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AARP Investment Program
from SCUDDER
Our Commitment
To AARP Members
Keeps Growing.
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Mid-Year Report to Shareholders
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VISIT OUR FINANCIAL LIBRARY AT AARP.SCUDDER.COM
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How to Contact the AARP Investment Program
WebSite aarp.scudder.com
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Visit us at our Internet Web site for the latest updates and
information from the AARP Investment Program from Scudder.
Visitors have access to a broad range of investment
information, including performance of AARP Mutual Funds,
which is updated daily, and the complete prospectus.
Easy-Access Line 1-800-631-4636
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Shareholders with a touch-tone telephone may call this
automated line to obtain AARP fund performance and account
information, or to exchange or sell (redeem) AARP fund
shares. This service is available 24 hours a day, 7 days a
week.
Shareholder Service Line 1-800-253-2277
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Our knowledgeable AARP Mutual Fund Representatives are
available to answer 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 be made Monday through Friday, between 8:00 a.m. and 4:00
p.m. Eastern time.
Transactions by Fax 1-800-821-6234
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You can fax your confidential transaction requests to us.
Please note that any exchange or redemption request received
after 4:00 p.m. Eastern time on business days or on weekends
will be processed on the next business day.
Telecommunications Device for the Deaf and Speech
Impaired (TDD) Line 1-800-634-9454
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AARP members with hearing or speech impairments and access to
TDD equipment can communicate with the AARP Investment
Program Monday through Friday, between 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 on business days.
Mailing Address
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AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
Certified, Registered, and Overnight Delivery Address
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AARP Investment Program from Scudder
66 Brooks Drive
Braintree, MA 02184
E-mail Address
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[email protected]
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Table of Contents
Mid-Year Review -- A Message from Linda C. Coughlin ........ 2 /1/
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Investment Performance and Individual Portfolio Reviews .... 7 /2/
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Investment Performance for the six-month period ...... 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 Stock Fund
(formerly AARP International Growth and Income Fund) 42
MANAGED INVESTMENT PORTFOLIOS
AARP Diversified Income with Growth Portfolio ........ 44
AARP Diversified Growth Portfolio .................... 44
INVESTMENT PORTFOLIOS ...................................... 47 /3/
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FINANCIAL STATEMENTS ....................................... 127 /4/
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FINANCIAL HIGHLIGHTS ....................................... 145
NOTES TO FINANCIAL STATEMENTS .............................. 155
OFFICERS AND TRUSTEES ...................................... 167 /5/
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INVESTOR SERVICES .......................................... 172 /6/
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GLOSSARY ................................................... 175 /7/
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[logo]
AARP Investment Program
from SCUDDER
Mid-Year Review
THE PRINTED DOCUMENT
A Message from Linda C. Coughlin, Chairperson CONTAINS A PHOTOGRAPH
AARP Investment Program from Scudder OF LINDA C. COUGHLIN
HERE
Dear Fellow Shareholder,
In this letter I would like to address three
important issues that affect the AARP Investment
Program from Scudder: fund performance, an Linda C. Coughlin
expansion of the Investment Program, and the high Chairperson
volume of calls we've received this spring.
The last six months rewarded some investments that focused on a few sectors
with exceptional returns. Technology and biotechnology stocks were among these
leaders. While many of these high-fliers have fallen sharply since the close of
the fiscal period, many investors pursuing diversified, conservative, and
lower-risk investment strategies -- such as the AARP Investment Program funds --
experienced disappointing returns.
These conditions proved especially challenging for value-oriented funds. In
the case of the AARP Growth and Income Fund, we are pleased to report that an
enhanced investment strategy and a change in the market environment helped the
fund significantly narrow the gap versus its benchmark index during the first
three months of this year.
The story was similar for the AARP Small Company Stock Fund: Small-cap
stocks outperformed large-cap stocks for the six months, but the sector was
driven by the exceptional gains of a few small growth stocks. The fund's
discipline, which emphasizes small-cap stocks with solid fundamentals selling at
attractive prices, was severely out of favor during this period.
While the six months proved challenging for these funds, it rewarded
others, especially AARP Capital Growth Fund, AARP U.S. Stock Index Fund, and
AARP International Stock Fund. These funds turned in solid performances for the
period ended March 31, 2000.
We know that fund performance is important to you and that we must
consistently meet or exceed your expectations. We believe that we can meet those
expectations over the long-term, especially given recent enhancements to
selected funds and the changed market environment since the end of the period.
WIDER SELECTION OF FUNDS
This year we are taking another step with the AARP Investment Program by
dramatically expanding the products and services available to shareholders. Part
of expanding the Investment Program's fund choices requires a special
shareholder meeting, which will take place in July 2000. As a shareholder in the
AARP Investment Program funds you are being asked
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to vote on several proposals relating to this expansion. By now you should have
received shareholder meeting ("proxy") materials describing the proposals along
with a proxy card to cast your vote. The Investment Program's Board of Trustees
has approved these proposals and recommends that you vote in favor of them.
Under the proposals, AARP members will be offered a wider range of funds to
meet a broader range of investment goals (see summary on page 8). The current
offering of 16 mutual funds will expand to include 43 funds, including six that
will maintain a risk-managed focus. We will accomplish this by making funds from
the Scudder family of funds available to AARP members. In addition and subject
to shareholder approval, AARP and Scudder funds with similar objectives will be
combined. The resulting funds will be called Scudder funds, with AARP Investment
Program shareholders' shares designated "Class AARP" at the end of the fund
name, e.g., "Scudder Growth and Income Fund -- Class AARP." The renaming denotes
Scudder's distinct role in managing the funds and your special privileges as an
investor in the AARP Investment Program. While you may receive more than one
account statement during the transition period this summer, investment activity
on all of your fund holdings will be reported on a single consolidated AARP
Investment Program statement when the expansion is completed. In addition, we
will continue to offer all funds available through the Investment Program on a
no-load basis.
AARP'S CONTINUING COMMITMENT TO YOU
The involvement and level of participation from AARP in the AARP Investment
Program is not changing. AARP, through a subsidiary, will continue to oversee
the Investment Program's service quality and communications. This subsidiary
will provide insight and direction based on what it believes will best serve the
interests and concerns of AARP members. Part of the ongoing involvement of AARP
includes their continued representation on the funds' Board of Trustees.
MID-YEAR AND ANNUAL REPORTS
After these changes are approved by shareholders, fund specific information
- -- such as performance, portfolio manager discussions, portfolio holdings, and
financial statement information -- will be provided through individual Scudder
fund reports. These existing reports focus on one or a few related funds and are
mailed at different times throughout the year. The individual fund reports
provide detailed information about your fund(s) and will replace the 200-page
AARP Mid-Year and Annual Reports, such as this report.
We will continue to keep you updated on products, services, and topics of
interest through a number of publications, including newsletters and the AARP
Investment Program Web site -- aarp.scudder.com. We will also publish periodic
reviews that will update you on Investment Program developments. As before the
expansion, we will continue to provide you with education on investment topics
affecting your life -- an approach we believe is one of the cornerstones of the
AARP Investment Program.
We are excited about the expansion of the AARP Investment Program, a
development that will provide you with more investment choices. In addition, we
will be introducing other
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services this year that should help you better manage your financial affairs.
Our commitment to shareholders is stronger than ever, and we hope that you will
find the expanded choices useful.
As with any change of this type, you may have questions. For answers, I
encourage you to review the contact list on the inside front cover of this
report, or visit our Internet Web site at aarp.scudder.com (click on "News").
There you'll find the most up-to-date information about the proposed changes. Of
course, you can also call one of our representatives to discuss any of these
issues.
CALLING US
In closing, I would like to thank you for your patience and support if you
have tried to contact us by telephone recently and have experienced an unusually
long delay. We know that some of you have had an unacceptable experience, and we
offer our sincerest apologies. The situation is the result of an unprecedented
number of calls during concentrated periods and job market conditions that have
challenged our ability to hire additional representatives swiftly. Let me assure
you that we have taken significant steps to restore our responsiveness,
including the hiring of more AARP Investment Program representatives. In
addition, our existing AARP Investment Program representatives have agreed to
take shorter lunch breaks, work overtime each business day, and work weekends.
Our representatives from other Scudder phone groups also have offered their
assistance in answering calls.
Even with these best efforts, some of you have had to wait longer than you
are accustomed. To assist you with reaching a representative, you may want to
avoid calling during our busiest times. Our representatives are busiest on
Mondays and Tuesdays between the hours of 10:00 a.m. and 4:00 p.m. Eastern time.
In order to reach a representative sooner, we suggest that you call during the
following periods:
o Wednesday through Friday between 8:00 a.m. and 8:00 p.m. Eastern time
o Saturdays between 10:00 a.m. and 2:00 p.m. Eastern time
o Monday and Tuesday between 4:00 p.m. and 8:00 p.m. Eastern time
Thank you again for your understanding during this extraordinary period.
Our hope is that you have begun to experience an improvement in our
responsiveness by the time you receive this letter. For other ways to contact
us, please turn to the inside front cover of this report. Please know that we
value your relationship and that my colleagues and I are extremely committed to
providing you with the highest quality service possible in keeping with your
expectations and our standards.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
Chairperson
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PROPOSED CHANGES
o Expand the current offering from 16 to 43 no-load funds
o Combine AARP Investment Program funds and Scudder funds that have
similar investment objectives (except for AARP Capital Growth Fund,
which will not be combined with another fund)
o Rename funds to denote Scudder's distinct role in managing the funds
and the special privileges for AARP shareholders (e.g., "Scudder
Growth and Income Fund -- Class AARP")
o Consolidate the multiple fund Boards of Trustees that exist across the
AARP and Scudder funds into one consolidated Board with broad business
experience, specific expertise in mutual fund matters, and
representation from AARP
AARP INVESTMENT PROGRAM BENEFITS
o Continuing commitment to education through efforts such as our
Financial Library, Legacy ServiceSM, and national seminar program
o A dedicated Internet Web site -- aarp.scudder.com -- providing
up-to-date news and information pertaining specifically to the AARP
Investment Program
o AARP, through its subsidiary, will continue to oversee service levels
and communications for AARP Investment Program shareholders and AARP
members
o Continued availability of a series of six risk-managed funds
o Through our ongoing relationship with AARP, Scudder will introduce new
products and services that help meet the needs of AARP members
o Pay no sales charges or commissions on Scudder funds while enjoying
low investment minimums and our No-Fee IRA
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I N V E S T M E N T
P E R F O R M A N C E
Cornelia Small, President and Investment Director
of the AARP Investment Program from Scudder,
begins this section with an overview of the
financial markets and fund performance for the
six-month period ended March 31, 2000.
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 which begins on page 175.
We hope this helps you to better understand the
commentary.
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Investment Performance
For the six-month period ended March 31, 2000
Cornelia Small, President and Investment Director
AARP Investment Program from Scudder
Dear Fellow Shareholder:
After dominating the U.S. market returns for THE PRINTED DOCUMENT
more than two years, a select group of high growth CONTAINS A PHOTOGRAPH
stocks began to lose favor in March. While OF CORNELIA SMALL
investor sentiment shifted to companies with HERE
demonstrated earnings and solid fundamentals,
growth stocks still outdistanced most other asset
classes by a wide margin for the six-month period.
Over the last couple of years growth stocks
(stocks with accelerating earnings, revenues, or
sales) have provided investors with outstanding Cornelia Small
gains. During the six months, investors flocked to President and
growth stocks of all sizes, causing prices to rise Investment Director
to unprecedented heights. Technology and
biotechnology companies were among the best
performing growth stocks, as these companies have been among the fastest
growing. This helped technology-related indices to gain more than 60% for the
six-month period. However, most professional money managers believed that these
levels defied traditional methods of valuing a company and, ultimately, were
unsupportable.
In sharp contrast, the majority of stocks have actually fallen during this
period. Among the weakest performing segments were value stocks (stocks that are
selling at attractive levels). These have trailed growth stocks and the broad
market averages such as the unmanaged S&P 500 Index. This situation has
confounded investors with diversified portfolios as their returns have trailed
the staggering gains of tech and biotech stocks. Yet, hidden in the temptation
to invest in these sectors are the greater risks associated with high growth
stocks. Shortly after the close of the period, some of those risks were realized
as many of these high fliers experienced devastating losses.
In our view, the realignment comes as a welcome relief for the overall
market. While the level of the U.S. stock market remained above-average given
our current earnings projections, the price declines since the end of the period
have removed a substantial amount of risk from some of the most highly-valued
stocks. With stock prices at more reasonable levels and the economy still
healthy, our longer-term outlook for the stock markets has actually improved.
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
THE STOCK MARKETS
CHART PERIOD:
As of March 31, 2000
CHART DATA:
Index Six-month total return
----- ----------------------
Technology Stocks (price only) 85.15%
Nasdaq Composite (price only) 66.52%
Small-cap growth stocks 45.77%
MSCI Latin America 37.10%
Large-cap growth stocks 34.06%
MSCI World (excl. U.S.) 18.06%
S&P 500 17.52%
MSCI Europe 17.48%
MSCI Japan 16.52%
MSCI Pacific Free (excl. Japan) 15.11%
Large-cap value stocks 5.94%
Small-cap value stocks 5.41%
CAPTION TO PRECEDING CHART:
All indices are unmanaged, market-capitalization-weighted, and in U.S. dollars
for the six-month period. Unlike mutual funds, index returns do not reflect
management fees and expenses. The S&P 500 Index is a broad-based index of large
U.S. stocks; large-cap growth stocks are represented by the Russell 1000 Growth
Index; large-cap value stocks are represented by the Russell 1000 Value Index;
small-cap growth stocks are represented by the Russell 2000 Growth Index;
small-cap value stocks are represented by the Russell 2000 Value Index; and
technology stocks are represented by the Pacific Stock Exchange Technology
Index. The MSCI (Morgan Stanley Capital International) World (excluding U.S.)
Index is a broad-based index of international stocks.
-----
However, the market environment is still likely to be filled with price
volatility. The powerful growth of the U.S. economy has raised fears that tight
labor markets and high levels of consumer confidence will cause the demand for
goods and services to outstrip the available supply. This could result in
accelerating inflation. To counteract the threat of inflation, the Federal
Reserve has raised short-term interest rates five times since June of 1999. To
date, the increases have had little effect on slowing the economy, raising
expectations that several more increases will be necessary to dampen potential
inflation pressures.
Higher interest rates simply have reduced the attractiveness of stocks.
As a result, investors have focused on stocks that were believed least affected
by rate increases, mainly stocks with the highest growth rates. Until recently,
these fast growing companies have been among the best performers, but all
investments have their limits. After the close of the fiscal period on March 31,
high growth stocks -- which had the furthest to fall -- continued to decline
sharply as investors seemed to prefer companies with solid financial statements
and relatively lower prices for their stocks.
While the booming U.S. economy has provided an excellent backdrop for
growth stocks, it has been a distinct negative for bonds. In an environment
where confidence is high, energy prices are rising, and gross domestic product
is strong, it is natural that bond prices --
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
THE BOND MARKETS
CHART PERIOD:
As of March 31, 2000
CHART DATA:
Index Six-month total return
----- ----------------------
Merrill Lynch
3-Month Treasury Bill 2.66%
Lehman Bros.
Municipal Bond 2.12%
Lehman Bros. Aggregate 2.08%
Merrill Lynch Mortgage 1.74%
Lehman Bros. Government
Bond (Intermediate) 1.59%
Lehman Bros. Corporate
Bond (Intermediate) 1.51%
Lehman Bros.
High Yield Bond -0.74%
CAPTION TO PRECEDING CHART:
Unlike mutual funds, indices are unmanaged and returns do not reflect management
fees and expenses. The Lehman Brothers High Yield Bond Index is a broad-based
index of below investment grade bonds. The Lehman Brothers GNMA Index is a
broad-based index of GNMA securities. The Lehman Brothers Corporate Bond Index
is a broad-based index of intermediate-term corporate bonds. The Lehman Brothers
Aggregate Index is a broad-based index of U.S. investment grade bonds. The
Lehman Brothers Municipal Bond Index is a broad-based index of municipal bonds.
The Lehman Brothers Government Bond Index is a broad-based index of
intermediate-term U.S. government debt obligations.
-----
which tend to thrive when the economy is slowing -- would experience weakness.
These factors were reflected in the performance of the 30-year Treasury bond
yield, which rose from 6.05% at the beginning of the six-month period to a high
of 6.75% by January 18, 2000.(Bond yields typically move in the opposite
direction of bond prices.)
The upward climb in bond yields was interrupted in early February when
the U.S. Treasury announced plans to buy back existing bonds and curtail its
issuance of new bonds in order to reduce the national debt. Believing that the
Treasury would focus its efforts on longer-term bonds, investors rushed into
that sector of the market to capitalize on the shrinking supply. This drove up
bond prices and caused the yield on the 30-year bond to plunge to 5.83% by the
end of the period. Other sectors of the bond market -- such as corporates and
mortgage-backed securities -- were disrupted by the volatility in government
bonds, but still managed to outperform over the full six months.
The overseas markets have tracked the U.S. fairly closely in the sense
that technology, media, and telecommunications shares ("TMT stocks") have
produced the best returns while other industry sectors have lagged. This trend
has held true in both the major markets as well as the developing countries, and
underscores the fact that the explosive growth of technology is a global
phenomenon. The major European markets staged a powerful rally beginning in
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mid-October that extended into the new year, driving the German equity market to
a gain of 33% and the market in France to an advance of 25%. In Japan, stocks
continued to grind higher behind strength in the country's tech sector, but the
ongoing questions surrounding the state of the country's economy limited gains
to 17% for the six months. Most of the emerging markets performed very well on
the strength of a sharp run-up in the final two months of 1999. Despite the
strong gains in the international markets, we are continuing to find plentiful
opportunities there that take advantage of important long-term trends, such as
restructuring on the corporate level and industry consolidations. We expect that
the wealth of positive changes emerging on the corporate level will continue to
provide excellent stockpicking opportunities.
OVERVIEW OF AARP FUND PERFORMANCE
AARP Capital Growth Fund and AARP U.S. Stock Index Fund continued to
provide strong performance in the domestic equity area, due in part to their
significant exposure to the best performing areas, specifically growth and
technology stocks. AARP Capital Growth Fund's 28.25% six-month return reflects
our "growth at a reasonable price" investment discipline and the fund's
investment in many dominant, well-run companies. This approach contributed to
the fund's ranking among the top 6% of 424 large-cap core funds for the one-year
period according to Lipper.^1 AARP U.S. Stock Index Fund, which seeks to mirror
the performance of the S&P 500 with less risk than other index funds by
emphasizing dividend-paying stocks, essentially matched the performance of its
benchmark with a 17.45% six-month return. In addition, both funds earned overall
4-star Morningstar Ratings(TM) among 3,571 domestic equity funds as of March 31,
2000.^2
Reflecting a resurgence of value stocks toward the end of the period
and the implementation of a broadened investment strategy last year, AARP Growth
and Income Fund significantly narrowed the gap on its benchmark, especially
during the final three months of the period. AARP Balanced Stock and Bond Fund,
which pursues the same investment strategy as AARP Growth and Income Fund in the
equity portion of its portfolio, also benefited. While these two funds do not
invest in many of the high-priced and high-risk stocks that dominated market
performance during the first five months of the period, we are encouraged by the
funds' improving performance.
Among small-cap stocks, the gulf between the performance of growth and
value stocks continued to widen. Small growth stocks returned 45.77%, while
small value stocks returned
- ----------
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
capital gains. Past performance is no guarantee of future results. As of
3/31/00, AARP Capital Growth Fund ranked in the top 6% of 424 funds for the
one-year period, in the top 9% of 231 funds for the five-year period, and in
the top 40% of 54 funds for the ten-year period.
^2 Morningstar proprietary ratings reflect historical risk-adjusted performance
through 3/31/00. 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. AARP
Capital Growth Fund received four stars for the three- and five-year periods.
AARP U.S. Stock Index Fund received four stars for the three-year period. In
their broad asset class these funds were ranked among 3571, 2283, and 786
domestic equity funds, for the three-, five-, and ten-year periods,
respectively. The top 10% of funds in this broad asset class receive five
stars and the next 22.5% receive four stars. Past performance is no guarantee
of future results.
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just 5.41%. AARP Small Company Stock Fund's emphasis on attractively valued
stocks with smaller market capitalizations than its benchmark was a significant
limitation to its short-term performance. Recently the fund has broadened its
exposure to include more growth stocks in addition to its traditional value
stock holdings, which has helped performance. However, substantial gains were
concentrated among a few of the largest growth stocks in the fund's investment
universe -- a significant disadvantage to the fund's diversified approach.
Despite this recent performance, we continue to believe that this fund can offer
shareholders competitive returns and important exposure to one of the more
attractively valued asset classes over the long term.
The Investment Program's global and international funds provided some
of the best returns, as many overseas markets outperformed the U.S. market for
the six-month period. Reflecting this strong performance, AARP Global Growth
Fund returned 19.58% and AARP International Stock Fund (formerly AARP
International Growth and Income Fund) returned 27.24%, putting the latter ahead
of the average international fund according to Lipper.^3
Overall, interest rates continued to climb during the period causing
price declines for most fixed income investors. However, fixed income securities
with the shortest durations -- such as money market funds and short-term bond
funds -- weathered this period better than other sectors. While all of our money
market funds adhere to strict quality guidelines, AARP Premium Money Market Fund
earned high honors by ranking among the top 9% of 368 taxable money market funds
for the one-year period according to Lipper.^4 Despite the headwind of rising
rates for funds with longer durations, AARP High Quality Short Term Bond Fund
and AARP GNMA and U.S. Treasury Fund continued to add to their long-term
performance records with overall 4-star Morningstar Ratings(TM) for their
risk-adjusted returns (among 1,680 taxable bond funds as of March 31, 2000).^5
Reflecting an improving performance trend for AARP GNMA and U.S. Treasury Fund,
which is generally more exposed to the rising rate environment than AARP High
Quality Short Term Bond Fund, the fund ranked among the top 23% of 56 GNMA funds
according to Lipper.^6
IN PERSPECTIVE
With the U.S. stock market pulling back sharply in the first few weeks
of the second quarter, it appears that the signs of a shift in investor
sentiment are continuing to work their way through the market. Given these
conditions and the Federal Reserve's continuing bias
- ----------
^3 As of 3/31/00, AARP International Stock Fund ranked in the top 37% of 643
funds for the one-year period and in the top 44% of 423 funds for the
three-year period. See footnote 1 for additional information.
^4 As of 3/31/00, AARP Premium Money Market Fund ranked in the top 9% of 368
funds for the one-year period. See footnote 1 for additional information.
^5 AARP High Quality Short Term Bond Fund and AARP GNMA & U.S. Treasury Fund
both received four stars for the three- and five-year periods and three
stars for the ten-year period among 1680, 1279, and 389 taxable bond funds
in its broad asset class, respectively. See footnote 2 for additional
information.
^6 As of 3/31/00, AARP GNMA and U.S. Treasury Fund ranked in the top 23% of 56
funds for the one-year period, in the top 75% of funds for the five-year
period, and in the top 76% of 24 funds for the ten-year period. See
footnote 1 for additional information.
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toward raising interest rates to slow growth and head off inflation, we believe
shareholders should expect increased market volatility in the near term. On the
plus side, we think lower stock prices help to reduce the market's overall risk,
and may contribute to improved market stability over the long term.
While the daily ups and downs of the stock and bond markets may
continue to make headlines in the next few months, we continue to believe that
there are many attractive opportunities for investors, especially in selected
overseas markets. Our portfolio managers strive to capitalize on the best
opportunities, whether they are found at home or abroad, or in stocks or in
bonds. In the months ahead they will continue to seek out the most promising
securities that meet the goals and risk requirements of their respective funds.
Thank you for your continued support of the AARP Investment Program
from Scudder.
Sincerely,
/s/Cornelia Small
Cornelia Small
President and Investment Director
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The mention of individual securities in this report should not be deemed a
recommendation.
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I N D I V I D U A L
P O R T F O L I O R E V I E W S
Individual Portfolio Reviews for each AARP fund 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.
Some investment terms require additional explanation. These terms are
highlighted in bold italics throughout the report and appear in the Glossary
beginning on page 175. We hope this helps you to better understand the
Individual Portfolio Reviews.
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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
* 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.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
The performance of the AARP High Quality Money Fund reflected the movement
of short-term interest rates over the six-month period ended March 31, 2000.
After permitting short-term interest rates to subside at the close of 1999 to
ensure adequate liquidity during the Y2K date changeover, the Federal Reserve
resumed raising the federal funds rate in February and March 2000 (to 6.00%) to
try to temper the U.S. economic boom and restrain inflation. Excepting a brief
period at year-end 1999 when we extended maturity to capture attractive yields
for maturities beyond January 2000, we have maintained a conservative stance (a
relatively short portfolio maturity) in order to be able to take advantage of
the higher yields we expect later this year.
All securities purchased during the period were rated within the two
highest quality ranges of at least one of the three leading national independent
rating firms: Fitch Investors Service, Inc., Moody's Investors Service, Inc., or
Standard & Poor's Corporation (S&P). We also complied with the guidelines to
maintain a AAAm rating from S&P, the highest rating available (approximately 5%
of money funds are rated, which provides an added degree of assurance for
discriminating investors).^1 Within the universe of securities that meet S&P
criteria, Scudder Kemper credit analysts adhere to even stricter guidelines,
approving only a small percentage. Thus, the universe of securities from which
we construct the fund's portfolio is smaller and generally of better quality
than most other money market funds.
OUTLOOK
Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30
days. In the current economic environment, the fund is expected to meet its goal
of current income and liquidity with a high degree of safety.
PORTFOLIO STATISTICS
Number of Issues .............23
7-Day Current Yield .......5.01%
Average Maturity ........18 Days
Average Quality ............AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return ..............4.69%
Five-Year Average
Annual Total Return .......4.73%
Ten-Year Average
Annual Total Return .......4.51%
Five-Year Cumulative
Total Return .............26.02%
Ten-Year Cumulative
Total Return .............55.40%
- --------------------------------------------------------------------------------
^1 The rating for the fund is historical and is based on an analysis of the
Portfolio's credit quality, market price exposure, and management.
The adviser has agreed to maintain expenses until 1/31/01.
Past performance is no guarantee of future results. The fund's yield will
fluctuate with market conditions. 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
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
The performance of the AARP High Quality Tax Free Money Fund reflected the
movement of short-term interest rates over the six-month period ended March 31,
2000. After permitting short-term interest rates to subside at the end of 1999
to ensure adequate liquidity during the Y2K date changeover, the Federal Reserve
raised the federal funds rate two times through the close of the period (to
6.00%) to try to temper the U.S. economic boom and restrain inflation. Excepting
a brief period at year-end 1999 when we extended maturity to capture attractive
yields for maturities beyond January 2000, we have maintained a conservative
stance (a relatively short portfolio maturity) in order to be able to take
advantage of the higher yields we expect will be available later this year.
All securities purchased during the period were rated within the two
highest quality ranges of at least one of the three leading national independent
rating firms: Fitch Investors Service, Inc., Moody's Investors Service, Inc., or
Standard & Poor's Corporation (S&P). We also complied with the guidelines to
maintain a AAAm rating from S&P, the highest rating available (approximately 5%
of money funds are rated AAAm, which provides an added degree of assurance for
discriminating investors).^1 Within the universe of securities that meet S&P
criteria, Scudder Kemper credit analysts adhere to even stricter guidelines,
approving only a small percentage. Thus, the universe of securities from which
we construct the fund's portfolio is smaller and generally of better quality
than most other tax-free money market funds.
OUTLOOK
Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30
days. In the current economic environment, the fund is expected to meet its goal
of liquidity and current income with a high degree of safety.
PORTFOLIO STATISTICS
Number of Issues .......... 53
7-Day Current Yield .....2.96%
Average Maturity ......20 Days
Average Quality ..........AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return ............2.68%
Five-Year Average
Annual Total Return .....2.76%
Ten-Year Average
Annual Total Return .....3.01%
Five-Year Cumulative
Total Return ...........14.59%
Ten-Year Cumulative
Total Return ...........34.58%
- --------------------------------------------------------------------------------
^1 The rating for the fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.
Past performance is no guarantee of future results. The fund's yield will
fluctuate with market conditions. 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
- --------------------------------------------------------------------------------
The AARP Premium Money Fund seeks higher yields than the AARP High Quality
Money Fund primarily through a lower expense structure, made possible by a
higher investment minimum.
FUND PERFORMANCE
The performance of the AARP Premium Money Fund reflected the movement of
short-term interest rates over the six-month period ended March 31, 2000. After
permitting short-term interest rates to subside at the close of 1999 to ensure
adequate liquidity during the Y2K date changeover, the Federal Reserve resumed
raising the federal funds rate in February and March 2000 (to 6.00%) to try to
temper the U.S. economic boom and restrain inflation. Excepting a brief period
at year-end 1999 when we extended maturity to capture attractive yields for
maturities beyond January 2000, we have maintained a conservative stance (a
relatively short portfolio maturity) in order to be able to take advantage of
the higher yields we expect will be available later this year.
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 purchased
only securities rated within the highest rating categories of at least one of
the three leading national statistical rating organizations: Fitch Investors
Service, Inc., Moody's Investors Service, Inc., or Standard & Poor's Corporation
(S&P). Within the universe of securities that meet the fund's eligibility
requirements for purchase, we adhered to even stricter guidelines, approving
only a small percentage. Thus, 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.
OUTLOOK
Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30
days. In the current economic environment, the fund is expected to meet its goal
of high current income and liquidity with a high degree of safety.
PORTFOLIO STATISTICS
Number of Issues ...........34
7-Day Current Yield .....5.65%^1
Average Maturity ......30 Days
- --------------------------------------------------------------------------------
^1 Fund expenses are being maintained until 1/31/01. Without such maintenance,
the yield for the AARP Premium Money Fund would have been 5.47%.
Past performance is no guarantee of future results. The fund's yield will
fluctuate with market conditions. 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
Robert S. Cessine
John E. Dugenske
Co-Lead Portfolio Managers
--------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX++
--------------------------
1 yr. 2.79% 3.28%
5 yr. 35.89% 33.98%
10 yr. 100.23% 90.28%
AVERAGE ANNUAL
FUND INDEX++
--------------------------
1 yr. 2.79% 3.28%
5 yr. 6.33% 6.02%
10 yr. 7.19% 6.64%
--------------------------
- --------------------------------------------------------------------------------
The past six months has been a difficult period for the bond market, as
strong growth, tight labor markets, and higher energy prices have forced the
Federal Reserve to raise short-term interest rates five times since June of
1999. In the Treasury market, short-term issues were battered by these trends,
while long-term bonds were boosted by the government's announcement of a plan to
cut the supply of outstanding debt. Outside of the Treasury sector, this
relationship was reversed -- short-term bonds provided more stable performance
than longer-term issues. Since we invest the vast majority of the portfolio
outside of the Treasury sector, the fund was relatively well-positioned for the
unfavorable environment.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE LINE
CHART TITLE: Growth of a $10,000 Investment
CHART PERIOD: Yearly Periods ended March 31, 2000
CHART DATA:
SALOMON BROTHERS INC.
AARP HIGH QUALITY LEHMAN BROTHERS TREASURY/GOVERNMENT
SHORT TERM BOND AGGREGATE BOND SPONSORED CORPORATE
FUND INDEX+ INDEX (1-3 YEARS)++
- ------------------------------------------------------------------------------
1990 $10000 $10000 $10000
1991 11124 11288 11113
1992 12297 12577 12179
1993 13896 14249 13226
1994 14286 14585 13600
1995 14734 15313 14202
1996 16241 16963 15310
1997 16918 17796 16142
1998 18503 19930 17352
1999 19480 21221 18424
2000 20023 21617 19028
FUND PERFORMANCE
For the six months ended March 31, 2000, the fund returned 2.16%, which
consisted of 2.80% in income distributions and -0.64% in capital change. During
the same time frame, the fund's unmanaged benchmark, the Salomon Brothers Inc.
Treasury/Government Sponsored Corporate Index (1-3 Years), returned 1.67%.
Reflecting the higher interest rate environment, the fund's 30-day SEC yield
rose from 5.78% six months ago to 5.91% as of the end of the period.
THE FUND'S INVESTMENT STRATEGY
The fund remains well-diversified among corporate bonds, mortgage-backed
securities (also known as agency pass-throughs), and asset-backed securities.
The shifts we make in the portfolio are designed to take advantage of values
that exist among these different sectors. In the last six months, we have
reduced the fund's position in corporates and raised its weighting in both
mortgage and asset-backed securities, which we believe offer better relative
value. Specifically, we have taken positions in securities
- --------------------------------------------------------------------------------
+ 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. 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>
that offer greater yields than corporates with the same quality rating. We
intend to maintain our positions in these areas as long as we are able to pick
up more yield without having to take on a greater level of risk.
In terms of duration (which measures interest rate sensitivity), we have
maintained a range of 1.6 to 1.9 years, which is slightly shorter than the
fund's benchmark. We felt that this conservative positioning was warranted given
that the economy is showing no signs of slowing down. The fund's average credit
quality stands at AA, which helped performance in a period when higher quality
securities tended to perform well.
OUTLOOK
We continue to believe that the bond market will have difficulty mounting a
strong, sustainable rally until it becomes clear that growth has slowed enough
to allow the Federal Reserve to take a less aggressive stance with regard to
raising interest rates. In the meantime, we will continue to take advantage of
volatility to build positions in bonds that have fallen to attractive valuation
levels. While slumps in the bond market are always uncomfortable for investors,
we view them as an opportunity to buy securities that we feel are mispriced by
the market. From a long-term standpoint, we continue to believe that investing
in high-quality, short-term bonds will continue to be an effective way for
conservative investors to gain a monthly income with a relatively high level of
principal stability.
PORTFOLIO DIVERSIFICATION
As of March 31, 2000
Corporate Bonds 37%
U.S. Government-Backed
Mortgages 23%
Asset-Backed Securities 21%
Cash Equivalents 9%
Government National
Mortgage Association 5%
U.S. Treasury Obligations 3%
U.S. Government Agency
Pass-Throughs 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, 2000
Under 2 Years ...........47.2%
2 to 3 Years ............25.9%
3 to 4 Years ............ 6.0%
4 to 5 Years ............ 9.1%
5 to 8 Years ............ 4.6%
Over 8 Years ............ 7.2%
----
100%
====
- ------------------------------
PORTFOLIO STATISTICS
Number of Issues ...........70
30-Day SEC Yield ........5.91%
Average Coupon ..........6.50%
Average Maturity ....3.0 Years
Average Duration ....1.7 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
John E. Dugenske
Portfolio Managers
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
------------------------
1 yr. 2.04% 2.89%
5 yr. 34.54% 42.79%
10 yr. 93.61% 117.54%
AVERAGE ANNUAL
FUND INDEX+
------------------------
1 yr. 2.04% 2.89%
5 yr. 6.11% 7.38%
10 yr. 6.83% 8.08%
------------------------
- --------------------------------------------------------------------------------
A strong economy and the Federal Reserve's bias toward raising short-term
interest rates over the six months contributed to an overall rising interest
rate environment for mortgage-backed securities. Despite this adverse
environment for fixed income securities, GNMAs performed better than other
mortgage-backed securities and intermediate-term Treasuries. In this
environment, investors preferred government backing and high quality over lower
quality fixed income securities.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31, 2000
CHART DATA:
AARP GNMA AND LEHMAN BROTHERS
U.S. TREASURY FUND GNMA INDEX+
--------------------------------------------------
1990 $10000 $10000
1991 11227 11393
1992 12412 12734
1993 13743 14178
1994 13794 14337
1995 14390 15235
1996 15631 16888
1997 16406 17901
1998 17951 19897
1999 18975 21144
2000 19361 21754
FUND PERFORMANCE
The fund's 2.00% six-month return compares to the 2.39% return of its
benchmark, the Lehman Brothers GNMA Index, for the same period. The fund's total
return consisted of 3.23% in income distributions and -1.23% in capital change.
Reflecting the higher interest rate environment, the fund's 30-day standardized
SEC yield rose from 6.10% six months ago to 6.28% as of the end of the period.
THE FUND'S INVESTMENT STRATEGY
In pursuing the fund's objectives we employ a "top-down" approach that
focuses on four key factors: the portfolio's sensitivity to changes in interest
rates (duration), the allocation between GNMA and Treasury
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PERFORMANCE OF THE FUND
LINE CHART 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>
-----------------------------------
Lipper GNMA
Return Peer Group Risk
-----------------------------------
Highest Lowest Over the three years, this
Return Best 25% XXXX Risk fund is in the bottom 25% of
------------ ----------- similar funds for total return
and among the best 25% of
Next 25% similar funds for monthly
------------ ----------- downside risk.
Next 25% The monthly averages for risk
------------ ----------- and return are for 19 similar
Lowest Highest funds for the period April 1,
Return XXXX Worst 25% Risk 1997 through March 31, 2000.
------------ -----------
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>
securities, the vintage and "seasoning" of issues, and the fund's positioning
with respect to the yield curve.
In the fourth quarter the overall fixed income market was awash with
liquidity as the Federal Reserve pumped money into the economy by dramatically
expanding reserves in advance of Y2K concerns. As the new year came and went
without any major crisis, the economy continued to display some of the strongest
numbers in years, including buoyant consumer confidence, strong housing starts,
and a healthy rate of new mortgage applications. Meanwhile, interest rates have
continued to climb as rising commodity prices and record low unemployment
accelerated inflation fears.
Over the six months, we attempted to maintain a lower sensitivity to
changes in interest rates by keeping the fund's duration shorter than our peers.
We began the period with a duration of 4.2 years and closed the period at 4.0
years. By comparison, the Lehman Brothers GNMA Index's duration was 4.1 years on
March 31, 2000.
During the last six months of the period we reduced the fund's holdings of
GNMAs to 76% of assets (down from 88% six months ago) in an effort to take
advantage of the rally in Treasuries.
In the portfolio, we increased our exposure to seasoned GNMA issues with
6.5% and 7% coupons. We believe that these bonds are attractively priced given
their predictable prepayment characteristics. Positions in seasoned GNMAs with
8% coupons were sold in favor of new GNMAs with 8% and 7.5% coupons.
Additionally, new GNMAs with 8.5% coupons were added given their attractive
valuation.
OUTLOOK
Looking forward, we remain concerned that interest rates may continue to
move higher (and prices may decline) unless economic activity slows. GNMAs
continue to look attractive as prepayment risk remains low and supply remains
minimal.
- --------------------------------------------------------------------------------
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, 2000
Government National
Mortgage Association 76%
Cash Equivalents 18%
U.S. Treasury Obligations 6%
----
100%
====
- ------------------------------
PORTFOLIO STATISTICS
Number of Issues ........2,222
30-Day Yield ............6.28%
Average Coupon ..........8.79%
Average Maturity...11.50 Years
Average Duration ...4.04 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 taxes^1 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
Ashton P. Goodfield
Co-Lead Portfolio Managers
------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
------------------------
1 yr. -.41% -.10%
5 yr. 29.32% 34.27%
10 yr. 90.51% 99.54%
AVERAGE ANNUAL
FUND INDEX+
------------------------
1 yr. -.41% -.10%
5 yr. 5.28% 6.06%
10 yr. 6.66% 7.15%
------------------------
^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.
- --------------------------------------------------------------------------------
FUND PERFORMANCE
During the six-month period, yields of intermediate- and long-term
municipal bonds rose, and their prices generally declined. In this challenging
environment, AARP Insured Tax Free General Bond Fund managed to post a positive
total return of 1.82% for the semiannual period ended March 31, 2000. The fund's
30-day SEC yield as of March 31 was 4.58%, equivalent to a 7.58% taxable yield
for investors in the 39.6% tax bracket.
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 TAX FREE LEHMAN BROTHERS
GENERAL BOND FUND MUNICIPAL BOND INDEX+
---------------------------------------------------------
1990 $10000 $10000
1991 10885 10922
1992 11896 12015
1993 13561 13520
1994 13805 13833
1995 14732 14861
1996 15797 16107
1997 16551 16985
1998 18194 18808
1999 19130 19974
2000 19051 19954
The fund outperformed the 1.73% average total return of its peers during
the period, and ranked in the top 9% among 48 insured municipal debt funds for
the one-year period ended March 31 according to Lipper Analytical Services, Inc.
Longer term, the fund continues to display strong competitive performance: It
ranked in the top 18% of 40 funds for the five-year period, and in the top 22%
of 18 funds for the ten-year period. In light of its conservative strategy aimed
at limiting losses during market declines, the fund may at times lag its
benchmark, the unmanaged Lehman Brothers Municipal Bond Index.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PERFORMANCE OF THE FUND
LINE CHART 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
Return Insured Muni Risk
Debt Peer
Group
-----------------------------------
Highest Lowest Over the three years, this
Return XXXX Best 25% XXXX Risk fund is among the best 25% of
------------ ----------- similar funds for total return
and among the best 25% of
Next 25% similar funds for monthly
------------ ----------- downside risk.
Next 25% The monthly averages for risk
------------ ----------- and return are for 16 similar
Lowest Highest funds for the period April 1,
Return Worst 25% Risk 1997 through March 31, 2000.
------------ -----------
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>
THE FUND'S INVESTMENT STRATEGY
During the fund's most recent semiannual period, the Federal Reserve
continued to raise interest rates to head off inflationary pressures as
commodity prices rebounded, the nation's unemployment index reached 30-year
lows, and consumer spending proceeded at a brisk pace. The Fed's action in March
raised its short-term interest rate target to 6%. As a consequence, yields on
10-year Treasury bonds rose by 0.18 percentage point and their prices declined
1.24% over the six-month period. While municipal bond yields rose by 0.13
percentage point during this period, their prices declined only 0.86%. In light
of these market conditions, our strategy has been to maintain a slightly shorter
portfolio duration compared with other insured municipal bond funds. Over the
period, the fund's duration rose from 6.7 years to 7.0 years.
Within the fund's portfolio we maintained exposure to a broad range of
geographically diversified high quality insured municipal securities. We
continued to focus on intermediate-maturity AAA-rated municipal bonds (7-13 year
maturities), but also increased our allocations toward the end of the period in
20-25 year bonds selling at a discount. We believe this strategy may help the
fund capture additional income and total return potential over the coming
months.
During the six-month period, we maintained a two-part strategy: First, (in
addition to our purchases of long-term discount bonds) we focused on premium
"cushion" bonds -- high coupon bonds trading at a premium to face value. The
premium dollar price provided protection from the market discount tax and
provided reduced price volatility.
At the same time, we continued the fund's strong emphasis on call
protection. (Generally a bond is "called" or redeemed by its issuer so that it
can be refinanced at a lower prevailing interest rate.) Our call-protection
strategy provides a more reliable income stream for the fund than would exist if
the portfolio held a significant proportion of bonds that could be called before
their stated maturities.
OUTLOOK
In terms of the fund's day-to-day strategy, we will continue to seek
competitive returns by purchasing bonds with the most attractive combination of
maturity, coupon, and call protection. Rather than attempting to make investment
decisions based on short-term market movements, we will search for attractively
valued bonds.
- --------------------------------------------------------------------------------
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 income^1
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, 2000
Less than 1 year .......... 3%
1 to less than 5 years ....13%
5 to less than 10 years ...43%
10 to less than 15 years ..28%
Greater than 15 years .....13%
----
100%
====
------------------------------
PORTFOLIO STATISTICS
Number of Issues ...........330
30-Day SEC Yield .........4.58%
Average Coupon ...........4.43%
Average Maturity .....9.6 Years
Effective Duration ..6.97 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
MANAGER
Robert S. Cessine
Lead Portfolio Manager
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. .34% 1.87%
Life of
Fund* 16.23% 20.42%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. .34% 1.87%
Life of
Fund* 4.87% 6.05%
-------------------------
- --------------------------------------------------------------------------------
During the six-month period, the bond market suffered as continued strength
in the U.S. economy prompted the Federal Reserve to raise short-term interest
rates on five separate occasions. Government issues were the best performing
segment of the bond market, due largely to the Treasury's announcement that it
would be reducing the supply of government debt by curtailing new issuance and
buying back existing bonds. Since the Treasury is focusing its efforts on
reducing the supply of longer-term bonds, that sector of the market performed
extremely well even as shorter-term bonds were pressured by rising rates. As a
result, longer-term Treasuries actually offered lower yields than their
short-term counterparts for the final two months of the period. This anomaly,
which is particularly unusual during a time of prosperity, roiled other sectors
of the bond market and caused longer-term corporates and mortgage-backed
securities to slump even as Treasuries rallied.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: Growth of a $10,000 Investment
CHART PERIOD: Semiannual Periods from February 1, 1997*
to March 31, 2000
CHART DATA:
AARP BOND FUND LEHMAN BROTHERS
FOR INCOME AGGREGATE BOND INDEX+
----------------------------------------------------------
2/1/97* $10000 $10000
3/97 9882 9914
9/97 10565 10621
3/98 10992 11102
9/98 11460 11842
3/99 11584 11821
9/99 11408 11796
3/00 11578 12042
FUND PERFORMANCE
This environment was a distinct negative for the fund, which holds a large
position in corporate bonds and a relatively small weighting in Treasuries. For
the six months ended March 31, 2000, the fund returned 1.49% compared to a
return of 2.08% for its unmanaged benchmark, the Lehman Brothers Aggregate Bond
Index. The fund's return consisted of 3.54% in income distributions and -2.05 %
in capital change, and its SEC yield was 7.45% as of the close of the period
versus 7.22% on September 30, 1999.^1
THE FUND'S INVESTMENT STRATEGY
Although the fund is widely diversified among a variety of sectors within
the bond market, the aspect of our strategy that had the greatest impact on fund
performance was our focus on corporate bonds, particularly those in the below
investment grade (or high yield) sector. During the latter
- --------------------------------------------------------------------------------
+ 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.
