Filed with the Securities and Exchange Commission on July 1, 1997.
File No. 2-91579
File No. 811-4050
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 20
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22
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AARP Tax Free Income Trust
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
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Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
X immediately upon filing pursuant to paragraph (b)
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on February 1, 1997 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(i)
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on pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on pursuant to paragraph (a)(ii) of Rule 485
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The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on November 29, 1996.
<PAGE>
<TABLE>
<CAPTION>
AARP TAX FREE INCOME TRUST
CROSS-REFERENCE SHEET
PART A Items Required By Form N-1A
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<S> <C> <C>
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis
FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH
AARP FUND
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE
4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION
5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH
AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
5A. NOT APPLICABLE
6. Capital Stock and ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS
Other Securities AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT
7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS
8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference-Page 1
<PAGE>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information TRUST ORGANIZATION
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES
and Policies AND POLICIES
BROKERAGE AND PORTFOLIO TURNOVER
14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION
17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER
18. Capital Stock and TRUST ORGANIZATION
Other Securities
19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND
and Pricing of POLICIES
Securities Being PURCHASES
Offered REDEMPTIONS
RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculations of DIVIDENDS AND YIELD
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
AARP Investment Program
from Scudder
Supplement to Prospectus dated February 1, 1997
Trusts AARP Mutual Funds
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AARP Cash Investment Funds AARP High Quality Money Fund
AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund
AARP 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 Global Growth Fund
AARP Capital Growth Fund
AARP International Stock Fund
AARP Small Company Stock Fund
AARP Managed Investment AARP Diversified Income Portfolio
Portfolios Trust AARP Diversified Growth Portfolio
The following text replaces the sections entitled Who at Scudder manages my
investment? on page 26 and page 28.
AARP GNMA and U.S. Treasury Fund
Thomas M. Poor, Lead Portfolio Manager, joined the Fund in 1997 and Scudder
in 1970. Mr. Poor is responsible for investment strategy and overseeing
security selection. Portfolio Manager David H. Glen, who joined Scudder in
1982 and the Fund in 1985, has been a portfolio manager since 1985, and has
over 15 years' experience in finance and investing. Mark S. Boyadjian,
Portfolio Manager, focuses on security selection and assists with
investment strategy for the Fund. Mr. Boyadjian joined the Fund's team in
1995 and has been involved in investment management since joining Scudder
in 1989. Scott E. Dolan, Portfolio Manager, also joined the team in 1997
and is responsible for security selection. Mr. Dolan, who joined Scudder in
1989, has experience in compliance analysis and account administration and
has worked as a portfolio manager since 1993.
AARP High Quality Bond Fund
William M. Hutchinson, Lead Portfolio Manager, is responsible for
implementing the Fund's strategy and has been involved with the Fund since
1987. Mr. Hutchinson joined Scudder in 1986 as a portfolio manager and has
over 20 years of investment experience. Portfolio Manager David H. Glen,
who joined Scudder in 1982 and the Fund in 1995, has been a portfolio
manager since 1985, and has over 15 years' experience in finance and
investing. Scott E. Dolan, Portfolio Manager, joined the team in 1997 and
is responsible for security selection and sector analysis. Mr. Dolan, who
joined Scudder in 1989, has experience in compliance analysis and account
administration and has worked as a portfolio manager since 1993.
July 1, 1997
<PAGE>
FINANCIAL HIGHLIGHTS
The following table supplements the expense and financial information found on
pages 6 through 14 in the Funds' prospectus. In this table you will find a
variety of information about the income and the expenses of each AARP Fund for
the stated period. You will also find the following: (1) the net gain or loss on
the investments, (2) the distributions, if any, of income and gain, and (3) the
change in net asset value per share from the beginning to the end of the stated
period.
For a copy of the Mid-Year Report to Shareholders, please contact an AARP Mutual
Fund Representative at 1-800-253-2277.
<TABLE>
<CAPTION>
For the
Six Months
Ended Net Asset Net Realized Distributions Distributions
March Value at Net & Unrealized Total from from Net from Net
31,1997 Beginning Investment Investment Investment Investment Realized
(Unaudited) of Period Income Gain (Loss) Operations Income Gains
----------- --------- ------ ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AARP High Quality Money
Fund................. $1.000 $ .023 -- -- $(.023) --
AARP High Quality Tax
Free Money Fund...... $1.000 $ .013 -- -- $(.013) --
AARP GNMA and U.S.
Treasury Fund........ $14.91 $ .49 $(.09) $ .40 $ (.49) --
AARP High Quality Bond
Fund................. $15.82 $ .46 $(.16) $ .30 $ (.46) --
AARP Insured Tax Free
General Bond Fund.... $17.90 $ .44 $(.07) $ .37 $ (.44) $(.09)
AARP Bond Fund for
Income (d)........... $15.00 $ .16 $(.28) $(.12) $ (.16) --
AARP Balanced Stock and
Bond Fund (e)........ $17.63 $ .36 $ .94 $ 1.30 $ (.37) $(.21)
AARP Growth and Income
Fund (e)............. $43.94 $ .56 $ 4.28 $ 4.84 $ (.59) $(1.72)
AARP U.S. Stock Index
Fund (d)............. $15.00 $ .04 $(.55) $(.51) $ (.04) --
AARP Small Company
Stock Fund (d)....... $15.00 $ .01 $(.10) $(.09) -- --
AARP Global Growth
Fund (e)............. $15.49 $(.02) $ 1.24 $ 1.22 $ (.06) --
AARP Capital Growth
Fund (e)............. $43.47 $ .17 $ 3.90 $ 4.07 $ (.41) $(3.99)
AARP International
Stock Fund (d)....... $15.00 $ .05 $ .16 $ .21 -- --
AARP Diversified Income
Portfolio (d)........ $15.00 $ .06 $(.08) $(.02) $ (.06) --
AARP Diversified Growth
Portfolio (d)........ $15.00 $ .04 $(.08) $(.04) -- --
</TABLE>
(a) Ratio of operating expenses, net to average net assets (%).
(b) Not Annualized. (c) Annualized.
(d) Commencement of Operations February 1, 1997.
(e) Based on monthly average shares outstanding during the period.
(f) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
(g) Total return would have been lower had certain expenses not been reduced.
(h) This Portfolio invests in other AARP Funds, and although the Portfolio did
not incur any direct expenses for the period, the Portfolio did bear its
share of the operating, administrative and advisory expenses of the
underlying AARP Funds.
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Operating
Ratio of Expenses Ratio of Net
Net Asset Net Assets Operating Before Expense Investment
Value at Total End of Expenses to Reductions to Income to Portfolio Average
Total End of Return Period Average Net Average Net Average Net Turnover Commission
Distributions Period % (b) ($ millions) Assets % (c) Assets % (c) Assets % (c) Rate % (c) Rate Paid
------------- ------ ----- ------------ ------------ ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.023) $1.000 2.27 460 .893(a) .893 4.557 -- --
$(.013) $1.000 1.30 105 .87(a) .87 2.61 -- --
$(.49) $14.82 2.66 4,632 .65 -- 6.48 43.06 --
$(.46) $15.66 1.93 467 .93 -- 5.75 104.92 --
$(.53) $17.74 2.06 1,690 .67 -- 4.87 7.73 --
$(.16) $14.72 (.79) 12 --(a) 6.75 7.16 47.97 --
$(.58) $18.35 7.36 491 .82 -- 3.90 27.78 $.0563(f)
$(2.31) $46.47 11.09 4,954 .69 -- 2.42 44.31 $.0630(f)
$(.04) $14.45 (3.41)(g) 11 .50(a) 6.20 2.30 -- $ .0268
-- $14.91 (.60)(g) 8 1.75(a) 15.45 1.40 -- $ .0304
$(.06) $16.65 7.88(g) 108 1.75(a)(e) 1.92 (.18) 24.42 $ .0002
$(4.40) $43.14 9.40 905 .92 -- .76 51.62 $.0581(f)
-- $15.21 1.40 5 1.75(a) 23.19 4.39 9.44 $ .0399
$(.06) $14.92 (.13) 14 --(a)(h) -- 4.4 -- --
-- $14.96 (.26) 11 --(a)(h) -- 3.7 -- --
</TABLE>
<PAGE>
Part A (the Prospectus for AARP High Quality Tax Free Money Fund and
--------------------------------------------------------------------
AARP Insured Tax Free General Bond Fund)
----------------------------------------
Part A of this Post-Effective Amendment No. 20 to the Registration Statement is
incorporated by reference in its entirety to the AARP Tax Free Income Trust's
current Post-Effective Amendment No. 19 on Form N-1A filed on February 1, 1997
and to its definitive Rule 497(c) filing on February 12, 1997.
<PAGE>
Part B (the Statement of Additional Information for AARP High Quality Tax Free
------------------------------------------------------------------------------
Money Fund and AARP Insured Tax Free General Bond Fund)
-------------------------------------------------------
Part B of this Post-Effective Amendment No. 20 to the Registration Statement is
incorporated by reference in its entirety to the AARP Tax Free Income Trust's
current Post-Effective Amendment No. 19 on Form N-1A filed on February 1, 1997
and to its definitive Rule 497(c) filing on February 12, 1997.
<PAGE>
Mid-Year Report
To Shareholders
March 31, 1997
AARP Investment Program
from SCUDDER
<PAGE>
TABLE OF CONTENTS
MID-YEAR OVERVIEW........................................ 2
LETTER TO SHAREHOLDERS .................................. 7
MONEY MARKET FUNDS
AARP HIGH QUALITY MONEY FUND....................... 8
AARP HIGH QUALITY TAX FREE MONEY FUND.............. 9
INC0ME FUNDS
AARP GNMA AND U.S. TREASURY FUND................... 10
AARP HIGH QUALITY BOND FUND........................ 12
AARP INSURED TAX FREE GENERAL BOND FUND............ 14
AARP BOND FUND FOR INCOME.......................... 16
GROWTH AND INCOME FUNDS
AARP BALANCED STOCK AND BOND FUND.................. 18
AARP GROWTH AND INCOME FUND ....................... 20
AARP U.S. STOCK INDEX FUND......................... 22
U.S. GROWTH FUNDS
AARP CAPITAL GROWTH FUND........................... 24
AARP SMALL COMPANY STOCK FUND...................... 26
WORLDWIDE GROWTH FUNDS
AARP GLOBAL GROWTH FUND............................ 28
AARP INTERNATIONAL STOCK FUND...................... 30
ASSET ALLOCATION FUNDS
AARP MANAGED INVESTMENT PORTFOLIOS................. 32
AARP FUNDS' INVESTMENT PORTFOLIOS........................ 35
FINANCIAL STATEMENTS.....................................107
FINANCIAL HIGHLIGHTS.....................................121
NOTES TO FINANCIAL STATEMENTS............................131
OFFICERS AND TRUSTEES....................................139
SERVICE INFORMATION......................................142
GLOSSARY.................................................143
<PAGE>
AARP Investment Program
from SCUDDER
Mid-Year Overview
This Mid-Year Report reviews the performance of the AARP Mutual Funds from
October 1, 1996 through March 31, 1997. In keeping with the decision we made
with the Trustees of the AARP Investment Program in December 1995, we continued
our efforts to manage the individual fund portfolios to provide competitive
returns but with less downside share price volatility than comparable mutual
funds. We are pleased with the results, especially in certain funds, and our
efforts are being recognized. As of March 31st, a number of AARP Mutual Funds
were highly rated by Morningstar, which ranks the relative risk versus returns
of comparable mutual funds.
CALLOUT:
A number of AARP Mutual Funds were recently rated quite well by Morningstar.
Read further in the Letter to Shareholders on page 7.
The performance of the AARP growth funds was enhanced by the overall
strength of the U.S. stock market. The AARP bond funds, while reflecting a
volatile bond market, also provided shareholders with the income they have come
to expect. Detailed reviews of the performance of the Funds begin on page 7.
Before you turn to that section of the Report, however, we encourage you to
continue reading this letter. We will discuss the performance of the stock and
bond markets over the past six months and provide an outlook for the next few
months and beyond.
THE STOCK MARKET
The stock market has been on a steady upward trend for more than two years.
Unlike 1995, when the market was driven largely by a drop in long-term interest
rates and growth in corporate profits, 1996 and the first quarter of 1997 were
characterized by market forecasts which seemed to flip-flop with each new
release of corporate earnings or economic data. This is reflected in the chart
on the next page that illustrates the performance of the stock market as
measured by the unmanaged Dow Jones Industrial Average (the Dow). As you can
2
<PAGE>
see, the Dow began the period at about 5882 and ended at over 6583. Despite this
12% gain, the swings along the way were often quite significant.
LINE CHART TITLE: The U.S. Stock Market
---------------------
CHART PERIOD:
(Plotted weekly from September 30, 1996 to March 31, 1997)
CHART DATA:
9/30/96 5882.17
10/31/96 6029.38
11/30/96 6521.70
12/31/96 6448.27
1/31/97 6813.09
2/28/97 6877.74
3/31/97 6583.48
CAPTION TO PRECEDING CHART:
The U.S. stock market, as measured by the unmanaged Dow Jones Industrial
Average, gained 9% over the last six months.
A Look at the Dow
The Dow crossed the 6500 mark in November 1996, moving as high as 6549,
only to close the year down 101 points amid jitters about inflation and
corporate profits. In 1997, the Dow seemed to be headed infinitely upward,
hitting the 7000 mark for the first time in early February. The Dow hit its
record high of 7085.16 on March 11th, only to decline more than 160 points two
days later after reports of a strong economy renewed fears of inflation.
Furthermore, these signs prompted the Federal Reserve (the Fed) to raise the
Federal Funds rate by a quarter of a point to 5.5% on March 25th -- the first
hike in more than two years. The stock market reacted poorly because higher
interest rates threaten economic expansion and corporate profit growth.
Subsequent data showed unemployment falling and consumer confidence rising,
which stimulated worries about additional interest rate increases. This caused
further declines in the stock market, with the Dow ending the quarter over 6583.
While any setback is a disappointment, it is to be expected that markets will
correct, especially when significant advances occur in a short period of time.
SIDEBAR TEXT:
A REMINDER FOR INVESTORS -- KEEP A LONG-TERM PERSPECTIVE
While you may be distracted by the day-to-day swings in the financial markets,
history tells us that long-term investors are best served by putting the
inevitable volatility of the markets into proper perspective. If you can accept
that both the bond and stock markets will have volatility, the swings in the
markets should not be cause for alarm. In fact, downturns may often provide
buying opportunities for some investors. You can lessen the effect of downturns
by diversifying your assets in a mix of different investments such as stock,
bond, and money market funds.
You can also take advantage of a highly effective investment approach called
dollar cost averaging. This method involves investing a specific amount of money
on a regular basis -- say monthly -- to reduce the average price you pay over
time for mutual fund shares. You can invest a small amount per month through the
AARP Investment Program's Automatic Investment Plan. Call 1-800-253-2277 for
details.
3
<PAGE>
THE BOND MARKET
After a strong fourth quarter of 1996, economic trends discussed above and
their potential inflationary pressure caused the bond market to decline in the
first quarter of 1997. Long-term interest rates soared to six-month highs, with
the 30-year Treasury bond surpassing the 7% mark, causing bond prices to
decline. As you can see in the graph above, long-term interest rates rose from
6.92% on September 30, 1996 to 7.09% on March 31, 1997. While point-to-point
this may seem like an insignificant change, interest rates were as low as 6.30%
in November of 1996.
LINE CHART TITLE: Long-Term Interest Rates
------------------------
CHART PERIOD:
(Plotted weekly from September 30, 1996 to March 31, 1997)
CHART DATA:
9/30/96 6.93
10/31/96 6.66
11/30/96 6.36
12/31/96 6.65
1/31/97 6.80
2/28/97 6.80
3/31/97 7.10
CAPTION TO PRECEDING CHART:
Long-term interest rates, as measured by the 30-year Treasury Bond,
were 6.92% on September 30, 1996 and 7.09%
at the end of March 1997.
LOOKING AHEAD
As we look toward the rest of 1997, it is difficult to predict how the
stock and bond markets will fare. While there are no guarantees when investing,
we continue to believe there is long-term opportunity in both the stock and bond
markets. Many structural factors including fiscal policies, deregulation,
advancements in technology, and globalization are setting the stage for positive
global economic growth, without harmful levels of inflation. We firmly believe
that these are powerful and positive influences, that will benefit long-term
investors.
THE AARP INVESTMENT PROGRAM FROM SCUDDER
As you know, an excellent way to protect your assets from risk is to
diversify your investments across asset classes and within them. Mutual funds
offer the benefits of diversification and professional investment management of
your assets. To further offer some protection from losses to the value of the
fund's portfolio, each AARP Mutual Fund is managed for less downside risk than
similar mutual funds. At the same time, the Funds provide the opportunity for
competitive returns -- as they have over the period covered by this Report.
4
<PAGE>
SIDEBAR TEXT:
NEW LUMP SUM SERVICE
Receiving a significant lump sum distribution from a retirement plan account is
perhaps one of the most defining events for individuals planning for retirement.
We now offer a Lump Sum Service designed to help make the investment
decision-making process easier, and one that you can feel confident is well
considered. Our Mutual Fund Representatives can help you understand your options
and tax implications. Call us at 1-800-253-2277. We are prepared to spend as
much time as you need to help you make informed investment decisions -- whether
or not you are interested in investing in the AARP Mutual Funds.
It is this commitment to risk-controlled investing that you and your fellow
AARP members have told us you most prefer, especially during periods of volatile
swings in the markets. Of course, while the AARP Mutual Funds are actively
managed to help reduce downside risk, it is important to realize that your
principal is never insured or guaranteed, and that the value of your investment
and its return will still move up and down as market conditions change. AARP
Mutual Funds are distinct from other mutual funds, which may seek higher returns
but do not focus as well on lowering share price risk.
CALLOUT:
The AARP Global Growth Fund, introduced in February 1996, has been well received
by AARP member investors, having grown to more than 20,000 accounts and over
$107 million in assets as of March 31, 1997.
We are always working to develop new Program services and features to meet
AARP members' needs in a fast changing world. We are pleased to report the
following new developments since the publication of the Program's Annual Report
for the period ending September 30, 1996.
Introduction of Six New AARP Mutual Funds
Effective February 1, 1997, we added six new Funds to our family of mutual
funds. They were developed in response to feedback we received from you and
other AARP members who were interested in a greater choice of mutual funds, and
in taking somewhat more risk with a portion of your total investment portfolio.
The new -- somewhat riskier -- funds were therefore developed to provide
investors with the potential of greater returns than several of their existing
"cousins" in the Program. While you showed a high level of interest in funds
that offer the potential of higher returns (and therefore higher risk), you also
told us that you were hopeful that we could manage these funds for the potential
of less downside risk than comparable mutual funds, especially in volatile
environments. That is in turn how we designed the new portfolios, for example,
the new AARP International Stock Fund offers less downside share price risk than
other international funds while seeking to achieve competitive returns.
Competitively priced, with relatively low account minimum requirements, all of
the AARP Mutual Funds are managed with the potential for less downside risk than
comparable mutual funds. Designed to meet the needs of AARP members, we know of
no other family of no-load mutual funds managed like the AARP family of mutual
funds.
SIDEBAR TEXT:
NEW WEB SITE
The AARP Investment Program's Web site is located at:
http://aarp.scudder.com.
This colorful electronic connection to the Program allows visitors to easily
access a broad range of information about the AARP Mutual Funds, such as: their
performance, which is updated daily; and the complete Prospectus, which holds
the most current information about the funds.
News stories offer important information about the markets and investing. The
Investor Library and Resource Center offer reliable investor education guides
and back issues of newsletters, along with resources, such as a glossary of
financial terms and lists of associations and publications that offer investment
assistance.
The site allows you to communicate your questions and comments directly to the
Program as well as request informative how-to literature about investing
published by the AARP Investment Program. If you find this mode of communication
helpful, visit us often, as content is updated regularly.
5
<PAGE>
SIDEBAR TEXT:
A NOTE ABOUT THE EXPENSE OF
PUBLISHING THIS REPORT
Some shareholders have expressed concern about the expense of publishing this
SEC required report. We appreciate the concern and would like to respond.
We are constantly evaluating ways to streamline our communications and manage
expenses. Therefore, in addition to sending only one copy of this Mid-Year
Report to every shareholder, we employ simple design techniques and use less
expensive paper. We have also determined that our consolidated Report, now
featuring fifteen Funds, is a less-expensive means of communicating fund
information to you than sending individual Fund Reports, as do other mutual fund
companies. The cost per Report is virtually unchanged from the 1996 Annual
Report, despite the Report's expansion to include information about the new AARP
Mutual Funds.
If you require additional copies of this Report please call us at
1-800-253-2277.
The Prospectus that was recently mailed to you offers specific details
about all of the AARP Mutual Funds. You can also read about the new Funds on the
following pages:
AARP Bond Fund for Income Page 16
AARP U.S. Stock Index Fund Page 22
AARP Small Company Stock Fund Page 26
AARP International Stock Fund Page 30
AARP Managed Investment Portfolios Page 32
SPECIAL ACKNOWLEDGMENT
This letter would not be complete without a special acknowledgment of
Cuyler Findlay, the Program's former Chairman, and Cy Brickfield, a former Board
member and Vice Chairman of the Program and Executive Director of AARP. Cuyler,
who retired at the end of 1996, and Cy, who recently passed away, developed and
launched the Program over 12 years ago. They played an invaluable role in
defining its purpose in meeting the needs of AARP members. Cuyler continues to
be involved with the Program as a member of the Board, and with Scudder as an
Advisory Managing Director. Horace Deets, AARP's Executive Director for the past
10 years, remains Vice Chairman of the Program.
We hope you find the information in this Report helpful. If you have any
questions, please call our knowledgeable AARP Mutual Fund Representatives
between the hours of 8:00 A.M. and 8:00 P.M. eastern time, Monday through
Friday, at 1-800-253-2277. We are here to help.
Our best,
/s/Linda C. Coughlin /s/Cornelia Small
Linda C. Coughlin Cornelia Small
Chairman Investment Director and
President
6
<PAGE>
LETTER TO SHAREHOLDERS
The following pages contain a summary of each Fund in the AARP Investment
Program from Scudder. In general, it is the objective of each fund to keep share
price value more stable than comparable mutual funds or securities. At the same
time, we strive for competitive returns. This distinguishes the AARP Mutual
Funds from other families of no-load mutual funds, which may seek higher returns
but do not focus on reducing risk. For each Fund you'll find an Overview, the
Fund's Investment Strategy, the names of the individuals who manage each Fund
and performance information.
CALLOUT:
The AARP Mutual Funds are special in that our portfolio managers have an
explicit mandate to manage the funds for less risk than comparable mutual funds,
while still attempting to deliver competitive returns.
The summaries of the applicable Funds contain the one-, five-, and ten-year
total return (or, as in the case of the AARP Global Growth Fund, Life of Fund
total return since the Fund is less than 10 years old). Because a one-year total
return could be high or low depending on market conditions over a 12-month
period, it is useful to have the perspective of the five-year and ten-year total
return figures. Within some of the Fund descriptions, a one-year total return is
broken down into two components: distribution of income, which includes
reinvested income dividends; and capital change, defined as the change in the
price per share including any reinvested capital gains distributions.
You will also note that all of the AARP Funds that are more than a year
old, except for the AARP Money Funds, have been compared to market indices. We
are providing these comparisons in accordance with the Securities and Exchange
Commission's (SEC) disclosure requirements. Under these requirements, all mutual
funds (except money funds) are required to compare their performance over the
past ten years (or Life of Fund) to that of a broad-based securities market
index. It is important to note, however, that the performance of indices may
vary significantly from the performance of actual mutual funds. The reason is
that indices are merely statistical portfolios. They do not include the expenses
for operating a fund, including, for example: advisory fees and portfolio
transactions costs. All mutual funds must bear these costs as part of their
daily activities; therefore, indices do not provide a complete picture. When
comparing an AARP Mutual Fund's performance with that of a major market index,
remember to keep the differences in mind.
SIDE BAR TEXT:
Performance information for AARP Small Company Stock Fund, AARP International
Stock Fund, AARP U.S. Stock Index Fund, AARP Bond Fund for Income, AARP Managed
Investment Portfolios; Diversified Growth Portfolio and Diversified Income
Portfolio are not included in this report since they were only introduced in
February 1997. Call the Easy Access Line at 1-800-631-4636 or a Mutual Fund
Representative at 1-800-253-2277 for current performance information on these
new funds.
Six of the AARP Mutual Funds are rated by Morningstar* and received the
following overall ratings as of 3/31/97.
AARP Growth & Income Fund 5 Star
AARP GNMA and
U.S. Treasury Fund 4 Star
AARP Balanced Stock and
Bond Fund 4 Star
AARP High Quality Bond Fund 3 Star
AARP Insured Tax Free
General Bond Fund 3 Star
AARP Capital Growth Fund 3 Star
* Morningstar proprietary rankings reflect historical risk-adjusted performance
and are calculated as of 3/31/97. 1919, 1076 and 601 Equity Funds, 1172, 630
and 258 Taxable Bond Funds and 1237, 601 and 267 Municipal Bond Funds were
rated for the 3-, 5-, and 10-year periods, respectively. The ratings are
subject to change each month. Morningstar ratings are calculated from the
Funds' 3-, 5-, and 10-year average annualized total returns in excess of
90-day T-Bill returns, with appropriate adjustments and a risk factor that
reflects fund performance below 90-day T-Bill returns. The Funds' 3-,5-, and
10-year ratings are 5, 5, and 4 stars, respectively. Those funds receiving 5
Stars are in the top 10% of their investment category, while the top 22.5% of
funds that Morningstar evaluates receive 4 Stars. Past performance is not a
guarantee of future results.
7
<PAGE>
AARP HIGH QUALITY MONEY FUND
----------------------------
FUND OVERVIEW
This Fund is designed to preserve your principal while you earn money market
returns. The AARP High Quality Money Fund has quality standards high enough to
have secured the highest AAAm rating from Standard & Poor's*, a leading national
independent rating firm. The Fund seeks to maintain a $1.00 share price,
although there may be circumstances in which this goal cannot be achieved. It is
important to note that unlike bank savings accounts, the Fund is not insured or
guaranteed by the U.S. Government and the yield of the Fund will fluctuate.
FOR WHOM THE
FUND IS DESIGNED
This Fund may be appropriate for investors who have short-term needs or who do
not want the risks associated with investing in stocks or bonds. These investors
include those seeking money market income to help meet regular day-to-day needs,
those who need immediate access to their assets through free checkwriting, those
who want to diversify their assets with an investment designed to provide a
degree of safety and stability, and those seeking a short-term investment prior
to making longer-term investment choices.
PORTFOLIO
MANAGEMENT TEAM
David Wines
Lead Portfolio Manager
K. Sue Cote
Debra A. Hanson
Stephen L. Akers
Portfolio Managers
- ----------
* The rating for the Fund is historical and is based on an anlysis of the
portfolio's credit quality, market price exposure, and management.
THE FUND'S INVESTMENT STRATEGY
As interest rates remained low over most of the past six months, our aim
was to continue to keep a long average maturity in the Fund. In fact, we were
able to provide investors in the Fund with a competitive yield by actually
lengthening its average maturity from 46 days on September 30, 1996 to 50 days
on March 31, 1997.
However, due to the March 25th increase in short-term interest rates by the
Federal Reserve, and our expectation of another increase in late spring or early
summer, the average maturity of the Fund will gradually shorten. Moving into the
second quarter of 1997, we will try to support the yield of the Fund by
purchasing securities with shorter maturities as our current holdings mature. We
believe this strategy will provide shareholders in the Fund with a competitive
level of income while maintaining stability and liquidity.
