.25%, 11/15/2005 (c) .......................................... 2,000,000 AAA 2,253,220
Series 1996A, 6.25%, 11/15/2006 (c) ......................................... 4,525,000 AAA 5,140,264
</TABLE>
The accompanying notes are an integral part of the financial statements
64
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Connecticut State Health Facility Authority, Series 1992B, 6.15%,
11/15/2004 .................................................................. 5,000,000 AA 5,279,650
District of Columbia
District of Columbia, General Obligation:
6.5%, ETM, 6/1/2010** ....................................................... 110,000 AAA 129,455
Prerefunded 6/1/02 at 102, Series B, 6.125%, 6/1/2003 (c)*** ................ 95,000 AAA 103,332
Series B, Zero Coupon, 6/1/2000 (c) ......................................... 3,500,000 AAA 3,362,870
Series B, 5.4%, 6/1/2006 (c) ................................................ 18,905,000 AAA 20,174,660
Series B, 5.5%, 6/1/2007 (c) ................................................ 25,000,000 AAA 26,868,000
Series B, 5.5%, 6/1/2008 (c) ................................................ 21,300,000 AAA 22,884,081
Series B, 5.5%, 6/1/2009 (c) ................................................ 16,150,000 AAA 17,318,614
Series B, 5.5%, 6/1/2009 (c) ................................................ 2,840,000 AAA 3,045,502
Series B, 5.5%, 6/1/2012 (c) ................................................ 1,050,000 AAA 1,126,356
Series B3, 5.4%, 6/1/2006 (c) ............................................... 10,000,000 AAA 10,671,600
District of Columbia, General Obligation, Series A, 5.875%, ETM,
6/1/2005 (c)** .............................................................. 350,000 AAA 384,325
District of Columbia, Unrefunded Balance:
6.25%, 6/1/2010 (c) ......................................................... 2,160,000 AAA 2,508,926
Series A, 5.875%, 6/1/2005 (c) .............................................. 4,400,000 AAA 4,796,440
Series B, 6.125%, 6/1/2003 (c) .............................................. 3,905,000 AAA 4,216,346
Washington D.C. Convention Center Authority, Dedicated Tax Revenue,
5.25%, 10/1/2012 (c) ........................................................ 4,000,000 AAA 4,150,480
Florida
State of Florida Board of Education Capital Outlay:
5.25%, 1/1/2012 ............................................................. 5,000,000 AA 5,240,650
5.25%, 6/1/2012 ............................................................. 4,500,000 AA 4,723,920
Georgia
Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%,
4/1/2011 (c) ................................................................ 2,305,000 AAA 2,523,260
Fulton County, GA, School District, General Obligation, 5.25%,
1/1/2015 .................................................................... 2,000,000 AA 2,100,780
Georgia Municipal Electric Authority, Power Revenue, Series Y, 6.4%,
1/1/2013 (c) ................................................................ 3,500,000 AAA 4,085,620
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/2011 (c) ...................................... 3,000,000 AAA 3,193,440
Hawaii
Maui County, HI, 6%, 12/15/2005 (c) ............................................ 2,000,000 AAA 2,212,040
Honolulu, HI, General Obligation, Series B, 5.125%, 7/1/2012 (c) ............... 2,000,000 AAA 2,059,720
State of Hawaii, General Obligation, Series 1992 BZ, 6%, 10/1/2009 (c) ......... 2,000,000 AAA 2,238,180
Illinois
Central Lake County, IL, Joint Action Water Agency, Refunding
Revenue, Zero Coupon, 5/1/2002 (c) .......................................... 2,245,000 AAA 1,987,948
Chicago, IL, General Obligation:
6.25%, 1/1/2011 (c) ......................................................... 3,000,000 AAA 3,430,500
Series A, 5.375%, 1/1/2013 (c) (d) .......................................... 15,410,000 AAA 16,325,046
Series B, 5%, 1/1/2010 (c) .................................................. 5,200,000 AAA 5,387,876
Series B, 5%, 1/1/2011 (c) .................................................. 1,620,000 AAA 1,670,771
Series B, 5.125%, 1/1/2015 (c) (d) .......................................... 9,550,000 AAA 9,804,317
</TABLE>
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chicago, IL, General Obligation Lease, Board of Education:
Series 1996, 6.25%, 12/1/2011 (c) ........................................... 1,600,000 AAA 1,842,864
Series A, 6.25%, 1/1/2010 (c) (d) ........................................... 11,550,000 AAA 13,182,708
Series A, 6.25%, 1/1/2015 (c) (d) ........................................... 26,000,000 AAA 29,881,020
Series A, 6%, 1/1/2016 (c) (d) .............................................. 11,025,000 AAA 12,358,474
Series A, 6%, 1/1/2020 (c) .................................................. 36,625,000 AAA 41,063,584
Chicago, IL, O'Hare International Airport, Refunding Revenue:
Series 1996A, 6%, 1/1/2006 (c) .............................................. 2,255,000 AAA 2,485,687
Series C, 5%, 1/1/2011 (c) .................................................. 6,500,000 AAA 6,703,710
Chicago, IL, Public Building Commission:
Board of Education, Series A, Zero Coupon, ETM, 1/1/2006** .................. 2,430,000 AAA 1,819,827
Building Revenue:
Series A, 5.25%, 12/1/2007 (c) ........................................... 3,500,000 AAA 3,735,620
Series A, 5.25%, 12/1/2009 (c) (d) ....................................... 10,420,000 AAA 11,048,430
Series A, 5.25%, 12/1/2011 (c) ........................................... 9,705,000 AAA 10,257,020
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/2009 (c) (d) ...................................................... 11,990,000 AAA 12,986,129
5.5%, 1/1/2010 (c) .......................................................... 7,220,000 AAA 7,784,748
Cook & Dupage Counties, IL, Housing Development Authority:
Zero Coupon, 12/1/2007 (c) .................................................. 2,550,000 AAA 1,733,975
Zero Coupon, 12/1/2008 (c) .................................................. 2,625,000 AAA 1,692,810
Zero Coupon, 12/1/2009 (c) .................................................. 2,860,000 AAA 1,746,087
Cook County, IL, Community High School District #233, Capital
Appreciation, Series 1993 B, Zero Coupon, 12/1/2008 (c) ..................... 1,700,000 AAA 1,101,498
Cook County, IL, General Obligation:
Zero Coupon, ETM, 11/1/2004 (c)** ........................................... 3,205,000 AAA 2,548,167
Series C, 6%, 11/15/2007 (c) ................................................ 5,000,000 AAA 5,602,900
Decatur, IL, General Obligation:
Series 1991, Zero Coupon, 10/1/2003 (c) ..................................... 1,455,000 AAA 1,212,495
Series 1991, Zero Coupon, 10/1/2004 (c) ..................................... 1,415,000 AAA 1,125,831
Decatur, IL, Public Building Commission, General Obligation, Certificate
of Participation:
6.5%, 1/1/2003 (c) ....................................................... 1,725,000 AAA 1,881,182
6.5%, 1/1/2006 (c) ....................................................... 1,500,000 AAA 1,699,890
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation,
Junior Lien, Series 1991, Zero Coupon, 5/15/2007 ............................ 17,460,000 A 12,019,813
Illinois Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/2011 (c) ....................................................... 3,000,000 AAA 3,456,360
6.25%, 12/15/2020 (c) ....................................................... 6,975,000 AAA 8,009,951
Series A, 6.5%, 12/15/2007 (c) .............................................. 4,765,000 AAA 5,526,685
Series A, 6.5%, 12/15/2008 (c) .............................................. 5,255,000 AAA 6,150,399
Illinois Educational Facilities Authority, Loyola University:
1991 Series A, Zero Coupon, 7/1/2004 (c) .................................... 2,860,000 AAA 2,305,217
Zero Coupon, ETM, 7/1/2005** ................................................ 4,000,000 AAA 3,075,440
Illinois Health Facilities Authority:
Brokaw-Mennonite Healthcare:
6%, 8/15/2006 (c) ........................................................ 1,380,000 AAA 1,527,715
6%, 8/15/2007 (c) ........................................................ 1,460,000 AAA 1,624,192
6%, 8/15/2008 (c) ........................................................ 1,550,000 AAA 1,729,862
6%, 8/15/2009 (c) ........................................................ 1,640,000 AAA 1,829,043
</TABLE>
The accompanying notes are an integral part of the financial statements
66
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Children's Memorial Hospital, 6.25%, 8/15/2013 (c) .......................... 3,400,000 AAA 3,926,626
Felician Healthcare Inc., Series A, 6.25%, 12/1/2015 (c) .................... 17,000,000 AAA 19,513,280
Memorial Medical Center, Prerefunded 10/1/2000 at 102, 6.75%,
10/1/2011 (c)*** ......................................................... 2,135,000 AAA 2,281,931
Sherman Hospital, Prerefunded 8/1/2001 at 102, 6.75%,
8/1/2011 (c)*** .......................................................... 2,700,000 AAA 2,938,680
SSM Healthcare System, 6.4%, 6/1/2008 (c) ................................... 1,350,000 AAA 1,545,197
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North
Campus Extension Center, 6.7%, 9/1/2012 (c) ................................. 2,500,000 AAA 2,952,925
Kane County, IL, Series 1996A, 6.5%, 2/1/2010 (c) .............................. 1,775,000 AAA 2,065,017
Kane, Cook and Dupage Counties, IL, School District #46 Elgin:
Series 1996B, Zero Coupon, 1/1/2011 (c) ..................................... 1,040,000 AAA 591,552
Series 1996B, Zero Coupon, 1/1/2012 (c) ..................................... 1,300,000 AAA 697,788
Series 1996B, Zero Coupon, 1/1/2013 (c) ..................................... 2,095,000 AAA 1,060,950
Kendall, Kane and Will Counties, IL, Community Unit School District #308,
Oswego:
Zero Coupon, 3/1/2002 (c) ................................................ 1,055,000 AAA 940,395
Zero Coupon, 3/1/2005 (c) ................................................ 1,540,000 AAA 1,197,288
Zero Coupon, 3/1/2006 (c) ................................................ 1,595,000 AAA 1,180,380
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project:
Zero Coupon, 12/15/2003 (c) .............................................. 3,200,000 AAA 2,643,808
Zero Coupon, 6/15/2004 (c) ............................................... 10,300,000 AAA 8,296,032
Series 1994, Zero Coupon, 6/15/2013 (c) .................................. 5,625,000 AAA 2,785,106
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply
System Revenue, 6.45%, 5/1/2007 (c) ......................................... 2,575,000 AAA 2,947,654
Rosemont, IL, Tax Increment:
Series C, Zero Coupon, 12/1/2005 (c) ........................................ 4,455,000 AAA 3,354,838
Series C, Zero Coupon, 12/1/2007 (c) ........................................ 2,655,000 AAA 1,805,373
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/2011 (c) ............ 3,000,000 AAA 1,632,930
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/2003 (c) ............................................................... 2,750,000 AAA 2,291,658
University of Illinois, Board of Trustees:
Series 1991, Zero Coupon, 4/1/2003 (c) ...................................... 3,890,000 AAA 3,310,079
Series 1991, Zero Coupon, 4/1/2005 (c) ...................................... 3,830,000 AAA 2,967,139
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/2000 (c) .............................................. 1,325,000 AAA 1,247,355
Zero Coupon, 12/15/2001 (c) .............................................. 1,730,000 AAA 1,561,654
Indiana
Fort Wayne, IN, Parkview Memorial Hospital, Series A, Prerefunded
11/15/1999 at 102, 6.5%, 11/15/2012 (c)*** ................................. 1,400,000 AAA 1,456,504
Indiana Health Facilities Financing Authority:
Hospital Revenue, Community Hospitals Project, 6.4%, 5/1/2012 (c) ........... 5,000,000 AAA 5,391,150
Series 1990 A, 6%, 7/1/2003 (c) ............................................. 1,570,000 AAA 1,692,774
Series 1990 A, 6%, 7/1/2004 (c) ............................................. 1,665,000 AAA 1,814,584
Series 1990 A, 6%, 7/1/2005 (c) ............................................. 1,765,000 AAA 1,939,947
Series 1990 A, 6%, 7/1/2006 (c) ............................................. 1,875,000 AAA 2,074,050
Series 1990 A, 6%, 7/1/2007 (c) ............................................. 1,985,000 AAA 2,205,494
</TABLE>
The accompanying notes are an integral part of the financial statements
67
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1990 A, 6%, 7/1/2008 (c) ............................................. 1,085,000 AAA 1,209,558
Series 1990 A, 6%, 7/1/2009 (c) ............................................. 1,125,000 AAA 1,253,453
Series 1990 A, 6%, 7/1/2010 (c) ............................................. 1,185,000 AAA 1,326,015
Series 1990 A, 6%, 7/1/2011 (c) ............................................. 1,260,000 AAA 1,408,630
Series 1990 A, 6%, 7/1/2012 (c) ............................................. 1,345,000 AAA 1,508,808
Series 1990 A, 6%, 7/1/2013 (c) ............................................. 1,420,000 AAA 1,591,167
Series 1990 A, 6%, 7/1/2014 (c) ............................................. 1,505,000 AAA 1,689,889
Series 1990 A, 6%, 7/1/2015 (c) ............................................. 1,600,000 AAA 1,797,392
Series 1990 A, 6%, 7/1/2016 (c) ............................................. 1,700,000 AAA 1,913,775
Series 1990 A, 6%, 7/1/2017 (c) ............................................. 1,800,000 AAA 2,022,912
Series 1990 A, 6%, 7/1/2018 (c) ............................................. 1,910,000 AAA 2,144,170
Tax Exempt Custodian Receipts Refund:
Series 1997 A, 6%, 7/1/2001 (c) .......................................... 1,395,000 AAA 1,462,950
Series 1997 A, 6%, 7/1/2002 (c) .......................................... 1,480,000 AAA 1,574,838
Indiana University, Revenue Refunding:
Series H, Zero Coupon, 8/1/2006 (c) ......................................... 8,500,000 AAA 6,181,795
Student Fee Revenue, Series H, Zero Coupon, 8/1/2008 (c) .................... 10,000,000 AAA 6,547,100
Merrillville, IN, Multiple School Building Corp., First Mortgage,
Zero Coupon, 1/15/2011 (c) .................................................. 4,000,000 AAA 2,270,960
Iowa
Polk County, IA, Mercy Hospital, Prerefunded 11/1/2001 at 101, 6.75%,
11/1/2005 (c)*** ............................................................ 5,000,000 AAA 5,434,100
Kansas
Kansas City, KS, Utility System Revenue:
Capital Appreciation, Zero Coupon, ETM, 3/1/2001 (c)** ...................... 4,095,000 AAA 3,816,049
Zero Coupon, ETM, 9/1/2004 (c)** ............................................ 3,575,000 AAA 2,864,898
Zero Coupon, ETM, 9/1/2005 (c)** ............................................ 5,300,000 AAA 4,051,585
Zero Coupon, ETM, 9/1/2006 (c)** ............................................ 1,875,000 AAA 1,366,631
Zero Coupon, 9/1/2004 (c) ................................................... 2,640,000 AAA 2,117,861
Zero Coupon, 9/1/2005 (c) ................................................... 3,950,000 AAA 3,023,370
Zero Coupon, 9/1/2006 (c) ................................................... 1,375,000 AAA 1,002,196
Louisiana
Louisiana Public Facilities Authority, Prerefunded 2/15/08 at 100,
4.75%, 5/1/2016 ............................................................. 5,765,000 AAA 5,975,941
New Orleans, LA, General Obligation:
Zero Coupon, ETM, 7/15/2006 (c)** ........................................... 4,850,000 AAA 3,286,506
Zero Coupon, 9/1/2007 (c) ................................................... 10,000,000 AAA 6,915,700
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986,
5.95%, 11/1/2014 (c) ........................................................ 1,830,000 AAA 2,001,983
Maryland
Baltimore, MD, Revenue Exchanged, Auto Parking Revenue,
Series 1996A, 5.9%, 7/1/2012 (c) ............................................ 3,100,000 AAA 3,502,845
Massachusetts
Commonwealth of Massachusetts, General Obligation, Series D, Prerefunded
10/1/1999 at 102, 7%, 10/1/2003 (c)*** ...................................... 7,000,000 AAA 7,273,350
Massachusetts General Obligation, Series C, 5.25%, 8/1/2012 .................... 7,750,000 AA 8,148,815
Massachusetts Health & Educational Facilities Authority, Boston
Medical Center, Series A, 5.25%, 7/1/2012 (c) ............................... 2,920,000 AAA 3,040,713
</TABLE>
The accompanying notes are an integral part of the financial statements
68
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts State Water Pollution Abatement Trust, MWRA Loan
Program, Series A, 5.25%, 8/1/2012 .......................................... 2,500,000 AA+ 2,626,700
Michigan
Detroit, MI, City School District, Refunded, Series C, 5%, 5/1/2010 (c) ........ 1,000,000 AAA 1,040,560
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue,
Borgess Medical Center, Series A, Prerefunded 7/1/1999 at 100, 6%,
7/1/2009 (c)*** ............................................................. 8,250,000 AAA 8,308,823
Michigan Municipal Bond Authority Revenue, Clean Water Revolving
Funding, 5.25%, 10/1/2011 ................................................... 7,575,000 AA+ 7,962,083
Michigan State Building Authority, Facilities Program, Refunded,
Series 1, 5.25%, 10/15/2011 ................................................. 3,000,000 AA 3,143,460
Michigan State Trunk Line, Series 1998 A, 5.25%, 11/1/2013 ..................... 3,000,000 AA- 3,162,900
Wayne Charter County, MI, Airport Revenue, Detroit Metro Wayne
County Airport, Series B, 5.25%, 12/1/2011 (c) .............................. 4,340,000 AAA 4,561,514
Missouri
Missouri Health & Educational Facilities Authority, SSM Healthcare:
1992 Series AA, 6.35%, 6/1/2008 (c) ......................................... 8,125,000 AAA 9,348,706
1992 Series AA, 6.4%, 6/1/2009 (c) .......................................... 8,640,000 AAA 10,043,568
Nevada
Clark County, NV, School District:
General Obligation, Series B, Zero Coupon, 3/1/2005 (c) ..................... 8,070,000 AAA 6,292,340
Series 1991B, Zero Coupon, 3/1/2009 (c) ..................................... 4,350,000 AAA 2,760,206
New Jersey
New Jersey Highway Authority, 6.5%, ETM, 1/1/2011** ............................ 4,371,000 AAA 4,876,288
New Jersey Turnpike Authority, Series 1991A, 6.3%, 1/1/2001 (c) ................ 1,250,000 AAA 1,307,700
New York
New York City, NY, General Obligation:
5.9%, 2/1/2005 (c) .......................................................... 5,500,000 AAA 6,016,395
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2004 (c)*** ............. 275,000 AAA 301,716
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2005 (c)*** ............. 10,235,000 AAA 11,229,330
Prerefunded 8/1/1999 at 100, Series D, 1997, 6%, 8/1/2006 (c)*** ............ 85,000 AAA 85,808
Prerefunded 8/1/1999 at 100, Series D, 1998, 6%, 8/1/2008 (c)*** ............ 265,000 AAA 267,547
Series 1991 A, 3%, 8/15/2002 (c) ............................................ 9,000,000 AAA 8,793,360
Series A, 5.25%, 8/1/2011 (c) ............................................... 14,460,000 AAA 15,181,699
Series A, 5.375%, 8/1/2013 (c) .............................................. 9,295,000 AAA 9,773,878
Series A, 5.2%, 8/1/2010 (c) ................................................ 10,000,000 AAA 10,523,700
Series A, 8%, ETM, 11/1/2001 (c)** .......................................... 740,000 AAA 748,295
Series C, 6.4%, 8/1/2004 (c) ................................................ 225,000 AAA 244,593
Series C, 6.4%, 8/1/2005 (c) ................................................ 195,000 AAA 211,382
Series D, 8%, 8/1/2005 ...................................................... 5,000 AAA 5,127
Series E, 7%, ETM, 12/1/2007 (c)** .......................................... 1,385,000 AAA 1,404,071
Unrefunded Balance, Series D, 1997, 6%, 8/1/2006 (c) ........................ 55,000 AAA 55,464
Unrefunded Balance, Series D, 1998, 6%, 8/1/2008 (c) ........................ 105,000 AAA 105,939
New York State Dormitory Authority:
College and University Pooled Capital Program, 7.8%, 12/1/2005 (c) .......... 2,180,000 AAA 2,236,549
State University of New York, 6%, 7/1/2009 (c) .............................. 2,000,000 AAA 2,266,880
New York State Dormitory Authority Revenue, City University:
Series C, 7.5%, 7/1/2010 (c) ................................................ 5,750,000 AAA 7,067,670
Series D, 7%, 7/1/2009 (c) .................................................. 4,000,000 AAA 4,671,200
</TABLE>
The accompanying notes are an integral part of the financial statements
69
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York State Energy Research and Development Authority, Pollution
Control Revenue, Electric and Gas, 5.9%, 12/1/2006 (c) ...................... 5,300,000 AAA 5,912,998
New York State Thruway Authority:
Highway and Bridge Funding, Series A, 5.125%, 4/1/2012 (c) .................. 3,695,000 AAA 3,848,453
Service Contract Revenue, Series 1998 A2, 5.25%, 4/1/2012 (c) ............... 3,270,000 AAA 3,434,579
New York State, Urban Development Authority, Correctional Facilities,
6.5%, 1/1/2011 (c) .......................................................... 4,500,000 AAA 5,269,005
Suffolk County, NY, Industrial Development Agency, Southwest Sewer
System, 6%, 2/1/2007 (c) .................................................... 8,000,000 AAA 8,901,440
North Carolina
North Carolina Eastern Municipal Power Agency:
5.5%, 1/1/2007 (c) .......................................................... 2,000,000 AAA 2,160,720
Power System Revenue, Series B, 6%, 1/1/2018 (c) ............................ 8,775,000 AAA 9,845,375
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue:
5.25%, 1/1/2008 (c) ......................................................... 2,500,000 AAA 2,660,250
6%, 1/1/2011 (c) ............................................................ 8,235,000 AAA 9,271,787
Series 1992, 7.25%, 1/1/2007 (c) ............................................ 5,000,000 AAA 5,951,350
Series 1997, 6%, 1/1/2008 (c) ............................................... 2,585,000 AAA 2,888,453
North Dakota
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/2002 (c) ................................................... 2,850,000 AAA 2,525,442
Ohio
Cleveland, OH, Water Works Revenue, Series 1993G, 5.5%,
1/1/2013 (c) (d) ............................................................ 10,000,000 AAA 10,813,300
Ohio Air Quality Development Authority, Ohio Power Company,
Series B, 7.4%, 8/1/2009 (c) ................................................ 5,000,000 AAA 5,163,300
Oklahoma
Tulsa, OK, Industrial Development Authority, Hospital Revenue,
St. John's Medical Center:
Zero Coupon, 12/1/2002 (c) ............................................... 3,930,000 AAA 3,410,061
Zero Coupon, 12/1/2004 (c) ............................................... 5,430,000 AAA 4,307,185
Zero Coupon, 12/1/2006 (c) ............................................... 6,430,000 AAA 4,629,986
Pennsylvania
Blair County, PA, Hospital Authority, Altoona Hospital, Project A,
5.5%, 7/1/2010 (c) .......................................................... 3,590,000 AAA 3,834,874
Commonwealth of Pennsylvania, Industrial Development Authority,
Economic Development Revenue:
5.8%, 1/1/2008 (c) ....................................................... 4,250,000 AAA 4,684,435
5.8%, 7/1/2008 (c) ....................................................... 4,875,000 AAA 5,396,479
Commonwealth of Philadelphia, PA, Water & Wastewater Refunding
Revenue:
5.5%, 6/15/2007 (c) ...................................................... 5,000,000 AAA 5,410,800
5.625%, 6/15/2009 (c) .................................................... 20,000,000 AAA 21,857,800
Philadelphia, PA, School District, General Obligation, Series A, 5.25%,
4/1/2012 (c) ................................................................ 1,740,000 AAA 1,812,836
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/2011 (c) ............................ 7,300,000 AAA 7,831,878
</TABLE>
The accompanying notes are an integral part of the financial statements
70
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rhode Island
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/2015 (c) ............................... 2,000,000 AAA 2,121,600
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993 B, 5%, 5/15/2010 (c) ............................................ 5,000,000 AAA 5,203,300
Series 1993 B, 5.25%, 5/15/2015 (c) (d) ..................................... 22,000,000 AAA 23,000,340
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, 8/1/2010 (c) ................................................ 6,200,000 AAA 6,955,904
Series B, 5.8%, 8/1/2011 (c) ................................................ 4,525,000 AAA 5,067,729
Series B, 5.8%, 8/1/2012 (c) ................................................ 2,500,000 AAA 2,799,000
Series B, 5.8%, 8/1/2013 (c) ................................................ 7,340,000 AAA 8,199,074
South Carolina
Piedmont, SC, Municipal Power Agency, Electric Revenue:
Series 1991 A, 6.5%, ETM, 1/1/2016 (c)** .................................... 430,000 AAA 511,790
Series 1993, 5.5%, ETM, 1/1/2008 (c)** ...................................... 840,000 AAA 917,280
Series 1993, 5.5%, ETM, 1/1/2012 (c)** ...................................... 2,190,000 AAA 2,384,998
5.5%, 1/1/2012 (c) .......................................................... 2,810,000 AAA 3,020,750
Tennessee
Knox County, TN, Health, Education & Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders Alliance:
7.25%, 1/1/2009 (c) ...................................................... 3,750,000 AAA 4,541,438
5.75%, 1/1/2011 (c) ...................................................... 15,405,000 AAA 16,851,375
5.75%, 1/1/2012 (c) ...................................................... 17,880,000 AAA 19,609,711
6.25%, 1/1/2013 (c) ...................................................... 4,000,000 AAA 4,578,560
5.75%, 1/1/2014 (c) ...................................................... 2,000,000 AAA 2,192,360
Texas
Austin, TX, Utility Systems Revenue Refunding, Series A, Zero Coupon,
11/15/1908 (c) .............................................................. 3,460,000 AAA 2,244,225
Austin, TX, Combined Utility System Revenue, Zero Coupon,
11/15/2009 (c) .............................................................. 5,020,000 AAA 3,083,886
Bexar County, TX, Health Facilities Development Corp., Baptist Health
System:
Series 1997 A, 6%, 11/15/2011 (c) ........................................ 2,000,000 AAA 2,241,240
Series 1997, 6%, 11/15/2012 (c) .......................................... 3,000,000 AAA 3,372,780
Brownsville, TX, Utility System Revenue, 6.25%, 9/1/2010 (c) ................... 4,085,000 AAA 4,701,835
Cedar Hill, TX, Zero Coupon:
Series 1996, 8/15/2009 ...................................................... 1,500,000 AAA 932,100
Series 1996, 8/15/2010 ...................................................... 3,130,000 AAA 1,834,493
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,
Zero Coupon, 10/1/2016 (c) .................................................. 6,535,000 AAA 1,093,044
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/2003 (c) ........................................................ 1,000,000 AAA 1,157,160
7.8%, 11/1/2005 (c) ......................................................... 2,000,000 AAA 2,365,040
7.8%, 11/1/2006 (c) ......................................................... 2,025,000 AAA 2,404,688
7.375%, 11/1/2008 (c) ....................................................... 4,500,000 AAA 5,245,335
7.375%, 11/1/2010 (c) ....................................................... 3,500,000 AAA 4,062,170
Grapevine, TX, Colleyville School District, Capital Appreciation,
Refunded, Zero Coupon, 8/15/2010 ............................................ 5,000,000 AAA 2,938,200
</TABLE>
The accompanying notes are an integral part of the financial statements
71
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/2006 (c) ....................... 9,035,000 AAA 6,542,695
Flood Control District, Zero Coupon, 10/1/2000 (c) .......................... 1,000,000 AAA 949,640
Toll Road Authority, Subordinate Lien:
Series A, Zero Coupon, 8/15/2005 (c) ..................................... 4,025,000 AAA 3,078,803
Series A, Zero Coupon, 8/15/2006 (c) ..................................... 4,010,000 AAA 2,919,882
Unlimited Tax, Series A, Zero Coupon, 8/15/2004 (c) ...................... 2,050,000 AAA 1,644,059
Harris County, TX, Health Facilities, Texas Medical Center Project,
6.25%, 5/15/2008 (c) ........................................................ 2,785,000 AAA 3,161,811
6.25%, 5/15/2009 (c) ........................................................ 2,965,000 AAA 3,354,601
Houston, TX, Water & Sewer System Authority:
Series C, Zero Coupon, 12/1/2006 (c) ........................................ 14,575,000 AAA 10,479,134
Series C, Zero Coupon, 12/1/2008 (c) ........................................ 19,000,000 AAA 12,299,270
Series C, Zero Coupon, 12/1/2009 (c) ........................................ 14,750,000 AAA 9,042,783
Zero Coupon, 12/1/2010 (c) .................................................. 5,000,000 AAA 2,898,000
Zero Coupon, Series 1991C, 12/1/2012 (c) .................................... 3,350,000 AAA 1,726,389
Hurst Euless Bedford, TX, Independent School District, Capital
Appreciation Refunding, Series 1994, Zero Coupon, 8/15/2009 ................. 4,925,000 AAA 3,060,395
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital:
Series B, 5.5%, ETM, 12/1/2006 (c)** ........................................ 3,945,000 AAA 4,291,450
Series B, 5.6%, ETM, 12/1/2007 (c)** ........................................ 2,415,000 AAA 2,650,994
Series B, 5.625%, ETM, 12/1/2008 (c)** ...................................... 4,400,000 AAA 4,856,852
Series B, 5.625%, ETM, 12/1/2009 (c)** ...................................... 4,640,000 AAA 5,136,109
Montgomery County, TX, Prerefunded, Capital Appreciation:
Zero Coupon, ETM, 9/1/2003 (c)** ............................................ 800,000 AAA 671,032
Zero Coupon, ETM, 9/1/2004 (c)** ............................................ 795,000 AAA 636,755
Zero Coupon, ETM, 9/1/2005 (c)** ............................................ 685,000 AAA 523,319
Montgomery County, TX, Unrefunded Balance, Capital Appreciation:
Zero Coupon, 9/1/2003 (c) ................................................... 2,675,000 AAA 2,241,837
Zero Coupon, 9/1/2004 (c) ................................................... 2,680,000 AAA 2,145,394
Zero Coupon, 9/1/2005 (c) ................................................... 2,790,000 AAA 2,130,137
Northeast, TX, Hospital Authority, Revenue Refunding, Northeast Medical
Center, Series 1997, 6%, 5/15/2010 (c) ...................................... 2,180,000 AAA 2,437,218
Northwest Texas Independent School District, Capital Appreciation
Bonds, Series 1991, Zero Coupon, 8/15/2010 (c) .............................. 3,690,000 AAA 2,168,392
San Antonio, TX, Electric and Gas, Revenue Refunding:
Series A, Zero Coupon, ETM, 2/1/2005 (c)** .................................. 2,500,000 AAA 1,956,125
Series A, Zero Coupon, ETM, 2/1/2006 (c)** .................................. 17,900,000 AAA 13,339,617
Series B, Zero Coupon, ETM, 2/1/2005 (c)** .................................. 8,000,000 AAA 6,259,600
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/2006 (c) ................. 2,000,000 AAA 2,224,760
San Antonio, TX, Zero Coupon, Series 1991B, 2/1/2009 (c) ....................... 4,400,000 AAA 2,802,624
State of Texas, General Obligation, Capital Appreciation Bond,
Super Collider, Series C, Zero Coupon, 4/1/2006 (c) ......................... 7,385,000 AAA 5,464,162
Tarrant County, TX, Health Facilities Development Corp., Hospital
Refunding Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/2011 (c) ........................................................ 4,615,000 AAA 5,146,233
6%, 5/15/2021 (c) ........................................................ 6,235,000 AAA 6,982,639
Texas General Obligation, Superconductor Revenue, Series C, Zero
Coupon, 4/1/2005 (c) ........................................................ 8,390,000 AAA 6,518,946
</TABLE>
The accompanying notes are an integral part of the financial statements
72
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas Municipal Power Agency:
6.1%, 9/1/2007 (c) .......................................................... 9,250,000 AAA 10,435,943
6.1%, ETM, 9/1/2009 (c)** ................................................... 4,435,000 AAA 5,095,416
Texas Public Finance Authority, Building Authority:
Series B, 6.25%, 2/1/2008 (c) ............................................... 5,190,000 AAA 5,926,928
Zero Coupon, 2/1/2006 (c) ................................................... 13,915,000 AAA 10,369,875
Utah
Associated Municipal Power System, UT, Hunter Project, Refunding
Revenue:
Zero Coupon, 7/1/2000 (c) ................................................ 2,755,000 AAA 2,640,337
Zero Coupon, 7/1/2002 (c) ................................................ 5,200,000 AAA 4,582,916
Zero Coupon, 7/1/2004 (c) ................................................ 5,895,000 AAA 4,751,488
Zero Coupon, 7/1/2005 (c) ................................................ 5,900,000 AAA 4,536,274
Zero Coupon, 7/1/2006 (c) ................................................ 5,895,000 AAA 4,315,081
Zero Coupon, 7/1/2007 (c) ................................................ 3,750,000 AAA 2,608,200
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/2012 (c) ............................................................ 1,000,000 AAA 1,000,110
Series 1993, 5.55%, 7/1/2011 ................................................ 7,000,000 A 7,360,430
Series A, 5.25%, 7/1/2012 (c) ............................................... 4,000,000 AAA 4,150,640
Series A, 6.5%, 7/1/2008 (c) ................................................ 4,000,000 AAA 4,629,040
Series A, Zero Coupon, 7/1/2002 (c) ......................................... 1,655,000 AAA 1,456,731
Series A, Zero Coupon, 7/1/2003 (c) ......................................... 1,000,000 AAA 842,450
Series A, Zero Coupon, 7/1/2004 (c) ......................................... 1,730,000 AAA 1,391,543
Series B, Zero Coupon, 7/1/2002 (c) ......................................... 8,230,000 AAA 7,244,046
Provo, UT, Electric System Revenue, 10.375%, ETM, 9/15/2015 (c)** .............. 1,800,000 AAA 2,642,166
Virginia
Roanoke, VA, Industrial Development Authority, Roanoke Memorial
Hospital, Series B, 6.125%, 7/1/2017 (c) .................................... 5,500,000 AAA 6,270,165
Southeastern Public Service Authority, VA, Refunding Revenue, Series A,
5.25%, 7/1/2010 (c) ......................................................... 7,380,000 AAA 7,823,759
Virginia Beach, VA, Development Authority, Virginia Beach General
Hospital Project:
6%, 2/15/2011 (c) ........................................................ 1,595,000 AAA 1,806,816
5.125%, 2/15/2018 (c) .................................................... 3,000,000 AAA 3,030,630
Winchester County, VA, Industrial Development Authority, Hospital
Revenue, 6%, 1/1/2015 (c) ................................................... 5,700,000 AAA 6,078,366
Washington
Clark County, WA, Public Utility District #1, 6%, 1/1/2006 (c) ................. 7,500,000 AAA 8,281,125
Clark County, WA, Public Utility District, Series 1995, 6%, 1/1/2008 (c) ....... 2,200,000 AAA 2,451,482
King & Snohomish Counties, WA, General Obligation, School
District #417, 5.6%, 12/1/2010 (c) .......................................... 1,650,000 AAA 1,819,538
King County, WA, School District #415, 5.25%, 12/1/2010 (c) .................... 4,000,000 AA 4,207,160
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/2017 (c) ............................................. 3,500,000 AAA 3,547,600
King County, Washington, School District #403, General
Obligation, 5.25%, 6/1/2013 ................................................. 5,000,000 AA 5,172,450
Snohomish County, WA, School District #6, 6.5%, 12/1/2007 (c) .................. 3,325,000 AAA 3,846,726
State of Washington, General Obligation Series AT-5, Zero Coupon,
8/1/2010 (c) ................................................................ 2,625,000 AAA 1,547,070
</TABLE>
The accompanying notes are an integral part of the financial statements
73
<PAGE>
AARP Insured Tax Free General Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington Health Care Facilities Authority, Empire Health
Services-Spokane:
5.65%, 11/1/2005 (c) ..................................................... 2,155,000 AAA 2,336,882
5.7%, 11/1/2006 (c) ...................................................... 3,440,000 AAA 3,755,689
5.75%, 11/1/2007 (c) ..................................................... 7,350,000 AAA 8,069,198
5.8%, 11/1/2009 (c) ...................................................... 4,595,000 AAA 5,101,553
5.8%, 11/1/2010 (c) ...................................................... 2,100,000 AAA 2,328,228
Washington Public Power Supply System:
Nuclear Power Project #1, 6%, 7/1/2008 (c) .................................. 5,000,000 AAA 5,598,150
Nuclear Power Project #3, Series 1989A, 7/1/2010 (c) ........................ 5,860,000 AAA 3,448,083
Nuclear Project #1, Prerefunded 7/1/1999 at 102, Series 1989A,
7.5%, 7/1/2015*** ........................................................ 1,500,000 AA 1,545,765
Nuclear Project #2, Series 1992A, Zero Coupon, 7/1/2011 (c) ................. 4,200,000 AAA 2,332,302
Revenue Refunding:
Nuclear Project #1:
Series A, Prerefunded 7/1/1999 at 102, 7.5%, 7/1/2015 (c)*** .......... 2,405,000 AAA 2,478,377
Series A, Prerefunded 7/1/1999 at 102, 7.5%, 7/1/2015 (c)*** .......... 1,595,000 AAA 1,643,663
Series A, Prerefunded 7/1/2000 at 102, 7%, 7/1/2011 (c)*** ............ 3,830,000 AAA 4,072,477
Series B, Prerefunded 7/1/2000 at 102, 7.25%, 7/1/2012 (c)*** ......... 10,895,000 AAA 11,614,942
Nuclear Project #2:
Series A, 5.7%, 7/1/2008 (c) .......................................... 5,000,000 AAA 5,489,200
Series A, Prerefunded 7/1/2000 at 102, 7.25%, 7/1/2003 (c)*** ......... 2,000,000 AAA 2,132,160
Series C, 7%, 7/1/2001 (c) ............................................ 10,000,000 AAA 10,707,600
Series C, Prerefunded 1/1/2001 at 102, 7.375%, 7/1/2011 (c)*** ........ 1,370,000 AAA 1,481,121
Nuclear Project #3:
7.5%, 7/1/2008 (c) .................................................... 2,000,000 AAA 2,453,960
Series A, Prerefunded 7/1/1999 at 102, 7.25%, 7/1/2016 (c)*** ......... 3,630,000 AAA 3,738,537
Series A, Zero Coupon, 7/1/2004 (c) ................................... 3,625,000 AAA 2,917,328
Series A, Zero Coupon, 7/1/2005 (c) ................................... 4,125,000 AAA 3,165,731
West Virginia
West Virginia, School Building Authority Revenue, Series B, Prerefunded
7/1/2000 at 102, 6.75%, 7/1/2010 (c)*** ..................................... 4,000,000 AAA 4,245,160
Wisconsin
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/2004 (c) ........... 3,475,000 AAA 2,810,511
Southeast Wisconsin Professional Baseball Park, District Sales Tax
Revenue, Series A, 5.5%, 12/15/2013 (c) ..................................... 5,795,000 AAA 6,263,526
Wisconsin Health & Educational Facilities Authority:
6.1%, 8/15/2009 (c) ......................................................... 2,000,000 AAA 2,241,620
Aurora Medical:
5.75%, 11/15/2006 (c) .................................................... 2,000,000 AAA 2,188,020
5.75%, 11/15/2007 (c) .................................................... 1,500,000 AAA 1,645,050
6%, 11/15/2008 (c) ....................................................... 4,085,000 AAA 4,582,798
6%, 11/15/2009 (c) ....................................................... 4,330,000 AAA 4,928,363
Felician Healthcare Inc., Series B, 6.25%, 1/1/2022 (c) ..................... 5,285,000 AAA 6,048,260
Hospital Sisters Services Inc. -- Obligated Group, 5.375%,
6/1/2018 (c) ............................................................. 4,800,000 AAA 4,866,192
SSM Healthcare:
Series 1992 AA, 6.4%, 6/1/2008 (c) ....................................... 2,335,000 AAA 2,678,292
Series 1992 AA, 6.45%, 6/1/2009 (c) ...................................... 2,485,000 AAA 2,907,674
</TABLE>
The accompanying notes are an integral part of the financial statements
74
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1992 AA, 6.45%, 6/1/2010 (c) ...................................... 2,650,000 AAA 3,109,669
Series 1992 AA, 6.5%, 6/1/2011 (c) ....................................... 2,820,000 AAA 3,280,365
Series 1992 AA, 6.5%, 6/1/2012 (c) ....................................... 3,000,000 AAA 3,551,490
St. Luke's Medical Center, Prerefunded 8/15/2001 at 102, 7.1%,
8/15/2011 (c)*** ......................................................... 2,000,000 AAA 2,194,300
Villa St. Francis Inc., Series C, 6.25%, 1/1/2022 (c) ....................... 9,230,000 AAA 10,562,997
Wheaton Franciscan Services, 6.1%, 8/15/2008 (c) ............................ 4,580,000 AAA 5,179,934
-------------
Total Long-Term Municipal Investments (Cost $1,498,531,650) .................... 1,660,128,958
-------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $1,532,231,650) (a) ................... 1,693,828,958
=============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Floating rate demand notes are securities whose interest rates vary with
a designated market index or market rate, such as the coupon-equivalent
of the U.S. Treasury bill rate. Variable rate demand notes are securities
whose interest rates are reset periodically at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable
on demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank. These
notes are carried, for purposes of calculating average weighted maturity,
at the longer of the period remaining until the next rate change or to
the extent of the demand period. These securities are shown at their
current rate as of March 31, 1999.