^1 Fund expenses are being maintained until 1/31/01. Without such maintenance,
the total return would have been lower and the yield on the AARP Bond Fund
for Income would have been 7.25%.
* The fund commenced operations on February 1, 1997.
26
<PAGE>
part of 1999, we increased the fund's position in high yield bonds based on what
we believed were their attractive valuations. However, the sector has been hurt
by the volatility in Treasuries, and our high yield position has detracted from
fund performance. Our holdings in high grade corporates also produced weak
performance, although these securities generally outperformed high yield issues.
Looking ahead, we believe that the worst is now behind us with respect to the
performance of corporates. We intend to maintain a substantial position in the
sector, which we believe is an essential component of a fund that is focused on
producing a high monthly income. In addition, the sector has fallen to levels
that, in our view, are very compelling.
We kept the fund's duration, or interest rate sensitivity, in a range of
4.9 to 5.2 years, which is roughly in line with the benchmark. We intend to
maintain this neutral approach until the interest rate outlook stabilizes. The
average credit rating of the portfolio's holdings is A.
OUTLOOK
We believe that the bond market will remain unsettled until it becomes
clear that the Fed is approaching the end of its series of rate hikes. In the
interim, we intend to position the portfolio to withstand the effects of further
bond market volatility. We have increased the level of liquidity and
diversification in the portfolio, and are confident that our mix of corporate
bonds, government issues, and mortgage-backed securities will enable the fund to
offer high monthly income and strong risk-adjusted returns over the long term.
PORTFOLIO ALLOCATION
As of March 31, 2000
Corporate Bonds 55%
U.S. Treasury Obligations 21%
U.S. Government-Backed
Mortgages 9%
Government National
Mortgage Association 3%
Asset-Backed Securities 3%
Foreign Bonds -- U.S. $
Denominated 2%
Cash Equivalents 5%
Collateralized Mortgage
Obligations 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, 2000
Under One Year ............ 5%
1 to 5 Years ..............25%
5 to 8 Years ..............30%
Over 8 Years ..............40%
----
100%
====
------------------------------
PORTFOLIO STATISTICS
Number of Issues ..........85
30-Day SEC Yield .......7.45%
Average Coupon .........7.28%
Average Maturity ...8.9 Years
Average Duration ...5.1 Years
Average Quality ............A
------------------------------
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
Kathleen T. Millard
Lead Portfolio Manager
Robert S. Cessine
Gregory S. Adams
Portfolio Managers
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
---------------------------
1 yr. 4.25% 10.29%
5 yr. 81.82% 116.04%
Life of
Fund* 87.90% 126.01%
AVERAGE ANNUAL
FUND INDEX+
---------------------------
1 yr. 4.25% 10.29%
5 yr. 12.70% 16.64%
Life of
Fund* 10.77% 14.14%
---------------------------
- --------------------------------------------------------------------------------
During the first five months of the period, the U.S. stock market was led
by a small group of technology stocks. However, the stocks of companies in other
industries began to move upward again in March. Rising interest rates, strong
economic growth, and relatively high prices for some stocks drove this change in
the market.
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, 2000
CHART DATA:
AARP BALANCED LEHMAN BROTHERS
STOCK AND BOND STANDARD & POOR'S AGGREGATE BOND BLENDED
FUND 500 INDEX INDEX INDEX+
- ----------------------------------------------------------------------------
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
3/00 19031 35199 14204 22601
FUND PERFORMANCE
The dominance of growth stocks and the rising interest rate environment
have been a distinct disadvantage to the fund's diversified approach to
investing in value-oriented equities and fixed income securities. However, we
continued to narrow the performance gap between the fund and its benchmark -- a
blended index of the S&P 500, Lehman Brothers Aggregate Bond, and Merrill Lynch
3-Month Treasury Bill indices. Reflecting this environment, the fund trailed the
blended index with a return of 5.06% versus 9.83% for the index over the six
months.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PERFORMANCE OF THE FUND
LINE CHART 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
Peer Group
-----------------------------------
Highest Lowest Over the three years, this
Return Best 25% Risk fund is in the bottom 25% of
------------ ----------- similar funds for total return
and among the best 50% of
Next 25% XXXX similar funds for monthly
------------ ----------- downside risk.
Next 25% The monthly averages for risk
------------ ----------- and return are for 171 similar
Lowest Highest funds for the period April 1,
Return XXXX Worst 25% Risk 1997 through March 31, 2000.
------------ -----------
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 Index (S&P), 40% Lehman Brothers Aggregate Bond Index
(LBAB), and 10% the Merrill Lynch 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 domestic stocks 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>
THE FUND'S INVESTMENT STRATEGY
The equity portion of the portfolio follows the same investment approach as
AARP Growth and Income Fund (see pages 30-33). In this part of the portfolio, we
continued to focus on three important criteria: valuation, fundamentals, and
risk management. The fund's recently broadened investment universe allowed us to
significantly increase technology stocks to 12.5% of total assets from 2.0% last
fall. In this area, our holdings of Oracle, Corning, and Intel made important
contributions to performance.
In the financial sector, we have a favorable outlook for multinational
financial conglomerates like American International Group and Citigroup, which
should prosper despite rising interest rates. We believe that global economic
growth should benefit low cost commodity producers like the major oil companies
and chemical producer Dow Chemical. Stocks in the consumer and health care areas
are very compelling values, in our opinion, because many have been beaten down
by concerns about slowing economic growth. The fund has exposure in these areas
through its holdings in PepsiCo and Merck.
In the fixed income portion of the portfolio, we kept the fund's overall
duration roughly in line with that of the Lehman Brothers Aggregate Bond Index.
The fund's average duration ranged from 4.9 to 5.2 years, reflecting our neutral
approach. Although the fund's fixed income holdings are diversified among a
variety of sectors, our focus on corporate bonds held back performance. Looking
ahead, we intend to maintain a substantial position in corporates, believing
that the worst is now behind us and that corporates remain an essential
component of the fund's balanced approach.
OUTLOOK
We strongly believe that our philosophy, enhanced investment disciplines,
and current holdings in the equity portion of the portfolio will position the
fund well in striving to achieve its long-term investment goals. While the daily
gyrations of the markets will likely continue for the near term, the overall
U.S. economy remains healthy. In this environment, we believe that the fund's
diversified approach can provide investors with exposure to the stock market's
opportunities with less risk than comparable investments.
- --------------------------------------------------------------------------------
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, 2000
Stock Holdings 65%
Bond Holdings 33%
Cash Equivalents 2%
----
100%
====
----------------------------
STOCK ALLOCATION
As of March 31, 2000
Technology 19%
Financial 18%
Manufacturing 12%
Communications 11%
Energy 10%
Health 9%
Consumer Staples 5%
Service Industries 5%
Media 4%
Other 7%
----
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
Kathleen T. Millard
Lead Portfolio Manager
Gregory S. Adams
Portfolio Manager
-------------------------
TOTAL RETURN
As of March 30, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 8.48% 17.96%
5 yr. 128.67% 227.36%
10 yr. 314.30% 462.08%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 8.48% 17.96%
5 yr. 17.99% 26.73%
10 yr. 15.27% 18.83%
-------------------------
- --------------------------------------------------------------------------------
Over the six-month period AARP Growth and Income Fund was affected by three
factors: overall market conditions, our long-term investment strategy, and the
stocks currently held in the portfolio. The U.S. stock market, as defined by the
unmanaged S&P 500 Index, was led by a small group of technology stocks for most
of the period. However, the stocks of companies in other industries began to
move upward again in March. Rising interest rates, strong economic growth, and
relatively high prices for some stocks drove this change in the market.
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+
-------------------------------------------------------
1990 $10000 $10000
1991 11435 11441
1992 13120 12706
1993 15176 14644
1994 16006 14858
1995 18118 17710
1996 23900 22681
1997 28159 27176
1998 40928 40226
1999 38192 47652
2000 41430 56208
FUND PERFORMANCE
The fund significantly narrowed the performance gap versus the S&P 500
Index during the six-month period (see table on page 3). We believe the fund's
improving performance reflects the recent enhancements to our stock selection
disciplines, which include a broadening of the fund's investment universe. This
helped the fund perform well versus the S&P 500 Index during market declines in
January and March. However, the strategy also caused the fund to lag the index
during the rally in February. As a result, the fund's 8.20% six-month return
reflects its weaker performance during the first half
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PERFORMANCE OF THE FUND
LINE CHART 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>
-----------------------------------
Large Blend
Return and Value Risk
Peer Group
-----------------------------------
Highest Lowest Over the three years, this
Return Best 25% XXXX Risk fund is in the bottom 25% of
------------ ----------- similar funds for total return
and among the best 25% of
Next 25% similar funds for monthly
------------ ----------- downside risk.
Next 25% The monthy averages for risk
------------ ----------- and return are for 200 similar
Lowest Highest funds for the period April 1,
Return XXXX Worst 25% Risk 1997 through March 31, 2000.
------------ -----------
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 domestic stocks
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>
THE PRINTED DOCUMENT CONTAINS A TABLE HERE:
IMPROVING TREND
AN ENHANCED INVESTMENT STRATEGY HELPED NARROW THE GAP BETWEEN THE FUND AND
ITS BENCHMARK IN THE FIRST CALENDAR QUARTER OF 2000.
TOTAL RETURNS FUND S&P 500 INDEX DIFFERENCE
---------------------------------------------------------------------------
Fourth quarter 1999 6.60% 14.88% -8.28%
First quarter 2000 1.50% 2.30% -0.80%
---------------------------------------------------------------------------
of the period. The S&P 500 Index returned 17.52% for the same six-month period.
Over the long term (a 3-5 year market cycle), we seek to outperform the market
averages with less risk than similar growth and income funds while maintaining a
disciplined, value-oriented investment philosophy.
We began to implement our enhanced investment disciplines in the second
half of 1999, which we believe is one of the key reasons why the fund has begun
to narrow the performance gap versus the S&P 500 during the first calendar
quarter of 2000. We believe this is an indication that we are making progress
toward our longer-term investment goals. Given that the market environment did
not favor value investing during most of the six-month period, we are pleased
with the fund's progress. However, we believe that longer-term time frames will
be a more accurate measure of our strategy's success. Over the short-term, we
expect the fund to outperform the S&P 500 when value-oriented investments are in
favor and lag when growth-oriented investments are in favor. Shareholders should
be mindful that the difference between the returns of growth and value stocks
can be very wide at times.
THE FUND'S INVESTMENT STRATEGY
The fund's current portfolio holdings reflect our long-term investment
strategy of building a diversified portfolio with a value orientation. Within
this framework our stock selection is based on three important criteria:
valuation, fundamentals, and risk management. First, we analyze stock
valuations. We seek to identify the most attractive stocks given their potential
upside and their possible risks versus other investments. Because there are
several ways of determining a stock's valuation, we use a number of traditional
yardsticks, including yield, price, and earnings ratios to determine a stock's
intrinsic worth.
Second, we assess the company's prospects. Does the company have a viable
earnings growth path? Does management possess credible tools that can be used to
achieve this growth? Our research analysts help us find
(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)
answers to these questions. Finally, we manage risk by analyzing how each
individual stock we buy or sell interacts with the other stocks in the
portfolio. We consider how these transactions affect the fund's diversification
and its exposure to certain industries. We also look at the fund's exposure to
economic events, such as changes in interest rates or economic growth
indicators.
THREE FACTORS
There were three factors contributing to the fund's performance over the
six months: strong performance by top fund holdings, an increased technology
weighting, and good stock selection. Among the fund's top performing holdings
were Intel, Corning, Oracle, and American Home Products. These stocks, along
with several other large portfolio holdings, reflect our investment disciplines
and have had a positive impact on the portfolio.
During October and November 1999 we took advantage of market weakness to
add key technology stocks that met our investment criteria. The fund's increased
weighting in technology had an important and positive impact on returns,
especially considering that technology was the only sector that surpassed the
S&P 500. Investors should be aware that the index now contains a significant
weighting in technology stocks, with the sector comprising about 30% of the S&P
500 benchmark. In this sector, there are some very speculative stocks, some of
which at March 31 valuations were not appropriate for the fund's portfolio. We
intend to maintain our emphasis on high quality technology companies, which will
likely cause the fund to remain underweighted in this sector. However, a
significant decline in technology stock prices might bring a number of stocks
into our "buy" range. In that case, we would carefully weigh each individual
stock's potential against the risks. Some of our technology holdings include
Corning, a major supplier of fiberoptic cable -- a key building block for the
growth of the Internet, and Intel -- the computer chip maker.^1
The fund also benefited from good stock selection over the six months. A
good example of our investment disciplines at work is Disney, which outperformed
the market. The stock was temporarily depressed by poor earnings in 1999, making
it a very attractive value at the time of purchase. Our assessment of the
company's earnings and cash flow outlook suggested that management's plans to
improve returns on invested capital would begin to show results in 2000. The
stock also provided good diversification for the fund because, at the time it
was added to the portfolio, we had no investments in the media area.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
-----------------------------
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 2000
Technology 19%
Financial 18%
Manufacturing 11%
Communications 11%
Energy 10%
Health 9%
Consumer Staples 5%
Service Industries 5%
Media 4%
Other 8%
----
100%
====
-----------------------------
ASSET ALLOCATION
As of March 31, 2000
Stock Holdings 98%
Cash Equivalents 2%
----
100%
====
-----------------------------
- --------------------------------------------------------------------------------
^1 Management considers Corning a technology company, although its standard
industry classification remains under the Manufacturing category in the
Investment Portfolios section on page 86.
32
<PAGE>
The fund is diversified across many sectors and industries, with holdings
in companies that have reasonable stock valuations and strong earnings outlooks.
In the financial sector, we have a favorable outlook for multinational financial
conglomerates such as American International Group and Citigroup, which should
prosper despite rising interest rates. We believe that global economic growth
should benefit low cost commodity producers such as the major oil companies and
chemical producer Dow Chemical. Stocks in the consumer and health care areas are
very compelling values, in our opinion, because many have been beaten down by
concerns about slowing economic growth. The fund has exposure in these two areas
through its holdings in PepsiCo and Merck.
OUTLOOK
We strongly believe that our philosophy, enhanced investment disciplines,
and current holdings position the fund well in striving to achieve its long-term
investment goals. While the daily gyrations of the markets will likely continue
for the near term, the overall U.S. economy remains healthy. In this
environment, we believe that the fund's approach can provide investors with
exposure to the stock market's opportunities with less risk than comparable
investments.
------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS
(31% OF PORTFOLIO AS OF MARCH 31, 2000)
------------------------------------------------------------------------
1. Intel Corp. 6. General Electric Co.
2. Corning, Inc. 7. Marsh & McLennan Companies, Inc.
3. Oracle Corp. 8. Microsoft Corp.
4. Exxon Mobil Corp. 9. Citigroup, Inc.
5. American Home Products Corp. 10. American International Group, Inc.
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
Bankers Trust Company
Subadviser
James M. Eysenbach
Scudder Liaison
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 18.74% 17.96%
Life of
Fund* 99.37% 99.87%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 18.74% 17.96%
Life of
Fund* 24.39% 24.46%
-------------------------
- --------------------------------------------------------------------------------
The strong performance of growth and technology stocks continued to drive
the S&P 500 Index over most of the six-month period. However, market sentiment
shifted in March, as investors retreated from many of these high-priced stocks
to those of solid, blue chip companies.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: Growth of a $10,000 Investment
CHART PERIOD: Semiannual Periods from February 1, 1997* to March 31, 2000
CHART DATA:
AARP U.S. STOCK STANDARD & POOR'S
INDEX FUND 500 INDEX+
-------------------------------------------------
2/1/97* $10000 $10000
3/97 9658 9664
9/97 12122 12202
3/98 14223 14304
9/98 13260 13306
3/99 16790 16945
9/99 16975 17008
3/00 19937 19987
FUND PERFORMANCE
The fund performed well, despite an environment of significantly increased
market volatility and a continued concentration of performance almost
exclusively in a small group of high growth stocks. For the six-month period
ended March 31, 2000, the fund returned 17.45%, essentially matching the 17.52%
return of the unmanaged S&P 500 Index for the same period. In addition, the fund
earned its first Morningstar Rating(TM) -- 4 stars -- among 3,571 domestic
equity funds for its risk-adjusted performance as of March 31, 2000.^1
After solid performance for the S&P 500 in the fourth quarter of 1999, the
first quarter of 2000 was disappointing for almost every industry sector except
technology. However, tech stocks eased in March on fears of accelerating
inflation and an apparent acknowledgement that the relatively high prices of
some technology stocks were not sustainable. Overall, market volatility
increased significantly, but the fund continued to benefit as performance
broadened into other sectors in March.
The dominance of growth and technology stocks over most of the six months
continued to benefit the fund. While consumer cyclicals, capital goods, basic
materials, and communications sectors performed strongly in the fourth quarter
of 1999, all reported negative returns for the first quarter of this year.
Financial stocks, which are the second largest weighting in the S&P 500 after
technology, were buffeted by rising interest rates during the first five months
of the period. However, the sector rose more than 18% in
- --------------------------------------------------------------------------------
+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of domestic stocks
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 adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total
returns would have been lower.
* The fund commenced operations on February 1, 1997.
^1 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 3/31/00. Ratings are subject to change every month and are calculated
from the fund's three-, five-, and ten-year average annual returns in excess
of 90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. In its
broad asset class, the top 10% of funds receive 5 stars and the next 22.5%
receive 4 stars. In the domestic equity category, the fund received a 4-star
rating for the three-year period among 3571 funds in its broad asset class.
Past performance is no guarantee of future results.
34
<PAGE>
March, besting all other sectors of the S&P 500, including technology. This
activity highlights the shifting nature of the industry sectors over the
six-month period.
THE FUND'S INVESTMENT STRATEGY
The fund's benchmark -- the S&P 500 Index -- is widely regarded as the
standard for measuring large-cap U.S. stock market performance. This popular
index includes a representative sample of leading companies in leading
industries and is used by the majority of U.S. money managers and pension plan
sponsors to evaluate large-cap portfolios.
The fund is designed to track the performance of the S&P 500 Index
(typically within 1% per year), while offering slightly less downside risk. The
fund 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 stocks, but gives
more weight to stocks paying higher dividends. Dividend-paying stocks
historically have been more stable, especially in periods of market decline.
The fund's other 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 greater weight to the largest companies.
The fund benefited directly from its significant weighting in technology stocks,
as this sector provided the best performance for the six months.
OUTLOOK
The fund's passive approach is well suited to periods when specific
industry sectors are shifting in and out of favor. Because the fund basically
seeks to reflect the industry weights and characteristics of the index, it does
not run the risk of underperforming the index due to subjective weightings in
specific stocks or industry sectors. While a rising interest rate environment
generally works against stocks, the U.S. economy is healthy and many companies
that comprise the S&P 500 Index are among the largest and most financially sound
in the world. In the months ahead we expect the environment of increased market
volatility to continue. Nevertheless, we believe the fund's approach will remain
an attractive core portfolio component for long-term investors.
10 LARGEST EQUITY HOLDINGS
(25% OF PORTFOLIO AS OF MARCH 31, 2000)
------------------------------------------------------------------------
1. Microsoft Corp. 6. Wal-Mart Stores, Inc.
2. Cisco Systems, Inc. 7. Exxon Mobil Corp.
3. General Electric Co. 8. Nortel Networks Corp.
4. Intel Corp. 9. International Business Machines Corp.
5. Oracle Corp. 10. Lucent Technologies, Inc.
- --------------------------------------------------------------------------------
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, 2000
Technology 27%
Financial 12%
Manufacturing 9%
Communications 9%
Health 9%
Consumer Discretionary 7%
Energy 6%
Consumer Staples 6%
Durables 4%
Other 11%
----
100%
====
--------------------------
ASSET ALLOCATION
As of March 31, 2000
Stock Holdings 100%
----
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, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 33.74% 17.96%
5 yr. 245.16% 227.36%
10 yr. 414.67% 462.08%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 33.74% 17.96%
5 yr. 28.12% 26.73%
10 yr. 17.80% 18.83%
------------------------
- --------------------------------------------------------------------------------
After falling in the first two months of the year, the S&P 500 surged to
new highs in March on a strong rebound in depressed financial and cyclical
stocks. A combination of strong economic growth, moderate core inflation, and an
improving outlook for corporate profits helped alleviate investors' concerns
earlier in the year about the impact of rising energy and labor prices. While
the Federal Reserve Board raised short-term interest rates three times during
the six months, stock investors were not deterred by the rising rate
environment.
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
GROWTH FUND 500 INDEX+
----------------------------------------------
1990 10000 10000
1991 10888 11441
1992 12545 12706
1993 14077 14644
1994 14327 14858
1995 14911 17170
1996 19496 22681
1997 22642 27176
1998 33838 40226
1999 38483 47652
2000 51467 56208
FUND PERFORMANCE
AARP Capital Growth Fund returned 28.25% for the period, beating the 17.52%
return of its unmanaged benchmark, the S&P 500 Index. The fund also performed
well against its peers: according to Lipper Analytical Services, it finished in
the top 6% of its peer group for the one-year period ended March 31, 2000.1 We
believe that the fund's strong performance is a result of our disciplined stock
selection methodology, as well as the fact that the market climate was favorable
for the stocks in our investment universe.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND
LINE CHART 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 Over the three years, this
Return Large Growth Risk fund is among the top 75% of
Peer Group similar funds for total return
----------------------------------- and in the top 50% of similar
Highest Lowest funds for monthly downside
Return Best 25% Risk risk.
------------ -----------
The monthly averages for risk
Next 25% XXXX and return are for 217 similar
------------ ----------- funds for the period April 1,
1997 through March 31, 2000.
XXXX Next 25%
------------ ----------- Morningstar is the source for
Lowest Highest the peer group information of
Return Worst 25% Risk 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 domestic stocks
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.
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. The fund's returns placed it in the top 6% of 424
Large Cap Core Funds for the one-year period, in the top 9% of 213 funds for
the three-year period, in the top 5% of 141 funds for the five-year period,
and in the top 40% of 54 funds for the ten-year period. Performance includes
reinvestment of dividends and capital gains. Past performance is no guarantee
of future results.
36
<PAGE>
THE FUND'S INVESTMENT STRATEGY
In managing the fund, we use a method known as GARP, which stands for
"Growth at a Reasonable Price." We use this technique to identify what we
believe are relatively attractive growth companies, and to gauge when a stock
has reached a price that appears to be excessive in light of its long-term
growth prospects. We believe that good companies that offer superior long-term
growth characteristics are worth more than less reliable companies that are
often "cheap" for a reason. This disciplined methodology has allowed us to
participate in some of the market's biggest winners, and avoid an inordinate
amount of negative surprises.
The fund's strategy within the technology sector continued to be a key
driver of strong performance. While the fund has not aggressively overweighted
this sector (in order to maintain balance and diversification), our holdings
have added significant value. We continued to focus on high-quality, proven
companies which are capitalizing on the enormous growth in demand for Internet
and telecommunications capacity, as well as companies creating the tools to
facilitate the explosive growth in business- to-business electronic commerce.
Outside of technology, we continued to favor the media sector, where the strong
economy continues to drive healthy growth in advertising revenues. We trimmed
our pharmaceutical holdings further as growth rates are moderating, and several
of our technology holdings where valuations had exceeded our targets.
OUTLOOK
Over the past few years, many investors have underestimated the resilience
of the U.S. economy and the ability of the monetary authorities to keep the
economy on an even keel. Instead, it has proven worthwhile to keep a long-term
view and to avoid the temptation to sell when market conditions deteriorate.
While we feel that caution is warranted as long as the threat of higher interest
rates is an issue, we remain optimistic about the companies we hold in the
portfolio, and believe that our disciplined investment style will continue to
position the fund for outperformance over time.
10 LARGEST EQUITY HOLDINGS
(31% OF PORTFOLIO AS OF MARCH 31, 2000)
------------------------------------------------------------------
1. Intel Corp. 6. AT&T Corp.-Liberty Media Group
2. Microsoft Corp. 7. American International Group, Inc.
3. General Electric Co. 8. Home Depot, Inc.
4. Cisco Systems, Inc. 9. American Express Co.
5. Warner-Lambert Co. 10. EMC 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, 2000
Technology 29%
Health 12%
Financial 9%
Manufacturing 9%
Consumer Discretionary 8%
Communications 8%
Media 7%
Consumer Staples 6%
Energy 6%
Other 6%
----
100%
====
--------------------------
ASSET ALLOCATION
As of March 31, 2000
Stock Holdings 98%
Cash Equivalents 2%
----
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, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 9.04% 37.28%
Life of
Fund* 19.83% 51.77%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 9.04% 37.28%
Life of
Fund* 5.89% 14.09%
-------------------------
- --------------------------------------------------------------------------------
The fund's emphasis on small-cap stocks with attractive valuations and
solid earnings continued to be out of favor over the six months as stocks rose
to record highs. On the surface small-cap stocks appeared to perform well, with
a 26.82% total return as measured by the unmanaged Russell 2000 Index. This
performance surpassed the return of large-cap stocks for the same six-month
period. However, the period is best described as a tale of two divergent
markets: A select group of the largest growth stocks in the Russell 2000 Index
provided exceptional returns, while the median stock in the index was actually
down 0.80%.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: Growth of a $10,000 Investment
CHART PERIOD: Semiannual Periods from February 1, 1997*
to March 31, 2000
CHART DATA:
AARP SMALL COMPANY RUSSELL 2000
STOCK FUND INDEX+
--------------------------------------------------------
2/1/97* 10000 10000
3/97 9940 9297
9/97 13353 12413
3/98 14387 13202
9/98 11362 10050
3/99 10989 11055
9/99 12009 11967
3/00 11983 15177
FUND PERFORMANCE
The fund's -0.22% six-month return as of March 31, 2000 trailed the
performance of its benchmark, the Russell 2000 Index. The fund's performance
reflects our ongoing emphasis on companies with strong fundamentals and
attractive valuations. By contrast, the index leaders were trading at
astonishingly high prices relative to sales and earnings ratios. These stocks
continued to climb dramatically in the first quarter of 2000, doubling in value
from the end of 1999. Towards the end of the period, we witnessed a dramatic
reversal. From their peaks, these market leaders shed half of their market value
on average -- some in only a few days. While the fund benefited from the shift
in investor sentiment that occurred late in the period, it was insufficient to
offset the earlier shortfall.
Even after pulling back from their highs, technology and biotechnology
stocks still posted the strongest results for the six-month period. Due to high
prices for many of these stocks, the fund was underweighted relative to the
Russell 2000 Index, limiting the fund's gains. On the other hand, the fund's
underweighting in financial stocks was beneficial as this sector lagged all
others. Within the energy sector, our stock selection worked well. However, the
positive impact was muted by its small
- --------------------------------------------------------------------------------
+ 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 adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total
returns would have been lower.
* The fund commenced operations on February 1, 1997.
38
<PAGE>
size at about 3% of the index. In contrast, the technology and health care
sectors represent 29% and 10% of the index, respectively.
THE FUND'S INVESTMENT STRATEGY
In the small-cap stock universe, we seek to add value through comprehensive
stock research, disciplined portfolio construction, and efficient trading. Our
intent is to capture the long-term opportunities of small-cap stocks through a
systematic evaluation of risk and return. Ultimately, we expect this will result
in competitive returns with less risk.
Our strategy does not focus on picking a few big winners or sectors, but on
building a portfolio with attractive overall characteristics. As a result, we
have diversified the fund's portfolio among more than 200 stocks, with
individual positions representing less than 2% of assets. Furthermore, the
fund's holdings have strong fundamentals, such as above-average profitability
and earnings growth. With a price/earnings ratio of less than 18x, the fund's
overall portfolio is cheaper than the index.
OUTLOOK
The market's reversal at the end of the period can be attributed, in part,
to the extremely high valuations of technology, biotech, and Internet stocks and
a growing recognition of the risks of these stocks. Such a shift in the market
is welcome news, given the fund's diversified approach to small-cap investing.
While this change may be accompanied by increased volatility in the short run,
management believes that it is likely to lead to more favorable performance over
time.
LARGEST EQUITY HOLDINGS BY SECTOR
(EXCLUDES CASH EQUIVALENTS)
---------------------------------------------------------------------------
1. Technology (24%) 6. Health (8%)
Titan Corp. ChiRex Inc.
2. Manufacturing (13%) 7. Financial (7%)
Insight Enterprise, Inc. Hilb, Rogal & Hamilton Co.
3. Consumer Discretionary (11%) 8. Utilities (4%)
Thor Industries, Inc. NUI Corp.
4. Durables (9%) 9. Construction (4%)
Aeroflex, Inc. Florida Rock Industries, Inc.
5. Service Industries (8%) 10. Consumer Staples (3%)
ABM Industries, Inc. Michael Foods, Inc.
- --------------------------------------------------------------------------------
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, 2000
Stock Holdings 99%
Cash Equivalents 1%
----
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
Nicholas Bratt
Diego Espinosa
Portfolio Managers
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 28.12% 21.87%
Life of
Fund* 78.23% 102.53%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 28.12% 21.87%
Life of
Fund* 14.89% 18.45%
-------------------------
- --------------------------------------------------------------------------------
Major stock indices performed well during the six-month period, but their
performance obscured a bear market in many sectors of the global equity
universe. Across the globe, many stocks in the rapidly growing technology,
telecommunications, and media sectors provided triple-digit returns, while "old
economy" stocks, such as those in the manufacturing, food, energy, and banking
industries, generally produced poor returns over the full period.
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, 2000
CHART DATA:
AARP GLOBAL MSCI WORLD
GROWTH FUND 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
9/99 14905 17155
3/00 17823 20253
FUND PERFORMANCE
For the six-month period ended March 31, 2000, AARP Global Growth Fund
returned 19.58%, which beat the 18.06% total return of its unmanaged benchmark,
the MSCI World Index. Performance was helped by our holdings in new economy
stocks, while holdings in defensive issues and commodities producers dampened
returns.
THE FUND'S INVESTMENT STRATEGY
In managing the portfolio, we employ a theme-based approach that
identifies long-term developments in the global economy, and seeks to invest in
the companies best-positioned to capitalize on these trends. The fund is
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PERFORMANCE OF THE FUND
LINE CHART 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 Global Risk
Peer Group
----------------------------------- Over the three years, this
Highest Lowest fund is in the top 75% of
Return Best 25% XXXX Risk similar funds for total return
------------ ----------- and among the top 25% of
similar funds for monthly
Next 25% downside risk.
------------ -----------
The monthly averages for risk
XXXX Next 25% and return are for 77 similar
------------ ----------- funds for the period April 1,
Lowest Highest 1997 through March 31, 2000.
Return 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. If the Adviser had not maintained
expenses, the total return for the life of fund period would have been lower.
* The fund commenced operations on February 1, 1996.
40
<PAGE>
diversified along two major poles. On one pole are companies that are enabling
consumers and businesses to take advantage of the Internet. Included in this
category are makers of consumer devices, providers of Internet access, and
content producers. In these areas we focus on companies whose business
strategies are moving to Internet-based models, as well as existing companies
that are successfully restructuring to adopt and combine Internet-driven
business models for their suppliers and customers. These segments of the
portfolio, which include companies such as Oracle, AT&T-Liberty Media Group, and
Sony, produced strong performance over the period.
On the other pole are holdings in old economy stocks, such as cyclicals,
commodity producers, and defensive issues. In this part of the global economy,
many companies are acting in a disciplined manner in consolidating, reducing
capacity, and planning capital expenditures for a much more competitive world.
In addition, there are signs that companies in these areas are gaining improved
pricing power. Although the poor recent performance of these stocks has hampered
fund returns, we find their value to be extremely compelling and believe that
they remain crucial to portfolio diversification amid an increasingly volatile
market environment. We are avoiding companies in between these two poles;
namely, those with traditional business models that are being squeezed in the
pincers of technology-driven price deflation on one hand and higher prices for
commodities on the other.
OUTLOOK
While we are encouraged by the changes that are unfolding in the global
economy -- such as reform, restructuring, and consolidation -- we are concerned
about the euphoria that has lifted the technology sector worldwide. Although the
fundamentals are strong for many of the top companies in this area, there are
just as many companies whose stock prices are not supported by tangible
earnings. For that reason, we will seek to participate in the tremendous growth
of the industry by investing only in the tech stocks that we believe are
positioned for strong earnings over the long-term. In addition, we will continue
to diversify the portfolio by capitalizing on the value opportunities in areas
of the market that are out of favor.
<TABLE>
<CAPTION>
10 LARGEST EQUITY HOLDINGS
(16% OF PORTFOLIO AS OF MARCH 31, 2000)
---------------------------------------------------------------------------
<S> <C>
1. Oracle Corp. (U.S.) 6. Sony Corp. (Japan)
2. Daiwa Securities Group Inc. (Japan) 7. Canal Plus S.A. (France)
3. Reuters Group PLC (U.K.) 8. Enron Corp. (U.S.)
4. AT&T Corp.-Liberty Media Group (U.S.) 9. Carlton Communications PLC (U.K.)
5. Sharp Corp. (Japan) 10. Yamanouchi Pharmaceutical Co., Ltd. (Japan)
</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 Do not need 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, 2000
Financial 14%
Manufacturing 13%
Technology 12%
Metals & Minerals 9%
Communications 9%
Energy 8%
Utilities 6%
Health 6%
Media 5%
Other 18%
----
100%
====
-----------------------------
GEOGRAPHICAL
DIVERSIFICATION --
EXCLUDES 3%
CASH EQUIVALENTS
As of March 31, 2000
U.S. & Canada 43%
Europe 31%
Japan 21%
Pacific Basin 3%
Africa 1%
Latin America 1%
----
100%
====
-----------------------------
41
<PAGE>
AARP INTERNATIONAL 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 international mutual funds. The fund
pursues its goal by investing primarily in common stocks of companies from
developed countries outside the United States. The fund changed its name from
the AARP International Growth and Income Fund on June 30, 1999.
PORTFOLIO
MANAGEMENT TEAM
Irene T. Cheng
Lead Portfolio Manager
Nicholas Bratt
Carol L. Franklin
Marc J. Slendebroek
Portfolio Managers
-------------------------
TOTAL RETURN
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 39.45% 25.11%
Life of
Fund* 66.16% 60.48%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 39.45% 25.11%
Life of
Fund* 17.42% 16.12%
-------------------------
- --------------------------------------------------------------------------------
Boosted by a powerful rally in high-growth sectors such as technology,
media, and telecommunications (known as "TMT" stocks), the international stock
markets produced strong gains during the period. The sharp jump in the major
global indices overshadowed dramatic declines in other sectors such as
retailers, food producers, and heavy industries. Despite the negative impact of
this trend on the portfolio's investments in metal, chemical, and steel
companies, the downdraft was more than offset by significant weightings and
solid stockpicking in the TMT area.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: Growth of a $10,000 Investment
CHART PERIOD: Semiannual Periods from February 1, 1997*
to March 31, 2000
CHART DATA:
AARP INTERNATIONAL MSCI EAFE
STOCK FUND INDEX+
--------------------------------------------------
2/1/97* $10000 $10000
3/97 10086 10201
9/97 11512 11443
3/98 12872 12097
9/98 11148 10487
3/99 11852 12827
9/99 12990 13731
3/00 16528 16048
FUND PERFORMANCE
For the six months ended March 31, 2000, the fund returned 27.24%, beating
the 16.87% return of its unmanaged benchmark, the MSCI EAFE Index. Our position
in TMT stocks was the most important factor in the fund's strong performance.
The fund's successful investments in this segment include Seat Pagine Gialle,
the Italian business publisher and Internet portal operator; Vivendi, the French
media and communications conglomerate; and LM Ericsson Telephone, the global
leader in infrastructure for cellular telephony based in Sweden.
THE FUND'S INVESTMENT STRATEGY
Although we have benefited significantly from strong gains in TMT stocks
during the past 18 months, we believe that expectations for the prospects of
many companies in the group have moved to unsustainable levels. We have
therefore reduced the fund's exposure to those areas where valuations have
become less fundamentally grounded. As part of this process, we reduced or
eliminated our exposure to stocks where a substantial part of the value could be
attributed to businesses at a very early stage of development, and where
valuations required more conceptual than tangible
- --------------------------------------------------------------------------------
+ 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 adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total
returns would have been lower.
* The fund commenced operations on February 1, 1997.
42
<PAGE>
evidence. As part of the same process, we boosted positions in blue chip
companies with strong market positions, sustainable long-term cashflows, and
solid management teams. These additions were made in TMT companies as well as in
other areas.
We also hold a large position in companies that are undergoing
significant change. The fund holds a number of companies that are in the process
of restructuring, in order to take advantage of the potential gains in their
earnings growth. The most important benefit of investing in these companies is
their positive fundamentals. As a result, their relative performance tends to be
strong in both up and down markets. Siemens, the largest German industrial
company, provides an excellent illustration of this trend. During the last 24
months, the company has successfully restructured its business portfolio,
reduced its operating costs, and drastically cut its product portfolio. Helped
by an improving economic environment, this process has led to a sharp
improvement in the company's earnings per share and stock price performance.
OUTLOOK
Despite the turbulence that has characterized the investment
environment in recent months, we believe that the overseas markets continue to
offer a wealth of opportunities. Tremendous changes are taking place on both the
overall economic and the corporate levels. With a combination of strong
fundamental research capabilities and a broad vision of the global economy, we
believe that we will be able to position the fund in companies that are best
able to take advantage of these changes. We have little doubt that the markets
will continue to experience significant volatility in the months ahead, but we
don't think it's productive to focus on the daily movements of the markets.
Instead, we will continue to look for companies whose fundamentals are steadily
improving, since over time their stock prices are likely to follow suit.
10 LARGEST EQUITY HOLDINGS
(22% OF PORTFOLIO AS OF MARCH 31, 2000)
----------------------------------------------------------------------------
1. Vodafone AirTouch PLC (U.K.) 6. Vivendi (France)
2. Seat Pagine Gialle SpA (Italy) 7. Nokia Oyj (Finland)
3. Reuters Group PLC (U.K.) 8. Nomura Securities Co., Ltd. (Japan)
4. Total Fina ELF (France) 9. Epcos AG (Germany)
5. NTT Mobile Communications 10. Daiwa Securities Group Inc. (Japan)
Network, Inc. (Japan)
- --------------------------------------------------------------------------------
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, 2000
Technology 18%
Financial 15%
Manufacturing 15%
Communications 14%
Service Industries 9%
Energy 5%
Consumer Staples 4%
Metals & Minerals 4%
Durables 3%
Other 13%
----
100%
====
----------------------------
ASSET ALLOCATION
As of March 31, 2000
Stock Holdings 97%
Cash Equivalents 3%
----
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
Shahram Tajbakhsh
Lead Portfolio Manager
Salvatore J. Bruno
Josephine W.K. Chu
Portfolio Managers
-------------------------
TOTAL RETURN
DIVERSIFIED INCOME WITH
GROWTH PORTFOLIO
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 6.30% 6.72%
Life of
Fund* 27.59% 41.61%
---------------------------
TOTAL RETURN
DIVERSIFIED GROWTH
PORTFOLIO
As of March 31, 2000
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 14.85% 13.17%
Life of
Fund* 46.68% 73.44%
- --------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
For the six months ended March 31, 2000, AARP Diversified Income with
Growth Portfolio returned 6.26%, representing 2.74% in distributions of income
and 3.52% in capital change. The portfolio's blended benchmark index, which is
comprised of the unmanaged Lehman Brothers Aggregate Bond Index (70%) and the
S&P 500 Index (30%), returned 4.43% for this 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: Semiannual Periods from February 1, 1997*
to March 31, 2000
CHART DATA:
AARP DIVERSIFIED LEHMAN BROTHERS
INCOME WITH STANDARD & POOR'S AGGREGATE BOND BLENDED
GROWTH PORTFOLIO 500 INDEX INDEX INDEX+
- ---------------------------------------------------------------------------
2/97* $10000 $10000 $10000 $10000
3/97 9987 9664 9914 9839
9/97 10935 12202 10621 11087
3/98 11574 14304 11102 12009
9/98 11522 13306 11842 12336
3/99 12003 16945 11821 13269
9/99 12007 17008 11796 13274
3/00 12759 19987 12042 14161
For the six months ended March 31, 2000, AARP Diversified Growth Portfolio
returned 12.46%, representing 3.24% in distributions of income and 9.22% in
capital change. The portfolio's blended benchmark index, which is comprised of
the unmanaged S&P 500 Index (70%) and the Lehman Brothers Aggregate Bond Index
(30%), returned 7.96% for this period.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
GROWTH OF A $10,000 INVESTMENT
AARP DIVERSIFIED GROWTH PORTFOLIO
CHART PERIOD: Semiannual Periods from February 1, 1997*
to March 31, 2000
CHART DATA:
AARP
DIVERSIFIED LEHMAN BROTHERS
GROWTH STANDARD & POOR'S AGGREGATE BOND BLENDED
PORTFOLIO 500 INDEX INDEX INDEX+
- ---------------------------------------------------------------------------
2/97* $10000 $10000 $10000 $10000
3/97 9973 9664 9914 9739
9/97 11600 12202 10621 11720
3/98 12691 14304 11102 13290
9/98 11742 13306 11842 12926
3/99 12772 16945 11821 15326
9/99 13043 17008 11796 15367
3/00 14668 19987 12042 17344
INVESTMENT STRATEGIES
The concentration of performance among a small group of high growth stocks
proved challenging for the portfolios' conservatively managed asset allocation
strategies, which focus on broad diversification across several asset classes.
- --------------------------------------------------------------------------------
+ The performance of the blended benchmark is a weighting comprised of the
Standard & Poor's 500 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
domestic stocks 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. For certain underlying funds
the adviser has agreed to maintain expenses until 1/31/01. If the adviser
had not maintained expenses, total returns would have been lower.
* These portfolios commenced operations on February 1, 1997.
44
<PAGE>
AARP Diversified Income with Growth Portfolio's exposure to equity funds
made a significant contribution to performance during a period when fixed income
funds struggled against the negative effects of rising interest rates. In the
portfolio, we maintained our exposure to fixed income and equity funds at 68%
and 31%, respectively. In the fixed income area, we continued to emphasize Bond
Fund for Income and GNMA & U.S. Treasury Fund, with a smaller weighting in High
Quality Short Term Bond Fund. In the equity portion of the portfolio, we made a
minor shift out of Growth and Income Fund and into U.S. Stock Index Fund.
AARP Diversified Growth Portfolio's exposure to a number of equity funds
emphasizing growth stocks was an important contributor to performance. In the
portfolio, we slightly increased our exposure to stock funds from 71% to 73% of
assets over the period by reducing our fixed income fund holdings. Within the
stock fund area, we increased exposure to U.S. Stock Index Fund and Capital
Growth Fund. These two funds, which together constitute 48% of assets, benefited
significantly from the strong performance of growth stocks over the six months.
In particular, Capital Growth exceeded the performance of the S&P 500 by a wide
margin with a 28.25% return, versus 17.52% for the index.
DIVERSIFIED INCOME WITH GROWTH
PORTFOLIO ALLOCATION
As of March 31, 2000
----------------------------------------
AARP GNMA and U.S. Treasury Fund 32%
AARP Bond Fund for Income 30%
AARP U.S. Stock Index Fund 24%
AARP High Quality Short Term
Bond Fund 7%
AARP Growth and Income Fund 4%
AARP Capital Growth Fund 2%
AARP High Quality Money Fund 1%
AARP Small Company Stock Fund 0%
-----
100%
=====
DIVERSIFIED GROWTH
PORTFOLIO ALLOCATION
As of March 31, 2000
----------------------------------------
AARP U.S. Stock Index Fund 37%
AARP Bond Fund for Income 18%
AARP Capital Growth Fund 11%
AARP Growth and Income Fund 11%
AARP GNMA and U.S. Treasury Fund 8%
AARP Global Growth Fund 5%
AARP Small Company Stock Fund 4%
AARP International Stock Fund 4%
AARP High Quality Money Fund 2%
-----
100%
=====
OUTLOOK
Market volatility increased significantly over the period, with the major
market indices rising and falling by record amounts. In such an environment, the
portfolios' diversified approaches and professional management can help to
smooth out short-term swings over the long term. This approach can relieve
investors of the need to manage asset allocations in changing market conditions.
While the concentration of performance among a few growth stocks recently has
not favored this approach, we are beginning to see signs of a shift in market
sentiment that should bode well for the portfolios.
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, 2000
Stock Fund Holdings 30%
Bond Fund Holdings 69%
Money Fund 1%
----
100%
====
----------------------------
ASSET ALLOCATION
AARP DIVERSIFIED
GROWTH PORTFOLIO
As of March 31, 2000
Stock Fund Holdings 73%
Bond Fund Holdings 26%
Money Fund 1%
----
100%
====
----------------------------
45
<PAGE>
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intentionally
left blank.
46
<PAGE>
I N V E S T M E N T P O R T F O L I O S
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.