PORTFOLIO STATISTICS
--------------------
Number of Issues 37
7-Day Current Yield 4.66%
Average Maturity 50 days
Average Quality AAAm
PORTFOLIO RETURNS
-----------------
One-Year Average
Annualized Total Return 4.61%
Five-Year Average
Annualized Total Return 3.65%
10-Year Average
Annualized Total Return 5.19%
Five-Year Cumulative
Total Return 19.63%
10-Year Cumulative
Total Return 65.78%
Of note, past performance is not a guarantee of future results, and yield
will fluctuate.
8
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
-------------------------------------
FUND OVERVIEW
The AARP High Quality Tax Free Money Fund is designed to offer you stability of
principal, and income free from federal taxes.^1 The quality of the Fund is high
enough to have secured a AAAm rating from Standard & Poor's (S&P).^2 The AARP
High Quality Tax Free Money Fund is designed to maintain a $1.00 share price,
although there may be circumstances under which this goal cannot be achieved. It
is important to note that, unlike bank savings accounts, the Fund is not insured
or guaranteed by the U.S.
Government, and yield will fluctuate.
FOR WHOM THE
FUND IS DESIGNED
This Fund may be appropriate for investors seeking tax-free income or who do not
want the risks associated with investing in stocks or bonds. These investors
include those seeking money market income to meet regular day-to-day expenses,
those needing immediate access to their assets through free checkwriting, those
creating a diversified portfolio who want a portion of their assets in a
conservative investment designed to offer stability, and those seeking a
short-term investment prior to making longer-term investment choices. PORTFOLIO
MANAGEMENT TEAM
K. Sue Cote
Lead Portfolio Manager
Donald C. Carleton
Portfolio Manager
- ----------
^1 It is the policy of the Fund not to invest in taxable issues. However, the
Fund's income may be subject to state and local taxes. Capital gains may be
subject to taxes as well.
^2 The rating for the Fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.
THE FUND'S INVESTMENT STRATEGY
As interest rates remained low for most of this six-month period, our
aim was to purchase the best valued securities across the one-year maturity
spectrum. As interest rates began to rise in late March, we began to allow the
average maturity of the Fund to shorten by purchasing shorter-term securities.
As of March 31, 1997, the average maturity of the Fund was 42 days, which is
shorter than the 49-day average maturity of the Fund back on September 31, 1996.
As always, all securities we bought over the past six months are rated
within the two highest quality ratings of at least one of the three leading
national independent rating firms: Fitch Investors Service, Inc., Moody's
Investors Service, Inc., or Standard & Poor's. For those funds rated by S&P,
there are particular guidelines with which any tax-free money fund must comply
in order to maintain its AAAm rating. In addition, within the universe of
securities that fit within the S&P criteria, Scudder credit analysts approve
only a small percentage of that universe. Therefore, the number of securities
that we choose from is smaller and of better quality than other tax-free money
funds.
We expect short-term interest rates to rise over the next six months.
The short-term municipal market should follow that trend. Consequently, the
yield of AARP High Quality Tax Free Money Fund should rise as well, providing
shareholders with competitive tax-free income and price stability.
PORTFOLIO STATISTICS
--------------------
Number of Issues 57
7-Day Current Yield 2.64%
Average Maturity 42 Days
Average Quality AAAm
PORTFOLIO RETURNS
-----------------
One-Year Average
Annualized Total Return 2.69%
Five-Year Average
Annualized Total Return 2.30%
10-Year Average
Annualized Total Return 3.53%
Five-Year Cumulative
Total Return 12.07%
10-Year Cumulative
Total Return 41.51%
Please note that the ten-year figures include the performance of AARP Insured
Tax Free Short Term Fund, which changed its name and objective to AARP High
Quality Tax Free Money Fund on August 1, 1991. Of course past performance is not
a guarantee of future results, and yield will fluctuate.
9
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
--------------------------------
FUND OVERVIEW
The AARP GNMA and U.S. Treasury Fund seeks to produce a high level of monthly
income from a conservatively managed high-quality fixed-income portfolio.
Although your principal is not guaranteed, the Fund is managed to moderate
downside loss compared to other GNMA funds. While the securities in the Fund are
guaranteed as to the timely payment of principal and interest, the guarantee is
not related to the Fund's yield or share price, both of which will fluctuate
daily.
Total Return
------------
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 4.95% 6.00%
5 yr. 32.18% 40.57%
10 yr. 97.14% 129.85%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 4.95% 6.00%
5 yr. 5.74% 7.04%
10 yr. 7.02% 8.67%
HOW THE FUND HAS PERFORMED
As stated in the Mid-Year Overview, the past six months have been a
volatile time for bond investors. After a strong fourth quarter of 1996,
long-term interest rates began to rise in 1997. Shareholders in the AARP GNMA
and U.S. Treasury Fund were shielded from some of this volatility because of the
Fund's strategy to keep a significant portion of its assets in short-term
securities, especially during periods of rising long-term interest rates. It is
this strategy, however, that often causes the Fund's total return to lag behind
other GNMA funds and therefore its comparative index, especially in periods when
interest rates decline.
The Annual Investment Returns chart below shows that the AARP GNMA and U.S.
Treasury Fund's one-year total return of 4.95% (representing 6.54% in
distribution of income and -1.59% in capital change) underperformed the
unmanaged Lehman Brothers Mortgage GNMA Index total return of 6.00%. Remember
that the index return does not reflect investment in cash or short-term
securities like those held in the GNMA fund; nor does the index reflect the
impact of servicing, investment management, or administrative expenses that a
mutual fund incurs.
You know that 12-month returns for the Fund will vary. However, by
maintaining a long-term focus and staying invested through periods of rising and
declining interest rates, you have the opportunity to earn high monthly income.
The graph to the above right shows what $10,000 invested in the Fund on March
31, 1987 would have grown to by March 31, 1997, assuming all distributions were
reinvested.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- ---------------------
1987 $10000 $10000
1988 10354 10633
1989 10858 11231
1990 12016 12841
1991 13491 14630
1992 14915 16351
1993 16515 18205
1994 16576 18410
1995 17293 19563
1996 18784 21685
1997 19714 22985
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP GNMA and U.S. Lehman Brothers
Treasury Fund Mortgage GNMA Index^+
------------- --------------------
1993 10.73% 11.34%
1994 0.37 1.13
1995 4.32 6.26
1996 8.62 10.84
1997 4.95 6.00
^+ The unmanaged Lehman Brothers Mortgage GNMA Index is a market value-weighted
measure of all fixed-rate securities backed by mortgage pools of the GNMA.
Index returns are calculated monthly and assume reinvestment of dividends.
Unlike Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
10
<PAGE>
THE FUND'S INVESTMENT STRATEGY
The AARP GNMA and U.S. Treasury Fund is managed to produce monthly
income from a conservative high-quality portfolio. It is also designed to be
less volatile than other GNMA funds. Over the past six months, we were able to
provide shareholders with the income they have grown to expect (a 30-day SEC
yield of 6.35% as of March 31, 1997). As explained earlier, we used shorter-term
U.S. Treasury securities to dampen the share price movement and reduce the
potential for loss in the value of your investment, while using high-yielding
GNMA securities for income.
CALLOUT:
This is a unique Fund because it is designed for older Americans who want a
little more income than from similar investments, but from a conservatively
managed portfolio. 20% of the Fund is typically invested in Treasuries at all
times.
Approximately 68% of the portfolio was invested in GNMA securities as
of March 31, 1997. Within the GNMA universe, we favored GNMA securities with
coupons of 7.5% or lower because the prepayment risk associated with such
securities is low. Moreover, the income from these mortgages is still above the
income from many high-quality fixed-income investments such as U.S. Treasuries.
We also continued to maintain our position in older, higher-coupon mortgages.
Most of these mortgages are more than five years old and, therefore, have had
plenty of time to be refinanced, but have not been. We feel that these
securities offer high current income to shareholders, while exposing the
portfolio to little risk of prepayment.
The remainder of the portfolio (32% as of March 31, 1997) was invested
in short-term U.S. Treasury obligations and cash equivalents with maturities of
two years or less. We employ this strategy especially during periods of rising
interest rates to help protect the value of the Fund's portfolio from loss.
We believe that the current blend of GNMA securities has the potential
to provide a competitive stream of income, while the short-term Treasury
securities and cash equivalents will protect the portfolio from significant
decline in value as compared to other GNMA funds.
PIE CHART TITLE: Asset Allocation
----------------
CHART PERIOD: As of March 31, 1997
CHART DATA:
Government National Mortgage
Association 68%
U.S. Treasury Obligations 31%
Cash Equivalents 1%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for conservative investors who want relatively high current
income and some protection from bond market risk. As an investor you should be
investing for the longer term (three years or more) and be comfortable with
fluctuation in the value of your principal and yield.
PORTFOLIO
MANAGEMENT TEAM
David H. Glen
Lead Portfolio Manager
Mark S. Boyadjian
Thomas M. Poor
Scott E. Dolan
Portfolio Managers
PORTFOLIO STATISTICS
--------------------
Number of Issues 2338
30-Day Yield 6.35%
Average Coupon 7.37%
Yield to Maturity 7.29%
Average Maturity 6.08 Years
Average Duration 3.25 Years
Average Quality AAA
11
<PAGE>
AARP HIGH QUALITY BOND FUND
---------------------------
FUND OVERVIEW
To help achieve a higher level of overall return, the AARP High Quality Bond
Fund now invests in a greater range of investment-grade bonds. The Fund
maintains quality standards that are among the highest of any general bond fund
currently available, with at least 65% of the Fund's assets invested in
securities rated in the two highest rating categories by Moody's and Standard &
Poor's. The Fund may also invest up to 20% of its assets in bonds rated BAA by
Moody's or rated BBB by S&P.
Total Return
------------
CUMULATIVE
FUND INDEX^+
- -------------------------
1 yr. 4.17% 4.91%
5 yr. 37.58% 41.51%
10 yr. 103.39% 120.49%
AVERAGE ANNUAL
FUND INDEX^+
- -------------------------
1 yr. 4.17% 4.91%
5 yr. 6.59% 7.19%
10 yr. 7.36% 8.22%
HOW THE FUND HAS PERFORMED
As stated previously, the past six months were a volatile period for bond
investors. After a strong fourth quarter of 1996, long-term interest rates began
to rise in 1997, causing bond prices to decline. This trend had a negative
impact on the AARP High Quality Bond Fund. However, the Fund did not experience
declines as severe as some other bond funds due to the Fund's strategy to reduce
the share price volatility.
It is this strategy, however, that often causes the Fund's return to lag
behind other bond funds, and therefore its comparative index, particularly
during periods of declining interest rates. The chart below shows that the AARP
High Quality Bond Fund's one-year total return of 4.17% (representing 5.8% in
distribution of income and -1.63% in capital change) underperformed the
unmanaged Lehman Brothers Aggregate Bond Index return of 4.91%. Remember that
the index return does not reflect investment in cash or other strategies the
Fund uses to reduce risk, nor does the index reflect the impact of servicing,
investment management, or administrative expenses that a mutual fund incurs.
You know that 12-month returns for the Fund will vary from year to year.
However, by maintaining a long-term focus and staying invested through periods
of rising or declining interest rates you increase the chances of achieving your
long-term objective. The graph to the above right shows what $10,000 invested in
the Fund on March 31, 1987 would have grown to as of March 31, 1997, assuming
all distributions were reinvested.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
--------- ---------------------
1987 $10000 $10000
1988 10354 10489
1989 10951 11030
1990 12022 12389
1991 13374 13985
1992 14783 15581
1993 16705 17653
1994 17175 18070
1995 17714 18972
1996 19525 21017
1997 20339 22049
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP High Quality Lehman Brothers
Bond Fund Aggregate Bond Index^+
--------- ---------------------
1993 13.01% 13.30%
1994 2.80 2.37
1995 3.14 4.99
1996 10.22 10.79
1997 4.17 4.91
^+ The unmanaged Lehman Brothers Aggregate Bond Index is a market
value-weighted measure of Treasury issues, agency issues, corporate bond
issues and mortgage securities. Index returns are calculated monthly and
assume reinvestment of dividends. Unlike Fund returns, Index returns do not
reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
12
<PAGE>
THE FUND'S INVESTMENT STRATEGY
Over the past six months we increased our investment in corporate
bonds, which included issues from some of the country's consumer goods,
manufacturing, financial, and transportation companies. We also continued to add
income to the portfolio from attractively priced mortgage-backed securities. We
maintained a large portion of the Fund's assets in mortgage-backed securities
(approximately 19% as of March 31, 1997) because of their high quality, and
their income potential. This strategy produced an attractive 30-day SEC yield of
5.90% as of March 31, 1997.
CALLOUT:
The Fund attempts to reduce share price fluctuation by investing in a variety of
different sectors.
We also maintained a "barbell" maturity strategy in anticipation of
short-term yields rising faster than long-term yields. As of March 31, 1997,
22.5% of the portfolio was invested in securities that mature in under one year
and 25.9% of the portfolio was invested in securities maturing in more than 10
years. As of March 31, 1997, 76% of the portfolio was invested in government,
AAA-rated or AA-rated securities (including cash equivalents); 18% of the Fund
was invested in A-rated bonds; 6% was invested in BBB.
We believe that the AARP High Quality Bond Fund's current portfolio is
well positioned and major changes are not expected. Our emphasis remains on
delivering competitive returns while maintaining high credit quality and
diversification across various types of issues.
PIE CHART TITLE: Asset Allocation
----------------
CHART PERIOD: As of March 31, 1997
CHART DATA:
Corporate Bonds 29%
U.S. Treasury Obligations 27%
Asset Backed 12%
Government National Mortgage Assoc. 10%
U.S. Government Agency Pass-Thrus 9%
Cash Equivalents 7%
Foreign Bonds--U.S. $ Denominated 6%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors who want competitive returns from a portfolio
with high credit quality. Investors should be seeking to invest for the longer
term (at least three years or more) and be comfortable with fluctuation in the
value of their principal and yield.
PORTFOLIO
MANAGEMENT TEAM
David H. Glen
Lead Portfolio Manager
William M. Hutchinson
Scott E. Dolan
Portfolio Managers
PORTFOLIO STATISTICS
--------------------
Number of Issues 40
30-Day SEC Yield 5.9%
Average Coupon 7.14%
Yield to Maturity 6.96%
Average Maturity 9.37 Years
Average Duration 4.54 Years
Average Quality AA
13
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
---------------------------------------
FUND OVERVIEW
The AARP Insured Tax Free General Bond Fund seeks to pay high monthly income
that is free from federal taxes.* The Fund invests in a portfolio consisting
primarily of high-grade municipal securities that are insured against default.
This insurance does not apply to the value of your shares or the yield of the
Fund, both of which will fluctuate daily. The Fund also aims to keep the value
of its shares more stable than that of other long-term municipal bond.
Total Return
------------
CUMULATIVE
FUND INDEX+
- -------------------------
1 yr. 4.77% 5.45%
5 yr. 39.13% 41.37%
10 yr. 98.47% 106.34%
AVERAGE ANNUAL
FUND INDEX+
- -------------------------
1 yr. 4.77% 5.45%
5 yr. 6.83% 7.16%
10 yr. 7.09% 7.51%
* It is the policy of the Fund not to invest in taxable issues. However, the
Fund's income may be subject to state and local taxes. Gains on sales of Fund
shares and distributions of capital gains generally will be subject to
federal, state and local taxes.
HOW THE FUND HAS PERFORMED
The past six months was a volatile period for municipal bond investors.
Long-term interest rates rose and as a result, the value of the securities held
by the Fund decreased. When we look at the annual total returns, as illustrated
in the chart below, the AARP Insured Tax Free General Bond Fund's one-year total
return of 4.77% (representing 5.5% in distribution of income and -0.73%, in
capital change) underperformed the unmanaged Lehman Brothers Municipal Bond
Index's return of 5.45%. It is important to note that due to the Fund's
investment strategy to moderate downside risk, the Fund will often lag behind
the performance of similar funds, and the index. In addition, the index return
does not reflect investments in cash or the types of securities the Fund uses to
reduce loss of principal value; nor does the index reflect the impact of any
servicing, investment management, or administrative expenses that a mutual fund
incurs. The Fund offered shareholders a 4.60% 30-day SEC yield as of March 31,
1997. This is a taxable equivalent yield of 7.62% for shareholders in the 39.6%
tax bracket.
By maintaining a long-term focus and staying invested through periods of
rising interest rates or declining interest rates, you increase your chances of
achieving your long-term objective. The graph to the right shows what the value
of $10,000 invested in the Fund on March 31, 1987, would have grown to by March
31, 1997, assuming all distributions were reinvested.
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^+
----------------- ---------------------
1987 $10000 $10000
1988 9885 10251
1989 10970 10989
1990 11991 12149
1991 13053 13269
1992 14265 14596
1993 16261 16425
1994 16554 16805
1995 17666 18054
1996 18943 19567
1997 19847 20634
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Insured Tax Free Lehman Brothers
General Bond Fund Municipal Bond Index^+
----------------- ---------------------
1993 14.00% 12.51%
1994 1.79 2.32
1995 6.71 7.43
1996 7.23 8.38
1997 4.77 5.45
^+ The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of municipal bonds with a maturity of at least two years. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
14
<PAGE>
THE FUND'S INVESTMENT STRATEGY
In keeping with the Fund's objective to reduce frequency and amount by
which the share price declines, purchasing bonds with "call protection" remained
a fundamental part of the Fund's investment strategy over the past six months.
Generally, a bond is "called in" by its issuer so that it can be refinanced at a
lower interest rate. Our call-protection strategy provided a more reliable
income stream than would have existed if the Fund held a significant amount of
bonds that had no "call protection" -- or bonds that could be "called in" before
their stated maturity. As of March 31, 1997, 85% of the portfolio was invested
in "non-callable" bonds.
CALLOUT:
Investing in securities of varying maturities helps dampen the price volatility
of this Fund.
The portfolio management team also favored intermediate bonds over the past
six months because intermediate bonds usually fluctuated less than long-term
bond prices. As of March 31, 1997, 66% of the portfolio was invested in
intermediate bonds maturing in 5 to 15 years. The remaining 34% of the portfolio
was divided almost equally between short-term securities and bonds maturing in
more than 15 years.
In addition, as of March 31, 1997, 95% of the portfolio was invested in
insured securities escrowed in U.S. Treasuries, which have the backing of the
U.S. Government. Remember that this insurance protects the bond from default but
does not apply to the value of your shares or to the yield of the Fund, both of
which will fluctuate daily.
We believe that the Fund's strategy of maintaining a somewhat shorter
duration (presently 7.24 years vs. 7.59 years for the Index) will continue to
serve our shareholders well. We seek to provide our Fund investors with high
income free from federal taxes and to keep our share price more stable than that
of a long-term municipal bond fund.
PIE CHART TITLE: Asset Allocation -- Municipal Bond Effective Maturities
CHART PERIOD: As of March 31, 1997
CHART DATA:
Less than 1 year 6%
1 to less than 5 years 9%
5 to less than 10 years 24%
10 to less than 15 years 42%
Greater than 15 years 19%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors in higher tax brackets who want income that
is free from federal income taxes. Investors should be seeking to invest for the
longer term (at least three years or more) and be comfortable with fluctuation
in the value of their principal and yield.
PORTFOLIO
MANAGEMENT TEAM
Donald C. Carleton
Lead Portfolio Manager
Philip G. Condon
Portfolio Manager
PORTFOLIO STATISTICS
--------------------
Number of Issues 358
30-Day SEC Yield 4.6%
Average Coupon 4.87%
Average Maturity 11 Years
Average Duration 7.24 Years
Average Quality AAA
15
<PAGE>
AARP BOND FUND FOR INCOME
-------------------------
FUND OVERVIEW
The AARP Bond Fund for Income is designed to provide the highest level of
monthly income of any AARP Fund by investing primarily in investment-grade
bonds. The Fund may invest up to 35% in below investment grade bonds (25% of
which may be BB or BA and 10% of which may be B). The AARP Bond Fund for Income
is also managed to experience less downside risk than other investment grade
bond funds as measured by the frequency of and amount by which the share price
of the Fund declines compared to funds like it.
HOW THE FUND HAS PERFORMED
Because the AARP Bond Fund for Income is so new, a review of performance is
not included in this Report. However, you can call us at 1-800-253-2277 for
current performance.
CALLOUT:
The Fund has the flexibility to invest in various sectors of the bond market
with regard to maturity and quality in pursuit of the highest level of monthly
income of any AARP bond fund.
THE FUND'S INVESTMENT STRATEGY
Since the Fund's inception on February 1, 1997, we have focused on
portfolio diversification with emphasis on a range of qualities and types of
bonds. Although the major portion of the portfolio was invested in
investment-grade securities, a significant portion of the portfolio was invested
in attractively priced, high yield bonds. We believe that these lower-grade
securities should offer shareholders in this Fund a higher yield and more share
price appreciation than the other Income Funds offered by the Program. As of
March 31, 1997, 83% of the portfolio was invested in investment-grade securities
rated BBB or higher (including cash equivalents), 10% of the portfolio was
invested in BB-rated bonds, and 7% in B-rated bonds. Below investment-grade
securities generally involve a greater risk of default and, at times, can have
more price volatility than higher rated securities.
In addition to investing the new assets in an array of credit qualities, we
are keeping the Fund well diversified with different types of bonds and varying
maturities. As of March 31, 1997, 35% of the portfolio was invested in corporate
bonds, 11% in mortgage-backed securities, 20% in asset-backed securities, and
32% in income producing cash equivalents. Due to faster rising short-term
interest rates versus long-term rates, we are maintaining a "barbell" strategy
with about 40% of the portfolio invested in bonds maturing in ten years or more
and 35% invested in bonds maturing in under one year.
16
<PAGE>
We will continue to manage the AARP Bond Fund for Income for higher yields
than the other AARP bond funds, and with less potential for loss in the value of
the portfolio than comparable investment grade bond funds. It is important to
note, however, that this Fund will likely experience more volatility than the
AARP GNMA and U.S. Treasury Fund, or the AARP High Quality Bond Fund. Investors
in this Fund must therefore be in a position to tolerate greater short-term risk
to the value of their investment for the potential of greater returns over the
long term.
PIE CHART TITLE: Asset Allocation
CHART PERIOD: As of March 31, 1997
CHART DATA:
Corporate Bonds 35%
Cash Equivalents 32%
Asset-Backed Securities 20%
GNMAs 11%
Foreign Bonds -- U.S. $ Denominated 2%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors who seek high monthly income from a
diversified portfolio of largely investment-grade bonds. Investors should be
seeking to invest for the longer term (at least three years or more) and be
comfortable with fluctuation in the value of their principal. We believe that
the AARP Bond Fund for Income could serve as a core bond investment in most
investors' portfolios because it offers the potential for high yields, price
appreciation and less share price fluctuation than other long-term bond funds.
PORTFOLIO
MANAGEMENT TEAM
William M. Hutchinson
Lead Portfolio Manager
Kelly D. Babson
David H. Glen
Portfolio Managers
PORTFOLIO STATISTICS
--------------------
Number of Issues 30
30-Day SEC Yield 6.77%
Average Coupon 4.8%
Yield to Maturity 7.82%
Average Maturity 10.18 Years
Average Duration 4.54 Years
Average Quality A
17
<PAGE>
AARP BALANCED STOCK AND BOND FUND
---------------------------------
FUND OVERVIEW
By investing in a combination of stocks, bonds, and cash reserves, the AARP
Balanced Stock and Bond Fund seeks to offer you long-term growth of capital and
quarterly income. Like all of the AARP Mutual Funds, the Fund seeks to keep the
value of its shares more stable than other balanced funds.
Total Return
------------
CUMULATIVE
BLENDED
FUND INDEX+
- -------------------------
1 yr. 12.48% 12.35%
Life of
Fund* 40.69% 41.58%
AVERAGE ANNUAL
BLENDED
FUND INDEX+
- -------------------------
1 yr. 12.48% 12.35%
Life of
Fund* 11.41% 11.61%
HOW THE FUND HAS PERFORMED
The AARP Balanced Stock and Bond Fund performed well over the past six
months. The Fund's one-year total return of 12.48% outperformed the balanced
index's return of 12.35%. (The balanced index is comprised of 50% of the
unmanaged Standard & Poor's 500 Stock Price Index, 40% of the unmanaged Lehman
Brothers Aggregate Bond Index and 10% of the three-month Treasury Bill Index.)
This Fund was introduced on February 1, 1994. Therefore, five-year and ten-year
data are not available.
The graph below shows what the value of $10,000 invested in the Fund when
it was introduced in February of 1994 would have grown to by March of this year,
assuming all distributions were reinvested.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Semiannual Periods from February 1, 1994*
to March 31, 1997
CHART DATA:
AARP Balanced Standard & Poor's Lehman Brothers
Stock and Bond 500 Stock Price Aggregate Bond Blended
Fund Index Index Index^+
---- ----- ----- -----
2/1/94* $10000 $10000 $10000 $10000
3/31/94 9520 9305 9584 9490
9/30/94 9922 9800 9543 9747
3/31/95 10335 10753 10062 10461
9/30/95 11589 12716 10885 11776
3/31/96 12509 14205 11146 12602
9/30/96 13104 15300 11416 13248
3/31/97 14069 17020 11693 14158
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Balanced Blended
Stock and Bond Fund Index^+
------------------- -----
2/1/94*--
3/31/94 -4.8 % -5.08%
1995 8.56 10.17
1996 21.04 22.9
1997 12.48 12.35
THE FUND'S INVESTMENT STRATEGY
In general, the stock portion of the Fund (representing 55% of the
portfolio as of March 31, 1997) uses an approach similar to the AARP Growth and
Income Fund. The Fund will usually invest in stocks that are believed to have
favorable long-term capital appreciation outlooks and have above-average
dividend yields. Refer to the AARP Growth and Income Fund Report on page 20 for
details on specific stock selection. (The Fund may invest up to 70% of its
assets in stocks.)
The portion of the Fund invested in bonds (38% of the portfolio as of March
31, 1997) may include corporate issues, U.S. Government securities,
mortgage-backed obligations, and other fixed-income securities. At least 75%
- ----------
^+ The performance of the blended benchmark is a weighting comprised of 50%
Standard & Poor's 500 Stock Price Index (S&P), 40% Lehman Brothers
Aggregate Bond Index (LBAB), and the 3-Month Treasury Bill Index (10%). The
50/40/10 measure is meant to reflect the anticipated long range asset mix
of the Fund, which may change over time. The unmanaged Standard & Poor's
500 Stock Price Index is a market value-weighted measure of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-the-Counter market. The unmanaged Lehman Brothers
Aggregate Bond Index is a market value-weighted measure of Treasury issues,
agency issues, corporate bond issues and mortgage securities. Index returns
are calculated monthly and assume reinvestment of dividends. Unlike Fund
returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
* The Fund commenced operations on February 1, 1994.
18
<PAGE>
of these securities will be securities rated within the three highest
quality ratings (AAA, AA, and A) by Moody's or S&P, independent rating
organizations. At all times, at least 30% of the Fund's assets will be invested
in a combination of bonds and cash equivalents. The Fund moved from intermediate
bonds over the past six months to a "barbell strategy" by increasing the amount
invested in short-term and long-term bonds in anticipation of short-term
interest rates rising faster than long-term rates. The remaining 7% of the
Fund's assets were invested in cash equivalents.
CALLOUT:
The Fund attempts to reduce share price fluctuation by following the strict
yield discipline of the AARP Growth and Income Fund in the stock portion of the
portfolio, by investing in securities with varying maturities on the bond side,
and by maintaining a solid cash position.
We continue to believe that stocks will outperform bonds and cash over the
longer term and, therefore, a majority of the portfolio will continue to be
invested in stocks.