** 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 March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $1,532,528,308 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $161,437,127
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (136,477)
------------
Net unrealized appreciation ............................... $161,300,650
============
(b) (Unaudited) All of the securities held have been determined to be of
appropriate credit quality as required by the fund's investment
objectives. Credit ratings shown are either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
Unrated securities (NR) and securities rated by Scudder Kemper have been
determined to be of comparable quality to rated eligible securities.
(c) (Unaudited) Bond is insured by one of these companies: AMBAC, BIG, MBIA,
FGIC, FSA, PSFG or Capital Guaranty.
(d) At March 31, 1999, this security, in whole or in part, has been pledged
to cover initial margin requirements for open futures contracts.
At March 31, 1999, open futures contracts sold short were as follows:
<TABLE>
<CAPTION>
Unrealized
Number of Aggregate Market Appreciation/
Futures Expiration Date Contracts Face Value ($) Value ($) Depreciation
------- --------------- --------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bond June 1999 400 48,507,373 48,225,000 282,873
Municipal Bond June 1999 400 49,145,669 49,437,500 (291,831)
------------- -----------
Total net unrealized depreciation on open futures contracts sold short ............................... (9,458)
===========
</TABLE>
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during
the six months ended March 31, 1999 was $258,697,669 and $320,871,557,
respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999, aggregated
$24,591,368 and $51,194,795, respectively.
The accompanying notes are an integral part of the financial statements
75
<PAGE>
AARP Bond Fund For Income
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 2.7%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $5,755,780 on 4/1/1999, collateralized by a
$5,670,000 U. S. Treasury Note, 7.75%, 1/31/2000 (Cost $5,755,000) ..................... 5,755,000 5,755,000
-----------
U.S. GOVERNMENT & AGENCIES 20.1%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.875%, 11/30/2001 .................................................... 3,000,000 3,057,660
U.S. Treasury Note, 5.625%, 12/31/2002 .................................................... 3,000,000 3,043,590
U.S. Treasury Note, 10.75%, 8/15/2005 ..................................................... 10,000,000 12,843,700
U.S. Treasury Note, 3.875%, 1/15/2009 ..................................................... 4,000,000 3,988,760
U.S. Treasury Bond, 7.25%, 5/15/2016 ...................................................... 8,000,000 9,172,480
U.S. Treasury Bond, 6.25%, 8/15/2023 ...................................................... 5,000,000 5,225,000
U.S. Treasury Bond, 3.676%, 4/15/2028 ..................................................... 3,500,000 3,400,144
Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 ........................................ 3,000,000 3,022,500
-----------
Total U.S. Government & Agencies (Cost $45,055,762) ....................................... 43,753,834
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 1.6%
- -----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association, 9.5% with various maturities
to 11/15/2017 .......................................................................... 1,149,489 1,235,689
Government National Mortgage Association, 7.5% with various maturities
to 4/15/2027 ........................................................................... 2,118,857 2,182,423
-----------
Total Government National Mortgage Association (Cost $3,398,409) .......................... 3,418,112
-----------
U.S. GOVERNMENT BACKED MORTGAGES 6.2%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 8.0% with various maturities
to 12/1/2012 ........................................................................... 3,432,526 3,532,827
Federal National Mortgage Association, 6.5% with various maturities
to 3/1/2028 ............................................................................ 10,013,957 9,963,887
-----------
Total U.S. Government Backed Mortgages (Cost $13,622,050) ................................. 13,496,714
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.4%
- -----------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., 6.869%, 8/15/2007
(Cost $1,014,997) ...................................................................... 1,000,000 1,028,438
-----------
FOREIGN BONDS -- U.S.$ DENOMINATED 1.3%
- -----------------------------------------------------------------------------------------------------------------------------
Hutchison Whampoa, Ltd., 7.5%, 8/1/2027 ................................................... 1,000,000 848,380
ICI Investments, 6.75%, 8/7/2002 .......................................................... 1,000,000 998,340
Saga Petroleum ASA, 7.25%, 9/23/2027 ...................................................... 1,000,000 888,020
-----------
Total Foreign Bonds -- U.S.$ Denominated (Cost $3,017,360) ................................ 2,734,740
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
76
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET BACKED 4.7%
- -----------------------------------------------------------------------------------------------------------------------------
Equipment Lease Receivables 0.8%
PBG Equipment Trust, 6.27%, 1/20/2012 ..................................................... 1,626,506 1,636,606
-----------
Credit Card Receivables 1.8%
Advanta Mortgage Loan Trust, Series 1997-1 A4, 7.65%, 5/25/2027 ........................... 500,000 516,406
Citibank Credit Card Master Trust I, 6%, 4/10/2003 ........................................ 1,500,000 1,502,805
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ........................................... 2,000,000 2,001,240
-----------
4,020,451
-----------
Home Equity Loans 0.9%
Contimortgage Home Equity Loan Trust Series 1997-3 M1-F, 7.31%, 8/15/2028 ................. 500,000 503,594
First Plus Residential Trust Series 1998A, 8.5%, 5/15/2023 ................................ 1,444,303 1,373,894
-----------
1,877,488
-----------
Manufactured Housing Receivables 1.2%
Associated Manufactured Housing Corp. Series 1997-1 B1, 7.6%, 6/15/2028 ................... 375,000 362,607
Green Tree Financial Corp. Series 1995-6 B1, 7.7%, 9/15/2026 .............................. 500,000 488,280
Green Tree Financial Corp. Series 1995-10 B1, 7.05%, 2/15/2027 ............................ 1,000,000 942,578
Green Tree Financial Corp. Series 1997-1 B2, 7.76%, 3/15/2028 ............................. 500,000 408,438
Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 6/15/2028 ............................. 500,000 415,566
-----------
2,617,469
-----------
Total Asset Backed (Cost $10,419,163) ..................................................... 10,152,014
-----------
CORPORATE BONDS 63.0%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.9%
Imax Corp., 7.875%, 12/1/2005 ............................................................. 1,000,000 985,000
Tricon Global Restaurants Inc., 7.65%, 5/15/2008 .......................................... 1,500,000 1,548,750
Westpoint Stevens, Inc., 7.875%, 6/15/2005 ................................................ 1,500,000 1,533,750
-----------
4,067,500
-----------
Consumer Staples 5.1%
Aurora Foods, Inc., 8.75%, 7/1/2008 ....................................................... 1,000,000 1,042,500
Bass America Inc., 6.625%, 3/1/2003 ....................................................... 1,500,000 1,518,660
Fleming Companies, Inc., 10.625%, 7/31/2007 ............................................... 1,250,000 1,156,250
PepsiCo, Inc., 5.625%, 2/17/2009 .......................................................... 2,500,000 2,402,325
Safeway Inc., 6.05%, 11/15/2003 ........................................................... 2,000,000 1,996,820
The Great Atlantic & Pacific Tea Co., Inc., 7.7%, 1/15/2004 ............................... 3,000,000 2,998,530
-----------
11,115,085
-----------
Health 0.9%
Columbia/HCA Healthcare Corp., 6.41%, 6/15/2000 ........................................... 1,000,000 987,390
NBTY Inc., 8.625%, 9/15/2007 .............................................................. 500,000 467,500
Tenet Healthcare Corp., 8.625%, 1/15/2007 ................................................. 500,000 502,500
-----------
1,957,390
-----------
Communications 6.0%
AT&T Corp., 6%, 3/15/2009 ................................................................. 2,000,000 1,987,040
Call-Net Enterprises Inc., 8%, 8/15/2008 .................................................. 1,800,000 1,764,000
</TABLE>
The accompanying notes are an integral part of the financial statements
77
<PAGE>
AARP Bond Fund For Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ComCast Cellular Holdings Corp., 9.5%, 5/1/2007 ........................................... 1,000,000 1,132,500
MCI WorldCom, Inc., 6.4%, 8/15/2005 ....................................................... 3,000,000 3,034,980
McLeodUSA, Inc., 8.375%, 3/15/2008 ........................................................ 500,000 505,000
McLeodUSA Inc., 8.126%, 2/15/2009 ......................................................... 1,500,000 1,500,000
Qwest Communications International, 7.5%, 11/1/2008 ....................................... 3,000,000 3,127,500
-----------
13,051,020
-----------
Financial 12.9%
Bank United, 8%, 3/15/2009 ................................................................ 2,500,000 2,494,900
Capital One Bank, 6.57%, 1/27/2003 ........................................................ 2,500,000 2,503,750
First USA Bank, 5.85%, 2/22/2001 .......................................................... 1,500,000 1,504,770
First Union Institutional Capital II, 7.85%, 1/1/2027 ..................................... 1,000,000 1,031,320
GS Escrow Corp., 7%, 8/1/2003 ............................................................. 2,000,000 2,003,120
General Electric Capital Corp. "A", 6.02%, 5/4/2001 ....................................... 2,000,000 2,012,500
Home Savings of America, 6%, 11/1/2000 .................................................... 2,500,000 2,510,300
Lehman Brothers Holdings, Inc., 7.25%, 10/15/2003 ......................................... 2,500,000 2,566,600
Merrill Lynch & Co., Inc., 6%, 2/17/2009 .................................................. 2,500,000 2,412,525
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ...................... 1,500,000 1,551,120
Morgan Stanley Dean Witter & Co., 5.625%, 1/20/2004 ....................................... 2,000,000 1,972,238
People's Heritage Bank, 9.06%, 2/1/2027 ................................................... 1,000,000 980,625
Prudential Insurance Co., 6.375%, 7/23/2006 ............................................... 2,000,000 2,006,320
Sprint Capital Corp., 6.125%, 11/15/2008 .................................................. 2,500,000 2,457,675
-----------
28,007,763
-----------
Media 10.0%
Cablevision Systems Corp., 7.875%, 2/15/2018 .............................................. 1,500,000 1,537,440
Chancellor Media Corp., 10.5%, 1/15/2007 .................................................. 1,000,000 1,105,000
Chancellor Media Corp., 8%, 11/1/2008 ..................................................... 2,500,000 2,600,000
Charter Communication Holdings LLC, 8.25%, 4/1/2007 ....................................... 2,500,000 2,553,125
Cox Communications, Inc., 6.85%, 1/15/2018 ................................................ 1,000,000 991,880
Harcourt General, Inc., 7.2%, 8/1/2027 .................................................... 1,000,000 963,700
News America Holdings Inc., 9.25%, 2/1/2013 ............................................... 2,500,000 3,020,600
Outdoor Systems, Inc., 8.875%, 6/15/2007 .................................................. 1,000,000 1,070,000
Primedia, Inc., 7.625%, 4/1/2008 .......................................................... 1,500,000 1,477,500
TCI-Communications, Inc., 8%, 8/1/2005 .................................................... 2,500,000 2,738,575
Time Warner Inc., 9.125%, 1/15/2013 ....................................................... 1,000,000 1,221,880
Time Warner Inc., 6.875%, 6/15/2018 ....................................................... 2,500,000 2,480,550
-----------
21,760,250
-----------
Service Industries 3.4%
Allied Waste North America, 7.375%, 1/1/2004 .............................................. 1,250,000 1,225,000
Cendant Corp., 7.75%, 12/1/2003 ........................................................... 3,000,000 3,079,260
Integrated Electrical Services, Inc., 9.375%, 2/1/2009 .................................... 2,000,000 2,045,000
Prime Hospitality Corp., 9.25%, 1/15/2006 ................................................. 1,000,000 1,040,000
-----------
7,389,260
-----------
Durables 1.6%
BE Aerospace, Inc., 8%, 3/1/2008 .......................................................... 2,000,000 1,990,000
Martin Marietta Corp., 6.5%, 4/15/2003 .................................................... 1,500,000 1,524,720
-----------
3,514,720
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
78
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing 4.2%
Columbus McKinnon Corp., 8.5%, 4/1/2008 ................................................... 1,000,000 987,500
Equistar Chemical Corp., 7.55%, 2/15/2026 ................................................. 1,000,000 883,270
Federal-Mogul Corp., 7.375%, 1/15/2006 .................................................... 2,500,000 2,445,800
Fort James Corp., 6.625%, 9/15/2004 ....................................................... 2,000,000 2,035,520
Graham Packaging Co., 8.75%, 1/15/2008 .................................................... 750,000 742,500
Xerox Corp., 5.5%, 11/15/2003 ............................................................. 2,000,000 1,970,362
-----------
9,064,952
-----------
Technology 0.9%
Raytheon Co., 6%, 12/15/2010 .............................................................. 2,000,000 1,925,080
-----------
Energy 6.8%
Anadarko Petroleum Corp., 7%, 11/15/2027 .................................................. 3,000,000 2,873,490
Barrett Resources Corp., 7.55%, 2/1/2007 .................................................. 1,500,000 1,417,500
Louis Dreyfus Natural Gas Corp., 6.875%, 12/1/2007 ........................................ 2,500,000 2,291,100
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ........................................ 2,500,000 2,513,450
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................................. 2,000,000 1,953,340
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ............................................ 2,000,000 1,395,000
Texas Eastern Transmission Corp., 10%, 8/15/2001 .......................................... 2,000,000 2,185,320
-----------
14,629,200
-----------
Metals & Minerals 0.3%
California Steel Industries, 8.5%, 4/1/2009 ............................................... 700,000 707,000
-----------
Construction 2.2%
American Standard Companies Inc., 7.625%, 2/15/2010 ....................................... 1,500,000 1,470,000
NVR Inc., 8%, 6/1/2005 .................................................................... 2,000,000 1,960,000
Nortek, Inc., 9.25%, 3/15/2007 ............................................................ 250,000 260,625
Tembec Industries, Inc., 8.625%, 6/30/2009 ................................................ 965,000 980,681
-----------
4,671,306
-----------
Transportation 1.6%
Allied Holdings Inc., 8.625%, 10/1/2007 ................................................... 500,000 498,750
Newport News Shipbuilding Co., 8.625%, 12/1/2006 .......................................... 1,500,000 1,620,000
Northwest Airlines Corp., 7.875%, 3/15/2008 ............................................... 1,500,000 1,381,530
-----------
3,500,280
-----------
Utilities 5.2%
CalEnergy Co., Inc., 7.23%, 9/15/2005 ..................................................... 2,500,000 2,573,500
Cleveland Electric Illumination Co., 6.86%, 10/1/2008 ..................................... 1,500,000 1,506,795
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 .............................................. 3,000,000 3,073,140
Niagara Mohawk Power Corp., 7.625%, 10/1/2005 ............................................. 2,000,000 2,061,480
PacifiCorp Australia LLC, 6.15%, 1/15/2008 ................................................ 2,000,000 1,974,760
-----------
11,189,675
-----------
Total Corporate Bonds (Cost $137,867,365) ................................................. 136,550,481
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $220,150,106) (a) ................................ 216,889,333
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
79
<PAGE>
AARP Bond Fund For Income
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1999, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $220,165,282 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ......... $ 1,450,499
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... (4,717,576)
-----------
Net unrealized depreciation ................................ $(3,267,077)
===========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the six
months ended March 31, 1999 aggregated $84,043,797 and $28,232,675,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $46,244,326, and $49,522,266, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during
the six months ended March 31, 1999 was $28,549,824.
The accompanying notes are an integral part of the financial statements
80
<PAGE>
AARP Balanced Stock And Bond Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 1.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company, dated 3/31/1999
at 4.88% to be repurchased at $8,001,084 on 4/1/1999, collateralized by a
$7,840,000 U. S. Treasury Note, 8.5%, 2/15/2000 (Cost $8,000,000) ...................... 8,000,000 8,000,000
-----------
U.S. GOVERNMENT & AGENCIES 5.4%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 3.875%, 1/15/2009 ..................................................... 4,000,000 3,988,760
U.S. Treasury Bond, 7.25%, 5/15/2016 ...................................................... 18,000,000 20,638,080
U.S. Treasury Bond, 6.25%, 8/15/2023 ...................................................... 9,000,000 9,405,000
U.S. Treasury Bond, 3.676%, 4/15/2028 ..................................................... 5,750,000 5,585,950
-----------
Total U. S. Government & Agencies (Cost $40,871,491) ...................................... 39,617,790
-----------
U.S. GOVERNMENT BACKED MORTGAGES** 4.3%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 8.0%, 2/1/2013 ..................................... 4,903,775 5,048,584
Federal National Mortgage Association, 6.5% with various maturities to 3/1/2028 ........... 26,202,129 26,081,517
-----------
Total U. S. Government Agency Pass-thrus (Cost $30,856,667) ............................... 31,130,101
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS** 0.8%
- -----------------------------------------------------------------------------------------------------------------------------
Residential Funding Mortgage Securities Series 1993-A2, 6.85%, 9/25/2023 .................. 3,053,126 3,066,960
Ryland Mortgage Securities Corp., 8%, 8/25/2025 ........................................... 2,615,742 2,668,874
-----------
Total Collateralized Mortgage Obligations (Cost $5,730,450) ............................... 5,735,834
-----------
FOREIGN BONDS -- U.S.$ DENOMINATED 1.7%
- -----------------------------------------------------------------------------------------------------------------------------
Norsk Hydro AS, 7.75%, 6/15/2023 .......................................................... 5,000,000 5,256,550
Province of Ontario Global, 6%, 2/21/2006 ................................................. 3,000,000 2,990,670
Saga Petroleum ASA, 7.25%, 9/23/2027 ...................................................... 5,000,000 4,440,100
-----------
Foreign Bonds -- U S.$ Denominated (Cost $13,369,780) ..................................... 12,687,320
-----------
ASSET BACKED 4.2%
- -----------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 0.8%
Ford Credit Automobile Trust, Series 1996-A A4, 6.75%, 9/15/2000 .......................... 2,863,112 2,878,315
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 ........... 3,000,000 3,023,430
-----------
5,901,745
-----------
Credit Card Receivables 1.5%
Citibank Credit Card Master Trust I, 6%, 4/10/2003 ........................................ 3,500,000 3,506,545
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ........................................... 5,000,000 5,003,100
Proffitt's, Inc. Credit Card Master Trust, 6%, 9/15/2004 .................................. 2,500,000 2,510,592
-----------
11,020,237
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
81
<PAGE>
AARP Balanced Stock And Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment Lease Receivables 0.8%
PBG Equipment Trust, 6.27%, 1/20/2012 ..................................................... 5,692,770 5,728,122
-----------
Home Equity Loans 0.7%
First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/2016 ................................ 5,000,000 4,921,875
-----------
Manufactured Housing Receivables 0.4%
Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/2028 ............................ 3,000,000 2,824,336
-----------
Total Asset Backed (Cost $30,563,210) ..................................................... 30,396,315
-----------
CORPORATE BONDS 19.7%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Staples 1.7%
Bass America Inc., 6.625%, 3/1/2003 ....................................................... 5,000,000 5,062,200
Kellogg Co., 5.75%, 2/2/2001 .............................................................. 4,000,000 4,007,800
PepsiCo, Inc., 5.625%, 2/17/2009 .......................................................... 3,500,000 3,363,255
-----------
12,433,255
-----------
Communications 0.7%
MCI WorldCom, Inc., 6.4%, 8/15/2005 ....................................................... 5,000,000 5,058,300
-----------
Financial 7.4%
Associates Corp. of North America, 6.625%, 5/15/2001 ...................................... 5,850,000 5,967,585
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 ...................................... 4,000,000 3,997,200
First USA Bank, 5.85%, 2/22/2001 .......................................................... 3,000,000 3,009,540
First Union Corp., 8.125%, 6/24/2002 ...................................................... 2,500,000 2,667,225
Fleet Financial Group, 6.875%, 1/15/2028 .................................................. 4,000,000 3,942,720
Ford Motor Credit Co., 6.125%, 4/28/2003 .................................................. 5,000,000 5,036,300
General Electric Capital Corp., 6.02%, 5/4/2001 ........................................... 4,000,000 4,025,000
Home Savings of America, 6%, 11/1/2000 .................................................... 3,000,000 3,012,360
ICI Investments, 6.75%, 8/7/2002 .......................................................... 4,000,000 3,993,360
Merrill Lynch & Co., Inc., 6%, 2/17/2009 .................................................. 3,000,000 2,895,030
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ...................... 3,000,000 3,102,240
Prudential Insurance Co., 6.375%, 7/23/2006 ............................................... 3,000,000 3,009,480
Southern National Corp., 7.05%, 5/23/2003 ................................................. 4,000,000 4,120,640
Sprint Capital Corp., 6.125%, 11/15/2008 .................................................. 3,000,000 2,949,210
Wells Fargo & Co., 6.875%, 4/1/2006 ....................................................... 2,000,000 2,063,740
-----------
53,791,630
-----------
Media 3.0%
Cox Communications, Inc., 6.85%, 1/15/2018 ................................................ 5,000,000 4,959,400
News America Holdings Inc., 9.25%, 2/1/2013 ............................................... 3,000,000 3,624,720
TeleCommunications, Inc., 8%, 8/1/2005 .................................................... 4,000,000 4,381,720
Time Warner Inc., 9.125%, 1/15/2013 ....................................................... 4,500,000 5,498,460
Time Warner Inc., 6.875%, 6/15/2018 ....................................................... 3,000,000 2,976,660
-----------
21,440,960
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
82
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 0.4%
Martin Marietta Corp., 6.5%, 4/15/2003 .................................................... 3,000,000 3,049,440
-----------
Manufacturing 1.2%
Fort James Corp., 6.625%, 9/15/2004 ....................................................... 5,000,000 5,088,800
Xerox Corp., 5.5%, 11/15/2003 ............................................................. 4,000,000 3,940,724
-----------
9,029,524
-----------
Technology 1.1%
IBM Corp., 5.1%, 11/10/2003 ............................................................... 5,500,000 5,352,600
Raytheon Co., 6%, 12/15/2010 .............................................................. 3,000,000 2,887,620
-----------
8,240,220
-----------
Energy 2.5%
Anadarko Petroleum Corp., 5.875%, 10/15/2003 .............................................. 5,000,000 4,915,050
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ........................................ 5,000,000 5,026,900
PanEnergy Corp., 7.375%, 9/15/2003 ........................................................ 4,150,000 4,335,298
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................................. 4,000,000 3,906,680
-----------
18,183,928
-----------
Transportation 0.4%
Continental Airlines Inc., 6.795%, 8/2/2018 ............................................... 3,000,000 2,958,600
-----------
Utilities 1.3%
PacifiCorp Australia LLC, 6.15%, 1/15/2008 ................................................ 6,000,000 5,924,280
Public Service Co. of Colorado, 6%, 4/15/2003 ............................................. 3,500,000 3,522,715
-----------
9,446,995
-----------
Total Corporate Bonds (Cost $143,587,405) ................................................. 143,632,852
-----------
CONVERTIBLE BONDS 1.1%
- -----------------------------------------------------------------------------------------------------------------------------
Media
Advertising
Interpublic Group of Companies Inc., 1.8%, 9/16/2004 (Cost $5,866,608) .................... 7,000,000 7,971,250
-----------
CONVERTIBLE PREFERRED STOCKS 0.5%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 0.4%
Biotechnology
Monsanto Co., 6.5% ........................................................................ 65,900 3,064,350
-----------
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% ...................................................................... 17,654 189,781
-----------
Real Estate 0.1%
ProLogis Trust "B" (REIT), 7.0% ........................................................... 18,900 480,769
-----------
Total Convertible Preferred Stocks (Cost $3,857,316) ...................................... 3,734,900
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
83
<PAGE>
AARP Balanced Stock And Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 61.1%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.9%
Department & Chain Stores 0.9%
Rite Aid Corp. ............................................................................ 168,200 4,205,000
Sears, Roebuck & Co. ...................................................................... 50,900 2,300,044
-----------
6,505,044
-----------
Hotels & Casinos 0.0%
Homestead Village, Inc.* .................................................................. 15,033 36,643
-----------
Consumer Staples 2.8%
Food & Beverage 1.5%
H.J. Heinz Co. ............................................................................ 150,050 7,108,619
Unilever NV (New York shares) ............................................................. 52,300 3,474,681
-----------
10,583,300
-----------
Package Goods/Cosmetics 1.3%
Avon Products, Inc. ....................................................................... 204,700 9,633,694
-----------
Health 4.4%
Pharmaceuticals
American Home Products Corp. .............................................................. 232,900 15,196,725
Bristol-Myers Squibb Co. .................................................................. 146,400 9,415,350
Glaxo Wellcome PLC (ADR) .................................................................. 33,600 2,249,100
SmithKline Beecham PLC (ADR) .............................................................. 78,400 5,605,600
-----------
32,466,775
-----------
Communications 9.1%
Telephone/Communications
Alltel Corp. .............................................................................. 127,100 7,927,863
Ameritech Corp. ........................................................................... 48,300 2,795,363
Bell Atlantic Corp. ....................................................................... 203,364 10,511,377
BellSouth Corp. ........................................................................... 211,200 8,461,200
Frontier Corp. ............................................................................ 156,500 8,118,438
GTE Corp. ................................................................................. 160,200 9,692,100
SBC Communicatons, Inc. ................................................................... 97,900 4,613,538
Sprint Corp. .............................................................................. 113,500 11,137,188
Telesp Participacoes S.A. (ADR) ........................................................... 148,000 3,052,500
-----------
66,309,567
-----------
Financial 11.9%
Banks 6.2%
Bank One Corp ............................................................................. 88,550 4,875,784
BankAmerica Corp. ......................................................................... 155,100 10,953,930
Bankers Trust New York Corp. .............................................................. 24,700 2,179,775
Chase Manhattan Corp. ..................................................................... 107,800 8,765,488
First Union Corp. ......................................................................... 160,366 8,569,558
Fleet Financial Group Inc. ................................................................ 85,800 3,228,225
KeyCorp ................................................................................... 130,100 3,943,656
US Bancorp ................................................................................ 83,400 2,840,813
-----------
45,357,229
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
84
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance 1.7%
Lincoln National Corp. .................................................................... 29,900 2,956,363
Safeco Corp. .............................................................................. 69,000 2,790,188
XL Capital Ltd. "A" ....................................................................... 105,605 6,415,504
-----------
12,162,055
-----------
Other Financial Companies 1.1%
Federal National Mortgage Association ..................................................... 110,500 7,652,125
-----------
Real Estate 2.9%
Arden Realty Group, Inc. (REIT) ........................................................... 85,900 1,911,275
Boston Properties, Inc. (REIT) ............................................................ 63,800 2,017,675
Equity Office Properties Trust (REIT) ..................................................... 172,900 4,398,144
Equity Residential Properties Trust (REIT) ................................................ 97,200 4,009,500
General Growth Properties, Inc. (REIT) .................................................... 116,100 3,765,994
ProLogis Trust (REIT) ..................................................................... 237,754 4,873,957
-----------
20,976,545
-----------
Durables 5.0%
Aerospace 2.4%
Lockheed Martin Corp. ..................................................................... 211,718 7,979,122
Northrop Grumman Corp. .................................................................... 70,200 4,203,225
Rockwell International Corp. .............................................................. 125,500 5,325,906
-----------
17,508,253
-----------
Automobiles 1.8%
Ford Motor Co. ............................................................................ 194,300 11,026,525
Meritor Automotive, Inc. .................................................................. 129,266 2,003,623
-----------
13,030,148
-----------
Construction/Agricultural Equipment 0.8%
Caterpillar Inc. .......................................................................... 58,000 2,664,375
PACCAR, Inc. .............................................................................. 71,000 2,924,313
-----------
5,588,688
-----------
Manufacturing 10.6%
Chemicals 3.2%
Akzo Nobel N.V. (ADR) ..................................................................... 107,100 3,962,700
Dow Chemical Co. .......................................................................... 45,000 4,193,438
E.I. du Pont de Nemours & Co. ............................................................. 62,700 3,640,519
Eastman Chemical Co. ...................................................................... 43,750 1,840,234
Imperial Chemical Industries PLC (ADR) (New) .............................................. 190,000 6,804,375
Lyondell Petrochemical Co. ................................................................ 191,000 2,614,313
-----------
23,055,579
-----------
Containers & Paper 0.7%
Boise Cascade Corp. ....................................................................... 1,043 33,637
Temple-Inland Inc. ........................................................................ 75,400 4,731,350
-----------
4,764,987
-----------
Diversified Manufacturing 0.4%
Canadian Pacific Ltd. (Ord.) .............................................................. 149,800 2,898,714
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
85
<PAGE>
AARP Balanced Stock And Bond Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Products 0.8%
Emerson Electric Co. ...................................................................... 50,400 2,668,050
Thomas & Betts Corp. ...................................................................... 74,400 2,794,650
-----------
5,462,700
-----------
Industrial Specialty 2.8%
Corning Inc. .............................................................................. 337,800 20,268,000
-----------
Machinery/Components/Controls 0.6%
Parker-Hannifin Corp. ..................................................................... 138,400 4,740,200
-----------
Office Equipment/Supplies 2.1%
Xerox Corp. ............................................................................... 291,800 15,574,825
-----------
Technology 0.2%
Semiconductors
Conexant Systems, Inc.* ................................................................... 40,250 1,114,422
-----------
Energy 6.5%
Oil & Gas Production 0.9%
Conoco Inc. "A" ........................................................................... 162,700 3,996,319
Royal Dutch Petroleum Co. (New York shares) ............................................... 53,200 2,766,400
-----------
6,762,719
-----------
Oil Companies 4.7%
BP Amoco Plc .............................................................................. 54,299 5,480,805
Mobil Corp. ............................................................................... 48,800 4,294,400
Societe Nationale Elf Aquitaine (ADR) ..................................................... 108,781 7,322,321
Texaco Inc. ............................................................................... 124,000 7,037,000
Total S.A. (ADR) .......................................................................... 88,701 5,410,761
YPF S.A. "D" (ADR) ........................................................................ 158,500 5,002,656
-----------
34,547,943
-----------
Oil/Gas Transmission 0.9%
Williams Cos., Inc. ....................................................................... 159,100 6,284,450
-----------
Metals & Minerals 1.2%
Steel & Metals
Allegheny Teledyne Inc. ................................................................... 296,035 5,606,163
Freeport McMoRan Copper & Gold, Inc. "A" .................................................. 93,300 956,325
Oregon Steel Mills, Inc. .................................................................. 101,500 1,059,406
Phelps Dodge Corp. ........................................................................ 18,300 901,275
Reynolds Metals Co. ....................................................................... 14,300 690,869
-----------
9,214,038
-----------
Construction 2.3%
Building Products 1.1%
Georgia Pacific Group ..................................................................... 108,100 8,026,425
-----------
Forest Products 1.2%
Georgia Pacific Timber Group .............................................................. 73,500 1,649,156
Weyerhaeuser Co. .......................................................................... 126,400 7,015,200
-----------
8,664,356
-----------
Transportation 3.0%
Airlines 0.8%
Air New Zealand Ltd. "B" .................................................................. 3,200,000 5,562,440
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
86
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marine Transportation 0.3%
Knightsbridge Tankers Ltd. ................................................................ 137,500 2,371,875
-----------
Railroads 1.9%
CSX Corp. ................................................................................. 211,500 8,235,281
Canadian National Railway Co. ............................................................. 39,400 2,195,852
Norfolk Southern Corp. .................................................................... 135,500 3,573,813
-----------
14,004,946
-----------
Utilities 3.2%
Electric Utilities
CINergy Corp. ............................................................................. 160,400 4,411,000
Duke Energy Corp. ......................................................................... 54,989 3,003,774
PacifiCorp ................................................................................ 246,100 4,245,225
TNP Enterprises, Inc. ..................................................................... 191,900 5,517,125
Unicom Corp. .............................................................................. 166,300 6,080,344
-----------
23,257,468
-----------
Total Common Stocks (Cost $353,620,201) ................................................... 444,386,153
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $636,323,128) (a) ................................ 727,292,515