This section also shows 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, 2000 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.2%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $962,486
on 4/3/2000** (Cost $962,000) ........................................ 962,000 962,000
-----------
COMMERCIAL PAPER 65.6%
- -----------------------------------------------------------------------------------------------------
Asset Portfolio Funding, 5.91%, 4/3/2000 ................................ 20,000,000 19,993,489
Barton Capital Corp., 5.92%, 4/14/2000 .................................. 20,000,000 19,957,678
Bavaria Universal Funding, 6%, 4/12/2000 ................................ 16,000,000 15,970,764
CXC Inc., 5.92%, 4/3/2000 ............................................... 20,000,000 19,993,478
Delaware Funding Corp., 5.91%, 4/20/2000 ................................ 20,000,000 19,938,250
Enterprise Funding Corp., 6.16%, 5/31/2000 .............................. 10,000,000 9,898,333
GIRO Funding Corp., 5.95%, 4/20/2000 .................................... 20,000,000 19,937,828
GMAC Mortgage Corp., 5.99%, 4/3/2000 .................................... 10,000,000 9,996,689
Moat Funding LLC, 5.92%, 4/10/2000 ...................................... 20,000,000 19,970,600
Monte Rosa Capital Corp., 5.9%, 4/11/2000 ............................... 20,000,000 19,967,500
Receivables Capital Corp., 5.93%, 4/12/2000 ............................. 20,000,000 19,964,158
Salomon Smith Barney Holdings, 5.92%, 4/18/2000 ......................... 15,000,000 14,958,492
Sigma Finance Inc., 5.91%, 4/13/2000 .................................... 20,000,000 19,960,933
Thunder Bay Funding Corp., 6.01%, 5/12/2000 ............................. 19,425,000 19,294,032
WCP Funding Inc., 5.96% 4/20/2000 ....................................... 10,000,000 9,968,914
-----------
Total Commercial Paper (Cost $259,771,138) .............................. 259,771,138
-----------
CERTIFICATES OF DEPOSIT 19.0%
- -----------------------------------------------------------------------------------------------------
Allfirst Bank, 6.18%, 9/7/2000* ......................................... 20,000,000 19,996,600
First Union National Bank, 6.14%, 7/26/2000* ............................ 20,000,000 20,000,000
Fleet National Bank, 6.28%, 8/14/2000* .................................. 15,000,000 14,995,622
Harris Trust & Savings Bank, 6.35%, 8/10/2000* .......................... 20,000,000 20,000,000
-----------
Total Certificates of Deposit (Cost $74,992,222) ........................ 74,992,222
-----------
SHORT-TERM AND MEDIUM-TERM NOTES 15.2%
- -----------------------------------------------------------------------------------------------------
Ford Motor Credit Corp., 6.104%, 11/24/2000* ............................ 20,000,000 20,002,473
Goldman Sachs Group, 5.99%, 4/17/2000* .................................. 20,000,000 20,000,000
Royal Bank of Scotland, 5.916%, 3/6/2001* ............................... 20,000,000 20,000,000
-----------
Total Short-Term and Medium-Term Notes (Cost $60,002,473) ............... 60,002,473
-----------
- -----------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $395,727,833) (a) ............... 395,727,833
===========
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE>
AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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, 2000.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the cost for federal income tax purposes was
$395,727,833.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $120,500, which may be applied against
any net taxable capital gains of each succeeding year until fully
utilized or until September 30, 2004 ($63,000) and September 30, 2005
($57,500), the respective expiration dates.
The accompanying notes are an integral part of the financial statements
50
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
MUNICIPAL INVESTMENTS 100.0%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alabama
Alabama Special Care Facilities Financing Authority, Ascension Health Credit,
Weekly Demand Note, Series B, 3.85%, 11/15/2039* ............................... 1,000,000 1,000,000
Arizona
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.,
Series 1982, Weekly Demand Note, 3.9%, 10/1/2022* .............................. 3,900,000 3,900,000
Salt River, AZ, Agricultural Improvement and Power District, Tax Exempt
Commercial Paper:
3.65%, 4/12/2000 ............................................................ 1,100,000 1,100,000
3.9%, 5/12/2000 ............................................................. 1,500,000 1,500,000
California
Los Angeles, CA,, Regional Airport Improvement Lease, Series 1985,
Daily Demand Note, 4.1%, 12/1/2025* ............................................ 1,800,000 1,800,000
Colorado
Colorado Health Facilities Authority Revenue, Frasier Meadows Manor Project,
Weekly Demand Note, 3.97%, 6/1/2021* ........................................... 990,000 990,000
District Of Columbia
District of Columbia, General Obligation, Series B1, Daily Demand Note,
4.1%, 6/1/2003* ................................................................ 800,000 800,000
Florida
Florida Housing Finance Agency, Multi-Family Housing,
Weekly Demand Note, 4%, 7/1/2008* .............................................. 1,200,000 1,200,000
Indian River County, FL, District Hospital Revenue, Weekly Demand Note,
4%, 10/1/2015* ................................................................. 1,000,000 1,000,000
Orange City, FL, Health Facilities Authority Revenue, Tax Exempt Commercial
Paper, 4.1%, 5/11/2000 (b) ..................................................... 2,000,000 2,000,000
Orange County, FL, Health Facilities Authority Revenue, Presbyterian Retirement,
Weekly Demand Note, 4.05%, 11/1/2028* .......................................... 900,000 900,000
Pinellas City, FL, Educational Facilities, Tax Exempt Commercial Paper:
4.1%, 5/9/2000 (b) ............................................................. 1,000,000 1,000,000
4.05%, 5/15/2000 (b) ........................................................... 1,000,000 1,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-1, Weekly Demand Note, 3.95%, 3/15/2014* .......... 3,850,000 3,850,000
Sarasota, FL, County Hospital, Tax Exempt Commercial Paper, 3.95%, 5/12/2000 ...... 1,500,000 1,500,000
University of Northern Florida, Capital Improvement Revenue,
Weekly Demand Note, 3.95%, 11/1/2024* .......................................... 1,000,000 1,000,000
Georgia
Fayette County, GA, Educational Facilities Revenue, Catholic School Properties Inc.
Project, Weekly Demand Note, 3.95%, 4/1/2024* .................................. 2,000,000 2,000,000
Fulton County, GA, Development Authority Revenue, United Way of Metro Atlanta,
Weekly Demand Note, 3.9%, 6/1/2024* ............................................ 3,000,000 3,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
51
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gainsville, GA, Redevelopment Authority, Riverside Military Project,
Weekly Demand Note, 3.95%, 7/1/2024* ........................................ 1,000,000 1,000,000
Illinois
Alsip, IL, Industrial Development Revenue, Keeble Co. Project,
Weekly Demand Note, 4%, 10/1/2004* .......................................... 3,750,000 3,750,000
Illinois Health Facilities Authority Revenue, Tax Exempt Commercial Paper,
3.75%, 4/11/2000 ............................................................ 2,000,000 2,000,000
Indiana
Fort Wayne, IN, Pollution Control Revenue, Weekly Demand Note, 4%, 11/1/2005* .. 1,000,000 1,000,000
Indiana Health Financing Authority Revenue, Ascension Health Credit,
Series B, 3.85%, 11/15/2039 ................................................. 1,500,000 1,500,000
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public Services,
Series C, Daily Demand Note, 4%, 4/1/2019* .................................. 600,000 600,000
Kentucky
Danville County, KY, Tax Exempt Commercial Paper, 3.75%, 4/12/2000 ............. 1,000,000 1,000,000
Mayfield, KY, Multi-City Lease Revenue, Kentucky League of Cities Funding Trust,
Weekly Demand Note, Series 1996, 3.95%, 7/1/2026* ........................... 755,000 755,000
Pendleton, KY, City Lease Revenue, Tax Exempt Commercial Paper:
3.65%, 4/7/2000 ............................................................. 1,000,000 1,000,000
3.65%, 4/10/2000 ............................................................ 1,000,000 1,000,000
Louisiana
Louisiana Public Finance Authority, Tax Exempt Commercial Paper,
3.85%, 4/12/2000 (b) ........................................................ 1,535,000 1,535,000
Michigan
Michigan State Strategic Fund Pollution, Control Revenue, General Motors Corp.,
Weekly Demand Note, 4%, 4/1/2008* ........................................... 1,300,000 1,300,000
University of Michigan, University Revenue, Series 1995A, Daily Demand Note,
4%, 12/1/2027* .............................................................. 1,100,000 1,100,000
Minnesota
Cottage Grove, MN, Environmental Control Revenue, Minnesota Mining
and Manufacturing, Series 1982, Weekly Demand Note, 4.017%, 8/1/2012* ....... 300,000 300,000
Missouri
Missouri Environmental Improvement & Energy Authority, Tax Exempt
Commercial Paper, 3.95%, 4/24/2000 .......................................... 1,100,000 1,100,000
Nevada
Las Vegas, NV, Valley Water Authority District, Tax Exempt Commercial Paper,
3.6%, 4/10/2000 ............................................................. 2,000,000 2,000,000
New Hampshire
New Hampshire General Obligation, Tax Exempt Commercial Paper,
3.95%, 5/9/2000 ............................................................. 2,000,000 2,000,000
New York
Nassau County, NY, Tax Anticipation Note, Series B, 4.75%, 8/31/2000 ........... 1,000,000 1,003,027
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
North Carolina
North Carolina Medical Care Community, Retirement Community Revenue,
Weekly Demand Note, 3.95%, 11/15/2009* ...................................... 4,000,000 4,000,000
Ohio
Medina County, OH, Health Care Facilities Revenue, Weekly Demand Note,
3.97%, 12/1/2023* ........................................................... 3,000,000 3,000,000
Oklahoma
Oklahoma City, OK, General Obligation, Tax Exempt Commercial Paper,
3.95%, 5/8/2000 (b) ......................................................... 1,500,000 1,500,000
Pennsylvania
Pennsylvania Higher Educational Facilities Authority, University of Pennsylvania
Health Services, Series B, Weekly Demand Note, 3.9%, 1/1/2026* (b) .......... 1,000,000 1,000,000
Philadelphia, PA, Tax and Revenue Anticipation Note, Series A, 4.25%, 6/30/2000 700,000 701,250
Texas
Harris City, TX, General Obligation, Tax Exempt Commercial Paper:
3.8%, 4/14/2000 ............................................................. 1,500,000 1,500,000
3.9%, 5/11/2000 ............................................................. 1,500,000 1,500,000
Harris County, TX, Health Facilities Authority Revenue, Saint Lukes
Episcopal Hospital, Series A, Daily Demand Note, 4.1%, 2/15/2027* ........... 1,000,000 1,000,000
Houston, TX, Water and Sewer Authority, Tax Exempt Commercial Paper,
3.85%, 4/7/2000 ............................................................. 1,000,000 1,000,000
San Antonio, TX, Electric and Gas, Tax Exempt Commercial Paper,
3.65%, 4/11/2000 ............................................................ 2,100,000 2,100,000
State of Texas, Tax and Revenue Anticipation Note, 4.5%, 8/31/2000 ............. 2,800,000 2,808,833
Tarrant County, TX, Health Facility Authority Revenue, Adventist Health Systems,
Weekly Demand Note, 3.95%, 11/15/2027* ...................................... 2,000,000 2,000,000
Texas Small Business Industrial Development Corp., Industrial Development
Revenue, Weekly Demand Note, 3.95%, 7/1/2026* ............................... 3,400,000 3,400,000
University of Texas, TX, Higher Education Authority, Series A,
Tax Exempt Commercial Paper, 3.95%, 5/11/2000 ............................... 1,500,000 1,500,000
Virginia
Albemarle County, VA, Industrial Development Authority, University of Virginia
Health Services, 3.9%, 10/1/2022 ............................................ 1,000,000 1,000,000
Tennessee
Clarksville, TN, Public Building Authority, Pooled Financings, Series 1994,
Weekly Demand Note, 4%, 6/1/2024* ........................................... 1,900,000 1,900,000
Vermont
Vermont Educational & Health Buildings Finance Agency Revenue,
Weekly Demand Note, 3.95%, 12/1/2030* ....................................... 1,000,000 1,000,000
-----------
Total Municipal Investments (Cost $84,393,110) ................................. 84,393,110
-----------
- -----------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $84,393,110) (a) ....................... 84,393,110
===========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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, 2000.
(a) At March 31, 2000, the cost for federal income tax purposes was
$84,393,110.
(b) Bond is insured by one of these companies: AMBAC, FGIC, FSA, BIG, or
MBIA.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $739,600, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
utilized or until September 30, 2000 ($324,000), September 30, 2001
($400), September 30, 2003 ($89,000), September 30, 2004 ($5,000),
September 30, 2005 ($218,000), September 30, 2006 ($103,000), and
September 30, 2007 ($200), the respective expiration dates.
The accompanying notes are an integral part of the financial statements
54
<PAGE>
AARP PREMIUM MONEY FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.8%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $4,397,217
on 4/3/2000** (Cost $4,395,000) ........................................ 4,395,000 4,395,000
------------
COMMERCIAL PAPER 65.1%
- -------------------------------------------------------------------------------------------------------
Alpine Securitization Corp., 6.15%, 6/15/2000 ............................. 9,049,000 8,933,061
American Home Products Corp., 5.9%, 4/28/2000 ............................. 9,000,000 8,960,175
Barton Capital Corp., 5.85%, 4/6/2000 ..................................... 10,000,000 9,991,875
Bavaria Finance Funding, 6.03%, 4/4/2000 .................................. 10,000,000 9,994,975
Bavaria Universal Funding, 5.91%, 4/11/2000 ............................... 10,000,000 9,983,583
CXC Inc., 5.87%, 4/3/2000 ................................................. 7,450,000 7,447,570
GIRO Funding Corp., 5.87%, 4/3/2000 ....................................... 11,000,000 10,996,413
GMAC Mortgage Corp., 5.96%, 4/3/2000 ...................................... 1,000,000 999,669
Knight-Ridder Inc., 5.87%, 4/12/2000 ...................................... 10,000,000 9,982,064
MCI Worldcom Inc., 5.98%, 5/5/2000 ........................................ 11,000,000 10,937,874
Moat Funding LLC, 6.05%, 4/5/2000 ......................................... 5,000,000 4,996,639
Monte Rosa Capital Corp., 5.85%, 4/6/2000 ................................. 10,000,000 9,991,875
Pemex Capital Inc., 6.07%, 4/7/2000 ....................................... 9,000,000 8,990,895
Pemex Capital Inc., 6.29%, 9/21/2000 ...................................... 12,000,000 11,637,277
Quincy Capital Corp., 6.19%, 7/12/2000 .................................... 11,230,000 11,032,885
Stellar Funding Group, 5.87%, 4/7/2000 .................................... 8,000,000 7,992,173
Superior Funding Capital, 5.87%, 4/6/2000 ................................. 9,289,000 9,281,427
Thunder Bay Funding Corp., 5.86%, 4/14/2000 ............................... 10,000,000 9,978,839
------------
Total Commercial Paper (Cost $162,129,269) ................................ 162,129,269
------------
CERTIFICATES OF DEPOSIT 14.8%
- -------------------------------------------------------------------------------------------------------
American Express Centurian Bank, 6.23%, 6/19/2000* ........................ 6,500,000 6,497,541
Credit Suisse First Boston Corp., 6.22%, 6/9/2000* ........................ 5,000,000 5,000,000
Deutsche Bank AG, 6.14%, 4/17/2000* ....................................... 2,000,000 1,999,949
Finova Capital Corp., 6.19%, 6/12/2000* ................................... 5,000,000 5,000,000
First National Bank of Maryland, 6.09%, 8/7/2000* ......................... 5,000,000 4,999,040
First Union National Bank, 6.14%, 7/26/2000* .............................. 5,000,000 5,000,000
Old Kent Bank, 6.19%, 6/16/2000* .......................................... 4,000,000 3,999,673
Royal Bank of Scotland, 5.89%, 12/11/2000* ................................ 4,500,000 4,497,548
------------
Total Certificates Of Deposit (Cost $36,993,751) .......................... 36,993,751
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
55
<PAGE>
AARP PREMIUM MONEY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------
SHORT-TERM AND MEDIUM-TERM NOTES 18.3%
- --------------------------------------------------------------------------------------
<S> <C> <C>
Beneficial Corp., 6.22%, 9/5/2000* ...................... 1,000,000 1,000,090
Comerica Bank, 5.94%, 1/12/2001* ........................ 7,500,000 7,497,692
Goldman Sachs Group, 5.99%, 4/17/2000* .................. 11,000,000 11,000,000
GTE Corp., 6.16%, 6/12/2000* ............................ 6,000,000 5,999,088
Heller Financial Inc., 6.32%, 6/1/2000* ................. 3,000,000 3,000,648
Heller Financial Inc., 6.42%, 9/25/2000* ................ 1,000,000 1,000,341
PNC Bank Corp., 5.84%, 7/12/2000* ....................... 10,000,000 9,997,765
U.S. Bank NA, 6.05%, 7/19/2000* ......................... 6,000,000 5,998,715
------------
Total Short-Term and Medium-Term Notes (Cost $45,494,339) 45,494,339
------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $249,012,359) (a) 249,012,359
- --------------------------------------------------------------------------------------
</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. The securities are shown at their rate
as of March 31, 2000.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the cost for federal income tax purposes was
$249,012,359.
The accompanying notes are an integral part of the financial statements
56
<PAGE>
<TABLE>
<CAPTION>
AARP HIGH QUALITY SHORT TERM BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 5.7%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $20,966,565 on
4/3/2000** (Cost $20,956,000) .............................................. 20,956,000 20,956,000
-----------
SHORT-TERM INVESTMENT 3.3%
- ---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 6.05%, 4/3/2000 (Cost $11,993,950) .......... 12,000,000 11,993,950
-----------
U.S. TREASURY OBLIGATIONS 3.2%
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 7%, 7/15/2006 (Cost $11,790,091) .......................... 11,500,000 11,884,560
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 4.6%
- ---------------------------------------------------------------------------------------------------------
Government National Mortgage Association REMIC, 6.37%, 9/20/2024 .............. 5,119,033 5,130,193
Government National Mortgage Association, 7%, 4/1/2015 (b) .................... 5,000,000 4,931,250
Government National Mortgage Association, 7.5% with various maturities
to 11/1/2014 ............................................................... 2,289,263 2,292,125
Government National Mortgage Association, 8% with various maturities
to 8/15/2012 ............................................................... 3,416,194 3,464,226
Government National Mortgage Association, 8.5%, 11/15/2009 .................... 3,473,797 3,536,568
-----------
Total Government National Mortgage Association (Cost $19,477,663) ............. 19,354,362
-----------
U.S. GOVERNMENT AGENCY PASS-THRUS* 2.1%
- ---------------------------------------------------------------------------------------------------------
Student Loan Marketing Association, 6.24%, 1/25/2013 (Cost $7,600,000) ........ 7,600,000 7,600,000
-----------
U.S. GOVERNMENT BACKED MORTGAGES* 23.4%
- ---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association, 6%, 2/15/2017 ......................... 9,000,000 8,738,370
Federal Home Loan Mortgage Corp. 5.75%, 3/15/2009 ............................. 3,150,000 2,853,711
Federal Home Loan Mortgage Corp., 6%, 11/15/2017 .............................. 7,000,000 6,818,420
Federal Home Loan Mortgage Corp., 7.06%, 6/25/2016 ............................ 4,100,000 4,048,750
Federal Home Loan Mortgage Corp., 6.75%, 8/15/2016 ............................ 4,500,000 4,457,109
Federal Home Loan Mortgage Corp., 6.15%, 3/15/2021 ............................ 3,000,000 2,936,250
Federal Home Loan Mortgage Corp., 6.275%, 11/25/2029 .......................... 19,063,611 19,081,484
Federal Home Loan Mortgage Corp., 5.96% to 5/25/2030 .......................... 8,990,805 8,997,829
Federal National Mortgage Association, 6%, 1/18/2014 .......................... 3,100,000 3,038,961
Federal National Mortgage Association, 6.5%, 3/25/2014 ........................ 5,300,000 5,218,844
Federal National Mortgage Association, 6.5%, 4/25/2014 ........................ 6,000,000 5,906,250
Federal National Mortgage Association, 6%, 7/25/2017 .......................... 7,700,000 7,517,125
Federal National Mortgage Association, 7.5% with various maturities
to 10/1/2015 ............................................................... 4,451,588 4,457,150
Federal National Mortgage Association 8% with various maturities
to 12/1/2009 ............................................................... 4,956,803 5,012,567
Residential Funding Mortgage Security, 7.82%, 4/28/2022 ....................... 813,452 811,923
-----------
Total U.S. Government Backed Mortgages (Cost $90,686,688) ..................... 89,894,743
-----------
The accompanying notes are an integral part of the financial statements
57
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- ---------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------
ASSET BACKED* 20.9%
- ---------------------------------------------------------------------------------------------------------
Miscellaneous Receivables 1.2%
Coast-Plymouth Tax Lien Capital, LLC, Series 1999-A A, 6.76%, 11/15/2004 .... 4,303,348 4,276,452
-----------
Automobile Receivables 3.9%
Capital Automobile Receivable Asset Trust, Series 1999-1 A2, 5.58%, 6/15/2002 4,758,000 4,708,933
Ford Credit Auto Owner Trust, Series 1998-C A5, 5.86%, 10/15/2002 ........... 4,500,000 4,431,094
Premier Auto Trust, Series 1999-2 A4, 5.59%, 2/9/2004 ....................... 5,400,000 5,197,500
-----------
14,337,527
-----------
Credit Card Receivables 6.2%
CNL Funding, Series 1999-1 A1, 7.295%, 3/18/2010 ............................ 2,546,015 2,484,752
Discover Card Master Trust I, Series 2000-2 A, 6.18%, 9/18/2007 ............. 7,500,000 7,495,313
Discover Card Master Trust I, Series 1996-4 A, 6.38%, 10/16/2013 ............ 4,000,000 4,036,250
MBNA Master Credit Card Trust, Series 1996-C B, 6.28%, 8/15/2003 ............ 5,000,000 5,000,000
Sears Credit Account Master Trust, Series 1999-3, 6.45%, 11/15/2005 ......... 4,000,000 3,863,750
-----------
22,880,065
-----------
Home Equity Loans 5.4%
EQCC Home Equity Loan Trust, Series 1996-4 A6, 6.88%, 7/15/2004 ............. 3,000,000 2,981,250
Greenpoint Home Equity Loan Trust, Series 1999-2 A2, 6.38%, 12/15/2025 ...... 4,892,542 4,897,129
HFC Home Equity Loan, Asset Backed Certificate, Series 1999-1 A2, 6.95%,
10/20/2023 ............................................................... 2,700,000 2,678,063
Residential Asset Securities Corp., Series 1999-K53 AF3, 7.18%, 1/25/2025 ... 4,500,000 4,391,719
Residential Funding Mortgage Securities, Inc. Series 2000-HI1 A12, 7.58%,
9/25/2010 ................................................................ 5,000,000 4,999,219
-----------
19,947,380
-----------
Manufactured Housing Receivables 4.2%
GE Capital Mortgage Services, Inc., Series 1999-HE3 A2, 7%, 8/25/2013 ....... 4,500,000 4,452,891
Green Tree Financial Corp. Series 1993-4 B1, 7.2%, 1/15/2019 ................ 3,113,361 2,962,071
Green Tree Financial Corp. Series 1997-1 B1, 7.23%, 3/15/2028 ............... 4,000,000 3,380,000
Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 6/15/2028 ............... 1,478,760 1,150,198
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D 9.85%, 7/15/2011 .. 3,389,649 3,447,883
-----------
15,393,043
-----------
Total Asset Backed (Cost $78,332,808) ....................................... 76,834,467
-----------
CORPORATE BONDS 36.8%
- ---------------------------------------------------------------------------------------------------------
Consumer Discretionary 2.2%
Wal-Mart Stores Inc., 5.85%, 6/1/2000 (c) ................................... 8,000,000 7,989,280
-----------
Consumer Staples 2.7%
Gillette Company, 5.75%, 8/3/2001 ........................................... 5,000,000 4,906,000
Safeway Inc., 7%, 9/15/2002 ................................................. 5,000,000 4,936,050
-----------
9,842,050
-----------
Communications 3.9%
Sprint Capital Corp., 5.875%, 5/1/2004 ...................................... 5,000,000 4,740,750
US West Communications, 6.375%, 10/15/2002 .................................. 5,000,000 4,880,700
The accompanying notes are an integral part of the financial statements
58
<PAGE>
- --------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------
WorldCom, Inc., 6.125%, 8/15/2001 ....................... 5,000,000 4,923,850
------------
14,545,300
------------
Financial 17.9%
Associates Corp of North America, 6.21%, 2/22/2002 ...... 5,000,000 4,998,431
Bank One Milwaukee N.A., 6.625%, 4/15/2003 .............. 5,000,000 4,913,650
Bank of America Corp., 6.625%, 6/15/2004 ................ 5,000,000 4,858,350
CIT Group, Inc., 7.375%, 3/15/2003 ...................... 3,500,000 3,502,065
Capital One Bank, 6.57%, 1/27/2003 ...................... 4,000,000 3,890,000
Chase Manhattan Corp., 5.75%, 4/15/2004 ................. 5,000,000 4,715,800
EOP Operating L.P., 6.375%, 2/15/2003 ................... 6,000,000 5,773,560
FleetBoston Financial Group, 6.458%, 3/27/2003 .......... 5,000,000 5,000,550
General Electric Capital Corp., 6.02%, 5/4/2001 ......... 5,000,000 4,965,625
Heller Financial Inc., 5.48%, 2/5/2001 .................. 500,000 492,480
NBD Bank NA Michigan, 6.25%, 8/15/2003 .................. 3,000,000 2,901,480
Prudential Funding Corp, 6.19%, 2/15/2002 ............... 10,000,000 9,977,100
Transamerica Finance Corp., 7.25%, 8/15/2002 ............ 5,000,000 4,963,600
Wells Fargo Co., 6.5%, 9/3/2002 ......................... 5,000,000 4,917,950
------------
65,870,641
------------
Media 1.3%
Cox Communications, Inc., 7.5%, 8/15/2004 ............... 5,000,000 4,992,900
------------
Service Industries 1.3%
USA Waste Services, Inc., 6.125%, 7/15/2001 ............. 5,000,000 4,775,000
------------
Durables 2.7%
DaimlerChrysler NA Holdings, 6.84%, 10/15/2002 .......... 5,000,000 4,954,250
General Motors Acceptance Corp., 6.75%, 12/10/2002 ...... 5,000,000 4,937,000
------------
9,891,250
------------
Technology 2.4%
International Business Machines Corp., 7.25%, 11/1/2002 . 4,000,000 4,019,800
Raytheon Co., 6.45%, 8/15/2002 .......................... 5,000,000 4,855,050
------------
8,874,850
------------
Energy 1.3%
Atlantic Richfield Co., 5.55%, 4/15/2003 ................ 5,000,000 4,761,250
------------
Utilities 1.1%
Detroit Edison Co., 5.93%, 2/1/2001 ..................... 4,000,000 3,963,360
------------
Total Corporate Bonds (Cost $137,432,986) ............... 135,505,881
------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100%
(Cost $378,270,186) (a) .............................. 374,023,963
============
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities may be shorter due to prepayments.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $378,270,500 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ............................................ $ 327,863
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................... (4,574,400)
--------------
Net unrealized depreciation .............................. $ (4,246,537)
==============
(b) When issued or forward delivery pools included.
(c) At March 31, 2000, this security, in part or in whole, has been
segregated to cover when issued or forward delivery securities.
- --------------------------------------------------------------------------------
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, 2000 aggregated $427,423,441 and $487,497,024,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $217,227,415 and $214,444,648, respectively.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $1,293,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
realized, or until September 30, 2005 ($1,182,000) and September 30, 2007
($111,000), the respective expiration dates. In addition, from November 1,
1998 through September 30, 1999, the Fund incurred approximately
$2,650,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat
them as arising in the fiscal year ending September 30, 2000.
The accompanying notes are an integral part of the financial statements
60
<PAGE>
<TABLE>
<CAPTION>
AARP GNMA AND U.S. TREASURY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS** 17.5%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goldman Sachs, 6%, to be repurchased at $180,090,000 on 4/3/2000** ....... 180,000,000 180,000,000
Merrill Lynch, 6%, to be repurchased at $170,141,667 on 4/5/2000** ....... 170,000,000 170,000,000
Morgan Stanley, 6.01%, to be repurchased at $198,165,275 on 4/5/2000 ..... 198,000,000 198,000,000
Donaldson, Lufkin, & Jenrette, 6.06%, to be repurchased at $100,050,500
on 4/3/2000 ........................................................... 100,000,000 100,000,000
Salomon Smith Barney, 6.11%, to be repurchased at $100,067,889 on 4/4/2000 100,000,000 100,000,000
State Street Bank and Trust Company, 6.05%, to be repurchased at
$118,185,555 on 4/3/2000 .............................................. 118,126,000 118,126,000
-------------
Total Repurchase Agreements (Cost $866,126,000) .......................... 866,126,000
-------------
U.S. GOVERNMENT & AGENCIES 6.0%
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Bond, 10.625%, 8/15/2015 ................................... 149,100,000 212,980,404
U.S. Treasury Bond, 6.625%, 2/15/2027 .................................... 60,500,000 64,905,005
U.S. Treasury Note, 7%, 7/15/2006 ........................................ 15,300,000 15,811,632
-------------
Total U.S. Government & Agencies (Cost $287,900,782) ..................... 293,697,041
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 76.5%
- ----------------------------------------------------------------------------------------------------------
6% with various maturities to 2/15/2029 (c) .............................. 34,593,387 31,620,517
6.5% with various maturities to 5/15/2029 (c) ............................ 1,146,319,822 1,085,632,911
7% with various maturities to 3/15/2030 (b)(c) ........................... 1,209,099,949 1,172,016,823
7.5% with various maturities to 4/1/2030 (b)(c) .......................... 758,788,705 753,081,559
8% with various maturities to 5/1/2030 (b)(c) ............................ 357,258,559 361,263,388
8.5% with various maturities to 4/1/2030 (b)(c) .......................... 242,118,611 248,268,705
9% with various maturities to 3/15/2030 (c) .............................. 113,526,182 117,664,467
9.5% with various maturities to 1/15/2021 (c) ............................ 39,817 41,756
10.5% with various maturities to 1/20/2021 (c) ........................... 5,382,075 5,843,584
11.5% with various maturities to 2/15/2016 (c) ........................... 1,398,800 1,554,731
12% with various maturities to 7/15/2015 (c) ............................. 2,727,677 3,058,510
12.5% with various maturities to 8/15/2015 (c) ........................... 2,205,828 2,500,005
13% with various maturities to 7/15/2015 (c) ............................. 245,175 280,751
13.5% with various maturities to 10/15/2014 (c) .......................... 355,739 412,512
14% with various maturities to 12/15/2014 (c) ............................ 212,263 245,942
14.5% with various maturities to 10/15/2014 (c) .......................... 64,218 75,677
The accompanying notes are an integral part of the financial statements
61
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- -------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------
15% with various maturities to 10/15/2012 (c) ...................... 168,725 199,632
16% with various maturities to 2/15/2012 (c) ....................... 50,095 59,385
-----------------
Total Government National Mortgage Association (Cost $3,841,900,840) 3,783,820,855
-----------------
- -------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $4,995,927,622) (a) ........ 4,943,643,896
=================
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Effective maturities may be shorter due to prepayments.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $4,995,927,622 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .......................................... $ 7,439,739
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................. (59,723,465)
---------------
Net unrealized depreciation ............................ $ (52,283,726)
===============
(b) When issued or forward delivery pools included.
(c) At March 31, 2000, these securities, in part or in whole, has been
segregated to cover when issued or forward delivery pools.
At March 31, 2000, open futures contracts sold short were as follows:
<TABLE>
<CAPTION>
Unrealized
Number of Aggregate Appreciation/
Futures Expiration Date Contracts Face Value ($) Value ($) (Depreciation)
------- --------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Note June, 2000 936 91,378,874 91,801,125 $ (422,251)
U.S. Treasury Note June, 2000 1,729 167,841,368 170,306,500 (2,465,132)
U.S. Treasury Bond June, 2000 696 67,625,854 67,990,500 (364,646)
-----------
Total net unrealized depreciation on open futures contracts .......................................... $(3,252,029)
============
</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, 2000 aggregated $5,342,476,518 and $5,646,765,213,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $1,302,873,076 and $1,280,867,719, respectively.
Purchases and sales of mortgage dollar roll transactions aggregated
$1,173,317,644 and $1,174,899,928, respectively.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss carryforward
of approximately $243,324,000 which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
September 30, 2003, the expiration date. In addition, from November 1, 1998
through September 30, 1999, the Fund incurred approximately $88,000,000 of
net realized capital losses. As permitted by tax regulations, the Fund
intends to elect to defer these losses and treat them as arising in the
fiscal year ending September 30, 2000.