PIE CHART TITLE: EQUITY ALLOCATION
CHART PERIOD: As of March 31, 1997
CHART DATA:
Financial 21%
Manufacturing 18%
Energy 9%
Consumer Staples 9%
Health 8%
Durables 8%
Communications 7%
Utilities 6%
Consumer Discretionary 4%
Other 10%
----
100%
====
PIE CHART TITLE: FIXED INCOME ALLOCATION
CHART PERIOD: As of March 31, 1997
CHART DATA:
Corporate Bonds 39%
U.S. Treasury Obligations 25%
U.S. Gov't Pass-Thrus 21%
Asset-Backed Securities 7%
Gov't National Mortgage Association 6%
Foreign Bonds-U.S. $ Denominated 2%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
This Fund is designed for investors who are seeking long-term growth of their
assets, but who seek less risk than an investment solely in stocks. Investors
should be able to invest for the longer term (at least three to five years or
more) and be comfortable with the value of their principal fluctuating up and
down.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
William M. Hutchinson
Benjamin W. Thorndike
Portfolio Managers
Asset Allocation
As of March 31, 1997
--------------------
Stocks 55%
Bonds 38%
Cash Equivalents 7%
----
100%
====
19
<PAGE>
AARP GROWTH AND INCOME FUND
---------------------------
FUND OVERVIEW
The AARP Growth and Income Fund is a conservatively managed equity fund that
provides the potential for long-term growth and quarterly income, while seeking
to keep the value of its shares more stable than other growth and income funds.
It invests in above-average dividend-yielding stocks that may offer the
opportunity for long-term growth of capital.
Total Return
------------
CUMULATIVE
FUND INDEX+
- ------------------------
1 yr. 17.82% 19.83%
5 yr. 114.62% 113.91%
10 yr. 231.70% 251.03%
AVERAGE ANNUAL
FUND INDEX+
- ------------------------
1 yr. 17.82% 19.83%
5 yr. 16.50% 16.42%
10 yr. 12.74% 13.37%
HOW THE FUND HAS PERFORMED
The AARP Growth and Income Fund performed as expected over the past six
months. Its one-year total return of 17.82% (representing 3.07% in distributions
of income and 14.75% in capital change) underperformed the unmanaged Standard &
Poor's 500 Stock Price Index of 19.83%.
This is an excellent example of the total return tradeoff shareholders may
experience where we are actively working to reduce the potential of loss in
value compared to other growth and income funds. The Fund may lag the
performance of other growth and income funds and therefore the index during
certain bull market periods. It will typically outperform in certain bear
markets, as it did, for example, during the period from May 1990 to October 1990
when the Fund declined 7.0% versus a 14.4% decline for comparable growth and
income funds.*
12-month returns for the Fund will vary from year to year. However, by
maintaining a long-term focus and avoiding overreaction to short-term market
volatility, your investment has the opportunity to grow significantly over time.
The graph to the right shows what the value of $10,000 invested in the Fund on
March 31, 1987, would have grown to by March of this year, assuming all
distributions were reinvested.
THE FUND'S INVESTMENT STRATEGY
We continued to focus on investing in undervalued securities with
above-average relative dividend yields. Although they remain sizable positions
in the portfolio, we scaled back our health care and consumer goods stocks
during the fourth quarter of 1996 and increased our position in
telecommunications and domestic electric utilities. The Fund's health care
weighting, concentrated in pharmaceuticals, contributed significantly to the
Fund's favorable performance in 1996 and into 1997. Holdings such as Warner
Lambert and Bristol Myers performed extremely well.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP Growth and Standard & Poor's
Income Fund 500 Stock Price Index^+
----------- -----------------------
1987 $10000 $10000
1988 9300 9167
1989 10575 10829
1990 11780 12915
1991 13470 14776
1992 15455 16410
1993 17877 18913
1994 18854 19190
1995 21342 22176
1996 28153 29293
1997 33170 35103
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Growth and Income Standard & Poor's 500
Fund Stock Price Index+
---- ------------------
1993 15.67% 15.22%
1994 5.47 1.48
1995 13.20 15.57
1996 31.91 32.10
1997 17.82 19.83
- ----------
* Source: Value Line Fund Survey. January 1997. Peer group includes 38 growth
and income funds, one of which is the AARP Growth and Income Fund.
^+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
20
<PAGE>
At the same time, we increased our exposure to the telecommunications
sector by purchasing a number of Regional Bell Operating Companies (RBOCs).
Given our belief that much of the competitive risk in the market was already
reflected in stock prices, we initiated a position in BellSouth and increased
our weighting in Bell Atlantic and NYNEX.
CALLOUT:
The Fund focuses on stocks with above-average dividends and sound
fundamentals to help reduce share price volatility.
We also increased our holdings in electric utilities and forest products by
purchasing Duke Power and Boston Edison, and by adding to holdings in
Weyerhauser. These are highly attractive holdings as both groups have reached
historical highs on a relative dividend yield basis.
The weakest performing sectors over the past six months have been the
financial and manufacturing sectors. The underperformance of the financial
stocks is due in large part to interest rate and inflation fears that culminated
in the Fed's rise in interest rates on March 25th this year. While such action
caused increased volatility in financial stocks, we believe that the fundamental
long-term outlook for this sector remains favorable. We may take advantage of
further weakness -- and therefore buying opportunities -- and increase our
holdings.
The underperformance of the manufacturing sector is largely due to our
position in chemicals which, although very attractive on a relative yield basis,
continued to lag behind the market due to pricing fears and concerns of
overcapacity.
Xerox, our largest holding, also suffered a temporary setback in the fourth
quarter of 1996 due to an earnings disappointment. We would point out, however,
that despite this setback, Xerox was still one of the best performers in the
portfolio over the period covered by this Report. (Please note that portfolio
changes should not be considered recommendations for action by individual
investors.)
In general, our focus on high dividend-paying stocks has and should
continue to benefit the Fund over time as the market recognizes the intrinsic
worth of individual stocks.
PIE CHART TITLE: SECTOR DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 31, 1997
CHART DATA:
Financial 22%
Manufacturing 19%
Energy 8%
Consumer Staples 8%
Health 8%
Durables 8%
Communications 7%
Utilities 6%
Consumer Discretionary 5%
Other 9%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is suitable for investors who are seeking long-term growth of their
assets and the opportunity to keep ahead of inflation. Investors should be able
to invest for at least five years or more and be comfortable with fluctuation to
the value of their principal that is associated with investing in stocks.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Lori J. Ensinger
Deborah A. Chaplin
Kathleen T. Millard
Benjamin W. Thorndike
Portfolio Managers
Asset Allocation
As of March 31, 1997
--------------------
Equity Holdings 99%
Cash Equivalents 1%
----
100%
====
21
<PAGE>
AARP U.S. STOCK INDEX FUND
--------------------------
FUND OVERVIEW
The AARP U.S. Stock Index Fund takes an indexing approach using the S&P 500
Index as a benchmark. The Standard and Poors 500 Index is an unmanaged broad
market index of 500 large "blue chip" companies. The Fund also seeks to keep the
value of its shares more stable than other S&P 500 Index funds.
HOW THE FUND HAS PERFORMED
Because the AARP U.S. Stock Index Fund is so new, a review of performance
is not included in this Report. However, you can call us at 1-800-253-2277 for
current performance information.
CALLOUT:
The AARP U.S. Stock Index Fund strives to moderate share price fluctuation by
favoring income-paying S&P 500 stocks which historically have been more stable,
especially in periods of decline.
THE FUND'S INVESTMENT STRATEGY
The Fund's investment strategy is to invest in a broadly diversified
portfolio consisting of more than 400 Standard & Poors' 500 Index companies.
Using a technique referred to as "sampling", the portfolio places more weight on
common stocks of S&P 500 companies that are expected to pay higher dividends
than S&P 500 companies in total. Instead of an emphasis on holding higher
yielding stocks, we attempt to keep the character of our portfolio consistent
with that of the S&P 500 index. By managing the Fund in this way, we expect
performance to be less volatile than the S&P 500 over time. We also seek to
offer shareholders a competitive return with a higher dividend yield than
comparable index funds.
We believe that the AARP U.S. Stock Index Fund offers shareholders a
low-cost way of investing in a diversified stock portfolio which offers some
degree of performance similarity relative to the S&P 500 Index.
22
<PAGE>
PIE CHART TITLE: SECTOR DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 31, 1997
CHART DATA:
Financial 14%
Health 12%
Manufacturing 12%
Consumer Staples 11%
Technology 11%
Energy 11%
Communications 7%
Durables 6%
Utilities 5%
Other 11%
----
100%
====
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of March 31, 1997
CHART DATA:
Common Stocks 98%
Cash Equivalents 2%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is suitable for investors looking to add a stock index fund seeking
less share price volatility than comparable S&P 500 Index Funds, and who have an
investment horizon of five years or more. The Fund invests in some of the
strongest, most highly capitalized U.S. corporations.
PORTFOLIO
MANAGEMENT TEAM
Philip S. Fortuna
Lead Portfolio Manager
James M. Eysenbach
Portfolio Manager
NOTE:
The Fund Manager has retained Bankers Trust Company as Subadvisor to the Fund.
The Subadvisor handles the day-to-day investment and trading functions. The
Portfolio Managers are in regular contact with the Subadvisor, receive records
of daily transactions, monitor returns and relative risk, and scrutinize
portfolio activity.
23
<PAGE>
AARP CAPITAL GROWTH FUND
------------------------
FUND OVERVIEW
The AARP Capital Growth Fund is designed to help investors take advantage of the
high growth potential of stocks while attempting to keep the value of its shares
more stable than other capital growth funds.
Total Return
------------
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 16.14% 19.83%
5 yr. 80.48% 113.91%
10 yr. 201.96% 251.03%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 16.14% 19.83%
5 yr. 12.53% 16.42%
10 yr. 11.69% 13.37%
HOW THE FUND HAS PERFORMED
The AARP Capital Growth Fund performed as expected in the most recent
period. It provided a one-year total return of 16.14% (representing 1.01% in
distributions of income and 15.13% in capital change), although it
underperformed the 19.83% return of the unmanaged Standard & Poor's 500 Stock
Price Index. The Fund's focus on reducing the risk of loss through broad
diversification of holdings caused it to underperform the index during this
period when most of the index's gain was attributable to a small number of very
large companies, including tobacco companies, in which none of the AARP Mutual
Funds invest.
It is important to note that 12-month returns for the Fund will vary from
year to year. However, by maintaining a long-term focus and staying invested
through good and bad times, your investment has the opportunity to grow
significantly over time. The graph to the right shows what $10,000 invested in
the Fund on March 31, 1987, would have grown to by March 31st of this year, if
you reinvested all distributions.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP Capital Standard &
Growth Poor's 500 Stock
Fund Price Index^+
---- ------------
1987 $10000 $10000
1988 9549 9167
1989 12576 10829
1990 13336 12915
1991 14521 14776
1992 16731 16410
1993 18774 18913
1994 19107 19190
1995 19886 22176
1996 26000 29293
1997 30196 35103
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Yearly Periods ended March 31
(Total Return %)
CHART DATA:
AARP Capital Standard &
Growth Poor's 500 Stock
Fund Price Index^+
---- ------------
1993 12.21% 15.22%
1994 1.78 1.48
1995 4.08 15.57
1996 30.75 32.10
1997 16.14 19.83
THE FUND'S INVESTMENT STRATEGY
Over the past six months, we continued to maintain a high quality portfolio
diversified across many industries. The Fund is most heavily invested in the
technology, finance, and health care sectors. Technology was the best performing
sector of the market over this period and we believe it will continue to be a
fruitful sector for above-average growth opportunities. Since some technology
stocks, particularly start-up companies, are characterized by a high degree of
share price volatility, we will continue to look for investment opportunities in
large, more mature companies such as Intel Corp., Compaq Computer, and Applied
Materials, a semi- conductor company which significantly outperformed over this
period because of the strength of that industry as a whole.
- ----------
^+ The unmanaged Standard & Poor's 500 Stock Price Index is a market
value-weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Over-the-Counter market.
Index returns are calculated monthly and assume reinvestment of dividends.
Unlike Fund returns, Index returns do not reflect any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
24
<PAGE>
Within the financial sector, our best performing stock was American
Express, the Fund's largest holding, which gained more than 30% over the period.
Other strong performers were Citicorp, American International Group, and
Franklin Resources. We believe that despite some recent volatility due to rising
interest rates, many financial stocks are attractively priced versus their
expected growth rates.
CALLOUT:
Through a broadly diversified portfolio consisting primarily of high quality,
medium- to large-sized companies with strong competitive positions in their
industries, the Fund seeks to offer less share price volatility than many
growth funds.
The Fund's pharmaceutical weighting also contributed strongly to the Fund's
performance in 1996 and into 1997 in large part due to the sector's dependable
earnings growth and strong new product lines. Warner Lambert, for example,
gained 32% due to strong earnings momentum and significant new sources of
revenue from two new drugs developed to treat diabetes and high cholesterol.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
PIE CHART TITLE: SECTOR DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 31, 1997
CHART DATA:
Financial 19%
Technology 17%
Energy 13%
Health 13%
Manufacturing 12%
Consumer Discretionary 9%
Service Industries 5%
Durables 4%
Consumer Staples 4%
Other 4%
----
100%
====
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of March 31, 1997
CHART DATA:
Equity Holdings 97%
Cash Equivalents 3%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors seeking long-term growth of their principal.
Investors should be able to invest for the longer term (at least five years or
more) and be comfortable with the short-term fluctuation of principal that is
associated with investing in stocks.
PORTFOLIO
MANAGEMENT TEAM
William F. Gadsden
Lead Portfolio Manager
Bruce F. Beaty
Portfolio Manager
25
<PAGE>
AARP SMALL COMPANY STOCK FUND
-----------------------------
FUND OVERVIEW
From investment primarily in the stocks of small U.S. companies, the Fund seeks
to provide long-term capital growth, and to keep the value of its shares more
stable than other small company stock funds.
HOW THE FUND HAS PERFORMED
Because the AARP Small Company Stock Fund is so new, a review of
performance is not included in this Report. However, you can call us at
1-800-253-2277 for current performance information.
CALLOUT:
By targeting a large number of undervalued small stocks, which as a group pay
above average dividends, the Fund seeks to reduce the potential for loss versus
comparable small company funds.
THE FUND'S INVESTMENT STRATEGY
The portfolio management team's disciplined approach is to use a two-step
process. First, we evaluate approximately 2000 U.S. stocks and identify those
companies which have above-average return potential. Then we build a diversified
portfolio by assessing the risk/return tradeoff of various combinations of
attractively rated companies. The Fund is well diversified with more than 100
stocks selected from the Russell 2000 Index of small companies.
We focus on small U.S. companies that have strong or improving sales and
earnings growth and are selling at prices not reflecting their underlying value.
The emphasis on valuation is reflected in the resulting portfolio which has an
average price-to-earnings ratio of about one-half of the Russell 2000 Index of
small companies. In terms of size, a typical company held in the portfolio has a
market capitalization (price times shares) of $374 million. By contrast the
typical S&P 500 company has a market capitalization of $5 billion.
With the Fund's emphasis on valuation and yield, we have lower weightings
in the health care and technology sectors because many of these companies do not
pay dividends, and also greater weightings in the financial and manufacturing
sectors.
26
<PAGE>
PIE CHART TITLE: SECTOR DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 31, 1997
CHART DATA:
Manufacturing 23%
Financial 16%
Consumer Discretionary 11%
Technology 10%
Service Industries 8%
Metals & Minerals 8%
Durables 7%
Constructions 7%
Consumer Staples 5%
Other 5%
----
100%
====
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of March 31, 1997
CHART DATA:
Equity Holdings 87%
Cash Equivalents 13%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The AARP Small Company Stock Fund is suitable for investors seeking long-term
growth of their investment. Investors should invest for the longer term (at
least five years or more) and be comfortable with the value of their principal
fluctuating up and down.
PORTFOLIO
MANAGEMENT TEAM
James M. Eysenbach
Lead Portfolio Manager
Philip S. Fortuna
Portfolio Manager
27
<PAGE>
AARP GLOBAL GROWTH FUND
-----------------------
FUND OVERVIEW
The AARP Global Growth Fund seeks to offer long-term capital growth in a
globally diversified portfolio, while seeking to keep the value of its shares
more stable than other global growth funds.
Total Return
------------
CUMULATIVE
FUND INDEX+
-------------------------
1 yr. 9.44% 9.36%
Life of
Fund* 11.41% 11.81%
AVERAGE ANNUAL
FUND INDEX+
-------------------------
1 yr. 9.44% 9.36%
Life of
Fund* 9.75% 10.06%
HOW THE FUND HAS PERFORMED
The AARP Global Growth Fund performed well, with a one-year total return of
9.44%. The Fund outperformed the MSCI World Index total return of 9.36%. Since
the Fund was introduced in February of 1996, five- and ten-year performance data
are not available.
CALLOUT:
The Fund seeks to offer competitive long-term returns with less risk than other
global growth funds through broad country and security diversification, and by
following long-term positive economic themes.
THE FUND'S INVESTMENT STRATEGY
Our approach to investing in the global equity markets is focused on
identifying long-term growth of the world economy and capital markets and then
identifying the companies with appropriate stock values that are best positioned
to take advantage of the opportunity. This strategy results in a well
diversified portfolio of approximately 120 issues across many countries. We do
not make investment decisions that try to pick the best country or best
currency, instead we focus on individual companies. We believe this reduces the
risk of loss because we focus on broad trends, not short-term market timing.
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Monthly Periods from February 1, 1996*
to March 3, 1997
CHART DATA:
AARP Global
Growth Fund MSCI World Index^+
----------- ------------------
2/1/96* $10000 $10000
3/31/96 10180 10224
5/30/96 10407 10470
7/31/96 9980 10147
9/30/96 10327 10661
11/30/96 10940 11333
1/31/97 10880 11282
3/31/97 11141 11181
BAR CHART TITLE: ANNUAL INVESTMENT RETURNS
CHART PERIOD: Period ended March 31
(Total Return %)
CHART DATA:
AARP Global
Growth Fund MSCI World Index^+
----------- ------------------
2/1/96*
3/31/97 9.44% 9.36%
In this vein, we have continued to expand the portfolio's holdings of
companies that share two characteristics we believe will provide an increasingly
important advantage in the new global environment: dominant worldwide market
share and declining production costs. Recent purchases along these lines
included automobile tire manufacturers Michelin and Goodyear, both of which have
been able to extend their competitive advantage because of economies of scale,
continued capital investment, and advances in technology. We began purchasing
- ----------
^* The MSCI (Morgan Stanley Capital International) World Index is an unmanaged
capitalization-weighted measure of global stock markets, including the U.S.,
Canada, Europe, Australia, and the Far East. Index returns assume dividends
reinvested net of withholding tax and, unlike Fund returns, do not reflect
any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
* The Fund commenced operations on February 1, 1996.
28
<PAGE>
several industrial gas companies in the U.K. and United States based on our
assessment of the sector's stable prices, growth potential, and valuation.
Another area of emphasis is companies with new technologies and large
market shares. These businesses should be able to set long-term standards in
their respective industries and therefore maintain pricing power. The newest
names added under this category were Sabre, a U.S.-based world leader in
travel-related services, and Electronic Data Systems, a U.S.-based systems
designer for large-scale data management projects.
Pharmaceutical companies in general have performed well recently, and we
continue to believe that well-managed companies servicing the health needs of an
aging world population will continue to thrive. We also sought to capitalize on
the world's changing demographics by maintaining holdings in companies
positioned to help individuals provide for retirement, including a number of
major life insurers such as ING and AEGON (the Netherlands) and Zurich Insurance
(Switzerland). (Please note that portfolio changes should not be considered
recommendations for action by individual investors.)
Our long-term outlook is for global economic expansion without significant
inflation -- an extremely positive scenario for investors. Moving forward, we
will continue to seek to identify opportunities for long-term capital
appreciation presented by the economic changes around the world.
PIE CHART TITLE: Geographical Diversification -- Excludes Cash Equivalents
CHART PERIOD: As of March 31, 1997
CHART DATA:
Europe 57%
U.S. & Canada 24%
Pacific Basin 6%
Japan 6%
Latin America 5%
Other 2%
----
100%
====
PIE CHART TITLE: Sector Diversification -- Excludes Cash Equivalents
CHART PERIOD: As of March 31, 1997
CHART DATA:
Manufacturing 26%
Financial 16%
Technology 7%
Metals and Minerals 7%
Consumer Staples 6%
Durables 6%
Service Industries 5%
Energy 5%
Utilities 5%
Other 17%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The AARP Global Growth Fund is suitable for investors who want to add worldwide
stock opportunities to their portfolio. Investors should invest for the longer
term (at least five years or more) and be comfortable with the value of their
principal fluctuating up and down. Because the Fund invests globally, it will be
affected by fluctuations in U.S. and international stocks markets. The Fund will
also be subject to international investment risks such as currency exchange
risk.
PORTFOLIO
MANAGEMENT TEAM
William E. Holzer
Lead Portfolio Manager
Diego Espinosa
Nicholas Bratt
Portfolio Managers
Asset Allocation
As of March 31, 1997
--------------------
Equity Holdings 89%
Cash Equivalents 8%
Fixed Income Holdings 3%
----
100%
====
29
<PAGE>
AARP INTERNATIONAL STOCK FUND
-----------------------------
FUND OVERVIEW
The AARP International Stock Fund seeks to offer long-term capital growth and
income from a diversified portfolio of foreign securities, and to keep the value
of its shares more stable than other international equity funds. Because the
Fund invests internationally, it will be affected by up and down movements in
international stock markets.
HOW THE FUND HAS PERFORMED
Because the AARP International Stock Fund is so new, you will not find
performance information in this Report. However, you can call us at
1-800-253-2277 for current performance information.
CALLOUT:
By primarily targeting well-managed, dividend-paying companies in established
markets other than the United States, the Fund seeks long-term growth with less
downside risk than other international stock funds.
Since the Fund was introduced in February of 1997, the portfolio management
team's strategy has been to build a well-diversified portfolio by concentrating
on individual stocks in many different sectors and countries. The portfolio is
presently diversified among 16 countries, including Germany, the United Kingdom,
France, and Japan. We have concentrated on stocks of established dividend-paying
companies listed on foreign exchanges within developed foreign markets. Some of
the major investments we have made include Railtrak (a UK-based rail
transportation company), Sommer Allibert (a French auto components company), BHF
Bank (a German bank), and Shiseido (a Japanese cosmetics company).
We believe that the AARP International Stock Fund offers shareholders
long-term growth opportunities in developed foreign markets while carefully
managing downside risk. We also believe that the Fund offers the opportunity for
investors to further diversify their investment portfolio, which could help to
lower overall risk.
PIE CHART TITLE: ASSET ALLOCATION
CHART PERIOD: As of March 1, 1997
CHART DATA:
Equity Holdings 85%
Cash Equivalents 13%
Fixed Income Holdings 2%
----
100%
====
30
<PAGE>
PIE CHART TITLE: GEOGRAPHICAL DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 1, 1997
CHART DATA:
Europe 80%
Japan 13%
Pacific Basin 5%
U.S. 2%
----
100%
====
PIE CHART TITLE: SECTOR DIVERSIFICATION -- EXCLUDES CASH EQUIVALENTS
CHART PERIOD: As of March 1, 1997
CHART DATA:
Manufacturing 26%
Financial 21%
Consumer Staples 10%
Durables 7%
Communications 7%
Transportation 7%
Construction 5%
Energy 4%
Service Industries 4%
Other 9%
----
100%
====
FOR WHOM THE
FUND IS DESIGNED
The AARP International Stock Fund is suitable for investors seeking long-term
growth of their principal and who want to add international stock market
opportunities to their portfolio. Investors in this Fund should have an
investment time horizon of at least five years or more, and be comfortable with
the value of their principal fluctuating up and down. The Fund will also be
subject to international investment risks such as currency exchange risk.
PORTFOLIO
MANAGEMENT TEAM
Sheridan Reilly
Lead Portfolio Manager
Irene Cheng
Portfolio Manager
31
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS:
-----------------------------------
AARP DIVERSIFIED INCOME PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
PORTFOLIO OVERVIEWS
The AARP Managed Investment Portfolios are conservatively managed "funds of
funds" -- portfolios that invest exclusively in other AARP Mutual Funds. Two
portfolios are offered.
o The AARP Diversified Income Portfolio seeks current income with modest
long-term appreciation by investing 60% to 80% of the assets in the AARP bond
mutual funds.
o The AARP Diversified Growth Portfolio seeks long-term growth of capital by
investing 60% to 80% of the assets in the AARP stock mutual funds.
The investment mix in both portfolios may change when assets appreciate
significantly as economic conditions change.
HOW THE PORTFOLIOS HAVE PERFORMED
Because the AARP Managed Investment Portfolios are so new, a review of
performance is not included in this Report. However, you can call us at
1-800-253-2277 for current performance information.
THE PORTFOLIOS' INVESTMENT STRATEGIES
Since the portfolios were introduced in early February, we have been
implementing an investment process that applies our global perspective and
judgment of capital markets, combined with sophisticated quantitative risk
management techniques, to investing in a mix of AARP Mutual Funds -- each of
which is also managed to reduce the risk of loss to the portfolio.
We began by deciding which asset classes we expected to outperform and
compared that to historical trends. We then used this data to allocate the
portfolios as follows:
The AARP Diversified Income Portfolio allocation as of March 31, 1997:
AARP High Quality Money Fund 15%
AARP Bond Fund for Income 30%
AARP GNMA and U.S. Treasury Fund 30%
AARP Growth and Income Fund 11%
AARP U.S. Stock Index Fund 5%
AARP Global Growth Fund 9%
The AARP Diversified Growth Portfolio allocation as of March 31, 1997:
AARP High Quality Money Fund 1%
AARP GNMA and U.S. Treasury Fund 19%
AARP Bond Fund for Income 20%
AARP U.S. Stock Index Fund 10%
AARP Growth and Income Fund 20%
AARP Small Company Stock Fund 10%
AARP Global Growth Fund 10%
AARP International Stock Fund 10%
32
<PAGE>
As you can see by these breakdowns, both portfolios are well diversified
among the AARP Mutual Funds. We believe the current mix of investments in the
Diversified Income Portfolio will provide shareholders with a competitive yield
from its bond fund investments and growth potential through its stock fund
exposure. For the Diversified Growth Portfolio, we believe that the 20%
investment in fixed-income securities will help stabilize the Portfolio. We also
have included in both portfolios some international exposure to provide the
potential for greater growth.
PIE CHART TITLE: ASSET ALLOCATION -- AARP DIVERSIFIED INCOME PORTFOLIO
CHART PERIOD: As of March 1, 1997
CHART DATA:
AARP GNMA and U.S. Treasury Fund 30%
AARP Bond for Income 30%
AARP High Quality Money Fund 15%
AARP Growth and Income Fund 11%
AARP Global Growth Fund 9%
AARP U.S. Stock Index Fund 5%
----
100%
====
PIE CHART TITLE: ASSET ALLOCATION -- AARP DIVERSIFIED GROWTH PORTFOLIO
CHART PERIOD: As of March 1, 1997
CHART DATA:
AARP Bond for Income 20%
AARP Growth and Income Fund 20%
AARP GNMA and U.S. Treasury Fund 19%
AARP International Stock Fund 10%
AARP Global Growth Fund 10%
AARP Small Company Stock Fund 10%
AARP U.S. Stock Index Fund 10%
AARP High Quality Money Fund 1%
----
100%
====
FOR WHOM THE
PORTFOLIOS ARE DESIGNED
The AARP Managed Investment Portfolios are for individuals comfortable with bond
and stock investing who don't have time or are less confident in making the
all-important asset allocation decisions. They in turn prefer to entrust the
management of their "portfolio" of mutual funds to professional money managers.
These portfolios offer a simple, inexpensive (among the lowest management fees
for this type of fund), one step approach to investing all or a portion of an
individual's investable assets.
The AARP Managed Investment Portfolios are appropriate for investors seeking to
create an investment plan during pre- and post-retirement. The AARP Diversified
Income Portfolio is designed for those already in retirement and for those with
an investment time horizon of at least three to five years. The AARP Diversified
Growth Portfolio is designed for investors in their pre-retirement years and for
those with an investment time horizon of more than five years.