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security
** Effective maturities will be shorter due to prepayments.
(a) At March 31, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $636,275,325 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .............................................. $ 116,839,013
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................ (25,821,823)
-------------
Net unrealized appreciation ........................... $ 91,017,190
=============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the
six months ended March 31, 1999 aggregated $147,952,550 and
$173,058,563, respectively. Purchases and sales of direct
obligations of the U.S. Government aggregated $59,757,188 and
$48,415,039, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed
during the six months ended March 31, 1999 was $57,099,615.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
87
<PAGE>
AARP Growth And Income Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/1999 at 4.9%
to be repurchased at $64,568,787 on 4/1/1999, collateralized by a $49,997,000
U.S. Treasury Note, 6.25%, 10/31/2001 and a $12,021,000 U.S. Treasury Note,
5.75%, 4/30/2003 (Cost $64,560,000) .................................................... 64,560,000 64,560,000
-------------
COMMERCIAL PAPER 0.4%
- -----------------------------------------------------------------------------------------------------------------------------
Financial
Business Finance 0.2%
Sheffield Receivables Corp., 4.84%, 4/20/1999 ............................................. 15,000,000 14,961,683
-------------
Other Financial Companies 0.2%
Dressdner U.S. Finance Corp., 4.80%, 4/5/1999 ............................................. 10,000,000 9,994,667
-------------
Total Commercial Paper (Cost $24,956,350) ................................................. 24,956,350
-------------
CONVERTIBLE BONDS 0.5%
- -----------------------------------------------------------------------------------------------------------------------------
Financial 0.2%
Real Estate
Security Capital Corp., 6.5%, 3/29/2016 (b) ............................................... 18,250,000 11,070,450
-------------
Media 0.3%
Advertising
Omnicom Group Inc., 2.25%, 1/6/2013 ....................................................... 12,500,000 21,640,625
-------------
Total Convertible Bonds (Cost $31,239,543) ................................................ 32,711,075
-------------
CONVERTIBLE PREFERRED STOCKS 1.9%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 1.0%
Food & Beverage 0.7%
Suiza Foods Corp. 2.7% .................................................................... 1,238,000 42,556,250
-------------
Miscellaneous 0.3%
Ralston Purina Group, 7%, 8/1/2000 ........................................................ 432,100 19,444,500
-------------
Health 0.7%
Biotechnology
Monsanto Co., 6.5% ........................................................................ 914,800 42,538,200
-------------
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% ...................................................................... 68,801 739,611
-------------
Real Estate 0.1%
ProLogis Trust "B" (REIT), 7.0% ........................................................... 321,500 8,178,156
-------------
Metals & Minerals 0.1%
Precious Metals
Freeport McMoRan Copper & Gold, Inc., 7.0% ................................................ 424,700 6,742,113
-------------
Total Convertible Preferred Stocks (Cost $147,258,586) .................................... 120,198,830
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
88
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.2%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.5%
Department & Chain Stores
Rite Aid Corp. ............................................................................ 2,429,900 60,747,500
Sears, Roebuck & Co. ...................................................................... 729,400 32,959,803
-------------
93,707,303
-------------
Consumer Staples 4.4%
Food & Beverage 2.3%
H.J. Heinz Co. ............................................................................ 1,929,400 91,405,325
Unilever NV (New York shares) ............................................................. 839,200 55,754,350
-------------
147,159,675
-------------
Package Goods/Cosmetics 2.1%
Avon Products, Inc. ....................................................................... 2,874,500 135,281,156
-------------
Health 6.7%
Pharmaceuticals
American Home Products Corp. .............................................................. 3,256,900 212,512,725
Bristol-Myers Squibb Co. .................................................................. 1,900,600 122,232,338
Glaxo Wellcome PLC ........................................................................ 680,867 22,831,618
SmithKline Beecham PLC (ADR) .............................................................. 1,031,700 73,766,550
-------------
431,343,231
-------------
Communications 15.9%
Telephone/Communications
Alltel Corp. .............................................................................. 1,896,300 118,281,713
Ameritech Corp. ........................................................................... 709,600 41,068,100
Bell Atlantic Corp. ....................................................................... 3,404,480 175,969,060
BellSouth Corp. ........................................................................... 2,960,400 118,601,025
Compania de Telefonos de Chile, S.A. (ADR)(New) ........................................... 52,192 1,229,774
Frontier Corp. ............................................................................ 2,579,900 133,832,313
GTE Corp. ................................................................................. 2,180,100 131,896,050
SBC Communicatons, Inc. ................................................................... 1,438,400 67,784,600
Sprint Corp. .............................................................................. 1,790,600 175,702,625
Telesp Participacoes S.A. (ADR) ........................................................... 45,400 936,375
Telesp Participacoes S.A. (pfd.) .......................................................... 2,514,610,000 52,638,192
-------------
1,017,939,827
-------------
Financial 19.6%
Banks 10.5%
Bank One Corp. ............................................................................ 1,461,378 80,467,126
BankAmerica Corp. ......................................................................... 2,417,831 170,759,314
Chase Manhattan Corp. ..................................................................... 1,639,300 133,295,581
First Union Corp. ......................................................................... 2,350,074 125,582,079
Fleet Financial Group Inc. ................................................................ 1,390,600 52,321,325
KeyCorp ................................................................................... 1,825,200 55,326,375
US Bancorp ................................................................................ 1,601,000 54,534,063
-------------
672,285,863
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
89
<PAGE>
AARP Growth And Income Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance 2.9%
Lincoln National Corp. .................................................................... 378,500 37,424,188
Safeco Corp. .............................................................................. 1,087,000 43,955,563
XL Capital Ltd. " A" ...................................................................... 1,749,617 106,289,233
-------------
187,668,984
-------------
Other Financial Companies 1.7%
Federal National Mortgage Association ..................................................... 1,620,600 112,226,550
-------------
Real Estate 4.5%
Arden Realty Group, Inc. (REIT) ........................................................... 1,298,700 28,896,075
Boston Properties, Inc. (REIT) ............................................................ 988,900 31,273,963
Equity Office Properties Trust (REIT) ..................................................... 1,679,200 42,714,650
General Growth Properties, Inc. (REIT) (c) ................................................ 2,004,900 65,033,944
Prentiss Properties Trust (REIT) .......................................................... 1,279,100 23,823,238
ProLogis Trust (REIT) ..................................................................... 2,816,172 57,731,526
Security Capital Group Inc. "A"* .......................................................... 17,398 12,178,265
Security Capital US Realty (REIT) ......................................................... 2,688,521 21,104,890
Spieker Properties, Inc. (REIT) ........................................................... 150,000 5,287,500
-------------
288,044,051
-------------
Durables 8.0%
Aerospace 3.9%
Lockheed Martin Corp. ..................................................................... 3,058,246 115,257,646
Northrop Grumman Corp. .................................................................... 993,500 59,485,813
Rockwell International Corp. .............................................................. 1,871,000 79,400,563
-------------
254,144,022
-------------
Automobiles 2.9%
Ford Motor Co. ............................................................................ 2,681,400 152,169,450
Meritor Automotive, Inc. .................................................................. 2,078,466 32,216,223
-------------
184,385,673
-------------
Construction/Agricultural Equipment 1.2%
Caterpillar Inc. .......................................................................... 688,400 31,623,375
PACCAR, Inc. .............................................................................. 1,085,900 44,725,506
-------------
76,348,881
-------------
Manufacturing 16.1%
Chemicals 4.6%
Akzo Nobel NV ............................................................................. 1,701,100 63,059,334
Dow Chemical Co. .......................................................................... 699,300 65,166,019
E.I. du Pont de Nemours & Co. ............................................................. 974,300 56,570,294
Eastman Chemical Co. ...................................................................... 658,900 27,714,981
Imperial Chemical Industries PLC .......................................................... 5,131,789 45,983,253
Lyondell Petrochemical Co. ................................................................ 2,707,100 37,053,431
-------------
295,547,312
-------------
Containers & Paper 1.3%
Boise Cascade Corp. ....................................................................... 415,281 13,392,812
Temple-Inland Inc. ........................................................................ 1,097,300 68,855,575
-------------
82,248,387
-------------
Diversified Manufacturing 0.7%
Canadian Pacific Ltd. (Ord.) .............................................................. 2,327,100 45,030,696
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
90
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Products 1.4%
Emerson Electric Co. ...................................................................... 820,900 43,456,394
Thomas & Betts Corp. ...................................................................... 1,146,200 43,054,138
-------------
86,510,532
-------------
Industrial Specialty 4.0%
Corning Inc. .............................................................................. 4,321,300 259,278,000
-------------
Machinery/Components/Controls 0.8%
Parker-Hannifin Corp. ..................................................................... 1,578,300 54,056,775
-------------
Office Equipment/Supplies 3.3%
Xerox Corp. ............................................................................... 3,998,500 213,419,931
-------------
Technology 0.3%
Semiconductors
Conexant Systems, Inc.* ................................................................... 595,000 16,474,063
-------------
Energy 11.6%
Oil & Gas Production 1.0%
Conoco Inc. "A" ........................................................................... 2,538,800 62,359,275
-------------
Oil Companies 9.5%
BP Amoco Plc .............................................................................. 4,235,598 71,597,743
Chevron Corp. ............................................................................. 440,400 38,947,875
Elf Aquitaine S.A. ........................................................................ 759,800 103,301,195
Mobil Corp. ............................................................................... 847,000 74,536,000
Royal Dutch Petroleum Co. (New York shares) ............................................... 785,500 40,846,000
Texaco Inc. ............................................................................... 1,875,400 106,428,950
Total S.A. "B" ............................................................................ 558,447 68,864,123
Total S.A. (ADR) .......................................................................... 569,496 34,739,256
YPF S.A. "D" (ADR) ........................................................................ 2,350,350 74,182,922
-------------
613,444,064
-------------
Oil/Gas Transmission 1.1%
Williams Cos., Inc. ....................................................................... 1,814,700 71,680,650
-------------
Metals & Minerals 1.5%
Precious Metals 0.1%
Freeport McMoRan Copper & Gold, Inc. "A" .................................................. 546,210 5,598,653
-------------
Steel & Metals 1.4%
Allegheny Teledyne Inc. ................................................................... 3,810,510 72,161,533
Phelps Dodge Corp. ........................................................................ 200,800 9,889,400
Reynolds Metals Co. ....................................................................... 219,100 10,585,269
-------------
92,636,202
-------------
Construction 3.9%
Building Products 1.7%
Georgia Pacific Group ..................................................................... 1,482,400 110,068,200
-------------
Forest Products 2.2%
Georgia Pacific Timber Group .............................................................. 1,186,200 26,615,363
Weyerhaeuser Co. .......................................................................... 2,041,500 113,303,250
-------------
139,918,613
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
91
<PAGE>
AARP Growth And Income Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 3.0%
Railroads
CSX Corp. ................................................................................. 2,991,300 116,473,744
Canadian National Railway Co. ............................................................. 379,300 21,139,251
Norfolk Southern Corp. .................................................................... 2,105,200 55,524,650
-------------
193,137,645
-------------
Utilities 3.7%
Electric Utilities
CINergy Corp. ............................................................................. 2,326,600 63,981,500
Duke Energy Corp. ......................................................................... 792,920 43,313,255
PacifiCorp ................................................................................ 2,708,500 46,721,625
Unicom Corp. .............................................................................. 2,316,000 84,678,750
-------------
238,695,130
-------------
Total Common Stocks (Cost $4,593,714,731) ................................................. 6,180,639,344
-------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,861,729,210) (a) .............................. 6,423,065,599
=============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $4,860,947,291 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ......................................... $1,856,001,708
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ....................................... (293,883,400)
--------------
Net unrealized appreciation ........................... $1,562,118,308
==============
(b) Securities valued in good faith by the Valuation Committee of the Board
of Trustees amounted to $11,070,450 (0.17% of net assets). Their values
have been estimated by the Board of Trustees in the absence of readily
ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for the securities existed, and the difference could be
material. The cost of these securities at March 31, 1999 was
$18,250,000. These securities may also have certain restrictions as to
resale.
(c) Affiliated Issuer (See Notes to Financial Statements)
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999, aggregated
$1,052,755,459 and $1,628,082,370, respectively.
The accompanying notes are an integral part of the financial statements
92
<PAGE>
AARP U.S. Stock Index Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 2.3%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $9,380,271 on 4/1/1999, collateralized by a
$8,125,000 U.S. Treasury Bond, 7.25%, 8/15/2022 (Cost $9,379,000) ...................... 9,379,000 9,379,000
-----------
U. S. GOVERNMENT & AGENCIES 0.2%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 4.48%, 5/20/1999 (b) (Cost $780,375) .................................. 785,000 780,243
-----------
COMMON STOCKS 97.5%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 7.2%
Apparel & Shoes 0.1%
Fruit of the Loom, Inc.* .................................................................. 300 3,113
Liz Claiborne Inc. ........................................................................ 400 13,050
Nike, Inc. "B" ............................................................................ 7,200 415,350
-----------
431,513
-----------
Department & Chain Stores 5.7%
CVS Corp. ................................................................................. 4,600 218,500
Consolidated Stores Corp.* ................................................................ 300 9,094
Costco Companies, Inc.* ................................................................... 5,500 503,594
Dayton Hudson Corp. ....................................................................... 12,700 846,138
Dillard's Inc. ............................................................................ 100 2,538
Dollar General Corp. ...................................................................... 2,375 80,750
Fred Meyer, Inc.* ......................................................................... 500 29,438
Gap Inc. .................................................................................. 22,050 1,484,241
Home Depot, Inc. .......................................................................... 57,400 3,573,150
J.C. Penney Co., Inc. ..................................................................... 80,400 3,256,200
Kmart Corp.* .............................................................................. 2,800 47,075
Kohl's Corp.* ............................................................................. 3,200 226,800
Longs Drug Stores, Inc. ................................................................... 600 18,263
Lowe's Companies, Inc. .................................................................... 12,100 732,050
May Department Stores ..................................................................... 22,650 886,181
Nordstrom, Inc. ........................................................................... 4,700 192,113
Rite Aid Corp. ............................................................................ 5,900 147,500
Sears, Roebuck & Co. ...................................................................... 20,600 930,863
TJX Companies, Inc. (New) ................................................................. 9,500 323,000
The Limited, Inc. ......................................................................... 6,800 269,450
Wal-Mart Stores Inc. ...................................................................... 85,700 7,900,469
Walgreen Co. .............................................................................. 34,800 983,100
-----------
22,660,507
-----------
Home Furnishings 0.4%
Newell Rubbermaid Inc. .................................................................... 16,000 760,000
Tupperware Corp. .......................................................................... 41,000 738,000
-----------
1,498,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
93
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hotels & Casinos 0.3%
Carnival Corp. "A" ........................................................................ 25,700 1,248,056
Hilton Hotels Corp. ....................................................................... 3,100 43,594
Marriott International, Inc. "A" .......................................................... 1,500 50,438
-----------
1,342,088
-----------
Recreational Products 0.1%
Brunswick Corp. ........................................................................... 10,300 196,344
Hasbro, Inc. .............................................................................. 1,575 45,577
Mattel Inc. ............................................................................... 10,700 266,163
-----------
508,084
-----------
Restaurants 0.4%
Darden Restaurants Inc. ................................................................... 100 2,063
McDonald's Corp. .......................................................................... 31,900 1,445,469
Tricon Global Restaurants* ................................................................ 2,520 177,030
Wendy's International, Inc. ............................................................... 100 2,844
-----------
1,627,406
-----------
Specialty Retail 0.2%
AutoZone, Inc.* ........................................................................... 100 3,038
Circuit City Stores Inc. .................................................................. 1,000 76,625
Pep Boys -- Manny, Moe & Jack ............................................................. 100 1,525
Staples Inc.* ............................................................................. 19,600 644,350
Tandy Corp. ............................................................................... 1,700 108,481
Toys "R" Us Inc.* ......................................................................... 100 1,881
-----------
835,900
-----------
Miscellaneous 0.0%
Fortune Brands, Inc. ...................................................................... 1,700 65,769
-----------
Consumer Staples 7.7%
Alcohol & Tobacco 0.3%
Anheuser-Busch Companies, Inc. ............................................................ 9,800 746,638
Seagram Co., Ltd. ......................................................................... 7,000 350,000
-----------
1,096,638
-----------
Consumer Electronic & Photographic 0.5%
Eastman Kodak Co. ......................................................................... 20,800 1,328,600
Maytag Corp. .............................................................................. 1,400 84,525
Polaroid Corp. ............................................................................ 100 2,006
Whirlpool Corp. ........................................................................... 9,200 500,250
-----------
1,915,381
-----------
Consumer Specialties 0.3%
American Greeting Corp., "A" .............................................................. 8,900 225,838
Jostens, Inc. ............................................................................. 49,900 1,060,375
-----------
1,286,213
-----------
Farming 0.0%
Archer-Daniels-Midland Co. ................................................................ 110 1,616
Pioneer Hi-Bred International, Inc. ....................................................... 540 20,318
-----------
21,934
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
94
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Food & Beverage 3.5%
Agribrands International, Inc.* ........................................................... 20 658
Albertson's Inc. .......................................................................... 2,800 152,075
American Stores Co. ....................................................................... 2,800 92,400
Bestfoods ................................................................................. 3,400 159,800
Campbell Soup Co. ......................................................................... 8,600 349,913
Coca-Cola Co., Inc. ....................................................................... 92,200 5,658,775
Coca-Cola Enterprises ..................................................................... 6,800 205,700
ConAgra, Inc. ............................................................................. 33,300 851,231
General Mills, Inc. ....................................................................... 5,400 408,038
H.J. Heinz Co. ............................................................................ 11,600 549,550
Hershey Foods Corp. ....................................................................... 100 5,600
Kellogg Co. ............................................................................... 20,500 693,156
PepsiCo Inc. .............................................................................. 57,300 2,245,444
Quaker Oats Co. ........................................................................... 6,100 381,631
Ralston Purina Group ...................................................................... 1,400 37,363
SUPERVALU, Inc. ........................................................................... 2,000 41,250
Safeway Inc.* ............................................................................. 7,800 400,238
Unilever NV (New York shares) ............................................................. 21,700 1,441,694
William Wrigley Jr. Co. ................................................................... 100 9,044
Winn-Dixie Stores, Inc. ................................................................... 6,900 257,888
-----------
13,941,448
-----------
Package Goods/Cosmetics 3.0%
Avon Products, Inc. ....................................................................... 18,100 851,831
Clorox Co. ................................................................................ 3,800 445,313
Colgate-Palmolive Co. ..................................................................... 8,800 809,600
Gillette Co. .............................................................................. 39,900 2,371,556
International Flavors & Fragrances, Inc. .................................................. 34,500 1,295,906
Kimberly-Clark Corp. ...................................................................... 25,000 1,198,438
Procter & Gamble Co. ...................................................................... 51,400 5,033,988
-----------
12,006,632
-----------
Textiles 0.1%
Springs Industries, Inc. "A" .............................................................. 15,200 411,350
VF Corp. .................................................................................. 3,300 155,719
-----------
567,069
-----------
Health 12.4%
Biotechnology 0.4%
Amgen Inc.* ............................................................................... 20,800 1,557,400
-----------
Health Industry Services 0.3%
Cardinal Health, Inc. ..................................................................... 3,250 214,500
HEALTHSOUTH Corp.* ........................................................................ 5,400 56,025
Humana Inc.* .............................................................................. 800 13,800
IMS Health Inc. ........................................................................... 7,400 245,125
McKesson HBOC, Inc. ....................................................................... 8,800 580,800
Perkin-Elmer Corp. ........................................................................ 200 19,413
Shared Medical Systems Corp. .............................................................. 1,400 77,963
United Healthcare Corp. ................................................................... 1,500 78,938
-----------
1,286,564
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
95
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hospital Management 0.0%
Columbia/HCA Healthcare Corp. ............................................................. 4,900 92,794
Tenet Healthcare Corp.* ................................................................... 500 9,469
-----------
102,263
-----------
Medical Supply & Specialty 1.0%
Bausch & Lomb, Inc. ....................................................................... 5,200 338,000
Becton, Dickinson & Co. ................................................................... 8,800 337,150
Biomet Inc. ............................................................................... 1,200 50,325
Boston Scientific Corp.* .................................................................. 9,100 369,119
C.R. Bard, Inc. ........................................................................... 6,200 312,713
Guidant Corp. ............................................................................. 13,400 810,700
Mallinckrodt, Inc. ........................................................................ 5,900 157,088
Medtronic Inc. ............................................................................ 24,400 1,750,700
-----------
4,125,795
-----------
Pharmaceuticals 10.7%
Abbott Laboratories ....................................................................... 66,400 3,108,350
Allergan Specialty Therapeutics, Inc.* .................................................... 5 50
Allergan, Inc. ............................................................................ 1,000 87,875
American Home Products Corp. .............................................................. 54,900 3,582,225
Baxter International Inc. ................................................................. 17,900 1,181,400
Bristol-Myers Squibb Co. .................................................................. 78,600 5,054,963
Eli Lilly & Co. ........................................................................... 44,800 3,802,400
Johnson & Johnson ......................................................................... 55,400 5,190,288
Merck & Co., Inc. ......................................................................... 92,800 7,441,400
Pfizer, Inc. .............................................................................. 48,500 6,729,375
Pharmacia & Upjohn, Inc. .................................................................. 28,400 1,771,450
Schering-Plough Corp. ..................................................................... 50,100 2,771,156
Warner-Lambert Co. ........................................................................ 33,500 2,217,281
-----------
42,938,213
-----------
Communications 6.7%
Cellular Telephone 0.5%
AirTouch Communications, Inc.* ............................................................ 15,600 1,507,350
Nextel Communications, Inc. "A"* .......................................................... 2,300 84,238
Sprint Corp. (PCS Group)* ................................................................. 7,450 330,128
-----------
1,921,716
-----------
Telephone/Communications 6.2%
AT&T Corp. ................................................................................ 86,304 6,888,138
Alltel Corp. .............................................................................. 10,400 648,700
Ameritech Corp. ........................................................................... 43,100 2,494,413
Bell Atlantic Corp. ....................................................................... 71,506 3,695,966
BellSouth Corp. ........................................................................... 9,000 360,563
Frontier Corp. ............................................................................ 9,500 492,813
GTE Corp. ................................................................................. 46,200 2,795,100
MCI WorldCom, Inc.* ....................................................................... 6,619 586,195
SBC Communicatons, Inc. ................................................................... 67,838 3,196,866
Sprint Corp. .............................................................................. 8,200 804,625
US West, Inc. ............................................................................. 54,354 2,992,867
-----------
24,956,246
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
96
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial 14.9%
Banks 7.9%
Bank One Corp. ............................................................................ 66,580 3,666,061
BB&T Corporation .......................................................................... 3,800 137,513
Bank of New York Co., Inc. ................................................................ 15,500 557,031
BankAmerica Corp. ......................................................................... 77,893 5,501,193
BankBoston Corp. .......................................................................... 19,600 848,925
Chase Manhattan Corp. ..................................................................... 30,300 2,463,769
Comerica Inc. ............................................................................. 1,350 84,291
Fifth Third Bancorp. ...................................................................... 825 54,398
First Union Corp. ......................................................................... 67,112 3,586,298
Firstar Corp. ............................................................................. 1,600 143,200
Fleet Financial Group Inc. ................................................................ 21,600 812,700
Huntington Bancshares Inc. ................................................................ 4,660 144,169
J.P. Morgan & Co., Inc. ................................................................... 17,800 2,196,075
KeyCorp ................................................................................... 32,900 997,281
MBNA Corp. ................................................................................ 35,675 851,741
Mellon Bank Corp. ......................................................................... 8,100 570,038
Mercantile Bancorporation Inc. ............................................................ 5,400 256,500
National City Corp. ....................................................................... 19,800 1,314,225
PNC Bank Corp. ............................................................................ 26,000 1,444,625
Regions Financial Corp. ................................................................... 100 3,463
State Street Corp. ........................................................................ 300 24,656
Summit Bancorp. ........................................................................... 11,000 429,000
SunTrust Banks, Inc. ...................................................................... 100 6,225
US Bancorp ................................................................................ 21,906 746,173
Union Planters Corp. ...................................................................... 43,400 1,906,888
Wachovia Corp. ............................................................................ 4,800 389,700
Washington Mutual, Inc. ................................................................... 18,316 748,667
Wells Fargo Co. ........................................................................... 53,300 1,868,831
-----------
31,753,636
-----------
Insurance 2.9%
Aetna Inc. ................................................................................ 100 8,300
Allstate Corp. ............................................................................ 17,200 637,475
American General Corp. .................................................................... 8,800 620,400
American International Group, Inc. ........................................................ 38,433 4,635,981
Aon Corp. ................................................................................. 3,650 230,863
Chubb Corp. ............................................................................... 300 17,569
Cigna Corp. ............................................................................... 2,500 209,531
Cincinnati Financial Corp. ................................................................ 900 32,794
Conseco, Inc. ............................................................................. 1,983 61,228
Hartford Financial Services Group Inc. .................................................... 400 22,725
Jefferson Pilot Corp. ..................................................................... 1,100 74,525
Lincoln National Corp. .................................................................... 6,000 593,250
Marsh & McLennan Companies, Inc. .......................................................... 23,550 1,747,116
Progressive Corp. ......................................................................... 100 14,350
Providian Financial Corp. ................................................................. 9,350 1,028,500
Safeco Corp. .............................................................................. 26,700 1,079,681
St. Paul Companies, Inc. .................................................................. 19,856 616,777
</TABLE>
The accompanying notes are an integral part of the financial statements
97
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Torchmark Corp. ........................................................................... 400 12,650
Transamerica Corp. ........................................................................ 200 14,200
UNUM Corp. ................................................................................ 200 9,513
-----------
11,667,428
-----------
Consumer Finance 2.4%
American Express Credit Corp. ............................................................. 17,600 2,068,000
Associates First Capital Corp. ............................................................ 18,746 843,570
Capital One Finance Corp. ................................................................. 3,600 543,600
Citigroup Inc. ............................................................................ 89,969 5,746,770
SLM Holding Corp. ......................................................................... 11,000 459,250
-----------
9,661,190
-----------
Other Financial Companies 1.7%
Bear Stearns Companies, Inc. .............................................................. 1,995 89,152
Federal Home Loan Mortgage Corp. .......................................................... 15,000 856,875
Federal National Mortgage Association ..................................................... 38,400 2,659,200
Household International, Inc. ............................................................. 20,759 947,129
Morgan Stanley, Dean Witter Discover Co. .................................................. 23,695 2,368,019
-----------
6,920,375
-----------
Media 2.6%
Advertising 0.1%
Interpublic Group of Companies Inc. ....................................................... 1,750 136,281
Omnicom Group, Inc. ....................................................................... 5,400 431,663
-----------
567,944
-----------
Broadcasting & Entertainment 1.9%
CBS Corp.* ................................................................................ 21,800 892,438
Clear Channel Communications, Inc.* ....................................................... 5,200 348,725
Time Warner Inc. .......................................................................... 49,100 3,489,169
Viacom Inc. "B"* .......................................................................... 12,700 1,066,006
Walt Disney Co. ........................................................................... 63,700 1,982,663
-----------
7,779,001
-----------
Cable Television 0.5%
Comcast Corp. "A" ......................................................................... 16,200 1,019,588
MediaOne Group, Inc.* ..................................................................... 13,400 850,900
-----------
1,870,488
-----------
Print Media 0.1%
Gannett Co., Inc. ......................................................................... 3,100 195,300
Harcourt General, Inc. .................................................................... 100 4,431
Knight-Ridder, Inc. ....................................................................... 200 10,000
New York Times Co. "A" .................................................................... 200 5,700
Times Mirror Co. "A" ...................................................................... 100 5,406
Tribune Co. ............................................................................... 500 32,719
-----------
253,556
-----------
Service Industries 2.8%
EDP Services 0.4%
Automatic Data Processing, Inc. ........................................................... 21,200 877,150
Electronic Data Systems Corp. ............................................................. 14,900 725,444
</TABLE>
The accompanying notes are an integral part of the financial statements
98
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Data Corp. .......................................................................... 3,800 162,450
-----------
1,765,044
-----------
Environmental Services 0.4%