The accompanying notes are an integral part of the financial statements
62
<PAGE>
<TABLE>
<CAPTION>
AARP INSURED TAX FREE GENERAL BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS 0.7%
- --------------------------------------------------------------------------------------------------------------
Indiana
<S> <C> <C>
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public Services,
Series C, Daily Demand Note, 4%, 4/1/2019* .................................... 7,400,000 7,400,000
Texas
Harris County, TX, Health Facilities Authority Revenue, Saint Lukes Episcopal
Hospital, Series A, Daily Demand Note, 4.1%, 2/15/2027* ....................... 2,255,000 2,255,000
--------------
Total Short-Term Municipal Investments (Cost $9,655,000) ......................... 9,655,000
--------------
LONG-TERM MUNICIPAL INVESTMENTS 99.3%
- --------------------------------------------------------------------------------------------------------------
Alaska
North Slope Borough, AK, General Obligation, Series 1997A, Zero Coupon,
6/30/2008 (b) ................................................................. 7,000,000 4,506,460
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series A, Zero Coupon, 6/30/2006 (b) .......................................... 4,000,000 2,879,240
Series A, Zero Coupon, 6/30/2007 (b) .......................................... 5,000,000 3,405,000
Series B, Zero Coupon, 6/30/2004 (b) .......................................... 15,500,000 12,456,575
Series B, Zero Coupon, 6/30/2005 (b) .......................................... 25,600,000 19,472,128
Arizona
Arizona Municipal Finance Program, Certificate of Participation, Series 25,
7.875%, 8/1/2014 (b) .......................................................... 3,500,000 4,333,174
Maricopa County, AZ:
School District #6, Washington Elementary, Series B, 4.1%, 7/1/2013 (b) ....... 2,950,000 2,554,730
School District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/2004 (b) ... 4,000,000 3,314,040
Unified School District #41, Gilbert School, Zero Coupon, 1/1/2005 (b) ........ 5,280,000 4,150,872
California
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/2009 (b) .......................................................... 5,000,000 5,199,551
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/2019 (b) .............................................................. 960,000 1,204,079
8%, 1/1/2019 (b) .............................................................. 1,080,000 1,331,509
Big Bear Lake, CA, Series 1996, 6%, 4/1/2011 (b) ................................. 3,800,000 4,142,075
California Housing Finance Agency, 5.3%, 8/1/2014 (b) ............................ 1,660,000 1,661,526
California State Public Works Board, Lease Revenue, Series A, 6.3%,
12/1/2006 (b) ................................................................. 8,095,000 8,870,986
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/2006 (b) ................. 9,000,000 9,667,620
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue,
Multiple Projects IV, 4.75%, 12/1/2010 (b) .................................... 11,140,000 10,983,594
Madera County, CA, Certificate of Participation, Valley Childrens Hospital,
6.5%, 3/15/2010 (b) ........................................................... 2,840,000 3,199,317
Oakland, CA, Redevelopment Agency, Tax Allocations, 6%, 2/1/2007 (b) ............. 2,000,000 2,152,740
San Diego County, CA, Water Authority Revenue, Certificate of Participation:
5.63%, 4/25/2007 (b) .......................................................... 6,300,000 6,556,473
5.68%, 4/22/2009 (b) .......................................................... 4,500,000 4,700,925
The accompanying notes are an integral part of the financial statements
63
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue Refunding,
6.75%, 7/1/2010 (b) ......................................................... 2,000,000 2,295,160
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road Revenue,
Capital Appreciation, Revenue Refunding, Series 1997A, Zero Coupon,
1/15/2012 (b) ............................................................... 3,000,000 1,615,500
Colorado
Mesa County, CO, Residual Revenue, Single Family Housing, Series 1992,
Zero Coupon, ETM, 12/1/2011 (b)** ........................................... 6,435,000 3,436,419
Connecticut
Connecticut Resource Recovery Authority, Series 1996, 6.25%,
11/15/2005 (b) .............................................................. 2,000,000 2,129,140
Connecticut State Health Facility Authority, Series 1992B, 6.15%, 11/15/2004 ... 5,000,000 5,138,250
District Of Columbia
District of Columbia, General Obligation:
6.5%, 6/1/2010 (b) .......................................................... 110,000 121,447
Prerefunded 6/1/02 at 102, Series B, 6.125%, 6/1/2003 (b)*** ................ 95,000 99,362
Series A, 5.875%, ETM, 6/1/2005 (b)** ....................................... 2,335,000 2,431,155
Series B, 5.4%, 6/1/2006 (b) ................................................ 18,905,000 19,190,466
Series B, 5.5%, 6/1/2007 (b) ................................................ 25,000,000 25,517,000
Series B, 5.5%, 6/1/2008 (b) ................................................ 21,300,000 21,747,513
Series B, 5.5%, 6/1/2009 (b) ................................................ 16,150,000 16,463,149
Series B, 5.5%, 6/1/2009 (b) ................................................ 2,840,000 2,895,068
Series B, 5.5%, 6/1/2012 (b) ................................................ 1,050,000 1,062,926
Series B, Zero Coupon, 6/1/2000 (b) ......................................... 3,500,000 3,475,395
Series B3, 5.4%, 6/1/2006 (b) ............................................... 10,000,000 10,151,000
District of Columbia, General Obligation, Unrefunded Balance:
6.5%, 6/1/2010 (b) .......................................................... 2,160,000 2,359,735
Series A, 5.875%, 6/1/2005 (b) .............................................. 2,415,000 2,503,317
Series B, 6.125%, 6/1/2003 (b) .............................................. 3,905,000 4,039,957
Washington D.C. Convention Center Authority, Dedicated Tax Revenue, 5.25%,
10/1/2012 ................................................................... 4,000,000 3,985,520
Georgia
Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%,
4/1/2011 (b) ................................................................ 2,305,000 2,373,620
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central Georgia,
Series C, 5.25%, 8/1/2011 (b) ............................................... 3,000,000 2,992,170
Municipal Electric Authority Power Revenue, Series Y, 6.4%, 1/1/2013 (b) ....... 3,500,000 3,872,400
State of Georgia, General Obligation, Series C, 5.5%, 9/1/2014 (b) ............. 2,000,000 2,058,200
Hawaii
State of Hawaii, General Obligation, Series CT, 5.7%, 9/1/2013 (b) ............. 18,095,000 18,629,888
Illinois
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue,
Zero Coupon, 5/1/2002 (b) ................................................... 2,245,000 2,025,910
Chicago, IL, General Obligation:
6.25%, 1/1/2011 (b) ......................................................... 3,000,000 3,261,780
Series A, 5.375%, 1/1/2013 (b) .............................................. 15,410,000 15,373,478
Series B, 5%, 1/1/2010 (b) .................................................. 5,200,000 5,097,456
Series B, 5%, 1/1/2011 (b) .................................................. 1,620,000 1,575,256
</TABLE>
The accompanying notes are an integral part of the financial statements
64
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Series B, 5.125%, 1/1/2015 (b) ............................................ 9,550,000 9,144,030
Chicago, IL, General Obligation Lease, Board of Education:
Certificates of Participation, Series A, 6%, 1/1/2020 (b) ................. 36,625,000 38,090,733
Series 1996, 6.25%, 12/1/2011 (b) ......................................... 1,600,000 1,748,368
Series A, 6.25%, 1/1/2010 (b) ............................................. 11,550,000 12,522,395
Series A, 6.25%, 1/1/2015 (b) ............................................. 26,000,000 28,169,700
Series A, 6%, 1/1/2016 (b) ................................................ 11,025,000 11,647,472
Chicago, IL, O'Hare International Airport, Revenue Refunding, Series C,
5%, 1/1/2011 (b) .......................................................... 6,500,000 6,320,470
Chicago, IL, Public Building Commission, Building Revenue:
Board of Education, Series A, Zero Coupon, ETM, 1/1/2006 (b)** ............ 2,430,000 1,807,871
Series A, 5.25%, 12/1/2007 (b) ............................................ 3,500,000 3,537,135
Series A, 5.25%, 12/1/2009 (b) ............................................ 10,420,000 10,489,918
Series A, 5.25%, 12/1/2011 (b) ............................................ 9,705,000 9,654,049
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/2009 (b) ........................................................ 11,990,000 12,281,597
5.5%, 1/1/2010 (b) ........................................................ 7,220,000 7,383,389
Cook & Dupage Counties, IL, Housing Development Authority:
Zero Coupon, 12/1/2007 (b) ................................................ 2,550,000 1,703,706
Zero Coupon, 12/1/2008 (b) ................................................ 2,625,000 1,658,344
Zero Coupon, 12/1/2009 (b) ................................................ 2,860,000 1,705,504
Cook County, IL, Community High School District #233, Capital Appreciation
Series 1993B, Zero Coupon, 12/1/2008 (b) .................................. 1,700,000 1,057,791
Cook County, IL, General Obligation:
Series C, 6%, 11/15/2007 (b) .............................................. 5,000,000 5,300,350
Zero Coupon, ETM, 11/1/2004 (b)** ......................................... 3,205,000 2,543,264
Decatur, IL, General Obligation:
Series 1991, Zero Coupon, 10/1/2003 (b) ................................... 1,455,000 1,220,279
Series 1991, Zero Coupon, 10/1/2004 (b) ................................... 1,415,000 1,124,118
Decatur, IL, Public Building Commission, General Obligation, Certificate of
Participation:
6.5%, 1/1/2003 (b) ..................................................... 1,725,000 1,796,846
6.5%, 1/1/2006 (b) ..................................................... 1,500,000 1,608,765
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation, Junior Lien,
Series 1991, Zero Coupon, 5/15/2007 ....................................... 17,460,000 11,863,721
Illinois, Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/2011 (b) ..................................................... 3,000,000 3,254,130
6.25%, 12/15/2020 (b) ..................................................... 6,975,000 7,406,055
Series A, 6.5%, 12/15/2007 (b) ............................................ 4,765,000 5,207,430
Series A, 6.5%, 12/15/2008 (b) ............................................ 5,255,000 5,778,135
Illinois Educational Facilities Authority, Loyola University:
Series A, Zero Coupon, ETM, 7/1/2004 (b)** ................................ 2,860,000 2,307,991
Zero Coupon, ETM, 7/1/2005** .............................................. 4,000,000 3,061,280
Illinois Health Facilities Authority:
Brokaw-Mennonite Healthcare:
6%, 8/15/2006 (b) ...................................................... 1,380,000 1,442,169
6%, 8/15/2007 (b) ...................................................... 1,460,000 1,530,664
6%, 8/15/2008 (b) ...................................................... 1,550,000 1,628,895
6%, 8/15/2009 (b) ...................................................... 1,640,000 1,726,297
</TABLE>
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Children's Memorial Hospital, 6.25%, 8/15/2013 (b) ........................... 3,400,000 3,665,710
Felician Healthcare Inc., Series A, 6.25%, 12/1/2015 (b) ..................... 17,000,000 18,292,850
Memorial Medical Center, Prerefunded 10/1/2000 at 102, 6.75%,
10/1/2011 (b)*** .......................................................... 2,135,000 2,204,131
SSM Healthcare System, 6.4%, 6/1/2008 (b) .................................... 1,350,000 1,451,912
Sherman Hospital, Prerefunded at 8/1/2001 at 102, 6.75%, 8/1/2011 (b)*** ..... 2,700,000 2,828,655
Illinois State Toll Highway Authority, Toll Highway Priority Revenue Bond,
Series A, 5.5%, 1/1/2013 (b) ................................................. 3,665,000 3,728,588
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus
Extension Center, 6.7%, 9/1/2012 (b) ......................................... 2,500,000 2,767,925
Kane County, IL,Series 1996A, 6.5%, 2/1/2010 (b) ................................ 1,775,000 1,937,874
Kane, Cook and Dupage Counties, IL, School District #46 Elgin:
Series 1996B, Zero Coupon, 1/1/2011 (b) ...................................... 1,040,000 581,610
Series 1996B, Zero Coupon, 1/1/2012 (b) ...................................... 1,300,000 684,047
Series 1996B, Zero Coupon, 1/1/2013 (b) ...................................... 2,095,000 1,035,998
Kendall, Kane and Will Counties, IL, Community Unit School District #308, Oswego:
Zero Coupon, 3/1/2002 (b) ................................................. 1,055,000 959,902
Zero Coupon, 3/1/2005 (b) ................................................. 1,540,000 1,194,763
Zero Coupon, 3/1/2006 (b) ................................................. 1,595,000 1,171,783
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project:
Series 1994, Zero Coupon, 6/15/2013 (b) ...................................... 5,625,000 2,712,488
Zero Coupon, 12/15/2003 (b) .................................................. 3,200,000 2,656,192
Zero Coupon, 6/15/2004 (b) ................................................... 10,300,000 8,306,744
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply System
Revenue, 6.45%, 5/1/2007 (b) ................................................. 2,575,000 2,786,047
Rosemont, IL, Tax Increment:
Series C, Zero Coupon, 12/1/2005 (b) ......................................... 4,455,000 3,324,989
Series C, Zero Coupon, 12/1/2007 (b) ......................................... 2,655,000 1,773,859
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/2011 (b) ............. 3,000,000 1,596,600
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/2003 (b) ................................................................ 2,750,000 2,306,370
University of Illinois, Board of Trustees:
Series 1991, Zero Coupon, 4/1/2003 (b) ....................................... 3,890,000 3,348,434
Series 1991, Zero Coupon, 4/1/2005 (b) ....................................... 3,830,000 2,962,965
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/2000 (b) ............................................... 1,325,000 1,285,687
Zero Coupon, 12/15/2001 (b) ............................................... 1,730,000 1,595,181
Indiana
Indiana Health Facilities Finance Authority:
Charity Obligation Group, Series D, 5.75%, 11/15/2012 (b) .................... 4,660,000 4,698,958
Community Hospitals Project, 6.4%, 5/1/2012 (b) .............................. 5,000,000 5,199,550
Series 1990A, 6%, 7/1/2003 (b) ............................................... 1,570,000 1,620,209
Series 1990A, 6%, 7/1/2004 (b) ............................................... 1,665,000 1,727,254
Series 1990A, 6%, 7/1/2005 (b) ............................................... 1,765,000 1,840,489
Series 1990A, 6%, 7/1/2006 (b) ............................................... 1,875,000 1,963,144
Series 1990A, 6%, 7/1/2007 (b) ............................................... 1,985,000 2,085,818
Series 1990A, 6%, 7/1/2008 (b) ............................................... 1,085,000 1,143,275
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Series 1990A, 6%, 7/1/2009 (b) ............................................. 1,125,000 1,187,786
Series 1990A, 6%, 7/1/2010 (b) ............................................. 1,185,000 1,246,004
Series 1990A, 6%, 7/1/2011 (b) ............................................. 1,260,000 1,328,431
Series 1990A, 6%, 7/1/2012 (b) ............................................. 1,345,000 1,418,975
Series 1990A, 6%, 7/1/2013 (b) ............................................. 1,420,000 1,492,874
Series 1990A, 6%, 7/1/2014 (b) ............................................. 1,505,000 1,576,999
Series 1990A, 6%, 7/1/2015 (b) ............................................. 1,600,000 1,671,584
Series 1990A, 6%, 7/1/2016 (b) ............................................. 1,700,000 1,775,463
Series 1990A, 6%, 7/1/2017 (b) ............................................. 1,800,000 1,880,838
Series 1990A, 6%, 7/1/2018 (b) ............................................. 1,910,000 1,991,977
Tax Exempt Custodian Receipts Refund, Series 1997A, 6%, 7/1/2002 (b) ....... 1,480,000 1,517,962
Indiana University, Revenue Refunding:
Series H, Zero Coupon, 8/1/2006 (b) ........................................ 8,500,000 6,110,480
Student Fee Revenue, Series H, Zero Coupon, 8/1/2008 (b) ................... 10,000,000 6,430,100
Merrillville, IN, Multiple School Building Corp., First Mortgage, Zero Coupon,
1/15/2011 (b) .............................................................. 4,000,000 2,232,280
Iowa
Polk County, IA, Mercy Hospital, Prerefunded 11/1/2001 at 101, 6.75%,
11/1/2005 (b)*** ........................................................... 5,000,000 5,213,550
Kansas
Kansas City, KS, Utility System Revenue:
Zero Coupon, 9/1/2004 (b) .................................................. 2,640,000 2,113,505
Zero Coupon, 9/1/2005 (b) .................................................. 3,950,000 2,999,038
Zero Coupon, 9/1/2006 (b) .................................................. 1,375,000 989,106
Zero Coupon, ETM, 9/1/2004 (b)** ........................................... 3,575,000 2,865,756
Zero Coupon, ETM, 9/1/2005 (b)** ........................................... 5,300,000 4,030,385
Zero Coupon, ETM, 9/1/2006 (b)** ........................................... 1,875,000 1,351,313
Louisiana
Louisiana Public Facilities Authority, Prerefunded 2/15/2008 at 100, 4.75%,
5/1/2016*** ................................................................ 5,765,000 5,657,137
New Orleans, LA, General Obligation:
Zero Coupon, 9/1/2007 (b) .................................................. 10,000,000 6,804,000
Zero Coupon, ETM, 7/15/2006** .............................................. 4,850,000 3,297,855
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986, 5.95%,
11/1/2014 (b) .............................................................. 1,765,000 1,829,599
Maryland
Baltimore, MD, Revenue Exchanged, Auto Parking Revenue, Series 1996A,
5.9%, 7/1/2012 (b) ......................................................... 3,100,000 3,310,768
Massachusetts
Massachusetts Health & Educational Facilities Authority, Boston Medical Center,
Series A, 5.25%, 7/1/2012 (b) .............................................. 2,920,000 2,857,833
Michigan
Detroit, MI, General Obligation:
6%, 4/1/2016 (b) ........................................................... 2,865,000 2,981,978
City School District, Series 1998C, 5.25%, 5/1/2014 ........................ 1,000,000 987,230
Southgate, MI, Community School District, General Obligation, 5%, 5/1/2025 (b). 5,500,000 4,868,985
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Missouri
Missouri Health & Educational Facilities Authority, SSM Healthcare:
1992 Series AA, 6.35%, 6/1/2008 (b) ................................... 8,125,000 8,767,606
1992 Series AA, 6.4%, 6/1/2009 (b) .................................... 8,640,000 9,395,482
Nevada
Clark County, NV, School District:
General Obligation, Series B, Zero Coupon, 3/1/2005 (b) ............... 8,070,000 6,266,839
Series 1991B, Zero Coupon, 3/1/2009 (b) ............................... 4,350,000 2,704,874
New Jersey
New Jersey Highway Authority, 6.5%, ETM, 1/1/2011 (b)** .................. 4,111,000 4,391,411
New Jersey Turnpike Authority, Series 1991A, 6.3%, 1/1/2001 (b) .......... 1,250,000 1,269,600
New York
New York City, NY, General Obligation:
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2004 (b)*** ....... 275,000 289,097
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2005 (b)*** ....... 10,235,000 10,759,646
Series A, 8%, ETM, 11/1/2001 (b)** .................................... 740,000 742,353
Series A, 3%, 8/15/2002 (b) ........................................... 9,000,000 8,549,640
Series C, 6.4%, 8/1/2004 (b) .......................................... 225,000 235,301
Series C, 6.4%, 8/1/2005 (b) .......................................... 195,000 203,621
Series D, 8%, 8/1/2005 (b) ............................................ 5,000 5,085
Series E, 7%, ETM, 12/1/2007 (b)** .................................... 1,385,000 1,391,537
Unrefunded Balance, Series D, 1997, 6%, 8/1/2006 (b) .................. 20,000 20,110
Unrefunded Balance, Series D, 1998, 6%, 8/1/2008 (b) .................. 55,000 55,304
New York State Dormitory Authority Revenue:
City University, Series C, 7.5%, 7/1/2010 (b) ......................... 5,750,000 6,623,253
City University, Series D, 7%, 7/1/2009 (b) ........................... 4,000,000 4,397,480
City University System, Series I, 5.125%, 7/1/2027 (b) ................ 19,100,000 17,020,965
College and University Pooled Capital Program, 7.8%, 12/1/2005 (b) .... 1,605,000 1,637,341
Mental Health Services, Series C, 5.25%, 8/15/2024 (b) ................ 10,250,000 9,430,923
New York State Energy Research and Development Authority, Pollution
Control Revenue, Electric and Gas, 5.9%, 12/1/2006 (b) ................ 5,300,000 5,570,247
New York State Urban Development Authority, Correctional Facilities,
6.5%, 1/1/2011 (b) .................................................... 4,500,000 5,004,135
New York, NY, Series C, 5.375%, 11/15/2017 (b) ........................... 5,000,000 4,896,600
Suffolk County, NY, Industrial Development Agency, Southwest Sewer System,
6%, 2/1/2007 (b) ...................................................... 8,000,000 8,434,000
Triborough Bridge & Tunnel Authority, NY, General Purpose Revenue:
Series A, 5.125%, 1/1/2018 (b) ........................................ 6,500,000 6,078,605
Series Y, 5.5%, 1/1/2017 (b) .......................................... 5,050,000 5,064,746
North Carolina
North Carolina Eastern Municipal Power Agency:
5.5%, 1/1/2007 (b) .................................................... 2,000,000 2,041,600
Power System Revenue, Series B, 6%, 1/1/2018 (b) ...................... 8,775,000 9,216,295
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue:
5.25%, 1/1/2008 (b) ................................................... 2,500,000 2,515,600
6%, 1/1/2011 (b) ...................................................... 8,235,000 8,708,924
Series 1992, 7.25%, 1/1/2007 (b) ...................................... 5,000,000 5,575,150
Series 1997, 6%, 1/1/2008 (b) ......................................... 2,585,000 2,723,711
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
North Dakota
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, ETM, 5/1/2002 (b)** ..................................... 2,850,000 2,572,409
Ohio
Cleveland, OH, Water Works Revenue, Series 1993G, 5.5%,
1/1/2013 (b) ......................................................... 10,000,000 10,248,100
Oklahoma
Tulsa, OK, Industrial Development Authority, Hospital Revenue,
St. John's Medical Center:
Zero Coupon, 12/1/2002 (b) ........................................ 3,930,000 3,450,461
Zero Coupon, 12/1/2004 (b) ........................................ 5,430,000 4,288,831
Zero Coupon, 12/1/2006 (b) ........................................ 6,430,000 4,560,542
Pennsylvania
Commonwealth of Pennsylvania, Industrial Development Authority,
Economic Development Revenue:
5.8%, 1/1/2008 (b) ................................................ 4,250,000 4,446,435
5.8%, 7/1/2008 (b) ................................................ 4,875,000 5,112,071
Commonwealth of Philadelphia, PA, Water & Wastewater Refunding Revenue,
5.5%, 6/15/2007 (b) .................................................. 5,000,000 5,131,050
Philadelphia, PA, Water and Wastewater Revenue, 5.25%, 12/15/2012 (b) ... 5,500,000 5,509,680
Westmoreland County, PA, Industrial Development Revenue, Westmoreland
Health System, 5.375%, 7/1/2011 (b) .................................. 7,300,000 7,345,333
Rhode Island
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/2015 (b) ........................ 2,000,000 1,977,260
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993 B, 5%, 5/15/2010 (b) ..................................... 5,000,000 4,929,500
Series 1993 B, 5.25%, 5/15/2015 (b) .................................. 22,000,000 21,505,000
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, ETM, 8/1/2010 (b)** .................................. 6,200,000 6,539,636
Series B, 5.8%, ETM, 8/1/2011 (b)** .................................. 4,525,000 4,770,798
Series B, 5.8%, ETM, 8/1/2012 (b)** .................................. 2,500,000 2,632,775
Series B, 5.8%, ETM, 8/1/2013 (b)** .................................. 7,340,000 7,715,808
South Carolina
Piedmont, SC, Municipal Power Agency, Electric Revenue:
Series 1993, 5.5%, ETM, 1/1/2008 (b)** ............................... 840,000 866,099
Series 1993, 5.5%, ETM, 1/1/2012 (b)** ............................... 2,190,000 2,247,028
Series 1993, 5.5%, 1/1/2012 (b) ...................................... 2,810,000 2,853,527
Series 1991A, 6.5%, ETM, 1/1/2016 (b)** .............................. 430,000 477,760
Tennessee
Knox County, TN, Health & Educational Hospital Facilities Board, Hospital
Facilities
Revenue, Fort Sanders Alliance:
7.25%, 1/1/2009 (b) ............................................... 3,750,000 4,272,638
5.75%, 1/1/2011 (b) ............................................... 15,405,000 15,902,427
5.75%, 1/1/2012 (b) ............................................... 17,880,000 18,448,942
6.25%, 1/1/2013 (b) ............................................... 4,000,000 4,302,360
5.75%, 1/1/2014 (b) ............................................... 2,000,000 2,034,060
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Texas
Austin, TX, Combined Utility System Revenue, Zero Coupon, 11/15/2009 (b) ...... 5,020,000 3,009,138
Austin, TX, Utility Systems Revenue Refunding, Series A, Zero Coupon,
11/15/2008 (b) ............................................................. 3,460,000 2,196,545
Bexar County, TX, Health Facilities Development Corp., Baptist Health System:
Series 1997, 6%, 11/15/2012 (b) ............................................ 3,000,000 3,171,419
Series 1997A, 6%, 11/15/2011 (b) ........................................... 2,000,000 2,113,059
Brownsville, TX, Utility System Revenue, 6.25%, 9/1/2010 (b) .................. 4,085,000 4,426,423
Cedar Hill, TX, Zero Coupon:
Series 1996, 8/15/2009 ..................................................... 1,500,000 900,434
Series 1996, 8/15/2010 ..................................................... 3,130,000 1,772,174
Dallas, TX, Civic Center, 5%, 8/15/2028 (b) ................................... 10,000,000 8,719,900
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,
Zero Coupon, 10/1/2016 (b) ................................................. 5,990,000 1,109,648
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/2003 (b) ....................................................... 1,000,000 1,091,710
7.8%, 11/1/2005 (b) ........................................................ 2,000,000 2,236,780
7.8%, 11/1/2006 (b) ........................................................ 2,025,000 2,262,674
7.375%, 11/1/2008 (b) ...................................................... 4,500,000 4,967,145
7.375%, 11/1/2010 (b) ...................................................... 3,500,000 3,849,685
Fort Worth, TX, Higher Education Finance Corp., Texas Christian University
Project, 5%, 3/15/2020 ..................................................... 3,500,000 3,156,090
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/2006 (b) ...................... 9,035,000 6,438,883
Flood Control District, Zero Coupon, 10/1/2000 (b) ......................... 1,000,000 978,900
Toll Road Authority, Subordinate Lien:
Series A, Zero Coupon, 8/15/2005 (b) .................................... 4,025,000 3,054,895
Toll Road Revenue, Series A, Zero Coupon, 8/15/2006 (b) ................. 4,010,000 2,882,228
Unlimited Tax, Series A, Zero Coupon, 8/15/2004 (b) ..................... 2,050,000 1,641,353
Harris County, TX, Health Facilities Development, Texas Medical Center Project:
6.25%, 5/15/2008 (b) ....................................................... 2,785,000 2,972,737
6.25%, 5/15/2009 (b) ....................................................... 2,965,000 3,175,307
Houston, TX, Water & Sewer System Authority:
Series C, Zero Coupon, 12/1/2006 (b) ....................................... 14,575,000 10,317,351
Series C, Zero Coupon, 12/1/2008 (b) ....................................... 19,000,000 12,033,650
Series C, Zero Coupon, 12/1/2009 (b) ....................................... 14,750,000 8,820,795
Series 1991C, Zero Coupon, 12/1/2012 (b) ................................... 3,350,000 1,676,608
Zero Coupon, 12/1/2010 (b) ................................................. 5,000,000 2,823,450
Hurst Euless Bedford, TX, Independent School District, Capital Appreciation
Refunding, Series 1994, Zero Coupon, 8/15/2009 ............................. 4,925,000 2,991,741
Laredo TX, Independent School District, 6%, 8/1/2011 .......................... 2,465,000 2,612,900
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital:
Series B, 5.5%, ETM, 12/1/2006 (b)** ....................................... 3,945,000 4,059,878
Series B, 5.6%, ETM, 12/1/2007 (b)** ....................................... 2,415,000 2,503,051
Series B, 5.625%, ETM, 12/1/2008 (b)** ..................................... 4,400,000 4,569,224
Series B, 5.625%, ETM, 12/1/2009 (b)** ..................................... 4,640,000 4,820,125
Mesquite, TX, Independent School District, General Obligation, 5.125%,
8/15/2019 (b) .............................................................. 2,640,000 2,443,320
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Montgomery County, TX, Capital Appreciation:
Zero Coupon, ETM, 9/1/2003 (b)** ........................................ 800,000 675,112
Zero Coupon, ETM, 9/1/2004** ............................................ 795,000 636,453
Zero Coupon, ETM, 9/1/2005** ............................................ 685,000 520,086
Unrefunded Balance:
Zero Coupon, 9/1/2003 (b) ............................................... 2,675,000 2,255,159
Zero Coupon, 9/1/2004 (b) ............................................... 2,680,000 2,140,918
Zero Coupon, 9/1/2005 (b) ............................................... 2,790,000 2,112,728
Northeast, TX, Hospital Authority, Revenue Refunding, Northeast Medical Center,
Series 1997, 6%, 5/15/2010 (b) ............................................. 2,180,000 2,292,968
Northwest Texas Independent School District, Capital Appreciation Bonds,
Series 1991, Zero Coupon, 8/15/2010 (b) .................................... 3,690,000 2,116,842
San Antonio, TX, Electric & Gas, Revenue Refunding:
Series A, Zero Coupon, 2/1/2005 (b) ........................................ 2,500,000 1,950,675
Series A, Zero Coupon, 2/1/2006 (b) ........................................ 17,900,000 13,267,838
Series B, Zero Coupon, ETM, 2/1/2005 (b)** ................................. 8,000,000 6,242,160
Series B, Zero Coupon, ETM, 2/1/2009 (b)** ................................. 4,400,000 2,757,612
San Antonio, TX, Electric & Gas, Revenue, Series A, 5.25%, 2/1/2012 ........... 3,000,000 2,986,710
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/2006 (b) ................ 2,000,000 2,107,860
State of Texas, General Obligation, Capital Appreciation Bond:
Series C, Zero Coupon, ETM, 4/1/2005 (b)** ................................. 7,540,000 5,847,345
Series C, Zero Coupon, 4/1/2005 (b) ........................................ 850,000 659,184
Super Collider, Series C, Zero Coupon, 4/1/2006 (b) ........................ 7,385,000 5,430,486
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/2011 (b) ....................................................... 4,615,000 4,846,350
6%, 5/15/2021 (b) ....................................................... 6,235,000 6,400,602
Texas Municipal Power Agency:
6.1%, 9/1/2007 (b) ......................................................... 9,250,000 9,844,128
6.1%, ETM, 9/1/2009 (b)** .................................................. 4,435,000 4,773,479
Texas Public Finance Authority, Building Authority:
Series B, 6.25%, 2/1/2008 (b) .............................................. 5,190,000 5,584,907
Zero Coupon, 2/1/2006 (b) .................................................. 13,915,000 10,284,855
Trinity River, TX, Wastewater Systems Revenue, Series B, 5.25%, 8/1/2012 ...... 5,540,000 5,524,654
Utah
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:
Zero Coupon, 7/1/2000 (b) .................................................. 2,755,000 2,725,825
Zero Coupon, 7/1/2002 (b) .................................................. 5,200,000 4,657,224
Zero Coupon, 7/1/2004 (b) .................................................. 5,895,000 4,749,307
Zero Coupon, 7/1/2005 (b) .................................................. 5,900,000 4,506,125
Zero Coupon, 7/1/2006 (b) .................................................. 5,895,000 4,264,030
Zero Coupon, 7/1/2007 (b) .................................................. 3,750,000 2,566,425
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/2012 (b) ........................................................... 1,000,000 965,280
Series 1993, 5.46%, 7/1/2011 (b) ........................................... 7,000,000 7,027,790
Series A, Zero Coupon, 7/1/2003 (b) ........................................ 1,000,000 849,290
Series A, Zero Coupon, 7/1/2004 (b) ........................................ 1,730,000 1,392,045
Series A, 6.5%, 7/1/2008 (b) ............................................... 4,000,000 4,364,440
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Series A, Zero Coupon, 7/1/2002 (b) ........................................ 1,655,000 1,481,275
Series B, Zero Coupon, 7/1/2002 (b) ........................................ 8,230,000 7,366,097
Provo, UT, Electric System Revenue, 10.375%, ETM, 9/15/2015 (b)** ............. 1,800,000 2,459,790
Virginia
Roanoke, VA, Industrial Development Authority, Roanoke Memorial Hospital,
Series B, 6.125%, 7/1/2017 (b) ............................................. 5,500,000 5,872,955
Southeastern Public Service Authority, VA, Refunding Revenue,
Series A, 5.25%, 7/1/2010 (b) .............................................. 7,380,000 7,425,904
Winchester County, VA, Industrial Development Authority, Hospital Revenue,
6%, 1/1/2015 (b) ........................................................... 5,700,000 5,705,187
Washington
Clark County, WA, Public Utility District, Series 1995, 6%, 1/1/2008 (b) ...... 2,200,000 2,326,698
King & Snohomish Counties, WA, General Obligation, School District #417,
5.6%, 12/1/2010 (b) ........................................................ 1,650,000 1,712,964
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/2017 (b) ............................................ 3,500,000 3,415,615
Snohomish County, WA:
School District #6, 6.5%, 12/1/2007 (b) .................................... 3,325,000 3,619,229
School District #015, General Obligation, Series 1998, 5.75%, 12/1/2011 (b) 3,485,000 3,647,680
State of Washington, General Obligation, Series AT-5, Zero Coupon, 8/1/2010 (b) 2,625,000 1,509,034
Washington Health Care Facilities Authority, Empire Health Services-- Spokane:
5.65%, 11/1/2005 (b) ....................................................... 2,155,000 2,213,961
5.7%, 11/1/2006 (b) ........................................................ 3,440,000 3,548,222
5.75%, 11/1/2007 (b) ....................................................... 7,350,000 7,609,602
5.8%, 11/1/2009 (b) ........................................................ 4,595,000 4,779,673
5.8%, 11/1/2010 (b) ........................................................ 2,100,000 2,185,848
Washington Public Power Supply System, Revenue Refunding
Nuclear Project #1:
Series A, Prerefunded 7/1/2000 at 102, 7%, 7/1/2011 (b)*** .............. 3,830,000 3,932,529
Series B, 7.25%, 7/1/2012 (b) ........................................... 10,895,000 11,193,305
Nuclear Project #2:
Series 1992A, Zero Coupon, 7/1/2011 (b) ................................. 4,200,000 2,293,704
Series A, 5.7%, 7/1/2008 (b) ............................................ 5,000,000 5,168,900
Series A, Prerefunded 7/1/2000 at 102, 7.25%, 7/1/2003 (b)*** ........... 2,000,000 2,054,760
Series C, 7%, 7/1/2001 (b) .............................................. 10,000,000 10,277,500
Series C, Prerefunded 7/1/2000 at 102, 7.375%, 7/1/2011 (b)*** .......... 1,370,000 1,428,061
Nuclear Project #3:
Series 1989A, Zero Coupon, 7/1/2010 (b) ................................. 5,860,000 3,373,661
Series A, Zero Coupon, 7/1/2004 (b) ..................................... 3,625,000 2,916,856
Series A, Zero Coupon, 7/1/2005 (b) ..................................... 4,125,000 3,145,643
Series C, 7.5%, 7/1/2008 (b) ............................................ 2,000,000 2,293,620
Wisconsin
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/2004 (b) .......... 3,475,000 2,811,518
Wisconsin Health & Educational Facilities Authority:
6.1%, 8/15/2009 (b) ........................................................ 2,000,000 2,117,140
Aurora Medical:
5.75%, 11/15/2006 (b) ................................................... 2,000,000 2,064,220
5.75%, 11/15/2007 (b) ................................................... 1,500,000 1,550,220
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
6%, 11/15/2008 (b) ................................................ 4,085,000 4,295,010
6%, 11/15/2009 (b) ................................................ 4,330,000 4,559,187
Felician Healthcare Inc., Series B, 6.25%, 1/1/2022 (b) .............. 5,285,000 5,616,845
Hospital Sisters Services Inc.-- Obligated Group, 5.375%, 6/1/2018 (b) 4,800,000 4,546,560
SSM Healthcare:
Series 1992 AA, 6.4%, 6/1/2008 (b) ................................ 2,335,000 2,509,681
Series 1992 AA, 6.45%, 6/1/2009 (b) ............................... 2,485,000 2,691,280
Series 1992 AA, 6.45%, 6/1/2010 (b) ............................... 2,650,000 2,880,391
Series 1992 AA, 6.5%, 6/1/2011 (b) ................................ 2,820,000 3,109,727
Series 1992 AA, 6.5%, 6/1/2012 (b) ................................ 3,000,000 3,319,530
St. Luke's Medical Center, Prerefunded 8/15/2001 at 102, 7.1%,
8/15/2011 (b)*** .................................................. 2,000,000 2,106,100
Villa St. Francis Inc., Series C, 6.25%, 1/1/2022 (b) ................ 9,230,000 9,809,553
Wheaton Franciscan Services, 6.1%, 8/15/2008 (b) ..................... 4,580,000 4,838,129
--------------
- ----------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $1,382,211,098) ............. 1,456,879,991
--------------
- ----------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $1,391,866,098) (a) ............. 1,466,534,991
--------------
--------------
- ----------------------------------------------------------------------------------------------------------
</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, 2000.
** 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, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of was as follows:
$1,392,162,757
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 75,740,096
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (1,367,862)
------------
Net unrealized appreciation $ 74,372,234
============
(b) (Unaudited) Bond is insured by one of these companies: AMBAC, Capital
Guaranty, FGIC, FSA, or MBIA/BIG.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended March 31, 2000 aggregated $67,444,767 and $175,516,044,
respectively.
- --------------------------------------------------------------------------------
From November 1, 1998 through September 30, 1999, the Fund incurred
approximately $700,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the fiscal year ending September 30, 2000.
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
AARP BOND FUND FOR INCOME
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 4.8%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $8,799,434
on 4/3/2000** (Cost $8,795,000) ........................................ 8,795,000 8,795,000
----------
U.S. GOVERNMENT & AGENCIES 21.5%
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.875%, 11/15/2004 .................................... 4,750,000 4,663,883
U.S. Treasury Note, Inflationary Index, 3.927%, 1/15/2009 ................. 4,000,000 4,069,962
U.S. Treasury Bond, 10.75%, 8/15/2005 ..................................... 9,000,000 10,735,290
U.S. Treasury Bond Inflationary Index, 3.684%, 4/15/2028 .................. 3,500,000 3,466,668
U.S. Treasury Bond, 5.25%, 2/15/2029 ...................................... 1,650,000 1,479,588
U.S. Treasury Bond, 6.125%, 8/15/2029 ..................................... 8,800,000 8,969,136
U.S. Treasury Bond, 6.25%, 5/15/2030 ...................................... 5,950,000 6,290,281
-----------
Total U.S. Government & Agencies (Cost $40,841,956) ....................... 39,674,808
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 3.4%
- -------------------------------------------------------------------------------------------------------
Government National Mortgage Association 7.5% with
various maturities to 4/15/2027 ........................................ 779,217 772,399
Government National Mortgage Association 7% with
various maturities to 4/15/2029 ........................................ 5,706,293 5,530,647
----------
Total Government National Mortgage Association (Cost $6,559,045) .......... 6,303,046
----------
U.S. GOVERNMENT BACKED MORTGAGES* 9.1%
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 ........................ 3,000,000 2,890,320
Federal National Mortgage Association 6.5% with various maturities
to 3/1/2028 ............................................................ 9,047,415 8,498,912
Federal National Mortgage Association 7.25% with various maturities
to 1/15/2010 ........................................................... 2,800,000 2,818,816
Federal National Mortgage Association 8% with various maturities
to 12/1/2012 ........................................................... 2,505,257 2,534,036
----------
Total U.S. Government Backed Mortgages (Cost $17,563,663) ................. 16,742,084
----------
COLLATERALIZED MORTGAGE OBLIGATIONS* 1.5%
- -------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Series 1997Q512-A7, 7.25%, 11/25/2027
(Cost $2,966,919) ...................................................... 2,917,683 2,837,447
----------
FOREIGN BONDS -- U.S. $ DENOMINATED 2.0%
- -------------------------------------------------------------------------------------------------------
PacifiCorp Australia LLC, 6.15%, 1/15/2008 ................................ 2,000,000 1,868,780
----------
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................. 2,000,000 1,836,740
----------
Total Foreign Bonds-- U.S.$ Denominated (Cost $3,936,200) ................. 3,705,520
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------
ASSET BACKED 3.4%
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Receivables 1.1%
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003 2,000,000 1,979,688
----------
Credit Card Receivables 1.8%
Citibank Credit Card Master Trust I, 6%, 4/10/2003 .............. 1,500,000 1,481,250
----------
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ................. 2,000,000 1,928,120
----------
3,409,370
----------
Home Equity Loans 0.3%
First Plus Residential Trust Series 1998A, 8.5%, 5/15/2023 ...... 1,368,056 547,222
----------
Manufactured Housing Receivables 0.2%
Green Tree Financial Corp., Series 1997-2 B2, 8.05%, 6/15/2028 .. 492,920 383,399
----------
Total Asset Backed (Cost $7,347,861) ............................ 6,319,679
----------
CORPORATE BONDS 54.3%
- -----------------------------------------------------------------------------------------------
Consumer Discretionary 3.0%
Federated Department Stores, Inc., 8.5%, 6/15/2003 .............. 1,000,000 1,024,440
Harrah's Operating Co., Inc., 7.875%, 12/15/2005 ................ 2,000,000 1,845,000
Park Place Entertainment, Inc., 9.375%, 2/15/2007 ............... 1,350,000 1,319,625
Tricon Global Restaurants Inc., 7.65%, 5/15/2008 ................ 1,500,000 1,416,000
----------
5,605,065
----------
Consumer Staples 3.6%
Aurora Foods, Inc., 8.75%, 7/1/2008 ............................. 1,000,000 380,000
Bass America Inc., 6.625%, 3/1/2003 ............................. 1,500,000 1,468,770
Safeway Inc., 7.25%, 9/15/2004 .................................. 1,900,000 1,888,334
The Great Atlantic & Pacific Tea Co., Inc., 7.7%, 1/15/2004 ..... 3,000,000 2,888,400
----------
6,625,504
----------
Communications 11.0%
Call-Net Enterprises Inc., 8%, 8/15/2008 ........................ 1,800,000 1,260,000
Intermedia Communications, Inc., 8.875%, 11/1/2007 .............. 2,000,000 1,870,000
Level 3 Communications, Inc., 9.125%, 5/1/2008 .................. 2,000,000 1,725,000
McLeodUSA, Inc., 8.125%, 2/15/2009 .............................. 1,500,000 1,323,750
McLeodUSA, Inc., Exchange Shares, 8.375%, 3/15/2008 ............. 500,000 445,000
Metromedia Fiber Network, Inc., 10%, 12/15/2009 ................. 925,000 888,000
Nextel Communications, Inc., 9.375%, 11/15/2009 ................. 1,200,000 1,107,000
Qwest Communications International, 7.5%, 11/1/2008 ............. 3,000,000 2,917,500
Sprint Capital Corp., 6.375%, 5/1/2009 .......................... 4,150,000 3,807,625
Vodafone Airtouch PLC, 6.25%, 2/15/2010 ......................... 2,050,000 2,064,145
WorldCom, Inc., 6.4%, 8/15/2005 ................................. 3,000,000 2,879,850
----------
20,287,870
----------
Financial 13.1%
Bell Atlantic Financial Services, 7.6%, 3/15/2007 ............... 1,400,000 1,409,660
Boeing Capital Corp., 6.75%, 12/23/2003 ......................... 1,500,000 1,482,525
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Capital One Bank, 6.57%, 1/27/2003 ................... 2,500,000 2,431,250
Chase Manhattan Corp., 5.75%, 4/15/2004 .............. 2,000,000 1,886,320
Firststar Bank, 7.125%, 12/1/2009 .................... 1,100,000 1,045,000
Fleet Boston Corp, 6.375%, 4/15/2008 ................. 1,050,000 963,218
Ford Motor Credit Co., 7.375%, 10/28/2009 ............ 1,300,000 1,274,910
GS Escrow Corp., 7%, 8/1/2003 ........................ 2,000,000 1,841,900
General Electric Capital Corp., 7%, 2/3/2003 ......... 2,100,000 2,100,714
General Motors Acceptance Corp., 7.75%, 1/19/2010 .... 1,150,000 1,160,615
Goldman Sachs Group, Inc., 7.8%, 1/28/2010 ........... 1,350,000 1,339,875
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ............. 500,000 446,235
National Westminster Bank PLC, 7.375%, 10/1/2009 ..... 1,850,000 1,804,213
PNC Funding Corp., 7%, 9/1/2004 ...................... 1,200,000 1,181,544
Prudential Insurance Co., 6.375%, 7/23/2006 .......... 2,000,000 1,882,260
Salomon Inc., 7.3%, 5/15/2002 ........................ 2,000,000 1,996,200
-----------
24,246,439
-----------
Media 9.9%
AMFM, Inc., 10.5%, 1/15/2007 ......................... 1,000,000 1,062,500
AMFM, Inc., 8%, 11/1/2008 ............................ 2,500,000 2,468,750
British Sky Broadcasting Group PLC, 6.875%, 2/23/2009 2,150,000 1,925,282
Cablevision Systems Corp., 7.875%, 2/15/2018 ......... 1,500,000 1,443,600
Charter Communication Holdings LLC, 8.25%, 4/1/2007 .. 2,500,000 2,237,500
Liberty Media Group, 7.875%, 7/15/2009 ............... 1,650,000 1,633,385
News America Holdings Inc., 9.25%, 2/1/2013 .......... 2,500,000 2,738,075
Outdoor Systems, Inc., 8.875%, 6/15/2007 ............. 1,000,000 1,013,750
TCI-Communications, Inc., 8%, 8/1/2005 ............... 2,500,000 2,566,825
Time Warner Inc., 9.125%, 1/15/2013 .................. 1,000,000 1,111,320
-----------
18,200,987
-----------
Service Industries 1.3%
Allied Waste North America, 7.375%, 1/1/2004 ......... 1,250,000 1,087,500
Primedia, Inc., 7.625%, 4/1/2008 ..................... 1,500,000 1,342,500
-----------
2,430,000
-----------
Durables 2.1%
Daimler-Benz NA Holdings, 7.375%, 9/15/2006 .......... 1,500,000 1,466,160
Lear Corp, 7.96%, 5/15/2005 .......................... 2,500,000 2,398,000
-----------
3,864,160
-----------
Energy 4.5%
Barrett Resources Corp., 7.55%, 2/1/2007 ............. 1,500,000 1,413,750
Duke Energy Corp., 10%, 8/15/2001 .................... 2,000,000 2,059,960
Louis Dreyfus Natural Gas Corp., 6.875%, 12/1/2007 ... 2,500,000 2,324,325
Pioneer Natural Resources Co., 6.5%, 1/15/2008 ....... 1,950,000 1,693,166
Williams Gas Pipeline Center, 7.375%, 11/15/2006 ..... 900,000 884,952
-----------
8,376,153
-----------
Construction 0.8%
American Standard Companies Inc., 7.625%, 2/15/2010 .. 1,500,000 1,335,000
Nortek, Inc., 9.125%, 9/1/2007 ....................... 250,000 228,750
-----------
1,563,750
-----------
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 1.8%
Delta Airlines, Inc., 7.9%, 12/15/2009 .................. 550,000 522,830
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ........ 1,500,000 1,466,250
Northwest Airlines Corp., 7.875%, 3/15/2008 ............. 1,500,000 1,300,680
-----------
3,289,760
-----------
Utilities 3.2%
Cleveland Electric Illumination Co., 7.67%, 7/1/2004 .... 2,000,000 1,981,960
Detroit Edison Co., 7.5%, 2/1/2005 ...................... 2,000,000 1,989,280
Niagara Mohawk Power Corp., 6.625%, 7/1/2005 ............ 2,000,000 1,878,440
-----------
5,849,680
-----------
Total Corporate Bonds (Cost $105,436,419) ............... 100,339,368
-----------
- -------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $193,447,063) (a) 184,716,952
-----------
-----------
- -------------------------------------------------------------------------------------
</TABLE>
* Effective maturities may be shorter due to prepayments.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $193,447,063 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ................ $ 1,022,144
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ................ (9,752,255)
------------
Net unrealized depreciation $(8,730,111)
------------
------------
- --------------------------------------------------------------------------------
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, 2000 aggregated $75,662,380 and $100,169,190,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $76,764,945, and $74,416,920, respectively.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $39,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
utilized or until September 30, 2007, the expiration date. In addition,
from November 1, 1998 through September 30, 1999, the Fund incurred
approximately $2,634,000 of net realized capital losses. As permitted
by tax regulations, the Fund intends to elect to defer these losses and
treat them as arising in the fiscal year ending September 30, 2000.
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 1.7%
- ------------------------------------------------------------------------------------------------------------
State Street Bank and Trust Company, 6.05%, to be repurchased at $10,108,094 on
4/3/2000** (Cost $10,103,000) .............................................. 10,103,000 10,103,000
--------------
U.S. GOVERNMENT & AGENCIES 9.0%
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.5%, 8/31/2001 ........................................... 800,000 789,376
U.S. Treasury Note, 6%, 8/15/2004 ............................................. 1,950,000 1,923,500
U.S. Treasury Note, 6.5%, 10/15/2006 .......................................... 4,000,000 4,033,760
U.S. Treasury Note, 6%, 8/15/2009 ............................................. 4,500,000 4,443,030
U.S. Treasury Note Inflationary Index, 3.875%, 1/15/2009 ...................... 4,000,000 4,069,962
U.S. Treasury Bond, 6.5%, 2/15/2010 ........................................... 3,000,000 3,105,000
U.S. Treasury Bond, 7.25%, 5/15/2016 .......................................... 20,000,000 22,100,000
U.S. Treasury Bond, 5.25%, 2/15/2029 .......................................... 6,050,000 5,425,156
U.S. Treasury Bond, 6.125%, 8/15/2029 ......................................... 1,500,000 1,528,830
U.S. Treasury Bond Inflationary Index, 3.625%, 4/15/2028 ...................... 5,750,000 5,695,240
--------------
Total U.S. Government & Agencies (Cost $53,959,611) ........................... 53,113,854
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION*** 1.2%
- ------------------------------------------------------------------------------------------------------------
Government National Mortgage Association, 7%
with various maturities to 5/1/2029 (Cost $7,330,717) ...................... 7,234,632 7,011,867
--------------
U.S. GOVERNMENT BACKED MORTGAGES*** 4.1%
- ------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 8%, 2/1/2013 ........................... 3,451,437 3,491,335
Federal National Mortgage Association 6.50% with various maturities to 3/1/2028 21,669,493 20,386,189
--------------
Total U.S. Government Backed Mortgages (Cost $24,926,551) ..................... 23,877,524
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS*** 1.3%
- ------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Series 1997-A7, 7.25%, 11/25/2027 ........... 3,886,955 3,780,064
Residential Funding Mortgage Securities, Series 1993-A2, 6.83%, 9/25/2023 ..... 2,174,515 2,137,140
Ryland Mortgage Securities Corp., 8%, 8/25/2025 ............................... 1,989,549 1,967,687
--------------
Total Collateralized Mortgage Obligations (Cost $8,163,067) ................... 7,884,891
--------------
FOREIGN BONDS -- U.S. $ DENOMINATED 1.6%
- ------------------------------------------------------------------------------------------------------------
PacifiCorp Australia LLC, 6.15%, 1/15/2008 .................................... 6,000,000 5,606,340
Petroleum Geo-Services, 6.625%, 3/30/2008 ..................................... 4,000,000 3,673,480
--------------
Total Foreign Bonds-- U.S. $ Denominated (Cost $10,037,380) ................... 9,279,820
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------
Asset Backed*** 1.9%
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Receivables 0.5%
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 1/15/2003 3,000,000 2,969,531
-----------
Credit Card Receivables 1.4%
Citibank Credit Card Master Trust I, 6%, 4/10/2003 ............. 3,500,000 3,456,250
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ................ 5,000,000 4,820,300
-----------
8,276,550
-----------
Total Asset Backed (Cost $11,488,015) .......................... 11,246,081
-----------
Corporate Bonds 14.4%
- ------------------------------------------------------------------------------------------
Consumer Staples 1.3%
Bass America Inc., 6.625%, 3/1/2003 ............................ 5,000,000 4,895,900
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ............... 3,500,000 3,118,290
-----------
8,014,190
-----------
Communications 1.7%
Sprint Capital Corp., 6.125%, 11/15/2008 ....................... 3,000,000 2,731,170
Vodafone Airtouch PLC, 7.75%, 2/15/2010 ........................ 2,300,000 2,315,870
WorldCom, Inc., 6.4%, 8/15/2005 ................................ 5,000,000 4,799,750
-----------
9,846,790
-----------
Financial 6.9%
Boeing Capital Corp., Medium Term Note, 6.75%, 12/23/2003 ...... 3,000,000 2,965,050
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 ........... 4,000,000 3,936,640
First Union National Bank, 6.18%, 2/15/2036 .................... 2,500,000 2,336,975
Ford Motor Credit Corp., 5.75%, 2/23/2004 ...................... 10,000,000 9,427,300
Ford Motor Credit Corp., 7.375%, 10/28/2009 .................... 2,450,000 2,402,715
General Electric Capital Corp., 7%, 2/3/2003 ................... 2,350,000 2,350,799
General Motors Acceptance Corporation, 7.75%, 1/19/2010 ........ 550,000 555,077
Goldman Sachs Group, Inc., 7.8%, 1/28/2010 ..................... 1,450,000 1,439,125
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ....................... 550,000 490,859
PNC Funding Corp., 7%, 9/1/2004 ................................ 1,400,000 1,378,468
PNC Funding Corp., 7.5%, 11/1/2009 ............................. 2,200,000 2,159,102
Prudential Insurance Co., 6.375%, 7/23/2006 .................... 3,000,000 2,823,390
Salomon Inc., 7.3%, 5/15/2002 .................................. 2,300,000 2,295,630
Southern National Corp., 7.05%, 5/23/2003 ...................... 4,000,000 3,921,040
Wells Fargo & Co., 6.875%, 4/1/2006 ............................ 2,000,000 1,938,120
-----------
40,420,290
-----------
Media 2.1%
News America Holdings, Inc., 9.25%, 2/1/2013 ................... 3,000,000 3,285,690
TCI-Communications, Inc., 8%, 8/1/2005 ......................... 4,000,000 4,106,920
Time Warner, Inc., 9.125%, 1/15/2013 ........................... 4,500,000 5,000,940
-----------
12,393,550
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
AARP Balanced Stock and Bond Fund
- --------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
Manufacturing 0.5%
Fort James Corp., 6.625%, 9/15/2004 .............. 3,000,000 2,878,950
------------
Energy 0.8%
Anadarko Petroleum Corp., 5.875%, 10/15/2003 ..... 5,000,000 4,735,200
------------
Transportation 0.1%
Delta Airlines, Inc., 7.9%, 12/15/2009 ........... 600,000 570,360
------------
Utilities 1.0%
Alabama Power Co., 7.125%, 8/15/2004 ............. 2,700,000 2,681,397
Detroit Edison Co., 7.5%, 2/1/2005 ............... 3,500,000 3,481,240
------------
6,162,637
------------
Total Corporate Bonds (Cost $ 87,313,785) ........ 85,021,967
Common Stocks 64.8%
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Consumer Discretionary 1.0%
Department & Chain Stores
Wal-Mart Stores, Inc. ............................ 108,300 6,010,650
------------
Consumer Staples 3.1%
Alcohol & Tobacco 1.0%
Anheuser-Busch Companies, Inc. ................... 94,500 5,882,625
------------
Food & Beverage 1.2%
PepsiCo, Inc. .................................... 212,500 7,344,531
------------
Package Goods/Cosmetics 0.9%
Avon Products, Inc. .............................. 177,700 5,164,406
------------
Health 5.7%
Biotechnology 0.3%
Amgen Inc.* ...................................... 33,500 2,056,063
------------
Medical Supply & Specialty 1.4%
Becton, Dickinson & Co. .......................... 69,400 1,826,088
Medtronic, Inc. .................................. 120,500 6,198,219
------------
8,024,307
------------
Pharmaceuticals 4.0%
American Home Products Corp. ..................... 201,300 10,794,713
Bristol-Myers Squibb Co. ......................... 85,000 4,908,750
Johnson & Johnson, Inc. .......................... 46,800 3,278,925
Merck & Co., Inc. ................................ 71,500 4,441,938
------------
23,424,326
------------
Communications 7.0%
Cellular Telephone 0.6%
Vodafone AirTouch PLC (ADR) ...................... 67,000 3,722,688
------------
The accompanying notes are an integral part of the financial statements.