PORTFOLIO
MANAGEMENT TEAM
Philip S. Fortuna
Lead Portfolio Manager
Salvatore J. Bruno
Shahram Tajbakhsh
Portfolio Managers
33
<PAGE>
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intentionally
left blank.
34
<PAGE>
I N V E S T M E N T P O R T F O L I O S
35
<PAGE>
This Page
intentionally
left blank.
36
<PAGE>
AARP HIGH QUALITY MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 10.8%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
44,394,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at 6.375%
to be repurchased at $44,401,861 on 4/1/97 collateralized by a $36,576,000
U.S. Treasury Bond, 9%, 11/15/18 ............................................... 44,394,000
5,370,000 Repurchase Agreement with State Street Bank and Trust Company dated 3/31/97 at 6%
to be repurchased at $5,370,895 on 4/1/97 collateralized by a $5,500,000
U.S. Treasury Bond, 7.125%, 2/15/23 ............................................ 5,370,000
-----------
Total Repurchase Agreements (Cost $49,764,000) .................................. 49,764,000
-----------
- ------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 56.2%
- ------------------------------------------------------------------------------------------------------------
Financial 56.2%
Banks 1.7%
8,000,000 Receivables Capital Corp., 3.97%, 4/04/97 ....................................... 7,996,473
----------
Other Financial Companies 54.5%
15,000,000 AVCO Financial Services, 5.29%, 4/28/97 ......................................... 14,938,516
10,000,000 American Express Credit Corp., 5.29%, 4/23/97 ................................... 9,966,330
22,000,000 Associates Corp. of North America, 5.69%, 6/25/97 ............................... 21,705,163
10,000,000 Beneficial Corp., 5.32%, 4/09/97 ................................................ 9,986,725
8,000,000 Centric Funding Corp., 5.29%, 4/18/97 ........................................... 7,978,880
7,000,000 Centric Funding Corp., 5.29%, 4/22/97 ........................................... 6,977,456
12,000,000 Ciesco, L.P., 5.28%, 4/15/97 .................................................... 11,973,650
22,000,000 Dresdner U.S. Finance Inc., 4.63%, 4/08/97 ...................................... 21,977,371
20,000,000 Ford Motor Credit Co., 4.8%, 4/07/97 ............................................ 19,981,333
10,000,000 General Electric Capital Corp., 5.66%, 7/17/97 .................................. 9,833,020
5,000,000 General Electric Capital Services Inc., 5.33%, 4/07/97 .......................... 4,994,828
14,000,000 Matterhorn Capital Corp., 5.35%, 4/23/97 ........................................ 13,952,346
20,000,000 New Center Asset Trust, 5.09%, 4/10/97 .......................................... 19,971,750
15,000,000 Norwest Corp., 5.33%, 4/03/97 ................................................... 14,993,337
20,000,000 Pitney Bowes Credit Corp., 5.54%, 5/23/97 ....................................... 19,838,054
22,000,000 Private Export Funding Corp., 5.67%, 6/12/97 .................................... 21,749,732
10,000,000 Prudential Funding, 5.12%, 4/29/97 .............................................. 9,958,933
10,000,000 Prudential Funding, 5.65%, 7/02/97 .............................................. 9,856,212
-----------
250,633,636
-----------
Total Commercial Paper (Cost $258,695,303) ...................................... 258,630,109
-----------
- -----------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 7.6%
- -----------------------------------------------------------------------------------------------------------
10,000,000 Abbey National North America, 5.5%, 11/26/97 .................................... 9,982,777
10,000,000 Federal Farm Credit Bank, 5.6%, 11/03/97 ........................................ 9,987,500
5,000,000 Mellon Bank Corp., 6.13%, 9/09/97 ............................................... 5,001,025
5,000,000 Morgan Guaranty Trust Company, 5.71%, 1/06/98 ................................... 4,990,733
5,000,000 National Bank of Detroit, 5.76%, 2/03/98 ........................................ 4,992,945
-----------
Total Certificates Of Deposit (Cost $34,991,184) ................................ 34,954,980
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
37
<PAGE>
AARP HIGH QUALITY MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 9.2%
- ------------------------------------------------------------------------------------------------------------
17,000,000 Federal National Mortgage Association, 5.55%, 7/14/99* .......................... 16,983,000
10,000,000 Student Loan Marketing Association, 5.76%, 10/30/97* ............................ 10,020,700
15,500,000 Student Loan Marketing Association, 5.55%, 7/12/99* ............................. 15,422,500
-----------
Total U.S. Government Agency Obligations (Cost $42,500,000) ..................... 42,426,200
-----------
- ------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 14.9%
- ------------------------------------------------------------------------------------------------------------
Financial 14.9%
Banks 9.3%
5,000,000 Bank of America Illinois, 5.7%, 5/28/97 ......................................... 4,998,062
13,000,000 Bank of New York, 5.365%, 6/10/97 ............................................... 12,989,888
5,000,000 FCC National Bank Note, 5.725%, 1/07/98 ......................................... 4,991,291
10,000,000 FCC National Bank Note, 5.59%, 11/07/97 ......................................... 9,975,027
10,000,000 Pittsburgh National Bank, 5.338%, 7/01/97* ...................................... 9,998,200
-----------
42,952,468
-----------
Other Financial Companies 5.6%
10,000,000 American Express Centurion, 5.638%, 4/24/98* .................................... 9,999,017
15,000,000 First Bank Minnesota Corp., 5.616%, 11/19/97* ................................... 14,998,581
505,320 Ford Motor Credit Co., 5.67%, 7/15/97 ........................................... 505,320
-----------
25,502,918
-----------
Total Short Term Notes (Cost $68,498,341) ....................................... 68,455,386
-----------
- ------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $454,448,828) (a) .................. 98.7 454,230,675
Other Assets and Liabilities, Net ................................... 1.3 5,874,933
----- -----------
Net Assets .......................................................... 100.0 460,105,608
===== ===========
- ------------------------------------------------------------------------------------------------------------
* 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, 1997.
(a) At March 31, 1997, the net unrealized depreciation on investments based on cost for federal income
tax purposes of $454,448,828 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is
an excess of value over tax cost ..................................................... $ 22,376
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ........................................................ (240,529)
-----------
Net unrealized depreciation ............................................................... $ (218,153)
===========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1996, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $74,841 which expire
September 30, 2004. In addition, from November 1, 1995 through September
30, 1996, the Fund incurred approximately $57,258 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in
the fiscal year ended September 30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
38
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value
- ----------------------------------------------------------------------------------------------------------------
MUNICIPAL INVESTMENTS 99.3%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA
Alabama State Municipal Electric Authority, Power Supply Revenue, Series 1993A,
4.1%, 9/1/97 (c) ........................................................... 300,000 AAA 300,479
ALASKA
Alaska Housing Finance Corp., General Mortgage Revenue, Series 1991-A, Weekly
Demand Note, 3.45%, 6/1/26* ................................................ 3,000,000 A1+ 3,000,000
ARIZONA
Apache County, AZ, Industrial Development Authority, Tucson Electric Power
Co., 1983 Series C, Weekly Demand Note, 3.45%, 12/15/18* ................... 1,000,000 A1 1,000,000
Maricopa County, AZ, Pollution Control Revenue:
Palos Verde Project, Series 1985G, Tax Exempt Commercial Paper,
3.5%, 5/14/97 ............................................................ 1,000,000 A1 1,000,000
Public Service of New Mexico, Weekly Demand Note, 3.45%, 11/1/22* .......... 4,000,000 A1+ 4,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.,
Series 1982, Weekly Demand Note:
3.45%, 7/1/22* ........................................................... 1,000,000 A1+ 1,000,000
3.45%, 10/1/22* .......................................................... 3,900,000 A1+ 3,900,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly Demand
Note, 3.45%, 12/1/11* ...................................................... 1,900,000 A1 1,900,000
CALIFORNIA
California, General Obligations, Revenue Anticipation Notes, Series 1996,
4.5%, 6/30/97 .............................................................. 1,000,000 SP1+ 1,001,257
Los Angeles County, CA, Tax And Revenue Anticipation Notes, Series 1996A,
4.5%, 6/30/97 .............................................................. 2,000,000 MIG1 2,003,086
COLORADO
Clear Creek County, CO, Colorado Counties Financing Program, Series 1988,
Weekly Demand Note, 3.4%, 6/1/98* .......................................... 155,000 A1+ 155,000
Colorado Health Facilities Authority, Composite Issue for Kaiser Permanente,
1995 Series A, Weekly Demand Note, 3.45%, 8/1/15* .......................... 3,000,000 A1+ 3,000,000
DELAWARE
Wilmington, DE, Hospital Revenue, Franciscan Health Systems, Series A, Daily
Demand Note, 3.8%, 7/1/11* ................................................. 700,000 A1+ 700,000
FLORIDA
Dade County, FL, Industrial Development Authority Revenue, Dolphins
Stadium Project, Weekly Demand Note:
Series C, 3.45%, 1/1/16* ................................................. 1,000,000 A1+ 1,000,000
Series D, 3.45%, 1/1/16* ................................................. 1,300,000 A1+ 1,300,000
Orlando, FL, Wastewater System Revenues, Series 1990A, Tax Exempt
Commercial Paper, 3.45%, 6/20/97 ........................................... 1,000,000 A1+ 1,000,000
Pinellas County, FL, Health Facilities Authority, Pooled Hospital Loan Program,
Daily Demand Note, Series 1985, 3.85%, 12/1/15* ............................ 500,000 MIG1 500,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-1, Weekly Demand Note, 3.45%, 3/15/14* ........ 4,150,000 A1+ 4,150,000
Sarasota County, FL, Public Hospital District, Sarasota Memorial Hospital,
Series 1993A, Tax Exempt Commercial Paper, 3.55%, 5/22/97 .................. 2,500,000 A1 2,500,000
GEORGIA
Georgia Pooled Hospitals Equipment Loan Program, Series 1991, Daily Demand
Note, 3.85%, 3/1/01* ....................................................... 300,000 A1 300,000
Gordon County, GA, Development Authority Revenue, Series 1989, Weekly
Demand Note, 3.55%, 3/1/02* ................................................ 1,400,000 A1+ 1,400,000
</TABLE>
The accompanying notes are an integral part of the financial statements
39
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDIANA
Indiana Bond Bank, Advance Funding Notes, Series 1997A-2, 4.25%, 1/21/98 ....... 3,000,000 MIG1 3,012,884
Indianapolis, IN, Local Public Improvement Bond Bank Notes, Series 1996H,
4.125%, 7/10/97 ............................................................. 2,500,000 SP1+ 2,503,990
Sullivan, IN, National Rural Utilities Cooperative Finance Corp., Hoosier Energy
Rural Electric, Tax Exempt Commercial Paper, 3.55%, 5/15/97 ................. 2,000,000 A1+ 2,000,000
IOWA
West Des Moines, IA, Commercial Development Revenue, Greyhound Lines,
Weekly Demand Note, 3.4%, 12/1/14* .......................................... 6,400,000 A1+ 6,400,000
KENTUCKY
Kentucky Development Finance Authority, Healthcare System, Appalachian
Regional Health Care, Series 1991, Weekly Demand Note, 3.5%, 9/1/06* ........ 6,800,000 MIG1 6,800,000
MARYLAND
Anne Arundel County, MD, Baltimore Electric and Gas Company, Tax Exempt
Commercial Paper, 3.45%, 6/13/97 ............................................ 900,000 A1 900,000
MASSACHUSETTS
Massachusetts Bay Transportation Authority, Series B, 4.75%, 9/5/97 ............ 2,000,000 SP1 2,006,615
MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982, Weekly
Demand Note, 3.5%, 8/1/12* .................................................. 300,000 AAA 300,000
MISSISSIPPI
Perry County, MS, Pollution Control Revenue, Leaf River Forest Products, Daily
Demand Note, 3.85%, 3/1/02* ................................................. 500,000 P1 500,000
MISSOURI
Missouri HEFA School District Advance Funding Notes, Series 1996C, Kansas City
School District, 4.5%, 9/8/97 ............................................... 1,000,000 SP1+ 1,002,534
MONTANA
Montana State General Obligation, Unlimited Tax and Revenue Anticipation
Notes, Series 1996, 4.5%, 6/27/97 ........................................... 1,000,000 MIG1 1,001,918
NEVADA
Clark County, NV, Airport System, McCarran International Airport, Series A,
Weekly Demand Note, 3.45%, 7/1/12* (c) ...................................... 3,000,000 A1+ 3,000,000
NEW HAMPSHIRE
New Hampshire Business Finance Authority, Connecticut Light & Power, Weekly
Demand Note, 3.45%, 12/1/22* ................................................ 1,700,000 A1+ 1,700,000
NEW MEXICO
Albuquerque, NM, Gross Receipts/Lodgers Tax, Series 1991, Weekly Demand
Note, 3.45%, 7/1/22* ........................................................ 2,000,000 A1+ 2,000,000
NEW YORK
Nassau County, NY, General Obligation Notes, Series 1996, 4.25%, 8/15/97 ....... 2,000,000 MIG1 2,005,057
New York City, NY, General Obligation, Revenue Anticipation Notes,
Series 1996B, 4.5%, 6/30/97 ................................................. 2,000,000 MIG1 2,004,948
PENNSYLVANIA
Emmaus, PA, General Authority, Local Government Revenue Bond Pool Program,
Weekly Demand Note:
1989 Series E, 3.55%, 3/1/24* ............................................. 1,800,000 A1 1,800,000
1989 Series E-6, 3.55%, 3/1/24* ........................................... 2,000,000 A1+ 2,000,000
1989 Series E-8, 3.55%, 3/1/24* ........................................... 1,200,000 A1+ 1,200,000
Philadelphia, PA, General Obligation Bond, Tax and Revenue Anticipation Note,
Series 1996A, 4.5%, 6/30/97 ................................................. 2,000,000 MIG1 2,002,605
</TABLE>
The accompanying notes are an integral part of the financial statements
40
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philadelphia, PA, School District, Tax and Revenue Anticipation Notes,
Series 1996-1997, 4.5%, 6/30/97 ......................................... 3,000,000 SP1 3,003,561
SOUTH CAROLINA
South Carolina Public Service Authority, Series 1997, Tax Exempt Commercial
Paper, 3.45%, 7/22/97 ................................................... 1,000,000 A1 1,000,000
TENNESSEE
Franklin, TN, Industrial Development Revenue, Franklin Oaks Apartments,
Weekly Demand Note, 3.45%, 12/1/21* ..................................... 5,000,000 MIG1 5,000,000
Metropolitan Nashville Airport Authority, TN, Special Facilities Revenue,
American Airlines, Daily Demand Note:
3.8%, 10/1/12* ........................................................ 400,000 A1+ 400,000
3.8%, 10/1/12* ........................................................ 300,000 A1+ 300,000
TEXAS
Grapevine, TX, Industrial Development Corporation, American Airlines,
Series B4, Daily Demand Note, 3.8%, 12/1/24* ............................ 500,000 P1 500,000
Lone Star, TX, Airport Improvement Authority, Daily Demand Note:
Series B3, 3.8%, 12/1/14* ............................................... 500,000 MIG1 500,000
Series 1995 A3, 3.8%, 12/1/14* .......................................... 1,100,000 MIG1 1,100,000
North Central, TX, Health Facilities Development Corp., Presbyterian Medical
Center, Daily Demand Note, Series C, 3.8%, 12/1/15* (c) ................. 500,000 MIG1 500,000
State of Texas, General Obligation, Veterans Housing Assistance Refunding
Bonds, Series 1995, Weekly Demand Note, 3.35%, 12/1/16* ................. 1,500,000 A1+ 1,500,000
Texas Tax and Revenue Anticipation Notes, Series 1996, 4.75%, 8/29/97 ...... 2,000,000 SP1+ 2,006,602
UTAH
Salt Lake City, UT, Pooled Hospital Financings, Tax Exempt Commercial Paper,
3.5%, 6/23/97 ........................................................... 1,000,000 A1+ 1,000,000
VERMONT
Vermont Educational And Health Buildings Financing Agency Revenue, Capital
Asset Financing, Series 2005A, Weekly Demand Note, 3.45%, 8/1/05* ....... 3,400,000 MIG1 3,400,000
WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note,
3.45%, 11/1/18* ......................................................... 1,900,000 A1+ 1,900,000
Seattle, WA, Water System Revenue, Series 1997, 5.375%, 8/1/97 ............. 325,000 AA 326,394
WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding, Pacificorp
Project, 1990 Series A, Weekly Demand Note, 3.4%, 7/1/15* ............... 2,000,000 MIG1 2,000,000
Uinta County, WY, Pollution Control Revenue, Daily Demand Note, Series 1993,
3.8%, 8/15/20* .......................................................... 900,000 A1+ 900,000
---------
Total Municipal Investments (Cost $104,586,930) ............................ 104,586,930
-----------
- -----------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $104,586,930) (a) ........................ 99.3 104,586,930
Other Assets and Liabilities, Net ......................................... 0.7 725,615
----- -----------
Net Assets ................................................................ 100.0 105,312,545
===== ===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
41
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of
the U.S. Treasury bill rate. Variable rate demand notes are securities
whose interest rates are reset periodically at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit or line of credit from a major bank. 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.
(a) At March 31, 1997, the cost for federal income tax purposes of
$104,586,930.
(b) All of the securities held have been determined to be of appropriate
credit quality as required by the Fund's investment objectives. Credit
ratings shown are either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated
securities (NR) and securities rated by Scudder (SS&C) have been
determined to be of comparable quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA, BIG, or MBIA.
- --------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $608,379 of which $170,432
expires September 30, 1997, $19,559 expires September 30, 1999, $323,801
expires September 30, 2000, $401 expires September 30, 2001, $89,046
expires September 30, 2003, $5,140 expires September 30, 2004. In
addition, from November 1, 1995 through September 30, 1996, the Fund
incurred approximately $217,594 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
42
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.7%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
32,523,000 Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/97
at 6.375% to be repurchased at $32,528,759 on 4/1/97 collateralized by
a $32,136,000 U.S. Treasury Note, 6.375%, 5/15/99 (Cost $32,523,000) ... 32,523,000
-------------
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES 31.2%
- ---------------------------------------------------------------------------------------------------------
75,000,000 U.S. Treasury Note, 5.875%, 4/30/98 ...................................... 74,789,250
175,000,000 U.S. Treasury Note, 6.125%, 5/15/98 174,917,750
200,000,000 U.S. Treasury Note, 5.750%, 12/31/98 ..................................... 197,968,000
200,000,000 U.S. Treasury Note, 5.000%, 1/31/99 ...................................... 195,250,000
250,000,000 U.S. Treasury Note, 5.500%, 2/28/99 ...................................... 245,860,000
200,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ...................................... 201,500,000
360,000,000 U.S. Treasury Note, 6.000%, 8/15/99 ...................................... 355,838,400
-------------
Total U.S. Government & Agencies (Cost $1,460,218,753) ................... 1,446,123,400
-------------
- ---------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 67.6%
- ---------------------------------------------------------------------------------------------------------
407,478,039 6.50% with various maturities to 5/15/26 ................................. 379,231,560
750,218,260 7.00% with various maturities to 12/15/25 ................................ 718,989,420
446,322,051 7.50% with various maturities to 11/15/26 ................................ 437,681,639
178,255,152 8.00% with various maturities to 12/15/23 ................................ 179,931,888
379,001,985 8.50% with various maturities to 9/15/26 ................................. 390,406,931
448,283,343 9.00% with various maturities to 4/15/26 ................................. 475,332,169
267,385,993 9.50% with various maturities to 9/15/24 ................................. 288,222,625
202,436,316 10.00% with various maturities to 3/15/25 ................................ 222,282,151
83,924 10.25% with various maturities to 12/15/98 ............................... 86,389
17,082,125 10.50% with various maturities to 1/20/21 ................................ 18,870,805
3,631,351 11.50% with various maturities to 2/15/16 ................................ 4,118,288
7,206,596 12.00% with various maturities to 7/15/15 ................................ 8,299,604
5,315,047 12.50% with various maturities to 8/15/15 ................................ 6,178,260
1,078,178 13.00% with various maturities to 8/20/15 ................................ 1,265,021
801,571 13.50% with various maturities to 10/15/14 ............................... 951,132
327,434 14.00% with various maturities to 12/15/14 ............................... 392,306
95,233 14.50% with various maturities to 10/15/14 ............................... 115,351
234,272 15.00% with various maturities to 10/15/12 ............................... 284,824
230,098 16.00% with various maturities to 2/15/12 ................................ 282,395
-------------
Total Government National Mortgage Association
(Cost $3,140,846,585) .................................................. 3,132,922,758
-------------
- ---------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $4,633,588,338) (a) ......... 99.5 4,611,569,158
Other Assets and Liabilities, Net ............................ 0.5 20,348,220
----- -------------
Net Assets ................................................... 100.0 4,631,917,378
===== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
43
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1997, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $4,633,588,338 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost .........$ 22,645,511
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... (44,664,691)
------------
Net unrealized depreciation ................................$(22,019,180)
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities, all of which were U.S.
Government and U.S. Government agencies' obligations (excluding short-term
investments), for the six months ended March 31, 1997, aggregated
$1,022,847,013 and $1,270,672,468, respectively.
- --------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $322,435,519 all of which
expires September 30, 2003.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
44
<PAGE>
AARP HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 6.4%
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
29,998,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at 6.375%
to be repurchased at $30,003,312 on 4/01/97, collateralized by a $23,142,000
U.S. Treasury Bond, 9.875%, 11/15/15 (Cost $29,998,000) ....................... 29,998,000
-----------
- ---------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 26.6%
- ---------------------------------------------------------------------------------------------------------------
40,000,000 U.S. Treasury Note, 5.75%, 10/31/97 ............................................ 39,974,800
6,500,000 U.S. Treasury Note, 5.875%, 8/15/98 ............................................ 6,463,405
20,000,000 U.S. Treasury Note, 6.75%, 5/31/99 ............................................. 20,100,000
12,500,000 U.S. Treasury Note, 6.875%, 7/31/99 ............................................ 12,593,750
25,000,000 U.S. Treasury Note, 6.25%, 10/31/01 ............................................ 24,492,250
20,000,000 U.S. Treasury Note, 7.25%, 8/15/04 ............................................. 20,396,800
-----------
Total U.S. Treasury Obligations (Cost $125,592,656) ............................ 124,021,005
-----------
- ---------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 9.6%
- ---------------------------------------------------------------------------------------------------------------
15,259,548 8.5% with various maturities to 10/15/26 ....................................... 15,645,768
29,799,001 7.5% with various maturities to 11/15/26 ....................................... 29,193,485
-----------
Total Government National Mortgage Association (Cost $45,555,328) .............. 44,839,253
-----------
- ---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY PASS-THRUS* 9.1%
- ---------------------------------------------------------------------------------------------------------------
9,089,796 Federal Home Loan Mortgage Corp., 8%, 4/01/08 .................................. 9,246,322
5,927,319 Federal National Mortgage Association, 8%, 5/01/07 ............................. 6,037,033
8,070,613 Federal National Mortgage Association, 8.5%, 11/01/09 .......................... 8,363,173
7,927,125 Federal National Mortgage Association, 8%, 12/01/09 ............................ 8,073,856
11,439,565 Federal National Mortgage Association, 6.5%, 11/01/25 .......................... 10,649,434
-----------
Total U. S. Government Agency Pass-thrus (Cost $43,115,767) .................... 42,369,818
-----------
- ---------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S. $ DENOMINATED 6.0%
- ---------------------------------------------------------------------------------------------------------------
15,000,000 Abbey National PLC Global Medium Term Note, 14,281,050 6.69%, 10/17/05 ......... 14,281,050
15,000,000 Province of Ontario Global, 6%, 2/21/06 ........................................ 13,736,850
-----------
Total Foreign Bonds - U. S. $ Denominated Total (Cost $29,928,700) ............. 28,017,900
-----------
- ---------------------------------------------------------------------------------------------------------------
ASSET BACKED 11.3%
- ---------------------------------------------------------------------------------------------------------------
Automobile Receivables 2.9%
13,500,000 Ford Credit Automobile Trust Series 1996-B A3, 6.1%, 3/15/00 ................... 13,415,625
-----------
Credit Card Receivables 1.1%
5,000,000 Advanta Corp. Series 1997-1 A4, 7.65%, 7/25/07 ................................. 4,992,188
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
45
<PAGE>
AARP HIGH QUALITY BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Equity Loans 4.4%
15,618,059 TMS Home Equity Loan Trust, Series 1996-B A1, 6.72%, 3/15/10 ............. 15,596,096
5,000,000 The Money Store Home Equity Series 1997-A A6, 7.21%, 10/15/21 ............ 4,971,875
-----------
20,567,971
-----------
Manufactured Housing 2.9%
3,750,000 Associated Manufactured Housing Corp. Series 1997-1 B1, 7.6%, 6/15/28 .... 3,742,969
4,000,000 Green Tree Financial Corp. Series 1997-1 B1, 7.23%, 3/15/28 .............. 3,846,250
1,500,000 Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 4/15/28 .............. 1,476,563
4,500,000 Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/11 4,725,000
-----------
13,790,782
-----------
Total Asset Backed (Cost $52,804,289) .................................... 52,766,566
-----------
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS 28.3%
- -------------------------------------------------------------------------------------------------------
Consumer Staples 3.4%
15,000,000 Coca Cola Enterprises, Inc., 8.5%, 2/01/22 ............................... 15,984,450
-----------
Financial 8.3%
1,500,000 American Express Credit Corp., 11.625%, 12/12/00 ......................... 1,582,500
15,000,000 Associates Corp. of North America, 6.625%, 5/15/01 ....................... 14,749,050
7,550,000 BankAmerica Corp., 7.125%, 5/01/06 ....................................... 7,374,311
8,250,000 Taubman Realty Group LP Medium Term Note, 7%, 10/01/03 ................... 8,022,135
7,450,000 Wells Fargo & Co., 6.875%, 4/01/06 ....................................... 7,134,567
-----------
38,862,563
-----------
Durables 2.1%
10,000,000 Northrop Grumman Corp., 7.875%, 3/01/26 .................................. 9,733,100
-----------
Technology 2.9%
15,000,000 International Business Machines Corp., 7%, 10/30/45 ...................... 13,354,950
-----------
Energy 6.9%
15,000,000 Atlantic Richfield Co., 9.125%, 8/01/31 .................................. 17,314,500
15,000,000 Norsk Hydro AS, 7.75%, 6/15/23 ........................................... 14,744,400
-----------
32,058,900
-----------
Transportation 2.8%
13,500,000 Continental Airlines Inc., 7.461%, 10/01/16 .............................. 13,178,835
-----------
Utilities 1.9%
10,000,000 Public Service Electric & Gas Co. 1st Refunding Mortgage, 6.25%, 1/01/07 . 9,112,100
-----------
Total Corporate Bonds (Cost $136,031,527) ................................ 132,284,898
-----------
- -------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $463,026,267) (a) ........... 97.3 454,297,440
Other Assets and Liabilities, Net ............................ 2.7 12,623,853
----- ----------
Net Assets ................................................... 100.0 466,921,293
===== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1997, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $463,026,267 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax
cost ....................................................... $ 931,009
Aggregate gross unrealized depreciation for
all investments in which there is an excess of tax cost
over value ................................................. (9,659,836)
----------
Net unrealized depreciation ................................ $(8,728,827)
===========
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1997 was $1,194,067,801.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments, and U.S. Government and U.S. Government agencies'
obligations) for the six months ended March 31, 1997 aggregated
$74,427,449 and $36,063,518, respectively. Purchases and sales of
obligations of the U.S. Government and U.S. Government agencies aggregated
$174,508,107 and $196,489,798, respectively.