Browning Ferris Industries ................................................................ 27,200 1,048,900
Waste Management, Inc. .................................................................... 16,000 710,000
-----------
1,758,900
-----------
Investment 0.9%
Charles Schwab Corp. ...................................................................... 19,275 1,852,809
Franklin Resources, Inc. .................................................................. 6,200 174,375
Lehman Brothers Holdings, Inc. ............................................................ 1,000 59,750
Merrill Lynch & Co., Inc. ................................................................. 15,900 1,406,156
Waddel & Reed Financial, Inc. "A" ......................................................... 22 451
-----------
3,493,541
-----------
Miscellaneous Commercial Services 0.1%
Ecolab, Inc. .............................................................................. 3,600 127,800
Paychex, Inc. ............................................................................. 4,700 222,956
Sodexho Marriott Services, Inc. ........................................................... 25 552
Sysco Corp. ............................................................................... 800 21,050
Tektronix Inc. ............................................................................ 3,000 75,750
-----------
448,108
-----------
Miscellaneous Consumer Services 0.2%
Cendant Corp.* ............................................................................ 18,980 298,935
H & R Block Inc. .......................................................................... 7,300 345,838
Service Corp. International ............................................................... 18,300 260,775
-----------
905,548
-----------
Printing/Publishing 0.8%
Deluxe Corp. .............................................................................. 55,900 1,628,088
Dow Jones & Co., Inc. ..................................................................... 1,200 56,625
Dun & Bradstreet Corp. (New) .............................................................. 19,300 687,563
Equifax Inc. .............................................................................. 700 24,063
McGraw-Hill Inc. .......................................................................... 9,400 512,300
R.R. Donnelley & Sons Co. ................................................................. 4,800 154,500
-----------
3,063,139
-----------
Durables 7.1%
Aerospace 1.1%
AlliedSignal Inc. ......................................................................... 13,700 673,869
Boeing Co. ................................................................................ 36,150 1,233,619
Lockheed Martin Corp. ..................................................................... 22,700 855,506
Northrop Grumman Corp. .................................................................... 4,700 281,413
Rockwell International Corp. .............................................................. 11,900 505,006
United Technologies Corp. ................................................................. 7,200 975,150
-----------
4,524,563
-----------
Automobiles 1.8%
Cummins Engine Co., Inc. .................................................................. 1,500 53,344
Dana Corp. ................................................................................ 16,092 611,496
Eaton Corp. ............................................................................... 2,200 157,300
Ford Motor Co. ............................................................................ 57,400 3,257,450
</TABLE>
The accompanying notes are an integral part of the financial statements
99
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Motors Corp. ...................................................................... 30,000 2,606,250
Genuine Parts Co. ......................................................................... 24,400 703,025
Midas Inc. ................................................................................ 16 534
-----------
7,389,399
-----------
Construction/Agricultural Equipment 0.3%
Case Corp. ................................................................................ 100 2,538
Caterpillar Inc. .......................................................................... 17,600 808,500
Deere & Co. ............................................................................... 7,800 301,275
-----------
1,112,313
-----------
Leasing Companies 0.0%
IKON Office Solutions, Inc. ............................................................... 2,900 37,156
Ryder System, Inc. ........................................................................ 1,800 49,725
-----------
86,881
-----------
Telecommunications Equipment 3.8%
Andrew Corp.* ............................................................................. 250 3,078
Ascend Communications, Inc.* .............................................................. 9,600 803,400
Cisco Systems, Inc.* ...................................................................... 61,625 6,751,789
General Instrument Corp.* ................................................................. 4,600 139,438
Lucent Technologies Inc. .................................................................. 50,500 5,441,375
Northern Telecom Ltd. ..................................................................... 22,640 1,406,510
Scientific-Atlanta, Inc. .................................................................. 500 13,625
Tellabs, Inc.* ............................................................................ 7,400 723,350
-----------
15,282,565
-----------
Tires 0.1%
Cooper Tire & Rubber Co. .................................................................. 100 1,838
Goodyear Tire & Rubber Co. ................................................................ 5,300 264,006
-----------
265,844
-----------
Manufacturing 8.8%
Chemicals 1.7%
B.F. Goodrich Co., Inc. ................................................................... 12,700 435,769
Dow Chemical Co. .......................................................................... 22,900 2,133,994
E.I. du Pont de Nemours & Co. ............................................................. 46,100 2,676,681
Eastman Chemical Co. ...................................................................... 12,100 508,956
Engelhard Corp. ........................................................................... 100 1,694
Great Lakes Chemicals Corp. ............................................................... 100 3,675
Hercules, Inc. ............................................................................ 22,500 568,125
Monsanto Co. .............................................................................. 7,300 335,344
Morton International, Inc. ................................................................ 400 14,700
Octel Corp.* .............................................................................. 25 306
Praxair, Inc. ............................................................................. 100 3,606
Rohm & Haas Co. ........................................................................... 2,200 73,838
Sigma-Aldrich Corp. ....................................................................... 100 2,925
Union Carbide Corp. ....................................................................... 1,100 49,706
W.R. Grace & Co. .......................................................................... 8,500 103,063
-----------
6,912,382
-----------
Containers & Paper 0.3%
Boise Cascade Corp. ....................................................................... 800 25,800
</TABLE>
The accompanying notes are an integral part of the financial statements
100
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Crown Cork & Seal Co. Inc. ................................................................ 8,100 231,356
Fort James Corp. .......................................................................... 3,500 110,906
International Paper Co. ................................................................... 8,000 337,500
Sealed Air Corp.* ......................................................................... 53 2,607
Temple-Inland Inc. ........................................................................ 500 31,375
Union Camp Corp. .......................................................................... 6,200 416,175
-----------
1,155,719
-----------
Diversified Manufacturing 5.4%
Aeroquip-Vickers Inc. ..................................................................... 3,800 217,788
Cooper Industries, Inc. ................................................................... 15,700 669,213
Dover Corp. ............................................................................... 1,100 36,163
General Electric Co. ...................................................................... 132,300 14,635,667
Honeywell, Inc. ........................................................................... 2,800 212,275
ITT Industries Inc. ....................................................................... 700 24,763
Minnesota Mining & Manufacturing Co. ...................................................... 27,900 1,973,925
National Service Industries, Inc. ......................................................... 30,200 1,028,688
TRW, Inc. ................................................................................. 9,800 445,900
Tenneco, Inc. ............................................................................. 30,400 849,300
Textron, Inc. ............................................................................. 2,200 170,225
Tyco International Ltd. (New) ............................................................. 18,908 1,356,649
-----------
21,620,556
-----------
Electrical Products 0.3%
Emerson Electric Co. ...................................................................... 14,300 757,006
Raychem Corp. ............................................................................. 400 9,025
Thomas & Betts Corp. ...................................................................... 7,400 277,963
-----------
1,043,994
-----------
Hand Tools 0.1%
Black & Decker Corp. ...................................................................... 100 5,544
Briggs & Stratton Corp. ................................................................... 1,600 78,900
Snap-On, Inc. ............................................................................. 2,500 72,500
Stanley Works ............................................................................. 15,800 404,875
-----------
561,819
-----------
Industrial Specialty 0.3%
Avery Dennison Corp. ...................................................................... 2,000 115,000
Corning Inc. .............................................................................. 8,400 504,000
Milacron Inc. ............................................................................. 1,200 18,900
PPG Industries, Inc. ...................................................................... 8,400 430,500
Pall Corp. ................................................................................ 21,100 349,469
Sherwin-Williams Co. ...................................................................... 200 5,625
-----------
1,423,494
-----------
Machinery/Components/Controls 0.1%
Harnischfeger Industries, Inc. ............................................................ 9,600 54,600
Illinois Tool Works Inc. .................................................................. 2,300 142,313
Ingersoll-Rand Co. ........................................................................ 1,450 71,956
Parker-Hannifin Corp. ..................................................................... 1,100 37,675
Timken Co. ................................................................................ 13,800 224,250
-----------
530,794
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
101
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office Equipment/Supplies 0.5%
Moore Corp. Ltd. .......................................................................... 27,800 277,263
Pitney Bowes, Inc. ........................................................................ 11,000 701,250
Xerox Corp. ............................................................................... 20,200 1,078,175
-----------
2,056,688
-----------
Specialty Chemicals 0.1%
Air Products & Chemicals, Inc. ............................................................ 1,500 51,375
Nalco Chemical Co. ........................................................................ 10,600 281,563
-----------
332,938
-----------
Technology 15.2%
Computer Software 6.7%
Adobe Systems Inc. ........................................................................ 700 39,725
America Online Inc. ....................................................................... 44,900 6,555,400
Autodesk, Inc. ............................................................................ 1,500 60,656
BMC Software Inc.* ........................................................................ 4,800 177,900
Computer Associates International, Inc. ................................................... 13,700 487,206
Compuware Corp.* .......................................................................... 14,800 353,350
Microsoft Corp.* .......................................................................... 196,500 17,611,293
Momentum Business Applications, Inc.* ..................................................... 92 822
Oracle Systems Corp.* ..................................................................... 62,150 1,639,206
Parametric Technology Corp.* .............................................................. 4,200 82,950
PeopleSoft Inc.* .......................................................................... 4,600 67,275
-----------
27,075,783
-----------
Diverse Electronic Products 1.8%
Applied Materials, Inc.* .................................................................. 12,200 752,588
Dell Computer Corp.* ...................................................................... 103,800 4,242,825
Harris Corp. .............................................................................. 10,700 306,288
KLA Tencor Corp.* ......................................................................... 1,600 77,700
Motorola Inc. ............................................................................. 19,700 1,443,025
Solectron Corp.* .......................................................................... 8,800 427,350
-----------
7,249,776
-----------
EDP Peripherals 0.7%
EMC Corp.* ................................................................................ 20,300 2,593,325
Seagate Technology, Inc.* ................................................................. 3,200 94,600
-----------
2,687,925
-----------
Electronic Components/Distributors 0.2%
AMP Inc. .................................................................................. 13,152 706,098
Gateway 2000, Inc.* ....................................................................... 4,400 301,675
-----------
1,007,773
-----------
Electronic Data Processing 3.1%
Apple Computer, Inc.* ..................................................................... 5,300 190,469
Ceridian Corp.* ........................................................................... 200 7,313
Compaq Computer Corp. ..................................................................... 59,658 1,890,413
Data General Corp.* ....................................................................... 200 2,025
Hewlett-Packard Co. ....................................................................... 33,000 2,237,813
International Business Machines Corp. ..................................................... 33,300 5,902,425
Silicon Graphics Inc.* .................................................................... 700 11,681
</TABLE>
The accompanying notes are an integral part of the financial statements
102
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sun Microsystems, Inc.* ................................................................... 14,900 1,861,569
Unisys Corp.* ............................................................................. 17,200 476,225
-----------
12,579,933
-----------
Military Electronics 0.2%
Computer Sciences Corp. ................................................................... 6,300 347,681
EG&G, Inc. ................................................................................ 4,400 116,050
General Dynamics Corp. .................................................................... 200 12,850
Raytheon Co. "B" .......................................................................... 2,000 117,250
-----------
593,831
-----------
Office/Plant Automation 0.1%
3Com Corp.* ............................................................................... 8,700 202,819
Cabletron Systems Inc.* ................................................................... 500 4,094
Novell Inc.* .............................................................................. 900 22,669
-----------
229,582
-----------
Semiconductors 2.4%
Advanced Micro Devices Inc.* .............................................................. 2,100 32,550
Intel Corp. ............................................................................... 64,100 7,635,913
LSI Logic Corp.* .......................................................................... 1,600 49,900
Micron Technology Inc.* ................................................................... 10,100 487,325
National Semiconductor Corp. * ............................................................ 900 8,381
Texas Instruments Inc. .................................................................... 15,000 1,488,750
-----------
9,702,819
-----------
Energy 7.3%
Engineering 0.2%
Fluor Corp. ............................................................................... 900 24,300
Foster Wheeler Corp. ...................................................................... 77,000 933,625
McDermott International Inc. .............................................................. 400 10,125
-----------
968,050
-----------
Oil & Gas Production 0.8%
Burlington Resources, Inc. ................................................................ 100 3,994
Kerr-McGee Corp. .......................................................................... 33,000 1,082,813
Occidental Petroleum Corp. ................................................................ 115,300 2,075,400
Royal Dutch Petroleum Co. (New York shares) ............................................... 106,600 5,543,200
-----------
8,705,407
-----------
Oil Companies 4.8%
Amerada Hess Corp. ........................................................................ 100 5,031
Ashland Inc. .............................................................................. 100 4,094
Atlantic Richfield Co. .................................................................... 30,600 2,233,800
Chevron Corp. ............................................................................. 21,600 1,910,250
Exxon Corp. ............................................................................... 80,400 5,673,225
Mobil Corp. ............................................................................... 21,600 1,900,800
Phillips Petroleum Co. .................................................................... 7,800 368,550
Texaco Inc. ............................................................................... 23,700 1,344,975
USX Marathon Group ........................................................................ 14,200 390,500
Unocal Corp. .............................................................................. 100 3,681
-----------
13,834,906
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
103
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil/Gas Transmission 0.9%
Enron Corp. ............................................................................... 2,800 179,900
Sempra Energy ............................................................................. 156,871 3,009,962
Sonat, Inc. ............................................................................... 5,500 165,000
Sunoco Inc. ............................................................................... 400 14,425
Williams Cos., Inc. ....................................................................... 5,400 213,300
-----------
3,582,587
-----------
Oilfield Services/Equipment 0.5%
Baker Hughes, Inc. ........................................................................ 10,100 245,556
Halliburton Co. ........................................................................... 13,400 515,900
Rowan Companies, Inc.* .................................................................... 400 5,075
Schlumberger Ltd. ......................................................................... 17,200 1,035,225
-----------
1,801,756
-----------
Miscellaneous 0.1%
Reliant Energy, Inc. ...................................................................... 17,011 443,349
-----------
Metals & Minerals 0.7%
Precious Metals 0.0%
Barrick Gold Corp. ........................................................................ 100 1,706
Battle Mountain Gold Co. "A" .............................................................. 100 275
Freeport McMoRan Copper & Gold, Inc. "B" .................................................. 5,600 60,900
Homestake Mining Co. ...................................................................... 100 863
Newmont Mining Corp. ...................................................................... 143 2,503
Placer Dome Inc. .......................................................................... 100 1,107
-----------
67,354
-----------
Steel & Metals 0.7%
Alcan Aluminium Ltd. ...................................................................... 800 20,596
Alcoa Inc. ................................................................................ 4,600 189,463
Allegheny Teledyne Inc. ................................................................... 19,800 374,963
Asarco, Inc. .............................................................................. 100 1,375
Bethlehem Steel Corp.* .................................................................... 100 825
Cyprus Amax Minerals Co. .................................................................. 80,000 970,000
Inco Ltd. ................................................................................. 100 1,331
Nucor Corp. ............................................................................... 100 4,406
Phelps Dodge Corp. ........................................................................ 8,500 418,625
Reynolds Metals Co. ....................................................................... 3,000 144,938
USX-US Steel Group, Inc. .................................................................. 12,200 286,700
Worthington Industries, Inc. .............................................................. 38,400 451,200
-----------
2,864,422
-----------
Construction 0.6%
Building Products 0.2%
Armstrong World Industries, Inc. .......................................................... 12,100 546,769
Georgia Pacific Group ..................................................................... 400 29,700
Masco Corp. ............................................................................... 5,500 155,375
Owens Corning ............................................................................. 2,800 89,075
-----------
820,919
-----------
Forest Products 0.4%
Louisiana-Pacific Corp. ................................................................... 4,900 91,263
Potlatch Corp. ............................................................................ 25,200 855,225
</TABLE>
The accompanying notes are an integral part of the financial statements
104
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Westvaco Corp. ............................................................................ 9,900 207,900
Weyerhaeuser Co. .......................................................................... 9,900 549,450
-----------
1,703,838
-----------
Homebuilding 0.0%
Kaufman & Broad Home Corp. ................................................................ 600 13,538
-----------
Transportation 0.5%
Air Freight 0.1%
FDX Corp.* ................................................................................ 1,960 181,913
-----------
Airlines 0.0%
AMR Corp.* ................................................................................ 400 23,425
Southwest Airlines Co. .................................................................... 1,350 40,838
US Airways Group, Inc.* ................................................................... 2,400 117,150
-----------
181,413
-----------
Railroads 0.4%
Burlington Northern Santa Fe Corp. ........................................................ 4,100 134,788
CSX Corp. ................................................................................. 17,200 669,725
Norfolk Southern Corp. .................................................................... 24,700 651,463
Union Pacific Corp. ....................................................................... 2,700 144,281
-----------
1,600,257
-----------
Miscellaneous 0.0%
Laidlaw, Inc. ............................................................................. 4,700 27,409
-----------
Utilities 3.0%
Electric Utilities 2.5%
Ameren Corp. .............................................................................. 20,800 752,700
American Electric Power Co. ............................................................... 5,400 214,313
Baltimore Gas & Electric Co. .............................................................. 25,000 634,375
CINergy Corp. ............................................................................. 12,900 354,750
Carolina Power & Light Co. ................................................................ 100 3,781
Central & South West Corp. ................................................................ 59,600 1,396,875
Consolidated Edison Inc. .................................................................. 4,500 203,906
DTE Energy Co. ............................................................................ 3,900 149,906
Dominion Resources Inc. ................................................................... 30,300 1,119,206
Duke Energy Corp. ......................................................................... 5,604 306,119
Edison International ...................................................................... 100 2,225
Entergy Corp. ............................................................................. 14,800 407,000
FPL Group, Inc. ........................................................................... 100 5,325
FirstEnergy Corp. ......................................................................... 3,400 94,988
GPU, Inc. ................................................................................. 700 26,119
New Century Energies Inc. ................................................................. 1,500 51,094
Northern States Power Co. ................................................................. 36,500 846,344
P G & E Corp. ............................................................................. 100 3,106
PP&L Resources, Inc. ...................................................................... 27,828 688,743
PacifiCorp ................................................................................ 22,300 384,675
Peco Energy Co. ........................................................................... 11,300 522,625
Public Service Enterprise Group ........................................................... 31,300 1,195,269
Southern Company .......................................................................... 18,200 424,288
</TABLE>
The accompanying notes are an integral part of the financial statements
105
<PAGE>
AARP U.S. Stock Index Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Texas Utilities Co., Inc. ................................................................. 7,722 321,911
Unicom Corp. .............................................................................. 1,600 58,500
-----------
10,168,143
-----------
Natural Gas Distribution 0.5%
Consolidated Natural Gas Corp. ............................................................ 4,900 238,569
Eastern Enterprises ....................................................................... 6,600 240,075
NICOR, Inc. ............................................................................... 4,300 154,531
ONEOK, Inc. ............................................................................... 200 4,950
Peoples Energy Corp. ...................................................................... 44,600 1,441,138
-----------
2,079,263
-----------
Total Common Stocks (Cost $351,545,615) ................................................... 393,072,572
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $361,704,990) (a) ................................ 403,231,815
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security.
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $361,725,333 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................... $ 51,505,401
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ......................................... (9,998,919)
------------
Net unrealized appreciation ............................. $ 41,506,482
============
(b) At March 31, 1999, this security, in whole or in part, has been pledged
to cover initial margin requirements for open futures contracts.
At March 31, 1999, open futures contracts purchased were as follows:
<TABLE>
<CAPTION>
Number Aggregate Market
Futures Expiration of Contracts Face Value ($) Value ($)
------- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
S&P 500 Index June, 1999 4 1,309,024 1,294,500
---------
Total net unrealized depreciation on open futures contracts purchased ............................... (14,524)
=========
</TABLE>
The aggregate face value of futures contracts opened and closed
during the six months ended March 31, 1999 was $192,447,500 and
$193,240,024, respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999 aggregated
$232,922,782 and $2,562,743, respectively.
- --------------------------------------------------------------------------------
From November 1, 1997 through September 30, 1998, the fund incurred
approximately $24,000 of net realized capital losses on investments. As
permitted by tax regulations, the fund intends to elect to defer these
losses and treat them as arising in the fiscal year ended September 30,
1999.
The accompanying notes are an integral part of the financial statements
106
<PAGE>
AARP Capital Growth Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 0.8%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $12,930,753 on 4/1/1999, collateralized by a
$13,110,000 U.S. Treasury Note, 3.875%, 1/15/2009 (Cost $12,929,000) ................... 12,929,000 12,929,000
-------------
COMMERCIAL PAPER 3.0%
- -----------------------------------------------------------------------------------------------------------------------------
Deutsche Bank Financial Inc., 4.85%, 4/6/1999 ............................................. 20,000,000 19,983,933
Deutsche Bank Financial Inc., 4.81%, 4/9/1999 ............................................. 30,000,000 29,968,000
-------------
Total Commercial Paper (Cost $49,954,583) ................................................. 49,951,933
-------------
COMMON STOCKS 96.2%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 13.5%
Department & Chain Stores 10.1%
Dayton Hudson Corp. ....................................................................... 734,100 48,909,413
Gap Inc. .................................................................................. 177,400 11,941,238
Home Depot, Inc. .......................................................................... 840,900 52,346,025
Rite Aid Corp. ............................................................................ 551,100 13,777,500
Wal-Mart Stores Inc. ...................................................................... 262,400 24,190,000
Walgreen Co. .............................................................................. 549,500 15,523,375
-------------
166,687,551
-------------
Hotels & Casinos 1.3%
Carnival Corp. "A" ........................................................................ 448,400 21,775,425
-------------
Recreational Products 0.6%
Electronic Arts Inc.* ..................................................................... 192,500 9,143,750
-------------
Restaurants 0.5%
McDonald's Corp. .......................................................................... 176,800 8,011,250
-------------
Specialty Retail 1.0%
Office Depot Inc.* ........................................................................ 444,600 16,366,838
-------------
Consumer Staples 5.9%
Alcohol & Tobacco 1.4%
Anheuser-Busch Companies, Inc. ............................................................ 319,400 24,334,288
-------------
Food & Beverage 2.6%
Albertson's Inc. .......................................................................... 457,450 24,845,253
ConAgra, Inc. ............................................................................. 695,650 17,782,553
-------------
42,627,806
-------------
Package Goods/Cosmetics 1.9%
Procter & Gamble Co. ...................................................................... 315,450 30,894,384
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
107
<PAGE>
AARP Capital Growth Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 14.5%
Biotechnology 2.1%
Amgen Inc.* ............................................................................... 283,700 21,242,038
Genentech, Inc.* .......................................................................... 149,300 13,231,713
-------------
34,473,751
-------------
Medical Supply & Specialty 1.0%
Becton, Dickinson & Co. ................................................................... 421,300 16,141,056
-------------
Pharmaceuticals 11.4%
American Home Products Corp. .............................................................. 253,000 16,508,250
Baxter International Inc. ................................................................. 462,000 30,492,000
Bristol-Myers Squibb Co. .................................................................. 541,500 34,825,219
Pfizer, Inc. .............................................................................. 321,700 44,635,875
Schering-Plough Corp. ..................................................................... 564,000 31,196,250
Warner-Lambert Co. ........................................................................ 460,200 30,459,488
-------------
188,117,082
-------------
Communications 4.9%
Telephone/Communications
Bell Atlantic Corp. ....................................................................... 411,850 21,287,497
MCI WorldCom, Inc.* ....................................................................... 675,150 59,792,963
-------------
81,080,460
-------------
Financial 13.4%
Banks 1.0%
BankAmerica Corp. ......................................................................... 229,522 16,209,991
-------------
Insurance 5.6%
American International Group, Inc. ........................................................ 408,450 49,269,281
MBIA, Inc. ................................................................................ 305,400 17,713,200
XL Capital Ltd. "A" ....................................................................... 408,700 24,828,525
-------------
91,811,006
-------------
Consumer Finance 4.4%
American Express Company .................................................................. 197,600 23,218,000
Associates First Capital Corp. ............................................................ 443,300 19,948,500
Citigroup Inc. ............................................................................ 455,100 29,069,513
-------------
72,236,013
-------------
Other Financial Companies 2.4%
Federal National Mortgage Association ..................................................... 583,000 40,372,750
-------------
Media 7.5%
Advertising 2.2%
Omnicom Group, Inc. ....................................................................... 460,600 36,819,213
-------------
Broadcasting & Entertainment 1.3%
Infinity Broadcasting Corp.* .............................................................. 464,100 11,950,575
Viacom Inc. "B"* .......................................................................... 115,400 9,686,388
-------------
21,636,963
-------------
Cable Television 2.5%
AT&T Corp -- Liberty Media Group* ......................................................... 773,000 40,679,125
-------------
Print Media 1.5%
Tribune Co. ............................................................................... 363,000 23,753,813
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
108
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 2.5%
EDP Services 1.2%
Automatic Data Processing, Inc. ........................................................... 461,500 19,094,563
-------------
Environmental Services 1.3%
Waste Management, Inc. .................................................................... 503,850 22,358,344
-------------
Durables 5.5%
Aerospace 2.3%
United Technologies Corp. ................................................................. 282,200 38,220,463
-------------
Telecommunications Equipment 3.2%
Cisco Systems, Inc.* ...................................................................... 265,300 29,066,931
Nokia Corp. "A" (ADR) ..................................................................... 154,700 24,094,525
-------------
53,161,456
-------------
Manufacturing 6.3%
Diversified Manufacturing 4.4%
General Electric Co. ...................................................................... 312,300 34,548,188
Textron, Inc. ............................................................................. 208,700 16,148,163
Tyco International Ltd. (New) ............................................................. 311,300 22,335,775
-------------
73,032,126
-------------
Electrical Products 0.9%
Emerson Electric Co. ...................................................................... 277,700 14,700,744
-------------
Machinery/Components/Controls 1.0%
Parker-Hannifin Corp. ..................................................................... 453,200 15,522,100
-------------
Technology 16.7%
Computer Software 4.4%
Microsoft Corp.* .......................................................................... 537,900 48,209,288
Oracle Systems Corp.* ..................................................................... 654,400 17,259,800
Sterling Commerce, Inc.* .................................................................. 205,700 6,325,275
-------------
71,794,363
-------------
Diverse Electronic Products 0.9%
Applied Materials, Inc.* .................................................................. 248,200 15,310,838
-------------
EDP Peripherals 1.8%
EMC Corp.* ................................................................................ 234,600 29,970,150
-------------
Electronic Data Processing 6.1%
Compaq Computer Corp. ..................................................................... 584,600 18,524,513
Hewlett-Packard Co. ....................................................................... 220,000 14,918,750
International Business Machines Corp. ..................................................... 186,400 33,039,400
Sun Microsystems, Inc.* ................................................................... 277,200 34,632,675
-------------
101,115,338
-------------
Semiconductors 3.5%
Intel Corp. ............................................................................... 402,100 47,900,163
Linear Technology Corp. ................................................................... 197,300 10,111,625
-------------
58,011,788
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
109
<PAGE>
AARP Capital Growth Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 5.5%
Oil Companies 3.9%
Exxon Corp. ............................................................................... 213,400 15,058,038
Mobil Corp. ............................................................................... 209,400 18,427,200
Royal Dutch Petroleum Co. (New York shares) ............................................... 604,700 31,444,400
-------------
64,929,638
-------------
Oilfield Services/Equipment 1.6%
Schlumberger Ltd. ......................................................................... 424,800 25,567,650
-------------
Total Common Stocks (Cost $987,899,443) ................................................... 1,585,962,076
-------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $1,050,783,026) (a) .............................. 1,648,843,009
=============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security.
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $1,050,838,540 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................... $ 631,986,357
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .............................................. (33,981,888)
-------------
Net unrealized appreciation ............................. $ 598,004,469
=============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999, aggregated
$550,553,751 and $506,647,443, respectively.