80
<PAGE>
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Telephone/Communications 6.4%
AT&T Corp. ..................................... 75,400 4,241,250
Bell Atlantic Corp. ............................ 103,864 6,348,687
BellSouth Corp. ................................ 156,100 7,336,700
GTE Corp. ...................................... 97,100 6,894,100
Global Crossing Ltd.* .......................... 99,230 4,062,228
SBC Communications, Inc. ....................... 82,325 3,457,650
Sprint Corp. ................................... 85,400 5,380,200
------------
37,720,815
------------
Financial 11.8%
Banks 3.8%
Chase Manhattan Corp. .......................... 92,800 8,091,000
First Union Corp. .............................. 120,166 4,476,184
FleetBoston Financial Corp. .................... 121,700 4,442,050
J.P. Morgan & Co., Inc. ........................ 14,900 1,963,075
US Bancorp ..................................... 140,300 3,069,063
------------
22,041,372
------------
Insurance 1.5%
American International Group, Inc. ............. 79,500 8,705,250
------------
Consumer Finance 2.0%
American Express Co. ........................... 17,600 2,621,300
Citigroup, Inc. ................................ 154,000 9,134,125
------------
11,755,425
------------
Other Financial Companies 4.3%
Federal National Mortgage Association .......... 150,300 8,482,556
Marsh & McLennan Companies, Inc. ............... 87,400 9,641,313
Morgan Stanley Dean Witter & Co. ............... 89,200 7,275,375
------------
25,399,244
------------
Real Estate 0.2%
General Growth Properties, Inc. (REIT) ......... 44,800 1,363,600
------------
Media 2.4%
Advertising 0.5%
Interpublic Group of Companies, Inc. ........... 61,000 2,882,250
------------
Broadcasting & Entertainment 1.5%
Walt Disney Co. ................................ 208,100 8,610,138
------------
Cable Television 0.4%
Comcast Corp. "A" ............................. 57,800 2,507,075
------------
Service Industries 3.0%
EDP Services 1.7%
Electronic Data Systems Corp. .................. 95,700 6,142,744
First Data Corp. ............................... 85,600 3,787,800
------------
9,930,544
------------
Miscellaneous Commercial Services 0.3%
Sabre Group Holdings, Inc. "A" ................. 54,606 2,017,009
------------
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
AARP Balanced Stock and Bond Fund
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Printing/Publishing 1.0%
McGraw-Hill, Inc. ................................ 124,000 5,642,000
------------
Durables 2.2%
Aerospace 0.9%
Rockwell International Corp. ..................... 125,500 5,247,469
------------
Automobiles 0.9%
Ford Motor Co. ................................... 107,900 4,956,656
------------
Construction/Agricultural Equipment 0.4%
Deere & Co. ...................................... 67,800 2,576,400
------------
Manufacturing 7.5%
Chemicals 1.6%
Dow Chemical Co. ................................. 65,600 7,478,400
E.I. du Pont de Nemours & Co. .................... 41,100 2,173,163
------------
9,651,563
------------
Diversified Manufacturing 1.7%
General Electric Co. ............................. 66,800 10,366,525
------------
Industrial Specialty 3.2%
Corning, Inc. .................................... 96,200 18,662,800
------------
Machinery/Components/Controls 1.0%
Parker-Hannifin Corp. ............................ 138,400 5,717,650
------------
Technology 12.5%
Computer Software 5.2%
America Online, Inc.* ............................ 60,500 4,068,625
Computer Associates International, Inc. .......... 76,100 4,504,169
Microsoft Corp.* ................................. 81,800 8,691,250
Oracle Corp.* .................................... 174,700 13,637,519
------------
30,901,563
------------
Electronic Components/Distributors 1.1%
Cisco Systems, Inc.* ............................. 86,100 6,656,606
------------
Electronic Data Processing 2.5%
Compaq Computer Corp. ............................ 169,000 4,499,625
Hewlett-Packard Co. .............................. 31,700 4,202,231
International Business Machines Corp. ............ 48,000 5,664,000
------------
14,365,856
------------
Semiconductors 3.7%
Conexant Systems, Inc.* .......................... 36,400 2,584,400
Intel Corp. ...................................... 146,800 19,368,425
------------
21,952,825
------------
Energy 6.5%
Oil & Gas Production 5.2%
Exxon Mobil Corp. ................................ 145,323 11,307,946
Royal Dutch Petroleum Co. (New York shares) ...... 115,800 6,665,738
Texaco, Inc. ..................................... 108,400 5,812,950
The accompanying notes are an integral part of the financial statements.
82
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Total Fina SA (ADR) ..................................... 94,574 6,963,011
------------
30,749,645
------------
Oil Companies 0.5%
Chevron Corp. ........................................... 30,100 2,782,369
------------
Oilfield Services/Equipment 0.8%
Schlumberger Ltd. ....................................... 61,800 4,727,700
------------
Metals & Minerals 0.5%
Steel & Metals
Alcoa, Inc. ............................................. 39,500 2,774,875
------------
Transportation 0.2%
Airlines
AMR Corp.* .............................................. 41,800 1,332,375
------------
Utilities 1.4%
Electric Utilities
FPL Group, Inc. ......................................... 66,800 3,076,970
Unicom Corp. ............................................ 145,000 5,292,500
------------
8,369,470
------------
Total Common Stocks (Cost $292,862,847) ................. 381,996,665
------------
- --------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $506,184,973) (a) 589,535,669
============
- --------------------------------------------------------------------------------------
* Non income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Effective maturities may be shorter due to prepayments.
(a) At March 31, 2000, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $507,165,330 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is
an excess of value over tax cost............................. $ 99,816,981
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value................................ (17,446,642)
-------------
Net unrealized appreciation $ 82,370,339
=============
</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, 2000 aggregated $262,262,037 and $379,288,921,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $48,936,266 and $45,332,547, respectively.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
83
<PAGE>
AARP GROWTH AND INCOME FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.1%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $59,963,216
on 4/3/2000** (Cost $59,933,000) ............................................ 59,933,000 59,933,000
-------------
Commercial Paper 1.1%
- --------------------------------------------------------------------------------------------------------------
Bell Atlantic Network Funding Corp., 5.9%***, 4/20/2000 ........................ 20,000,000 19,937,722
Bell Atlantic Network Funding Corp., 5.9%***, 4/24/2000 ........................ 15,000,000 14,943,458
Finova Capital Corp., 5.93%***, 5/18/2000 ...................................... 30,000,000 29,767,742
-------------
Total Commercial Paper (Cost $64,648,922) ...................................... 64,648,922
-------------
Common Stocks 97.8%
- --------------------------------------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.6%
Department & Chain Stores
Wal-Mart Stores, Inc. .......................................................... 1,613,200 89,532,600
-------------
Consumer Staples 4.9%
Alcohol & Tobacco 1.5%
Anheuser-Busch Companies, Inc. ................................................. 1,402,200 87,286,950
-------------
Food & Beverage 1.9%
PepsiCo, Inc. .................................................................. 3,154,300 109,020,494
-------------
Package Goods/Cosmetics 1.5%
Avon Products, Inc. ............................................................ 2,888,400 83,944,125
-------------
Health 8.6%
Biotechnology 0.5%
Amgen Inc.* .................................................................... 496,200 30,454,275
Medical Supply & Specialty 2.1%
Becton, Dickinson & Co. ........................................................ 1,027,800 27,043,988
Medtronic, Inc. ................................................................ 1,787,700 91,954,819
-------------
118,998,807
-------------
Pharmaceuticals 6.0%
American Home Products Corp. ................................................... 2,989,000 160,285,125
Bristol-Myers Squibb Co. ....................................................... 1,239,900 71,604,225
Johnson & Johnson, Inc. ........................................................ 704,400 49,352,025
Merck & Co., Inc. .............................................................. 1,059,000 65,790,375
-------------
347,031,750
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
84
<PAGE>
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Communications 10.6%
Cellular Telephone 1.0%
Vodafone AirTouch PLC (ADR)* ............. 993,100 55,179,119
------------
Telephone/Communications 9.6%
AT&T Corp. ............................... 1,086,200 61,098,753
Bell Atlantic Corp. ...................... 1,533,380 93,727,852
BellSouth Corp. .......................... 2,304,400 108,306,800
GTE Corp. ................................ 1,440,200 102,254,200
Global Crossing Ltd.* .................... 1,495,150 61,207,703
SBC Communications, Inc. ................. 1,199,767 50,390,214
Sprint Corp. ............................. 1,220,800 76,910,400
------------
553,895,922
------------
Financial 17.6%
Banks 5.6%
Chase Manhattan Corp. .................... 1,359,700 118,548,844
First Union Corp. ........................ 1,737,174 64,709,732
FleetBoston Financial Corp. .............. 1,716,300 62,644,950
J.P. Morgan & Co., Inc. .................. 250,300 32,977,025
US Bancorp ............................... 2,107,900 46,110,313
------------
324,990,864
------------
Insurance 2.2%
American International Group, Inc. ....... 1,173,300 128,476,350
------------
Consumer Finance 2.9%
American Express Co. ..................... 246,900 36,772,662
Citigroup, Inc. .......................... 2,171,600 128,803,025
------------
165,575,687
------------
Other Financial Companies 6.5%
Federal National Mortgage Association .... 2,230,600 125,889,488
Marsh & McLennan Companies, Inc. ......... 1,298,700 143,262,844
Morgan Stanley Dean Witter & Co. ......... 1,255,000 102,360,937
------------
371,513,269
------------
Real Estate 0.4%
General Growth Properties, Inc. (REIT) (b) 772,600 23,516,013
------------
Media 3.4%
Advertising 0.7%
Interpublic Group of Companies, Inc. ..... 901,900 42,614,775
------------
Broadcasting & Entertainment 2.1%
Walt Disney Co. .......................... 2,964,700 122,664,463
------------
Cable Television 0.6%
Comcast Corp. "A" ........................ 827,100 35,875,463
------------
Service Industries 4.5%
EDP Services 2.5%
Electronic Data Systems Corp. ............ 1,426,700 91,576,306
First Data Corp. ......................... 1,270,800 56,232,900
------------
147,809,206
------------
The accompanying notes are an integral part of the financial statements.
85
<PAGE>
AARP GROWTH AND INCOME FUND
- ----------------------------------------------------------------------
Shares Value ($)
- ----------------------------------------------------------------------
Miscellaneous Commercial Services 0.5%
Sabre Group Holdings, Inc. "A" ............ 785,234 29,004,581
-------------
Printing/Publishing 1.5%
McGraw-Hill, Inc. ......................... 1,845,400 83,965,700
-------------
Durables 3.3%
Aerospace 1.4%
Rockwell International Corp. .............. 1,871,000 78,231,187
-------------
Automobiles 1.3%
Ford Motor Co. ............................ 1,597,900 73,403,531
-------------
Construction/Agricultural Equipment 0.6%
Deere & Co. ............................... 1,003,500 38,133,000
-------------
Manufacturing 11.0%
Chemicals 2.5%
Dow Chemical Co. .......................... 974,200 111,058,800
E.I. du Pont de Nemours & Co. ............. 577,700 30,545,888
-------------
141,604,688
-------------
Diversified Manufacturing 2.6%
General Electric Co. ...................... 979,600 152,021,675
-------------
Industrial Specialty 4.8%
Corning, Inc. ............................. 1,428,800 277,187,200
-------------
Machinery/Components/Controls 1.1%
Parker-Hannifin Corp. ..................... 1,578,300 65,203,519
-------------
Technology 19.0%
Computer Software 7.9%
America Online, Inc.* ..................... 898,000 60,390,500
Computer Associates International, Inc. ... 1,067,300 63,170,819
Microsoft Corp.* .......................... 1,213,900 128,976,875
Oracle Corp.* ............................. 2,589,200 202,119,425
-------------
454,657,619
-------------
Electronic Components/Distributors 1.7%
Cisco Systems, Inc.* ...................... 1,275,600 98,619,825
-------------
Electronic Data Processing 3.7%
Compaq Computer Corp. ..................... 2,506,700 66,740,888
Hewlett-Packard Co. ....................... 490,100 64,968,881
International Business Machines Corp. ..... 679,300 80,157,400
-------------
211,867,169
-------------
Semiconductors 5.7%
Conexant Systems, Inc.* ................... 540,200 38,354,200
Intel Corp. ............................... 2,182,300 287,927,206
-------------
326,281,406
-------------
Energy 10.1%
Oil & Gas Production 6.3%
Exxon Mobil Corp. ......................... 2,167,867 168,687,151
Royal Dutch Petroleum Co. (New York shares) 1,658,400 95,461,650
Texaco, Inc. .............................. 1,875,400 100,568,325
-------------
364,717,126
-------------
The accompanying notes are an integral part of the financial statements
86
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Shares Value ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Oil Companies 2.6%
Chevron Corp. ............................................. 440,400 40,709,475
Total Fina S.A. "B" ....................................... 710,543 106,279,352
-------------
146,988,827
-------------
Oilfield Services/Equipment 1.2%
Schlumberger Ltd. ......................................... 880,900 67,388,850
-------------
Metals & Minerals 0.7%
Steel & Metals
Alcoa, Inc. ............................................... 585,700 41,145,425
-------------
Transportation 0.3%
Airlines
AMR Corp.* ................................................ 584,700 18,637,313
-------------
Utilities 2.2%
Electric Utilities
FPL Group, Inc. ........................................... 992,100 45,698,606
Unicom Corp. .............................................. 2,153,800 78,613,700
-------------
124,312,306
-------------
Total Common Stocks (Cost $4,167,448,960) ................. 5,631,751,079
-------------
- -----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,292,030,882) (a) 5,756,333,001
=============
- -----------------------------------------------------------------------------------------
</TABLE>
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a) At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $4,290,931,712 was as
follows:
<TABLE>
<S> <C> <C>
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................. $ 1,588,453,690
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................. (123,052,401)
---------------
Net unrealized appreciation ........................................... $ 1,465,401,289
===============
</TABLE>
(b) Affiliated Issuer (See Notes to Financial Statements)
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 2000, aggregated
$3,025,754,166 and $3,772,985,321, respectively.
The accompanying notes are an integral part of the financial statements
87
<PAGE>
AARP U.S. STOCK INDEX FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.1%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be
repurchased at $807,407, on 4/3/2000** (Cost $807,000) ..... 807,000 807,000
-----------
U.S. TREASURY OBLIGATIONS 0.1%
- -----------------------------------------------------------------------------------------
U.S. Treasury Bill, 5.1%, 4/6/2000 (b) (Cost $1,169,158) ...... 1,170,000 1,169,497
-----------
COMMON STOCKS 99.8%
- -----------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------
Consumer Discretionary 6.5%
Apparel & Shoes 0.1%
Liz Claiborne, Inc. ........................................... 400 18,325
Nike, Inc. "B" ................................................ 14,600 578,525
Russell Corp. ................................................. 33,000 472,313
-----------
1,069,163
-----------
Department & Chain Stores 5.2%
Bed Bath & Beyond, Inc. ....................................... 7,500 295,313
Best Buy Co., Inc. ............................................ 13,800 1,186,800
CVS Corp. ..................................................... 22,800 856,425
Consolidated Stores Corp. ..................................... 2,000 22,750
Costco Wholesale Corp. ........................................ 30,100 1,582,131
Dillard's Inc. ................................................ 100 1,644
Dollar General Corp. .......................................... 14,568 391,515
Federated Department Stores, Inc. ............................. 10,500 438,375
Gap, Inc. ..................................................... 62,125 3,094,602
Home Depot, Inc. .............................................. 156,100 10,068,450
J.C. Penney Co., Inc. ......................................... 101,700 1,512,788
Kmart Corp.* .................................................. 8,500 82,344
Kohl's Corp. .................................................. 10,500 1,076,250
Longs Drug Stores, Inc. ....................................... 600 13,650
Lowe's Companies, Inc. ........................................ 24,200 1,412,675
May Department Stores ......................................... 24,650 702,525
Nordstrom, Inc. ............................................... 4,800 141,600
Rite Aid Corp. ................................................ 108,300 595,650
Sears, Roebuck & Co. .......................................... 23,300 719,388
TJX Companies, Inc. (New) ..................................... 19,200 426,000
Target Corp. .................................................. 29,000 2,167,750
The Limited, Inc. ............................................. 10,414 438,690
Wal-Mart Stores, Inc. ......................................... 288,600 16,017,300
Walgreen Co. .................................................. 66,200 1,704,650
-----------
44,949,265
-----------
Home Furnishings 0.1%
Newell Rubbermaid, Inc. ....................................... 16,300 404,444
</TABLE>
The accompanying notes are an integral part of the financial statements
88
<PAGE>
- -------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------
Tupperware Corp. ...................... 52,600 831,738
-----------
1,236,182
-----------
Hotels & Casinos 0.2%
Carnival Corp. "A" .................... 42,600 1,057,013
Hilton Hotels Corp. ................... 3,200 24,800
Marriott International, Inc. "A" ...... 5,700 179,550
-----------
1,261,363
-----------
Recreational Products 0.1%
Brunswick Corp. ....................... 5,700 107,944
Harley-Davidson, Inc. ................. 9,900 785,813
Hasbro, Inc. .......................... 1,875 30,938
Mattel, Inc. .......................... 31,000 323,563
-----------
1,248,258
-----------
Restaurants 0.4%
Darden Restaurants Inc. ............... 100 1,781
McDonald's Corp. ...................... 88,400 3,320,525
Tricon Global Restaurants ............. 7,920 246,015
Wendy's International, Inc. ........... 100 2,019
-----------
3,570,340
-----------
Specialty Retail 0.4%
AutoZone, Inc. ........................ 5,200 144,300
Circuit City Stores, Inc. ............. 17,700 1,077,488
Office Depot, Inc. .................... 14,100 163,031
Staples, Inc. ......................... 29,600 592,000
Tandy Corp. ........................... 18,000 913,500
Toys "R" Us, Inc. ..................... 4,800 71,100
-----------
2,961,419
-----------
Consumer Staples 5.6%
Alcohol & Tobacco 0.5%
Anheuser-Busch Companies, Inc. ........ 48,200 3,000,450
Seagram Co., Ltd. ..................... 22,600 1,344,700
-----------
4,345,150
-----------
Consumer Electronic & Photographic 0.2%
Eastman Kodak Co. ..................... 21,400 1,162,288
Maytag Corp. .......................... 1,400 46,375
Polaroid Corp. ........................ 100 2,375
Whirlpool Corp. ....................... 9,300 545,213
-----------
1,756,251
-----------
Consumer Specialties 0.2%
American Greeting Corp., "A" .......... 4,100 74,825
Jostens, Inc. ......................... 55,100 1,343,063
-----------
1,417,888
-----------
Farming 0.0%
Archer-Daniels-Midland Co. ............ 115 1,193
-----------
The accompanying notes are an integral part of the financial statements
89
<PAGE>
AARP U.S. STOCK INDEX FUND
- ----------------------------------------------------------------
Shares Value ($)
- ----------------------------------------------------------------
Food & Beverage 2.6%
Albertson's, Inc. ...................... 21,364 662,284
Bestfoods .............................. 8,400 393,225
Campbell Soup Co. ...................... 17,200 528,900
Coca-Cola Co. .......................... 145,700 6,838,794
Coca-Cola Enterprises .................. 24,300 523,969
ConAgra, Inc. .......................... 100,200 1,816,125
General Mills, Inc. .................... 11,000 398,063
H.J. Heinz Co. ......................... 70,600 2,462,175
Hershey Foods Corp. .................... 100 4,875
Kellogg Co. ............................ 82,100 2,103,813
Kroger Co.* ............................ 45,500 799,094
Nabisco Group Holdings ................. 20,400 244,800
PepsiCo, Inc. .......................... 96,800 3,345,650
Quaker Oats Co. ........................ 6,200 375,875
Ralston Purina Group ................... 13,600 372,300
SUPERVALU, Inc. ........................ 2,000 37,875
Safeway, Inc. .......................... 30,100 1,362,025
William Wrigley Jr. Co. ................ 1,900 145,944
Winn-Dixie Stores, Inc. ................ 10,000 194,375
------------
22,610,161
------------
Package Goods/Cosmetics 2.0%
Avon Products, Inc. .................... 38,700 1,124,717
Clorox Co. ............................. 14,400 468,000
Colgate-Palmolive Co. .................. 40,100 2,260,638
Gillette Co. ........................... 72,400 2,728,575
International Flavors & Fragrances, Inc. 43,800 1,535,738
Kimberly-Clark Corp. ................... 32,900 1,842,400
Procter & Gamble Co. ................... 83,000 4,668,750
Unilever NV (New York Shares) .......... 43,103 2,074,332
------------
16,703,150
------------
Textiles 0.1%
Springs Industries, Inc. "A" ........... 27,700 1,052,600
VF Corp. ............................... 3,400 81,813
------------
1,134,413
------------
Health 9.0%
Biotechnology 0.7%
Amgen Inc.* ............................ 70,400 4,320,800
Biogen, Inc. ........................... 10,600 740,675
PE Corp-PE Biosystems Group ............ 13,900 1,341,350
------------
6,402,825
------------
Health Industry Services 0.3%
Cardinal Health, Inc. .................. 17,450 800,519
HEALTHSOUTH Corp. ...................... 6,100 33,931
Humana Inc.* ........................... 800 5,850
IMS Health, Inc. ....................... 17,600 298,100
McKesson HBOC, Inc. .................... 10,200 214,200
The accompanying notes are an integral part of the financial statements
90
<PAGE>
- --------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------
PerkinElmer, Inc. .............. 2,900 192,850
Quintiles Transnational Corp. .. 6,900 117,731
Shared Medical Systems Corp. ... 1,400 72,625
United Healthcare Corp. ........ 11,200 667,800
Wellpoint Health Networks, Inc.* 4,400 307,450
-----------
2,711,056
-----------
Hospital Management 0.2%
Columbia/HCA Healthcare Corp. .. 40,500 1,025,156
Tenet Healthcare Corp. ......... 20,300 466,900
-----------
1,492,056
-----------
Medical Supply & Specialty 1.0%
Bausch & Lomb, Inc. ............ 3,700 193,094
Baxter International, Inc. ..... 18,100 1,134,644
Becton, Dickinson & Co. ........ 9,500 249,969
Biomet, Inc. ................... 5,700 207,338
Boston Scientific Corp. ........ 23,500 500,844
C.R. Bard, Inc. ................ 3,200 123,800
Guidant Corp.* ................. 20,700 1,217,419
Mallinckrodt, Inc. ............. 4,400 126,500
Medtronic, Inc. ................ 86,800 4,464,775
St. Jude Medical, Inc.* ........ 2,100 54,206
-----------
8,272,589
-----------
Pharmaceuticals 6.8%
Abbott Laboratories ............ 128,500 4,521,591
Allergan, Inc. ................. 8,300 415,000
Alza Corp. ..................... 3,700 138,981
American Home Products Corp. ... 93,800 5,030,023
Bristol-Myers Squibb Co. ....... 139,900 8,079,225
Eli Lilly & Co. ................ 79,200 4,989,600
Johnson & Johnson, Inc. ........ 94,100 6,592,881
Merck & Co., Inc. .............. 144,700 8,989,488
Pfizer, Inc. ................... 231,300 8,456,906
Pharmacia & Upjohn, Inc. ....... 31,000 1,836,750
Schering-Plough Corp. .......... 106,300 3,906,525
Warner-Lambert Co. ............. 59,600 5,811,000
Watson Pharmaceuticals, Inc. ... 4,900 194,469
-----------
58,962,439
-----------
Communications 9.1%
Cellular Telephone 0.9%
Nextel Communications, Inc. "A" 25,100 3,721,075
Sprint Corp. (PCS Group) ....... 65,900 4,304,094
-----------
8,025,169
-----------
Telephone/Communications 8.2%
ADC Telecommunications, Inc. ... 19,300 1,039,788
AT&T Corp. ..................... 178,656 10,049,400
Alltel Corp. ................... 16,000 1,009,000
Bell Atlantic Corp. ............ 103,406 6,320,692
The accompanying notes are an integral part of the financial statements
91
<PAGE>
AARP U.S. STOCK INDEX FUND
- ---------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------
BellSouth Corp. .................. 117,500 5,522,500
CenturyTel, Inc. ................. 2,300 85,388
GTE Corp. ........................ 58,100 4,125,100
Global Crossing Ltd. ............. 50,475 2,066,320
MCI WorldCom, Inc. ............... 170,728 7,736,113
Nortel Networks Corp. ............ 109,480 13,794,480
SBC Communications, Inc. ......... 257,812 10,828,104
Sprint Corp. ..................... 56,700 3,572,100
US West, Inc. .................... 58,354 4,237,959
------------
70,386,944
------------
Financial 11.7%
Banks 5.4%
BB&T Corp. ....................... 3,900 109,442
Bank One Corp. ................... 134,580 4,626,188
Bank of America Corp. ............ 1,542 8,090,737
Bank of New York Co., Inc. ....... 37,800 1,571,060
Chase Manhattan Corp. ............ 51,500 4,490,156
Comerica, Inc. ................... 1,350 56,531
Fifth Third Bancorp .............. 11,625 732,375
First Union Corp. ................ 125,412 4,671,597
Firstar Corp. .................... 45,791 1,050,331
FleetBoston Financial Corp. ...... 54,614 1,993,411
Huntington Bancshares, Inc. ...... 5,226 116,932
J.P. Morgan & Co., Inc. .......... 10,800 1,422,900
KeyCorp .......................... 103,800 1,972,200
MBNA Corp. ....................... 68,075 1,735,913
National City Corp. .............. 86,500 1,784,063
Northern Trust Corp. ............. 8,500 574,281
Old Kent Financial Corp. ......... 7,300 235,881
PNC Bank Corp. ................... 18,300 824,644
Regions Financial Corp. .......... 100 2,281
State Street Corp. ............... 5,900 571,563
Summit Bancorp ................... 38,300 1,005,375
SunTrust Banks, Inc. ............. 6,900 398,475
US Bancorp ....................... 27,606 603,881
Union Planters Corp. ............. 50,300 1,549,869
Wachovia Corp. ................... 4,900 331,056
Washington Mutual, Inc. .......... 51,616 1,367,824
Wells Fargo Co. .................. 120,400 4,928,875
------------
46,817,841
------------
Insurance 2.2%
AFLAC, Inc. ...................... 13,800 628,761
Aetna, Inc. ...................... 2,700 150,354
Allstate Corp. ................... 29,700 707,231
American General Corp. ........... 10,800 606,150
American International Group, Inc. 83,041 9,092,988
Aon Corp. ........................ 6,075 195,917
Chubb Corp. ...................... 300 20,269
The accompanying notes are an integral part of the financial statements
92
<PAGE>
- ---------------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------------
Cigna Corp. ........................... 8,900 674,175
Cincinnati Financial Corp. ............ 900 33,863
Conseco, Inc. ......................... 81,483 931,962
Hartford Financial Services Group, Inc. 1,800 94,950
Jefferson Pilot Corp. ................. 2,900 193,031
Lincoln National Corp. ................ 12,200 408,700
MGIC Investment Corp. ................. 3,600 157,050
Progressive Corp. ..................... 3,300 251,006
Providian Financial Corp. ............. 8,750 757,969
Safeco Corp. .......................... 71,700 1,904,531
St. Paul Companies, Inc. .............. 52,656 1,796,886
Torchmark Corp. ....................... 400 9,250
UnumProvident Corp. ................... 8,500 144,500
------------
18,759,543
------------
Consumer Finance 2.2%
American Express Co. .................. 31,200 4,646,850
Associates First Capital Corp. ........ 45,446 974,249
Capital One Finance Corp. ............. 12,300 589,631
Citigroup, Inc. ....................... 181,803 10,783,190
Household International, Inc. ......... 29,359 1,095,458
Mellon Financial Corp. ................ 18,800 554,600
SLM Holding Corp. ..................... 9,800 326,463
------------
18,970,441
------------
Other Financial Companies 1.9%
Federal Home Loan Mortgage Corp. ...... 40,700 1,798,431
Federal National Mortgage Association . 63,900 3,606,356
Lehman Brothers Holdings, Inc. ........ 7,300 708,100
Marsh & McLennan Companies, Inc. ...... 28,250 3,116,328
Morgan Stanley Dean Witter & Co. ...... 85,490 6,972,778
------------
16,201,993
------------
Media 3.5%
Advertising 0.3%
Interpublic Group of Companies, Inc. .. 17,900 845,775
Omnicom Group, Inc. ................... 12,700 1,186,656
Young & Rubicam, Inc. ................. 4,600 216,200
------------
2,248,631
------------
Broadcasting & Entertainment 2.4%
CBS Corp.* ............................ 50,300 2,848,238
Clear Channel Communications, Inc.* ... 18,100 1,250,031
Time Warner, Inc. ..................... 84,700 8,470,000
Viacom, Inc. "B" ...................... 44,900 2,368,475
Walt Disney Co. ....................... 144,300 5,970,413
------------
20,907,157
------------
Cable Television 0.7%
Comcast Corp. "A"* .................... 56,100 2,433,338
Media One Group, Inc. ................. 40,200 3,256,200
------------
5,689,538
------------
The accompanying notes are an integral part of the financial statements
93
<PAGE>
AARP U.S. STOCK INDEX FUND
- ------------------------------------------------------------
Shares Value ($)
- ------------------------------------------------------------
Print Media 0.1%
Gannett Co., Inc. .................... 10,300 724,863
Harcourt General, Inc. ............... 100 3,725
Knight-Ridder, Inc. .................. 200 10,188
New York Times Co. "A" ............... 3,900 167,456
Times Mirror Co. "A" ................. 100 9,294
Tribune Co. .......................... 10,400 380,250
-----------
1,295,776
-----------
Service Industries 3.2%
EDP Services 0.6%
Automatic Data Processing, Inc. ...... 42,600 2,055,450
Electronic Data Systems Corp. ........ 31,600 2,028,325
First Data Corp. ..................... 26,200 1,159,350
-----------
5,243,125
-----------
Environmental Services 0.1%
Transocean Sedo Forex, Inc. .......... 13,899 713,172
Waste Management, Inc. ............... 28,400 388,725
-----------
1,101,897
-----------
Investment 1.0%
Bear Stearns Companies, Inc. ......... 2,194 100,101
Charles Schwab Corp. ................. 80,850 4,593,291
Franklin Resources, Inc. ............. 12,700 424,656
Merrill Lynch & Co., Inc. ............ 28,700 3,013,500
Paine Webber Group, Inc. ............. 5,600 246,400
T. Rowe Price & Associates, Inc. ..... 4,500 177,750
-----------
8,555,698
-----------
Miscellaneous Commercial Services 0.3%
Ecolab, Inc. ......................... 3,700 135,744
NCR Corp. ............................ 5,900 236,738
Paychex, Inc. ........................ 16,650 872,044
Sabre Group Holdings, Inc. "A" ....... 5,708 210,839
Sysco Corp. .......................... 14,000 499,625
Tektronix Inc. ....................... 3,100 173,600
-----------
2,128,590
-----------
Miscellaneous Consumer Services 0.9%
Cendant Corp.* ....................... 42,671 789,414
H & R Block, Inc. .................... 7,500 335,625
Yahoo!, Inc. ......................... 40,000 6,855,000
-----------
7,980,039
-----------
Printing/Publishing 0.3%
Deluxe Corp. ......................... 74,400 1,971,600
Dow Jones & Co., Inc. ................ 1,200 86,175
Dun & Bradstreet Corp. (New) ......... 9,900 283,388
Equifax, Inc. ........................ 700 17,675
McGraw-Hill, Inc. .................... 10,200 464,100
The accompanying notes are an integral part of the financial statements
94
<PAGE>
- ----------------------------------------------------------------
Shares Value ($)
- ----------------------------------------------------------------
R.R. Donnelley & Sons Co. .............. 5,300 110,969
-----------
2,933,907
-----------
Durables 3.8%
Aerospace 0.9%
B.F. Goodrich Co. ...................... 47,400 1,359,788
Boeing Co. ............................. 49,750 1,887,391
Lockheed Martin Corp. .................. 82,200 1,679,963
Northrop Grumman Corp. ................. 4,300 227,631
Rockwell International Corp. ........... 11,900 497,569
United Technologies Corp. .............. 26,900 1,699,744
-----------
7,352,086
-----------
Automobiles 1.1%
Cummins Engine Co., Inc. ............... 1,500 56,344
Dana Corp. ............................. 15,092 425,406
Delphi Automotive Systems Corp. ........ 22,765 364,240
Eaton Corp. ............................ 4,400 343,200
Ford Motor Co. ......................... 93,900 4,313,531
General Motors Corp. ................... 40,000 3,312,500
Genuine Parts Co. ...................... 44,400 1,060,050
-----------
9,875,271
-----------
Construction/Agricultural Equipment 0.1%
Caterpillar, Inc. ...................... 17,900 705,931
Deere & Co. ............................ 14,900 566,200
-----------
1,272,131
-----------
Leasing Companies 0.0%
IKON Office Solutions, Inc. ............ 3,000 18,563
Ryder System, Inc. ..................... 1,800 40,838
-----------
59,401
-----------
Telecommunications Equipment 1.7%
Andrew Corp. ........................... 1,650 37,742
Lucent Technologies, Inc. .............. 193,750 11,770,313
Scientific-Atlanta, Inc. ............... 10,100 640,719
Tellabs, Inc. .......................... 28,900 1,820,248
-----------
14,269,022
-----------
Tires 0.0%
Cooper Tire & Rubber Co. ............... 100 1,256
Goodyear Tire & Rubber Co. ............. 5,400 125,888
-----------
127,144
-----------
Manufacturing 9.3%
Chemicals 1.3%
Dow Chemical Co. ....................... 26,600 3,032,400
E.I. du Pont de Nemours & Co. .......... 68,896 3,642,876
Eastman Chemical Co. ................... 11,900 541,450
Engelhard Corp. ........................ 100 1,513
Great Lakes Chemicals Corp. ............ 100 3,400
Hercules, Inc. ......................... 40,700 656,288
The accompanying notes are an integral part of the financial statements
95
<PAGE>
AARP U.S. STOCK INDEX FUND
- -----------------------------------------------------------
Shares Value ($)
- -----------------------------------------------------------
Monsanto Co. ....................... 38,400 1,977,600
Praxair, Inc. ...................... 5,300 220,613
Rohm & Haas Co. .................... 7,547 336,785
Sigma-Aldrich Corp. ................ 1,500 40,313
Union Carbide Corp. ................ 5,500 320,719
W.R. Grace & Co.* .................. 4,500 57,094
------------
10,831,051
------------
Containers & Paper 0.2%
Boise Cascade Corp. ................ 800 27,800
Champion International Corp. ....... 1,800 95,850
Crown Cork & Seal Co. .............. 45,000 720,000
Fort James Corp. ................... 4,100 90,200
International Paper Co. ............ 17,508 748,467
Pactiv Corp. ....................... 10,700 93,625
Sealed Air Corp.* .................. 3,753 203,835
Temple-Inland, Inc. ................ 500 24,906
------------
2,004,683
------------
Diversified Manufacturing 5.4%
Briggs & Stratton Corp. ............ 1,600 65,800
Cooper Industries, Inc. ............ 5,900 206,500
Dover Corp. ........................ 7,900 378,213
Fortune Brands, Inc. ............... 1,700 42,500
General Electric Co. ............... 215,800 33,489,463
Honeywell International, Inc. ...... 46,950 2,473,678
ITT Industries, Inc. ............... 700 21,744
Minnesota Mining & Manufacturing Co. 30,000 2,656,875
National Service Industries, Inc. .. 30,700 646,619
TRW, Inc. .......................... 9,900 579,150
Textron, Inc. ...................... 4,200 255,675
Tyco International Ltd. ............ 112,574 5,614,628
------------
46,430,845
------------
Electrical Products 0.2%
Emerson Electric Co. ............... 24,800 1,311,300
Thomas & Betts Corp. ............... 8,300 234,475
------------
1,545,775
------------
Hand Tools 0.1%
Black & Decker Corp. ............... 100 3,756
Danaher Corp. ...................... 5,700 290,700
Snap-On, Inc. ...................... 2,600 68,088
Stanley Works ...................... 16,100 424,638
------------
787,182
------------
Industrial Specialty 1.5%
Avery Dennison Corp. ............... 3,600 219,825
Corning, Inc. ...................... 18,169 3,524,786
Milacron Inc. ...................... 1,200 17,325
PPG Industries, Inc. ............... 8,800 460,350
Pall Corp. ......................... 33,100 742,681
The accompanying notes are an integral part of the financial statements
96
<PAGE>
- --------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------
QUALCOMM Inc.* ........................ 54,500 8,137,531
Sherwin-Williams Co. .................. 200 4,388
-----------
13,106,886
-----------
Machinery/Components/Controls 0.3%
Illinois Tool Works, Inc. ............. 14,900 823,225
Ingersoll-Rand Co. .................... 4,150 183,638
Millipore Corp. ....................... 400 22,575
Parker-Hannifin Corp. ................. 1,100 45,444
Pitney Bowes, Inc. .................... 12,900 576,469
Timken Co. ............................ 54,300 882,375
-----------
2,533,726
-----------
Office Equipment/Supplies 0.3%
Lexmark International Group, Inc. "A" . 8,900 941,175
Xerox Corp. ........................... 80,200 2,085,200
-----------
3,026,375
-----------
Specialty Chemicals 0.0%
Air Products & Chemicals, Inc. ........ 1,500 42,654
-----------
Wholesale Distributors 0.0%
W.W. Grainger, Inc. ................... 1,600 86,800
-----------
Technology 27.1%
Computer Software 8.0%
Adobe Systems, Inc. ................... 8,500 946,154
America Online, Inc.* ................. 161,400 10,854,150
Autodesk, Inc. ........................ 2,500 113,750
BMC Software, Inc. .................... 16,400 809,750
Citrix Systems, Inc. .................. 13,700 907,625
Computer Associates International, Inc. 37,500 2,219,531
Compuware Corp. ....................... 23,600 497,075
Comverse Technologies, Inc. ........... 4,900 926,100
Microsoft Corp. ....................... 330,800 35,147,500
Oracle Corp. .......................... 207,300 16,182,356
Parametric Technology Corp. ........... 19,200 404,400
PeopleSoft, Inc. ...................... 19,100 382,000
-----------
69,390,391
-----------
Diverse Electronic Products 2.9%
Applied Materials, Inc. ............... 61,600 5,805,800
Dell Computer Corp. ................... 170,900 9,217,919
Molex Incorporated .................... 11,025 647,719
Motorola Inc. ......................... 47,292 6,733,199
Solectron Corp. ....................... 41,800 1,674,613
Teradyne, Inc. ........................ 15,400 1,266,650
-----------
25,345,900
-----------
EDP Peripherals 1.6%
EMC Corp. ............................. 71,862 8,982,750
Network Appliance, Inc. ............... 20,500 1,696,375
VERITAS Software Corp. ................ 26,800 3,510,800
-----------
14,189,925
-----------
The accompanying notes are an integral part of the financial statements
97
<PAGE>
AARP U.S. STOCK INDEX FUND
- ---------------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------------
Electronic Components/Distributors 4.4%
Adaptec, Inc. ......................... 6,800 262,650
Analog Devices, Inc.* ................. 28,400 2,287,975
Cisco Systems, Inc. ................... 436,900 33,777,831
Gateway, Inc. ......................... 21,700 1,150,100
-----------
37,478,556
-----------
Electronic Data Processing 4.3%
Apple Computer, Inc.* ................. 11,000 1,493,936
Ceridian Corp.* ....................... 3,100 59,481
Compaq Computer Corp. ................. 110,958 2,954,257
Hewlett-Packard Co. ................... 63,900 8,470,744
International Business Machines Corp. . 106,000 12,508,000
Seagate Technology, Inc. .............. 12,700 765,175
Silicon Graphics, Inc. ................ 700 7,394
Sun Microsystems, Inc. ................ 110,800 10,382,306
Unisys Corp.* ......................... 21,000 535,500
-----------
37,176,793
-----------
Military Electronics 0.2%
Computer Sciences Corp.* .............. 12,000 949,500
General Dynamics Corp. ................ 4,900 243,775
Raytheon Co. "B" ...................... 8,500 150,875
-----------
1,344,150
-----------
Office/Plant Automation 0.3%
3Com Corp. ............................ 22,800 1,268,250
Cabletron Systems, Inc. ............... 11,200 328,300
Novell, Inc. .......................... 22,800 652,650
-----------
2,249,200
-----------
Semiconductors 5.4%
Advanced Micro Devices, Inc.* ......... 7,300 416,554
Conexant Systems, Inc. ................ 13,600 965,600
Intel Corp. ........................... 213,100 28,115,881
KLA Tencor Corp. ...................... 13,200 1,112,100
LSI Logic Corp. ....................... 18,500 1,343,563
Linear Technology Corp. ............... 21,900 1,204,500
Micron Technology, Inc.* .............. 16,300 2,053,800
National Semiconductor Corp. .......... 10,800 654,750
Texas Instruments, Inc. ............... 57,900 9,264,000
Xilinx, Inc. .......................... 20,400 1,689,375
-----------
46,820,123
-----------
Energy 6.2%
Engineering 0.0%
Fluor Corp. ........................... 5,300 164,300
McDermott International, Inc. ......... 400 3,675
-----------
167,975
-----------
Oil & Gas Production 3.8%
Burlington Resources, Inc. ............ 100 3,700
Coastal Corp. ......................... 2,800 128,800
The accompanying notes are an integral part of the financial statements
98
<PAGE>
- -------------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------------
Conoco, Inc. "B" .......................... 32,542 833,889
Exxon Mobil Corp. ......................... 202,089 15,725,050
Kerr-McGee Corp. .......................... 7,500 433,125
Occidental Petroleum Corp. ................ 103,100 2,139,325
Royal Dutch Petroleum Co. (New York shares) 169,800 9,774,113
Texaco, Inc. .............................. 65,400 3,507,075
------------
32,545,077
------------
Oil Companies 0.9%
Amerada Hess Corp. ........................ 100 6,463
Ashland Inc. .............................. 100 3,344
Atlantic Richfield Co. .................... 37,600 3,196,000
Chevron Corp. ............................. 32,200 2,976,488
Phillips Petroleum Co. .................... 8,000 370,000
USX Marathon Group ........................ 28,500 742,781
Unocal Corp. .............................. 100 2,975
------------
7,298,051
------------
Oil/Gas Transmission 0.8%
El Paso Energy Corporation ................ 5,600 226,100
Enron Corp. ............................... 44,000 3,294,500
Sempra Energy ............................. 109,964 1,841,897
Sunoco, Inc. .............................. 40,400 1,105,950
Williams Companies, Inc. .................. 20,200 887,538
------------
7,355,985
------------
Oilfield Services/Equipment 0.7%
Baker Hughes, Inc. ........................ 44,900 1,358,223
Halliburton Co. ........................... 33,600 1,377,600
Rowan Companies, Inc.* .................... 6,200 182,513
Schlumberger Ltd. ......................... 37,900 2,899,350
------------
5,817,686
------------
Metals & Minerals 0.5%
Coal Mining 0.0%
Arch Coal Inc. ............................ 25 172
------------
Precious Metals 0.0%
Barrick Gold Corp. ........................ 5,200 81,575
Freeport McMoRan Copper & Gold, Inc. "B"* . 5,700 68,756
Homestake Mining Co. ...................... 100 600
Newmont Mining Corp. ...................... 2,043 45,840
Placer Dome Inc. .......................... 100 797
------------
197,568
------------
Steel & Metals 0.5%
Alcan Aluminium Ltd. ...................... 4,700 157,445
Alcoa, Inc. ............................... 22,400 1,573,600
Allegheny Technologies, Inc. .............. 5,850 117,366
Bethlehem Steel Corp.* .................... 100 600
Inco Ltd.* ................................ 3,300 60,431
Nucor Corp. ............................... 100 5,000
The accompanying notes are an integral part of the financial statements
99
<PAGE>
AARP U.S. STOCK INDEX FUND
- ------------------------------------------------------------
Shares Value ($)
- ------------------------------------------------------------
Phelps Dodge Corp. .................. 19,331 918,223
Reynolds Metals Co. ................. 3,100 207,313
USX-US Steel Group, Inc. ............ 5,500 137,500
Worthington Industries, Inc. ........ 54,100 669,488
-----------
3,846,966
-----------
Construction 0.6%
Building Products 0.1%
Armstrong World Industries, Inc. .... 50,500 902,688
Georgia-Pacific Group ............... 3,100 122,644
Masco Corp. ......................... 10,200 209,100
Owens Corning ....................... 2,900 56,188
-----------
1,290,620
-----------
Forest Products 0.5%
Louisiana-Pacific Corp. ............. 5,000 69,375
Potlatch Corp. ...................... 42,600 1,831,800
Westvaco Corp. ...................... 10,000 333,750
Weyerhaeuser Co. .................... 31,800 1,812,600
-----------
4,047,525
-----------
Homebuilding 0.0%
Kaufman & Broad Home Corp. .......... 600 12,863
-----------
Transportation 0.5%
Air Freight 0.1%
FedEx Corp. ......................... 18,620 726,180
-----------
Airlines 0.1%
AMR Corp. ........................... 7,900 251,811
Delta Air Lines, Inc. ............... 6,200 330,150
Southwest Airlines Co. .............. 30,425 633,220
US Airways Group, Inc.* ............. 2,500 69,531
-----------
1,284,712
-----------
Railroads 0.3%
Burlington Northern Santa Fe Corp. .. 5,700 126,113
CSX Corp. ........................... 18,600 437,100
Kansas City Southern Industries, Inc. 6,200 532,813
Norfolk Southern Corp. .............. 87,300 1,254,938
Union Pacific Corp. ................. 2,800 109,550
-----------
2,460,514
-----------
Utilities 3.2%
Electric Utilities 2.8%
AES Corp.* .......................... 8,500 669,375
Ameren Corp. ........................ 59,100 1,828,404
American Electric Power Co. ......... 57,100 1,702,292
CINergy Corp. ....................... 68,700 1,477,050
Carolina Power & Light Co. .......... 100 3,244
Central & South West Corp. .......... 116,400 1,986,075
Consolidated Edison, Inc. ........... 53,400 1,548,600
Constellation Energy Group .......... 9,300 296,438
DTE Energy Co. ...................... 4,000 116,000
The accompanying notes are an integral part of the financial statements
100
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Dominion Resources, Inc. ................................ 52,431 2,015,317
Duke Energy Corp. ....................................... 5,704 299,460
Edison International .................................... 100 1,656
Entergy Corp. ........................................... 15,100 304,831
FPL Group, Inc. ......................................... 100 4,606
FirstEnergy Corp. ....................................... 79,200 1,633,500
GPU, Inc. ............................................... 57,300 1,568,588
New Century Energies, Inc. .............................. 52,900 1,590,306
Northern States Power Co. ............................... 112,600 2,237,925
PG&E Corp. .............................................. 100 2,100
Peco Energy Co. ......................................... 11,500 424,063
Public Service Enterprise Group ......................... 59,700 1,768,613
Southern Co. ............................................ 18,500 402,375
Texas Utilities Co., Inc. ............................... 62,222 1,847,216
Unicom Corp. ............................................ 1,600 58,400
------------
23,786,434
------------
Natural Gas Distribution 0.4%
Eastern Enterprises ..................................... 1,600 95,800
NICOR, Inc. ............................................. 3,000 98,813
ONEOK, Inc. ............................................. 2,000 50,000
PPL Corp. ............................................... 8,928 186,930
Peoples Energy Corp. .................................... 47,100 1,292,306
Reliant Energy, Inc. .................................... 76,311 1,788,539
------------
3,512,388
------------
Total Common Stocks (Cost $722,681,763) ................. 861,048,236
------------
- -------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $724,657,921) (a) 863,024,733
============
- -------------------------------------------------------------------------------------
</TABLE>
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $724,789,341 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................... $ 193,628,525
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................... (55,393,133)
-------------
Net unrealized appreciation ............................................. $ 138,235,392
=============
</TABLE>
(b) At March 31, 2000, this security, in whole or in part, has been pledged
to cover initial margin requirements for open futures contracts.