- --------------------------------------------------------------------------------
At September 30, 1996, and to the extent provided in regulations, the Fund
had a capital loss carryforward of approximately $7,897,530 which expires
September 30, 2003. In addition, from November 1, 1995 through September
30, 1996, the Fund incurred approximately $860,534 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in
the fiscal year ended September 30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
47
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS (UNDER 1 YEAR) - 2.1%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONNECTICUT
Connecticut State Clean Water Fund, Series 1991, 6.4%, 7/1/97 .................. 375,000 AAA 377,396
DISTRICT OF COLUMBIA
District of Columbia, General Fund Recovery, Series B-3, 3.9%, 6/1/03 .......... 300,000 A1+ 300,000
FLORIDA
Halifax Hospital Medical Center, FL, Hospital Revenue, Auction Reset Security,
Series A, 3.6%, 10/1/19* (c) ............................................... 4,000,000 AAA 4,000,000
Hillsborough County, FL, School District, Series 1990, 6.8%, 8/15/97 ........... 1,000,000 A1 1,010,850
KANSAS
Burlington, KS, Environmental Improvement Revenue, Kansas City
Power & Light, Periodic Auction Reset, 3.95%, 12/1/23* ..................... 8,000,000 A 8,000,000
La Cygne, KS, Pollution Control Revenue, Mates, Kansas Gas & Electric,
Series 1994B, 3.69%, 4/15/27 (c) ........................................... 3,000,000 AAA 3,000,000
MASSACHUSETTS
Massachusetts Health & Educational Facilities Authority, Weekly Demand Note:
Brigham and Women's Hospital, Series A, 3.45%, 7/1/17* ..................... 900,000 AA 900,000
Harvard University, 3.3%, 8/1/17* .......................................... 400,000 MIG1 400,000
MISSISSIPPI
Perry County, MS, Pollution Control Revenue, Leaf River Forest Products,
Daily Demand Note, 3.85%, 3/1/02* .......................................... 1,000,000 P1 1,000,000
MISSOURI
Missouri Health & Educational Facilities Authority Revenue, Washington
University, Series 1996 C, Daily Demand Note, 3.7%, 9/1/30* ................ 5,000,000 MIG1 5,000,000
NEW YORK
New York City Municipal Water Finance Authority, Series 1984 G, Daily
Demand Note, 3.85%, 6/15/24* (c) ........................................... 1,200,000 MIG1 1,200,000
OHIO
Cuyahoga County, OH, Health & Education, University Hospital
of Cleveland, Daily Demand Note, 3.9%, 1/1/16* ............................. 3,400,000 MIG1 3,400,000
PENNSYLVANIA
Chester County, PA, Health and Education, Main Line Health System,
Series 1994B, Periodic Auction Reset, 3.53%, 5/15/20* (c) .................. 700,000 AAA 700,000
PUERTO RICO
Puerto Rico, Series 1996, Daily Demand Note, 3.65%, 7/1/11* (c) ................ 3,000,000 AAA 3,000,000
TENNESSEE
Metropolitan Nashville Airport Authority, TN, Special Facilities Revenue,
American Airlines, 3.8%, 10/1/12* .......................................... 1,800,000 A1+ 1,800,000
TEXAS
San Antonio, TX, Electric and Gas, Series 1988A, TECP, 3.5%, 5/14/97 ........... 1,200,000 P1 1,200,000
----------
Total Short-Term Municipal Investments (Cost $35,289,138) ...................... 35,288,246
----------
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS (OVER 1 YEAR) - 96.7%
- -------------------------------------------------------------------------------------------------------------------
ALASKA
Alaska Housing Finance Corp., Veterans Mortgage Project, Series F,
GNMA collateralized, 8.1%, 9/1/20 .......................................... 3,850,000 AAA 3,920,185
Anchorage, AK, Electric Utility Revenue, 6.5%, 12/1/07 (c) ..................... 2,620,000 AAA 2,875,660
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series A, Zero Coupon, 6/30/06 (c) ......................................... 4,000,000 AAA 2,443,480
</TABLE>
The accompanying notes are an integral part of the financial statements
48
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B, Zero Coupon:
1/1/03 (c) .............................................................. 16,000,000 AAA 11,977,280
6/30/04 (c) ............................................................. 15,500,000 AAA 10,683,065
6/30/05 (c) ............................................................. 25,600,000 AAA 16,627,200
ARIZONA
Arizona Municipal Finance Program, Certificate of Participation, Series 25,
7.875%, 8/1/14 (c) ......................................................... 3,500,000 AAA 4,347,385
Maricopa County, AZ, School:
District #6, Washington Elementary, Series B, 4.1%, 7/1/13 (c) ............. 2,950,000 AAA 2,432,570
District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/04 (c) ......... 4,000,000 AAA 2,856,640
District #41, Gilbert School, Zero Coupon, 1/1/05 (c) ...................... 5,280,000 AAA 3,560,304
District #68, Alhambra Elementary, Zero Coupon, 7/1/05 (c) ................. 2,850,000 AAA 1,873,533
Scottsdale, AZ, Industrial Development Authority, Scottsdale Memorial
Hospital, 8.5%, 9/1/17 (c) ................................................. 1,050,000 AAA 1,090,887
CALIFORNIA
Alameda County, CA, Certificate of Participation,
Santa Rita Jail Project, 5.375%, 6/1/09 (c) (d) ............................ 13,395,000 AAA 13,435,453
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/19 (c) ............................................................. 960,000 AAA 1,221,811
8%, 1/1/19 (c) ............................................................. 1,080,000 AAA 1,374,538
Big Bear Lake, CA, Department of Water and Power, Series 1996,
6%, 4/1/11 (c) ............................................................. 3,800,000 AAA 4,014,320
California Housing Finance Agency:
5.3%, 8/1/14 (c) ........................................................... 3,820,000 AAA 3,796,163
5.7%, 8/1/16 (c) ........................................................... 5,825,000 AAA 5,704,306
California State Public Works Board, Lease Revenue, Secretary of State, Series A,
6.3%, 12/1/06 (c) (d) ...................................................... 8,095,000 AAA 8,833,588
Irvine Ranch, CA, Water District, Joint Powers Agency, Local Pool Revenue,
7.875%, 2/15/23 ............................................................ 3,000,000 A 3,082,290
Los Angeles County, CA , Public Works Authority:
Series 1996A, 6%, 9/1/04 (c) ............................................... 2,920,000 AAA 3,111,990
Series 1996B, 5.25%, 9/1/11 (c) ............................................ 3,000,000 AAA 2,896,920
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/06 (c) ................. 9,000,000 AAA 9,498,870
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue,
Multiple Projects IV, 4.75%, 12/1/10 (c) ................................... 11,140,000 AAA 10,143,750
Madera County, CA, Certificates of Participation, Valley Childrens Hospital,
Series 1995, 6.5%, 3/15/10 (c) ............................................. 2,840,000 AAA 3,131,128
Oakland, CA, Redevelopment Agency, Tax Allocation, Central District,
6%, 2/1/07 (c) ............................................................. 2,000,000 AAA 2,137,680
Riverside, CA, Transportation Commission, Sales Tax Revenue, Series A,
5.7%, 6/1/06 (c) ........................................................... 5,400,000 AAA 5,654,610
San Diego Water Authority, CA, Certificate of Participation:
5.632%, 4/25/07* (c) ....................................................... 6,300,000 AAA 6,450,381
5.681%, 4/22/09* (c) ....................................................... 4,500,000 AAA 4,622,850
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax,
Revenue Refunding, 6.75%, 7/1/10 (c) ....................................... 2,000,000 AAA 2,263,140
San Joaquin, CA, Certificate of Participation, County Public Facilities Project,
5.5%, 11/15/13 (c) ......................................................... 2,000,000 AAA 1,978,400
Sweetwater, CA, Water Revenue, 5.25%, 4/1/10 (c) ............................... 13,240,000 AAA 13,092,639
Three Valleys, CA, Municipal Water District Certificates of Participation,
5%, 11/1/14 (c) ............................................................ 3,000,000 AAA 2,743,650
Whittier, CA, Presbyterian Intercommunity Hospital, Health Facilities Revenue,
6.25%, 6/1/08 (c) .......................................................... 1,780,000 AAA 1,947,729
</TABLE>
The accompanying notes are an integral part of the financial statements
49
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COLORADO
Castle Rock Ranch, CO, Public Facilities Revenue, Series 1996:
6.3%, 12/1/07 .............................................................. 3,115,000 AA 3,293,676
6.4%, 12/1/08 .............................................................. 3,310,000 AA 3,518,530
6.375%, 12/1/11 ............................................................ 2,000,000 AA 2,091,180
Mesa County, CO, Residual Revenue, Single Family Housing, ETM,
Zero Coupon, 12/1/11** ..................................................... 3,855,000 AAA 1,683,363
CONNECTICUT
Connecticut Resource Recovery Authority:
Series 1996, 6.25%, 11/15/05 (c) ........................................... 2,000,000 AAA 2,151,480
Series 1996A, 6.25%, 11/15/06 (c) .......................................... 4,525,000 AAA 4,870,167
Connecticut State Housing Finance Authority, Series 1992B, 6.15%, 11/15/04 ..... 5,000,000 AA 5,171,800
DISTRICT OF COLUMBIA
District of Columbia, General Obligation:
6.5%, 6/1/10 (c) ........................................................... 2,270,000 AAA 2,453,893
Series A, Prerefunded 6/1/99 at 102, 7.5%, 6/1/09*** (c) ................... 5,000,000 AAA 5,405,400
Series B:
6.125%, 6/1/03 (c) ...................................................... 4,000,000 AAA 4,205,640
5.4%, 6/1/06 (c) (d) .................................................... 18,905,000 AAA 18,903,488
5.4%, 6/1/06 (c) ........................................................ 10,000,000 AAA 9,999,200
5.5%, 6/1/07 (c) (d) .................................................... 25,000,000 AAA 25,075,250
5.5%, 6/1/08 (c) (d) .................................................... 21,300,000 AAA 21,210,540
5.5%, 6/1/09 (c) (d) .................................................... 16,150,000 AAA 15,937,466
5.5%, 6/1/09 (c) ........................................................ 2,840,000 AAA 2,802,626
5.5%, 6/1/10 (c) (d) .................................................... 15,590,000 AAA 15,232,209
5.5%, 6/1/12 (c) ........................................................ 1,050,000 AAA 1,013,292
Zero Coupon, 6/1/00 (c) ................................................. 3,500,000 AAA 3,014,655
Refunding, Series 1993A, 5.875%, 6/01/05 (c) ............................... 4,750,000 AAA 4,931,925
District of Columbia, Georgetown University, Series B, 7.1%, 4/1/12 ............ 3,000,000 A 3,171,690
FLORIDA
Florida Department of Natural Resources, Preservation 2000-A,
4.75%, 7/1/12 (c) .......................................................... 10,000,000 AAA 8,964,500
Florida Municipal Power Agency, Stanton II Project, Refunding Revenue
Bonds, Series 1993, 4.5%, 10/1/16 (c) ...................................... 4,400,000 AAA 3,687,420
Orange County, FL, Health Facilities Authority Refunding Program,
1985 Series A, 7.875%, 12/1/25 (c) ......................................... 16,785,000 AAA 17,222,921
Sarasota County, FL, School Board Finance Corp., Lease Revenue Refunding,
5%, 7/1/09 (c) ............................................................. 5,595,000 AAA 5,376,459
GEORGIA
Cobb County, GA, Kennestone Hospital Authority, Series A,
5.625%, 4/1/11 (c) ......................................................... 5,305,000 AAA 5,327,971
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/11 (c) ....................................... 6,975,000 AAA 6,843,730
Municipal Electric Authority of Georgia, 5th Crossover, Project #1,
6.4%, 1/1/13 (c) ........................................................... 3,500,000 AAA 3,807,790
HAWAII
Hawaii State General Obligation, Series 1992 BZ, 6%, 10/1/09 (c) ............... 2,000,000 AAA 2,134,340
ILLINOIS
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue,
Zero Coupon, 5/1/02 (c) .................................................... 2,245,000 AAA 1,746,588
Chicago, IL, Board of Education, Certificate of Participation, Series 92A,
6.125%, 1/1/06 (c) ......................................................... 4,000,000 AAA 4,244,080
</TABLE>
The accompanying notes are an integral part of the financial statements
50
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chicago, IL, O'Hare International Airport, Refunding Revenue:
Series 1996A, 6%, 1/1/06 (c) ............................................... 2,000,000 AAA 2,096,820
Series C, 5%, 1/1/11 (c) ................................................... 6,500,000 AAA 6,122,935
Chicago, IL, Wastewater Transmission Revenue, 5.5%:
1/1/09 (c) (d) ............................................................. 11,990,000 AAA 12,030,047
1/1/10 (c) ................................................................. 7,220,000 AAA 7,193,142
Chicago, IL, General Obligation:
6.25%, 1/1/11 (c) .......................................................... 3,000,000 AAA 3,202,800
Emergency Telephone System, 5.55%, 1/1/08 (c) .............................. 5,820,000 AAA 5,918,474
Series A, 5.375%, 1/1/13 (c) (d) ........................................... 15,410,000 AAA 14,954,789
Series B, 5%, 1/1/10 (c) ................................................... 5,200,000 AAA 4,913,376
Series B, 5%, 1/1/11 (c) ................................................... 1,620,000 AAA 1,526,024
Series B, 5%, 1/1/12 (c) ................................................... 5,000,000 AAA 4,672,500
Series B, 5.125%, 1/1/15 (c) ............................................... 9,550,000 AAA 8,782,944
Chicago, IL, General Obligation Lease, Board of Education:
Series 1996, 6.25%, 12/1/11 (c) ............................................ 1,600,000 AAA 1,712,896
Series A:
6.25%, 1/1/15 (c) (d) ................................................... 23,000,000 AAA 24,292,600
6.25%, 1/1/10 (c) ....................................................... 11,550,000 AAA 12,357,114
6%, 1/1/16 (c) .......................................................... 11,025,000 AAA 11,286,513
6%, 1/1/20 (c) .......................................................... 36,625,000 AAA 37,446,499
Chicago, IL, Public Building Commission, Building Revenue, Series A:
5.25%, 12/1/07 (c) ......................................................... 3,500,000 AAA 3,488,415
5.25%, 12/1/09 (c) (d) ..................................................... 10,420,000 AAA 10,220,978
5.25%, 12/1/11 (c) ......................................................... 9,705,000 AAA 9,358,046
Zero Coupon, 1/1/06 (c) .................................................... 2,430,000 AAA 1,540,158
Cook County, IL, Community High School District #233, Capital Appreciation,
Series 1993 B, Zero Coupon:
12/1/08 (c) ............................................................. 1,700,000 AAA 909,891
12/1/09 (c) ............................................................. 1,700,000 AAA 851,870
12/1/10 (c) ............................................................. 1,665,000 AAA 781,668
Cook County, IL, General Obligation:
Zero Coupon, 11/1/04 (c) ................................................... 3,205,000 AAA 2,190,842
Series C, 6%, 11/15/07 (c) ................................................. 5,000,000 AAA 5,306,200
Cook & Dupage Counties, High School District #210, Zero Coupon:
12/1/07 (c) ................................................................ 2,550,000 AAA 1,432,513
12/1/08 (c) ................................................................ 2,625,000 AAA 1,381,249
12/1/09 (c) ................................................................ 2,860,000 AAA 1,406,891
Decatur, IL, General Obligation, Series 1991, Zero Coupon:
10/1/03 (c) ................................................................ 1,455,000 AAA 1,048,822
10/1/04 (c) ................................................................ 1,415,000 AAA 962,823
Decatur, IL, Public Building Commission, General Obligation, Certificate of
Participation:
6.5%, 1/1/03 (c) ........................................................ 1,725,000 AAA 1,850,977
6.5%, 1/1/06 (c) ........................................................ 1,500,000 AAA 1,628,955
Evergreen Park, IL, Little Company of Mary Hospital, 7.75%, 2/15/09 (c) ........ 2,935,000 AAA 3,069,071
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation,
Junior Lien, Series 1991, Zero Coupon, 5/15/07 ............................. 17,460,000 A 10,002,485
Illinois Dedicated Tax Revenue, Series A, Civic Center Project:
6.5%, 12/15/07 (c) ......................................................... 4,765,000 AAA 5,268,184
6.5%, 12/15/08 (c) ......................................................... 5,255,000 AAA 5,813,817
6.25%, 12/15/11 (c) ........................................................ 3,000,000 AAA 3,224,580
6.25%, 12/15/20 (c) ........................................................ 6,975,000 AAA 7,394,476
</TABLE>
The accompanying notes are an integral part of the financial statements
51
<PAGE>
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<TABLE>
<CAPTION>
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Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois Educational Facilities Authority, Loyola University, Zero Coupon:
7/1/05 (c) ................................................................. 4,000,000 AAA 2,598,000
Revenue Refunding, Series 1991A, 7/1/04 (c) ................................ 2,860,000 AAA 1,971,198
Illinois Health Facilities Authority, Brokaw-Mennonite Healthcare, 6%:
8/15/06 (c) ................................................................ 1,380,000 AAA 1,444,308
8/15/07 (c) ................................................................ 1,460,000 AAA 1,531,131
8/15/08 (c) ................................................................ 1,550,000 AAA 1,618,758
8/15/09 (c) ................................................................ 1,640,000 AAA 1,703,812
Illinois Health Facilities Authority:
Children's Memorial Hospital, 6.25%, 8/15/13 (c) ........................... 3,400,000 AAA 3,574,794
Felician Healthcare Inc., Series A, 6.25%, 1/1/15 (c) (d) .................. 17,000,000 AAA 17,858,330
Memorial Medical Center, 6.75%, 10/1/11 (c) ................................ 2,135,000 AAA 2,293,823
Methodist Health Service, Series 1985 G, 8%, 8/1/15 (c) .................... 10,015,000 AAA 10,836,230
Sherman Hospital, 6.75%, 8/1/11 (c) ........................................ 2,700,000 AAA 2,901,312
SSM Healthcare System, Series AA, 6.4%, 6/1/08 (c) ......................... 1,350,000 AAA 1,473,835
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus
Extension Center, 6.7%, 9/1/12 (c) ......................................... 2,500,000 AAA 2,795,675
Kane County, IL, School District #129, Aurora West Side, Series 1996A,
6.5%, 2/1/10 (c) ........................................................... 1,775,000 AAA 1,940,128
Kane, Cook and Dupage Counties, IL, School District #45 Elgin, Series 1996B,
Zero Coupon:
1/1/11 (c) .............................................................. 1,040,000 AAA 473,179
1/1/12 (c) .............................................................. 1,300,000 AAA 554,567
1/1/13 (c) .............................................................. 2,095,000 AAA 837,120
Kendall, Kane and Will Counties, IL, Community Unit School, District Number 308,
Oswego, Zero Coupon:
3/1/02 (c) .............................................................. 1,055,000 AAA 827,563
3/1/05 (c) .............................................................. 1,540,000 AAA 1,017,817
3/1/06 (c) .............................................................. 1,595,000 AAA 991,787
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project,
Zero Coupon:
12/15/03 (c) ............................................................ 3,200,000 AAA 2,282,912
6/15/04 (c) ............................................................. 10,300,000 AAA 7,115,240
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply System
Revenue, 6.45%, 5/1/07 (c) ................................................. 2,575,000 AAA 2,805,978
Rosemont, IL, Tax Increment, Series C, Zero Coupon:
12/1/05 (c) ................................................................ 4,455,000 AAA 2,831,108
12/1/07 (c) ................................................................ 2,655,000 AAA 1,491,499
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/11 (c) .............. 3,000,000 AAA 1,295,130
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/03 (c) ................................................................ 2,750,000 AAA 1,982,310
University of Illinois, Board of Trustees, Series 1991, Zero Coupon:
4/1/03 (c) ................................................................. 3,890,000 AAA 2,875,566
4/1/05 (c) ................................................................. 3,830,000 AAA 2,520,332
Will County, IL, Community Unit School District #201-U, Crete-Monee, Capital
Appreciation, Zero Coupon:
12/15/00 (c) ............................................................ 1,325,000 AAA 1,112,642
12/15/01 (c) ............................................................ 1,730,000 AAA 1,377,582
INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, Series A, 6.5%, 11/15/12 (c) ....... 1,400,000 AAA 1,477,280
Indiana Health Facilities Finance Authority, Hospital Revenue:
Ancilla Systems Inc., Series A, 6%, 7/1/18 (c) (d) ......................... 27,635,000 AAA 27,774,004
Community Hospital Project, 6.4%, 5/1/12 (c) ............................... 5,000,000 AAA 5,204,300
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
<TABLE>
<CAPTION>
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Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indiana Municipal Power Agency, Power Supply System, Series B, 6%,
1/1/12 (c) ................................................................. 3,100,000 AAA 3,235,749
Indiana University, Revenue Refunding, Student Fee Revenue:
Series H, Zero Coupon, 8/1/06 (c) .......................................... 8,500,000 AAA 5,169,360
Series H, Zero Coupon, 8/1/08 (c) .......................................... 10,000,000 AAA 5,359,400
Series J, 5%, 8/1/18 (c) ................................................... 4,200,000 AAA 3,661,518
Madison County, IN, Community Hospital of Anderson,
Prerefunded 1/1/98 at 102, 8%, 1/1/14*** (c) ............................... 7,055,000 AAA 7,406,833
Merrillville, IN, Multiple School Building Corp., First Mortgage, Zero Coupon,
1/15/11 (c) ................................................................ 4,000,000 AAA 1,815,880
IOWA
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c) ............................ 5,000,000 AAA 5,406,850
KANSAS
Kansas City, KS, Utility System Revenue, Capital Appreciation, ETM,
Zero Coupon, 3/1/01** (c) .................................................. 4,095,000 AAA 3,396,802
Kansas City, KS, Utility System Revenue, Zero Coupon:
9/1/04 (c) ................................................................. 2,640,000 AAA 1,823,738
9/1/05 (c) ................................................................. 3,950,000 AAA 2,574,728
9/1/06 (c) ................................................................. 1,375,000 AAA 844,044
ETM, 9/1/04** (c) .......................................................... 3,575,000 AAA 2,464,283
ETM, 9/1/05** (c) .......................................................... 5,300,000 AAA 3,446,219
ETM, 9/1/06** (c) .......................................................... 1,875,000 AAA 1,147,819
LOUISIANA
Louisiana Public Facilities Authority, Prerefunded 2/15/08 at 100,
4.75%, 5/1/16*** ........................................................... 5,765,000 AAA 5,579,194
New Orleans, LA, Exhibition Hall Authority, Series 1983, Zero Coupon,
7/15/06 (c) ................................................................ 4,850,000 AAA 2,762,996
New Orleans, LA, General Obligation, Zero Coupon, 9/1/07 (c) ................... 10,000,000 AAA 5,723,100
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986,
5.95%, 11/1/14 (c) ......................................................... 1,945,000 AAA 1,980,866
MASSACHUSETTS
Massachusetts, General Obligation:
Series A, 7%, 3/1/99 (c) ................................................... 4,850,000 AAA 5,078,920
Series D, Prerefunded 10/1/99 at 102, 7%, 10/1/03*** (c) ................... 7,000,000 AAA 7,553,770
New England Education Loan Marketing Corporation, Student Loan Revenue
Refunding, Series F, 4.75%, 7/1/98 ......................................... 5,000,000 A 5,025,550
MICHIGAN
Detroit, MI, General Obligation, Distributable State Aid, Refunding:
5.2%, 5/1/07 (c) ........................................................... 3,000,000 AAA 2,971,110
5.25%, 5/1/08 (c) .......................................................... 1,500,000 AAA 1,492,455
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue, Borgess Medical
Center, Series A, Prerefunded 7/1/99 at 100, 6%, 7/1/09*** (c) ............. 8,250,000 AAA 8,529,180
Michigan State Hospital Finance Authority, Sisters of Mercy, Healthcorp
Obligated Group, Series P, 5.25%, 8/15/08 (c) .............................. 8,655,000 AAA 8,625,140
MINNESOTA
Northern Minnesota Municipal Power Agency, Series 1989A, 7.25%, 1/1/16 ......... 7,500,000 A 7,927,875
MISSOURI
Missouri Health & Educational Facilities Authority, SSM Healthcare,
1992 Series AA:
6.35%, 6/1/08 (c) ....................................................... 8,125,000 AAA 8,886,637
6.4%, 6/1/09 (c) ........................................................ 8,640,000 AAA 9,475,315
NEVADA
Clark County, NV, School District, General Obligation, Series B, Zero Coupon,
3/1/05 (c) ................................................................. 8,070,000 AAA 5,354,284
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
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Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW JERSEY
New Jersey Highway Authority, Garden State Parkway, General Revenue,
6.5%, 1/1/11 ............................................................... 4,835,000 AAA 5,228,569
New Jersey Housing and Mortgage Finance Agency, Home Mortgage Purchase
Revenue, Zero Coupon, 10/1/16 (c) .......................................... 5,155,000 AAA 681,543
New Jersey Turnpike Authority:
Series 1991A, 6.3%, 1/1/01 (c) ............................................. 1,250,000 AAA 1,317,037
6.5%, 1/1/09 (c) ........................................................... 5,000,000 AAA 5,519,300
NEW YORK
New York City, NY General Obligation:
5.9%, 2/1/05 (c) ........................................................... 5,500,000 AAA 5,753,330
6%, 8/1/06 (c) ............................................................. 140,000 AAA 142,758
Prerefunded 11/1/97 at 101.5, 8%, 11/1/01*** (c) ........................... 760,000 AAA 789,549
Prerefunded 11/1/97 at 101.5, 8.125%, 11/1/05*** (c) ....................... 1,400,000 AAA 1,455,412
Series 1984 H, 5.8%, 8/1/04 (c) ............................................ 5,000,000 AAA 5,217,100
Series 1989 E, Prerefunded 12/1/97 at 101.5, 7%, 12/1/07*** (c) ............ 115,000 AAA 119,102
Series A, ETM, 8%, 11/1/01** ............................................... 740,000 AAA 792,140
Series A, 3%, 8/15/02 (c) .................................................. 9,000,000 AAA 8,264,610
Series C, 6.4%, 8/1/04 (c) ................................................. 500,000 AAA 535,950
Series C, 6.4%, 8/1/05 (c) ................................................. 430,000 AAA 459,046
Series C, Prerefunded 8/1/02 at 101.5, 6.4%, 8/1/05*** (c) ................. 10,000,000 AAA 10,890,300
Series D, 8%, 8/1/05 (c) ................................................... 170,000 AAA 175,556
Series D, Prerefunded 8/1/97 at 102, 8%, 8/1/05*** (c) ..................... 830,000 AAA 857,954
Series D, 6%, 8/1/08 (c) ................................................... 370,000 AAA 375,583