The accompanying notes are an integral part of the financial statements
110
<PAGE>
AARP Small Company Stock Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 2.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/1999 at
4.88% to be repurchased at $1,613,219 on 4/1/1999, collateralized by a
$1,640,000 U.S. Treasury Note, 3.375%, 1/15/2007 (Cost $1,613,000) ..................... 1,613,000 1,613,000
----------
COMMON STOCKS 97.9%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 15.2%
Apparel & Shoes 2.0%
Brown Group, Inc. ......................................................................... 20,000 263,750
Genesco Inc.* ............................................................................. 70,300 650,275
Oxford Industries, Inc. ................................................................... 17,400 424,125
Stage Stores, Inc.* ....................................................................... 26,000 188,500
----------
1,526,650
----------
Department & Chain Stores 1.3%
Ames Department Stores, Inc.* ............................................................. 28,000 1,039,500
----------
Home Furnishings 3.1%
Bush Industries, Inc. "A" ................................................................. 9,400 115,738
Interface, Inc. ........................................................................... 38,000 365,750
La-Z-Boy Inc. ............................................................................. 35,400 672,600
Mikasa, Inc. .............................................................................. 21,400 157,825
Oneida Ltd. ............................................................................... 33,500 569,500
Pillowtex Corp. ........................................................................... 12,100 171,669
Thomas Industries, Inc. ................................................................... 19,500 365,625
----------
2,418,707
----------
Hotels & Casinos 0.3%
Prime Hospitality Corp.* .................................................................. 24,700 245,456
----------
Recreational Products 0.9%
CPI Corp. ................................................................................. 30,400 680,200
----------
Restaurants 2.6%
Applebee's International Inc. ............................................................. 10,500 260,531
Avado Brands, Inc. ........................................................................ 26,200 155,563
CEC Entertainment Inc.* ................................................................... 11,800 423,325
IHOP Corp.* ............................................................................... 11,800 463,150
Rainforest Cafe Inc.* ..................................................................... 4,800 24,150
Ruby Tuesday, Inc. ........................................................................ 42,400 736,700
----------
2,063,419
----------
Specialty Retail 5.0%
Aaron Rents, Inc. ......................................................................... 42,800 668,750
Corporate Express, Inc.* .................................................................. 26,000 134,875
Friedman's, Inc., "A" ..................................................................... 33,300 299,700
Hancock Fabrics, Inc. ..................................................................... 72,900 460,181
Inacom Corp.* ............................................................................. 28,900 223,975
Just For Feet, Inc.* ...................................................................... 18,500 231,250
The Finish Line, Inc. "A"* ................................................................ 65,100 838,163
</TABLE>
The accompanying notes are an integral part of the financial statements
111
<PAGE>
AARP Small Company Stock Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wet Seal, Inc. "A"* ....................................................................... 22,400 826,000
Zale Corp.* ............................................................................... 7,400 252,988
----------
3,935,882
----------
Consumer Staples 3.9%
Food & Beverage 2.6%
Michael Foods, Inc. ....................................................................... 26,000 495,625
Riviana Foods, Inc. ....................................................................... 49,400 1,154,725
Ruddick Corp. ............................................................................. 18,000 351,000
----------
2,001,350
----------
Package Goods/Cosmetics 0.3%
Chattem, Inc.* ............................................................................ 9,100 284,375
----------
Textiles 1.0%
Guilford Mills, Inc. ...................................................................... 42,650 373,188
Kellwood Company .......................................................................... 18,300 403,744
----------
776,932
----------
Health 1.9%
Health Industry Services 0.3%
NCS HealthCare, Inc. "A"* ................................................................. 3,000 36,000
Prime Medical Services, Inc.* ............................................................. 30,200 222,725
----------
258,725
----------
Medical Supply & Specialty 1.6%
Bindley Western Industries, Inc. .......................................................... 40,266 1,150,098
NBTY Inc.* ................................................................................ 20,600 100,425
----------
1,250,523
----------
Financial 8.4%
Banks 1.9%
D & N Financial Corp. ..................................................................... 22,400 509,600
NBT Bancorp Inc. .......................................................................... 16,611 346,755
Riggs National Corp. ...................................................................... 13,500 227,813
Usbancorp, Inc. ........................................................................... 4,000 58,500
UST Corp. ................................................................................. 16,900 369,159
----------
1,511,827
----------
Insurance 5.5%
American Annuity Group, Inc. .............................................................. 9,200 200,100
American Heritage Life Investment Corp. ................................................... 45,400 1,058,388
Fidelity National Financial, Inc. ......................................................... 16,170 242,550
Harleysville Group, Inc. .................................................................. 33,800 654,875
Hilb, Rogal & Hamilton Co. ................................................................ 51,900 879,056
Kansas City Life Insurance Co. ............................................................ 3,000 244,500
Nymagic, Inc. ............................................................................. 5,100 66,300
RLI Corp. ................................................................................. 19,375 566,719
Selective Insurance Group, Inc. ........................................................... 18,800 331,350
----------
4,243,838
----------
Business Finance 0.6%
Advest Group, Inc. ........................................................................ 26,600 492,100
----------
Miscellaneous 0.4%
Resource Bancshares Mortgage Group, Inc. .................................................. 24,100 310,288
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
112
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media 0.9%
Advertising
Grey Advertising, Inc. .................................................................... 1,910 662,770
----------
Service Industries 7.8%
EDP Services 0.7%
Computer Horizons Corp.* .................................................................. 3,300 36,094
Cotelligent Group, Inc.* .................................................................. 12,500 110,938
Pomeroy Computer Resources, Inc.* ......................................................... 31,700 412,100
----------
559,132
----------
Environmental Services 1.7%
Dames & Moore, Inc. ....................................................................... 30,000 335,625
IMCO Recycling Inc. ....................................................................... 24,300 312,863
Mine Safety Appliance Co. ................................................................. 12,000 696,000
----------
1,344,488
----------
Investment 0.8%
Southwest Securities Group, Inc. .......................................................... 21,100 596,075
----------
Miscellaneous Commercial Services 3.4%
ABM Industries, Inc. ...................................................................... 32,200 982,100
Barnett, Inc.* ............................................................................ 2,600 22,750
Caribiner International, Inc.* ............................................................ 27,900 254,588
Data Processing Resources Corp.* .......................................................... 700 9,581
McGrath Rentcorp .......................................................................... 36,700 669,775
Personnel Group of America, Inc.* ......................................................... 10,700 76,906
Sitel Corp.* .............................................................................. 9,100 21,613
Veritas DGC Inc.* ......................................................................... 36,300 515,006
Volt Information Sciences, Inc.* .......................................................... 7,000 115,063
----------
2,667,382
----------
Printing/Publishing 1.2%
Applied Graphics Technologies, Inc.* ...................................................... 6,600 49,500
Bowne & Co., Inc. ......................................................................... 27,200 317,900
Merrill Corp. ............................................................................. 44,000 588,500
----------
955,900
----------
Durables 8.3%
Aerospace 1.9%
AAR Corp. ................................................................................. 11,100 197,719
Curtiss-Wright Corp. ...................................................................... 16,900 524,956
Kaman Corp. "A" ........................................................................... 60,200 771,313
----------
1,493,988
----------
Automobiles 4.7%
Borg-Warner Automotive Inc. ............................................................... 13,858 662,586
Coachmen Industries, Inc. ................................................................. 24,900 510,450
Intermet Corp. ............................................................................ 38,800 518,950
Simpson Industries, Inc. .................................................................. 82,900 797,913
Thor Industries, Inc. ..................................................................... 29,250 661,781
Wynn's International, Inc. ................................................................ 31,500 549,281
----------
3,700,961
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
113
<PAGE>
AARP Small Company Stock Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction/Agricultural Equipment 0.9%
Terex Corp.* .............................................................................. 3,700 89,263
The Manitowoc Company, Inc. ............................................................... 15,300 640,688
----------
729,951
----------
Leasing Companies 0.4%
Budget Group, Inc.* ....................................................................... 15,800 193,550
Leasing Solutions, Inc.* .................................................................. 33,600 77,700
----------
271,250
----------
Miscellaneous 0.4%
MotivePower Industries, Inc.* ............................................................. 12,100 304,013
----------
Manufacturing 19.0%
Chemicals 1.9%
Mississippi Chemical Corp. ................................................................ 11,500 107,813
NCH Corp. ................................................................................. 11,400 544,350
Stepan Co. ................................................................................ 35,800 796,550
----------
1,448,713
----------
Containers & Paper 0.7%
Chesapeake Corp. .......................................................................... 2,000 54,250
Clarcor, Inc. ............................................................................. 23,250 396,703
Wausau-Mosinee Paper Corp. ................................................................ 4,970 69,580
----------
520,533
----------
Diversified Manufacturing 1.6%
Cascade Corp. ............................................................................. 36,800 391,000
Robbins & Myers, Inc. ..................................................................... 11,300 194,925
Scotsman Industries, Inc. ................................................................. 11,600 199,375
Tredegar Industries, Inc. ................................................................. 13,200 408,375
Valmont Industries ........................................................................ 3,500 48,563
----------
1,242,238
----------
Electrical Products 0.9%
C&D Technologies, Inc. .................................................................... 18,000 447,750
The Alpine Group, Inc.* ................................................................... 28,000 283,500
----------
731,250
----------
Hand Tools 0.9%
L.S. Starrett Corp. ....................................................................... 27,100 731,700
----------
Industrial Specialty 6.4%
Albany International Corp. "A" ............................................................ 33,033 619,369
Barnes Group, Inc. ........................................................................ 37,400 701,250
Chart Industries, Inc. .................................................................... 64,900 425,906
Commercial Intertech Corp. ................................................................ 46,700 519,538
General Cable Corp. ....................................................................... 10,700 113,019
Huffy Corp. ............................................................................... 34,700 416,400
Lawson Products, Inc. ..................................................................... 41,800 856,900
RTI International Metals, Inc. ............................................................ 19,200 180,000
Regal-Beloit Corp. ........................................................................ 36,500 659,281
Spartech Corp. ............................................................................ 25,300 521,813
----------
5,013,476
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
114
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 5.1%
Amcast Industrial Corp. ................................................................... 22,600 364,425
Columbus McKinnon Corp. ................................................................... 30,800 619,850
DT Industries, Inc. ....................................................................... 28,200 199,163
Dura Automotive Systems, Inc.* ............................................................ 14,588 412,111
Gleason Corp. ............................................................................. 25,000 423,438
Graco, Inc. ............................................................................... 25,050 552,666
Reliance Steel & Aluminum Co. ............................................................. 15,300 440,831
Shaw Group, Inc.* ......................................................................... 32,000 446,000
Tennant Company ........................................................................... 7,200 246,600
Woodward Governor Co. ..................................................................... 11,100 277,500
----------
3,982,584
----------
Wholesale Distributors 1.5%
A.M. Castle & Co. ......................................................................... 25,100 302,769
Applied Industrial Technology, Inc. ....................................................... 27,800 309,275
Hughes Supply, Inc. ....................................................................... 24,750 563,063
----------
1,175,107
----------
Technology 7.1%
Computer Software 2.4%
Activision, Inc.* ......................................................................... 46,500 575,438
MTS Systems Corp. ......................................................................... 49,000 496,125
Structural Dynamics Research Corp.* ....................................................... 43,600 831,125
----------
1,902,688
----------
EDP Peripherals 0.3%
Black Box Corp.* .......................................................................... 5,900 182,900
NeoMagic Corp.* ........................................................................... 2,800 27,825
----------
210,725
----------
Electronic Components/Distributors 4.4%
CHS Electronics, Inc.* .................................................................... 52,400 167,025
CTS Corp. ................................................................................. 23,900 1,181,539
Daisytek International Corp.* ............................................................. 10,200 169,575
Insight Enterprises, Inc.* ................................................................ 25,275 625,556
Park Electrochemical Corp. ................................................................ 18,200 427,700
Pioneer Standard Electronics, Inc. ........................................................ 43,100 282,844
Technitrol, Inc. .......................................................................... 25,500 588,094
----------
3,442,333
----------
Precision Instruments 0.0%
Innovex, Inc. ............................................................................. 400 5,350
----------
Energy 2.3%
Oil & Gas Production 1.0%
Marine Drilling Companies, Inc.* .......................................................... 16,700 183,700
Resource America, Inc. "A" ................................................................ 28,900 249,263
UTI Energy Corp.* ......................................................................... 35,100 372,938
----------
805,901
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
115
<PAGE>
AARP Small Company Stock Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 1.3%
Daniel Industries ......................................................................... 34,200 521,550
RPC, Inc. ................................................................................. 68,700 442,256
----------
963,806
----------
Metals & Minerals 1.2%
Steel & Metals
Cleveland-Cliffs, Inc. .................................................................... 21,000 715,313
Commercial Metals Co. ..................................................................... 13,000 260,000
----------
975,313
----------
Construction 7.2%
Building Materials 4.1%
Ameron International Corp. ................................................................ 20,300 720,650
Florida Rock Industries, Inc. ............................................................. 27,000 921,375
Lone Star Industries, Inc. ................................................................ 27,000 837,000
Puerto Rican Cement Co., Inc. ............................................................. 14,600 468,113
Texas Industries, Inc. .................................................................... 11,100 275,419
----------
3,222,557
----------
Homebuilding 1.9%
Skyline Corp. ............................................................................. 38,300 1,062,825
Standard Pacific Corp. .................................................................... 35,500 457,063
----------
1,519,888
----------
Miscellaneous 1.2%
Granite Construction, Inc. ................................................................ 38,100 890,588
----------
Transportation 1.7%
Airlines 0.6%
Alaska Air Group Inc.* .................................................................... 9,600 456,000
----------
Trucking 1.1%
Roadway Express, Inc. ..................................................................... 24,200 412,913
USFreightways Corp. ....................................................................... 13,600 447,100
----------
860,013
----------
Utilities 13.0%
Electric Utilities 5.7%
Black Hills Corp. ......................................................................... 49,100 1,046,444
Northwestern Corp. ........................................................................ 44,800 1,162,000
Public Service Co. of New Mexico .......................................................... 19,700 334,900
SIGCORP, Inc. ............................................................................. 33,200 908,850
TNP Enterprises, Inc. ..................................................................... 34,200 983,250
----------
4,435,444
----------
Natural Gas Distribution 4.6%
CTG Resources Inc. ........................................................................ 14,000 337,750
Colonial Gas Co. .......................................................................... 12,700 438,150
Connecticut Energy Corp. .................................................................. 18,300 443,775
Eastern Enterprises ....................................................................... 7,700 280,088
Energen Corp. ............................................................................. 30,800 460,075
Laclede Gas Co. ........................................................................... 21,900 458,531
NUI Corp. ................................................................................. 44,800 966,000
</TABLE>
The accompanying notes are an integral part of the financial statements
116
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Northwest Natural Gas Co. ................................................................. 7,400 161,875
ONEOK, Inc. ............................................................................... 2,400 59,400
----------
3,605,644
----------
Water Supply 2.7%
Aquarion Co. .............................................................................. 40,650 1,117,875
California Water Service Group ............................................................ 40,800 984,300
----------
2,102,175
----------
Total Common Stocks (Cost $88,428,417) .................................................... 76,569,708
----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $90,041,417) (a) ................................. 78,182,708
==========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At March 31, 1999, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $90,041,417 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................... $ 7,370,273
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ......................................... (19,228,982)
------------
Net unrealized depreciation ............................. $(11,858,709)
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999 aggregated
$9,451,845 and $26,602,338, respectively.
- --------------------------------------------------------------------------------
At September 30, 1998, and to the extent provided in regulations, the
fund had capital loss carryforwards of approximately $2,000, all of
which expire September 30, 2006. In addition, from November 1, 1997
through September 30, 1998, the fund incurred approximately $210,000 of
net realized capital losses on investments. As permitted by tax
regulations, the fund intends to elect to defer this loss and treat it
as arising in the fiscal year ended September 30, 1999.
The accompanying notes are an integral part of the financial statements
117
<PAGE>
AARP Global Growth Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 3.8%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/1999 at 4.9%
to be repurchased at $5,579,759 on 4/1/1999, collateralized by a
$5,592,000 U.S. Treasury Bond, 3.875%, 1/15/2009 (Cost $5,579,000) ..................... 5,579,000 5,579,000
-----------
U. S. GOVERNMENT AGENCY OBLIGATIONS 2.7%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 4.82%, 4/1/1999 (Cost $4,000,000) .................. 4,000,000 4,000,000
-----------
COMMON STOCKS 93.5%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina 0.9%
Telefonica de Argentina SA "B" (ADR) (Telecommunication services) ......................... 17,600 532,400
YPF S.A. "D" (ADR) (Petroleum company) .................................................... 26,800 845,875
-----------
1,378,275
-----------
Australia 2.6%
Foster's Brewing Group, Ltd. (Leading brewery) ............................................ 445,458 1,311,023
Normandy Mining Ltd. (Mining and oil enterprises) ......................................... 610,700 487,967
WMC Ltd. (Mineral exploration and production) ............................................. 151,000 480,698
Woodside Petroleum Ltd. (Major oil and gas producer) ...................................... 259,800 1,571,900
-----------
3,851,588
-----------
Austria 0.4%
Flughafen Wien AG (Operator of terminals and facilities at Vienna
International Airport) ................................................................. 14,100 597,048
-----------
Brazil 0.9%
Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp) ........................... 38,650 560,425
Companhia Vale do Rio Doce (pfd.) "A" (Diverse mining and industrial
complex) ............................................................................... 55,200 821,080
-----------
1,381,505
-----------
Canada 3.6%
BCE, Inc. (Telecommunication services) .................................................... 21,600 955,467
Barrick Gold Corp. (Gold exploration and production in North and
South America) ......................................................................... 69,700 1,189,256
Canadian National Railway Co. (Railroad operator) ......................................... 24,000 1,337,575
Canadian Pacific Ltd. (Ord.) (Transportation and natural resource conglomerate) ........... 46,050 891,093
Molson Cos., Ltd. "A" (Brewery) ........................................................... 44,900 627,826
Noranda, Inc. (Operator in mining and metals) ............................................. 26,100 268,956
-----------
5,270,173
-----------
France 2.7%
AXA SA (Insurance group providing insurance, finance and real estate services) ............ 11,540 1,531,544
Assurances Generales de France (Health, life and liability insurance) ..................... 14,510 784,084
</TABLE>
The accompanying notes are an integral part of the financial statements
118
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assurances Generales de France -- CVG Shares* ............................................. 14,510 121,533
Canal Plus (Leading pay television network) ............................................... 5,320 1,561,014
-----------
3,998,175
-----------
Germany 11.8%
Allianz AG (Multi-line insurance company) ................................................. 4,788 1,459,247
BASF AG (Leading international chemical producer) ......................................... 37,640 1,379,033
Bayer AG (Leading chemical producer) ...................................................... 51,505 1,931,543
Bayerische Vereinsbank AG (Commercial bank) ............................................... 26,352 1,577,788
Deutsche Telekom AG (Telecommunication services) .......................................... 35,407 1,444,546
Deutsche Telekom AG (ADR) ................................................................. 13,366 540,488
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing
presses) ............................................................................... 6,915 369,933
Hoechst AG (Chemical producer) ............................................................ 47,033 2,040,862
Muenchener Rueckversicherungs-Gesellschaft AG (Registered)
(Insurance company) .................................................................... 5,715 1,155,003
Muenchener Rueckversicherungs-Gesellschaft AG Rights* ..................................... 4,862 305,871
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) .................. 37,337 1,654,431
Schering AG (Pharmaceutical and chemical producer) ........................................ 8,860 1,032,712
VEBA AG (Electric utility, distributor of oil and chemicals) .............................. 29,356 1,545,081
VIAG AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) ............................................... 1,892 1,044,678
-----------
17,481,216
-----------
Hong Kong 2.5%
Cheung Kong Holdings Ltd. (Real estate company) ........................................... 114,000 867,927
Citic Pacific Ltd. (Diversified holding company) .......................................... 484,000 1,018,027
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ...................... 164,000 1,290,922
New World Development Co., Ltd. (Property investment and development,
construction and engineering, hotels and restaurants, telecommunications) .............. 243,387 478,954
-----------
3,655,830
-----------
Japan 10.5%
Bank of Tokyo-Mitsubishi, Ltd. (Provider of financial services) ........................... 63,000 868,158
Daiwa Securities Co., Ltd. (Brokerage and other financial services) ....................... 180,000 965,127
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of consumer
electronic products) ................................................................... 68,000 1,326,353
Mitsubishi Estate Co., Ltd. (Most prestigious real estate co.) ............................ 159,000 1,617,791
Mitsui Fudosan Co., Ltd. (Real estate company) ............................................ 96,000 864,916
Sanwa Bank, Ltd. (Major city bank) ........................................................ 76,000 824,622
Sharp Corp. (Manufacturer of consumer and industrial electronics) ......................... 152,000 1,604,323
Shohkoh Fund & Co., Ltd. (Finance company for small and medium-sized firms) ............... 2,300 1,165,245
Sony Corp. (Manufacturer of consumer electronic products) ................................. 20,500 1,895,423
Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper mining
company) ............................................................................... 102,000 434,940
TDK Corp. (Manufacturer of magnetic tapes and floppy discs) ............................... 9,000 728,785
Toshiba Corp. (General electronics manufacturer) .......................................... 234,000 1,598,463
Yamanouchi Pharmaceutical Co., Ltd. (Leading manufacturer of ethical drugs) ............... 49,000 1,551,549
-----------
15,445,695
-----------
Netherlands 0.7%
AEGON Insurance Group NV (Insurance company) .............................................. 11,408 1,042,434
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
119
<PAGE>
AARP Global Growth Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Portugal 0.3%
Electricidade de Portugal (Electric utility) .............................................. 19,650 388,208
-----------
South Africa 0.5%
Anglo American Platinum Corp., Ltd. (ADR) (Leading platinum producer) ..................... 48,765 780,240
-----------
Sweden 0.5%
AGA AB "B" (Producer and distributor of industrial and medical gases) ..................... 54,600 684,744
-----------
Switzerland 7.4%
Clariant AG (Registered) (Manufacturer of color chemicals) ................................ 1,396 658,076
Nestle SA (Registered) (Food manufacturer) ................................................ 1,197 2,180,049
Novartis AG (Bearer) (Pharmaceutical company) ............................................. 673 1,098,534
Novartis AG (Registered) .................................................................. 468 761,061
Roche Holding AG (Genussscheine) (Producer of drugs and medicines) ........................ 143 1,748,214
Schweizerische Rueckversicherungs-Gesellschaft (Registered) (Life, accident
and health insurance company) .......................................................... 705 1,563,802
Swisscom AG* (Reigstered) (Operator of telecommunication networks and
network application services) .......................................................... 4,597 1,799,632
UBS AG (Registered) (Provider of banking and management services) ......................... 3,557 1,120,258
-----------
10,929,626
-----------
United Kingdom 13.3%
BOC Group PLC (Producer of industrial gases) .............................................. 107,723 1,499,179
Carlton Communications PLC (Television post production products and services) ............. 176,420 1,740,311
Enterprise Oil PLC (Oil and gas exploration and production) ............................... 113,267 651,473
General Electric Co., PLC (Manufacturer of power, communications and
defense equipment) ..................................................................... 253,830 2,280,584
Great Universal Stores PLC "A" (Catalog home shopping, retailing, finance and
property investment) ................................................................... 40,327 423,853
Lasmo PLC (Oil production and exploration) ................................................ 373,955 760,725
National Grid Group PLC (Owner and operator of electric transmission systems) ............. 240,210 1,755,850
Railtrack Group PLC (Operator of railway infrastructure) .................................. 70,650 1,615,152
Reuters Group PLC (International news agency) ............................................. 190,577 2,793,793
Rio Tinto PLC (Mining and finance company) ................................................ 131,709 1,818,107
Shell Transport & Trading PLC (Part owner of Royal Dutch Shell Co.) ....................... 272,650 1,834,506
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare
products) .............................................................................. 128,267 1,852,393
United Assurance Group PLC (Holding company for insurance businesses and
financial service providers) ........................................................... 87,729 621,793
-----------
19,647,719
-----------
United States 34.9%
AT&T Corp -- Liberty Media Group* (Holding company of entertainment
networks) .............................................................................. 29,688 1,562,331
AT&T Corp. (Telecommunication services) ................................................... 30,562 2,439,230
America Online Inc. (Provider of online computer services) ................................ 2,900 423,400
Atlantic Richfield Co. (Petroleum company) ................................................ 26,900 1,963,700
Biogen Inc.* (Biotechnology research and development) ..................................... 9,400 1,074,538
CINergy Corp. (Holding company of electrical utilities in Ohio, Indiana and
Kentucky) .............................................................................. 22,200 610,500
CSX Corp. (Railroad, integrated transportation systems and shipping container
company) ............................................................................... 19,900 774,856
</TABLE>
The accompanying notes are an integral part of the financial statements
120
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Conoco Inc. "A" (Explorer of crude oil, natural gas, and natural gas liquids) ............. 43,100 1,058,644
Duke Energy Corp. (Electric utility in the Carolinas) ..................................... 25,000 1,365,625
Electronic Data Systems Corp. (Provider of information technology services) ............... 31,200 1,519,050
Enron Corp. (Producer of natural gas and electricity) ..................................... 30,810 1,979,543
Equity Residential Properties Trust (REIT) (Owner of apartment properties) ................ 34,000 1,402,500
Homestake Mining Co. (Major international gold producer) .................................. 133,600 1,152,300
Immunex Corp.* (Biopharmaceutical company) ................................................ 20,800 1,731,600
International Business Machines Corp. (Principal manufacturer and servicer
of business and computing machines) .................................................... 16,200 2,871,448
Lockheed Martin Corp. (Manufacturer of aircraft, missiles and space equipment) ............ 29,800 1,123,088
MBIA, Inc. (Insurer of municipal bonds) ................................................... 25,520 1,480,160
Motorola Inc. (Manufacturer of telecommunication products and
semiconductors) ........................................................................ 26,900 1,970,425
Newmont Mining Corp. (International gold exploration and mining company) .................. 53,800 941,500
Northrop Grumman Corp. (Manufacturer of aircraft, aircraft assemblies and
electronic systems for military and commercial use) .................................... 24,900 1,490,888
Oracle Systems Corp.* (Database management software) ...................................... 25,650 676,519
Parametric Technology Corp.* (Mechanical design software producer) ........................ 40,400 797,900
Peco Energy Co. (Electric and gas utility) ................................................ 57,700 2,668,625
Phillips Petroleum Co. (Petroleum exploration, production and refining) ................... 24,000 1,134,000
ProLogis Trust (REIT) (Global owner of corporate distribution facilities) ................. 20,100 412,050
Sabre Group Holdings Inc. "A"* (Travel reservation system provider) ....................... 32,600 1,479,225
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) .............................................................................. 43,600 1,340,700
Stillwater Mining Co.* (Exploration and development of mines in Montana
producing platinum, palladium and associated metals) ................................... 48,600 1,281,825
Sun Microsystems, Inc.* (Producer of high-performance workstations, servers
and networking software) ............................................................... 17,400 2,173,913
UNUM Corp. (Provider of group disability and special risk insurance) ...................... 49,100 2,335,319
US Airways Group, Inc.* (Major airline) ................................................... 25,800 1,259,363
USEC Inc. (Provider of enriched uranium products and services) ............................ 189,600 2,583,300
Williams Cos., Inc. (Gas pipeline operator, petroleum producer) ........................... 47,800 1,888,100
XL Capital Ltd. "A" (Provider of insurance) ............................................... 40,492 2,459,889
-----------
51,426,054
-----------
Total Common Stocks (Cost $116,733,853) ................................................... 137,958,530
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $126,312,853) (a) ................................ 147,537,530
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
121
<PAGE>
AARP Global Growth Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non income producing security.
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $126,410,173 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ............................................ $ 28,712,278
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .......................................... (7,584,921)
------------
Net unrealized appreciation .............................. $ 21,127,357
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999 aggregated
$46,279,948 and $60,807,494, respectively.
The accompanying notes are an integral part of the financial statements
122
<PAGE>
AARP International Growth And Income Fund
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS 4.0%
- -----------------------------------------------------------------------------------------------------------------------------
United Kingdom 2.0%
Swiss Life Finance Ltd., 2%, 5/20/2003 .................................................... 687,000 773,734
-----------
United States 2.0%
Merrill Lynch & Co., 2%, 4/14/2004 ........................................................ 780,000 741,000
-----------
Total Convertible Bonds (Cost $1,521,120) ................................................. 1,514,734
-----------
COMMON STOCKS 96.0%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Austria 2.1%
Bank Austria AG (Commercial and corporate banking services) ............................... 13,100 780,096
-----------
Canada 3.5%
BCE, Inc. (Telecommunication services) .................................................... 29,894 1,322,349
-----------
France 12.4%
Accor S.A. (Catering, hotel and travel services) .......................................... 4,983 1,238,637
Compagnie Generale des Etablissements Michelin "B" (Leading tire
manufacturer) .......................................................................... 14,619 656,469
Dexia France (Municipal and local development financing) .................................. 7,978 1,116,578
Elf Aquitaine SA (Petroleum company) ...................................................... 4,358 592,507
Scor SA (Property, casualty and life reinsurance company) ................................. 20,900 1,052,586
-----------
4,656,777
-----------
Germany 11.4%
Adidas-Salomon AG (Manufacturer of sport shoes, clothing and equipment) ................... 9,881 882,611
Bayer AG (Leading chemical producer) ...................................................... 30,201 1,132,599
Deutsche Telekom AG (Telecommunication services) .......................................... 9,220 376,161
Metro AG (Operator of building, clothing and food stores and supermarkets) ................ 21,800 736,261
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) .................. 8,126 360,069
SAP AG (Computer software manufacturer) ................................................... 2,752 789,657
-----------
4,277,358
-----------
Hong Kong 3.6%
HSBC Holdings PLC (Bank) .................................................................. 43,200 1,360,191
-----------
Ireland 1.5%
Allied Irish Bank PLC (Bank) .............................................................. 33,526 579,732
-----------
Italy 7.0%
Ente Nazionale Idrocarburi SpA (Exploration and production of oil, natural gas
and chemicals) ......................................................................... 126,800 808,531
La Rinascente SpA (Department store chain) ................................................ 193,600 828,564
Telecom Italia SpA (Telecommunications, electronics and network construction
services) .............................................................................. 167,700 996,830
-----------
2,633,925
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
123
<PAGE>
AARP International Growth And Income Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan 18.1%
Industrial Bank of Japan, Ltd. (Commercial bank and trust company) ........................ 115,000 776,830
Mitsubishi Heavy Industries, Ltd. (Diversified heavy machinery manufacturer
and leading shipbuilder) ............................................................... 170,000 767,964
Nintendo Co., Ltd. (Game equipment manufacturer) .......................................... 13,000 1,121,844
Nomura Securities Co., Ltd. (Financial advisor, securities broker and
underwriter) ........................................................................... 80,000 837,626
Sakura Bank, Ltd. (Banking services) ...................................................... 445,000 1,348,940
Sekisui House, Ltd. (Home builder) ........................................................ 64,000 680,909
Sony Corp. (Manufacturer of consumer electronic products) ................................. 13,600 1,257,452
-----------
6,791,565
-----------
Netherlands 4.0%
Elsevier NV (International publisher of scientific, professional, business, and
consumer information books) ............................................................ 40,640 606,119
Koninklijke KPN NV (Telecommunications services) .......................................... 10,990 437,684
Royal Dutch Petroleum Co. (Owner of 60% of Royal Dutch/Shell Group) ....................... 8,710 463,607
-----------
1,507,410
-----------
Spain 2.6%
Iberdrola SA (Electric utility) ........................................................... 66,117 980,376
-----------
Sweden 2.4%
Investor AB "B" (Investment company with holdings in listed shares of
industrial companies) .................................................................. 20,500 898,575
-----------
Switzerland 10.6%
ABB AG (Bearer) (Manufacturer of electrical equipment) .................................... 522 692,252
Georg Fischer AG (Registered) (Manufacturer of automotive products and
piping systems) ........................................................................ 2,293 760,994
Sika Finanz AG (Registered) (Manufacturer of water management products and
systems) ............................................................................... 12,402 550,192
Swisscom AG (Registered)* (Operator of telecommunication networks and network
application services) .................................................................. 1,870 732,067
UBS AG (Registered) (Banking and management services) ..................................... 3,895 1,226,709
-----------
3,962,214
-----------
United Kingdom 16.8%
Allied-Domecq PLC (Brewers and distillers) ................................................ 100,985 751,615
EMI Group PLC (Music recording and retailing company) ..................................... 145,844 1,042,522
General Electric Co., PLC (Manufacturer of power, communications and
defense equipment) ..................................................................... 110,731 994,884
Lasmo PLC (Oil production and exploration) ................................................ 420,655 855,726
Marks & Spencer, PLC (Retailer of consumer goods and foods) ............................... 145,692 959,085
Peninsular and Oriental Steam Navigation Co. (Container and bulk shipping,
cruise lines, and transport services) .................................................. 50,037 730,294
Royal & Sun Alliance Insurance Group PLC (Multi-line insurance holding
company) ............................................................................... 103,222 974,913
-----------
6,309,039
-----------
Total Common Stocks (Cost $35,392,521) .................................................... 36,059,607
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $36,913,641) (a) ................................. 37,574,341
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
124
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $36,913,641 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ............................................. $ 2,444,695
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ........................................... (1,783,995)
-----------
Net unrealized appreciation ............................... $ 660,700
===========
Transactions in written options for the six months ended March 31, 1999
were:
<TABLE>
<CAPTION>
Options on Securities
-----------------------------------------------------------
Premiums
Contracts Received ($)
--------- ------------
<S> <C> <C>
Outstanding at September 30, 1998 ........... 35,957 148,779
Written ..................................... 375 85,912
Closed ...................................... (36,332) (234,691)
------- --------
Outstanding at March 31, 1999 ............... -- --
======= ========
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1999 aggregated
$32,386,137 and $34,829,333, respectively.
- --------------------------------------------------------------------------------
From November 1, 1997 through September 30, 1998, the fund incurred
approximately $166,000 of net realized capital losses on investments. As
permitted by tax regulations, the fund intends to elect to defer these
losses and treat them as arising in the fiscal year ended September 30,
1999.
The accompanying notes are an integral part of the financial statements
125
<PAGE>
AARP Diversified Income with Growth Portfolio
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET 9.9%
- -----------------------------------------------------------------------------------------------------------------------------
AARP High Quality Money Fund (Cost $10,816,569) ........................................... 10,816,569 10,816,569
-----------
FIXED INCOME 65.7%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Bond Fund for Income ................................................................. 2,190,408 32,505,649
AARP GNMA and U.S. Treasury Fund .......................................................... 2,225,937 33,544,872
AARP High Quality Short Term Bond ......................................................... 335,710 5,398,220
-----------
Total Fixed Income (Cost $72,155,783) ..................................................... 71,448,741
-----------
EQUITY 24.4%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Global Growth Fund ................................................................... 226,861 4,285,408
AARP Growth and Income Fund ............................................................... 151,265 7,472,470
AARP Small Company Stock Fund ............................................................. 148,550 2,431,756
AARP U.S. Stock Index Fund ................................................................ 509,435 12,353,807
-----------
Total Equity (Cost $26,323,540) ........................................................... 26,543,441
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $109,295,892) (a) ................................ 108,808,751
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1999, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $109,296,140 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .............................................. $ 1,856,676
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ............................................ (2,344,065)
-----------
Net unrealized depreciation ................................ $ (487,389)
===========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 1999, aggregated
$21,099,289 and $5,725,000, respectively.