The accompanying notes are an integral part of the financial statements
101
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
At March 31, 2000, open futures contracts purchased were as follows:
Number Aggregate
Futures Expiration of Contracts Face Value ($) Value ($)
------- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
S&P 500 Index June, 2000 7 2,641,508 2,646,000
----------
Total net unrealized appreciation on open futures contracts purchased .................................. 4,492
==========
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments) for the six months ended March 31, 2000
aggregated $234,101,818 and $51,873,573, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
From November 1, 1998 through September 30, 1999, the Fund incurred approximately $233,000 of net realized capital losses.
As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal
year ending September 30, 2000.
</TABLE>
The accompanying notes are an integral part of the financial statements
102
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.4%
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be
repurchased at $60,067,269 on 4/3/2000** (Cost $60,037,000) ...... 60,037,000 60,037,000
-------------
COMMON STOCKS 97.6%
- ------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------
Consumer Discretionary 8.2%
Department & Chain Stores 6.1%
Home Depot, Inc. .................................................... 908,150 58,575,675
Target Corp. ........................................................ 601,300 44,947,175
Wal-Mart Stores, Inc. ............................................... 840,900 46,669,950
-------------
150,192,800
-------------
Recreational Products 0.6%
Premier Parks, Inc.* ................................................ 628,600 13,200,600
-------------
Specialty Retail 1.5%
Circuit City Stores, Inc. ........................................... 613,500 37,346,813
-------------
Consumer Staples 6.3%
Alcohol & Tobacco 1.2%
Anheuser-Busch Companies, Inc. ...................................... 449,600 27,987,600
-------------
Food & Beverage 2.8%
Bestfoods ........................................................... 567,800 26,580,137
PepsiCo, Inc. ....................................................... 1,238,200 42,795,288
-------------
69,375,425
-------------
Package Goods/Cosmetics 2.3%
Colgate-Palmolive Co. ............................................... 381,700 21,518,338
Gillette Co. ........................................................ 945,800 35,644,838
-------------
57,163,176
-------------
Health 11.3%
Biotechnology 2.3%
Amgen Inc.* ......................................................... 288,100 17,682,137
Genentech, Inc.* .................................................... 121,200 18,422,400
PE Corp-PE Biosystems Group ......................................... 209,900 20,255,350
-------------
56,359,887
-------------
Health Industry Services 0.1%
Healtheon/WebMD Corp. ............................................... 153,200 3,523,600
-------------
Medical Supply & Specialty 3.7%
Baxter International, Inc. .......................................... 682,500 42,784,218
Becton, Dickinson & Co. ............................................. 716,800 18,860,800
Medtronic, Inc. ..................................................... 572,600 29,453,113
-------------
91,098,131
-------------
Pharmaceuticals 5.2%
Allergan, Inc. ...................................................... 436,700 21,835,000
</TABLE>
The accompanying notes are an integral part of the financial statements
103
<PAGE>
AARP CAPITAL GROWTH FUND
- -----------------------------------------------------------------
Shares Value ($)
- -----------------------------------------------------------------
Merck & Co., Inc. .................... 558,600 34,703,025
Warner-Lambert Co. ................... 730,600 71,233,500
-------------
127,771,525
-------------
Communications 7.6%
Cellular Telephone 2.8%
Nokia Oyj (ADR) ...................... 149,000 32,370,250
Vodafone AirTouch PLC (ADR) .......... 645,600 35,871,150
-------------
68,241,400
-------------
Telephone/Communications 4.8%
Bell Atlantic Corp. .................. 464,750 28,407,843
BroadWing, Inc. ...................... 848,100 31,538,719
JDS Uniphase Corp.* .................. 289,400 34,890,788
US West, Inc. ........................ 320,500 23,276,313
-------------
118,113,663
-------------
Financial 9.1%
Insurance 2.4%
American International Group, Inc. ... 536,637 58,761,751
-------------
Consumer Finance 4.4%
American Express Co. ................. 388,900 57,921,793
Citigroup, Inc. ...................... 837,350 49,665,322
-------------
107,587,115
-------------
Other Financial Companies 2.3%
Federal National Mortgage Association 508,300 28,687,180
Marsh & McLennan Companies, Inc. ..... 260,900 28,780,531
-------------
57,467,711
-------------
Media 6.6%
Advertising 1.7%
Interpublic Group of Companies, Inc. . 471,100 22,259,475
Omnicom Group, Inc. .................. 226,500 21,163,594
-------------
43,423,069
-------------
Broadcasting & Entertainment 1.6%
Infinity Broadcasting Corp. "A"* ..... 523,800 16,958,025
Viacom, Inc. "B"* .................... 429,900 22,677,224
-------------
39,635,249
-------------
Cable Television 3.3%
AT&T Corp.-- Liberty Media Group "A"* 1,043,000 61,797,750
Comcast Corp. "A"* ................... 431,900 18,733,663
-------------
80,531,413
-------------
Service Industries 3.9%
EDP Services 3.2%
Automatic Data Processing, Inc. ...... 569,700 27,488,024
Electronic Data Systems Corp. ........ 788,200 50,592,588
-------------
78,080,612
-------------
Miscellaneous Commercial Services 0.7%
Siebel Systems, Inc.* ................ 157,300 18,787,519
-------------
The accompanying notes are an integral part of the financial statements
104
<PAGE>
- ---------------------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------------------
Durables 1.7%
Aerospace
United Technologies Corp. ................. 663,000 41,893,313
------------
Manufacturing 8.5%
Diversified Manufacturing 4.7%
General Electric Co. ...................... 603,700 93,686,693
Textron, Inc. ............................. 378,800 23,059,450
------------
116,746,143
------------
Electrical Products 1.1%
Emerson Electric Co. ...................... 494,400 26,141,400
------------
Industrial Specialty 2.7%
Corning, Inc. ............................. 246,400 47,801,600
QUALCOMM Inc.* ............................ 122,500 18,290,781
------------
66,092,381
------------
Technology 28.5%
Computer Software 8.2%
America Online, Inc.* ..................... 520,200 34,983,450
I2 Technologies Inc.* ..................... 74,700 9,122,738
Microsoft Corp.* .......................... 1,006,500 106,940,625
Oracle Corp.* ............................. 656,400 51,240,225
------------
202,287,038
------------
Diverse Electronic Products 4.4%
Applied Materials, Inc.* .................. 272,200 25,654,850
Dell Computer Corp.* ...................... 352,700 19,023,756
Motorola Inc. ............................. 223,300 31,792,338
Solectron Corp.* .......................... 766,300 30,699,894
------------
107,170,838
------------
EDP Peripherals 2.3%
EMC Corp.* ................................ 461,900 57,737,500
------------
Electronic Components/Distributors 3.5%
Cisco Systems, Inc.* ...................... 1,100,600 85,090,138
------------
Electronic Data Processing 4.2%
International Business Machines Corp. ..... 450,400 53,147,200
Sun Microsystems, Inc.* ................... 543,600 50,937,019
------------
104,084,219
------------
Semiconductors 5.9%
Intel Corp. ............................... 829,100 109,389,381
Xilinx, Inc.* ............................. 434,600 35,990,313
------------
145,379,694
------------
Energy 5.9%
Oil & Gas Production 3.7%
Exxon Mobil Corp. ......................... 550,648 42,847,298
Royal Dutch Petroleum Co. (New York shares) 849,700 48,910,856
------------
91,758,154
------------
The accompanying notes are an integral part of the financial statements
105
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 2.2%
Schlumberger Ltd. .......................................... 691,900 52,930,350
-------------
Total Common Stocks (Cost $1,556,094,956) .................. 2,401,960,227
-------------
- -------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $1,616,131,956) (a) 2,461,997,227
=============
- -------------------------------------------------------------------------------------------
</TABLE>
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $1,618,186,733 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost $ 881,968,032
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value (38,157,538)
Net unrealized appreciation $ 843,810,494
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 2000, aggregated
$1,025,890,602 and $817,637,266, respectively.
The accompanying notes are an integral part of the financial statements
106
<PAGE>
<TABLE>
<CAPTION>
AARP SMALL COMPANY STOCK FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.0%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.05%, to be repurchased at $480,242
on 4/3/2000** (Cost $480,000) ......................................................... 480,000 480,000
----------
COMMON STOCKS 99.0%
- -------------------------------------------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 10.5%
Apparel & Shoes 1.3%
Genesco Inc.* ............................................................................ 30,300 397,688
The Children's Place Retail Stores, Inc.* ................................................ 4,000 57,000
Timberland Co. "A"* ...................................................................... 4,100 209,100
----------
663,788
Department & Chain Stores 0.7% ----------
Ames Department Stores, Inc.* ............................................................ 9,500 233,344
Pacific Sunwear of California, Inc.* ..................................................... 3,200 123,200
----------
356,544
Home Furnishings 1.1% ----------
La-Z-Boy Inc. ............................................................................ 28,400 436,650
Mikasa, Inc. ............................................................................. 18,800 139,825
----------
576,475
Hotels & Casinos 0.6% ----------
Argosy Gaming Co.* ....................................................................... 5,000 71,250
Pinnacle Entertainment, Inc.* ............................................................ 1,500 30,469
Prime Hospitality Corp.* ................................................................. 24,700 179,075
----------
280,794
Recreational Products 2.0% ----------
Bally Total Fitness Holding Corp.* ....................................................... 6,400 156,800
CPI Corp. ................................................................................ 7,100 165,519
Fairfield Communities, Inc.* ............................................................. 4,300 34,131
Thor Industries, Inc. .................................................................... 27,250 662,516
----------
1,018,966
Restaurants 3.2% ----------
Applebee's International Inc. ............................................................ 10,500 295,313
CEC Entertainment, Inc.* ................................................................. 17,700 480,113
IHOP Corp.* .............................................................................. 12,300 172,200
Rainforest Cafe Inc.* .................................................................... 4,800 17,025
Ruby Tuesday, Inc. ....................................................................... 36,700 642,250
----------
1,606,901
Specialty Retail 1.6% ----------
Fossil, Inc.* ............................................................................ 7,500 175,781
Pier 1 Imports, Inc. ..................................................................... 7,500 76,875
The Topps Company, Inc.* ................................................................. 4,400 36,575
</TABLE>
The accompanying notes are an integral part of the financial statements
107
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Trans World Entertainment Corp.* ............ 10,400 104,000
United Auto Group, Inc.* .................... 4,000 35,250
Zale Corp.* ................................. 7,400 349,188
------------
777,669
Consumer Staples 2.5% ------------
Consumer Electronic & Photographic 1.0%
Salton, Inc.* ............................... 11,200 485,800
Food & Beverage 1.3%
Jack in the Box Inc.* ....................... 2,300 49,019
Michael Foods, Inc. ......................... 23,600 495,600
Ruddick Corp. ............................... 10,600 115,938
------------
660,557
Package Goods/Cosmetics 0.2% ------------
Chattem, Inc.* .............................. 9,100 128,538
------------
Health 7.5%
Biotechnology 0.1%
Vertex Pharmaceuticals, Inc.* ............... 800 37,450
------------
Health Industry Services 2.7%
Apria Healthcare Group Inc.* ................ 800 11,550
Covance, Inc.* .............................. 11,200 120,400
First Health Group Corp.* ................... 4,100 129,663
Hooper Holmes, Inc. ......................... 1,300 44,606
Magellan Health Services, Inc.* ............. 19,800 95,288
PAREXEL International Corp.* ................ 12,000 113,250
Prime Medical Services, Inc.* ............... 30,200 268,025
Quest Diagnostics Inc.* ..................... 9,500 377,625
Syncor International Corp.* ................. 3,100 102,300
US Oncology, Inc.* .......................... 20,900 94,050
------------
1,356,757
Hospital Management 0.4% ------------
Coventry Health Care, Inc.* ................. 13,100 111,350
Quorom Health Group, Inc.* .................. 8,000 80,500
------------
191,850
Medical Supply & Specialty 2.5% ------------
Cooper Companies, Inc. ...................... 8,300 267,156
Cytyc Corp.* ................................ 4,500 217,125
NBTY Inc.* .................................. 25,500 349,031
Techne Corp.* ............................... 2,600 179,400
Theragenics Corp.* .......................... 11,200 149,800
Twinlab Corp.* .............................. 18,900 134,663
------------
1,297,175
Pharmaceuticals 0.7% ------------
Advance Paradigm, Inc.* ..................... 5,000 59,375
Medicis Pharmaceutical Corp.* ............... 2,800 112,000
Rexall Sundown, Inc.* ....................... 12,000 169,500
------------
340,875
------------
The accompanying notes are an integral part of the financial statements
108
<PAGE>
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Miscellaneous 1.1%
ChiRex Inc.* ............................... 29,100 560,175
-----------
Communications 2.4%
Telephone/Communications
International FiberCom Inc.* ............... 10,100 239,875
Pacific Gateway Exchange, Inc.* ............ 2,200 32,313
Plantronics, Inc.* ......................... 4,300 400,706
Westell Technologies, Inc.* ................ 4,500 143,438
Xircom, Inc.* .............................. 10,200 377,400
-----------
1,193,732
Financial 6.9% -----------
Banks 0.8%
Imperial Bancorp* .......................... 5,600 173,600
Silicon Valley Bancshares* ................. 3,000 215,625
-----------
389,225
Insurance 4.3% -----------
Delphi Financial Group, Inc. "A"* .......... 1,000 30,375
Fidelity National Financial, Inc. .......... 21,470 296,554
Hilb, Rogal & Hamilton Co. ................. 26,100 712,856
Kansas City Life Insurance Co. ............. 6,400 154,400
RLI Corp. .................................. 19,375 649,063
Selective Insurance Group, Inc. ............ 18,800 320,775
-----------
2,164,023
Consumer Finance 0.5% -----------
AmeriCredit Corp.* ......................... 10,000 163,125
WFS Financial, Inc. ........................ 6,200 120,513
-----------
283,638
Other Financial Companies 1.3% -----------
Advanta Corp. "A" .......................... 30,200 613,438
Affiliated Managers Group* ................. 1,000 47,500
-----------
660,938
Media 2.3% -----------
Advertising 1.4%
Grey Advertising, Inc. ..................... 1,710 699,390
Miscellaneous 0.9%
About.com Inc.* ............................ 3,000 264,375
Zomax Inc.* ................................ 3,200 192,800
-----------
457,175
Service Industries 7.8% -----------
Asset Management 0.3%
Eaton Vance Corp. .......................... 3,700 158,869
-----------
EDP Services 1.6%
Cognizant Technology Solutions Corp.* ...... 1,000 62,500
Computer Horizons Corp.* ................... 7,300 125,013
Pomeroy Computer Resources, Inc.* .......... 25,200 463,050
The accompanying notes are an integral part of the financial statements
109
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Systems & Computer Technology Corp.* ............ 6,800 158,950
--------------
809,513
--------------
Investment 1.9%
Advest Group, Inc. .............................. 26,600 505,400
Southwest Securities Group, Inc. ................ 10,920 474,338
--------------
979,738
Miscellaneous Commercial Services 4.0% --------------
24/7 Media, Inc.* ............................... 5,000 197,500
ABM Industries, Inc. ............................ 23,700 556,950
Bell & Howell Holdings Co.* ..................... 2,500 78,125
Computer Task Group Inc. ........................ 900 9,900
Dycom Industries, Inc.* ......................... 6,900 336,375
Harbinger Corp.* ................................ 5,100 148,538
Labor Ready, Inc.* .............................. 11,300 111,588
Personnel Group of America, Inc.* ............... 21,100 129,238
SITEL Corp.* .................................... 15,100 103,813
Source Information Management Co.* .............. 4,500 78,750
Volt Information Sciences, Inc.* ................ 7,000 251,563
--------------
2,002,340
Durables 8.7% --------------
Aerospace 2.7%
AAR Corp. ....................................... 11,100 185,231
Aeroflex, Inc.* ................................. 15,800 782,100
Curtiss-Wright Corp. ............................ 10,100 369,913
--------------
1,337,244
Automobiles 1.9% --------------
Borg-Warner Automotive Inc. ..................... 8,158 321,221
Simpson Industries, Inc. ........................ 28,000 274,750
Wynn's International, Inc. ...................... 26,500 366,031
--------------
962,002
Construction/Agricultural Equipment 1.3% --------------
Terex Corp.* .................................... 3,700 53,188
The Manitowoc Company, Inc. ..................... 22,950 621,084
--------------
674,272
Leasing Companies 2.1% --------------
Aaron Rents, Inc. ............................... 42,800 644,675
McGrath Rentcorp ................................ 26,000 412,750
--------------
1,057,425
Telecommunications Equipment 0.7% --------------
Antec Corp.* .................................... 200 8,963
Brooktrout Technology Inc.* ..................... 6,000 174,000
Glenayre Technologies, Inc.* .................... 11,200 196,700
--------------
379,663
Manufacturing 12.9% --------------
Chemicals 0.2%
Georgia Gulf Corp. .............................. 4,000 104,000
--------------
The accompanying notes are an integral part of the financial statements
110
<PAGE>
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Containers & Paper 0.1%
Chesapeake Corp. ............................ 2,000 59,125
Diversified Manufacturing 1.5%
Clarcor, Inc. ............................... 11,850 210,338
NCH Corp. ................................... 6,200 280,938
Robbins & Myers, Inc. ....................... 1,200 28,350
Tredegar Industries, Inc. ................... 7,200 193,950
Valmont Industries .......................... 3,500 60,375
-----------
773,951
Electrical Products 1.6% -----------
C&D Technologies, Inc. ...................... 2,500 147,500
Power Intergrations, Inc.* .................. 2,300 57,500
Power-One, Inc.* ............................ 2,400 144,900
The Alpine Group, Inc.* ..................... 28,000 252,000
Windmere-Durable Holdings, Inc.* ............ 12,800 188,800
-----------
790,700
Industrial Specialty 3.3% -----------
General Cable Corp. ......................... 10,700 83,594
Lawson Products, Inc. ....................... 25,700 611,981
Regal-Beloit Corp. .......................... 25,400 444,500
Spartech Corp. .............................. 15,300 525,938
-----------
1,666,013
Machinery/Components/Controls 3.3% -----------
Intermet Corp. .............................. 35,100 320,288
Reliance Steel & Aluminum Co. ............... 22,950 513,506
Shaw Group, Inc.* ........................... 16,600 585,150
Woodward Governor Co. ....................... 11,100 255,300
-----------
1,674,244
Office Equipment/Supplies 0.1% -----------
United Stationers Inc.* ..................... 1,800 64,238
Wholesale Distributors 2.5% -----------
Applied Industrial Technologies, Inc......... 27,800 444,800
Daisytek International Corp.* ............... 10,200 161,288
Insight Enterprises, Inc.* .................. 17,575 640,389
-----------
1,246,477
Miscellaneous 0.3% -----------
Jakks Pacific, Inc.* ........................ 6,800 146,625
Technology 24.0% -----------
Computer Software 11.0%
Activision, Inc.* ........................... 25,200 303,975
Actuate Corporation* ........................ 3,400 182,963
Advanced Digital Information Corp.* ......... 10,400 356,200
Advent Software, Inc.* ...................... 9,800 449,575
Allaire Corp.* .............................. 3,200 242,000
Axent Technologies, Inc.* ................... 4,100 77,131
Banyan Systems Inc.* ........................ 9,700 170,356
Brio Technology, Inc.* ...................... 4,000 151,000
The accompanying notes are an integral part of the financial statements
111
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Concurrent Computer Corp.* ..................... 9,900 125,606
Epicor Software Corp.* ......................... 9,000 76,500
Exchange Applications, Inc.* ................... 3,600 190,519
Hyperion Solutions Corp.* ...................... 6,100 198,250
MAPICS, Inc.* .................................. 18,400 293,250
MICROS Systems, Inc.* .......................... 4,400 276,925
MTI Technology Corp.* .......................... 10,000 263,750
MTS Systems Corp* .............................. 49,000 373,625
Progress Software Corp.* ....................... 6,000 140,625
Project Software & Development, Inc.* .......... 1,400 79,100
Remedy Corp.* .................................. 4,000 168,500
Santa Cruz Operations Inc.* .................... 17,800 166,875
Structural Dynamics Research Corp.* ............ 25,700 346,950
Sybase Inc.* ................................... 7,800 158,438
THQ, Inc.* ..................................... 15,300 273,488
Unigraphics Solutions Inc.* .................... 400 11,825
Verity, Inc.* .................................. 11,800 480,850
-------------
5,558,276
Diverse Electronic Products 0.9% -------------
C-COR.net Corp.* ............................... 1,500 73,500
Cable Design Technologies Corp.* ............... 2,400 81,450
DSP Group, Inc.* ............................... 3,200 211,200
InterVoice-Brite, Inc.* ........................ 3,000 86,625
-------------
452,775
EDP Peripherals 1.1% -------------
Black Box Corp.* ............................... 1,300 90,005
In Focus Systems, Inc.* ........................ 2,900 103,856
NeoMagic Corp.* ................................ 14,600 72,544
SCM Microsystems, Inc.* ........................ 2,300 223,100
Visual Networks, Inc.* ......................... 1,300 73,775
-------------
563,280
Electronic Components/Distributors 3.6% -------------
Apex Inc.* ..................................... 2,000 74,250
Imation Corp.* ................................. 12,400 330,925
Pioneer-Standard Electronics, Inc. ............. 43,100 678,825
Technitrol, Inc. ............................... 12,900 751,425
-------------
1,835,425
Military Electronics 1.7% -------------
Titan Corp.* ................................... 17,000 866,982
Office/Plant Automation 1.8%
CACI International, Inc.* ...................... 4,300 128,731
FileNet Corp.* ................................. 2,500 74,375
Kronos, Inc.* .................................. 4,600 136,275
Mercury Computer Systems, Inc.* ................ 4,200 205,275
National Computer Corp. ........................ 2,500 126,875
Pinnacle Systems, Inc.* ........................ 1,000 33,250
The accompanying notes are an integral part of the financial statements
112
<PAGE>
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Radiant Systems Inc.* ...................... 3,000 188,625
-------------
893,406
Precision Instruments 0.7% -------------
Coherent, Inc.* ............................ 1,200 62,400
Zebra Technologies Corp.* .................. 5,400 270,000
-------------
332,400
Semiconductors 3.2% -------------
Alliance Semiconductor Corp.* .............. 20,000 428,750
Alpha Industries, Inc.* .................... 7,000 665,000
ESS Technology, Inc.* ...................... 9,000 157,500
Exar Corp.* ................................ 4,350 311,297
General Semiconductor, Inc.* ............... 1,500 25,875
-------------
1,588,422
Energy 1.9% -------------
Oil & Gas Production 1.1%
Atwood Oceanics, Inc.* ..................... 1,200 79,575
Marine Drilling Companies, Inc.*............ 11,900 326,506
UTI Energy Corp.* .......................... 4,500 169,875
-------------
575,956
Oilfield Services/Equipment 0.8% -------------
Helmerich & Payne, Inc. .................... 5,000 155,000
Veritas DGC Inc.* .......................... 8,300 233,438
-------------
388,438
Metals & Minerals 1.2% -------------
Precious Metals 0.5%
Stillwater Mining Co.* ..................... 5,700 228,000
Steel & Metals 0.7% -------------
Commercial Metals Co. ...................... 13,000 359,125
-------------
Construction 3.6%
Building Materials 2.1%
Florida Rock Industries, Inc. .............. 26,100 730,800
Texas Industries, Inc. ..................... 11,100 345,488
-------------
1,076,288
Homebuilding 1.1% -------------
Skyline Corp. .............................. 9,700 210,369
Standard Pacific Corp. ..................... 35,500 355,000
-------------
565,369
-------------
Miscellaneous 0.4%
Granite Construction, Inc. ................. 6,800 183,600
-------------
Transportation 2.4%
Airlines 0.8%
Alaska Air Group Inc.* ..................... 9,600 288,600
Frontier Airlines, Inc.* ................... 7,600 90,250
Skywest, Inc. .............................. 900 35,213
-------------
414,063
-------------
The accompanying notes are an integral part of the financial statements
113
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------
Trucking 1.6%
American Freightways Corp.* ......................... 1,300 19,419
Forward Air Corp.* .................................. 3,000 71,063
Roadway Express, Inc. ............................... 8,500 172,125
USFreightways Corp. ................................. 13,600 509,150
------------
771,757
Utilities 4.4% ------------
Electric Utilities 1.1%
Black Hills Corp. ................................... 12,200 269,163
Public Service Co. of New Mexico .................... 19,700 310,275
------------
579,438
Natural Gas Distribution 2.5% ------------
Energen Corp. ....................................... 30,800 490,875
NUI Corp. ........................................... 26,900 696,038
ONEOK, Inc. ......................................... 2,400 60,000
------------
1,246,913
Water Supply 0.8% ------------
California Water Service Group ...................... 17,900 408,344
------------
Total Common Stocks (Cost $46,688,943) .............. 49,963,131
------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100%
(Cost $47,168,943)(a) ............................ 50,443,131
============
- --------------------------------------------------------------------------------
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a)At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $47,168,943 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .................................................. $ 9,343,683
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over
value ..................................................... (6,069,495)
------------
Net unrealized appreciation ............................... $ 3,274,188
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 2000 aggregated
$15,623,894 and $29,165,853, respectively.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $665,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully
realized, or until September 30, 2006 ($2,000) and September 30, 2007
($663,000), the respective expiration dates. In addition, from November
1, 1998 through September 30, 1999, the Fund incurred approximately
$3,397,000 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat
them as arising in the fiscal year ending September 30, 2000.
The accompanying notes are an integral part of the financial statements
114
<PAGE>
<TABLE>
<CAPTION>
AARP GLOBAL GROWTH FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 3.3%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin, & Jenrette, 6.06%, to be repurchased at
$6,102,080 on 4/3/2000** (Cost $6,099,000) ............................................... 6,099,000 6,099,000
-------------
U.S. GOVERNMENT & AGENCIES 9.0%
- ------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 6.05%***, 4/3/2000 ......................................... 5,997,983 5,997,983
U.S. Treasury Bond, 6.375%, 8/15/2027 ....................................................... 5,190,000 5,406,527
U.S. Treasury, Principal only certificate, 2/15/2019 ........................................ 16,550,000 5,311,557
-------------
Total U.S. Government & Agencies (Cost $16,054,597) ......................................... 16,716,067
-------------
PARTICIPATION LOAN NOTES 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Luxembourg
Eurotunnel Finance Ltd., Step-up Coupon, 1% to 12/31/2005, 1% plus
26.45% of net available cash flow to 4/30/2040 (Cost $404,411) ........................... 300 (b) 408,583
-------------
COMMON STOCKS 87.5%
- ------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------
Australia 2.3%
Broken Hill Proprietary Co., Ltd. (Petroleum, mineral and steel exploration
and production) .......................................................................... 128,100 1,388,821
WMC Ltd. (Mineral exploration and production) ............................................... 314,000 1,229,147
Woodside Petroleum, Ltd. (Producer of oil and gas) .......................................... 259,800 1,562,888
-------------
4,180,856
Brazil 1.3% -------------
Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp) ............................. 38,650 818,897
Companhia Vale do Rio Doce (Diverse mining and industrial complex) .......................... 55,200 1,510,369
-------------
2,329,266
Canada 4.3% -------------
Alberta Energy Co., Ltd. (Major oil and gas producer) ....................................... 2,100 63,393
BCE, Inc. (Provider of telecommunication services) .......................................... 19,559 2,442,690
Barrick Gold Corp. (Explorer and producer of gold in North and South America) ............... 84,900 1,331,869
Canadian National Railway Co. (Railroad operator) ........................................... 48,000 1,266,818
Manulife Financial Corp. (Provider of financial services) ................................... 131,100 1,926,744
Noranda, Inc. (Operator in mining and metals) ............................................... 15,100 155,240
Teleglobe In. (Provider of telecommunication services) ...................................... 31,000 844,891
-------------
8,031,645
France 5.4% -------------
Aventis SA (Pharmaceutical company) ......................................................... 35,366 1,933,420
The accompanying notes are an integral part of the financial statements
115
<PAGE>
AARP GLOBAL GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------
Canal Plus SA (Provider of television programs) .................................... 12,378 2,720,962
Eurotunnel SA* (Designer, financier and constructor of a tunnel that runs
under the English Channel and connects England to France) ....................... 869,585 1,005,638
STMicroelectronics (Manufacturer of semiconductor integrated circuits) ............. 8,505 1,560,701
Suez Lyonnaise des Eaux SA (Water and electric utility) ............................ 9,991 1,714,982
Vivendi (Provider of industrial services) .......................................... 9,782 1,126,572
------------
10,062,275
Germany 7.6% ------------
Allianz AG (Multi-line insurance company) .......................................... 1,714 697,035
BASF AG (International chemical producer) .......................................... 37,640 1,784,331
Bayer AG (Chemical producer) ....................................................... 51,505 2,308,694
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing presses) ....... 6,915 409,759
HypoVereinsbank (Bank) ............................................................. 21,256 1,310,344
Muenchener Rueckversicherungs-Gesellschaft AG (Registered)
(Insurance company) ............................................................. 3,924 1,260,122
Schering AG (Pharmaceutical and chemical producer) ................................. 13,845 1,865,762
Siemens AG (Electrical engineering and electronics company) ........................ 16,185 2,328,056
Thyssen Krupp AG* (Manufacturer of building and industrial steel materials) ........ 15,429 379,716
VEBA AG (Electric utility, distributor of oil and chemicals) ....................... 20,985 1,071,012
Viag AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) ........................................ 32,105 650,508
------------
14,065,339
Hong Kong 0.8% ------------
Citic Pacific Ltd. (Diversified holding company) ................................... 247,000 1,494,057
------------
Japan 19.8%
Asahi Chemical Industry Co., Ltd. (Producer of synthetic fibers, industrial
chemicals, petrochemicals, plastics, rubber, and food products) ................. 134,000 857,715
Chugai Pharmaceutical Co., Ltd. (Pharmaceutical company) ........................... 83,000 1,559,748
DDI Corp. (Provider of telecommunication services) ................................. 113 926,483
Daiei Inc. (Producer of foods, clothing, household items, furniture, and toiletries) 166,000 595,348
Daiwa Securities Group Inc. (Provider of brokerage and other financial services) ... 169,000 3,187,433
East Japan Railway Co. (Railroad operator) ......................................... 273 1,419,291
Fujitsu, Ltd. (Manufacturer of computers) .......................................... 32,000 985,048
Matsushita Electric Industrial Co., Ltd. (Manufacturer of consumer
electronic products) ............................................................ 46,000 1,380,045
Mitsubishi Estate Co., Ltd. (Real estate company) .................................. 102,000 1,109,411
Mitsui Fudosan Co., Ltd. (Real estate company) ..................................... 96,000 919,378
NEC Corp. (Manufacturer of telecommunication and computer equipment) ............... 82,000 2,428,027
NTT Mobile Communications Network, Inc. (Provider of various
telecommunication services and equipment) ....................................... 44 1,810,222
Nichii Gakkan Company (Provider of hospital administrative services) ............... 3,000 408,091
Nikko Securities Co., Ltd. (Securities broker and dealer) .......................... 34,000 516,330
Nippon Telegraph & Telephone Corp. (Provider of telecommunication services) ........ 88 1,401,739
Nomura Securities Co., Ltd. (Financial advisor, securities broker and underwriter) . 47,000 1,538,649
Sakura Bank, Ltd. (Provider of banking services) ................................... 236,000 1,801,192
Sharp Corp. (Manufacturer of consumer and industrial electronics) .................. 140,000 3,003,029
Sony Corp. (Manufacturer of consumer electronic products) .......................... 20,000 2,833,969
The accompanying notes are an integral part of the financial statements
116
<PAGE>
- -----------------------------------------------------------------------------------------------------------
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------
Sumitomo Metal Mining Co., Ltd. (Gold, nickel and copper mining company) ...... 102,000 306,010
TDK Corp. (Manufacturer of magnetic tapes and floppy discs) ................... 9,000 1,229,551
Teijin, Ltd. (Manufacturer of polyester products) ............................. 167,000 709,909
Toray Industries, Inc. (Manufacturer of synthetic fibers, leather
and polyester films) ....................................................... 155,000 599,824
Toshiba Corp. (Manufacturer of electric machinery) ............................ 234,000 2,391,909
Yamanouchi Pharmaceutical Co., Ltd. (Manufacturer of ethical drugs) ........... 49,000 2,691,097
-------------
36,609,448
South Africa 1.2% -------------
Anglo American Platinum Corp., Ltd. (ADR) (Platinum producer) ................. 54,665 1,454,089
Impala Platinum Holdings Ltd. (ADR) (Mines and markets platinum group metals) . 22,300 771,580
-------------
2,225,669
Switzerland 1.7% -------------
Roche Holdings AG (Producer of drugs and medicines) ........................... 85 922,259
Swisscom AG -- Registered (Operator of telecommunication networks and
network application services) .............................................. 3,598 1,379,107
UBS AG-Registered (Provider of banking and asset management services) ......... 3,557 933,859
-------------
3,235,225
United Kingdom 15.1% -------------
BOC Group PLC (Producer of industrial gases) .................................. 136,271 2,664,406
Cable and Wireless PLC (International telecommunication services in
the United Kingdom and Hong Kong) .......................................... 42,253 793,823
Carlton Communications PLC (Television post production products and services) . 223,017 2,693,764
Enterprise Oil PLC (Oil and gas exploration and production) ................... 113,267 806,795
Great Universal Stores PLC "A" (Catalog home shopping, retailing, finance and
property investment) ....................................................... 223,578 1,357,395
Lasmo PLC (Oil production and exploration) .................................... 110,354 211,019
Marconi PLC (Provider of telecommunications equipment) ........................ 41,401 494,134
National Grid Group PLC (Owner and operator of electric transmission systems) . 187,315 1,707,344
National Power PLC (Electricity generation company) ........................... 304,739 1,524,790
Prudential Corp. PLC (Provider of a broad range of financial services) ........ 66,938 1,016,525
Railtrack Group PLC (Operator of railway infrastructure) ...................... 76,840 893,846
Reuters Group PLC (International news and information agency) ................. 157,404 3,185,458
Rio Tinto PLC (Mining company) ................................................ 131,709 2,224,711
Royal & Sun Alliance Insurance Group PLC (Insurance company) .................. 224,830 1,397,241
Scottish Power PLC (Electric utility) ......................................... 226,634 1,830,988
Shell Transport & Trading PLC (Petroleum company) ............................. 238,698 1,985,508
SmithKline Beecham PLC (Manufacturer of ethical drugs and health care products) 128,267 1,684,203
Standard Chartered PLC (International banking group) .......................... 24,189 323,780
Vodafone AirTouch PLC (Provider of telecommunication services) ................ 203,144 1,132,986
-------------
27,928,716
United States 28.0% -------------
AT&T Corp. (Provider of telecommunications services) .......................... 32,943 1,853,044
AT&T Corp. -- Liberty Media Group "A"* (Holding company of entertainment
networks) .................................................................. 52,576 3,115,128
Amerada Hess Corp. (Exploration, production and transmission of crude oil
and natural gas) ........................................................... 18,700 1,208,488
The accompanying notes are an integral part of the financial statements
117
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
America Online, Inc.* (Provider of online computer services) ...................... 14,800 995,300
American Home Products Corp. (Diversified pharmaceutical company) ................. 37,700 2,021,663
Anadarko Petroleum Corp. (Explorer and producer of crude oil and natural gas) ..... 6,600 255,338
Biogen, Inc.* (Biotechnology research and development company) .................... 3,900 272,513
Burlington Resources, Inc. (Explorer and producer of crude oil and natural gas) ... 6,400 236,800
CINergy Corp. (Holding company of electrical utilities in Ohio, Indiana and
Kentucky) ...................................................................... 29,300 629,950
CSX Corp. (Railroad, integrated transportation systems and shipping
container company) ............................................................. 16,300 383,050
Chubb Corp. (Property and casualty insurance company) ............................. 10,100 682,381
Cisco Systems, Inc.* (Manufacturer of computer network products) .................. 7,600 587,575
Commerce One, Inc.* (Provider of Web-based, enterprise procurement solutions) ..... 3,300 492,525
Conoco, Inc. "A" (Explorer of crude oil, natural gas, and natural gas liquids) .... 70,900 1,745,913
EMC Corp.* (Provider of enterprise storage systems, software, networks,
and services) .................................................................. 4,000 500,000
Electronic Data Systems Corp. (Provider of information technology systems) ........ 32,000 2,054,000
Enron Corp. (Producer of natural gas and electricity) ............................. 36,120 2,704,485
Equity Residential Properties Trust (REIT) (Owner of apartment properties) ........ 30,600 1,229,738
Exxon Mobil Corp. (International oil company) ..................................... 18,700 1,455,094
Homestake Mining Co. (International gold producer) ................................ 72,200 433,200
International Business Machines Corp. (Manufacturer of computers and
servicer of information processing units) ...................................... 18,000 2,124,000
Lockheed Martin Corp. (Manufacturer of aircraft, missiles and space equipment) .... 47,700 974,869
Motorola Inc. (Manufacturer of telecommunication products and
semiconductors) ................................................................ 16,600 2,363,425
Newmont Mining Corp. (International gold exploration and mining company) .......... 54,800 1,229,575
Nextel Communications Inc.* (Provider of telecommunication services) .............. 6,800 1,008,100
Nextel Communications, Inc. "A"* .................................................. 9,400 1,393,550
Northrop Grumman Corp. (Manufacturer of aircraft, aircraft assemblies
and electronic systems for military and commercial use) ........................ 24,900 1,318,144
Oracle Corp.* (Provider of database management software) .......................... 42,500 3,317,656
Parametric Technology Corp.* (Producer of mechanical design software) ............. 40,400 850,925
Peco Energy Co. (Electric and gas utility) ........................................ 48,300 1,781,063
Phillips Petroleum Co. (Petroleum exploration, production and refining) ........... 24,000 1,110,000
Sabre Group Holdings, Inc. "A" (Provider of online travel reservation capabilities) 24,900 919,744
Safeco Corp. (Provider of insurance and financial services) ....................... 24,700 656,094
St. Paul Companies, Inc. (Provider of insurance products and services) ............ 21,100 720,038
Stillwater Mining Co.* (Mining company) ........................................... 59,100 2,364,000
Sun Microsystems, Inc.* (Manufacturer of high-performance workstations,
servers and software) .......................................................... 25,800 2,417,542
US Airways Group, Inc.* (Domestic and international airline) ...................... 25,800 717,563
USEC, Inc. (Provider of enriched uranium products and services) ................... 189,600 876,900
USX-US Steel Group, Inc. (Integrated steel producer) .............................. 45,500 1,137,500
Unocal Corp. (Explorer and producer of oil and gas) ............................... 28,600 850,850
UnumProvident Corp. (Provider of group disability and special risk insurance) ..... 59,000 1,003,000
------------
51,990,723
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
118
<PAGE>
- --------------------------------------------------------------------------------
Value ($)
- --------------------------------------------------------------------------------
Total Common Stocks (Cost $128,380,902) ............... 162,153,219
==============
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100%
(Cost $150,938,910) (a) ............................ 185,376,869
==============
- --------------------------------------------------------------------------------
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
*** Annualized yield at time of purchase; not a coupon rate.
(a)At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $150,919,048 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ......................................... $ 45,658,435
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ....................................... (11,200,614)
--------------
Net unrealized appreciation ........................... $ 34,457,821
==============
(b)Represents number of contracts. Each contract equals a nominal value of
2,931 EURO.
- --------------------------------------------------------------------------------
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, 2000 aggregated $44,839,650 and $49,400,375,
respectively. Purchases of direct obligations of the U.S. Government
aggregated $10,005,883.