Series E, ETM, 7%, 12/1/07** (c) ........................................... 1,385,000 AAA 1,412,049
New York State Dormitory Authority:
State University of New York, 6%, 7/1/09 (c) ............................... 2,000,000 AAA 2,113,680
College and University Pooled Capital Program, 7.8%, 12/1/05 (c) ........... 9,905,000 AAA 10,625,490
New York State Dormitory Authority Revenue, City University:
Series C, 7.5%, 7/1/10 (c) ................................................. 5,750,000 AAA 6,827,320
Series D, 7%, 7/1/09 (c) ................................................... 4,000,000 AAA 4,583,200
New York State Energy Research and Development Authority,
Pollution Control Revenue, Electric and Gas, 5.9%, 12/1/06 (c) ............. 5,300,000 AAA 5,595,157
New York State, Urban Development Authority, Correctional Facilities, Series A,
6.5%, 1/1/11 (c) ........................................................... 4,500,000 AAA 4,925,115
Suffolk County, NY, Industrial Development Agency, Southwest Sewer System,
6%, 2/1/07 (c) ............................................................. 8,000,000 AAA 8,512,480
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency, Refunding, Linked Certificates:
5.5%, 1/1/07 (c) ........................................................... 2,000,000 AAA 2,040,660
Series B, 6%, 1/1/18 (c) ................................................... 8,775,000 AAA 9,070,366
North Carolina Municipal Power Agency, Catawba Electric Power Revenue:
5.25%, 1/1/08 (c) .......................................................... 2,500,000 AAA 2,507,950
6%, 1/1/11 (c) ............................................................. 8,235,000 AAA 8,693,031
7.5%, 1/1/17 ............................................................... 4,520,000 A 4,682,991
Series 1997, 6%, 1/1/08 (c) ................................................ 2,585,000 AAA 2,742,478
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/02 (c) .................................................... 2,850,000 AAA 2,233,830
OHIO
Cleveland, OH, Water Works Revenue, Series 1993G, 5.5%, 1/1/13 (c) (d) ......... 10,000,000 AAA 9,967,800
Hamilton County, OH, Electric System Mortgage Revenue, Series B,
Prerefunded 10/15/98 at 102, 8%, 10/15/22*** (c) ........................... 3,720,000 AAA 4,005,138
</TABLE>
The accompanying notes are an integral part of the financial statements
54
<PAGE>
<TABLE>
<CAPTION>
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Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ohio Air Quality Development Authority, Ohio Power Company, Series B,
7.4%, 8/1/09 (c) ........................................................... 5,000,000 AAA 5,373,950
OKLAHOMA
Muskogee, OK, Industrial Pollution Control, Series 1987A, 7%, 3/1/17 ........... 5,000,000 A1 5,107,900
Tulsa, OK, Industrial Development Authority, St. John's Medical Center:
Zero Coupon, 12/1/02 (c) ................................................... 3,930,000 AAA 2,995,407
Zero Coupon, 12/1/04 (c) ................................................... 5,430,000 AAA 3,704,618
Zero Coupon, 12/1/06 (c) ................................................... 6,430,000 AAA 3,896,259
OREGON
Portland, OR, Sewer System Revenue, Series 1994 A, 7%, 6/1/97 .................. 1,500,000 A1 1,507,830
PENNSYLVANIA
Pennsylvania Industrial Development Authority, Economic Development
Revenue:
5.8%, 1/1/08 (c) ........................................................ 4,250,000 AAA 4,434,110
5.8%, 7/1/08 (c) ........................................................ 4,875,000 AAA 5,093,400
Philadelphia, PA, Water & Wastewater Revenue:
5.5%, 6/15/07 (c) .......................................................... 5,000,000 AAA 5,101,300
5.625%, 6/15/08 (c) ........................................................ 2,100,000 AAA 2,162,307
5.625%, 6/15/09 (c) ........................................................ 10,855,000 AAA 11,099,563
5.625%, 6/15/09 (c) ........................................................ 20,000,000 AAA 20,450,600
Westmoreland County, PA, Industrial Development Revenue, Westmoreland
Health System, 5.375%, 7/1/11 (c) .......................................... 7,300,000 AAA 7,167,578
PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation Authority Revenue,
5.5%, 7/1/09 (c) ........................................................... 10,940,000 AAA 11,183,853
RHODE ISLAND
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/15 (c) ................................ 2,000,000 AAA 1,917,840
Rhode Island Convention Center Authority, Refunding Revenue, Series 1993 B:
5%, 5/15/10 (c) ............................................................ 5,000,000 AAA 4,745,750
5.25%, 5/15/15 (c) (d) ..................................................... 22,000,000 AAA 20,746,660
Rhode Island Depositors Economic Protection Corp., Special Obligation,
Series B:
5.8%, 8/1/10 (c) ........................................................ 6,200,000 AAA 6,366,532
5.8%, 8/1/11 (c) ........................................................ 4,525,000 AAA 4,626,451
5.8%, 8/1/12 (c) ........................................................ 2,500,000 AAA 2,545,625
5.8%, 8/1/13 (c) ........................................................ 7,340,000 AAA 7,440,118
SOUTH CAROLINA
Piedmont Municipal Power Agency, SC, Electric Revenue:
5.5%, 1/1/12 (c) ........................................................... 2,810,000 AAA 2,795,697
Series 1991 A, 6.5%:
ETM, 1/1/16** (c) ....................................................... 430,000 AAA 468,218
1/1/16 (c) .............................................................. 2,570,000 AAA 2,801,557
Series 1993, 5.5%:
ETM, 1/1/08** (c) ....................................................... 840,000 AAA 859,782
1/1/08 (c) .............................................................. 1,075,000 AAA 1,095,887
ETM, 1/1/12** (c) ....................................................... 2,190,000 AAA 2,185,423
TENNESSEE
Knox County, TN, Health & Educational Hospital Facilities Board,
Fort Sanders Alliance:
7.25%, 1/1/09 (c) ....................................................... 3,750,000 AAA 4,342,012
5.75%, 1/1/11 (c) ....................................................... 15,405,000 AAA 15,682,290
5.75%, 1/1/12 (c) ....................................................... 17,880,000 AAA 18,127,102
</TABLE>
The accompanying notes are an integral part of the financial statements
55
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.25%, 1/1/13 (c) ....................................................... 4,000,000 AAA 4,265,000
5.75%, 1/1/14 (c) ....................................................... 2,000,000 AAA 2,008,360
TEXAS
Austin, TX, Utility Systems Revenue Refunding, Series A,
Zero Coupon, 11/15/08 (c) .................................................. 3,460,000 AAA 1,835,426
Brownsville, TX, Utility System Revenue, Series 1995, 6.25%, 9/1/10 (c) ........ 4,085,000 AAA 4,388,883
Cedar Hill, TX , Series 1996, Zero Coupon:
8/15/09 .................................................................... 1,500,000 AAA 754,680
8/15/10 .................................................................... 3,130,000 AAA 1,474,293
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,
Zero Coupon, 10/1/16 (c) ................................................... 6,535,000 AAA 863,992
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c) ......................................................... 1,000,000 AAA 1,151,860
7.8%, 11/1/05 (c) .......................................................... 2,000,000 AAA 2,359,980
7.8%, 11/1/06 (c) .......................................................... 2,025,000 AAA 2,365,625
7.375%, 11/1/08 (c) ........................................................ 4,500,000 AAA 5,124,555
7.375%, 11/1/10 (c) ........................................................ 3,500,000 AAA 3,967,915
Harris County, TX, Health Facilities Development, Texas Medical Center,
Series 1996, 6.25%:
5/15/08 (c) ............................................................. 2,785,000 AAA 2,980,785
5/15/09 (c) ............................................................. 2,965,000 AAA 3,162,350
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c) ........................ 9,035,000 AAA 5,471,415
Flood Control District, Zero Coupon, 10/1/00 (c) ........................... 1,000,000 AAA 849,350
Toll Road Authority Subordinate Lien:
Series A, Zero Coupon, 8/15/06 (c) ...................................... 4,010,000 AAA 2,444,817
Unlimited Tax, Series A, Zero Coupon, 8/15/04 (c) ....................... 2,050,000 AAA 1,409,129
Unlimited Tax, Series A, Zero Coupon, 8/15/05 (c) ....................... 4,025,000 AAA 2,608,200
Houston, TX, Water & Sewer System Authority, Series C, Zero Coupon:
12/1/06 (c) ................................................................ 14,575,000 AAA 8,748,935
12/1/08 (c) ................................................................ 19,000,000 AAA 10,054,610
12/1/09 (c) ................................................................ 14,750,000 AAA 7,300,660
12/1/10 (c) ................................................................ 5,000,000 AAA 2,316,350
12/1/12 (c) ................................................................ 3,350,000 AAA 1,365,728
Hurst Euless Bedford, TX, Independent School District, Series 1994,
Zero Coupon, 8/15/09 (c) ................................................... 4,925,000 AAA 2,477,866
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital, Series B:
5.5%, 12/1/06 (c) .......................................................... 3,945,000 AAA 3,880,894
5.6%, 12/1/07 (c) .......................................................... 2,415,000 AAA 2,376,771
5.625%, 12/1/08 (c) ........................................................ 4,400,000 AAA 4,302,188
5.625%, 12/1/09 (c) ........................................................ 4,640,000 AAA 4,490,731
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c) .................................................... 3,475,000 AAA 2,523,336
Zero Coupon, 9/1/04 (c) .................................................... 3,475,000 AAA 2,383,259
Zero Coupon, 9/1/05 (c) .................................................... 3,475,000 AAA 2,246,587
North Central Texas, Health Facilities Development Corp., Presbyterian
Hospital, Prerefunded 12/1/97 at 102, 8.875%, 12/1/15*** (c) ............... 5,000,000 AAA 5,261,800
San Antonio, TX, Electric and Gas, Revenue Refunding, Series A, Zero Coupon:
2/1/05 (c) ................................................................. 2,500,000 AAA 1,665,875
2/1/05 (c) ................................................................. 8,000,000 AAA 5,330,800
2/1/06 (c) ................................................................. 17,900,000 AAA 11,228,133
San Antonio, TX, Electric & Gas, Series 1991 B, Zero Coupon:
2/1/08 (c) ................................................................. 8,115,000 AAA 4,494,087
2/1/09 (c) ................................................................. 4,400,000 AAA 2,280,960
</TABLE>
The accompanying notes are an integral part of the financial statements
56
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/06 (c) ................... 2,000,000 AAA 2,115,840
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c) ......................................................... 4,615,000 AAA 4,834,582
6%, 5/15/21 (c) ......................................................... 6,235,000 AAA 6,403,594
Texas General Obligation:
Superconductor Revenue, Series C, Zero Coupon, 4/1/05 (c) .................. 8,390,000 AAA 5,542,602
Capital Appreciation Bond, Super Collider, Series C, Zero Coupon,
4/1/06 (c) .............................................................. 7,385,000 AAA 4,591,845
Texas Municipal Power Agency, 6.1%:
9/1/07 (c) ................................................................. 9,250,000 AAA 9,904,900
9/1/09 (c) ................................................................. 4,435,000 AAA 4,746,204
Texas Public Finance Authority, Building Authority:
Zero Coupon, 2/1/06 (c) .................................................... 13,915,000 AAA 8,728,462
Series B, 6.25%, 2/1/08 (c) ................................................ 5,190,000 AAA 5,614,231
UTAH
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue,
Zero Coupon:
7/1/00 (c) .............................................................. 2,755,000 AAA 2,367,427
7/1/02 (c) .............................................................. 5,200,000 AAA 4,022,668
7/1/04 (c) .............................................................. 5,895,000 AAA 4,077,395
7/1/05 (c) .............................................................. 5,900,000 AAA 3,847,449
7/1/06 (c) .............................................................. 5,895,000 AAA 3,617,290
7/1/07 (c) .............................................................. 3,750,000 AAA 2,165,400
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/12 (c) ............................................................. 1,000,000 AAA 931,150
Series A, Zero Coupon, 7/1/02 (c) .......................................... 1,655,000 AAA 1,280,291
Series A, Zero Coupon, 7/1/03 (c) .......................................... 1,000,000 AAA 732,200
Series A, Zero Coupon, 7/1/04 (c) .......................................... 1,730,000 AAA 1,196,589
Series B, Zero Coupon, 7/1/02 (c) .......................................... 8,230,000 AAA 6,366,646
Series 1993, 5.55%, 7/1/11 ................................................. 7,000,000 A 6,778,520
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15** (c) ................ 1,800,000 AAA 2,515,428
VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial Hospital,
Series B, 6.125%, 7/1/17 (c) ............................................... 5,500,000 AAA 5,791,720
Southeastern Public Service Authority, VA, Refunding Revenue, Series A,
5.25%, 7/1/10 (c) .......................................................... 7,380,000 AAA 7,289,300
Virginia Beach, VA, Development Authority, Virginia Beach
General Hospital Project:
6%, 2/15/11 (c) ......................................................... 1,595,000 AAA 1,674,734
5.125%, 2/15/18 (c) ..................................................... 3,000,000 AAA 2,732,850
Winchester County, VA, Industrial Development Authority, Hospital
Revenue, 6%, 1/1/15 (c) .................................................... 5,700,000 AAA 5,484,369
WASHINGTON
Clark County, WA, Public Utility District No. 1, Series 1995, 6%:
1/1/06 (c) ................................................................. 7,500,000 AAA 7,895,250
1/1/08 (c) ................................................................. 2,200,000 AAA 2,313,696
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c) .............................................. 3,500,000 AAA 3,268,090
North Shore, WA, General Obligation, School District #417, 5.6%, 12/1/10 (c) ... 1,650,000 AAA 1,669,684
Snohomish County, WA, School District #6, 6.5%, 12/1/07 ........................ 3,325,000 A 3,649,454
Washington, General Obligation, Series AT-5, Zero Coupon, 8/1/10 (c) ........... 2,625,000 AAA 1,239,131
</TABLE>
The accompanying notes are an integral part of the financial statements
57
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington Health Care Facilities Authority, Empire Health Services-Spokane:
5.65%, 11/1/05 (c) ......................................................... 2,155,000 AAA 2,222,559
5.7%, 11/1/06 (c) .......................................................... 3,440,000 AAA 3,557,854
5.75%, 11/1/07 (c) ......................................................... 7,350,000 AAA 7,620,921
5.8%, 11/1/09 (c) .......................................................... 4,595,000 AAA 4,751,690
5.8%, 11/1/10 (c) .......................................................... 2,100,000 AAA 2,169,384
Series 1996 A, 6%, 7/1/08 (c) .............................................. 5,000,000 AAA 5,241,400
Series A:
Prerefunded 7/1/00 at 102, 7%, 7/1/11*** (c) ............................ 3,830,000 AAA 4,169,032
Prerefunded 7/1/99 at 102, 7.5%, 7/1/15*** (c) .......................... 1,595,000 AAA 1,729,666
Prerefunded 7/1/99 at 102, 7.5%, 7/1/15*** .............................. 1,500,000 AAA 1,626,645
Prerefunded 7/1/99 at 102, 7.5%, 7/1/15*** (c) .......................... 2,405,000 AAA 2,608,054
Prerefunded 7/1/00 at 102, Series B, 7.25%, 7/1/12*** (c) .................. 10,895,000 AAA 11,937,325
Washington Public Power Supply System, Revenue Refunding, Nuclear Project #2:
Series 1992A, Zero Coupon, 7/1/11 (c) ...................................... 4,200,000 AAA 1,844,178
Series A:
5.7%, 7/1/08 (c) ........................................................ 5,000,000 AAA 5,106,150
7.25%, 7/1/03 (c) ....................................................... 2,000,000 AAA 2,173,600
Series C:
7%, 7/1/01 (c) .......................................................... 10,000,000 AAA 10,791,900
Prerefunded 1/1/01 at 102, 7.375%, 7/1/11*** (c) ........................ 1,370,000 AAA 1,517,535
Washington Public Power Supply System, Revenue Refunding, Nuclear Project #3:
Series A:
Zero Coupon, 7/1/04 (c) ................................................. 3,625,000 AAA 2,489,650
Zero Coupon, 7/1/05 (c) ................................................. 4,125,000 AAA 2,668,421
Prerefunded 7/1/99 at 102, 7.25%, 7/1/16*** (c) ......................... 3,630,000 AAA 3,917,242
Series 1989A, Zero Coupon, 7/1/10 (c) ...................................... 5,860,000 AAA 2,743,652
Series 1993C, 7.5%, 7/1/08 (c) ............................................. 4,000,000 AAA 4,675,040
Washington State Housing Finance, Series A, 7.1%, 12/1/17 ...................... 6,360,000 AAA 6,508,442
WEST VIRGINIA
West Virginia, School Building Authority Revenue, Series B,
Prerefunded 7/1/00 at 102, 6.75%, 7/1/10*** (c) ............................ 4,000,000 AAA 4,324,240
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c) ............. 3,475,000 AAA 2,439,207
Wisconsin Health & Educational Facilities Authority:
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c) ...................... 5,285,000 AAA 5,537,729
Hospital Sisters Services Inc. - Obligated Group, 5.375%, 6/1/18 (c) ....... 4,800,000 AAA 4,373,088
St. Luke's Medical Center, 7.1%, 8/15/11 (c) ............................... 2,000,000 AAA 2,186,940
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c) ........................ 9,230,000 AAA 9,671,379
Wheaton Franciscan Services:
6.1%, 8/15/08 (c) ....................................................... 4,580,000 AAA 4,877,517
6.1%, 8/15/09 (c) ....................................................... 2,000,000 AAA 2,101,020
Wisconsin Health & Educational Facilities Authority, Aurora Medical, Series 1996:
5.75%, 11/15/06 (c) ........................................................ 2,000,000 AAA 2,059,420
5.75%, 11/15/07 (c) ........................................................ 1,500,000 AAA 1,550,490
6%, 11/15/08 (c) ........................................................... 4,085,000 AAA 4,308,695
6%, 11/15/09 (c) ........................................................... 4,330,000 AAA 4,549,011
Wisconsin Health & Educational Facilities Authority, SSM Healthcare,
Series 1992 AA:
6.4%, 6/1/08 (c) ........................................................ 2,335,000 AAA 2,547,135
6.45%, 6/1/09 (c) ....................................................... 2,485,000 AAA 2,717,596
6.45%, 6/1/10 (c) ....................................................... 2,650,000 AAA 2,888,606
</TABLE>
The accompanying notes are an integral part of the financial statements
58
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.5%, 6/1/11 (c) ........................................................ 2,820,000 AAA 3,054,174
6.5%, 6/1/12 (c) ........................................................ 3,000,000 AAA 3,299,100
-------------
Total Long-Term Municipal Investments (Cost $1,564,683,732) .................... 1,634,368,969
=============
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $1,599,972,875) (a) ............... 98.8 1,669,657,215
Other Assets and Liabilities, Net .................................. 1.2 20,459,821
----- -------------
Net Assets ......................................................... 100.0 1,690,117,036
===== =============
- ---------------------------------------------------------------------------------------------------------------------
</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.
** 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, 1997, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $1,599,972,875 is as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost .... $75,262,020
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .... (5,577,680)
------------
Net unrealized appreciation ............................ $ 69,684,340
============
(b) All of the securities held have been determined to be of appropriate
credit quality as required by the Fund's investment objectives. Credit
ratings shown are either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. Unrated securities (NR) and securities rated by
Scudder (SS&C) have been determined to be of comparable quality to rated
eligible securities.
(c) Bond is insured by one of these companies: AMBAC, BIG, MBIA, FGIC, FSA
or Capital Guaranty
(d) At March 31, 1997, this security, in whole or in part, has been pledged
to cover initial margin requirements for open futures contracts. At
March 31, 1997, open futures contracts sold short were as follows:
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ---------
U.S. Treasury Bond June 1997 975 107,454,113 104,538,282
----------- -----------
Total net unrealized appreciation
on open futures contract sold short ....................... 2,915,831
=========
The aggregate face value of futures contracts opened and closed during
the six months ended March 31, 1997 was $237,808,988 and $254,028,425,
respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended March 31, 1997, aggregated
$63,988,674 and $76,014,622, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP BOND FUND FOR INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.4%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
295,000 Repurchase Agreement with State Street Bank and Trust Company
dated 3/31/97 at 6% to be repurchased at $295,049 on 4/1/97, collateralized
by a $305,000 U.S. Treasury Bond, 7.125%, 2/15/23 (Cost $295,000) ........... 295,000
---------
- -----------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 32.2%
- -----------------------------------------------------------------------------------------------------
4,000,000 Student Loan Marketing Association Discount Note, 4/01/97 (Cost $4,000,000) ... 4,000,000
---------
- -----------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 12.0%
- -----------------------------------------------------------------------------------------------------
486,612 Government National Mortgage Association, 9% with various maturities to 8/15/21 515,196
1,000,000 Government National Mortgage Association, 7.5%, TBA (b) ....................... 979,680
---------
Total Government National Mortgage Association (Cost $1,518,316) .............. 1,494,876
---------
- -----------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S. $ DENOMINATED 2.0%
- -----------------------------------------------------------------------------------------------------
250,000 Fage Dairy Industry SA, 9%, 2/01/07 (Cost $246,563) ........................... 241,250
---------
- -----------------------------------------------------------------------------------------------------
ASSET BACKED 22.2%
- -----------------------------------------------------------------------------------------------------
Credit Card Receivables 4.0%
500,000 Advanta Corp., Series 1997-1 A4, 7.65%, 5/25/07 ............................... 499,214
---------
Home Equity Loans 6.4%
300,000 The Money Store Inc. Home Equity, Series 1996-C A4, 7.4%, 6/15/21 ............. 297,938
500,000 The Money Store Inc. Home Equity, Series 1997-A A2, 6.565%, 12/15/09 .......... 499,219
---------
797,157
---------
Manufactured Housing 11.8%
375,000 Associated Manufactured Housing Corp. Series 1997-1 B1, 7.6%, 6/15/28 ......... 374,297
500,000 Green Tree Financial Corp. Series 1997-A A1, 6.3%, 9/15/23 .................... 495,510
100,000 Green Tree Financial Corp. Series 1997-1 B2, 7.76%, 3/15/28 ................... 96,188
500,000 Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 4/15/28 ................... 492,188
---------
1,458,183
---------
Total Asset Backed (Cost $2,777,706) .......................................... 2,754,554
---------
- -----------------------------------------------------------------------------------------------------
CORPORATE BONDS 37.5%
- -----------------------------------------------------------------------------------------------------
Communications 4.0%
500,000 WorldCom, Inc., 7.75%, 4/01/07 ................................................ 499,054
---------
Financial 3.9%
250,000 Taubman Realty Group LP Medium Term Note, 7%, 10/01/03 ........................ 243,095
250,000 US West Capital Funding Inc., 7.9%, 1/01/27 ................................... 243,163
---------
486,258
---------
Media 5.0%
125,000 Tele-Communications, Inc., 8%, 8/01/05 ........................................ 121,796
250,000 Time Warner Inc., 9.125%, 1/15/13 ............................................. 265,555
250,000 Viacom Inc., 6.75%, 1/15/03 ................................................... 235,743
---------
623,094
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
60
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 5.9%
500,000 Northrop Grumman Corp., 7.875%, 3/01/26 ....................................... 486,655
250,000 Tracor, Inc., 8.5%, 3/01/07 ................................................... 242,500
----------
729,155
----------
Manufacturing 4.3%
50,000 GFSI Inc., 9.625%, 3/01/07 .................................................... 49,188
500,000 Mead Corp., 7.55%, 3/01/47 .................................................... 487,300
----------
536,488
----------
Technology 2.6%
100,000 Fairchild Semiconductor Inc., 10.125%, 3/15/07 ................................ 100,000
250,000 International Business Machines Corp., 7%, 10/30/45 ........................... 222,583
----------
322,583
----------
Energy 7.4%
250,000 Barrett Resources Corp., 7.55%, 2/01/07 ....................................... 244,375
200,000 Chesapeake Energy Corp., 8.5%, 3/15/12 ........................................ 192,000
250,000 Dawson Production Services, Inc., 9.375%, 2/01/07 ............................. 246,250
250,000 Lomak Petroleum, Inc., 8.75%, 1/15/07 ......................................... 238,125
----------
920,750
----------
Construction 2.0%
250,000 Nortek, Inc., 9.25%, 3/15/07 .................................................. 245,625
----------
Transportation 2.4%
300,000 Continental Airlines Inc. Series 1997-1B, 7.461%, 4/01/13 ..................... 294,228
----------
Total Corporate Bonds (Cost $4,776,544) ....................................... 4,657,235
----------
- -----------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $13,614,129)(a)...................... 108.3 13,442,915
Other Assets and Liabilities, Net .................................... (8.3) (1,026,177)
----- ----------
Net Assets ........................................................... 100.0 12,416,738
===== ==========
- -----------------------------------------------------------------------------------------------------
* Effective maturities will be shorter due to prepayments.
TBA To be announced
(a) At March 31, 1997, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $13,614,129 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................................ $ 0
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................................ (171,214)
----------
Net unrealized depreciation .......................................................... $ (171,214)
==========
</TABLE>
(b) Security purchased on a when-issued basis (See Note 1 of Notes to the
Financial Statements).