The accompanying notes are an integral part of the financial statements
126
<PAGE>
AARP Diversified Growth Portfolio
LIST OF INVESTMENTS AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
AARP High Quality Money Fund (Cost $1,413,687) ............................................ 1,413,687 1,413,687
-----------
FIXED INCOME 34.1%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Bond Fund for Income ................................................................. 1,749,546 25,963,256
AARP GNMA and U.S. Treasury Fund .......................................................... 1,454,754 21,923,150
-----------
Total Fixed Income (Cost $48,614,352) ..................................................... 47,886,406
-----------
EQUITY 64.9%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Capital Growth Fund .................................................................. 106,393 6,394,245
AARP Global Growth Fund ................................................................... 440,150 8,314,443
AARP Growth and Income Fund ............................................................... 504,422 24,918,453
AARP International Growth and Income Fund ................................................. 517,853 9,010,641
AARP Small Company Stock Fund ............................................................. 728,102 11,919,027
AARP U.S. Stock Index Fund ................................................................ 1,266,930 30,723,062
-----------
Total Equity (Cost $90,282,482) ........................................................... 91,279,871
-----------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $140,310,521) (a) ................................ 140,579,964
===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1999, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $140,311,565 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .............................................. $ 6,165,317
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ............................................ (5,896,918)
-----------
Net unrealized appreciation ................................ $ 268,399
===========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 1999, aggregated
$17,072,449 and $9,255,000, respectively.
The accompanying notes are an integral part of the financial statements
127
<PAGE>
This page
intentionally
left blank.
128
<PAGE>
/4/
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The information contained in this section is
legally required by federal securities law and
monitored by the Securities and Exchange
Commission (SEC) as it concerns the financial
status of each AARP mutual fund. Mutual funds are
required to deliver financial statements audited
by an independent accounting firm on an annual
basis. The independent accountant of the AARP
Investment Program's annual report is
PricewaterhouseCoopers LLP.
Financial Statements are records of the financial
status of an organization and are prepared by
management. Financial statements must conform to
Generally Accepted Accounting Principles (GAAP),
which are standards established by the Financial
Accounting Standards Board (FASB), the SEC, and
various committees of the American Institute of
Certified Public Accountants (AICPA).
This section consists of three different financial
statements for the funds: Statements of Assets and
Liabilities, Statements of Operations, and
Statements of Changes in Net Assets.
The Notes to Financial Statements explain the
significant accounting policies reflected in the
Financial Statements.
129
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
The Statements of Assets and Liabilities show the
net assets of the funds in the AARP Investment
Program.
Assets include such items as:
o Investments at value: The market value of the
AARP fund's holdings on the last day of the
reporting period;
o Cash: The actual amount of the uninvested
assets held in each AARP fund;
o Receivables: Money owed to an AARP fund.
Sources of receivables include:
o Investments sold: Proceeds that thefund
will receive from investments sold which
settle at a later date;
o Fund shares sold: Proceeds that the fund
will receive from shares sold to
shareholders;
o Dividends and interest earned on the
funds' securities but not yet paid to
the fund;
o Expense reimbursements due from the
fund manager.
o Daily variation margin on open futures
contracts: Payments due to/from the broker
that reflect the change in value from the
previous day of any futures contract held in
an AARP fund's portfolio (this figure could
show up as an asset or a liability).
Liabilities include amounts owed for such items
as:
o Investments purchased for the AARP fund's
portfolio but that are not yet paid for;
o Fund shares redeemed but not yet paid to
shareholders;
o Dividends declared but not yet paid to
shareholders;
o Management fees incurred but unpaid at fiscal
year end;
o Other accrued expenses incurred but unpaid at
fiscal year end.
The section Net Assets Consist Of includes the
following:
o Undistributed (overdistributed) net
investment income: An AARP fund's accumulated
investment income less expenses and less
distributions paid from net investment
income;
o Unrealized appreciation (or depreciation) on
investments: Represents the current value of
investments held less their cost;
130
<PAGE>
o Accumulated net realized capital gain (loss):
An AARP fund's accumulated realized gains and
losses from sales of investments, less
distributions paid from net realized gains;
o Paid-in capital: Represents the dollars
invested by shareholders, less the amount of
money redeemed since the applicable AARP fund
began operations.
The Statement of Assets and Liabilities also shows
the net asset value (NAV) for each AARP fund. Net
asset value is calculated by taking a fund's total
assets, deducting liabilities, and then dividing
this amount by the total number of capital shares
outstanding.
STATEMENTS OF OPERATIONS
The Statements of Operations include investment
income from interest and dividends and the various
expenses associated with the operation of the AARP
funds for the fiscal period. The Statements of
Operations also show net gains and losses for
various categories of investments, both realized
and unrealized gains and losses, for securities
sold and held in each fund's portfolio. The bottom
line tells you whether a fund's net assets have
increased or decreased as a result of fund
operations.
STATEMENTS OF CHANGES
The Statements of Changes compare increases and
decreases from each AARP fund's operations and
shareholder transactions with those of the
previous fiscal period. Most of the terms used in
the Statements of Changes are identical to those
that are used in the other two statements. The
categories in the section Fund Share Transactions
include:
o Proceeds from the sale of shares: The amount
received by selling new shares to
shareholders;
o Net asset value of shares issued due to
reinvested dividends and distributions;
o Cost of shares redeemed (or sold): The amount
paid to shareholders from the exchange or
redemption of shares.
131
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AARP High AARP
AARP High Quality Tax Free Premium
March 31, 1999 (Unaudited) Quality Money Fund Money Fund Money Fund
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at value (for cost, see accompanying
lists of investment portfolios) ................... $ 559,260,882 $ 94,911,637 $ 18,312,424
Cash ................................................. 623,886 423,685 665
Receivable on investments sold ....................... -- -- --
Investment income receivable ......................... 2,011,215 292,582 52
Receivable on fund shares sold ....................... 2,918,065 93,621 364,150
Daily variation margin on futures contracts .......... -- -- --
Premiums receivable for written options .............. -- -- --
Reimbursement from fund manager ...................... -- -- 32,497
Deferred organization expenses ....................... -- -- --
Other assets ......................................... 8,687 2,347 --
-------------------- --------------------- ---------------------
Total assets ......................................... 564,822,735 95,723,872 18,709,788
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank ................................ -- -- --
Investments purchased ................................ -- -- --
Fund shares redeemed ................................. 1,794,242 121,220 88,400
Dividends payable .................................... 126,802 31,223 2,564
Daily variation margin on futures contracts .......... -- -- --
Unrealized depreciation on forward currency
exchange contracts ................................ -- -- --
Management fee payable ............................... 183,307 32,006 --
Written options, at market ........................... -- -- --
Other payables and accrued expenses .................. 208,748 57,867 36,484
-------------------- --------------------- ---------------------
Total liabilities .................................... 2,313,099 242,316 127,448
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at value .................................. $ 562,509,636 $ 95,481,556 $ 18,582,340
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ................................. $ -- $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments ....................................... -- -- --
Futures contracts ................................. -- -- --
Written options ................................... -- -- --
Foreign currency related transactions ............. -- -- --
Accumulated net realized capital gain (loss) ......... (133,198) (758,442) --
Paid-in capital ...................................... 562,642,834 96,239,998 18,582,340
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at value .................................. $ 562,509,636 $ 95,481,556 $ 18,582,340
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ........... 562,510,796 95,487,265 18,582,340
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share ......................................... $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unlimited number of shares authorized, $.01 par value, except the AARP High
Quality Tax Free Money Fund, which has a $.001 par value.
The accompanying notes are an integral part of the financial statements
132
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AARP High AARP Insured Tax
Quality Short Term AARP GNMA and U.S. Free General Bond AARP Bond Fund for AARP Balanced Stock
Bond Fund Treasury Fund Fund Income and Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 428,827,396 $ 4,717,060,336 $ 1,693,828,958 $ 216,889,333 $ 727,292,515
860 -- 899,799 332 636
-- 79,852,985 -- -- 1,909,621
4,826,850 25,917,705 18,914,557 3,190,156 5,137,314
325,997 633,205 200,811 531,712 308,057
-- 127,166 376,544 -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- 8,243 --
6,995 1,106,328 22,963 939 7,060
- --------------------- --------------------- --------------------- -------------------- --------------------
433,988,098 4,824,697,725 1,714,243,632 220,620,715 734,655,203
- ----------------------------------------------------------------------------------------------------------------------------
-- 59,091 -- -- --
-- 303,452,295 2,076,201 1,663,481 --
212,494 2,146,837 2,247,316 55,870 667,783
588,623 9,514,521 2,704,602 351,456 --
-- -- -- -- --
-- -- -- -- --
173,546 1,384,677 683,398 -- 273,713
-- -- -- -- --
230,925 1,766,811 212,683 7,927 393,572
- --------------------- --------------------- --------------------- -------------------- --------------------
1,205,588 318,324,232 7,924,200 2,078,734 1,335,068
- ----------------------------------------------------------------------------------------------------------------------------
$ 432,782,510 $ 4,506,373,493 $ 1,706,319,432 $ 218,541,981 $ 733,320,135
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
$ 240,718 $ -- $ -- $ -- $ 491,622
(3,145,258) (5,023,748) 161,597,308 (3,260,773) 90,969,387
-- 137,676 (9,458) -- --
-- -- -- -- --
-- -- -- -- 82
(2,012,694) (255,811,858) (35,028,484) (1,406,975) (3,149,018)
437,699,744 4,767,071,423 1,579,760,066 223,209,729 645,008,062
- ----------------------------------------------------------------------------------------------------------------------------
$ 432,782,510 $ 4,506,373,493 $ 1,706,319,432 $ 218,541,981 $ 733,320,135
- ----------------------------------------------------------------------------------------------------------------------------
26,916,397 299,022,155 92,045,839 14,722,090 37,056,931
- ----------------------------------------------------------------------------------------------------------------------------
$16.08 $15.07 $18.54 $14.84 $19.79
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
133
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AARP Growth and AARP U.S. Stock Index AARP
March 31, 1999 (Unaudited) Income Fund Fund Capital Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at value (for cost, see accompanying
lists of investment portfolios) ................... $ 6,423,065,599 $ 403,231,815 $ 1,648,843,009
Cash ................................................. 938 531 794
Receivable on investments sold ....................... 45,493,107 387 9,600,111
Investment income receivable ......................... 19,370,450 486,765 963,425
Receivable on fund shares sold ....................... 931,526 2,389,367 853,844
Daily variation margin on futures contracts .......... -- -- --
Premiums receivable for written options .............. -- -- --
Reimbursement from fund manager ...................... -- -- --
Deferred organization expenses ....................... -- 9,950 --
Unrealized appreciation on forward currency
exchange contracts ................................ -- -- --
Other assets ......................................... 74,093 628 13,305
-------------------- --------------------- ---------------------
Total assets ......................................... 6,488,935,713 406,119,443 1,660,274,488
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Investments purchased ................................ 20,794,167 8,135,510 25,948,991
Fund shares redeemed ................................. 7,880,489 672,089 873,296
Dividends payable .................................... -- -- --
Daily variation margin on futures contracts .......... -- 59,321 --
Unrealized depreciation on forward currency
exchange contracts ................................ -- -- --
Management fee payable ............................... 2,593,844 -- 773,956
Written options, at market ........................... -- -- --
Other payables and accrued expenses .................. 1,280,594 407,782 608,315
-------------------- --------------------- ---------------------
Total liabilities .................................... 32,549,094 9,274,702 28,204,558
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at value .................................. $ 6,456,386,619 $ 396,844,741 $ 1,632,069,930
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ................................. $ 3,233,316 $ (40,574) $ 738,397
Net unrealized appreciation (depreciation) on:
Investments ....................................... 1,561,336,389 41,526,825 598,059,983
Futures contracts ................................. -- (14,524) --
Written options ................................... -- -- --
Foreign currency related transactions ............. 230,833 -- --
Accumulated net realized capital gain (loss) ......... (2,605,069) 553,030 20,780,604
Paid-in capital ...................................... 4,894,191,150 354,819,984 1,012,490,946
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at value .................................. $ 6,456,386,619 $ 396,844,741 $ 1,632,069,930
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ........... 130,684,367 16,367,113 27,157,344
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share ......................................... $49.40 $24.25 $60.10
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unlimited number of shares authorized, $.01 par value, except the AARP High
Quality Tax Free Money Fund, which has a $.001 par value.
The accompanying notes are an integral part of the financial statements
134
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AARP Diversified AARP
AARP Small Company AARP AARP International Income with Growth Diversified Growth
Stock Fund Global Growth Fund Growth and Income Fund Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 78,182,708 $ 147,537,530 $ 37,574,341 $ 108,808,751 $ 140,579,964
50 823 78,164 -- --
95,997 59,693 2,213,629 25,000 275,000
86,635 417,397 245,973 418,006 264,125
48,310 51,581 29,747 67,625 67,783
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
7,397 5,212 7,397 -- --
-- 20,260 -- -- --
744 1,467 240,819 -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
78,421,841 148,093,963 40,390,070 109,319,382 141,186,872
- ----------------------------------------------------------------------------------------------------------------------------
-- 494,330 2,315,373 443,005 539,093
134,965 124,013 109,314 66,837 208,979
-- -- -- 208,905 --
-- -- -- -- --
-- 45,942 -- -- --
32,029 98,795 229 -- --
-- -- -- -- --
127,798 234,741 130,092 -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
294,792 997,821 2,555,008 718,747 748,072
- ----------------------------------------------------------------------------------------------------------------------------
$ 78,127,049 $ 147,096,142 $ 37,835,062 $ 108,600,635 $ 140,438,800
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
$ 593,818 $ 33,620 $ (3,709) $ 87,185 $ 1,052,714
(11,858,709) 21,224,677 660,700 (487,141) 269,443
-- -- -- -- --
-- -- -- -- --
-- (29,620) (549) -- --
(3,202,164) 1,208,402 (1,256,770) 1,420,485 4,048,017
92,594,104 124,659,063 38,435,390 107,580,106 135,068,626
- ----------------------------------------------------------------------------------------------------------------------------
$ 78,127,049 $ 147,096,142 $ 37,835,062 $ 108,600,635 $ 140,438,800
- ----------------------------------------------------------------------------------------------------------------------------
4,771,326 7,787,709 2,174,596 6,773,667 7,849,303
- ----------------------------------------------------------------------------------------------------------------------------
$16.37 $18.89 $17.40 $16.03 $17.89
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
135
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AARP High AARP
Six Months Ended AARP High Quality Tax Free Premium
March 31, 1999 (Unaudited) Quality Money Fund Money Fund Money Fund (a)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest .......................................... $ 14,991,380 $ 1,524,227 $ 67,582
Dividends ......................................... -- -- --
-------------------- --------------------- ---------------------
14,991,380 1,524,227 67,582
Less foreign taxes withheld ....................... -- -- --
-------------------- --------------------- ---------------------
14,991,380 1,524,227 67,582
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee .................................... 1,097,960 186,481 4,959
Services to shareholders .......................... 1,073,696 135,247 16,520
Trustees' fees and expenses ....................... 10,437 10,437 1,239
Shareholder communications ........................ 39,174 20,639 4,484
Legal ............................................. 3,981 5,239 590
Audit and tax services ............................ 14,111 13,463 3,658
Custodian and accounting fees ..................... 37,979 23,099 5,782
Registration expenses ............................. 67,913 17,251 12,073
Amortization of organization expenses ............. -- -- --
Other ............................................. 14,936 11,438 2,500
-------------------- --------------------- ---------------------
Total expenses before reductions ..................... 2,360,187 423,294 51,805
Expense reductions ................................... -- -- (45,264)
-------------------- --------------------- ---------------------
Expenses, net ........................................ 2,360,187 423,294 6,541
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income ................................ 12,631,193 1,100,933 61,041
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ..................................... 9,868 -- --
Futures contracts ............................... -- -- --
Written options ................................. -- -- --
Foreign currency related transactions ........... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ..................................... 122,643 -- --
Futures contracts ............................... -- -- --
Written options ................................. -- -- --
Foreign currency related transactions ........... -- -- --
-------------------- --------------------- ---------------------
Net gain (loss) on investments ....................... 132,511 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $ 12,763,704 $ 1,100,933 $ 61,041
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The fund commenced operations on February 1, 1999.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
136
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AARP High AARP Insured Tax
Quality Short Term AARP GNMA and U.S. Free General Bond AARP Bond Fund for AARP Balanced Stock
Bond Fund Treasury Fund Fund Income and Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 14,030,623 $ 156,021,640 $ 44,765,428 $ 7,049,498 $ 9,680,181
-- -- -- -- 6,977,943
- --------------------- --------------------- --------------------- -------------------- --------------------
14,030,623 156,021,640 44,765,428 7,049,498 16,658,124
-- -- -- -- (118,749)
- --------------------- --------------------- --------------------- -------------------- --------------------
14,030,623 156,021,640 44,765,428 7,049,498 16,539,375
- ----------------------------------------------------------------------------------------------------------------------------
1,032,774 9,072,921 4,033,921 557,491 1,766,380
761,173 4,020,423 1,116,820 304,423 1,298,450
10,437 10,437 10,437 10,437 10,437
63,500 300,511 44,523 11,713 83,172
8,333 7,049 6,764 6,435 7,083
24,617 31,838 28,632 14,210 16,179
38,716 461,791 160,989 14,613 80,070
24,541 51,127 39,328 58,584 29,623
-- -- -- 1,296 2,995
9,832 107,618 38,885 4,344 35,723
- --------------------- --------------------- --------------------- -------------------- --------------------
1,973,923 14,063,715 5,480,299 983,546 3,330,112
-- -- -- (649,249) --
- --------------------- --------------------- --------------------- -------------------- --------------------
1,973,923 14,063,715 5,480,299 334,297 3,330,112
- ----------------------------------------------------------------------------------------------------------------------------
12,056,700 141,957,925 39,285,129 6,715,201 13,209,263
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(173,266) (4,903,697) 1,702,327 (1,280,301) (2,025,612)
(56,938) (3,806,919) 8,038,768 (20,134) (40,299)
-- -- -- -- --
-- -- -- -- (2,531)
(9,251,693) (90,561,989) (35,706,336) (3,921,655) 37,283,585
-- 137,676 3,842,205 -- --
-- -- -- -- --
-- -- -- -- (2,761)
- --------------------- --------------------- --------------------- -------------------- --------------------
(9,481,897) (99,134,929) (22,123,036) (5,222,090) 35,212,382
- ----------------------------------------------------------------------------------------------------------------------------
$ 2,574,803 $ 42,822,996 $ 17,162,093 $ 1,493,111 $ 48,421,645
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
137
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Ended AARP Growth and AARP U.S. Stock Index AARP
March 31, 1999 (Unaudited) Income Fund Fund Capital Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest .......................................... $ 3,005,069 $ 239,635 $ 1,570,759
Dividends ......................................... 95,219,078 1,939,722 6,105,643
Income distributions from underlying funds ........ -- -- --
-------------------- --------------------- ---------------------
98,224,147 2,179,357 7,676,402
Less foreign taxes withheld ....................... (1,270,802) (1,770) (30,350)
-------------------- --------------------- ---------------------
96,953,345 2,177,587 7,646,052
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee .................................... 15,687,524 321,231 4,436,065
Services to shareholders .......................... 6,837,419 425,395 1,867,423
Trustees' fees and expenses ....................... 10,437 10,437 10,437
Shareholder communications ........................ 431,485 11,478 111,842
Legal ............................................. 12,299 7,811 10,693
Audit and tax services ............................ 43,190 13,214 22,501
Custodian and accounting fees ..................... 361,031 118,200 91,201
Registration expenses ............................. 109,571 108,524 71,466
Amortization of organization expenses ............. -- 1,594 --
Other ............................................. 196,820 18,471 85,609
-------------------- --------------------- ---------------------
Total expenses before reductions ..................... 23,689,776 1,036,355 6,707,237
Expense reductions ................................... -- (463,009) --
-------------------- --------------------- ---------------------
Expenses, net ........................................ 23,689,776 573,346 6,707,237
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income ................................ 73,263,569 1,604,241 938,815
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ..................................... (7,084,017) 435,131 21,060,436
Futures contracts ............................... -- 80,225 --
Written options ................................. -- -- --
Foreign currency related transactions ........... (708,456) (4) 182
Capital gain distributions from underlying
funds ........................................... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ..................................... 676,388,077 40,622,504 362,552,463
Futures contracts ............................... -- 36,024 --
Written options ................................. -- -- --
Foreign currency related transactions ........... 20,310 (9) 355
-------------------- --------------------- ---------------------
Net gain (loss) on investments ....................... 668,615,914 41,173,871 383,613,436
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $ 741,879,483 $ 42,778,112 $ 384,552,251
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
138
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AARP Diverified AARP
AARP Small Company AARP AARP International Income with Growth Diversified Growth
Stock Fund Global Growth Fund Growth and Income Fund Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 24,731 $ 395,009 $ 55,081 $ -- $ --
1,463,777 1,179,014 372,551 -- --
-- -- -- 2,614,103 2,275,450
- --------------------- --------------------- --------------------- -------------------- --------------------
1,488,508 1,574,023 427,632 2,614,103 2,275,450
(984) (64,929) (35,451) -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
1,487,524 1,509,094 392,181 2,614,103 2,275,450
- ----------------------------------------------------------------------------------------------------------------------------
391,294 620,732 175,310 -- --
351,744 436,569 169,838 -- --
10,437 10,437 10,437 -- --
22,932 45,605 10,169 -- --
6,087 7,669 6,458 -- --
14,361 28,222 15,570 -- --
30,896 160,886 91,182 -- --
31,998 18,785 22,654 -- --
1,296 1,367 1,296 -- --
10,211 5,741 23,642 -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
871,256 1,336,013 526,556 -- --
(47,030) -- (175,081) -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
824,226 1,336,013 351,475 -- --
- ----------------------------------------------------------------------------------------------------------------------------
663,298 173,081 40,706 2,614,103 2,275,450
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(2,994,095) 1,722,598 (1,176,202) 271,507 (48,010)
-- -- -- -- --
-- -- 168,720 -- --
-- (417,043) 2,789 -- --
-- -- -- 1,537,738 4,425,312
(37,336) 13,396,997 3,456,827 (205,643) 4,675,022
-- -- -- -- --
-- -- (11,064) -- --
-- (78,380) (14,111) -- --
- --------------------- --------------------- --------------------- -------------------- --------------------
(3,031,431) 14,624,172 2,426,959 1,603,602 9,052,324
- ----------------------------------------------------------------------------------------------------------------------------
$ (2,368,133) $ 14,797,253 $ 2,467,665 $ 4,217,705 $ 11,327,774
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
139
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AARP High AARP High
Quality Quality Tax Free
Money Fund Money Fund
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30,
Operations: (Unaudited) 1998 (Unaudited) 1998
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 12,631,193 $ 23,336,500 $ 1,100,933 $ 2,773,354
Net realized gain (loss) on investment
transactions ................................. 9,868 6,791 -- (222)
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 122,643 (2,180) -- --
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 12,763,704 23,341,111 1,100,933 2,773,132
-------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income .......................... (12,644,914) (23,339,437) (1,100,933) (2,773,354)
Net realized gains ............................. -- -- -- --
----------------- ---------------- ----------------- ----------------
Total distributions ............................... (12,644,914) (23,339,437) (1,100,933) (2,773,354)
-------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares ................... 388,583,389 742,177,737 14,441,965 31,796,782
Net asset value of shares issued to
shareholders in reinvestment of distributions 11,591,968 21,266,236 895,377 2,238,469
Cost of shares redeemed ........................ (418,524,757) (654,016,268) (17,452,020) (39,052,688)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from fund
share transactions ............................. (18,349,400) 109,427,705 (2,114,678) (5,017,437)
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ................. (18,230,610) 109,429,379 (2,114,678) (5,017,659)
Net assets at beginning of period ................. 580,740,246 471,310,867 97,596,234 102,613,893
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 562,509,636 $ 580,740,246 $ 95,481,556 $ 97,596,234
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 580,860,195 471,432,488 97,601,942 102,619,379
----------------- ---------------- ----------------- ----------------
Shares sold ....................................... 388,583,390 742,177,739 14,441,965 31,796,782
Shares issued to shareholders in reinvestment of
distributions .................................. 11,591,968 21,266,236 895,377 2,238,469
Shares redeemed ................................... (418,524,757) (654,016,268) (17,452,019) (39,052,688)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in fund shares ............ (18,349,399) 109,427,707 (2,114,677) (5,017,437)
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ............... 562,510,796 580,860,195 95,487,265 97,601,942
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Includes undistributed (overdistributed) net
investment income .......................... $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
140
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP AARP High AARP GNMA
Premium Quality Short Term and U.S.
Money Fund (a) Bond Fund Treasury Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Period Ended Ended Year Ended Ended Year Ended
March 31, March 31, 1999 September 30, March 31, 1999 September 30,
1999 (Unaudited) (Unaudited) 1998 (Unaudited) 1998
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 61,041 $ 12,056,700 $ 25,653,997 $ 141,957,925 $ 295,278,717
-- (230,204) 8,312,412 (8,710,616) 68,923,018
-- (9,251,693) (317,792) (90,424,313) 1,993,609
------------------ ------------------ ------------------ ------------------ ------------------
61,041 2,574,803 33,648,617 42,822,996 366,195,344
- --------------------------------------------------------------------------------------------------------------------------------
(61,041) (12,056,700) (25,653,997) (141,966,135) (295,278,717)
-- -- -- -- --
------------------ ------------------ ------------------ ------------------ ------------------
(61,041) (12,056,700) (25,653,997) (141,966,135) (295,278,717)
- --------------------------------------------------------------------------------------------------------------------------------
21,188,201 26,157,831 52,198,337 249,948,545 454,389,480
55,979 8,547,790 17,897,962 83,491,010 170,131,728
(2,661,840) (40,115,848) (85,285,803) (320,979,893) (686,361,325)
------------------ ------------------ ------------------ ------------------ ------------------
18,582,340 (5,410,227) (15,189,504) 12,459,662 (61,840,117)
------------------ ------------------ ------------------ ------------------ ------------------
18,582,340 (14,892,124) (7,194,884) (86,683,477) 9,076,510
447,674,634 454,869,518 4,593,056,970 4,583,980,460
- --------------------------------------------------------------------------------------------------------------------------------
$ 18,582,340 $ 432,782,510 $ 447,674,634 $ 4,506,373,493 $ 4,593,056,970
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
-- 27,254,456 28,196,489 298,216,939 302,304,535
------------------ ------------------ ------------------ ------------------ ------------------
21,188,201 1,611,133 3,213,267 16,428,309 29,865,850
55,979 528,215 1,102,614 5,494,718 11,174,231
(2,661,840) (2,477,407) (5,257,914) (21,117,811) (45,127,677)
------------------ ------------------ ------------------ ------------------ ------------------
18,582,340 (338,059) (942,033) 805,216 (4,087,596)
------------------ ------------------ ------------------ ------------------ ------------------
18,582,340 26,916,397 27,254,456 299,022,155 298,216,939
- --------------------------------------------------------------------------------------------------------------------------------
(a) The fund commenced operations on February 1, 1999.
$ -- $ 240,718 $ 240,718 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
141
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AARP Insured AARP Bond
Tax Free General Fund for
Bond Fund Income
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30,
Operations: (Unaudited) 1998 (Unaudited) 1998
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 39,285,129 $ 80,744,879 $ 6,715,201 $ 7,277,808
Net realized gain (loss) on investment
transactions ................................. 9,741,095 (10,723,118) (1,300,435) 2,082,403
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (31,864,131) 54,722,106 (3,921,655) (194,239)
----------------- ----------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 17,162,093 124,743,867 1,493,111 9,165,972
--------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income .......................... (39,301,482) (80,744,879) (6,715,201) (7,273,651)
Net realized gains ............................. (6,413,928) (4,608,507) (2,134,810) (105,326)
----------------- ----------------- ----------------- ----------------
Total distributions ............................... (45,715,410) (85,353,386) (8,850,011) (7,378,977)
--------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares ................... 69,681,473 124,316,305 68,529,331 146,283,322
Net asset value of shares issued to
shareholders in reinvestment of distributions 27,912,763 50,996,040 6,441,411 5,248,778
Cost of shares redeemed ........................ (94,501,684) (194,930,797) (29,512,488) (31,202,614)
----------------- ----------------- ----------------- ----------------
Net increase (decrease) in net assets from fund
share transactions ............................. 3,092,552 (19,618,452) 45,458,254 120,329,486
----------------- ----------------- ----------------- ----------------
Increase (decrease) in net assets ................. (25,460,765) 19,772,029 38,101,354 122,116,481
Net assets at beginning of period ................. 1,731,780,197 1,712,008,168 180,440,627 58,324,146
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................... $ 1,706,319,432 $ 1,731,780,197 $ 218,541,981 $ 180,440,627
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 91,878,322 92,944,577 11,708,636 3,836,332
----------------- ----------------- ----------------- ----------------
Shares sold ....................................... 3,724,888 6,709,199 4,544,627 9,571,994
Shares issued to shareholders in reinvestment of
distributions .................................. 1,494,395 2,748,404 428,159 343,356
Shares redeemed ................................... (5,051,766) (10,523,858) (1,959,332) (2,043,046)
----------------- ----------------- ----------------- ----------------
Net increase (decrease) in fund shares ............ 167,517 (1,066,255) 3,013,454 7,872,304
----------------- ----------------- ----------------- ----------------
Shares outstanding at end of period ............... 92,045,839 91,878,322 14,722,090 11,708,636
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes undistributed (overdistributed) net
investment income .......................... $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
142
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP Balanced AARP Growth AARP U.S.