The accompanying notes are an integral part of the financial statements
119
<PAGE>
<TABLE>
<CAPTION>
AARP INTERNATIONAL STOCK FUND
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.8%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 6.06%, to be repurchased at $1,708,863 on
4/3/2000** (Cost $1,708,000) ........................................................ 1,708,000 1,708,000
------------
BONDS 0.0%
- -----------------------------------------------------------------------------------------------------------------
United Kingdom
British Aerospace PLC, 7.45%, 11/29/2003 (Producer of military aircraft)
(Cost $5,296) ....................................................................... 5,043 7,795
------------
CONVERTIBLE BONDS 0.1%
- -----------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------
France
Lafarge Convertible, 3/20/2001 (Producer of building materials) (Cost $61,948) ......... 847 63,952
------------
COMMON STOCKS 97.1%
- -----------------------------------------------------------------------------------------------------------------
Australia 1.5%
Broken Hill Proprietary Co., Ltd. (Petroleum, mineral and steel exploration
and production) ..................................................................... 40,900 443,425
WMC Ltd. (Mineral exploration and production) .......................................... 78,200 306,112
Woodside Petroleum, Ltd. (Producer of oil and gas) ..................................... 23,600 141,971
------------
891,508
Canada 0.8% ------------
Canadian National Railway Co. (Railroad operator) ...................................... 18,300 482,975
------------
Denmark 0.5%
Infineon Technologies AG* (Manufacturer and marketer of semiconductors) ................ 5,111 278,680
------------
Finland 1.9%
Nokia Oyj (Manufacturer of telecommunications networks and equipment) .................. 5,590 1,180,724
------------
France 18.3%
AXA SA (Insurance group providing insurance, finance and real estate services) ......... 3,550 502,490
Alcatel SA (Manufacturer of transportation, telecommunication and
energy equipment) ................................................................... 2,818 617,574
Aventis SA (Pharmaceutical company) .................................................... 16,389 895,624
Carrefour SA (Supermarket operator and food retailer) .................................. 2,094 267,979
Christian Dior SA (Fashion house) ...................................................... 2,354 543,785
Dassault Systemes SA (Computer aided design, manufacturing and
engineering software) ............................................................... 5,531 521,224
Etablissements Economiques du Casino Guichard-Perrachon SA (Operator of
supermarkets and convenience stores) ................................................ 5,910 361,503
Eurotunnel SA* (Designer, financier and constructor of a tunnel that runs under
the English Channel and connects England to France) ................................. 451,549 522,199
The accompanying notes are an integral part of the financial statements
120
<PAGE>
- ------------------------------------------------------------------------------------------------------
Shares Value ($)
- ------------------------------------------------------------------------------------------------------
LVMH (Louis Vuitton Moet Hennessy) (Producer of wines, spirits and
luxury products) ....................................................... 731 305,451
Lafarge SA (Producer of cement, concrete and aggregates) .................. 4,580 390,020
Lafarge SA, warrants* (expire 3/20/2001) .................................. 847 4,436
Pinault-Printemps-Redoute SA (Operator of department stores) .............. 2,864 529,935
Rhodia SA (Drug manufacturer and chemicals specialist) .................... 28,811 514,926
STMicroelectronics (Manufacturer of semiconductor integrated circuits) .... 5,428 996,059
Schneider Electric SA (Manufacturer of electronic components and automated
manufacturing systems) ................................................. 4,514 287,761
Societe BIC SA (Manufacturer of office supplies) .......................... 8,310 337,547
Suez Lyonnaise des Eaux SA (Water and electric utility) ................... 4,614 792,005
Total Fina ELF "B" (Explorer, developer and producer of oil and gas) ...... 9,140 1,367,114
Usinor Sacilor SA (Producer of flat steel and stainless steel) ............ 16,481 261,478
Vivendi (Provider of industrial services) ................................. 10,536 1,213,408
------------
11,232,518
Germany 13.6% ------------
Allianz AG (Multi-line insurance company) ................................. 1,900 772,676
Bayer AG (Chemical producer) .............................................. 13,372 599,395
Celanese AG (Manufacturer and distributor of industrial chemicals) ........ 985 19,864
Commerzbank AG (Provider of banking services) ............................. 6,900 260,490
Deutsche Telekom AG (Telecommunication services) .......................... 7,450 599,532
ERGO Versicherungs Gruppe AG (Insurance provider) ......................... 2,231 237,749
Epcos AG* (Producer of electronic components and integrated circuits) ..... 8,588 1,132,701
HypoVereinsbank (Bank) .................................................... 9,591 591,245
MobilCom AG (Provider of mobil telecommunication services) ................ 1,393 198,373
Muenchener Rueckversicherungs-Gesellschaft AG (Registered)
(Insurance company) .................................................... 2,030 651,898
SAP AG (Computer software manufacturer) ................................... 1,575 882,109
Siemens AG (Electrical engineering and electronics company) ............... 5,766 829,383
Thyssen Krupp AG* (Manufacturer of building and industrial steel materials) 21,999 541,408
VEBA AG (Electric utility, distributor of oil and chemicals) .............. 8,660 441,981
VIAG AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) ............................... 29,640 600,563
------------
8,359,367
Hong Kong 1.4% ------------
China Telecommunications Ltd. (Provider of cellular telecommunication
services) .............................................................. 25,000 219,928
Hutchison Whampoa, Ltd. (Diversified investment holding company) .......... 21,000 378,918
Legend Holdings Ltd. (Manufacturer of personal computers) ................. 128,000 199,726
Li & Fung Ltd. (Exporter of consumer products) ............................ 16,000 74,589
------------
873,161
Italy 4.6% ------------
Gruppo Editoriale L'Espresso (Publisher) .................................. 34,006 666,600
Mediaset SpA (Broadcasting and television networks) ....................... 34,900 692,464
Seat Pagine Gialle SpA (Publisher of telecommunications directories) ...... 296,200 1,466,422
------------
2,825,486
------------
The accompanying notes are an integral part of the financial statements
121
<PAGE>
AARP INTERNATIONAL STOCK FUND
- -------------------------------------------------------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------
Japan 29.3%
Advantest Corp. (Producer of measuring instruments and semiconductor
testing devices) .............................................................. 2,400 511,052
Benesse Corp. (Provider of educational services) ................................. 2,000 209,127
DDI Corp. (Provider of telecommunication services) ............................... 57 467,341
Daiwa Securities Group Inc. (Provider of brokerage and other financial services) . 57,000 1,075,052
Fanuc, Ltd. (Manufacturer of numerically controlled equipment for
machine tools) ................................................................ 3,500 368,025
Fuji Bank, Ltd. (Provider of commercial banking services) ........................ 44,000 414,933
Fujisawa Pharmaceutical Co. (Manufacturer and marketer of antibiotics) ........... 4,000 140,721
Fujitsu Support and Service Inc. (Provider of information services) .............. 1,600 270,654
Fujitsu, Ltd. (Manufacturer of computers) ........................................ 22,000 677,221
Hitachi, Ltd. (Manufacturer of general electronics) .............................. 45,000 536,060
Kyocera Corp. (Manufacturer of ceramic packaging) ................................ 4,000 670,771
Matsushita Electric Industrial Co., Ltd. (Manufacturer of consumer electronic
products) ..................................................................... 26,000 780,025
Murata Manufacturing Co., Ltd. (Manufacturer of ceramic applied electronic
computers) .................................................................... 4,000 975,276
NEC Corp. (Manufacturer of telecommunication and computer equipment) ............. 35,000 1,036,353
NSK Ltd. (Manufacturer of bearings and motor vehicle machine parts) .............. 40,000 300,205
NTT Mobile Communications Network, Inc. (Provider of various
telecommunication services and equipment) ..................................... 30 1,234,242
Nikko Securities Co., Ltd. (Securities broker and dealer) ........................ 49,000 744,122
Nintendo Co., Ltd. (Manufacturer of game equipment) .............................. 2,900 511,531
Nippon Telegraph & Telephone Corp. (Provider of telecommunication services) ...... 32 509,723
Nissan Motor Co., Ltd. (Manufacturer of motor vehicles) .......................... 100,000 410,437
Nomura Securities Co., Ltd. (Financial advisor, securities broker and underwriter) 35,000 1,145,803
Ricoh Co., Ltd. (Manufacturer of copiers and information equipment) .............. 18,000 386,983
SMC Corp. (Manufacturer of directional control devices) .......................... 800 168,084
Sakura Bank, Ltd. (Provider of banking services) ................................. 78,000 595,309
Softbank Corp. (Provider of electronic commerce, software and peripheral
hardware equipment) ........................................................... 700 625,916
Sony Corp. (CPS) (Manufacturer of consumer electronic products) .................. 5,800 821,851
THK Co., Ltd. (Manufacturer of linear motion systems for industrial machinery) ... 5,300 244,464
Tokyo Electron Ltd. (Manufacturer of semiconductor production equipment) ......... 4,000 605,883
Toshiba Corp. (Manufacturer of electric machinery) ............................... 88,000 899,521
Yamanouchi Pharmaceutical Co., Ltd. (Manufacturer of ethical drugs) .............. 11,000 604,124
------------
17,940,809
Netherlands 5.1% ------------
AEGON Insurance Group NV (Insurance company) ..................................... 3,260 260,165
ASM Lithography Holding NV (Developer of photolithography projection
systems) ...................................................................... 3,010 335,723
Akzo Nobel NV (Producer and marketer of health care products, coatings,
chemicals and fibers) ......................................................... 6,780 289,007
Equant NV (Provider of international data network services) ...................... 6,741 558,583
Fortis (NL) NV (Provider of banking and insurance services) ...................... 8,710 222,682
Gucci Group NV (New York Shares) (Designer and producer of personal luxury
accessories and apparel) ...................................................... 4,800 426,900
The accompanying notes are an integral part of the financial statements
122
<PAGE>
- ---------------------------------------------------------------------------------------------------------
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------
Koninklijke KPN NV (Provider of telecommunication services) ................. 5,010 572,921
Laurus NV (International food retailer) ..................................... 9,260 97,353
United Pan-Europe Communications NV* (Owner and operator of broadband
communications networks) ................................................. 7,560 352,820
------------
3,116,154
Spain 1.0%
Telefonica SA (Provider of telecommunication services) ...................... 25,167 635,009
------------
Sweden 1.4%
LM Ericsson Telephone Co. "B" (Manufacturer of telecommunications equipment) 10,060 881,651
------------
Switzerland 1.4%
Nestle SA (Registered) (Food manufacturer) .................................. 239 427,888
Roche Holdings AG (Producer of drugs and medicines) ......................... 39 423,154
------------
851,042
------------
United Kingdom 16.3%
ARM Holdings PLC (Designer of RISC microprocessors and related technology) .. 3,333 201,823
BOC Group PLC (Producer of industrial gases) ................................ 26,620 520,481
BP Amoco PLC (Integrated world oil company) ................................. 61,401 561,616
Billiton PLC (Resource group that explores, produces and markets aluminum
and other metal products) ................................................ 54,098 252,150
British Aerospace PLC (Producer of military aircraft) ....................... 70,135 391,161
Cable and Wireless PLC (International telecommunication services in the
United Kingdom and Hong Kong) ............................................ 19,822 372,403
Glaxo Wellcome PLC (Pharmaceutical company) ................................. 9,365 267,124
Prudential Corp. PLC (Provider of a broad range of financial services) ...... 38,980 591,953
Reed International PLC (Publisher of scientific, professional and business to
business materials) ...................................................... 26,348 192,294
Rentokil Initial PLC (Environmental services company) ....................... 75,865 197,354
Reuters Group PLC (International news and information agency) ............... 69,700 1,410,551
Rio Tinto PLC (Mining company) .............................................. 48,610 821,077
Royal & Sun Alliance Insurance Group PLC (Insurance company) ................ 78,264 486,384
Shell Transport & Trading PLC (Petroleum company) ........................... 95,220 792,047
SmithKline Beecham PLC (Manufacturer of ethical drugs and health care
products) ................................................................ 21,024 276,055
Standard Chartered PLC (International banking group) ........................ 31,564 422,497
Vodafone AirTouch PLC (Provider of telecommunication services) .............. 394,554 2,200,529
------------
9,957,499
------------
Total Common Stocks (Cost $52,287,877) ...................................... 59,506,583
------------
- ---------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100% (Cost $54,063,121) (a) .................... 61,286,330
============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements
123
<PAGE>
AARP INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a)At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $54,063,121, was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................ $ 10,210,509
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ...................................... (2,987,300)
------------
Net unrealized appreciation .......................... $ 7,223,209
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 2000 aggregated
$35,065,968 and $19,568,252, respectively.
The accompanying notes are an integral part of the financial statements
124
<PAGE>
<TABLE>
<CAPTION>
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -------------------------------------------------------------------------------------
Shares Value ($)
- -------------------------------------------------------------------------------------
MONEY MARKET 0.5%
<S> <C> <C>
AARP High Quality Money Fund (Cost $419,721) ............ 419,721 419,721
------------
FIXED INCOME 68.8%
- -------------------------------------------------------------------------------------
AARP Bond Fund for Income ............................... 1,770,854 24,597,156
AARP GNMA and U.S. Treasury Fund ........................ 1,780,482 25,692,348
AARP High Quality Short Term Bond ....................... 363,486 5,684,928
------------
Total Fixed Income (Cost $59,573,582) ................... 55,974,432
------------
EQUITY 30.7%
- -------------------------------------------------------------------------------------
AARP Capital Growth Fund ................................ 21,295 1,591,126
AARP Growth and Income Fund ............................. 70,947 3,590,604
AARP Small Company Stock Fund ........................... 525 9,367
AARP U.S. Stock Index Fund .............................. 696,229 19,807,711
------------
Total Equity (Cost $22,427,406) ........................ 24,998,808
------------
- -------------------------------------------------------------------------------------
Total Investment Portfolio -- 100%
(Cost $82,420,709) (a) ............................... 81,392,961
============
- -------------------------------------------------------------------------------------
</TABLE>
(a)At March 31, 2000, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $82,502,494 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ....................................... $ 2,760,172
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ..................................... (3,869,705)
------------
Net unrealized depreciation ......................... $ (1,109,533)
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 2000, aggregated
$2,913,985 and $22,750,000, respectively.
The accompanying notes are an integral part of the financial statements
125
<PAGE>
<TABLE>
<CAPTION>
AARP DIVERSIFIED GROWTH PORTFOLIO
LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)
- -----------------------------------------------------------------------------------------------
Shares Value ($)
- -----------------------------------------------------------------------------------------------
MONEY MARKET 1.5%
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
AARP High Quality Money Fund (Cost $2,140,440) ............... 2,140,440 2,140,440
--------------
FIXED INCOME 26.0%
- -----------------------------------------------------------------------------------------------
AARP Bond Fund for Income .................................... 1,779,082 24,711,448
AARP GNMA and U.S. Treasury Fund ............................. 819,907 11,831,255
--------------
Total Fixed Income (Cost $39,336,504) ........................ 36,542,703
--------------
EQUITY 72.5%
- -----------------------------------------------------------------------------------------------
AARP Capital Growth Fund ..................................... 209,599 15,661,266
AARP Global Growth Fund ...................................... 317,413 7,024,356
AARP Growth and Income Fund .................................. 305,392 15,455,912
AARP International Stock Fund ................................ 242,518 5,670,076
AARP Small Company Stock Fund ................................ 353,924 6,310,457
AARP U.S. Stock Index Fund ................................... 1,827,245 51,985,121
--------------
Total Equity (Cost $88,477,117) .............................. 102,107,188
--------------
- -----------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $129,954,061) (a).... 140,790,331
==============
- -----------------------------------------------------------------------------------------------
</TABLE>
(a)At March 31, 2000, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $130,081,747 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ........................................ $ 15,912,894
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ...................................... (5,204,310)
------------
Net unrealized appreciation .......................... $ 10,708,584
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 2000, aggregated
$4,924,343 and $9,160,000, respectively.
The accompanying notes are an integral part of the financial statements
126
<PAGE>
F I N A N C I A L S T A T E M E N T S
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.
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.
127
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
The Statements of Assets and Liabilities show the net assets of the funds in the
AARP Investment Program.
Examples of assets include such items as:
o Investments at value: The current 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 the fund 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).
Examples of 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;
128
<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 share- holders,
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 IN NET ASSETS
The Statements of Changes in Net Assets 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 in
Net Assets 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.
129
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------
AARP High AARP
AARP High Quality Tax Free Premium
March 31, 2000 (Unaudited) Quality Money Fund Money Fund Money Fund
- ---------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (for cost, see
accompanying lists of investment portfolios) .. $ 395,727,833 $ 84,393,110 $249,012,359
Cash ............................................. 2,109,368 35,385 38
Receivable on investments sold ................... -- -- 344,163
Investment income receivable ..................... 653,626 397,414 --
Receivable for Fund shares sold .................. 1,118,336 92,943 975,117
Deferred organization expenses ................... -- -- --
Other assets ..................................... 18,010 1,474 --
-------------- ------------- -------------
Total assets ..................................... 399,627,173 84,920,326 250,331,677
LIABILITIES
- ---------------------------------------------------------------------------------------------------
Due to custodian bank ............................ -- -- --
Payable for investments purchased ................ -- -- --
Payable for when-issued and forward delivery
securities .................................... -- -- --
Payable for Fund shares redeemed ................. 2,203,398 101,816 1,487,671
Dividends payable ................................ 1,650,170 39,949 99,728
Daily variation margin on futures contracts ...... -- -- --
Accrued management fee ........................... 105,019 27,874 104,114
Other accrued expenses and payables .............. 607,781 18,434 307,357
-------------- ------------- -------------
Total liabilities ................................ 4,566,368 188,073 1,998,870
- --------------------------------------------------------------------------------------------------
Net assets, at value ............................. $ 395,060,805 $ 84,732,253 $248,332,807
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ............................. $ (219,293) $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments ................................... -- -- --
Futures ....................................... -- -- --
Foreign currency related transactions ......... -- -- --
Accumulated net realized gain (loss) ............. (132,118) (738,883) --
Paid-in capital .................................. 395,412,216 85,471,136 248,332,807
- --------------------------------------------------------------------------------------------------
Net assets, at value ............................. $ 395,060,805 $ 84,732,253 $248,332,807
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ....... 395,280,709 84,737,961 248,332,807
- --------------------------------------------------------------------------------------------------
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
130
<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> <C>
$ 374,023,963 $ 4,943,643,896 $ 1,466,534,991 $ 184,716,952 $ 589,535,669
78,559 -- 456,068 8,373 --
1,029,553 400,368,723 4,174,736 -- 2,015,009
3,217,429 22,865,470 16,699,315 2,886,864 3,254,003
23,743 758,121 112,223 83,253 73,979
-- -- -- 5,637 --
30,291 121,166 4,388 618 17,790
- ---------------------- --------------------- --------------------- -------------------- --------------------
378,403,538 5,367,757,376 1,487,981,721 187,701,697 594,896,450
- -----------------------------------------------------------------------------------------------------------------------------
-- 948,295 -- -- 404,974
1,082,928 -- 3,712,974 -- 756,083
4,900,000 1,524,238,727 -- -- --
454,166 1,848,470 839,707 239,169 442,898
512,954 8,645,003 2,574,929 392,305 --
-- 779,533 -- -- --
151,103 1,305,319 595,425 304,287 234,297
315,259 1,061,926 387,129 260,153 580,633
- ---------------------- --------------------- --------------------- -------------------- --------------------
7,416,410 1,538,827,273 8,110,164 1,195,914 2,418,885
- -----------------------------------------------------------------------------------------------------------------------------
$ 370,987,128 $ 3,828,930,103 $ 1,479,871,557 $ 186,505,783 $ 592,477,565
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
$ (666,869) $ (8,854,922) $ 171,324 $ (7,771) $ 67,320
(4,246,223) (52,283,726) 74,668,893 (8,730,111) 83,350,696
-- (3,252,029) -- -- --
-- -- -- -- --
(12,254,564) (393,149,257) (34,660,796) (10,115,345) (662,650)
388,154,784 4,286,470,037 1,439,692,136 205,359,010 509,722,199
- -----------------------------------------------------------------------------------------------------------------------------
$ 370,987,128 $ 3,828,930,103 $ 1,479,871,557 $ 186,505,783 $ 592,477,565
- -----------------------------------------------------------------------------------------------------------------------------
23,731,189 265,338,324 84,103,533 13,428,494 30,166,451
- -----------------------------------------------------------------------------------------------------------------------------
$ 15.63 $ 14.43 $ 17.60 $ 13.89 $ 19.64
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
131
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------
AARP U.S. AARP
AARP Growth and Stock Index Capital Growth
March 31, 2000 (Unaudited) Income Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (for cost, see
accompanying lists of investment portfolios) .. $ 5,756,333,001 $ 863,024,733 $ 2,461,997,227
Cash and foreign currency holdings ............... 35,626 -- 33,460
Receivable for investments sold .................. 27,936,560 5,455,221 --
Investment income receivable ..................... 8,102,680 736,591 1,183,871
Receivable for Fund shares sold .................. 1,327,148 1,151,650 2,452,308
Deferred organization expenses ................... -- 5,423 --
Other assets ..................................... 8,972 392 2,458
---------------- -------------- ----------------
Total assets ..................................... 5,793,743,987 870,374,010 2,465,669,324
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Due to custodian bank ............................ -- 55,276 --
Payable for investments purchased ................ 11,169,554 4,773,196 13,769,995
Payable for Fund shares redeemed ................. 4,603,592 442,672 1,809,014
Daily variation margin on futures contracts ...... -- 4,644 --
Unrealized depreciation on forward currency
exchange contracts ............................ -- -- --
Accrued management fee ........................... 2,287,978 227,998 1,190,404
Other accrued expenses and payables .............. 2,756,420 914,774 951,032
---------------- -------------- ----------------
Total liabilities ................................ 20,817,544 6,418,560 17,720,445
- ---------------------------------------------------------------------------------------------------------
Net assets, at value ............................. $ 5,772,926,443 $ 863,955,450 $ 2,447,948,879
- ---------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ............................. $ (230,833) $ (17,411) $ (1,217,347)
Net unrealized appreciation (depreciation) on:
Investments ................................... 1,464,302,119 138,366,812 845,865,271
Futures ....................................... -- 4,492 --
Foreign currency related transactions ......... (131,874) -- --
Accumulated net realized gain (loss) ............. 256,093,008 7,064,517 196,565,011
Paid-in capital .................................. 4,052,894,023 718,537,040 1,406,735,944
- ---------------------------------------------------------------------------------------------------------
Net assets, at value ............................. $ 5,772,926,443 $ 863,955,450 $ 2,447,948,879
- ---------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ....... 114,055,674 30,369,827 32,759,125
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share ..................................... $ 50.61 $ 28.45 $ 74.73
- ---------------------------------------------------------------------------------------------------------
</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 AARP Diversified AARP
AARP Small Company AARP International Stock Income with Growth Diversified Growth
Stock Fund Global Growth Fund Fund Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 50,443,131 $ 185,376,869 $ 61,286,330 $ 81,392,961 $ 140,790,331
-- 128,059 3,640 -- --
6,266,965 1,447,626 586,617 -- --
25,135 490,350 164,823 10,102 6,864
14,651 89,596 210,900 1,020 1,273
4,791 2,464 4,791 -- --
402 390 -- -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
56,755,075 187,535,354 62,257,101 81,404,083 140,798,468
- -----------------------------------------------------------------------------------------------------------------------------
5,467 -- -- -- --
3,953,683 1,807,726 419,381 -- --
78,561 205,391 105,557 -- --
-- -- -- -- --
-- 1,050,281 -- -- --
113,872 122,404 84,200 -- --
120,017 316,217 199,439 -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
4,271,600 3,502,019 808,577 -- --
- -----------------------------------------------------------------------------------------------------------------------------
$ 52,483,475 $ 184,033,335 $ 61,448,524 $ 81,404,083 $ 140,798,468
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
$ (177,296) $ (903,234) $ (162,252) $ 36,122 $ 257,920
3,274,188 34,437,959 7,223,209 (1,027,748) 10,836,270
-- -- -- -- --
-- (1,050,214) (5,214) -- --
(10,071,064) 15,100,685 3,612,296 1,139,538 4,383,547
59,457,647 136,448,139 50,780,485 81,256,171 125,320,731
- -----------------------------------------------------------------------------------------------------------------------------
$ 52,483,475 $ 184,033,335 $ 61,448,524 $ 81,404,083 $ 140,798,468
- -----------------------------------------------------------------------------------------------------------------------------
2,941,956 8,314,434 2,628,473 5,118,442 7,321,754
- -----------------------------------------------------------------------------------------------------------------------------
$ 17.84 $ 22.13 $ 23.38 $ 15.90 $ 19.23
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
133
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
AARP High AARP
Six Months Ended March 31, 2000 AARP High Quality Tax Free Premium
(Unaudited) Quality Money Fund Money Fund Money Fund
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest .................................................. $ 12,246,306 $ 1,588,114 $ 6,259,305
Dividends ................................................. -- -- --
------------- ------------ ------------
12,246,306 1,588,114 6,259,305
Less foreign taxes withheld ............................... -- -- --
------------- ------------ ------------
12,246,306 1,588,114 6,259,305
- -----------------------------------------------------------------------------------------------------------
Expenses:
Management fee ............................................ 787,885 164,452 397,550
Services to shareholders .................................. 916,652 118,951 170,456
Custodian and accounting fees ............................. 30,984 22,906 25,315
Shareholder communications ................................ 100,460 10,928 48,598
Auditing and tax services ................................. 13,359 13,393 13,866
Legal ..................................................... 4,758 2,625 4,716
Trustees' fees and expenses ............................... 14,091 14,752 14,250
Registration expenses ..................................... 38,064 8,276 39,055
Amortization of organization expenses ..................... -- -- --
Reorganization expense ................................... 291,483 -- --
Other ..................................................... 17,522 9,092 2,015
------------- ------------ ------------
Total expenses, before expense reductions .................... 2,215,258 365,375 715,821
Expense reductions ........................................... (8,501) (2,285) (191,770)
------------- ------------ ------------
Total expenses, after expense reductions ..................... 2,206,757 363,090 524,051
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 10,039,549 1,225,024 5,735,254
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................. (11,688) -- --
Futures ................................................. -- -- --
Written Options ......................................... -- -- --
Foreign currency related transactions ................... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ............................................. -- -- --
Futures ................................................. -- -- --
Foreign currency related transactions ................... -- -- --
------------- ------------ ------------
Net gain (loss) on investment transactions ................... (11,688) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ........................................... $ 10,027,861 $ 1,225,024 $ 5,735,254
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
134
<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> <C>
$ 12,574,403 $ 143,859,039 $ 43,043,893 $ 7,597,803 $ 7,979,069
-- -- -- -- 3,672,717
- ---------------------- --------------------- --------------------- -------------------- --------------------
12,574,403 143,859,039 43,043,893 7,597,803 11,651,786
-- -- -- -- (38,928)
- ---------------------- --------------------- --------------------- -------------------- --------------------
12,574,403 143,859,039 43,043,893 7,597,803 11,612,858
- -----------------------------------------------------------------------------------------------------------------------------
919,777 8,054,740 3,598,037 557,729 1,516,376
578,111 5,385,836 1,690,264 236,434 1,160,601
36,517 557,287 108,516 33,231 65,421
73,319 333,677 85,963 11,094 84,040
24,522 70,581 30,744 32,491 15,469
5,856 13,429 6,588 5,520 3,094
14,091 9,258 10,065 16,033 920
15,006 23,810 41,001 6,531 30,012
-- -- -- 1,303 --
241,179 -- 328,306 -- 413,500
9,465 210,636 66,562 5,724 20,682
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,917,843 14,659,254 5,966,046 906,090 3,310,115
(5,842) (83,773) (21,414) (332,320) (181,046)
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,912,001 14,575,481 5,944,632 573,770 3,129,069
- -----------------------------------------------------------------------------------------------------------------------------
10,662,402 129,283,558 37,099,261 7,024,033 8,483,789
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(8,295,652) (52,796,976) (2,117,198) (7,349,303) 739,027
-- (9,578,729) 1,174,165 -- --
-- -- -- -- --
-- -- -- -- 3,479
5,988,500 12,207,328 (9,175,953) 3,131,396 21,411,759
-- (2,931,043) (516,335) -- --
-- -- -- -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
(2,307,152) (53,099,420) (10,635,321) (4,217,907) 22,154,265
- -----------------------------------------------------------------------------------------------------------------------------
$ 8,355,250 $ 76,184,138 $ 26,463,940 $ 2,806,126 $ 30,638,054
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
135
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------
AARP U.S. AARP
Six Months Ended March 31, 2000 AARP Growth and Stock Index Capital Growt
(Unaudited) Income Fund Fund Fund
- --------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest .......................................... $ 6,585,668 $ 359,970 $ 1,805,137
Dividends ......................................... 50,741,115 5,562,468 6,617,042
Income distributions from underlying funds ........ -- -- --
--------------- -------------- -------------
57,326,783 5,922,438 8,422,179
Less foreign taxes withheld ....................... (148,024) (4,827) (17,581)
--------------- -------------- -------------
57,178,759 5,917,611 8,404,598
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee .................................... 14,172,845 1,104,330 6,394,232
Services to shareholders .......................... 7,186,428 839,331 2,727,704
Custodian and accounting fees ..................... 206,724 119,967 95,381
Shareholder communications ........................ 512,898 55,004 158,728
Auditing and tax services ......................... 40,933 15,119 25,573
Legal ............................................. 19,885 6,285 6,303
Trustees' fees and expenses ....................... 11,767 13,958 14,358
Registration expenses ............................. 32,201 47,115 122,327
Amortization of organization expenses ............. -- 2,277 --
Reorganization expense ............................ 345,583 330,170 --
Other ............................................. 159,414 4,338 42,471
--------------- -------------- -------------
Total expenses, before expense reductions ............ 22,688,678 2,537,894 9,587,077
Expense reductions ................................... (109,723) (394,220) (43,763)
--------------- -------------- -------------
Total expenses, after reductions ..................... 22,578,955 2,143,674 9,543,314
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) ......................... 34,599,804 3,773,937 (1,138,716)
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ..................................... 254,843,916 7,262,328 200,086,282
Futures ......................................... -- 222,102 --
Written Options ................................. -- -- --
Foreign currency related transactions ........... 62,490 -- --
Capital gain distributions from underlying
funds ........................................... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ..................................... 177,773,169 102,408,960 308,698,162
Futures ......................................... -- 130,049 --
Foreign currency related transactions ........... 748,510 -- --
--------------- -------------- -------------
Net gain (loss) on investment transactions ........... 433,428,085 110,023,439 508,784,444
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $ 468,027,889 $ 113,797,376 $ 507,645,728
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
136
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AARP AARP Diverified AARP
AARP Small Company AARP International Stock Income with Growth Diversified Growth
Stock Fund Global Growth Fund Fund Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 34,130 $ 310,143 $ 85,843 $ -- $ --
382,842 1,394,208 207,028 -- --
-- -- -- 2,200,727 1,711,264
- ---------------------- --------------------- --------------------- -------------------- --------------------
416,972 1,704,351 292,871 2,200,727 1,711,264
-- (85,186) (22,281) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
416,972 1,619,165 270,590 2,200,727 1,711,264
- -----------------------------------------------------------------------------------------------------------------------------
239,456 668,112 198,794 -- --
182,033 312,912 102,227 -- --
26,975 138,598 125,300 -- --
25,940 26,626 4,301 -- --
13,017 19,307 14,680 -- --
951 5,873 3,040 -- --
13,888 13,850 13,156 -- --
8,864 4,350 4,298 -- --
1,303 1,374 1,303 -- --
74,752 138,605 35,560 -- --
5,739 10,851 1,537 -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
592,918 1,340,458 504,196 -- --
(15,965) (2,476) (74,060) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
576,953 1,337,982 430,136 -- --
- -----------------------------------------------------------------------------------------------------------------------------
(159,981) 281,183 (159,546) 2,200,727 1,711,264
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(6,009,433) 16,116,770 3,810,546 1,087,618 1,803,623
-- -- -- -- --
-- -- -- -- --
-- (10,030) 7,036 -- --
-- -- -- 340,732 2,552,473
5,776,584 13,475,408 5,803,220 1,806,679 9,860,147
-- -- -- -- --
-- (1,032,287) (5,851) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
(232,849) 28,549,861 9,614,951 3,235,029 14,216,243
- -----------------------------------------------------------------------------------------------------------------------------
$ (392,830) $ 28,831,044 $ 9,455,405 $ 5,435,756 $ 15,927,507
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
137
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
AARP High AARP High
Quality Quality Tax Free
Money Fund Money Fund
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
March 31, 2000 September 30, March 31, 2000 September 30,
Operations: (Unaudited) 1999 (Unaudited) 1999
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net investment income (loss) ................. $ 10,039,549 $ 22,596,573 $ 1,225,024 $ 2,218,536
Net realized gain (loss) on investment
transactions ............................... (11,688) 8,916 -- --
Net unrealized appreciation (depreciation) on
investment transactions during the period .. -- 122,643 -- --
-------------- -------------- ------------- ------------
Net increase (decrease) in net assets resulting
from operations .............................. 10,027,861 22,728,132 1,225,024 2,218,536
--------------------------------------------------------------
Distributions to shareholders from:
Net investment income ........................ (10,258,842) (22,609,342) (1,225,024) (2,218,536)
Net realized gains ........................... -- -- -- --
-------------- -------------- ------------- ------------
Total distributions ............................. (10,258,842) (22,609,342) (1,225,024) (2,218,536)
--------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold .................... 232,390,943 595,652,685 11,924,870 24,295,424
Reinvestment of distributions ................ 7,869,711 20,663,500 989,123 1,798,994
Cost of shares redeemed ...................... (272,072,538) (770,071,551) (15,502,002) (36,370,390)
-------------- -------------- ------------- ------------
Net increase (decrease) in net assets from Fund
share transactions ........................... (31,811,884) (153,755,366) (2,588,009) (10,275,972)
-------------- -------------- ------------- ------------
Increase (decrease) in net assets ............... (32,042,865) (153,636,576) (2,588,009) (10,275,972)
Net assets at beginning of period ............... 427,103,670 580,740,246 87,320,262 97,596,234
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................. $ 395,060,805 $ 427,103,670 $ 84,732,253 $ 87,320,262
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ....... 427,104,829 580,860,195 87,325,970 97,601,942
-------------- -------------- ------------- ------------
Shares sold ..................................... 232,378,707 595,652,685 11,924,870 24,295,424
Shares issued to shareholders in reinvestment of
distributions ................................ 7,869,711 20,663,500 989,123 1,798,994
Shares redeemed ................................. (272,072,538) (770,071,551) (15,502,002) (36,370,390)
-------------- -------------- ------------- ------------
Net increase (decrease) in Fund shares .......... (31,824,120) (153,755,366) (2,588,009) (10,275,972)
-------------- -------------- ------------- ------------
Shares outstanding at end of period ............. 395,280,709 427,104,829 84,737,961 87,325,970
- ------------------------------------------------------------------------------------------------------------------
(b) Includes undistributed (overdistributed) net
investment income ........................ $ (219,293) $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
138
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AARP AARP High AARP GNMA
Premium Quality Short Term and U.S.
Money Fund Bond Fund Treasury Fund
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period Ended Six Months Ended Six Months Ended Year Ended
March 31, 2000 September 30, March 31, 2000 Year Ended March 31, 2000 September 30,
(Unaudited) 1999 (a) (Unaudited) September 30, 1999 (Unaudited) 1999
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,735,254 $ 2,645,295 $ 10,662,402 $ 23,838,377 $ 129,283,558 $ 277,893,827
-- -- (8,295,652) (2,406,782) (62,375,705) (85,953,788)
-- -- 5,988,500 (16,341,158) 9,276,285 (150,350,281)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
5,735,254 2,645,295 8,355,250 5,090,437 76,184,138 41,589,758
---------------------------------------------------------------------------------------------------------------------------------
(5,735,254) (2,645,295) (10,798,833) (23,838,377) (129,222,944) (277,954,441)
-- -- -- -- -- --
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(5,735,254) (2,645,295) (10,798,833) (23,838,377) (129,222,944) (277,954,441)
---------------------------------------------------------------------------------------------------------------------------------
218,409,970 228,428,072 7,753,608 39,203,736 84,271,985 402,322,579
5,150,118 2,425,448 7,604,780 16,903,856 75,429,299 163,591,362
(141,390,116) (64,690,685) (48,684,971) (78,276,992) (493,794,644) (706,543,959)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
82,169,972 166,162,835 (33,326,583) (22,169,400) (334,093,360) (140,630,018)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
82,169,972 166,162,835 (35,770,166) (40,917,340) (387,132,166) (376,994,701)
166,162,835 -- 406,757,294 447,674,634 4,216,062,269 4,593,056,970
---------------------------------------------------------------------------------------------------------------------------------
$ 248,332,807 $ 166,162,835 $ 370,987,128 $ 406,757,294 $ 3,828,930,103 $ 4,216,062,269
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
166,162,835 -- 25,862,023 27,254,456 288,594,032 298,216,939
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
218,409,970 228,428,072 495,674 2,431,766 5,849,179 26,723,352
5,150,118 2,425,448 486,048 1,055,661 5,233,417 10,939,317
(141,390,116) (64,690,685) (3,112,556) (4,879,860) (34,338,304) (47,285,576)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
82,169,972 166,162,835 (2,130,834) (1,392,433) (23,255,708) (9,622,907)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
248,332,807 166,162,835 23,731,189 25,862,023 265,338,324 288,594,032
---------------------------------------------------------------------------------------------------------------------------------
(a) The fund commenced operations on February 1, 1999.
$ -- $ -- $ (666,869) $ (530,438) $ (8,854,922) $ (8,915,536)
</TABLE>
The accompanying notes are an integral part of the financial statements
139
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
AARP Insured AARP Bond
Tax Free General Fund for
Bond Fund Income
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Year Ended
March 31, 2000 Year Ended March 31, 2000 September 30,
Operations: (Unaudited) September 30, 1999 (Unaudited) 1999
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income (loss) .......... $ 37,099,261 $ 78,174,780 $ 7,024,033 $ 14,010,804
Net realized gain (loss) on investment
transactions ........................ (943,033) 11,498,586 (7,349,303) (2,675,990)
Net unrealized appreciation
(depreciation) on
investment transactions during the
period .............................. (9,692,288) (109,090,800) 3,131,396 (12,522,389)
-------------- --------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ............. 26,463,940 (19,417,434) 2,806,126 (1,187,575)
-------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ................. (37,327,379) (78,174,780) (7,026,431) (14,012,564)
Net realized gains .................... (437,823) (6,413,928) -- (2,134,810)
-------------- --------------- ------------- -------------
Total distributions ...................... (37,765,202) (84,588,708) (7,026,431) (16,147,374)
-------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold ............. 27,496,974 115,568,677 21,755,820 106,594,857
Reinvestment of distributions ......... 22,152,577 51,046,126 4,585,360 11,444,471
Cost of shares redeemed ............... (150,456,301) (202,409,289) (44,802,410) (71,957,688)
-------------- --------------- ------------- -------------
Net increase (decrease) in net assets from
Fund share transactions ............... (100,806,750) (35,794,486) (18,461,230) 46,081,640
-------------- --------------- ------------- -------------
Increase (decrease) in net assets ........ (112,108,012) (139,800,628) (22,681,535) 28,746,691
Net assets at beginning of period ........ 1,591,979,569 1,731,780,197 209,187,318 180,440,627
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) .......... $ 1,479,871,557 $ 1,591,979,569 $ 186,505,783 $ 209,187,318
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 89,883,411 91,878,322 14,756,547 11,708,636
-------------- --------------- ------------- -------------
Shares sold .............................. 1,574,544 6,255,603 1,558,547 7,160,150
Shares issued to shareholders in
reinvestment of distributions ............ 1,269,535 2,778,410 328,577 775,779
Shares redeemed .......................... (8,623,957) (11,028,924) (3,215,177) (4,888,018)
-------------- --------------- ------------- -------------
Net increase (decrease) in Fund shares ... (5,779,878) (1,994,911) (1,328,053) 3,047,911
-------------- --------------- ------------- -------------
Shares outstanding at end of period ...... 84,103,533 89,883,411 13,428,494 14,756,547
- -----------------------------------------------------------------------------------------------------------------
(a) Includes undistributed
(overdistributed) net
investment income ................... $ 171,324 $ 399,442 $ (7,771) $ (5,373)
</TABLE>
140
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
AARP Balanced AARP Growth AARP U.S.
Stock and Bond and Income Stock Index
Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months
Six Months Ended Ended Year Ended Six Months Ended Year Ended
March 31, 2000 Year Ended March 31, 2000 September 30, March 31, 2000 September 30,
(Unaudited) September 30, 1999 (Unaudited) 1999 (Unaudited) 1999
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 8,483,789 $ 24,460,998 $ 34,599,804 $ 132,697,045 $ 3,773,937 $ 4,883,179
742,506 12,412,433 254,906,406 249,869,241 7,484,430 483,542
21,411,759 8,250,292 178,521,679 400,489,731 102,539,009 34,978,513
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
30,638,054 45,123,723 468,027,889 783,056,017 113,797,376 40,345,234
- ---------------------------------------------------------------------------------------------------------------------------------
(8,634,175) (25,067,125) (36,400,295) (142,271,372) (4,028,866) (4,702,820)
(12,398,687) (41,272,794) (249,222,411) (702,702,383) (909,867) --
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(21,032,862) (66,339,919) (285,622,706) (844,973,755) (4,938,733) (4,702,820)
- ---------------------------------------------------------------------------------------------------------------------------------
18,605,979 83,760,091 138,015,082 563,448,730 306,398,967 514,687,937
19,147,503 61,044,041 258,661,205 771,717,116 4,692,249 4,468,459
(136,814,560) (181,717,076) (913,208,256) (1,618,062,191) (132,968,025) (101,507,475)
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(99,061,078) (36,912,944) (516,531,969) (282,896,345) 178,123,191 417,648,921
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(89,455,886) (58,129,140) (334,126,786) (344,814,083) 286,981,834 453,291,335
681,933,451 740,062,591 6,107,053,229 6,451,867,312 576,973,616 123,682,281
- ---------------------------------------------------------------------------------------------------------------------------------
$ 592,477,565 $ 681,933,451 $ 5,772,926,443 $ 6,107,053,229 $ 863,955,450 $ 576,973,616
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
35,307,946 37,071,341 124,572,024 129,663,295 23,658,097 6,422,055
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
961,186 4,108,736 2,790,453 10,875,438 11,527,972 21,238,722
982,067 3,079,648 5,182,347 15,722,536 167,604 182,135
(7,084,748) (8,951,779) (18,489,150) (31,689,245) (4,983,846) (4,184,815)
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(5,141,495) (1,763,395) (10,516,350) (5,091,271) 6,711,730 17,236,042
- ------------------- ------------------ ------------------ ------------------ ------------------ ------------------
30,166,451 35,307,946 114,055,674 124,572,024 30,369,827 23,658,097
- ---------------------------------------------------------------------------------------------------------------------------------
$ 67,320 $ 217,706 $ (230,833) $ 1,569,658 $ (17,411) $ 237,518
</TABLE>
The accompanying notes are an integral part of the financial statements
141
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
AARP Capital AARP Small
Growth Company
Fund Stock Fund
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
March 31, 2000 September 30, March 31, 2000 September 30,
Operations: (Unaudited) 1999 (Unaudited) 1999
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net investment income (loss) ................ $ (1,138,716) $ 1,142,518 $ (159,981) $ 116,574
Net realized gain (loss) on investment
transactions .............................. 200,086,282 151,447,604 (6,009,433) (3,853,562)
Net unrealized appreciation (depreciation) on
investment transactions during the period . 308,698,162 301,659,944 5,776,584 9,318,977
-------------- --------------- ------------ ------------
Net increase (decrease) in net assets resulting
from operations ............................. 507,645,728 454,250,066 (392,830) 5,581,989
-----------------------------------------------------------------
Distributions to shareholders from:
Net investment income ....................... (1,019,257) (5,808,380) (65,885) (84,460)
Net realized gains .......................... (154,688,680) (158,014,903) -- --
-------------- --------------- ------------ ------------
Total distributions ............................ (155,707,937) (163,823,283) (65,885) (84,460)
-----------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold ................... 398,247,180 328,380,919 5,638,331 19,840,511
Reinvestment of distributions ............... 147,667,565 155,712,173 63,138 81,440
Cost of shares redeemed ..................... (185,222,990) (286,536,164) (18,654,646) (56,215,601)
-------------- --------------- ------------ ------------
Net increase (decrease) in net assets from Fund
share transactions .......................... 360,691,755 197,556,928 (12,953,177) (36,293,650)
-------------- --------------- ------------ ------------
Increase (decrease) in net assets .............. 712,629,546 487,983,711 (13,411,892) (30,796,121)
Net assets at beginning of period .............. 1,735,319,333 1,247,335,622 65,895,367 96,691,488
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................ $ 2,447,948,879 $ 1,735,319,333 $ 52,483,475 $ 65,895,367
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ---------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 27,686,099 24,342,283 3,682,510 5,710,713
-------------- --------------- ------------ ------------
Shares sold .................................... 5,640,629 5,450,539 320,287 1,115,726
Shares issued to shareholders in reinvestment of
distributions ............................... 2,060,957 2,723,193 3,643 4,548
Shares redeemed ................................ (2,628,560) (4,829,916) (1,064,484) (3,148,477)
-------------- --------------- ------------ ------------
Net increase (decrease) in Fund shares ......... 5,073,026 3,343,816 (740,554) (2,028,203)
-------------- --------------- ------------ ------------
Shares outstanding at end of period ............ 32,759,125 27,686,099 2,941,956 3,682,510
- ---------------------------------------------------------------------------------------------------------------------
(a) Includes undistributed
(overdistributed) net
investment income ........................ $ (1,217,347) $ 940,626 $ (177,296) $ 48,570
</TABLE>
The accompanying notes are an integral part of the financial statements
142
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
AARP Global AARP
Growth International Stock
Fund Fund
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended
March 31, 2000 September 30, March 31, 2000 Year Ended
(Unaudited) 1999 (Unaudited) September 30, 1999
---------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
$ 281,183 $ 664,450 $ (159,546) $ 287,785
16,106,740 11,607,431 3,817,582 1,346,710
12,443,121 13,068,184 5,797,369 4,192,127
---------------- ----------------- ------------------ ------------------
28,831,044 25,340,065 9,455,405 5,826,622
--------------------------------------------------------------------------------------------------------------------------------
(364,304) (1,638,478) (226,808) (464,666)
(13,860,784) (7,168,800) (1,320,444) --
---------------- ----------------- ------------------ ------------------
(14,225,088) (8,807,278) (1,547,252) (464,666)
--------------------------------------------------------------------------------------------------------------------------------
34,425,048 25,611,559 39,663,417 14,789,667
13,541,540 8,476,595 1,495,652 449,802
(23,470,622) (50,379,438) (22,296,959) (26,694,984)
---------------- ----------------- ------------------ ------------------
24,495,966 (16,291,284) 18,862,110 (11,455,515)
---------------- ----------------- ------------------ ------------------
39,101,922 241,503 26,770,263 (6,093,559)
144,931,413 144,689,910 34,678,261 40,771,820
--------------------------------------------------------------------------------------------------------------------------------
$ 184,033,335 $ 144,931,413 $ 61,448,524 $ 34,678,261
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
7,162,400 7,984,664 1,818,198 2,463,545
---------------- ----------------- ------------------ ------------------
1,619,130 1,313,321 1,742,266 838,142
650,410 447,550 65,801 25,199
(1,117,506) (2,583,135) (997,792) (1,508,688)
---------------- ----------------- ------------------ ------------------
1,152,034 (822,264) 810,275 (645,347)
---------------- ----------------- ------------------ ------------------
8,314,434 7,162,400 2,628,473 1,818,198
--------------------------------------------------------------------------------------------------------------------------------
$ (903,234) $ (820,113) $ (162,252) $ 224,102
</TABLE>
The accompanying notes are an integral part of the financial statements
143
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
AARP AARP
Diversified Income Diversified
with Growth Portfolio Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
March 31, 2000 September 30, March 31, 2000 September 30,
Operations: (Unaudited) 1999 (Unaudited) 1999
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income (loss) ................... $ 2,200,727 $ 5,186,587 $ 1,711,264 $ 4,166,642
Net realized gain (loss) on investment
transactions .............................. 1,087,618 207,221 1,803,623 546,010
Capital gains distributions from Underlying
Funds ..................................... 340,732 1,537,738 2,552,473 4,425,313
Net unrealized appreciation (depreciation) on
investment transactions during the period . 1,806,679 (2,552,929) 9,860,147 5,381,702
------------ -------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................. 5,435,756 4,378,617 15,927,507 14,519,667
--------------------------------------------------------------
Distributions to shareholders from:
Net investment income ....................... (2,262,829) (5,113,144) (4,053,775) (3,778,884)
Net realized gains .......................... (1,645,371) (1,566,830) (4,958,153) (2,343,052)
------------ -------------- ------------- -------------
Total distributions ............................ (3,908,200) (6,679,974) (9,011,928) (6,121,936)
--------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold ................... 3,863,142 33,905,157 15,965,195 40,726,826
Reinvestment of distributions ............... 3,305,961 5,641,186 8,752,637 5,933,391
Cost of shares redeemed ..................... (25,834,593) (36,538,516) (23,413,360) (52,812,859)
------------ -------------- ------------- -------------
Net increase (decrease) in net assets from Fund
share transactions .......................... (18,665,490) 3,007,827 1,304,472 (6,152,642)
------------ -------------- ------------- -------------
Increase (decrease) in net assets .............. (17,137,934) 706,470 8,220,051 2,245,089
Net assets at beginning of period .............. 98,542,017 97,835,547 132,578,417 130,333,328
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................ $ 81,404,083 $ 98,542,017 $ 140,798,468 $ 132,578,417
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
[GRAPHIC OMITTED]
Shares outstanding at beginning of period ...... 6,299,112 6,114,823 7,257,853 7,580,420
------------ -------------- ------------- -------------
Shares sold .................................... 244,801 2,095,463 850,829 2,253,263
Shares issued to shareholders in reinvestment of
distributions ............................... 208,609 351,975 464,331 330,735
Shares redeemed ................................ (1,634,080) (2,263,149) (1,251,259) (2,906,565)
------------ -------------- ------------- -------------
Net increase (decrease) in Fund shares ......... (1,180,670) 184,289 63,901 (322,567)
------------ -------------- ------------- -------------
Shares outstanding at end of period ............ 5,118,442 6,299,112 7,321,754 7,257,853
- -----------------------------------------------------------------------------------------------------------------
(a) Includes undistributed
(overdistributed) net
investment income ......................... $ 36,122 $ 98,224 $ 257,920 $ 2,600,431
</TABLE>
The accompanying notes are an integral part of the financial statements
144
<PAGE>
/ 4 /
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights are part of the financial
statements and are provided at least annually to
shareholders, as required by federal securities law and
monitored by the Securities and Exchange Commission (SEC).