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period February 1, 1997 (commencement of operations)
through March 31, 1997, aggregated $9,812,697 and $486,164, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
61
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 6.9%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
33,902,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at
6.375% to be repurchased at $33,908,003 on 4/1/97, collateralized by a $34,824,000
U.S. Treasury Bond, 6.125%, 9/30/00 (Cost $33,902,000) ................................ 33,902,000
------------
- -------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 9.5%
- -------------------------------------------------------------------------------------------------------------------------------
8,000,000 U.S. Treasury Note, 5.5%, 9/30/97 ........................................................ 7,990,000
5,000,000 U.S. Treasury Note, 5.13%, 4/30/98 ....................................................... 4,948,450
10,000,000 U.S. Treasury Note, 5.75%, 12/31/98 ...................................................... 9,898,400
2,500,000 U.S. Treasury Note, 5.875%, 3/31/99 ...................................................... 2,475,000
3,000,000 U.S. Treasury Note, 6.75%, 5/31/99 ....................................................... 3,015,000
6,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ...................................................... 6,045,000
4,500,000 U.S. Treasury Note, 5.875%, 11/15/99 ..................................................... 4,425,480
2,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ...................................................... 1,968,120
1,500,000 U.S. Treasury Note, 5.75%, 10/31/00 ...................................................... 1,455,705
1,000,000 U.S. Treasury Note, 5.875%, 2/15/04 ...................................................... 945,940
2,000,000 U.S. Treasury Bond, 6.25%, 8/15/23 ....................................................... 1,772,180
3,500,000 U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/09 (7.18%***) ..... 1,514,415
------------
Total U.S. Treasury Obligations (Cost $46,539,748) ....................................... 46,453,690
------------
- -------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION** 2.5%
- -------------------------------------------------------------------------------------------------------------------------------
4,189,128 Government National Mortgage Association, 10%, with various maturities to 2/15/25 ........ 4,599,087
7,232,016 Government National Mortgage Association, 8.5%, with various maturities to 11/15/25 ...... 7,421,784
------------
Total Government National Mortgage Association (Cost $11,972,415) ........................ 12,020,871
------------
- -------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS** 7.7%
- -------------------------------------------------------------------------------------------------------------------------------
14,660,268 Federal National Mortgage Association, 6.5%, with various maturities to 3/01/26 .......... 13,647,683
25,447,515 Federal National Mortgage Association, 7%, with various maturities to 7/01/26 ............ 24,344,446
------------
Total U.S. Government Agency Mortgage Pass-Thrus (Cost $38,587,704) ...................... 37,992,129
------------
- -------------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S. $ DENOMINATED 0.8%
- -------------------------------------------------------------------------------------------------------------------------------
1,000,000 ABN-AMRO Bank NV, Subordinated Note, 7.13%, 10/15/93 ..................................... 898,320
3,000,000 Province of Ontario, Global Medium Term Note, 6%, 2/21/06 ................................ 2,747,370
575,000 Royal Bank of Scotland, 6.375%, 2/01/11 .................................................. 506,276
------------
Total Foreign Bonds - U.S. $ Denominated (Cost $4,410,708) ............................... 4,151,966
------------
- -------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED 2.6%
- -------------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.4%
4,000,000 Ford Credit Automobile Trust, Series 1996-A A4, 6.75%, 9/15/00 ........................... 4,007,480
3,000,000 Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/06/00 ........... 3,003,750
------------
7,011,230
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
62
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit Card Receivables 1.2%
4,000,000 Chase Manhattan Credit Card Master Trust, Series 1996-4A, 6.73%, 2/15/02 ................. 4,007,480
2,000,000 Sears Credit Account Master Trust, Series 1995-4, 6.25%, 1/15/03 ......................... 1,996,240
------------
6,003,720
------------
Total Asset Backed (Cost $12,997,645) .................................................... 13,014,950
------------
- -------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 14.6%
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.7%
4,000,000 ITT Corp., 7.375%, 11/15/15 .............................................................. 3,567,200
------------
Consumer Staples 0.3%
2,000,000 Borden Inc., 7.875%, 2/15/23 ............................................................. 1,714,500
------------
Communications 1.1%
5,250,000 WorldCom, Inc., 7.75%, 4/01/27 ........................................................... 5,203,997
------------
Financial 6.0%
5,850,000 Associates Corp. of North America, 6.625%, 5/15/01 ....................................... 5,752,124
4,000,000 Capital One Bank Medium Term Note, 5.95%, 2/15/01 ........................................ 3,802,720
1,000,000 General Electric Capital Services Inc., 7.5%, 8/21/35 .................................... 974,760
5,000,000 Highwoods/Forsyth L.P., 7%, 12/01/06 ..................................................... 4,711,500
2,500,000 Societe Generale, 7.4%, 6/01/06 .......................................................... 2,462,000
4,000,000 Southern National Corp., 7.05%, 5/23/03 .................................................. 3,943,520
1,500,000 Spieker Properties, Inc., 7.875%, 12/01/16 ............................................... 1,408,365
4,500,000 US West Capital Funding Inc., 7.9%, 1/01/27 .............................................. 4,376,925
2,000,000 Wells Fargo & Co., 6.875%, 4/01/06 ....................................................... 1,915,320
------------
29,347,234
------------
Media 1.8%
4,000,000 Tele-Communications, Inc., 8%, 8/01/05 ................................................... 3,897,480
4,500,000 Time Warner Inc., 9.125%, 1/15/13 ........................................................ 4,779,990
------------
8,677,470
------------
Service Industries 0.5%
2,700,000 U.S. Filter Corp., 4.5%, 12/15/01 ........................................................ 2,659,500
------------
Durables 2.4%
3,000,000 Comdisco, Inc., Senior Note, 5.75%, 2/15/01 .............................................. 2,856,990
1,000,000 Ford Motor Co., 8.875%, 1/15/22 .......................................................... 1,101,120
2,000,000 Lockheed Martin Corp., 7.75%, 5/01/26 .................................................... 1,969,240
1,000,000 McDonnell Douglas Corp., 9.75%, 4/01/12 .................................................. 1,169,620
2,000,000 Northrop Grumman Corp., 7%, 3/01/06 ...................................................... 1,911,800
3,100,000 Northrop Grumman Corp., 7.875%, 3/01/26 .................................................. 3,017,261
------------
12,026,031
------------
Technology 0.3%
1,500,000 Loral Corp., 8.375%, 6/15/24 ............................................................. 1,581,600
------------
Energy 0.9%
4,150,000 PanEnergy Corp., 7.375%, 9/15/03 ......................................................... 4,169,256
------------
Transportation 0.6%
2,500,000 AMR Corp., 9.75%, 8/15/21 ................................................................ 2,896,900
------------
Total Corporate Bonds (Cost $73,257,379) ................................................. 71,843,688
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
63
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.4%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 0.1%
Pharmaceuticals
290,000 Sandoz Capital BVI Ltd., 2%, 10/06/02 .................................................... 336,400
------------
Financial 0.1%
Other Financial Companies
200,000 First Financial Management Corp., 5%, 12/15/99 ........................................... 322,500
------------
Service Industries 0.2%
Miscellaneous Commercial Services
1,000,000 ADT Operations Inc. Liquid Yield Option Note, 7/06/10 .................................... 712,500
260,000 Jardine Strategic Holdings Ltd., 7.5%, 5/07/49 ........................................... 300,300
------------
1,012,800
------------
Total Convertible Bonds (Cost $1,188,141) ................................................ 1,671,700
------------
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.7%
- -------------------------------------------------------------------------------------------------------------------------------
Shares
Consumer Discretionary 0.2%
Department & Chain Stores
23,500 Kmart 7.75% .............................................................................. 1,257,250
------------
Financial 0.3%
Consumer Finance 0.2%
33,100 Advanta Corp. 6.75% ...................................................................... 980,581
------------
Real Estate 0.1%
14,600 Security Capital Industrial Trust "B", 7% ................................................ 394,200
------------
Manufacturing 0.1%
Containers & Paper 0.0%
3,300 Boise Cascade Corp. "G", Cum $1.58 ....................................................... 83,738
2,100 International Paper Co. 5.25% ............................................................ 96,075
------------
179,813
------------
Industrial Specialty 0.1%
31,300 Cooper Industries, Inc. 6% ............................................................... 571,225
------------
Energy 0.1%
Oil & Gas Production
4,200 Parker & Parsley Capital Corp., 6.25% .................................................... 229,950
------------
Total Convertible Preferred Stocks (Cost $3,655,215) ..................................... 3,613,019
------------
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 54.7%
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 2.2%
Department & Chain Stores 2.2%
54,200 J.C. Penney Co., Inc. .................................................................... 2,581,275
45,100 May Department Stores .................................................................... 2,052,050
88,900 Rite Aid Corp. ........................................................................... 3,733,800
48,100 Sears, Roebuck & Co. ..................................................................... 2,417,025
------------
10,784,150
------------
Hotels & Casinos 0.0%
15,033 Homestead Village, Inc. Warrants (expires 10/29/97)* ..................................... 108,989
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
64
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 4.6%
Alcohol 0.6%
67,600 Anheuser-Busch Companies, Inc. ........................................................... 2,847,650
------------
Consumer Electronic & Photographic Products 0.7%
70,200 Whirlpool Corp. .......................................................................... 3,343,275
------------
Food & Beverage 2.6%
43,900 General Mills, Inc. ...................................................................... 2,727,288
114,550 H.J. Heinz Co. ........................................................................... 4,524,725
29,800 Unilever NV (New York shares) ............................................................ 5,550,250
------------
12,802,263
------------
Package Goods/Cosmetics 0.7%
37,200 Kimberly-Clark Corp. ..................................................................... 3,696,750
------------
Health 4.9%
Health Industry Services 0.0%
4,025 Covance, Inc. ............................................................................ 64,903
2,012 Quest Diagnostics Inc.* .................................................................. 29,929
------------
94,832
------------
Pharmaceuticals 4.9%
47,600 American Home Products Corp. ............................................................. 2,856,000
67,600 Baxter International Inc. ................................................................ 2,915,250
65,200 Bristol-Myers Squibb Co. ................................................................. 3,846,800
56,600 Schering-Plough Corp. .................................................................... 4,117,650
39,200 SmithKline Beecham PLC (ADR) ............................................................. 2,744,000
47,000 Warner-Lambert Co. ....................................................................... 4,065,500
122,100 Zeneca Group PLC ......................................................................... 3,541,063
------------
24,086,263
------------
Communications 3.8%
Telephone/Communications
72,700 Alltel Corp. ............................................................................. 2,362,750
47,700 Bell Atlantic Corp. ...................................................................... 2,903,738
63,800 BellSouth Corp. .......................................................................... 2,695,550
71,700 Frontier Corp. ........................................................................... 1,281,638
65,600 GTE Corp. ................................................................................ 3,058,600
61,500 NYNEX Corp. .............................................................................. 2,805,938
62,800 Sprint Corp. ............................................................................. 2,857,400
100,000 Telecom Corp. of New Zealand ............................................................. 455,029
------------
18,420,643
------------
Financial 11.4%
Banks 4.0%
39,700 BancOne Corp. ............................................................................ 1,578,075
38,600 Bankers Trust New York Corp. ............................................................. 3,165,200
41,100 Chase Manhattan Corp. .................................................................... 3,847,988
52,800 CoreStates Financial Corp. ............................................................... 2,508,000
34,700 First Bank System Inc. ................................................................... 2,533,100
34,100 J.P. Morgan & Co., Inc. .................................................................. 3,350,325
54,200 KeyCorp .................................................................................. 2,642,250
------------
19,624,938
------------
Insurance 1.8%
62,600 EXEL, Ltd. ............................................................................... 2,644,850
73,300 Lincoln National Corp. ................................................................... 3,921,550
42,100 Mid Ocean Limited ........................................................................ 2,010,275
</TABLE>
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,800 Transamerica Corp. ....................................................................... 250,600
------------
8,827,275
------------
Other Financial Companies 1.5%
62,000 Federal National Mortgage Association .................................................... 2,239,750
55,300 Student Loan Marketing Association ....................................................... 5,267,325
------------
7,507,075
------------
Real Estate 4.1%
75,700 Arden Realty Group, Inc. (REIT) .......................................................... 2,062,825
15,500 Developers Diversified Realty Corp. (REIT) ............................................... 585,125
46,800 Equity Residential Properties Trust (REIT) ............................................... 2,076,750
66,600 Health Care Property Investment Inc. (REIT) .............................................. 2,206,125
61,700 Meditrust SBI (REIT) ..................................................................... 2,298,325
101,600 Nationwide Health Properties Inc. (REIT) ................................................. 2,171,700
26,000 Omega Healthcare Investors (REIT) ........................................................ 812,500
202,100 Security Capital Atlantic Inc. (REIT) .................................................... 4,496,725
80,283 Security Capital Industrial Trust (REIT) ................................................. 1,675,908
54,128 Simon DeBartolo Group, Inc. (REIT) ....................................................... 1,637,372
------------
20,023,355
------------
Durables 4.3%
Aerospace 2.3%
28,309 Lockheed Martin Corp. .................................................................... 2,377,956
300 Northrop Grumman Corp. ................................................................... 22,688
62,900 Rockwell International Corp. (New) ....................................................... 4,080,638
65,800 United Technologies Corp. ................................................................ 4,951,450
------------
11,432,732
------------
Automobiles 1.6%
88,000 Dana Corp. ............................................................................... 2,893,000
20,800 Eaton Corp. .............................................................................. 1,474,200
117,300 Ford Motor Co. ........................................................................... 3,680,288
------------
8,047,488
------------
Construction/Agricultural Equipment 0.4%
26,500 PACCAR, Inc. ............................................................................. 1,768,875
------------
Manufacturing 9.7%
Chemicals 2.7%
22,800 Dow Chemical Co. ......................................................................... 1,824,000
25,500 E.I. du Pont de Nemours & Co. ............................................................ 2,703,000
51,200 Eastman Chemical Co. ..................................................................... 2,752,000
81,700 Imperial Chemical Industries PLC (ADR) (New) ............................................. 3,717,350
93,300 Lyondell Petrochemical Co. ............................................................... 2,134,238
------------
13,130,588
------------
Containers & Paper 0.5%
61,400 Stone Container Corp. .................................................................... 683,075
64,700 Westvaco Corp. ........................................................................... 1,625,588
------------
2,308,663
------------
Diversified Manufacturing 1.7%
66,000 Olin Corp. ............................................................................... 2,623,500
107,100 TRW Inc. ................................................................................. 5,542,425
------------
8,165,925
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
66
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Products 1.7%
133,600 Philips Electronics NV (New York shares) ................................................. 5,945,200
57,100 Thomas & Betts Corp. ..................................................................... 2,441,025
------------
8,386,225
------------
Industrial Specialty 0.1%
16,100 Corning Inc. ............................................................................. 714,438
------------
Office Equipment/Supplies 1.7%
4,700 Ikon Office Solutions, Inc. .............................................................. 380,113
135,900 Xerox Corp. .............................................................................. 7,729,313
------------
8,109,426
------------
Specialty Chemicals 1.3%
55,300 Betz Dearborn Inc. ....................................................................... 3,490,813
92,000 Witco Corp. .............................................................................. 3,128,000
------------
6,618,813
------------
Energy 4.9%
Oil & Gas Production 0.1%
16,515 Union Pacific Resources Group ............................................................ 441,776
------------
Oil Companies 4.0%
20,400 Exxon Corp. .............................................................................. 2,198,100
43,900 Murphy Oil Corp. ......................................................................... 2,063,300
28,500 Pennzoil Co. ............................................................................. 1,474,875
15,000 Royal Dutch Petroleum Co. (New York shares) .............................................. 2,625,000
61,981 Societe Nationale Elf Aquitaine (ADR) .................................................... 3,052,564
25,200 Texaco Inc. .............................................................................. 2,759,400
60,701 Total SA (ADR) ........................................................................... 2,572,205
109,500 YPF S.A. "D" (ADR) ....................................................................... 2,901,750
------------
19,647,194
------------
Oil/Gas Transmission 0.8%
87,600 PanEnergy Corp. .......................................................................... 3,777,750
------------
Metals & Minerals 1.8%
Steel & Metals
114,435 Allegheny Teledyne Inc. .................................................................. 3,218,484
84,000 Freeport McMoRan Copper & Gold, Inc. "A" ................................................. 2,467,500
101,500 Oregon Steel Mills, Inc. ................................................................. 1,763,563
21,900 Phelps Dodge Corp. ....................................................................... 1,601,438
------------
9,050,985
------------
Construction 1.7%
Building Materials 0.2%
34,753 Martin Marietta Materials, Inc. .......................................................... 894,890
------------
Forest Products 1.5%
48,300 Georgia Pacific Corp. .................................................................... 3,501,750
73,900 Louisiana-Pacific Corp. .................................................................. 1,533,425
48,700 Weyerhaeuser Co. ......................................................................... 2,173,238
------------
7,208,413
------------
Transportation 2.0%
Marine Transportation 0.7%
137,500 Knightsbridge Tankers Ltd.* .............................................................. 3,334,375
------------
Railroads 1.3%
58,100 CSX Corp. ................................................................................ 2,701,650
46,000 Canadian National Railway Co. ............................................................ 1,629,745
</TABLE>
The accompanying notes are an integral part of the financial statements
67
<PAGE>
AARP BALANCED STOCK AND BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
36,700 Union Pacific Corp. ...................................................................... 2,082,725
------------
6,414,120
------------
Utilities 3.4%
Electric Utilities
<S> <C> <C>
28,100 Boston Edison Co. ........................................................................ 734,113
32,900 CINergy Corp. ............................................................................ 1,122,713
20,700 CMS Energy Corp. ......................................................................... 680,513
14,700 Duke Power Co. ........................................................................... 648,638
59,300 National Power PLC (GDR) ................................................................. 1,971,725
105,200 PG&E Corp. ............................................................................... 2,472,200
63,000 PacifiCorp ............................................................................... 1,346,625
57,000 PowerGen PLC (ADR) 2,223,000
30,900 Southern Company ......................................................................... 652,763
154,600 TNP Enterprises Inc. ..................................................................... 3,304,575
90,300 Unicom Corp. ............................................................................. 1,760,850
------------
16,917,715
------------
Total Common Stocks (Cost $211,671,785) .................................................. 268,537,849
------------
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $438,182,740) (a) .................... 100.4 493,201,862
Other Assets and Liabilities, Net ..................................... (0.4) (1,952,611)
----- ------------
Net Assets ............................................................ 100.0 491,249,251
===== ============
- -------------------------------------------------------------------------------------------------------------------------------
REIT Real Estate Investment Trust
* Non income producing security
** Effective maturities will be shorter due to prepayments.
*** Yield is bond equivalent yield to maturity, not a coupon rate.
(a) At March 31, 1997, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$438,182,740 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ........................................................................ $ 62,018,771
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................................................ (6,999,649)
------------
Net unrealized appreciation .......................................................................... $ 55,019,122
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments, and U.S. Government and U.S. Government agencies'
obligations) for the six months ended March 31, 1997 aggregated
$92,807,453 and $45,505,247, respectively. Purchases and sales of U.S.
Government and U.S. Government agencies' obligations aggregated
$14,485,049 and $14,681,968, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of
the Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation.
The Fund's other assets and liabilities are disclosed in the Statement
of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
68
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.5%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
23,149,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/31/97 at 6.375% to be repurchased at $23,153,099
on 4/1/97, collateralized by a $22,896,000
U.S. Treasury Note, 6.125%, 5/31/97 ....................................................... 23,149,000
2,866,000 Repurchase Agreement with State Street Bank and Trust Company dated 3/31/97
at 6% to be repurchased at $2,866,478 on 4/1/97, collateralized
by a $2,935,000 U.S. Treasury Bond, 7.125%, 2/15/23 ....................................... 2,866,000
------------
Total Repurchase Agreements (Cost $26,015,000) ............................................... 26,015,000
------------
- -------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 0.6%
- -------------------------------------------------------------------------------------------------------------------------------
28,000,000 FCar Owner Trust I Discount Note, 4/4/97 (Cost $27,987,657) .................................. 27,987,657
------------
- -------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 0.1%
- -------------------------------------------------------------------------------------------------------------------------------
Technology
5,500,000 Adaptec Inc., 4.75%, 2/1/04 (Cost $5,500,000) ................................................ 5,355,625
------------
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 4.1%
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.0%
Department & Chain Stores
12,550,000 Federated Department Stores, Inc. Debenture, 5%, 10/1/03 ..................................... 14,620,750
34,500,000 Home Depot Inc. Convertible until 10/1/01, 3.25%, 10/1/01 .................................... 34,241,250
------------
48,862,000
------------
Health 0.1%
Pharmaceuticals
6,260,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ......................................................... 7,261,600
------------
Communications 0.0%
Telephone/Communications
1,000,000 Compania de Telefonos de Chile, S.A., 4.5%, 1/15/03 .......................................... 1,495,000
------------
Financial 1.8%
Banks 1.2%
102,590,000 Deutsche Bank Financial Inc., Convertible to Daimler Benz AG, Zero Coupon, 2/12/17 ........... 44,318,880
17,290,000 MBL International Finance Bermuda, 3%, 11/30/02 .............................................. 17,679,025
------------
61,997,905
------------
Other Financial Companies 0.2%
5,200,000 First Financial Management Corp., 5%, 12/15/99 ............................................... 8,385,000
------------
Real Estate 0.4%
18,250,000 Security Capital Corp., 6.5%, 3/29/16 (b) (c) ................................................ 19,438,250
------------
Service Industries 0.8%
Miscellaneous Commercial Services 0.5%
25,000,000 ADT Operations Inc. Liquid Yield Option Note, 7/6/10 ......................................... 17,812,500
7,036,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ................................................ 8,126,580
------------
25,939,080
------------
Miscellaneous Consumer Services 0.3%
14,000,000 CUC International Inc., 3%, 2/15/02 .......................................................... 13,720,000
------------
Durables 0.2%
Automobiles
6,800,000 Magna International, Inc., 5%, 10/15/02 ...................................................... 7,293,000
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
69
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing 0.1%
Diversified Manufacturing
5,000,000 Thermo Electron Corp., 4.25%, 1/1/03 ......................................................... 5,200,000
------------
Technology 0.1%
Electronic Components/Distributors
5,700,000 HMT Technology Corp., 5.75%, 1/15/04 ......................................................... 4,845,000
------------
Total Convertible Bonds (Cost $188,824,543) .................................................. 204,436,835
------------
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 1.6%
- -------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------
Consumer Discretionary 0.5%
Department & Chain Stores
439,800 Kmart 7.75% .................................................................................. 23,529,300
------------
Financial 0.3%
Consumer Finance 0.1%
129,000 Advanta Corp. 6.75% .......................................................................... 3,821,625
------------
Real Estate 0.2%
302,400 Security Capital Industrial Trust "B", 7% .................................................... 8,164,800
------------
Manufacturing 0.3%
Containers & Paper 0.1%
61,900 Boise Cascade Corp. "G", Cum, $1.58 .......................................................... 1,570,713
50,200 International Paper Co., 5.25% ............................................................... 2,296,650
------------
3,867,363
------------
Industrial Specialty 0.2%
652,400 Cooper Industries, Inc. 6% ................................................................... 11,906,300
------------
Energy 0.2%
Oil & Gas Production
215,300 Parker & Parsley Capital Corp., 6.25% ........................................................ 11,787,675
------------
Metals & Minerals 0.3%
Precious Metals
500,000 Freeport McMoRan Copper & Gold, Inc., Cum. $1.25 ............................................. 14,125,000
------------
Total Convertible Preferred Stocks (Cost $71,481,680) ........................................ 77,202,063
------------
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 91.5%
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 3.6%
Department & Chain Stores
767,200 J.C. Penney Co., Inc. ........................................................................ 36,537,900
782,700 May Department Stores ........................................................................ 35,612,850
1,589,100 Rite Aid Corp. ............................................................................... 66,742,200
812,900 Sears, Roebuck & Co. ......................................................................... 40,848,225
------------
179,741,175
------------
Consumer Staples 8.2%
Alcohol 0.9%
1,096,000 Anheuser-Busch Companies, Inc. ............................................................... 46,169,000
------------
Consumer Electronic & Photographic Products 1.2%
1,208,300 Whirlpool Corp. .............................................................................. 57,545,288
------------
Food & Beverage 2.4%
598,400 General Mills, Inc. .......................................................................... 37,175,600
2,064,900 H.J. Heinz Co. ............................................................................... 81,563,550
------------
118,739,150
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
70
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Package Goods/Cosmetics 3.7%
686,800 Kimberly-Clark Corp. ......................................................................... 68,250,750
105,000 Unilever NV .................................................................................. 20,513,477
515,200 Unilever NV (New York shares) ................................................................ 95,956,000
------------
184,720,227
------------
Health 8.0%
Health Industry Services 0.1%
131,400 Covance, Inc.* ............................................................................... 2,118,825
65,700 Quest Diagnostics Inc.* ...................................................................... 977,288
------------
3,096,113
------------
Pharmaceuticals 7.9%
772,800 American Home Products Corp. ................................................................. 46,368,000
1,166,300 Baxter International Inc. .................................................................... 50,296,688
1,154,000 Bristol-Myers Squibb Co. ..................................................................... 68,086,000
905,500 Schering-Plough Corp. ........................................................................ 65,875,125
661,300 SmithKline Beecham PLC (ADR) ................................................................. 46,291,000
866,900 Warner-Lambert Co. ........................................................................... 74,986,850
1,446,900 Zeneca Group PLC ............................................................................. 41,962,035
300 Zeneca Group PLC (ADR) ....................................................................... 25,575
------------
393,891,273
------------
Communications 6.6%
Telephone/Communications
1,374,000 Alltel Corp. ................................................................................. 44,655,000
829,000 Bell Atlantic Corp. .......................................................................... 50,465,375
1,093,000 BellSouth Corp. .............................................................................. 46,179,250
1,263,200 Frontier Corp. ............................................................................... 22,579,700
1,068,500 GTE Corp. .................................................................................... 49,818,813
1,067,500 NYNEX Corp. .................................................................................. 48,704,688
1,164,600 Sprint Corp. ................................................................................. 52,989,300
2,036,000 Telecom Corp. of New Zealand ................................................................. 9,264,382
------------
324,656,508
------------
Financial 18.2%
Banks 8.1%
286,000 AmSouth Bancorp. ............................................................................. 13,799,500
736,000 BancOne Corp. ................................................................................ 29,256,000
125,500 BankAmerica Corp. ............................................................................ 12,644,125
670,300 Bankers Trust New York Corp. ................................................................. 54,964,600
649,200 Chase Manhattan Corp. ........................................................................ 60,781,350
983,800 CoreStates Financial Corp. ................................................................... 46,730,500
643,500 First Bank System Inc. ....................................................................... 46,975,500
299,400 First Chicago NBD Corp. ...................................................................... 16,205,025
574,800 J.P. Morgan & Co., Inc. ...................................................................... 56,474,100
980,200 KeyCorp ...................................................................................... 47,784,750
241,800 NationsBank Corp. ............................................................................ 13,389,675
------------
399,005,125
------------
Insurance 2.8%
979,100 EXEL, Ltd. ................................................................................... 41,366,975
1,110,200 Lincoln National Corp. ....................................................................... 59,395,700
754,300 Mid Ocean Limited ............................................................................ 36,017,825
50,400 Transamerica Corp. ........................................................................... 4,510,800
------------
141,291,300
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
71
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Financial Companies 2.8%
1,149,500 Federal National Mortgage Association ........................................................ 41,525,688
1,045,000 Student Loan Marketing Association ........................................................... 99,536,250
------------
141,061,938
------------
Real Estate 4.5%
245,800 Avalon Properties, Inc. (REIT) ............................................................... 6,759,500
386,200 Camden Property Trust (REIT) ................................................................. 10,523,950
235,000 Developers Diversified Realty Corp. (REIT) ................................................... 8,871,250
28,000 Equity Residential Properties Trust (REIT) ................................................... 1,242,500
1,716,600 General Growth Properties, Inc. (REIT) ....................................................... 54,502,050
409,800 Health Care Property Investment Inc. (REIT) .................................................. 13,574,625
31,100 Mark Centers Trust (REIT) .................................................................... 338,213
457,900 Meditrust SBI (REIT) ......................................................................... 17,056,775
680,800 Nationwide Health Properties Inc. (REIT) ..................................................... 14,552,100
71,200 Post Properties Inc. (REIT) .................................................................. 2,714,500
17,398 Security Capital Corp. (b) (c) ............................................................... 21,637,298
1,348,608 Security Capital Industrial Trust (REIT) ..................................................... 28,152,192
1,998,866 Security Capital US Realty (REIT)* ........................................................... 27,984,124
150,000 Spieker Properties, Inc. (REIT) .............................................................. 5,850,000
102,100 Vornado Realty Trust (REIT) .................................................................. 6,815,175
------------
220,574,252
------------
Durables 7.3%
Aerospace 3.7%
445,323 Lockheed Martin Corp. ........................................................................ 37,407,132
18,700 Northrop Grumman Corp. ....................................................................... 1,414,188
934,300 Rockwell International Corp. (New) ........................................................... 60,612,713
1,093,800 United Technologies Corp. .................................................................... 82,308,450
------------
181,742,483
------------
Automobiles 2.9%
1,516,300 Dana Corp. ................................................................................... 49,848,363
444,100 Eaton Corp. .................................................................................. 31,475,588
2,037,400 Ford Motor Co. ............................................................................... 63,923,425
------------
145,247,376
------------
Construction/Agricultural Equipment 0.7%
498,400 PACCAR, Inc. ................................................................................. 33,268,200
------------
Manufacturing 18.3%
Chemicals 5.5%
289,500 Akzo-Nobel NV ................................................................................ 41,585,380
518,300 Dow Chemical Co. ............................................................................. 41,464,000
437,700 E.I. du Pont de Nemours & Co. ................................................................ 46,396,200
945,000 Eastman Chemical Co. ......................................................................... 50,793,750
5,602,000 Imperial Chemical Industries PLC ............................................................. 64,138,391
1,254,000 Lyondell Petrochemical Co. ................................................................... 28,685,250
------------
273,062,971
------------
Containers & Paper 1.0%
1,621,200 Stone Container Corp. ........................................................................ 18,035,850
1,200,000 Westvaco Corp. ............................................................................... 30,150,000
------------
48,185,850
------------
Diversified Manufacturing 2.9%
1,259,700 Olin Corp. ................................................................................... 50,073,075
1,783,400 TRW Inc. ..................................................................................... 92,290,950
------------
142,364,025
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
72
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical Products 3.0%
1,863,400 Philips Electronics NV ....................................................................... 86,937,802
428,300 Philips Electronics NV (New York shares) ..................................................... 19,059,350
1,014,600 Thomas & Betts Corp. ......................................................................... 43,374,150
------------
149,371,302
------------
Machinery/Components/Controls 0.5%
925,000 S.K.F. AB "B" (Free) ......................................................................... 24,324,647
------------
Office Equipment/Supplies 3.2%
102,800 Ikon Office Solutions, Inc. .................................................................. 8,313,950
2,598,400 Xerox Corp. .................................................................................. 147,784,000
------------
156,097,950
------------
Specialty Chemicals 2.2%
204,800 ARCO Chemical Co. ............................................................................ 8,908,800
709,000 BetzDearborn Inc. ............................................................................ 44,755,625
1,649,900 Witco Corp. .................................................................................. 56,096,600
------------
109,761,025
------------
Energy 8.0%
Oil Companies 7.0%
309,500 Exxon Corp. .................................................................................. 33,348,625
151,300 Murphy Oil Corp. ............................................................................. 7,111,100
480,000 Pennzoil Co. ................................................................................. 24,840,000
264,700 Royal Dutch Petroleum Co. (New York shares) .................................................. 46,322,500
488,800 Societe Nationale Elf Aquitaine .............................................................. 50,233,788
438,400 Texaco Inc. .................................................................................. 48,004,800
558,448 Total SA "B" ................................................................................. 48,429,661
569,496 Total SA (ADR) ............................................................................... 24,132,393
1,844,200 YPF S.A. "D" (ADR) ........................................................................... 48,871,300
------------
331,294,167
------------
Oil/Gas Transmission 1.3%
1,480,200 PanEnergy Corp. .............................................................................. 63,833,625
------------
Metals & Minerals 2.4%
Steel & Metals
2,081,910 Allegheny Teledyne Inc. ...................................................................... 58,553,709
579,010 Freeport McMoRan Copper & Gold, Inc. "A" ..................................................... 17,008,419
1,879,100 J & L Specialty Steel, Inc. .................................................................. 22,549,200
297,500 Phelps Dodge Corp. ........................................................................... 21,754,688
------------
119,866,016
------------
Construction 2.4%
Building Materials 0.3%
512,955 Martin Marietta Materials, Inc. .............................................................. 13,208,591
------------
Forest Products 2.1%
817,000 Georgia Pacific Corp. ........................................................................ 59,232,500
512,200 Louisiana-Pacific Corp. ...................................................................... 10,628,150
822,800 Weyerhaeuser Co. ............................................................................. 36,717,450
------------
106,578,100
------------
Transportation 2.5%
Railroads
995,800 CSX Corp. .................................................................................... 46,304,700
882,600 Canadian National Railway Co. ................................................................ 31,269,840
141,100 Norfolk Southern Corp. ....................................................................... 12,028,775
620,000 Union Pacific Corp. .......................................................................... 35,185,000
------------
124,788,315
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
73
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities 6.0%
Electric Utilities
90,100 Boston Edison Co. ............................................................................ 2,353,863
519,300 CINergy Corp. ................................................................................ 17,721,113
261,200 CMS Energy Corp. ............................................................................. 8,586,950
273,200 Duke Power Co. ............................................................................... 12,054,950
1,054,200 Long Island Lighting Co. ..................................................................... 25,300,800
577,367 National Power PLC ........................................................................... 4,634,869
250,000 National Power PLC (GDR) ..................................................................... 8,312,500
1,951,600 P G & E Corp. ................................................................................ 45,862,600
1,080,200 PacifiCorp ................................................................................... 23,089,275
5,986,000 PowerGen PLC ................................................................................. 58,490,976
942,503 PowerGen PLC (ADR) ........................................................................... 36,757,617
636,400 Southern Company ............................................................................. 13,443,950
2,176,300 Unicom Corp. ................................................................................. 42,437,850
---------------
299,047,313
---------------
Total Common Stocks (Cost $3,359,938,908) .................................................... 4,532,533,305
---------------
- --------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $3,679,747,788) (a) ....................... 98.4 4,873,530,485
Other Assets and Liabilities, Net .......................................... 1.6 79,973,978
----- ---------------
Net Assets ................................................................. 100.0 4,953,504,463
===== ===============
- --------------------------------------------------------------------------------------------------------------------------------
* Non income producing security
REIT Real Estate Investment Trust
(a) At March 31, 1997, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$3,679,747,788 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ........................................................................ $ 1,256,299,727
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ........................................................................ (62,517,030)
---------------
Net unrealized appreciation .......................................................................... $ 1,193,782,697
===============
</TABLE>
(b) Securities valued in good faith by the Valuation Committee of the
Board of Trustees amounted to $41,075,548 (.83% of net assets). The
cost of these securities at March 31, 1997 was $36,500,000.