Stock and Bond and Income Stock Index
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30, March 31, 1999 September 30,
(Unaudited) 1998 (Unaudited) 1998 (Unaudited) 1998
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 13,209,263 $ 25,460,284 $ 73,263,569 $ 157,629,671 $ 1,604,241 $ 1,172,870
(2,068,442) 45,011,122 (7,792,473) 768,155,112 515,352 128,809
37,280,824 (67,515,206) 676,408,387 (1,245,386,100) 40,658,519 (2,891,885)
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
48,421,645 2,956,200 741,879,483 (319,601,317) 42,778,112 (1,590,206)
- --------------------------------------------------------------------------------------------------------------------------------
(13,207,041) (25,262,963) (75,860,044) (150,480,599) (1,667,988) (1,166,480)
(41,272,794) (30,730,876) (702,702,382) (581,929,952) -- (299,527)
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(54,479,835) (55,993,839) (778,562,426) (732,410,551) (1,667,988) (1,466,007)
- --------------------------------------------------------------------------------------------------------------------------------
52,745,699 230,950,072 357,963,901 1,314,868,507 268,841,632 113,869,347
50,297,686 51,664,577 712,217,690 671,791,394 1,585,975 1,351,979
(103,727,651) (127,870,676) (1,028,979,341) (1,088,793,618) (38,375,271) (26,567,905)
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(684,266) 154,743,973 41,202,250 897,866,283 232,052,336 88,653,421
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(6,742,456) 101,706,334 4,519,307 (154,145,585) 273,162,460 85,597,208
740,062,591 638,356,257 6,451,867,312 6,606,012,897 123,682,281 38,085,073
- --------------------------------------------------------------------------------------------------------------------------------
$ 733,320,135 $ 740,062,591 $ 6,456,386,619 $ 6,451,867,312 $ 396,844,741 $ 123,682,281
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
37,071,341 29,829,626 129,663,295 113,474,683 6,422,055 2,117,187
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
2,607,509 10,797,928 7,023,798 23,135,455 11,575,093 5,583,188
2,539,848 2,505,030 14,561,141 12,743,832 65,693 68,996
(5,161,767) (6,061,243) (20,563,867) (19,690,675) (1,695,728) (1,347,316)
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
(14,410) 7,241,715 1,021,072 16,188,612 9,945,058 4,304,868
- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
37,056,931 37,071,341 130,684,367 129,663,295 16,367,113 6,422,055
- --------------------------------------------------------------------------------------------------------------------------------
$ 491,622 $ 489,400 $ 3,233,316 $ 5,829,789 $ (40,574) $ 23,173
</TABLE>
The accompanying notes are an integral part of the financial statements
143
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AARP Capital AARP Small
Growth Company
Fund Stock Fund
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30,
Operations: (Unaudited) 1998 (Unaudited) 1998
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income ......................... $ 938,815 $ 6,608,585 $ 663,298 $ 61,313
Net realized gain (loss) on investment
transactions ................................ 21,060,618 158,605,233 (2,994,095) (208,069)
Net unrealized appreciation (depreciation) on
investment transactions during the period ... 362,552,818 (218,002,482) (37,336) (19,455,499)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ............................... 384,552,251 (52,788,664) (2,368,133) (19,602,255)
-------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ......................... (5,806,721) (6,661,535) (84,462) (123,413)
Net realized gains ............................ (158,014,904) (92,509,359) -- (246,828)
----------------- ---------------- ----------------- ----------------
Total distributions .............................. (163,821,625) (99,170,894) (84,462) (370,241)
-------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares .................. 167,026,294 278,559,039 12,322,523 99,397,378
Net asset value of shares issued to
shareholders in reinvestment of distributions 155,710,513 94,606,720 81,442 359,305
Cost of shares redeemed ....................... (158,733,125) (202,250,533) (28,515,809) (33,364,172)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from fund
share transactions ............................ 164,003,682 170,915,226 (16,111,844) 66,392,511
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ................ 384,734,308 18,955,668 (18,564,439) 46,420,015
Net assets at beginning of period ................ 1,247,335,622 1,228,379,954 96,691,488 50,271,473
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) .................. $1,632,069,930 $1,247,335,622 $ 78,127,049 $ 96,691,488
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ........ 24,342,283 21,237,515 5,710,713 2,510,889
----------------- ---------------- ----------------- ----------------
Shares sold ...................................... 2,865,510 4,843,341 707,000 4,874,857
Shares issued to shareholders in reinvestment of
distributions ................................. 2,723,165 1,855,396 4,548 18,267
Shares redeemed .................................. (2,773,614) (3,593,969) (1,650,935) (1,693,300)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in fund shares ........... 2,815,061 3,104,768 (939,387) 3,199,824
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period .............. 27,157,344 24,342,283 4,771,326 5,710,713
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes undistributed (overdistributed) net
investment income ......................... $ 738,397 $ 5,606,304 $ 593,818 $ 14,982
</TABLE>
The accompanying notes are an integral part of the financial statements
144
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AARP Global AARP
Growth International Growth
Fund and Income Fund
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30,
(Unaudited) 1998 (Unaudited) 1998
----------------- ---------------- ------------------ ------------------
<S> <C> <C> <C>
$ 173,081 $ 1,522,209 $ 40,706 $ 430,799
1,305,555 8,584,866 (1,004,693) (248,301)
13,318,617 (14,167,905) 3,431,652 (4,208,832)
----------------- ---------------- ------------------ ------------------
14,797,253 (4,060,830) 2,467,665 (4,026,334)
- -------------------------------------------------------------------------------------------------------------------------------
(1,638,478) (1,240,117) (464,665) (156,766)
(7,168,800) (4,107,884) -- (213,771)
----------------- ---------------- ------------------ ------------------
(8,807,278) (5,348,001) (464,665) (370,537)
- -------------------------------------------------------------------------------------------------------------------------------
14,414,466 35,909,431 8,830,768 36,124,571
8,476,595 5,161,710 449,801 359,913
(26,474,804) (35,001,773) (14,220,327) (11,574,855)
----------------- ---------------- ------------------ ------------------
(3,583,743) 6,069,368 (4,939,758) 24,909,629
----------------- ---------------- ------------------ ------------------
2,406,232 (3,339,463) (2,936,758) 20,512,758
144,689,910 148,029,373 40,771,820 20,259,062
- -------------------------------------------------------------------------------------------------------------------------------
$ 147,096,142 $ 144,689,910 $ 37,835,062 $ 40,771,820
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
7,984,664 7,693,438 2,463,545 1,166,775
----------------- ---------------- ------------------ ------------------
759,719 1,837,149 510,093 1,912,515
447,550 288,364 25,199 21,853
(1,404,224) (1,834,287) (824,241) (637,598)
----------------- ---------------- ------------------ ------------------
(196,955) 291,226 (288,949) 1,296,770
----------------- ---------------- ------------------ ------------------
7,787,709 7,984,664 2,174,596 2,463,545
- -------------------------------------------------------------------------------------------------------------------------------
$ 33,620 $ 1,499,016 $ (3,709) $ 420,251
</TABLE>
The accompanying notes are an integral part of the financial statements
145
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AARP AARP
Diversified Income Diversified
with Growth Portfolio Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
March 31, 1999 September 30, March 31, 1999 September 30,
Operations: (Unaudited) 1998 (Unaudited) 1998
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net investment income ......................... $ 2,614,103 $ 3,490,913 $ 2,275,450 $ 3,258,440
Net realized gain (loss) on investment
transactions ................................ 271,507 605,019 (48,010) 284,208
Capital gains distributions from Underlying
Funds ....................................... 1,537,738 696,009 4,425,312 2,068,563
Net unrealized appreciation (depreciation) on
investment transactions during the period ... (205,643) (2,116,072) 4,675,022 (8,351,965)
----------------- ---------------- ----------------- -----------------
Net increase (decrease) in net assets resulting
from operations ............................... 4,217,705 2,675,869 11,327,774 (2,740,754)
--------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ......................... (2,552,061) (3,476,487) (3,778,973) (1,347,639)
Net realized gains ............................ (1,566,830) (167,236) (2,343,052) (421,138)
----------------- ---------------- ----------------- -----------------
Total distributions .............................. (4,118,891) (3,643,723) (6,122,025) (1,768,777)
--------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares .................. 24,759,067 74,011,331 27,218,913 104,833,263
Net asset value of shares issued to
shareholders in reinvestment of distributions 3,497,783 2,974,714 5,933,480 1,724,532
Cost of shares redeemed ....................... (17,590,576) (21,629,062) (28,252,670) (33,511,754)
----------------- ---------------- ----------------- -----------------
Net increase (decrease) in net assets from fund
share transactions ............................ 10,666,274 55,356,983 4,899,723 73,046,041
----------------- ---------------- ----------------- -----------------
Increase (decrease) in net assets ................ 10,765,088 54,389,129 10,105,472 68,536,510
Net assets at beginning of period ................ 97,835,547 43,446,418 130,333,328 61,796,818
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) .................. $ 108,600,635 $ 97,835,547 $ 140,438,800 $ 130,333,328
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ........ 6,114,823 2,721,909 7,580,420 3,551,018
----------------- ---------------- ----------------- -----------------
Shares sold ...................................... 1,529,785 4,539,735 1,526,868 5,804,982
Shares issued to shareholders in reinvestment of
distributions ................................. 217,068 183,854 330,740 100,909
Shares redeemed .................................. (1,088,009) (1,330,675) (1,588,725) (1,876,489)
----------------- ---------------- ----------------- -----------------
Net increase (decrease) in fund shares ........... 658,844 3,392,914 268,883 4,029,402
----------------- ---------------- ----------------- -----------------
Shares outstanding at end of period .............. 6,773,667 6,114,823 7,849,303 7,580,420
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes undistributed (overdistributed) net
investment income ......................... $ 87,185 $ 25,142 $ 1,052,714 $ 2,556,239
</TABLE>
The accompanying notes are an integral part of the financial statements
146
<PAGE>
/4/
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights are part of the Financial
Statements and are provided to shareholders on an
annual basis, as required by federal securities
law and monitored by the Securities and Exchange
Commission (SEC). The independent accountant of
the AARP Investment Program's annual report is
PricewaterhouseCoopers LLP.
The information in this section explains the
statistical per share income and expense ratio(s)
from operations, dividends paid to shareholders,
total returns, and other financial information.
This section is designed to help you understand
how each AARP fund performed and allows you to
compare the period's performance and expenses to
prior fiscal periods.
147
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP HIGH QUALITY MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------
Net investment income .............................. .022 .048 .046 .045 .049 .028
Distributions from net investment income ........... (.022) (.048) (.046) (.045) (.049) (.028)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------
Total Return (%) ...................................... 2.20(b) 4.86 4.72 4.62 4.99 2.84
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 563 581 471 412 384 333
Ratio of operating expenses to average daily net
assets (%) ......................................... .82(c) .87 .91 .96 .98 1.13
Ratio of net investment income to average daily
net assets (%) ..................................... 4.38(c) 4.76 4.63 4.54 4.89 2.89
</TABLE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------
Net investment income .............................. .011 .028 .028 .028 .029 .017
Distributions from net investment income ........... (.011) (.028) (.028) (.028) (.029) (.017)
----------------------------------------------------------------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------------
Total Return (%) ...................................... 1.13(b) 2.82 2.80 2.80 2.99 1.76(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 95 98 103 111 120 129
Ratio of operating expenses, net, to average daily
net assets (%) ..................................... .86(c) .83 .85 .85 .87 .90
Ratio of operating expenses, before expense
reductions, to average daily net assets (%) ........ .86(c) .83 .85 .85 .87 .91
Ratio of net investment income to average daily
net assets (%) ..................................... 2.25(c) 2.78 2.76 2.77 2.94 1.75
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not annualized
(c) Annualized
148
<PAGE>
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP PREMIUM MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1999
(commencement of
operations) to
March 31, 1999
(Unaudited)
-------------------
<S> <C>
Net asset value, beginning of period .................................................................... $ 1.000
-------------------
Net investment income ................................................................................ .007
Distributions from net investment income ............................................................. (.007)
-------------------
Net asset value, end of period .......................................................................... $ 1.000
-------------------
Total Return (%) (a) .................................................................................... .72(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................................................. 19
Ratio of operating expenses net to average daily net assets (%) ......................................... .50(c)
Ratio of operating expenses, before expense reductions, to average daily net assets (%) ................. 3.98(c)
Ratio of net investment income to average daily net assets (%) .......................................... 4.69(c)
</TABLE>
AARP HIGH QUALITY SHORT TERM BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 16.43 $ 16.13 $ 15.82 $ 16.01 $ 15.05 $ 17.19
---------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .44 .94 .93 .92 .94 .85
Net realized and unrealized gain (loss) on
investments ...................................... (.35) .30 .31 (.19) .95 (1.76)
---------------------------------------------------------------------
Total from investment operations ...................... .09 1.24 1.24 .73 1.89 (.91)
---------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.44) (.94) (.93) (.92) (.93) (.85)
Net realized gains on investments .................. -- -- -- -- -- --
In excess of net realized gains on investments ..... -- -- -- -- -- (.38)
---------------------------------------------------------------------
Total distributions ................................... (.44) (.94) (.93) (.92) (.93) (1.23)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 16.08 $ 16.43 $ 16.13 $ 15.82 $ 16.01 $ 15.05
---------------------------------------------------------------------
Total Return (%) ...................................... .59(b) 7.90 8.15 4.59 12.98 (5.55)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 433 448 455 512 533 568
Ratio of operating expenses to average daily net
assets (%) ......................................... .90(c) .90 .93 .91 .95 .95
Ratio of net investment income to average daily net
assets (%) ......................................... 5.49(c) 5.77 5.84 5.76 6.13 5.31
Portfolio turnover rate (%) ........................... 29.48(c) 137.60 83.26 169.96 201.07 63.75
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not annualized
(c) Annualized
149
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP GNMA AND U.S. TREASURY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 15.40 $ 15.16 $ 14.91 $ 15.19 $ 14.73 $ 15.96
----------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .48 .99 .98 .99 1.01 .93
Net realized and unrealized gain (loss) on
investments ...................................... (.33) .24 .25 (.28) .46 (1.23)
----------------------------------------------------------------------
Total from investment operations ...................... .15 1.23 1.23 .71 1.47 (.30)
----------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.48) (.99) (.98) (.99) (.98) (.93)
Tax return of capital .............................. -- -- -- -- (.03) --
----------------------------------------------------------------------
Total distributions ................................... (.48) (.99) (.98) (.99) (1.01) (.93)
----------------------------------------------------------------------
Net asset value, end of period ........................ $ 15.07 $ 15.40 $ 15.16 $ 14.91 $ 15.19 $ 14.73
----------------------------------------------------------------------
Total Return (%) ...................................... .96(a) 8.40 8.49 4.79 10.31 (1.90)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 4,506 4,593 4,584 4,904 5,252 5,585
Ratio of operating expenses to average daily net
assets (%) ......................................... .62(b) .61 .65 .64 .67 .66
Ratio of net investment income to average daily net
assets (%) ......................................... 6.27(b) 6.52 6.51 6.55 6.77 6.09
Portfolio turnover rate (%) ........................... 227.34(b)(c) 160.40 86.76 83.44 70.35 114.54
</TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 18.85 $ 18.42 $ 17.90 $ 17.74 $ 16.93 $ 19.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .43 .88 .88 .87 .87 .86
Net realized and unrealized gain (loss) on
investments ...................................... (.24) .48 .61 .16 .81 (1.67)
---------------------------------------------------------------------
Total from investment operations ...................... .19 1.36 1.49 1.03 1.68 (.81)
---------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.43) (.88) (.88) (.87) (.87) (.86)
Net realized gains on investments .................. (.07) (.05) (.09) -- -- (.34)
In excess of net realized gains on investments ..... -- -- -- -- -- (.06)
---------------------------------------------------------------------
Total distributions ................................... (.50) (.93) (.97) (.87) (.87) (1.26)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 18.54 $ 18.85 $ 18.42 $ 17.90 $ 17.74 $ 16.93
---------------------------------------------------------------------
Total Return (%) ...................................... 1.00(a) 7.57 8.57 5.88 10.21 (4.48)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 1,706 1,732 1,712 1,755 1,807 1,914
Ratio of operating expenses to average daily net
assets (%) ......................................... .64(b) .62 .66 .66 .69 .68
Ratio of net investment income to average daily
net assets (%) ..................................... 4.58(b) 4.73 4.87 4.83 5.06 4.80
Portfolio turnover rate (%) ........................... 2.88(b) 6.21 7.61 18.69 17.45 38.39
</TABLE>
(a) Not annualized
(b) Annualized
(c) The portfolio turnover rate including mortgage dollar roll transactions was
228.30% for the period ended March 31, 1999.
150
<PAGE>
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP BOND FUND FOR INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Six Months Ended Year Ended (c) to
March 31, 1999 September 30, September 30,
(Unaudited) 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 15.41 $ 15.20 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .51 1.02 .69
Net realized and unrealized gain (loss) on investments ............... (.40) .23 .20
---------------------------------------------------
Total from investment operations ........................................ .11 1.25 .89
---------------------------------------------------
Less distributions from:
Net investment income ................................................ (.51) (1.02) (.69)
Net realized gains on investments .................................... (.17) (.02) --
---------------------------------------------------
Total distributions ..................................................... (.68) (1.04) (.69)
---------------------------------------------------
Net asset value, end of period .......................................... $ 14.84 $ 15.41 $ 15.20
---------------------------------------------------
Total Return (%) (d) .................................................... 0.68(a) 8.47 6.06(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 219 180 58
Ratio of operating expenses, net, to average daily net assets (%) ....... .34(b) .19 --(b)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ......................................... .99(b) 1.04 1.53(b)
Ratio of net investment income to average daily net assets (%) .......... 6.75(b) 6.66 7.03(b)
Portfolio turnover rate (%) ............................................. 80.98(b) 130.56 13.69(b)
</TABLE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1,
Six Months Ended Years Ended September 30, 1994 (c) to
March 31, 1999 -------------------------------------- September 30,
(Unaudited)(e) 1998(e) 1997(e) 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 19.96 $ 21.40 $ 17.63 $ 16.40 $ 14.64 $ 15.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .35 .75 .72 .66 .61 .25
Net realized and unrealized gain (loss) on
investments ................................ .97 (.46) 3.98 1.44 1.79 (.37)
---------------------------------------------------------------------------
Total from investment operations ................ 1.32 .29 4.70 2.10 2.40 (.12)
---------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.36) (.73) (.72) (.66) (.60) (.24)
Net realized gains on investments ............ (1.13) (1.00) (.21) (.21) (.04) --
---------------------------------------------------------------------------
Total distributions ............................. (1.49) (1.73) (.93) (.87) (.64) (.24)
---------------------------------------------------------------------------
Net asset value, end of period .................. $ 19.79 $ 19.96 $ 21.40 $ 17.63 $ 16.40 $ 14.64
---------------------------------------------------------------------------
Total Return (%) ................................ 6.66(a) 1.26 27.34 13.08 16.80 (.78)(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......... 733 740 638 403 247 175
Ratio of operating expenses to average daily
net assets (%) ............................... .89(b) .84 .91 .88 1.01 1.31(b)
Ratio of net investment income to average
daily net assets (%) ......................... 3.52(b) 3.50 3.71 4.09 4.12 3.58(b)
Portfolio turnover rate (%) ..................... 56.32(b) 56.69 26.79 35.22 63.77 49.32(b)
</TABLE>
(a) Not Annualized
(b) Annualized
(c) Commencement of operations.
(d) Total return would have been lower had certain expenses not been reduced.
(e) Based on monthly average shares outstanding during the period.
151
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999 ---------------------------------------------------
(Unaudited)(a) 1998(a) 1997(a) 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 49.76 $ 58.22 $ 43.94 $ 38.36 $ 34.13 $ 32.91
---------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .55 1.25 1.19 1.17 1.11 .94
Net realized and unrealized gain (loss) on
investments ...................................... 5.23 (3.45) 16.00 6.40 5.44 1.62
---------------------------------------------------------------------
Total from investment operations ...................... 5.78 (2.20) 17.19 7.57 6.55 2.56
---------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.59) (1.19) (1.19) (1.15) (1.09) (1.13)
Net realized gains on investments .................. (5.55) (5.07) (1.72) (.84) (1.23) (.21)
---------------------------------------------------------------------
Total distributions ................................... (6.14) (6.26) (2.91) (1.99) (2.32) (1.34)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 49.40 $ 49.76 $ 58.22 $ 43.94 $ 38.36 $ 34.13
---------------------------------------------------------------------
Total Return (%) ...................................... 11.81(d) (4.22) 40.70 20.20 20.43 7.99
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 6,456 6,452 6,606 4,219 3,007 2,312
Ratio of operating expenses to average daily
net assets (%) ..................................... .71(e) .67 .71 .69 .72 .76
Ratio of net investment income to average daily
net assets (%) ..................................... 2.20(e) 2.22 2.38 2.94 3.28 3.00
Portfolio turnover rate (%) ........................... 32.03(e) 40.19 33.40 25.02 31.26 31.82
</TABLE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Six Months Ended Year Ended (b) to
March 31, 1999 September 30, September 30,
(Unaudited) (a) 1998 (a) 1997 (a)
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 19.26 $ 17.99 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .16 .32 .20
Net realized and unrealized gain (loss) on investments ............... 4.97 1.37 2.97
---------------------------------------------------
Total from investment operations ........................................ 5.13 1.69 3.17
---------------------------------------------------
Less distributions from:
Net investment income ................................................ (.14) (.29) (.18)
Net realized gain on investments ..................................... -- (.13) --
---------------------------------------------------
Total distributions ..................................................... (.14) (.42) (.18)
---------------------------------------------------
Net asset value, end of period .......................................... $ 24.25 $ 19.26 $ 17.99
---------------------------------------------------
Total Return (%) (c) .................................................... 26.62(d) 9.39 21.22(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 397 124 38
Ratio of operating expenses, net, to average daily net assets (%) ....... .50(e) .50 .50(e)
Ratio of operating expenses, before expense reductions, to average
daily net assets (%) ................................................. .90(e) 1.13 2.38(e)
Ratio of net investment income to average daily net assets (%) .......... 1.40(e) 1.58 1.94(e)
Portfolio turnover rate (%) ............................................. 2.23(e) 1.11 14.52(e)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Not Annualized
(e) Annualized
152
<PAGE>
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended September 30,
March 31, 1999(a) ---------------------------------------------------
(Unaudited) 1998(a) 1997(a) 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 51.24 $ 57.84 $ 43.47 $ 38.36 $ 31.74 $ 36.20
---------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .04 .28 .34 .42 .36 --
Net realized and unrealized gain (loss) on
investments ...................................... 15.61 (2.26) 18.43 5.59 6.91 (1.51)
---------------------------------------------------------------------
Total from investment operations ...................... 15.65 (1.98) 18.77 6.01 7.27 (1.51)
---------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.24) (.31) (.41) (.39) (.01) (.05)
Net realized gains on investments .................. (6.55) (4.31) (3.99) (.51) (.64) (2.90)
---------------------------------------------------------------------
Total distributions ................................... (6.79) (4.62) (4.40) (.90) (.65) (2.95)
---------------------------------------------------------------------
Net asset value, end of period ........................ $ 60.10 $ 51.24 $ 57.84 $ 43.47 $ 38.36 $ 31.74
---------------------------------------------------------------------
Total Return (%) ...................................... 31.22(d) (3.39) 46.72 15.97 23.47 (4.70)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 1,632 1,247 1,228 826 692 683
Ratio of operating expenses to average daily net
assets (%) ......................................... 0.91(e) .87 .92 .90 .95 .97
Ratio of net investment income to average daily net
assets (%) ......................................... 0.13(e) .50 .70 1.05 1.00 .02
Portfolio turnover rate (%) ........................... 71.17(e) 53.18 39.04 64.84 98.44 79.65
</TABLE>
AARP SMALL COMPANY STOCK FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months Ended February 1, 1997
March 31, Year Ended (b) to
1999 (a) September 30, September 30,
(Unaudited) 1998 (a) 1997 (a)
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 16.93 $ 20.02 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .12 .01 .04
Net realized and unrealized gain (loss) on investments ............... (.66) (2.98) 4.98
---------------------------------------------------
Total from investment operations ........................................ (.54) (2.97) 5.02
Less distributions from:
Net investment income ................................................ (.02) (.04) --
Net realized gains on investments .................................... -- (.08) --
---------------------------------------------------
Total distributions ..................................................... (.02) (.12) --
---------------------------------------------------
Net asset value, end of period .......................................... $ 16.37 $ 16.93 $ 20.02
---------------------------------------------------
Total Return (%) (c) .................................................... (3.28)(d) (14.91) 33.53(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 78 97 50
Ratio of operating expenses, net, to average daily net assets (%) ....... 1.75(e) 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ......................................... 1.85(e) 1.80 2.79(e)
Ratio of net investment income to average daily net assets (%) .......... 1.41(e) .07 .40(e)
Portfolio turnover rate (%) ............................................. 20.22(e) 12.21 5.01(e)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Not Annualized
(e) Annualized
153
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
AARP GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months For the Period
Ended Years Ended February 1, 1996
March 31, September 30, (b) to
1999 --------------------- September 30,
(Unaudited) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............................. $ 18.12 $ 19.24 $ 15.49 $ 15.00
---------------------------------------------------------
Income from investment operations:
Net investment income .......................................... .02 .19 .09 .06
Net realized and unrealized gain (loss) on investments ......... 1.88 (.62) 3.72 .43
---------------------------------------------------------
Total from investment operations .................................. 1.90 (.43) 3.81 .49
---------------------------------------------------------
Less distributions from:
Net investment income .......................................... (.21) (.16) (.06) --
Net realized gain on investments ............................... (.92) (.53) -- --
---------------------------------------------------------
Total distributions ............................................... (1.13) (.69) (.06) --
---------------------------------------------------------
Net asset value, end of period .................................... $ 18.89 $ 18.12 $ 19.24 $ 15.49
---------------------------------------------------------
Total Return (%) .................................................. 10.47(d) (2.19) 24.67(c) 3.27(c)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................ 147 145 148 78
Ratio of operating expenses, net, to average daily net
assets (%) ..................................................... 1.78(e) 1.65 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ................................... 1.78(e) 1.65 1.82 2.31(e)
Ratio of net investment income to average daily net
assets (%) ..................................................... .23(e) .99 .55 1.03(e)
Portfolio turnover rate (%) ....................................... 63.34(e) 59.15 31.34 12.56(e)
</TABLE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Six Months Ended Year Ended (b) to
March 31, 1999 September 30, September 30,
(Unaudited) 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 16.55 $ 17.36 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .02 .28 .23
Net realized and unrealized gain (loss) on investments ............... 1.03 (.83) 2.13
---------------------------------------------------
Total from investment operations ........................................ 1.05 (.55) 2.36
Less distributions from:
Net investment income ................................................ (.20) (.11) --
Net realized gains on investments .................................... -- (.15) --
---------------------------------------------------
Total distributions ..................................................... (.20) (.26) --
---------------------------------------------------
Net asset value, end of period .......................................... $ 17.40 $ 16.55 $ 17.36
---------------------------------------------------
Total Return (%) (c) .................................................... 6.31(d) (3.16) 15.73(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 38 41 20
Ratio of operating expenses, net, to average daily net assets (%) ....... 1.75(e) 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to average
daily net assets (%) ................................................. 2.62(e) 2.41 4.28(e)
Ratio of net investment income to average daily net assets (%) .......... 0.20(e) 1.30 2.35(e)
Portfolio turnover rate (%) ............................................. 168.27(e) 75.28 50.73(e)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Not Annualized
(e) Annualized
154
<PAGE>
The following tables include selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Six Months Ended Year Ended (b) to
March 31, September 30, September 30,
1999 (Unaudited) 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 16.00 $ 15.96 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .40 .82 .43
Net realized and unrealized gain (loss) on investments ............... .27 .03 .96
---------------------------------------------------
Total from investment operations ........................................ .67 .85 1.39
---------------------------------------------------
Less distribution from:
Net investment income ................................................ (.39) (.76) (.43)
Net realized gains on investments .................................... (.25) (.05) --
---------------------------------------------------
Total distributions ..................................................... (.64) (.81) (.43)
---------------------------------------------------
Net asset value, end of period .......................................... $ 16.03 $ 16.00 $ 15.96
---------------------------------------------------
Total Return (%) (e) .................................................... 4.17(c) 5.38 9.35(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 109 98 43
Ratio of operating expenses to average daily net assets (%) (f) ......... -- -- --
Ratio of net investment income to average daily net assets (%) .......... 5.02(d) 5.05 5.13(d)
Portfolio turnover rate (%) ............................................. 12.53(d) 5.12 5.57(d)
</TABLE>
AARP DIVERSIFIED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Six Months Ended Year Ended (b) to
March 31, 1999 September 30, September 30,
(Unaudited) 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................... $ 17.19 $ 17.40 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ................................................ .29 .58 .34
Net realized and unrealized gain (loss) on investments ............... 1.22 (.37) 2.06
---------------------------------------------------
Total from investment operations ........................................ 1.51 .21 2.40
---------------------------------------------------
Less distributions from:
Net investment income ................................................ (.50) (.32) --
Net realized gain on investment ...................................... (.31) (.10) --
---------------------------------------------------
Total distributions ..................................................... (.81) (.42) --
---------------------------------------------------
Net asset value, end of period .......................................... $ 17.89 $ 17.19 $ 17.40
---------------------------------------------------
Total Return (%) (e) .................................................... 8.77(c) 1.22 16.00(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................. 140 130 62
Ratio of operating expenses to average daily net assets (%) (f) ......... -- -- --
Ratio of net investment income to average daily net assets (%) .......... 3.31(d) 3.21 3.52(d)
Portfolio turnover rate (%) ............................................. 13.65(d) 5.55 7.67(d)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Not Annualized
(d) Annualized
(e) If the fund manager had not maintained some of the Underlying AARP Funds'
expenses, the total return for this fund would have been lower.
(f) This Portfolio invests in other AARP Funds, and although the Portfolio did
not incur any direct expenses for the periods presented, the Portfolio did
bear its share of the operating, administrative and advisory expenses of the
Underlying AARP Funds.
155
<PAGE>
This page
intentionally
left blank.
156
<PAGE>
/4/
- --------------------------------------------------------------------------------
NOTES TO
FINANCIAL STATEMENTS
Additional information about the Financial
Statements is found in the Notes to Financial
Statements. This section includes detailed
information on expenses, organization costs, and
transactions, as well as management fees and
commitments.
157
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies.
The following AARP Mutual Funds (the "AARP Funds" or the "Funds") from
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Fund Manager") are a
series of five entities organized as Massachusetts business trusts and are
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as open-end management investment companies (the "Trusts").
<TABLE>
<CAPTION>
Trust name: Series name:
-------------------------------------------------------------------------------------------------
<S> <C>
AARP Cash Investment Funds:
AARP High Quality Money Fund
AARP Premium Money Fund
AARP Income Trust:
AARP High Quality Short Term Bond Fund
(formerly AARP High Quality Bond Fund)
AARP GNMA and U.S. Treasury Fund
AARP Bond Fund for Income
AARP Tax Free Income Trust:
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Growth Trust:
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Capital Growth Fund
AARP Small Company Stock Fund
AARP Global Growth Fund
AARP International Growth and Income Fund
(formerly AARP International Stock Fund)
AARP Managed Investment Portfolios Trust:
AARP Diversified Income with Growth Portfolio
(formerly AARP Diversified Income Portfolio)
AARP Diversified Growth Portfolio
</TABLE>
All Funds are diversified. 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 within
the AARP Managed Investment Portfolios Trust (the "AARP Diversified Portfolios")
invest primarily in existing AARP Mutual Funds from Scudder Kemper (the
"Underlying AARP Funds").
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 Cash Investment Funds and the AARP High
Quality Tax Free Money Fund use the amortized cost method of security valuation
as permitted under Rule 2a-7 under the 1940 Act. 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 are
no such bid and asked quotations the most recent bid quotation is used. Unlisted
securities quoted on the Nasdaq Stock Market, Inc. (Nasdaq), for which there
158
<PAGE>
have been sales, are valued at the most recent sale price reported on Nasdaq. If
there are no such sales, the value is the most recent 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.
Lacking any sales, the security is valued at the calculated mean quotation for
such security. Lacking a calculated mean, the security is valued at the most
recent bid quotation. If there are no such sales, the value is the most recent
bid quotation.
Portfolio debt securities other than money market securities are valued by
pricing agents approved by the Trustees, whose 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.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost. Variable rate demand notes are carried at
cost which together with accrued interest approximates market.
Investments of the AARP Diversified Income with Growth Portfolio and AARP
Diversified Growth Portfolio are valued at the net asset value per share of each
Underlying AARP Fund as of the close of regular trading on the New York Stock
Exchange.
The value of all other securities is determined in good faith under the
direction of the Board of Trustees.
B. 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
is at least equal to the repurchase price.
C. 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 High Quality Short Term Bond Fund, the AARP GNMA and U.S.
Treasury Fund, the AARP Insured Tax Free General Bond Fund, the AARP Bond Fund
for Income and the AARP Balanced Stock and Bond Fund sold interest rate futures
to hedge against declines in the value of portfolio securities, and the AARP
GNMA and U.S. Treasury Fund purchased interest rate futures to manage the
duration of the portfolio. Also, during the period, the AARP U.S. Stock Index
Fund purchased index futures as a temporary substitute for purchasing selected
investments.
Upon entering into a futures contract, a fund is required to deposit with a
financial intermediary an amount equal to a certain percentage of the face value
indicated in the futures contract ("initial margin"). Subsequent payments
("variation margin") are made or received by a 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, a 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 a 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, a
fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
D. Options. 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
159
<PAGE>
NOTES TO FINANCIAL STATEMENTS
specified period of time. Certain options, including options on indices, will
require cash settlement by the applicable Fund if the option is exercised.
During the period, the AARP International Growth and Income Fund wrote call
options on securities 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 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 prices 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. Securities Purchased 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.
F. Forward Currency Exchange Contracts. 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 Global Growth Fund utilized forward contracts as a
hedge against changes in exchange rates relating to foreign currency denominated
assets. In addition, the AARP Global Growth Fund and AARP International Growth
and Income Fund utilized forward contracts as a hedge in connection with
portfolio purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
160
<PAGE>
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.
G. Foreign Currency Translations. Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex-dividend and payment dates on
dividends, interest, and foreign withholding taxes.
H. 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. In addition, acquisition discount is accreted on securities
purchased with an original maturity of one year or greater for the AARP Bond
Fund for Income. Premiums on securities purchased by the AARP Tax Free Income
Trust are amortized on an effective yield basis over the life of the security.
Distributions of income and capital gains earned by the Diversified Growth and
Diversified Income with Growth Portfolios from the Underlying AARP Funds are
recorded on the ex-dividend date.
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.
I. 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 of 1986, 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.
J. Distribution of Income and Gains. Each AARP Fund intends to follow the
practice of distributing all of its net investment income to shareholders.
Dividends from the AARP Cash Investment Funds and the Funds of the AARP Income
Trust and the AARP Tax Free Income Trust are declared daily and distributed
monthly. Dividends from the AARP Diversified Income with Growth Portfolio, the
AARP Balanced Stock and Bond Fund, the AARP U.S. Stock Index Fund, and the AARP
Growth and Income Fund are declared and paid quarterly. Dividends from the AARP
Global Growth Fund, the AARP Small Company Stock Fund, the AARP International
Growth and Income Fund, the AARP Diversified Growth Portfolio, and the AARP
Capital Growth Fund are declared and paid annually. During any particular year,
net realized gains 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 and AARP Premium Money Fund
161
<PAGE>
NOTES TO FINANCIAL STATEMENTS
may take into account realized gains and losses on the sales of securities
in its daily distributions. Additional distributions may be made by each Fund if
necessary.
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, Real Estate Investment Trusts (REITs) and certain securities sold at
a loss. As a result, net investment income and net realized gain (loss) on
investment transactions for a reporting period may differ from distributions
during such period. Accordingly, each Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Fund.
K. Expenses. Each Fund (except for the AARP Diversified Income with Growth
and Diversified Growth Portfolios) 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.