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.
145
<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.
<TABLE>
<CAPTION>
AARP HIGH QUALITY MONEY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended September 30,
March 31, 2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<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 .................................... .025 .043 .048 .046 .045 .049
Distributions from net investment income ................. (.025) (.043) (.048) (.046) (.045) (.049)
--------------------------------------------------------------------
Net asset value, end of period .............................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
--------------------------------------------------------------------
Total Return (%) ............................................ 2.52(b) 4.38 4.86 4.72 4.62 4.99
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ...................... 395 427 581 471 412 384
Ratio of expenses before expense reductions (%) ............. 1.01(a)(c) .87 .87 .91 .96 .98
Ratio of expenses after expense reductions (%) .............. 1.00(a)(c) .87 .87 .91 .96 .98
Ratio of net investment income (%) .......................... 4.95(c) 4.29 4.76 4.63 4.54 4.89
</TABLE>
<TABLE>
<CAPTION>
AARP HIGH QUALITY TAX FREE MONEY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended September 30,
March 31, 2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<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 .................................... .014 .023 .028 .028 .028 .029
Distributions from net investment income ................. (.014) (.023) (.028) (.028) (.028) (.029)
--------------------------------------------------------------------
Net asset value, end of period .............................. $1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
--------------------------------------------------------------------
Total Return (%) ............................................ 1.43 (b) 2.37 2.82 2.80 2.80 2.99
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ...................... 85 87 98 103 111 120
Ratio of expenses (%) ....................................... .85(c) .85 .83 .85 .85 .87
Ratio of net investment income (%) .......................... 2.85(c) 2.34 2.78 2.76 2.77 2.94
</TABLE>
(a) The annualized ratios of operating expenses to average net assets excluding
reorganization costs before and after expense reductions were .94% and .93%,
respectively, for the six months ended March 31, 2000.
(b) Not annualized.
(c) Annualized.
146
<PAGE>
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
AARP PREMIUM MONEY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months For the Period
Ended March February 1,
31, 2000 1999 (d) to
(Unaudited) September 30, 1999
----------------------------------
<S> <C> <C>
Net asset value, beginning of period ...................................................... $1.000 $1.000
----------------------------------
Net investment income .................................................................. .027 .031
Distributions from net investment income ............................................... (.027) (.031)
----------------------------------
Net asset value, end of period ............................................................ $1.000 $1.000
----------------------------------
Total Return (%) (a) ...................................................................... 2.76(b) 3.09(b)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) .................................................... 248 166
Ratio of expenses before expense reductions (%) ........................................... .68(c) .90(c)
Ratio of expenses after expense reductions (%) ............................................ .50(c) .50(c)
Ratio of net investment income (%) ........................................................ 5.48(c) 4.75(c)
</TABLE>
<TABLE>
<CAPTION>
AARP HIGH QUALITY SHORT TERM BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended September 30,
March 31, 2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 15.73 $16.43 $16.13 $15.82 $16.01 $15.05
------------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .42 .89 .94 .93 .92 .94
Net realized and unrealized gain (loss) on
investment transactions ............................... (.09) (.70) .30 .31 (.19) .95
-----------------------------------------------------------------
Total from investment operations ........................... .33 .19 1.24 1.24 .73 1.89
------------------------------------------------------------------
Less distributions from:
Net investment income ................................... (.43) (.89) (.94) (.93) (.92) (.93)
------------------------------------------------------------------
Net asset value, end of period ............................. $15.63 $15.73 $16.43 $16.13 $15.82 $16.01
------------------------------------------------------------------
Total Return (%) ........................................... 2.16(b) 1.21 7.90 8.15 4.59 12.98
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ..................... 371 407 448 455 512 533
Ratio of expenses (%) ...................................... .92(c)(e) .87 .90 .93 .91 .95
Ratio of net investment income (%) ......................... 5.54(c) 5.56 5.77 5.84 5.76 6.13
Portfolio turnover rate (%) ................................ 346(c) 79 138 83 170 201
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not annualized.
(c) Annualized.
(d) Commencement of operations.
(e) The annualized ratio of operating expenses to average net assets excluding
reorganization costs was .86% for the six months ended March 31, 2000.
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.
<TABLE>
<CAPTION>
AARP GNMA AND U.S. TREASURY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended
March 31, Years Ended September 30,
2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $14.61 $15.40 $15.16 $14.91 $15.19 $14.73
--------------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .47 .94 .99 .98 .99 1.01
Net realized and unrealized gain (loss) on investment
transactions ........................................... (.18) (.79) .24 .25 (.28) .46
--------------------------------------------------------------------
Total from investment operations .......................... .29 .15 1.23 1.23 .71 1.47
--------------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.47) (.94) (.99) (.98) (.99) (.98)
Tax return of capital .................................. -- -- -- -- -- (.03)
--------------------------------------------------------------------
Total distributions ....................................... (.47) (.94) (.99) (.98) (.99) (1.01)
--------------------------------------------------------------------
Net asset value, end of period ............................ $14.43 $14.61 $15.40 $15.16 $14.91 $15.19
--------------------------------------------------------------------
Total Return (%) .......................................... 2.00(c) 0.99 8.40 8.49 4.79 10.31
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) .................... 3,829 4,216 4,593 4,584 4,904 5,252
Ratio of expenses (%) ..................................... .73(d) .65 .61 .65 .64 .67
Ratio of net investment income (%) ........................ 6.45(d) 6.25 6.52 6.51 6.55 6.77
Portfolio turnover rate (%) ............................... 308(a)(d) 245(a) 160 87 83 70
</TABLE>
<TABLE>
<CAPTION>
AARP INSURED TAX FREE GENERAL BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended September 30,
March 31, 2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $17.71 $18.85 $18.42 $17.90 $17.74 $16.93
--------------------------------------------------------------------
Income from investment operations:
Net investment income .................................. .43 .85 .88 .88 .87 .87
Net realized and unrealized gain (loss) on investment
transactions ........................................... (.10) (1.07) .48 .61 .16 .81
--------------------------------------------------------------------
Total from investment operations .......................... .33 (.22) 1.36 1.49 1.03 1.68
--------------------------------------------------------------------
Less distributions from:
Net investment income .................................. (.43) (.85) (.88) (.88) (.87) (.87)
Net realized gains on investment transactions .......... (.01) (.07) (.05) (.09) -- --
--------------------------------------------------------------------
Total distributions ....................................... (.44) (.92) (.93) (.97) (.87) (.87)
--------------------------------------------------------------------
Net asset value, end of period ............................ $17.60 $17.71 $18.85 $18.42 $17.90 $17.74
--------------------------------------------------------------------
Total Return (%) .......................................... 1.82(c) (1.21) 7.57 8.57 5.88 10.21
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) .................... 1,480 1,592 1,732 1,712 1,755 1,807
Ratio of expenses (%) ..................................... .76(b)(d) .67 .62 .66 .66 .69
Ratio of net investment income (%) ........................ 4.90(d) 4.65 4.73 4.87 4.83 5.06
Portfolio turnover rate (%) ............................... 9(d) 8 6 8 19 17
</TABLE>
(a) The portfolio turnover rates including mortgage dollar roll transactions
were 363% and 258% for the periods ended March 31, 2000 and September 30,
1999, respectively.
(b) The annualized ratio of operating expenses to average net assets excluding
reorganization costs was .74% for the six months ended March 31, 2000.
(c) Not annualized.
(d) 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.
<TABLE>
<CAPTION>
AARP BOND FUND FOR INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months February 1,
Ended March 31, Years Ended September 30, 1997(c) to
2000 ----------------------------------- September 30,
(Unaudited) 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 14.18 $ 15.41 $ 15.20 $ 15.00
-------------------------------------------------------------------
Income from investment operations:
Net investment income .................................... .50 1.00 1.02 .69
Net realized and unrealized gain (loss) on investment
transactions ............................................. (.29) (1.06) .23 .20
------------------------------------------------------------------
Total from investment operations ............................ .21 (.06) 1.25 .89
------------------------------------------------------------------
Less distributions from:
Net investment income .................................... (.50) (1.00) (1.02) (.69)
Net realized gains on investment transactions ............ -- (.17) (.02) --
------------------------------------------------------------------
Total distributions ......................................... (.50) (1.17) (1.04) (.69)
------------------------------------------------------------------
Net asset value, end of period .............................. $ 13.89 $ 14.18 $ 15.41 $ 15.20
------------------------------------------------------------------
Total Return (%) (d) ........................................ 1.49(a) (.46) 8.47 6.06(a)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ...................... 187 209 180 58
Ratio of expenses before expense reductions (%) ............. .91(b) .90 1.04 1.53(b)
Ratio of expenses after expense reductions (%) .............. .58(b) .42 .19 -- (b)
Ratio of net investment income (%) .......................... 7.09(b) 6.77 6.66 7.03(b)
Portfolio turnover rate (%) ................................. 159(b) 64 131 14(b)
</TABLE>
<TABLE>
<CAPTION>
AARP BALANCED STOCK AND BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Years Ended September 30,
March 31, 2000 ---------------------------------------------------
(Unaudited) 1999(e) 1998(e) 1997(e) 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 19.31 $19.96 $21.40 $17.63 $16.40 $14.64
------------------------------------------------------------------
Income from investment operations:
Net investment income ..................................... .26 .67 .75 .72 .66 .61
Net realized and unrealized gain (loss) on
investment transactions ................................. .71 .51 (.46) 3.98 1.44 1.79
------------------------------------------------------------------
Total from investment operations ............................. .97 1.18 .29 4.70 2.10 2.40
------------------------------------------------------------------
Less distributions from:
Net investment income ..................................... (.27) (.70) (.73) (.72) (.66) (.60)
Net realized gains on investment transactions ............. (.37) (1.13) (1.00) (.21) (.21) (.04)
------------------------------------------------------------------
Total distributions .......................................... (.64) (1.83) (1.73) (.93) (.87) (.64)
------------------------------------------------------------------
Net asset value, end of period ............................... $ 19.64 $19.31 $19.96 $21.40 $17.63 $16.40
------------------------------------------------------------------
Total Return (%) ............................................. 5.06(a) 5.84 1.26 27.34 13.08 16.80
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ....................... 592 682 740 638 403 247
Ratio of expenses before expense reductions (%) .............. .94(b)(f) .88 .84 .91 .88 1.01
Ratio of expenses after expense reductions (%) ............... .89(b)(f) .88 .84 .91 .88 1.01
Ratio of net investment income (%) ........................... 2.74(b) 3.28 3.50 3.71 4.09 4.12
Portfolio turnover rate (%) .................................. 99(b) 48 57 27 35 64
</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.
(f) The annualized ratios of operating expenses to average net assets excluding
reorganization costs before and after expense reductions were .85% and .80%,
respectively, for the six months ended March 31, 2000.
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.
<TABLE>
<CAPTION>
AARP GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
March 31, Years Ended September 30,
2000(a) ---------------------------------------------------
(Unaudited) 1999(a) 1998(a) 1997(a) 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 49.02 $49.76 $58.22 $43.94 $38.36 $34.13
--------------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .28 1.02 1.25 1.19 1.17 1.11
Net realized and unrealized gain (loss) on investment
transactions ............................................ 3.70 4.91 (3.45) 16.00 6.40 5.44
--------------------------------------------------------------------
Total from investment operations ........................... 3.98 5.93 (2.20) 17.19 7.57 6.55
--------------------------------------------------------------------
Less distributions from:
Net investment income ................................... (.31) (1.12) (1.19) (1.19) (1.15) (1.09)
Net realized gains on investment transactions ........... (2.08) (5.55) (5.07) (1.72) (.84) (1.23)
--------------------------------------------------------------------
Total distributions ........................................ (2.39) (6.67) (6.26) (2.91) (1.99) (2.32)
--------------------------------------------------------------------
Net asset value, end of period ............................. $ 50.61 $49.02 $49.76 $58.22 $43.94 $38.36
--------------------------------------------------------------------
Total Return (%) ........................................... 8.20(d) 12.10 (4.22) 40.70 20.20 20.43
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ..................... 5,772 6,107 6,452 6,606 4,219 3,007
Ratio of expenses (%) ...................................... .75(e)(f) .76 .67 .71 .69 .72
Ratio of net investment income (%) ......................... 1.16(e) 1.98 2.22 2.38 2.94 3.28
Portfolio turnover rate (%) ................................ 106(e) 30 40 33 25 31
</TABLE>
<TABLE>
<CAPTION>
AARP U.S. STOCK INDEX FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months Years Ended February 1,
Ended September 30, 1997 (b) to
March 31, 2000 ------------------------ September 30,
(Unaudited) 1999(a) 1998(a) 1997(a)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................... $24.39 $19.26 $17.99 $ 15.00
--------------------------------------------------------
Income from investment operations:
Net investment income ............................................... .14 .32 .32 .20
Net realized and unrealized gain (loss) on investment transactions .. 4.11 5.09 1.37 2.97
--------------------------------------------------------
Total from investment operations ....................................... 4.25 5.41 1.69 3.17
--------------------------------------------------------
Less distributions from:
Net investment income ............................................... (.15) (.28) (.29) (.18)
Net realized gain on investment transactions ........................ (.04) -- (.13) --
--------------------------------------------------------
Total distributions .................................................... (.19) (.28) (.42) (.18)
--------------------------------------------------------
Net asset value, end of period ......................................... $ 28.45 $24.39 $19.26 $ 17.99
--------------------------------------------------------
Total Return (%) (c) ................................................... 17.45(d) 28.02 9.39 21.22(d)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ................................. 864 577 124 38
Ratio of expenses before expense reductions (%) ........................ .65(e)(g) .76 1.13 2.38(e)
Ratio of expenses after expense reductions (%) ......................... .55(e)(g) .50 .50 .50(e)
Ratio of net investment income (%) ..................................... 1.09(e) 1.31 1.58 1.94(e)
Portfolio turnover rate (%) ............................................ 15(e) 4 1 15(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.
(f) The annualized ratio of operating expenses excluding reorganization costs
was unchanged for the six months ended March 31, 2000.
(g) The annualized ratios of operating expenses excluding reorganization costs
before and after expense reductions were .60% and .50%, respectively, for
the six months ended March 31, 2000.
150
<PAGE>
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
AARP CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Years Ended September 30,
Ended March
31, 2000 ---------------------------------------------------
(Unaudited) 1999(a) 1998(a) 1997(a) 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $ 62.68 $ 51.24 $ 57.84 $ 43.47 $ 38.36 $ 31.74
-----------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ............................. (.04) .04 .28 .34 .42 .36
Net realized and unrealized gain (loss) on investment
transactions ................................................ 17.53 18.19 (2.26) 18.43 5.59 6.91
-----------------------------------------------------------------
Total from investment operations ............................... 17.49 18.23 (1.98) 18.77 6.01 7.27
-----------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (.04) (.24) (.31) (.41) (.39) (.01)
Net realized gains on investment transactions ............... (5.40) (6.55) (4.31) (3.99) (.51) (.64)
-----------------------------------------------------------------
Total distributions ............................................ (5.44) (6.79) (4.62) (4.40) (.90) (.65)
-----------------------------------------------------------------
Net asset value, end of period ................................. $ 74.73 $ 62.68 $ 51.24 $ 57.84 $ 43.47 $ 38.36
-----------------------------------------------------------------
Total Return (%) ............................................... 28.25(d) 36.83 (3.39) 46.72 15.97 23.47
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ......................... 2,448 1,735 1,247 1,228 826 692
Ratio of expenses (%) .......................................... .90(e) .91 .87 .92 .90 .95
Ratio of net investment income (loss) (%) ...................... (.11)(e) .07 .50 .70 1.05 1.00
Portfolio turnover rate (%) .................................... 79(e) 68 53 39 65 98
</TABLE>
<TABLE>
<CAPTION>
AARP SMALL COMPANY STOCK FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Years Ended February 1,
Six Months September 30, 1997 (b) to
Ended March 31, ---------------------- September 30,
2000 (Unaudited) 1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................... $ 17.89 $16.93 $20.02 $ 15.00
-----------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) ................................ (.05) .02 .01 .04
Net realized and unrealized gain (loss) on investment
transactions .................................................. .01(g) .96 (2.98) 4.98
-----------------------------------------------------------
Total from investment operations ................................... (.04) .98 (2.97) 5.02
-----------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.02) (.02) (.04) --
Net realized gains on investment transactions ................... -- -- (.08) --
-----------------------------------------------------------
Total distributions ................................................ (.02) (.02) (.12) --
-----------------------------------------------------------
Net asset value, end of period ..................................... $ 17.83 $17.89 $16.93 $ 20.02
-----------------------------------------------------------
Total Return (%) ................................................... (0.22)(d) 5.70 (14.91)(c) 33.53(c)(d)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ............................. 52 66 97 50
Ratio of expenses before expense reductions (%) .................... 1.93(e)(f) 1.70 1.80 2.79(e)
Ratio of expenses after expense reductions (%) ..................... 1.88(e)(f) 1.70 1.75 1.75(e)
Ratio of net investment income (loss) (%) .......................... (.43)(e) .13 .07 .40(e)
Portfolio turnover rate (%) ........................................ 56(e) 17 12 5(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.
(f) The annualized ratios of operating expenses excluding reorganization costs
before and after expense reductions were 1.80% and 1.75%, respectively, for
the six months ended March 31, 2000.
(g) The amount shown may not agree with the change in the aggregate gains and
losses in the portfolio securities for the period because of the timing of
sales and repurchases of the Fund's shares in relation to fluctuating
market values for the portfolio.
151
<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.
<TABLE>
<CAPTION>
AARP GLOBAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1,
Six Months Years Ended September 30, 1996 (b) to
Ended March 31, ------------------------------- September 30,
2000 (Unaudited) 1999 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.24 $ 18.12 $ 19.24 $ 15.49 $ 15.00
----------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .09 .19 .09 .06
Net realized and unrealized gain (loss) on 3.80 3.16 (.62) 3.72 .43
investment transactions
----------------------------------------------------------------------
Total from investment operations 3.84 3.25 (.43) 3.81 .49
----------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.21) (.16) (.06) --
Net realized gain on investment transactions (1.90) (.92) (.53) -- --
----------------------------------------------------------------------
Total distributions (1.95) (1.13) (.69) (.06) --
----------------------------------------------------------------------
Net asset value, end of period $ 22.13 $ 20.24 $ 18.12 $ 19.24 $ 15.49
----------------------------------------------------------------------
Total Return (%) 19.58(d) 18.36 (2.19) 24.67(c) 3.27(c)(d)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) 184 145 145 148 78
Ratio of expenses before expense reductions (%) 1.58(e)(f) 1.65 1.65 1.82 2.31(e)
Ratio of expenses after expense reductions(%) 1.58(e)(f) 1.65 1.65 1.75 1.75(e)
Ratio of net investment income (%) .44(e) .44 .99 .55 1.03(e)
Portfolio turnover rate (%) 57(e) 55 59 31 13(e)
</TABLE>
<TABLE>
<CAPTION>
AARP INTERNATIONAL STOCK FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months Years Ended February 1,
Ended September 30, 1997 (b) to
March 31, 2000 -------------------- September 30,
(Unaudited) 1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................. $ 19.07 $ 16.55 $ 17.36 $ 15.00
---------------------------------------------------------
Income from investment operations:
Net investment income (loss) ...................................... (.08) .13 .28 .23
Net realized and unrealized gain (loss) on investment
transactions ...................................................... 5.26 2.59 (.83) 2.13
--------------------------------------------------------
Total from investment operations ..................................... 5.18 2.72 (.55) 2.36
---------------------------------------------------------
Less distributions from:
Net investment income ............................................. (.13) (.20) (.11) --
Net realized gains on investment transactions ..................... (.74) -- (.15) --
---------------------------------------------------------
Total distributions .................................................. (.87) (.20) (.26) --
---------------------------------------------------------
Net asset value, end of period ....................................... $ 23.38 $ 19.07 $ 16.55 $ 17.36
---------------------------------------------------------
Total Return (%) (c) ................................................. 27.24(d) 16.52 (3.16) 15.73(d)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) ............................... 61 35 41 20
Ratio of expenses before expense reductions (%) ...................... 2.16(e)(g) 2.40 2.41 4.28(e)
Ratio of expenses after expense reductions (%) ....................... 1.83(e)(g) 1.75 1.75 1.75(e)
Ratio of net investment income (loss) (%) ............................ (.63)(e) 0.75 1.30 2.35(e)
Portfolio turnover rate (%) .......................................... 91(e) 214 75 51(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.
(f) The annualized ratio of operating expenses to average net assets excluding
reorganization costs before and after expense reductions was 1.50% for the
six months ended March 31, 2000.
(g) The annualized ratios of operating expenses to average net assets excluding
reorganization costs before and after expense reductions were 2.08% and
1.75%, respectively, for the six months ended March 31, 2000.
152
<PAGE>
The following tables include selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months Years Ended February 1,
Ended March 31, September 30, 1997 (b) to
2000 ---------------- September 30,
(Unaudited) 1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $ 15.64 $ 16.00 $ 15.96 $ 15.00
------------------------------------------------------
Income from investment operations:
Net investment income ............................................ .39 .80 .82 .43
Net realized and unrealized gain (loss) on investment
transactions ..................................................... .58 (.12) .03 .96
------------------------------------------------------
Total from investment operations .................................... .97 .68 .85 1.39
------------------------------------------------------
Less distribution from:
Net investment income ............................................ (.42) (.79) (.76) (.43)
Net realized gains on investment transactions .................... (.29) (.25) (.05) --
------------------------------------------------------
Total distributions ................................................. (.71) (1.04) (.81) (.43)
------------------------------------------------------
Net asset value, end of period ...................................... $ 15.90 $ 15.64 $ 16.00 $ 15.96
------------------------------------------------------
Total Return (%) (e) ................................................ 6.26(c) 4.21 5.38 9.35(c)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) .............................. 81 99 98 43
Ratio of expenses (f) ............................................... -- -- -- --
Ratio of net investment income (%) .................................. 4.91(d) 4.95 5.05 5.13(d)
Portfolio turnover rate (%) ......................................... 7(d) 23 5 6(d)
</TABLE>
<TABLE>
<CAPTION>
AARP DIVERSIFIED GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
For the Period
Six Months Years Ended February 1,
Ended March 31, September 30, 1997 (b) to
2000 --------------- September 30,
(Unaudited) 1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.27 $ 17.19 $ 17.40 $ 15.00
------------------------------------------------------
Income from investment operations:
Net investment income .24 .55 .58 .34
Net realized and unrealized gain (loss) on investment 2.01 1.34 (.37) 2.06
transactions
------------------------------------------------------
Total from investment operations 2.25 1.89 .21 2.40
------------------------------------------------------
Less distributions from:
Net investment income (.58) (.50) (.32) --
Net realized gain on investment (.71) (.31) (.10) --
------------------------------------------------------
Total distributions (1.29) (.81) (.42) --
------------------------------------------------------
Net asset value, end of period $ 19.23 $ 18.27 $ 17.19 $ 17.40
------------------------------------------------------
Total Return (%) (e) 12.46(c) 11.08 1.22 16.00(c)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions) 141 133 130 62
Ratio of expenses (%) (f) -- -- -- --
Ratio of net investment income (%) 2.52(d) 3.00 3.21 3.52(d)
Portfolio turnover rate (%) 7(d) 32 6 8(d)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Not annualized.
(d) Annualized.
(e) If the Adviser had not maintained some Underlying Funds' expenses, the
total return 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, thePortfolio did
bear its share of the operating, administrative and advisory expenses of
the Underlying AARP Funds.
153
<PAGE>
This page
intentionally
left blank.
154
<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.
155
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note 1. Organization.
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
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 Stock Fund
(formerly AARP International Growth and
Income Fund)
AARP Managed Investment Portfolios Trust:
AARP Diversified Income with Growth 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").
Note 2. Plan of Reorganization.
On February 7, 2000, the Trustees of each of the below mentioned funds
(identified in the chart below under the heading "Acquired Fund") approved an
Agreement and Plan of Reorganization (the "Plan") between each Fund and the
corresponding Acquiring Fund identified on the chart below. The Plan applicable
to each Fund provides for the transfer of substantially all of the assets and
the assumption of all of the liabilities of the Fund solely in exchange for
shares of beneficial interest of the corresponding AARP class of shares of the
Acquiring Fund. Each proposed transaction is part of the Scudder Kemper
Investments, Inc.'s initiative to restructure and streamline the management and
operations of the funds it manages and to expand the offering in the AARP
Investment Program to include the fund lineup of the Scudder Family of Funds.
Costs incurred in connection with this reorganization initiative are being borne
jointly by Scudder Kemper and certain funds and are included as reorganization
expense in the Statements of Operations of the applicable Funds. These costs
principally include printing, proxy meeting expenses and professional fees. All
Funds under the Plan initiative are subject to an allocated charge of such costs
except for certain Funds not expected to realize a reduction in their operating
expense ratio. Each Plan can be consummated only if, among other things, it is
approved by a majority vote of
156
<PAGE>
shareholders of the applicable Fund. A Special Meeting (the "Meeting") of the
shareholders of each Fund will be held on or about July 11, 2000.
As a result of the Plan, each shareholder of the Fund will become a
shareholder of the AARP class of the Acquiring Fund and would hold, immediately
after the closing of the Plan (the "Closing"), that number of full or fractional
shares of beneficial interest of the AARP class of shares of the Acquired Fund
having an aggregated net asset value equal to the aggregate net asset value of
such shareholder's shares held in each Fund as of the close of business on the
business day preceding the closing. The closing is expected to take place during
the third quarter of 2000.
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
AARP Balanced Stock and Bond Fund Scudder Balanced Fund
AARP Bond Fund for Income Scudder Income Fund
AARP Diversified Growth Portfolio Scudder Pathway Growth Portfolio
AARP Diversified Income with Growth Portfolio Scudder Pathway Conservative Portfolio
AARP Global Growth Fund Scudder Global Fund
AARP Growth and Income Fund Scudder Growth and Income Fund
AARP High Quality Money Fund Scudder Cash Investment Trust
AARP High Quality Short Term Bond Fund Scudder Short Term Bond Fund
AARP High Quality Tax Free Money Fund Scudder Tax Free Money Fund
AARP Insured Tax Free General Bond Fund Scudder Managed Municipal Bonds
AARP International Stock Fund Scudder International Fund
AARP Premium Money Fund Scudder Money Market Series
AARP U.S. Stock Index Fund Scudder S&P 500 Index Fund
</TABLE>
In the event that shareholders of a Fund fail to approve the Plan for that
Fund, the Fund will continue to operate and the Fund's Board may resubmit the
Plan for shareholder approval or consider other proposals. AARP GNMA and U.S.
Treasury Fund, AARP Capital Growth Fund, and AARP Small Company Stock Fund are
expected to continue operating as individual Funds for the remainder of fiscal
year 2000.
Note 3. Significant Accounting Policies.
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 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 Nasdaq 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
157
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 officers of the Trusts, 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 in the Underlying AARP Funds 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 underlying securities, 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 plus accrued interest.
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 GNMA and U.S. Treasury Fund and the AARP Insured Tax Free
General 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 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 GNMA and U.S. Treasury Fund purchased put options
on securities as a hedge against potential adverse price movements in the value
of portfolio assets. In addition, during the period the AARP GNMA and U.S.
Treasury Fund wrote put options on securities as a temporary substitute for
purchasing selected investments and to enhance potential gain.
158
<PAGE>
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 a 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. The AARP High Quality Short Term Bond Fund and the
AARP GNMA and U.S. Treasury Fund held when-issued securities during the period.
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 Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP Global Growth Fund and AARP International Stock Fund utilized
forward contracts as a hedge in connection with portfolio purchases and sales of
securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge, the Fund gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
159
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. Mortgage Dollar Rolls. Mortgage dollar rolls are transactions in which the
Fund sells mortgage securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities on
a fixed date. The Fund receives compensation as consideration for entering into
the commitment to repurchase. The compensation is recorded as deferred income
and amortized to income over the roll period. The counterparty receives all
principal and interest payments, including prepayments, made in respect of the
security while it is the holder. Mortgage dollar rolls may be renewed with a new
purchase and repurchase price fixed and a cash settlement made at each renewal
without physical delivery of the securities subject to the contract. During the
period, the AARP High Quality Short Term Bond Fund and the AARP GNMA and U.S.
Treasury Fund entered into mortgage dollar rolls.
I. 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. Certain dividends from foreign securities may
be recorded subsequent to the ex-dividend date as soon as the Fund is informed
of such dividends. 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 Funds of 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 AARP Diversified Growth
and AARP 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.
J. 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.
K. Distribution of Income and Gains. Each AARP Fund intends to follow the
practice of distributing substantially 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
160
<PAGE>
quarterly. Dividends from the AARP Global Growth Fund, the AARP Small Company
Stock Fund, the AARP International Stock 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 may
take into account realized gains and losses on the sales of securities in their
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.
L. Expenses. Each Fund (except for the AARP Diversified Income with Growth
and AARP 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 and 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, 2000,
the Fund Manager paid approximately $11,255 of expenses on behalf of the AARP
Diversified Growth Portfolio.
For the six months ended March 31, 2000, the amounts charged to the
Underlying AARP Funds under the Special Servicing Agreement, as shown in the
Statements of Operations as part of the Services to shareholders expense, were
as follows:
<TABLE>
<S> <C> <C> <C>
AARP High Quality Money Fund $ 2,167 AARP U.S. Stock Index Fund $ 73,696
AARP High Quality Short Term Bond Fund $ 6,795 AARP Capital Growth Fund $ 19,103
AARP GNMA and U.S. Treasury Fund $ 43,616 AARP Small Company Stock Fund $ 7,158
AARP Bond Fund for Income $ 57,005 AARP Global Growth Fund $ 7,638
AARP Growth and Income Fund $ 21,035 AARP International Stock Fund $ 6,276
</TABLE>
M. Organization Costs. Costs incurred by the AARP Global Growth Fund, the
AARP U.S. Stock Index Fund, the AARP Bond Fund for Income, the AARP
International Stock Fund, and the AARP Small Company Stock Fund in connection
with their organization and initial registration of shares have been deferred
and are being amortized
161
<PAGE>
NOTES TO FINANCIAL STATEMENTS
on a straight-line basis over a five-year period. The Fund Manager has assumed
the organization costs of the AARP Premium Money Fund, the AARP Diversified
Growth and AARP Diversified Income with Growth Portfolios.
N. 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, 2000, is as follows:
<TABLE>
<CAPTION>
Beginning Purchases Sales
Affiliate Cost ($) Cost ($) Cost ($) Ending Cost ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General Growth Properties, Inc.
(REIT) ......................... 49,335,005 -- 32,213,739 17,121,266 23,516,013
=========================================================================================
Realized Gain/Loss ($) Dividend Income ($)
----------------------------------------------------------------------
Affiliated Issuers ............. 2,112,249 1,455,834
Unaffiliated Issuers ........... 252,731,667 49,285,281
----------------------------------------------------------------------
Total .......................... 254,843,916 50,741,115
======================================================================
</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, 2000, the Diversified Income with Growth Portfolio held
5% or more of the following Underlying AARP Funds' outstanding shares:
approximately 13% of the AARP Bond Fund for Income. The AARP Diversified Growth
Portfolio held 5% or more of the following Underlying AARP Funds' outstanding
shares at March 31, 2000: approximately 9% of the AARP International Stock Fund;
13% of the AARP Bond Fund for Income; 12% of the AARP Small Company Stock Fund;
and 6% of the U.S. Stock Index Fund.
Note 4. Management Fee and other Related Transactions.
Under the investment management and advisory agreement (the "Management
Agreement") between each Trust (excluding the AARP Managed Investment Portfolios
Trust) 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 AARP 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 AARP Diversified
Growth Portfolios).
The Annual Base Fee is calculated as follows:
<TABLE>
<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>
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 $152,967 for the six months ended March 31, 2000.
162
<PAGE>
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> <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 Stock Fund .................. .60%
AARP Bond Fund for Income ................... .28%
</TABLE>
The total amount of management fees for each Fund is shown in the Statements
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. During the six months ended March 31, 2000 the Adviser reimbursed
the AARP High Quality Short Term Bond Fund, the AARP Bond Fund for Income and
the AARP Balanced Stock and Bond Fund $917,511, $29,300 and $90,101,
respectively, for losses incurred in conjunction with portfolio trading.
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, 2001: AARP Small Company Stock Fund,
1.75% of average daily net assets; and until the earlier of the reorganization
or January 31, 2001: AARP Premium Money Fund, 0.50% of average daily net assets;
AARP High Quality Money Fund, 0.95% of average daily net assets; AARP Bond Fund
for Income, 0.50% of average daily net assets from October 1, 1999 to January
31, 2000 and 0.75% of average daily net assets after January 31, 2000; AARP U.S.
Stock Index Fund, 0.50% of average daily net assets; and AARP International
Stock 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 included
in the Expense Reductions on the Statements of Operations. Certain expenses such
as Reorganization expenses are excluded from the expense limitation.
The Fund Manager did not impose any or a portion of its Management Fee for
certain Funds during the six months ended March 31, 2000, as follows: AARP
Premium Money Fund $188,082; AARP Bond Fund for Income $316,528; AARP U.S. Stock
Index Fund $378,940; AARP Small Company Stock Fund $14,348; and AARP
International Stock Fund $73,091.
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.
163
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the six months ended March 31, 2000, the amounts charged by SSC and SFAC
to the Funds were as follows:
<TABLE>
<CAPTION>
Amount
Charged To Total SSC Amount Total SFAC
Fund by Unpaid at Charged To Unpaid at
Fund SSC March 31, 2000* Fund by SFAC March 31, 2000*
- -------------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund .................... $ 636,624 $ 106,271 $ 24,933 $ 4,063
AARP High Quality Tax Free Money Fund ........... 82,097 23,665 15,000 2,500
AARP Premium Money Fund ......................... 161,964 113,419 19,237 19,237
AARP High Quality Short Term Bond Fund .......... 457,256 172,848 35,070 5,524
AARP GNMA and U.S. Treasury Fund ................ 3,271,138 1,585,746 389,575 130,629
AARP Insured Tax Free General Bond Fund ......... 1,046,027 173,023 74,643 12,289
AARP Bond Fund for Income ....................... 114,053 24,867 28,009 9,475
AARP Balanced Stock and Bond Fund ............... 760,547 124,398 55,705 8,456
AARP Growth and Income Fund ..................... 5,202,262 828,163 181,947 28,353
AARP U.S. Stock Index Fund ...................... 750,439 424,142 76,542 27,729
AARP Capital Growth Fund ........................ 1,779,333 243,672 86,944 15,072
AARP Small Company Stock Fund ................... 107,587 13,794 20,186 3,194
AARP Global Growth Fund ......................... 229,718 43,167 65,831 11,301
AARP International Stock Fund ................... 70,139 43,982 38,608 7,106
</TABLE>
* Total unpaid amounts are included in Other payables and accrued
expenses in the Statements of Assets and Liabilities.
Scudder Trust Company ("STC"), a subsidiary of the Fund Manager, 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,
2000, the amount charged to the AARP GNMA and U.S. Treasury Fund, the AARP
Balanced Stock and Bond Fund and the AARP U.S. Stock Index Fund amounted to
$16,249, $15,350, and $24,028, respectively, of which $3,168, $2,788, and $4,646
remains unpaid at March 31, 2000, respectively.
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 Statements of Operations as Trustees' fees and expenses.
Note 5. Line of Credit.
The AARP Funds and several other Scudder Funds (the "Participants") share in
a $1 billion 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 pro rata 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.
Note 6. Commitments.
As of March 31, 2000, the AARP Global Growth Fund had entered into the following
forward currency exchange contracts resulting in net unrealized depreciation of
$1,050,281.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date (Depreciation) (U.S.$)
- ------------------------------ ----------------------------- ----------------- --------------------------
<S> <C> <C> <C> <C> <C>
JPY 1,575,662,841 USD 14,480,000 5/22/00 $ (1,050,281)
==================
</TABLE>
164
<PAGE>
Note 7. Expense Off-Set Arrangements.
The Funds listed below have entered into arrangements with their custodian
and transfer agent whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the Funds' expenses. For the period
ended March 31, 2000, the Funds' custodian and transfer agent fees were reduced
as follows:
<TABLE>
<CAPTION>
Custody Transfer Agent
Fund Credits ($) Credits ($)
- -------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
AARP High Quality Money Fund .......................... 311 8,190
AARP High Quality Tax Free Money Fund ................. 577 1,708
AARP Premium Money Fund ............................... 56 3,632
AARP High Quality Short Term Bond Fund ................ 1,612 4,230
AARP GNMA and U.S. Treasury Fund ...................... 14,651 69,122
AARP Insured Tax Free General Bond Fund ............... 9,324 12,090
AARP Bond Fund for Income ............................. 27 3,472
AARP Balanced Stock and Bond Fund ..................... 224 180,822
AARP Growth and Income Fund ........................... 22,466 87,257
AARP U.S. Stock Index Fund ............................ 326 14,954
AARP Capital Growth Fund .............................. 45 43,718
AARP Small Company Stock Fund ......................... 489 1,128
AARP Global Growth Fund ............................... 2,333 143
AARP International Stock Fund ......................... 954 15
</TABLE>
165
<PAGE>
This page
intentionally
left blank.
166
<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.
167
<PAGE>
OFFICERS AND TRUSTEES
LINDA C. COUGHLIN*
- --------------------------------------------------------------------------------
President, Chairperson and Trustee of each AARP Trust; Managing Director 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, AARP; Member,
Board of Councilors, Andrus Gerontology Center; Member of the Board, HelpAge
International.
CAROLE LEWIS ANDERSON
- --------------------------------------------------------------------------------
Trustee of each AARP Trust; Principal, Suburban Capital Markets, Inc.;
President, MASDUN Capital Advisors; Director, VICORP Restaurants, Inc.; Trustee,
Hasbro Children's Foundation, New York City; Founder and Director, Forum for
Women Corporate Directors, New York City; Member of Corporate Advisory Counsel
of WREI (The Women's Research and Education Institute), Washington, D.C.
(1993-1999); Formerly Managing Director, Mergers and Acquisitions, PaineWebber,
Inc., New York City; Member of the Board, Association for Corporate Growth of
Washington, D.C. (1993-1996); Member of the Board, CREW (Commercial Real Estate
Women of Maryland) (1994-1996); Trustee, Mary Baldwin College (1987-1997);
Trustee, Penn. State Alumni Association (1987-1997)
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; CEO and President, International Longevity Center
and Professor of Geriatrics and Adult Development; Chairman, Henry L. Schwartz
Department of Geriatrics and Adult Development, Mount Sinai Medical Center
(1982-1997); 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, AARP (1998) (will be President as of May 17, 2000); Member,
AARP Finance Committee; Trustee, Andrus Foundation; Executive Director, Area
Agencies on Aging Association of Michigan; Chairperson: AARP National Nominating
Committee, AARP Board Operations Committee, AARP Group Health Insurance Plan,
AARP Membership Services Committee, Governor's Task Force to Establish a
Department of Elder Affairs in Florida, Department of Elder Affairs of Florida
Advisory Committee; Member, Florida State Long-Term Care Ombudsman Council;
Board Member, Area Agency on Aging of South Central Florida; 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, New Britain, CT; Harris 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; Combined Field Army, Korea; Consultant: Digital Equipment, Korea
(1992-Present); International Trade - Philip Morris International
(1985-Present); PICS Previews, San Francisco, CA (1992-Present); Director, CP
National Corp. (1983-1992).
168
<PAGE>
DR. 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; Member, Board of
Trustees, The Forest at Duke, Durham, N.C.; Professor Emeritus of Sociology,
Departments of Sociology and Psychiatry, Duke University (1995); Director, Duke
University Center for the Study of Aging and Human Development (1972-1982);
Founding Member of Council, National Institute on Aging, N/H (1975-1980).
ROBERT J. MYERS
- --------------------------------------------------------------------------------
Trustee of each AARP Trust; Actuarial Consultant; Formerly Executive Director,
National Commission on Social Security Reform; Formerly Trustee: Manufacturers
Investment Trust, NASL Series Trust, North American Funds; Formerly Director,
Board of Pensions, Lutheran Church in America; Formerly Chairman: Commission on
Railroad Retirement Reform, Board of Advisors, Seniors Coalition; Former Member:
U.S. Office of Technology Assessment, Commission on the Social Security "Notch"
Issue, National Commission on Social Security, Prospective Payment Assessment
Commission; Former Deputy Commissioner, U.S. Social Security Administration;
Former Chief Actuary, U.S. Social Security Administration; Former Professor,
Temple University.
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.
WILLIAM F. GLAVIN, JR.* KATHRYN L. QUIRK*
- --------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Secretary of
each AARP Trust
JAMES E. MASUR* JOHN MILLETTE*
- --------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Assistant
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
*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.
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INVESTOR SERVICES
Information about AARP Investment Program services is contained in this section.
You are encouraged to contact us about these services 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 Mutual Fund Representatives
regarding your account.
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INVESTOR SERVICES
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AUTOMATIC Take advantage of dollar cost averaging -- a simple, systematic
INVESTMENT PLAN approach to managing 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 cost 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.
LUMP SUM SERVICE If you need assistance in determining your options for a
lump sum payment from a retirement plan or life insurance
policy, we can help. You can work directly with a trained
AARP Retirement Plan Specialist who can explain the
options, including the tax implications and investment
options. We can also assist you with expediting your lump
sum distribution.
WEB SITE The AARP Investment Program Web site -- aarp.scudder.com --
provides timely information on a variety of issues to help
investors prepare for life's financial eventualities. The site
includes general information on the financial markets and
investing, AARP fund updates, and interactive tools to help
you plan for retirement and invest in retirement. The site
features our Financial Library-- a series of online guides
designed to address specific issues facing investors over 50.
You can also view your account, make fund exchanges, and
submit questions and comments directly to Investment Program
representatives through the site.
LEGACY SERVICE(SM) The AARP Investment Program Legacy Service(SM) was developed to
help shareholders feel confident that their investments will
pass to their spouse or heirs the way they intended. The
service consists of two parts: the Legacy Planner, an
informational guide which provides suggestions for organizing
your financial affairs, and the Legacy Transfer Guide, a
service available to families who have recently experienced a
death, which is intended to help family members understand and
protect their inheritance.
FINANCIAL LIBRARY In 1999 we launched a major new investor education effort--
the AARP Investment Program Financial Library. The library is
a collection of objective investment education guides designed
to address specific issues facing investors over 50. The four-
to six-page guides are written in plain English and contain
tools and resources to help shareholders solve specific
problems. Topics for most of these guides come from years of
fielding questions from AARP Investment Program shareholders.
The guides cover such topics as "Seven Steps Toward Planning
for Retirement," "Investing IRA Distributions to Meet Your
Needs and Goals," and "Planning Ahead for the Asset Transfers
When a Death Occurs." For a list of topics, visit our Web site
at aarp.scudder.com. If you do not have access to the
Internet, you can request up to three guides by calling one of
our representatives.
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For more information on the AARP Investment Program's Investor Services, please
visit our Web site at aarp.scudder.com or contact our Mutual Fund
Representatives at 1-800-253-2277.
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GLOSSARY
Terms in bold italics throughout the report are defined here.
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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 projected impact of
FUNDAMENTAL RESEARCH 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.
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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 shares of
(LARGE-CAP/SMALL-CAP) 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 P/E
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.
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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.
To control costs, we have been able to 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 53% decrease in the total number of reports mailed compared to mailing one
report to each AARP shareholder account.
Through these and other efforts we are able to keep the cost of printing 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.
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.