The AARP Diversified Income with Growth and AARP Diversified Growth
Portfolios ("the Portfolios") have entered into a Special Servicing Agreement
with Scudder Kemper, the Underlying AARP Funds, Scudder Service Corporation,
Scudder Fund Accounting Corporation and Scudder Investor Services, whereby the
Fund Manager arranges for all services pertaining to the operations of the
Portfolios. If the aggregate expenses of the Portfolios are less than the
estimated savings to the Underlying AARP Funds from the operation of each
Portfolio, each of the Underlying AARP Funds will bear those expenses in
proportion to the average daily value of its shares owned by the respective
Portfolio. Consequently, no Underlying AARP Fund will be expected to carry
expenses that are in excess of the estimate of savings to the respective
Underlying AARP Fund. These estimated savings result from the reduction in
shareholder servicing costs due to the elimination of separate shareholder
accounts which either currently are or have potential to be invested in the
Underlying AARP Funds. In the event that the financial benefits to the
Underlying AARP Funds do not exceed aggregate expenses of any Portfolio, the
Fund Manager will pay certain costs on behalf of the respective Portfolio. In
accordance with the Special Servicing Agreement, as discussed above, no expenses
were charged to the AARP Diversified Income with Growth and AARP Diversified
Growth Portfolios during the period. For the six months ended March 31, 1999,
the Fund Manager paid expenses in the amount approximately $18,444 and $84,327,
on behalf of the AARP Diversified Income with Growth and AARP Diversified Growth
Portfolios, respectively. Additionally, the Fund Manager has assumed the
organization costs of each Portfolio.
For the six months ended March 31, 1999, the amounts charged to the
Underlying AARP Funds under the Special Servicing Agreement, as shown in the
Statement of Operations as part of the Services to shareholders expense, were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AARP High Quality Money Fund $ 49,420 AARP Capital Growth Fund $ 26,335
AARP GNMA and U.S. Treasury Fund $ 14,352 AARP Small Company Stock Fund $ 8,495
AARP Bond Fund for Income $119,514 AARP Global Growth Fund $ 8,201
AARP Growth and Income Fund $ 42,718 AARP International Growth and Income Fund $ 21,889
AARP U.S. Stock Index Fund $ 45,640
</TABLE>
The AARP High Quality Tax Free Money Fund and the AARP Insured Tax Free
General Bond Fund are not subject to the Special Servicing Agreement.
The AARP Premium Money Fund, the AARP High Quality Short Term Bond Fund
and the AARP Balanced Stock and Bond Fund were not charged any expenses
under the Special Servicing Agreement for the six months ended March
31, 1999.
L. Organization Cost. Costs incurred by the AARP Balanced Stock and Bond
Fund, the AARP Global Growth Fund, the AARP U.S. Stock Index Fund, the AARP Bond
Fund for Income, the AARP International Growth and Income Fund, and the AARP
Small Company Stock Fund in connection with their organization and initial
162
<PAGE>
registration of shares have been deferred and are being amortized on a
straight-line basis over a five-year period. The Fund Manager has assumed the
organization costs of the AARP Diversified Growth and the AARP Diversified
Income with Growth Portfolios.
M. Transactions in Securities of Affiliated Issuers. The AARP Growth and
Income Fund had transactions in securities of affiliated issuers. An affiliated
issuer is a company in which the Fund has ownership of at least 5% of the voting
securities. A summary of the Fund's transactions with companies which are or
were affiliates for the six months ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Beginning Purchases Sales
Affiliate Cost ($) Cost ($) Cost ($) Ending Cost ($) Market Value ($)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General Growth Properties, Inc. 49,335,005 -- -- 49,335,005 65,033,944
=========================================================================================
Realized Gain/Loss ($) Dividend Income ($)
----------------------------------------------------------------------
Affiliated Issuers -- 2,867,007
Unaffiliated Issuers (7,084,017) 92,352,071
----------------------------------------------------------------------
Total (7,084,017) 95,219,078
=======================================================================
</TABLE>
The AARP Diversified Portfolios do not invest in the Underlying AARP Funds
for the purpose of exercising management or control; however, investments within
the set limits may represent a significant portion of an Underlying AARP Fund's
net assets. At March 31, 1999, the Diversified Income with Growth Portfolio held
5% or more of the following Underlying AARP Funds' outstanding shares:
approximately 15% of the AARP Bond Fund for Income. The Diversified Growth
Portfolio held 5% or more of the following Underlying AARP Funds' outstanding
shares at March 31, 1999: approximately 24% of the AARP International Growth and
Income Fund; 12% of the AARP Bond Fund for Income; 8% of the U.S. Stock Index
Fund; 15% of the AARP Small Company Stock Fund; and 6% of the AARP Global Growth
Fund.
Note 2. Management Fee and other Related Transactions.
On September 7, 1998, Zurich, majority owner of the adviser, entered into an
agreement with B.A.T Industries p.l.c. ("B.A.T") pursuant to which the financial
services businesses of B.A.T were combined with Zurich's businesses to form a
new global insurance and financial services company known as Zurich Financial
Services. Upon consummation of the transaction, each Fund's investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. In December 1998, the Board of Trustees and the
shareholders of the Funds approved new investment management agreements with
Scudder Kemper, which are substantially identical to the former investment
management agreements, except for the dates of execution and termination.
Under the investment management and advisory agreement (the "Management
Agreement") between each Trust (excluding the AARP Diversified Portfolios) and
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") except the AARP
Diversified Income with Growth and the Diversified Growth Portfolios, and 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 (excluding
the AARP Diversified Income with Growth and the Diversified Growth Portfolios).
The Annual Base Fee is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
.35% of the first $2.0 billion of such .26% of the next $3.0 billion of such assets
assets
.33% of the next $2.0 billion of such assets .25% of the next $3.0 billion of such assets
.30% of the next $2.0 billion of such assets .24% of such assets thereafter
.28% of the next $2.0 billion of such assets
</TABLE>
163
<PAGE>
NOTES TO FINANCIAL STATEMENTS
In addition to the Base Fee, each Fund (excluding the AARP Diversified Income
with Growth and the AARP Diversified Growth Portfolios) 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, and the varying levels of complexity of investment research and
securities trading required to manage each Fund. The Fund Manager has retained
Bankers Trust Company as Subadviser to the AARP U.S. Stock Index Fund; under the
Subadvisory Agreement, the Fund Manager pays a quarterly fee to the Subadviser,
which amounted to $22,794 for the period ended March 31, 1999.
The Individual Fund Fee Rate is calculated at the following percentages of
the average daily net assets of each Fund:
<TABLE>
<CAPTION>
Fund Rate Fund Rate
---------------------------------------------- ----------- ------------------------------------------------- ----------
<S> <C> <C>
AARP High Quality Money Fund .10% AARP Balanced Stock and Bond Fund .19%
AARP High Quality Tax Free Money Fund .10% AARP Growth and Income Fund .19%
AARP Premium Money Fund .10% AARP Capital Growth Fund .32%
AARP High Quality Short Term Bond Fund .19% AARP Small Company Stock Fund .55%
AARP GNMA and U.S. Treasury Fund .12% AARP Global Growth Fund .55%
AARP Insured Tax Free General Bond Fund .19% AARP International Growth and Income Fund .60%
AARP Bond Fund for Income .28%
</TABLE>
The total amount of management fees 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 Fund Manager has agreed to waive all or a portion of its management fee
and reimburse all or a portion of expenses in order to maintain the following
annualized expense ratios until January 31, 2000: AARP Premium Money Fund, 0.50%
of average daily net assets; AARP Bond Fund for Income, 0.50% of average daily
net assets; AARP U.S. Stock Index Fund, 0.50% of average daily net assets; AARP
Small Company Stock Fund, 1.75% of average daily net assets; and AARP
International Growth and Income Fund, 1.75% of average daily net assets. The
amount of expenses waived and/or reimbursed by the Fund Manager, if any, for
each Fund has been shown in the Statement of Operations as Expense Reductions.
The Fund Manager did not impose any or a portion of its Management Fee for
certain Funds during the period ended March 31, 1999, as follows: AARP Premium
Money Fund $4,959; AARP Bond Fund for Income $557,491; AARP U.S. Stock Index
Fund $321,231; AARP Small Company Stock Fund $47,030; and AARP International
Growth and Income Fund $175,081.
These Trusts also have 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 is shown in the table below
and is included in Services to shareholders in the Statements of Operations.
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 the Funds. The
amount for each Fund is shown in the table below, and is included in Custodian
and accounting fees in the Statements of Operations.
164
<PAGE>
For the six months ended March 31, 1999, the amounts charged by SSC and SFAC
to the Funds were as follows:
<TABLE>
<CAPTION>
Amount Total SSC Amount Total SFAC
Charged To Unpaid at Charged To Unpaid at
Fund by March 31, Fund by March 31,
Fund SSC(a) 1999* SFAC(b) 1999*
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund $ 793,490 $ 137,360 $ 30,365 $ 5,000
AARP High Quality Tax Free Money Fund 104,969 17,915 15,000 2,500
AARP Premium Money Fund -- -- -- --
AARP High Quality Short Term Bond Fund 575,471 87,639 29,197 4,213
AARP GNMA and U.S. Treasury Fund 3,238,262 630,804 297,362 62,425
AARP Insured Tax Free General Bond Fund 906,832 203,588 81,619 13,971
AARP Bond Fund for Income 79,163 27,603 14,190 4,573
AARP Balanced Stock and Bond Fund 911,697 156,630 56,652 9,637
AARP Growth and Income Fund 5,024,079 1,016,026 193,539 31,804
AARP U.S. Stock Index Fund 227,381 72,153 55,009 13,763
AARP Capital Growth Fund 1,341,394 267,682 70,070 13,016
AARP Small Company Stock Fund 203,076 27,747 22,720 3,649
AARP Global Growth Fund 272,289 41,097 65,696 10,492
AARP International Growth and Income Fund 73,760 10,555 25,318 4,167
</TABLE>
* Total unpaid amounts are included in Other payables and accrued expenses
in the Statements of Assets and Liabilities.
(a) SSC did not impose any or a portion of its fee for the AARP Bond Fund for
Income, AARP Premium Money Fund and AARP U.S. Stock Index Fund, amounting
to $79,948, $2,808 and $111,437, respectively.
(b) SFAC did not impose any or a portion of its fee for the AARP Bond Fund
for Income, AARP Premium Money Fund and AARP U.S. Stock Index Fund,
amounting to $11,810, $5,000 and $26,938, respectively.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Funds. For the six months ended March 31,
1999, the amount charged to the AARP GNMA and U.S. Treasury Fund, AARP U.S.
Stock Index Fund and the AARP Balanced Stock and Bond Fund amounted to $9,963,
$10,001 and $13,821, respectively, of which $1,786, $2,572 and $2,343 remains
unpaid at March 31, 1999, respectively. In addition, $3,403 was not imposed on
the AARP U.S. Stock Index Fund.
The AARP Investment Program pays each Trustee unaffiliated with Scudder
Kemper or AARP an annual retainer, plus specified amounts are paid by each Fund
for board and committee meetings attended. The amounts for each Fund have been
shown in the Statement of Operations as Trustees' fees and expenses.
Note 3. Commitments.
As of March 31, 1999, the AARP Global Growth Fund had entered into the
following forward currency exchange contracts resulting in net unrealized
depreciation of $25,682.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date U.S.$)
-------------------------- ------------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
JPY 450,115,280 USD 3,858,351 6/29/99 $ 14,241
JPY 179,617,130 USD 1,540,000 6/29/99 $ 6,019
JPY 73,621,800 USD 630,000 9/1/99 $ (4,378)
JPY 193,748,320 USD 1,630,000 9/10/99 $ (41,564)
-----------
$ (25,682)
===========
</TABLE>
165
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 4. Lines of Credit.
Effective December 1, 1998, all the AARP Funds and several other Scudder
Funds (the "Participants") share in a $850 million revolving credit facility for
temporary or emergency purposes, including the meeting of redemption requests
that otherwise might require the untimely disposition of securities. The
Participants are charged an annual commitment fee which is allocated among each
of the Participants. Interest is calculated based on the market rates at the
time of the borrowing. Each Fund may borrow up to a maximum of 33 percent of its
net assets under the agreement.
166
<PAGE>
/4/
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders (the "Meeting") of the AARP funds was held on
December 15, 1998, at the office of Scudder Kemper Investments, Inc., Two
International Place, Boston, Massachusetts. At the Meeting the following matters
were voted upon by the shareholders (the resulting votes for each matter are
presented below).
<TABLE>
<CAPTION>
1. To approve a new Investment Management Agreement for each fund with Scudder Kemper Investments, Inc.
<S> <C> <C> <C> <C> <C>
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 339,778,268 6,689,806 16,433,010 0
AARP Premium Money Fund -- -- -- --
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Bond Fund for Income 8,904,816 55,129 165,896 0
AARP GNMA and U.S. Treasury Fund 168,057,365 2,477,506 6,143,897 0
AARP High Quality Short Term Bond Fund 15,725,319 264,948 521,562 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 50,995,645 982,452 2,030,700 0
AARP Insured Tax Free General Bond Fund 56,117,439 835,951 2,076,778 0
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 21,105,807 347,172 732,074 0
AARP Capital Growth Fund 12,983,652 222,285 392,034 0
AARP Global Growth Fund 5,045,448 50,146 99,842 0
AARP Growth and Income Fund 72,835,208 1,486,308 2,277,202 0
AARP International Growth and Income Fund 1,603,965 21,453 31,915 0
AARP Small Company Stock Fund 3,641,785 62,748 68,249 0
AARP U.S. Stock Index Fund 4,221,478 52,182 88,499 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 3,707,571 47,717 136,843 0
AARP Diversified Growth Fund 4,334,449 61,592 126,573 0
2. (For shareholders of AARP U.S. Stock Index Fund only.) To approve a new
subadvisory agreement for the fund between Scudder Kemper Investments,
Inc. and Bankers Trust Company.
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP U.S. Stock Index Fund 4,203,169 60,576 98,414 0
167
<PAGE>
3. To approve the new Member Services Agreement between AARP Financial
Services Corporation and Scudder Kemper Investments, Inc.
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 340,675,416 5,613,866 16,611,802 0
AARP Premium Money Fund -- -- -- --
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Bond Fund for Income 8,923,391 49,634 152,816 0
AARP GNMA and U.S. Treasury Fund 167,986,934 2,231,423 6,460,411 0
AARP High Quality Short Term Bond Fund 15,743,876 232,853 535,100 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 50,987,199 879,010 2,142,588 0
AARP Insured Tax Free General Bond Fund 56,027,208 781,370 2,221,590 0
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 21,151,627 301,097 732,329 0
AARP Capital Growth Fund 12,965,716 226,815 405,440 0
AARP Global Growth Fund 5,046,207 44,304 104,925 0
AARP Growth and Income Fund 72,892,704 1,310,330 2,395,684 0
AARP International Growth and Income Fund 1,609,950 17,333 30,050 0
AARP Small Company Stock Fund 3,638,254 61,092 73,436 0
AARP U.S. Stock Index Fund 4,216,399 49,058 96,702 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 3,711,013 40,223 140,895 0
AARP Diversified Growth Fund 4,335,430 59,696 127,448 0
4. To approve the revision of each fund's fundamental lending policy.
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 329,620,174 10,311,585 22,941,609 27,716
AARP Premium Money Fund -- -- -- --
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Bond Fund for Income 8,708,450 102,823 313,786 782
AARP GNMA and U.S. Treasury Fund 162,630,877 4,277,654 9,440,212 330,025
AARP High Quality Short Term Bond Fund 15,237,926 487,557 771,890 14,456
168
<PAGE>
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 48,926,345 1,924,768 3,157,684 0
AARP Insured Tax Free General Bond Fund 54,054,766 1,596,190 3,299,218 79,994
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 20,485,113 565,972 1,106,469 27,499
AARP Capital Growth Fund 12,546,691 431,284 596,721 23,275
AARP Global Growth Fund 4,921,116 112,980 157,089 4,251
AARP Growth and Income Fund 70,248,090 2,516,285 3,598,773 235,570
AARP International Growth and Income Fund 1,579,319 33,601 44,024 389
AARP Small Company Stock Fund 3,559,515 104,307 106,130 2,830
AARP U.S. Stock Index Fund 4,093,356 111,131 156,191 1,481
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 3,563,903 95,385 226,677 6,166
AARP Diversified Growth Fund 4,241,322 94,935 185,127 1,230
- --------------------------------------------------------------------------------------------------------------
* 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>
169
<PAGE>
This page
intentionally
left blank.
170
<PAGE>
/5/
- ------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
The Officers and Trustees of the AARP Investment
Program from Scudder act on behalf of all
shareholders of the AARP funds. They are
responsible for ensuring that each AARP fund is
administered in accordance with the terms set
forth in the fund's prospectus and in accordance
with government regulations.
Chosen for their diverse backgrounds -- which
appropriately reflect the diversity of the AARP
membership -- each Trustee brings a wealth of
personal and professional experience to the
Program.
171
<PAGE>
OFFICERS AND TRUSTEES
LINDA C. COUGHLIN*
-----------------------------------------------------------------------
Chairperson and Trustee of each AARP Trust; Managing Director and
Member, Board of Directors of Scudder Kemper Investments, Inc.
HORACE B. DEETS
-----------------------------------------------------------------------
Vice Chairman of each AARP Trust and Trustee of AARP Cash Investment
Funds, AARP Growth Trust and AARP Tax Free Income Trust; Executive
Director, American Association of Retired Persons; Member Board of
Councilors, Andrus Gerontology Center; Member of the Board, HelpAge
International.
CAROLE LEWIS ANDERSON
-----------------------------------------------------------------------
Trustee of each AARP Trust; President, MASDUN Capital Advisors;
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;
Founder and Director, Forum for Women Corporate Directors, New York
City.
ADELAIDE ATTARD
-----------------------------------------------------------------------
Trustee of each AARP Trust; Member, New York City Department of Aging
Advisory Council -- Appointed by Mayor (1995-Present); Consultant,
Gerontology; Commissioner, County of Nassau, NY, Department of Senior
Citizen Affairs (1971-1991); Board Member, American Association of
International Aging (1981-1996); 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.
ROBERT N. BUTLER, M.D.
-----------------------------------------------------------------------
Trustee of each AARP Trust; Director, International Longevity Center and
Professor of Geriatrics and Adult Development; Chairman, Henry L.
Schwartz Department of Geriatrics and Adult Development, Mount Sinai
Medical Center; Formerly Director, National Institute on Aging, National
Institute of Health (1976-1982).
ESTHER CANJA
-----------------------------------------------------------------------
Trustee of AARP Managed Investment Portfolios Trust and AARP Income
Trust; President-Elect, American Association of Retired Persons; Trustee
and Chair, AARP Group Health Insurance Plan; Board Liaison, National
Volunteer Leadership Network Advisory Committee; Board Member, Board
Operations Committee; Board Member, Board Committee on Strategic
Planning; AARP State Director of Florida (1990-1992).
EDGAR R. FIEDLER
-----------------------------------------------------------------------
Trustee of each AARP Trust; Senior Fellow and Economic Counselor, The
Conference Board, Inc.; Director: The Stanley Works, HT Insight Funds,
and Emerging Mexico Fund.
EUGENE P. FORRESTER
-----------------------------------------------------------------------
Trustee of each AARP Trust; Consultant; International Trade Counselor;
Lt. General (Retired), U.S. Army; Command General, U.S. Army Western
Command, Honolulu; Consultant, Digital Equipment Corp., DHI, Philip
Morris, PICS Previews, and Whittle Communications.
GEORGE L. MADDOX, JR.
-----------------------------------------------------------------------
Trustee of each AARP Trust; Professor Emeritus and Director, Long Term
Care Resources Program, Duke University Medical Center; Senior Fellow,
Center for the Study of Aging and Human Development, Duke University;
Professor Emeritus of Sociology, Departments of Sociology and
Psychiatry, Duke University.
172
<PAGE>
ROBERT J. MYERS
-----------------------------------------------------------------------
Trustee of each AARP Trust; Actuarial Consultant; Formerly Executive
Director, National Commission on Social Security Reform; Director:
Manufacturers Investment Trust; Formerly Director, Board of Pensions,
Evangelical Lutheran Church in America; Formerly Chairman, Commission on
Railroad Retirement Reform; Former Member, U.S. Office of Technology
Assessment, Prospective Payment Assessment Commission.
JAMES H. SCHULZ
-----------------------------------------------------------------------
Trustee of each AARP Trust; Professor of Economics and Kirstein
Professor of Aging Policy, Policy Center of Aging, Florence Heller
School, Brandeis University.
GORDON SHILLINGLAW
-----------------------------------------------------------------------
Trustee of each AARP Trust; Professor Emeritus of Accounting, Columbia
University Graduate School of Business; Formerly Director and Treasurer,
FERIS Foundation of America.
JEAN GLEASON STROMBERG
-----------------------------------------------------------------------
Trustee of each AARP Trust; Consultant; Formerly Director, Financial
Institutions Issues, U.S. General Accounting Office; Formerly Partner,
Fulbright & Jaworski Law Firm.
<TABLE>
<CAPTION>
<S> <C>
CORNELIA SMALL* HOWARD SCHNEIDER*
----------------------------------------------------------------------------------------------------------------
President of each AARP Trust Vice President of each AARP Trust
WILLIAM F. GLAVIN, JR.* JOHN MILLETTE*
----------------------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Assistant Secretary of
each AARP Trust
THOMAS W. JOSEPH* KATHRYN L. QUIRK*
----------------------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Secretary of each AARP Trust
ANN M. MCCREARY* JOHN R. HEBBLE*
----------------------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Treasurer of each AARP Trust
JAMES W. PASMAN*
----------------------------------------------------------------------------------------------------------------
Vice President of each AARP Trust
</TABLE>
*Scudder Kemper Investments, Inc.
Effective January 1, 1995, each member of and nominee for each Board of
Trustees must own shares of one or more of the Funds of the Trust for
which he/she serves as Trustee.
173
<PAGE>
This page
intentionally
left blank.
174
<PAGE>
/6/
- --------------------------------------------------------------------------------
INVESTOR SERVICES
Information, services, and important phone numbers
are contained in this section. Shareholders are
encouraged to contact us through our Internet Web
site at aarp.scudder.com or by calling
Easy-Access, our automated information line. Of
course, you can also speak with one of our highly
skilled Mutual Fund Representatives regarding your
account with the AARP Investment Program.
175
<PAGE>
INVESTOR SERVICES
<TABLE>
<CAPTION>
<S> <C>
AARP AUTOMATIC Take advantage of dollar cost averaging -- a simple, systematic approach to managing
INVESTMENT PLAN risk. By investing a specific amount of money in one or more of the AARP Mutual Funds
from Scudder on a regular basis (usually monthly), you can potentially reduce your
average price per share. By purchasing shares at different prices over time, dollar cost
averaging can offer the potential for a lower cost per share. You can begin your
Automatic Investment Plan with as little as $50 per month.
AARP LUMP SUM SERVICE If you need help on what to do with a lump sum payment from a retirement
plan or life insurance policy, for example, you can now work directly with a
trained AARP Retirement Plan Specialist who can help you with your distribution
options. Our specialists can help explain the tax implications and investment
options, and assist you with expediting your lump sum distribution.
AARP INVESTMENT PROGRAM WEB The AARP Web site (http://aarp.scudder.com) provides investors with timely information
SITE regarding a variety of issues that affect their lives, from general information on the
financial markets and investing, to interactive tools to help with retirement planning.
The site's features include the Week in Review -- a regular update on the financial
markets -- and the Learning Center, containing investment guides such as Planning for
Retirement, Financial Planning for Women, and Managing Your Money in Retirement. You can
also submit questions and comments directly through the site. Visit our Web site often
for the latest information on the AARP Investment Program from Scudder.
AARP LEGACY The Legacy Service was developed to help shareholders feel confident that
SERVICE their investments will pass to their spouse or other heirs the way they
intended. The Service consists of two parts: the Legacy Planner, an
informational guide which provides suggestions for putting financial affairs in
order, and the Legacy Transfer Guide, a service available to families who have
recently experienced a death, the intent of which is to help family members
understand and protect their inheritance.
FINANCIAL PLANNING Despite the advances women have made in all aspects of society, they still have a long
FOR WOMEN GUIDE way to go in attaining the same status as their male counterparts in the area of
finance. Financial Planning for Women, an easy-to-read investment guide, was designed
for women investors in the AARP Investment Program from Scudder who want to increase
their investment knowledge and improve their financial skills. For information on how to
receive your copy of Financial Planning for Women, visit our Web site at
http://aarp.scudder.com, or call the number below.
For more information on the AARP Investment Program's Investor Services,
please contact our highly trained Mutual Fund Representatives at 1-800-253-2277.
176
<PAGE>
HOW TO CONTACT US
INVESTMENT Visit us at our Internet Web site for the latest updates and information
PROGRAM WEB SITE from the AARP Investment Program from Scudder. Visitors have access to a broad
range of information, including performance of AARP Mutual Funds, which is
http://aarp.scudder.com updated daily, and the complete prospectus.
EASY-ACCESS LINE Shareholders with a touch-tone telephone may call this automated line to
obtain AARP fund performance and account information, or to exchange or sell
1-800-631-4636 (redeem) AARP fund shares. This service is available 24 hours a day, 7 days a
week.
TRANSACTIONS You can fax your confidential transaction requests to us. Please note that any
BY FAX exchange or redemption request received after 4:00 p.m. on business days or on
weekends will be processed on the next business day.
1-800-821-6234
TDD (TELECOMMUNICATIONS AARP members with hearing or speech impairments and access to TDD equipment
DEVICE FOR THE DEAF AND can communicate with the AARP Investment Program Monday through Friday, between
SPEECH IMPAIRED) 8:00 a.m. and 5:00 p.m., Eastern time. Transactions can be made between 8:00
a.m. and 4:00 p.m., Eastern time.
1-800-634-9454
SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives are available to answer
SERVICE LINE your questions regarding the AARP Investment Program, or your account, Monday
through Friday, between 8:00 a.m. and 8:00 p.m., Eastern time. Transactions can
1-800-253-2277 be made Monday through Friday, between 8:00 a.m. and 4:00 p.m., Eastern time.
If you need to write to us, send correspondence to:
AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
For overnight AARP Investment Program from Scudder
and certified mail: 42 Longwater Drive
Norwell, MA 02061-1612
</TABLE>
177
<PAGE>
This page
intentionally
left blank.
178
<PAGE>
/7/
- --------------------------------------------------------------------------------
GLOSSARY
Terms in bold italics throughout the report
are defined here.
ASSET-BACKED SECURITIES Bonds or notes backed by loan paper or
accounts receivable originated by banks,
credit card companies, or other providers of
credit and often "enhanced" by a bank Letter
of Credit or by insurance coverage provided
by an institution other than the issuer.
COUPON The interest rate on a bond the issuer (in
the case of mortgage-backed securities, the
government) promises to pay to the holder of
the bond until maturity expressed as an
annual percentage of face value. As an
example, a bond with a 10% coupon would pay
$100 on $1,000 of the face amount each year.
Traditionally bond certificates were issued
with "coupons" representing the dividend
payment that would be detached and mailed to
the custodian bank for payment.
CREDIT RISK The likelihood of a bond issuer to make
timely principal and interest payments.
Treasury notes and bonds have virtually no
credit risk because the securities are
backed by the full faith and credit of the
U.S. government. In contrast, high yield
bonds ("junk bonds"), which have low credit
ratings, have a significant amount of credit
risk because of a higher likelihood of
default.
CYCLICAL/NON-CYCLICAL A cyclical stock tends to rise quickly when
the economy turns up and to fall quickly
when the economy turns down. Examples
include companies in the auto, cement,
housing, machinery, paper, and steel
industries. A non-cyclical stock is less
affected by the economy and includes those
companies in the food and pharmaceutical
industries.
DURATION A mathematical calculation of the average
life of a bond (or bonds in a bond fund)
that serves as a useful measure of price
risk. Each year of duration represents an
expected 1% change in the price of a bond
for every 1% change in interest rates. For
example, if a bond fund has an average
duration of two years, its price will
decline about 2% when interest rates rise by
one percentage point. Conversely, the bond
fund's price will rise about 2% when
interest rates fall by one percentage point.
FUNDAMENTALS/ Analysis of companies based on the
FUNDAMENTAL RESEARCH projected impact of management, products,
sales, and earnings on their balance sheets
and income statements. Fundamental research
is distinct from technical analysis, which
evaluates the attractiveness of a stock
based on historical price and trading volume
movements.
GROWTH STOCK Stock of a company that has displayed
above-average earnings growth and is
expected to continue to increase profits
rapidly going forward. Stocks of such
companies usually trade at higher price
earnings multiples (see price/earnings
ratio) and experience more price volatility
than the market as a whole. Distinct from
value stock.
179
<PAGE>
LIQUIDITY A characteristic of an investment or an
asset referring to the ease of
convertibility into cash within a reasonably
short period of time.
MARKET CAPITALIZATION The market value of a company's outstanding
(LARGE-CAP/SMALL-CAP) shares of common stock, determined by
multiplying the number of shares outstanding
by the share price (shares x price = market
capitalization). The universe of publicly
traded companies is frequently divided into
large-, mid-, and small-capitalization.
Large-cap stocks tend to be more liquid than
small-cap stocks.
MATURITY The date when an issuer must pay the face
amount of the bond to the bondholder. An
investor who buys $10,000 worth of 10-year
bonds will receive $10,000 at the end of 10
years, after receiving interest (coupon)
payments over the 10-year period.
PREPAYMENT RISK The possibility that, as interest rates
fall, homeowners will refinance their home
mortgages, resulting in the prepayment of
mortgage securities.
PRICE/EARNINGS RATIO The price of a stock divided by its earnings
per share, also known as price/earnings
multiple (P/E). A widely used gauge of a
stock's valuation that indicates what
investors are paying for a company's earning
power at the current stock price. A
relatively high price/earnings multiple
indicates higher expected earnings growth,
along with greater risk of earnings
disappointment.
TOP-DOWN STRATEGY A method in which the investor first looks
at trends in the general economy or, in the
case of international investing, the
economies of several countries, and next
selects companies or industries that stand
to benefit from those trends. The opposite
of bottom-up investing.
VALUE STOCK A company whose stock price does not fully
reflect its intrinsic value, as indicated by
its price/earnings ratio, price/book value
ratio, dividend yield, or some other
valuation measure, relative to its industry
or the market overall. Value stocks tend to
display less price volatility and may carry
higher dividend yields than growth stocks.
YIELD SPREAD The difference in yield between two types of
bonds. A mortgage-backed security's yield is
often measured against the yield of a
Treasury bond of similar maturity. If GNMA
yield spreads are "narrow," for example, it
typically means that GNMA yields have been
declining (and prices rising), compared with
Treasury bonds of similar maturity.
180
<PAGE>
This page
intentionally
left blank.
181
<PAGE>
This page
intentionally
left blank.
182
<PAGE>
This page
intentionally
left blank.
183
<PAGE>
This page
intentionally
left blank.
184
<PAGE>
THE EXPENSE OF PUBLISHING THIS REPORT
Some AARP fund shareholders have inquired about the expense of publishing this
report. While the report is legally required by federal securities law and
monitored by the Securities and Exchange Commission (SEC), the AARP Investment
Program from Scudder also seeks to provide shareholders with meaningful
information that is easy to use.
In seeking this objective, we continually incorporate feedback from AARP
members. We go to great lengths to explain the investment markets and fund
performance in a way that is insightful and understandable. We also have
attempted to make this report more readable than other financial reports by
using larger typefaces, effective color contrasts, and "white space" whenever
possible.
To control costs, we have undertaken several initiatives. We produce one
combined report, which we have determined is less expensive than producing 16
individual reports. We obtain a lower price for the paper this report is printed
on by combining our paper needs with that of other Scudder Kemper Investments
divisions for aggregate purchases of over two million pounds annually. While the
number of AARP funds has doubled from two years ago, the cost of producing this
report has dropped from $0.008 per page in 1997 to $0.006 per page in 1999.
We also are mindful of the number of copies we mail to shareholders and attempt
to send only one copy to the same address whenever possible. This has resulted
in a 52% decrease in the total number of reports mailed compared to mailing one
report to each AARP shareholder account. Since we also mail this report to
shareholders that have opened a new account up to 30 days after the fiscal
period end (April 1 through April 30, 1999), a small number of current
shareholders may receive more than one report.
Through these and other efforts we are able to keep the cost of producing and
mailing this report to 98 cents per copy.
Our cost-conscious approach to producing this report reflects our overall
attention to fund expenses and to providing attractive value to shareholders. In
fact, the AARP Mutual Funds continue to have an average expense ratio that is
34% lower than that of other similar funds.^1
^1 Based on the average expenses of similar funds as of 3/31/99. Source: Lipper
Analytical Services, Inc.
The paper used for the cover and internal pages of this report incorporates
recycled corrugated containers. The "Crystal Recycling Process" which
created this paper saved four and one-half truckloads of boxes from going to
landfills. When you are finished with this report, please continue the
process and recycle it.
(recycle logo) Printed on recycled paper
(inside back cover)