(c) Restricted Securities -- securities which have not been registered
with the Securities and Exchange Commission under the Securities Act
of 1933. Information concerning such restricted securities at March
31, 1997 is as follows:
Security Acquisition Date Cost ($)
-------- ---------------- -----------
Security Capital Corp. 4/19/96 18,250,000
Security Capital Corp., 6.5%, 4/19/96 18,250,000
3/29/16
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1997, aggregated
$1,279,006,996 and $1,006,454,257, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
74
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.0%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
229,000 Repurchase Agreement with State Street Bank and Trust Company dated 3/31/97 at 6%
to be repurchased at $229,038 on 4/1/97, collateralized by a $235,000 U.S. Treasury
Note, 5.75%, 9/30/97 (Cost $229,000) .................................................. 229,000
------------
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 99.2%
- -------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------
Consumer Discretionary 5.1%
Apparel & Shoes 0.3%
100 Fruit of the Loom, Inc. "A"* ............................................................... 4,150
300 Stride Rite Corp.* ......................................................................... 4,500
400 Nike, Inc. "B" ............................................................................. 24,800
100 Liz Claiborne Inc. ......................................................................... 4,363
------------
37,813
------------
Department & Chain Stores 3.8%
100 CVS Corp. .................................................................................. 4,613
100 Charming Shoppes Inc. ...................................................................... 538
200 Costco Companies, Inc. ..................................................................... 5,525
300 Dayton Hudson Corp. ........................................................................ 12,525
100 Dillard Department Stores, Inc. "A" ........................................................ 3,150
100 Federated Department Stores, Inc. .......................................................... 3,288
300 Gap Inc. ................................................................................... 10,050
700 Home Depot, Inc. ........................................................................... 37,450
1,800 J. C. Penney Co., Inc. ..................................................................... 85,725
400 Kmart Corp. ................................................................................ 4,850
700 Limited Inc. ............................................................................... 12,863
100 Longs Drug Stores, Inc. .................................................................... 2,350
100 Lowe's Companies, Inc. ..................................................................... 3,738
900 May Department Stores ...................................................................... 40,950
100 Mercantile Stores, Inc. .................................................................... 4,638
100 Nordstrom, Inc. ............................................................................ 3,788
200 Rite Aid Corp. ............................................................................. 8,400
1,200 Sears, Roebuck & Co. ....................................................................... 60,300
100 TJX Companies, Inc. (New) .................................................................. 4,275
4,200 Wal-Mart Stores Inc. ....................................................................... 117,075
100 Walgreen Co. ............................................................................... 4,188
100 Woolworth Corp. ............................................................................ 2,338
------------
432,617
------------
Home Furnishings 0.3%
100 Armstrong World Industries, Inc. ........................................................... 6,475
200 Newell Companies Inc. ...................................................................... 6,700
500 Rubbermaid, Inc. ........................................................................... 12,438
100 Tupperware Corp. ........................................................................... 3,350
------------
28,963
------------
Hotels & Casinos 0.2%
100 HFS, Inc. .................................................................................. 5,888
100 Harrah's Entertainment, Inc. ............................................................... 1,713
100 Hilton Hotels Corp. ........................................................................ 2,425
100 ITT Corp. .................................................................................. 5,888
100 Marriott International, Inc. ............................................................... 4,975
------------
20,889
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
75
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Recreational Products 0.1%
100 Brunswick Corp. ............................................................................ 2,688
150 Hasbro, Inc. ............................................................................... 4,106
400 Mattel Inc. ................................................................................ 9,600
------------
16,394
------------
Restaurants 0.3%
100 Darden Restaurants Inc. .................................................................... 788
600 McDonald's Corp. ........................................................................... 28,350
100 Wendy's International, Inc. ................................................................ 2,063
------------
31,201
------------
Specialty Retail 0.1%
100 AutoZone, Inc. ............................................................................. 2,250
100 Circuit City Stores Inc. ................................................................... 3,338
100 Pep Boys-Manny, Moe & Jack ................................................................. 3,000
100 Tandy Corp. ................................................................................ 5,013
100 Toys "R" Us Inc.* .......................................................................... 2,800
------------
16,401
------------
Consumer Staples 11.2%
Alcohol 0.3%
700 Anheuser-Busch Companies, Inc. ............................................................. 29,488
200 Seagram Co., Ltd. .......................................................................... 7,650
------------
37,138
------------
Consumer Electronic & Photographic Products 0.6%
700 Eastman Kodak Co. .......................................................................... 53,113
400 Maytag Corp. ............................................................................... 8,250
100 Whirlpool Corp. ............................................................................ 4,763
------------
66,126
------------
Consumer Specialties 0.3%
100 American Greeting Corp., Class A ........................................................... 3,194
1,500 Jostens, Inc. .............................................................................. 33,938
------------
37,132
------------
Farming 0.1%
100 Archer-Daniels-Midland Co. ................................................................. 1,788
100 Pioneer Hi-Bred International, Inc. ........................................................ 6,288
------------
8,076
------------
Food & Beverage 5.8%
100 Albertson's Inc. ........................................................................... 3,400
100 American Stores Co. ........................................................................ 4,450
100 CPC International Inc. ..................................................................... 8,200
500 Campbell Soup Co. .......................................................................... 23,188
5,200 Coca-Cola Co., Inc. ........................................................................ 290,550
100 ConAgra Inc. ............................................................................... 5,425
700 General Mills, Inc. ........................................................................ 43,488
100 Giant Food, Inc. "A" ....................................................................... 3,200
800 H.J. Heinz Co. ............................................................................. 31,600
100 Hershey Foods Corp. ........................................................................ 5,000
200 Kellogg Co. ................................................................................ 13,450
100 Kroger Co.* ................................................................................ 5,075
3,000 PepsiCo Inc. ............................................................................... 97,875
600 Quaker Oats Co. ............................................................................ 21,900
100 Ralston Purina Group ....................................................................... 7,813
200 SUPERVALU, Inc. ............................................................................ 5,950
400 Unilever NV (New York shares) .............................................................. 74,500
</TABLE>
The accompanying notes are an integral part of the financial statements
76
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
100 William Wrigley Jr. Co. .................................................................... 5,838
200 Winn-Dixie Stores, Inc. .................................................................... 6,600
------------
657,502
------------
Package Goods/Cosmetics 3.9%
500 Avon Products Inc. ......................................................................... 26,250
100 Clorox Co. ................................................................................. 11,213
400 Colgate-Palmolive Co. ...................................................................... 39,850
1,100 Gillette Co. ............................................................................... 79,888
500 International Flavors & Fragrances, Inc. ................................................... 21,875
800 Kimberly-Clark Corp. ....................................................................... 79,500
1,600 Procter & Gamble Co. ....................................................................... 184,000
------------
442,576
------------
Textiles 0.2%
100 Springs Industries, Inc. "A" ............................................................... 4,475
200 VF Corporation ............................................................................. 13,375
------------
17,850
------------
Health 11.7%
Biotechnology 0.1%
100 Alza Corp."A" .............................................................................. 2,750
100 Amgen Inc.* ................................................................................ 5,588
100 Guidant Corp. .............................................................................. 6,150
------------
14,488
------------
Health Industry Services 0.2%
200 HEALTHSOUTH Corp. .......................................................................... 3,825
100 Shared Medical Systems Corp. ............................................................... 4,650
200 United Healthcare Corp. .................................................................... 9,525
------------
18,000
------------
Hospital Management 0.3%
900 Columbia/HCA Healthcare Corp. .............................................................. 30,263
100 Humana Inc. ................................................................................ 2,200
100 Manor Care, Inc. ........................................................................... 2,438
100 Tenet Healthcare Corp. ..................................................................... 2,463
------------
37,364
------------
Medical Supply & Specialty 0.7%
500 Bausch & Lomb, Inc. ........................................................................ 19,750
100 Becton, Dickinson & Co. .................................................................... 4,500
100 Biomet Inc.* ............................................................................... 1,688
200 Boston Scientific Corp. .................................................................... 12,350
300 C.R. Bard, Inc. ............................................................................ 8,550
100 Mallinckrodt, Inc. ......................................................................... 4,113
400 Medtronic Inc. ............................................................................. 24,900
100 St. Jude Medical, Inc. ..................................................................... 3,338
100 U.S. Surgical Corp. ........................................................................ 3,050
------------
82,239
------------
Pharmaceuticals 10.4%
1,900 Abbott Laboratories ........................................................................ 106,638
100 Allergan, Inc. ............................................................................. 2,913
1,800 American Home Products Corp. ............................................................... 108,000
1,200 Baxter International Inc. .................................................................. 51,750
2,600 Bristol-Myers Squibb Co. ................................................................... 153,400
1,200 Eli Lilly & Co. ............................................................................ 98,700
2,900 Johnson & Johnson .......................................................................... 153,338
2,700 Merck & Co. Inc. ........................................................................... 227,475
</TABLE>
The accompanying notes are an integral part of the financial statements
77
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,300 Pfizer, Inc. ............................................................................... 109,363
1,300 Pharmacia & Upjohn, Inc. ................................................................... 47,613
800 Schering-Plough Corp. ...................................................................... 58,200
700 Warner-Lambert Co. ......................................................................... 60,550
------------
1,177,940
------------
Communications 6.6%
Cellular Telephone 0.0%
100 AirTouch Communications, Inc.* ............................................................. 2,300
------------
Telephone/Communications 6.6%
200 Alltel Corp. ............................................................................... 6,500
4,200 American Telephone & Telegraph Co. ......................................................... 145,950
900 Ameritech Corp. ............................................................................ 55,350
1,100 Bell Atlantic Corp. ........................................................................ 66,963
1,500 BellSouth Corp. ............................................................................ 63,375
400 Frontier Corp. ............................................................................. 7,150
2,300 GTE Corp. .................................................................................. 107,238
100 MCI Communications Corp. ................................................................... 3,563
1,400 NYNEX Corp. ................................................................................ 63,875
300 Pacific Telesis Group ...................................................................... 11,325
600 SBC Communicatons, Inc. .................................................................... 31,575
100 Sprint Corp. ............................................................................... 4,550
4,000 US West Inc. ............................................................................... 136,000
2,100 WorldCom, Inc. ............................................................................. 46,200
------------
749,614
------------
Financial 13.5%
Banks 8.6%
1,200 Banc One Corp. ............................................................................. 47,700
200 Bank of Boston Corp. ....................................................................... 13,400
600 Bank of New York Co., Inc. ................................................................. 22,050
800 BankAmerica Corp. .......................................................................... 80,600
100 Barnett Banks, Inc. ........................................................................ 4,650
1,100 Chase Manhattan Corp. ...................................................................... 102,988
900 Citicorp ................................................................................... 97,425
300 Comerica Inc. .............................................................................. 16,913
1,100 CoreStates Financial Corp. ................................................................. 52,250
100 Fifth Third Bancorp. ....................................................................... 7,750
100 First Bank System Inc. ..................................................................... 7,300
700 First Chicago NBD Corp. .................................................................... 37,888
500 First Union Corp. .......................................................................... 40,563
700 Fleet Financial Group, Inc. ................................................................ 40,075
100 H.F. Ahmanson & Co. ........................................................................ 3,650
700 J.P. Morgan & Co., Inc. .................................................................... 68,775
700 KeyCorp .................................................................................... 34,125
700 MBNA Corp. ................................................................................. 19,513
400 Mellon Bank Corp. .......................................................................... 29,100
700 National City Corp. ........................................................................ 32,638
1,700 NationsBank Corp. .......................................................................... 94,138
700 Norwest Corp. .............................................................................. 32,375
1,200 PNC Bank Corp. ............................................................................. 48,000
100 SunTrust Banks, Inc. ....................................................................... 4,638
100 U.S. Bancorp. .............................................................................. 5,350
200 Wachovia Corp. ............................................................................. 10,900
100 Wells Fargo & Co. .......................................................................... 28,413
------------
983,167
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
78
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance 2.6%
100 Aetna Inc. ................................................................................. 8,588
600 Allstate Corp. ............................................................................. 35,625
600 American General Corp. ..................................................................... 24,450
400 American International Group, Inc. ......................................................... 46,950
100 Aon Corp. .................................................................................. 6,125
100 Chubb Corp. ................................................................................ 5,388
100 Cigna Corp. ................................................................................ 14,613
100 General Re Corp. ........................................................................... 15,800
100 ITT Hartford Group, Inc. ................................................................... 7,213
100 Jefferson Pilot Corp. ...................................................................... 5,438
400 Lincoln National Corp. ..................................................................... 21,400
100 MGIC Investment Corp. ...................................................................... 7,075
500 Marsh & McLennan Companies, Inc. ........................................................... 56,625
100 Providian Corp. ............................................................................ 5,350
100 Safeco Corp. ............................................................................... 4,000
200 St. Paul Companies, Inc. ................................................................... 12,975
100 Torchmark Corp. ............................................................................ 5,538
100 Transamerica Corp. ......................................................................... 8,950
100 UNUM Corp. ................................................................................. 7,300
100 USF&G Corp. ................................................................................ 2,150
------------
301,553
------------
Consumer Finance 0.2%
300 Beneficial Corp. ........................................................................... 19,388
------------
Other Financial Companies 2.1%
900 American Express Credit Corp. .............................................................. 53,888
400 Federal Home Loan Mortgage Corp. ........................................................... 10,900
2,200 Federal National Mortgage Association ...................................................... 79,475
100 Great Western Financial Corp. .............................................................. 4,038
100 Green Tree Acceptance Inc. ................................................................. 3,375
100 Household International, Inc. .............................................................. 8,613
100 Salomon Inc. ............................................................................... 4,988
1,400 Travelers Group, Inc. ...................................................................... 67,025
------------
232,302
------------
Media 1.6%
Advertising 0.0%
100 Interpublic Group of Companies Inc. ........................................................ 5,275
------------
Broadcasting & Entertainment 1.1%
1,000 Time Warner Inc. ........................................................................... 43,250
100 U.S. West Media Group ...................................................................... 1,863
100 Viacom Inc. "B"* ........................................................................... 3,313
1,100 Walt Disney Co. ............................................................................ 80,300
------------
128,726
------------
Cable Television 0.1%
200 Comcast Corp. "A" .......................................................................... 3,375
300 Tele-Communications Inc. "A" (New) ......................................................... 3,600
------------
6,975
------------
Print Media 0.4%
200 Gannett Co., Inc. .......................................................................... 17,175
100 Harcourt General, Inc. ..................................................................... 4,650
100 Knight-Ridder, Inc. ........................................................................ 3,988
100 New York Times Co. "A" ..................................................................... 4,413
</TABLE>
The accompanying notes are an integral part of the financial statements
79
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
100 Times Mirror Co. "A" ....................................................................... 5,463
200 Tribune Co. ................................................................................ 8,100
------------
43,789
------------
Service Industries 2.9%
Edp Services 0.1%
100 Automatic Data Processing, Inc. ............................................................ 4,188
100 First Data Corp. ........................................................................... 3,388
------------
7,576
------------
Environmental Services 0.6%
700 Browning Ferris Industries ................................................................. 20,213
100 Laidlaw, Inc. "B" .......................................................................... 1,375
1,500 WMX Technologies Inc. ...................................................................... 45,938
------------
67,526
------------
Investment 0.3%
300 Dean Witter, Discover & Co. ................................................................ 10,463
200 Merrill Lynch & Co., Inc. .................................................................. 17,175
100 Morgan Stanley Group, Inc. ................................................................. 5,875
------------
33,513
------------
Miscellaneous Commercial Services 0.1%
100 Cognizant Corp. ............................................................................ 2,913
100 Ecolab, Inc. ............................................................................... 3,800
100 Safety-Kleen Corp. ......................................................................... 1,475
100 Sysco Corp. ................................................................................ 3,413
------------
11,601
------------
Miscellaneous Consumer Services 0.1%
300 CUC International Inc.* .................................................................... 6,750
200 H & R Block Inc. ........................................................................... 5,875
100 Service Corp. International ................................................................ 2,975
------------
15,600
------------
Printing/Publishing 1.7%
1,800 Deluxe Corp. ............................................................................... 58,275
200 Dow Jones & Co., Inc. ...................................................................... 8,125
1,700 Dun & Bradstreet Corp. ..................................................................... 43,138
500 John H. Harland Co. ........................................................................ 11,875
700 McGraw-Hill Inc. ........................................................................... 35,788
1,700 Moore Corp., Ltd. .......................................................................... 34,000
100 R.R. Donnelley & Sons Co. .................................................................. 3,488
------------
194,689
------------
Durables 5.9%
Aerospace 1.5%
300 AlliedSignal Inc. .......................................................................... 21,375
700 Boeing Co. ................................................................................. 69,038
200 Lockheed Martin Corp. ...................................................................... 16,800
200 McDonnell Douglas Corp. .................................................................... 12,200
100 Northrop Grumman Corp. ..................................................................... 7,563
200 Rockwell International Corp. (New) ......................................................... 12,975
400 United Technologies Corp. .................................................................. 30,100
------------
170,051
------------
Automobiles 2.8%
2,200 Chrysler Corp. ............................................................................. 66,000
100 Dana Corp. ................................................................................. 3,288
100 Eaton Corp. ................................................................................ 7,088
100 Echlin, Inc. ............................................................................... 3,400
</TABLE>
The accompanying notes are an integral part of the financial statements
80
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,800 Ford Motor Co. ............................................................................. 119,225
1,800 General Motors Corp. ....................................................................... 99,675
400 Genuine Parts Co ........................................................................... 18,650
100 Navistar International Corp. ............................................................... 938
------------
318,264
------------
Construction/Agricultural Equipment 0.5%
100 Case Corp. ................................................................................. 5,075
400 Caterpillar Inc. ........................................................................... 32,100
400 Deere & Co. ................................................................................ 17,400
------------
54,575
------------
Leasing Companies 0.0%
100 Ryder System, Inc. ......................................................................... 2,925
------------
Telecommunications Equipment 1.0%
150 Andrew Corp. ............................................................................... 5,419
100 DSC Communications Corp.* .................................................................. 2,094
100 General Instrument Corp.* .................................................................. 2,288
1,300 Lucent Technologies Inc. ................................................................... 68,575
400 Northern Telecom Ltd. ...................................................................... 26,150
100 Scientific-Atlanta, Inc. ................................................................... 1,525
200 Tellabs, Inc.* ............................................................................. 7,225
------------
113,276
------------
Tires 0.1%
100 Cooper Tire & Rubber Co. ................................................................... 1,850
100 Goodyear Tire & Rubber Co. ................................................................. 5,225
------------
7,075
------------
Manufacturing 11.4%
Chemicals 2.9%
100 B.F. Goodrich Co., Inc. .................................................................... 3,663
900 Dow Chemical Co. ........................................................................... 72,000
1,400 E.I. du Pont de Nemours & Co. .............................................................. 148,400
400 Eastman Chemical Co. ....................................................................... 21,500
100 Engelhard Corp. ............................................................................ 2,100
100 Great Lakes Chemicals Corp. ................................................................ 4,600
100 Hercules, Inc. ............................................................................. 4,225
1,100 Monsanto Co. ............................................................................... 42,075
100 Morton International Inc. .................................................................. 4,225
100 Praxair Inc. ............................................................................... 4,488
100 Rohm & Haas Co. ............................................................................ 7,488
100 Sigma-Aldrich Corp. ........................................................................ 3,088
100 Union Carbide Corp. ........................................................................ 4,425
100 W.R. Grace & Co. (New) ..................................................................... 4,738
------------
327,015
------------
Containers & Paper 0.5%
100 Champion International Corp. ............................................................... 4,550
100 Crown Cork & Seal Co. Inc.* ................................................................ 5,163
400 International Paper Co. .................................................................... 15,550
100 James River Corp. of Virginia .............................................................. 2,913
200 Stone Container Corp. ...................................................................... 2,225
400 Union Camp Corp. ........................................................................... 18,850
100 Westvaco Corp. ............................................................................. 2,513
------------
51,764
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
81
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Manufacturing 5.5%
400 Cooper Industries, Inc. .................................................................... 17,350
100 Dover Corp. ................................................................................ 5,250
400 Dresser Industries Inc. .................................................................... 12,100
4,200 General Electric Co. ....................................................................... 416,850
100 Honeywell, Inc. ............................................................................ 6,788
100 ITT Industries Inc. ........................................................................ 2,238
1,200 Minnesota Mining & Manufacturing Co. ....................................................... 101,400
100 National Service Industries, Inc. .......................................................... 3,913
100 TRINOVA Corp. .............................................................................. 3,350
100 TRW Inc. ................................................................................... 5,175
500 Tenneco, Inc. .............................................................................. 19,500
100 Textron, Inc. .............................................................................. 10,500
100 Thermo Electron Corp. ...................................................................... 3,088
100 Tyco International Ltd. .................................................................... 5,500
700 Westinghouse Electric Corp. ................................................................ 12,425
100 Whitman Corp. .............................................................................. 2,450
------------
627,877
------------
Electrical Products 0.6%
1,200 Emerson Electric Co. ....................................................................... 54,000
100 Raychem Corp. .............................................................................. 8,238
100 Thomas & Betts Corp. ....................................................................... 4,275
------------
66,513
------------
Hand Tools 0.1%
100 Black & Decker Corp. ....................................................................... 3,213
100 Briggs & Stratton Corp. .................................................................... 4,488
100 Snap-On, Inc. .............................................................................. 3,875
200 Stanley Works .............................................................................. 7,575
------------
19,151
------------
Industrial Specialty 0.6%
100 Avery Dennison Corp. ....................................................................... 3,850
600 Corning Inc. ............................................................................... 26,625
500 PPG Industries, Inc. ....................................................................... 27,000
400 Pall Corp. ................................................................................. 9,250
200 Sherwin-Williams Co. ....................................................................... 5,400
------------
72,125
------------
Machinery/Components/Controls 0.3%
100 General Signal Corp. ....................................................................... 3,913
100 Harnischfeger Industries, Inc. ............................................................. 4,650
100 Illinois Tool Works Inc. ................................................................... 8,163
100 Ingersoll-Rand Co. ......................................................................... 4,363
100 Parker-Hannifin Group ...................................................................... 4,275
100 Timken Co. ................................................................................. 5,350
------------
30,714
------------
Office Equipment/Supplies 0.8%
600 Pitney Bowes, Inc. ......................................................................... 35,250
900 Xerox Corp. ................................................................................ 51,107
------------
86,357
------------
Specialty Chemicals 0.1%
100 Air Products & Chemicals, Inc. ............................................................. 6,788
100 Nalco Chemical Co. ......................................................................... 3,738
------------
10,526
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
82
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 11.1%
Computer Software 2.8%
100 Autodesk, Inc. ............................................................................. 3,100
100 Bay Networks Inc. .......................................................................... 1,788
600 Computer Associates International, Inc. .................................................... 23,325
2,700 Microsoft Corp.* ........................................................................... 247,556
1,200 Oracle Systems Corp.* ...................................................................... 46,275
------------
322,044
------------
Diverse Electronic Products 0.9%
100 Amdahl Corp. ............................................................................... 938
400 Applied Materials, Inc.* ................................................................... 18,550
100 Harris Corp. ............................................................................... 7,688
1,200 Motorola Inc. .............................................................................. 72,450
------------
99,626
------------
EDP Peripherals 0.3%
400 EMC Corp. .................................................................................. 14,200
400 Seagate Technology, Inc. ................................................................... 17,950
------------
32,150
------------
Electronic Components/Distributors 0.2%
800 AMP Inc. ................................................................................... 27,500
------------
Electronic Data Processing 3.2%
100 Apple Computer, Inc. ....................................................................... 1,825
100 Ceridian Corp. ............................................................................. 3,588
500 Compaq Computer Corp.* ..................................................................... 38,313
400 Dell Computer Corp.* ....................................................................... 27,050
200 Digital Equipment Corp. .................................................................... 5,475
2,000 Hewlett-Packard Co. ........................................................................ 106,500
1,200 International Business Machines Corp. ...................................................... 164,850
100 Silicon Graphics Inc.* ..................................................................... 1,950
300 Sun Microsystems, Inc. ..................................................................... 8,663
100 Tandem Computers, Inc.* .................................................................... 1,188
100 Unisys Corp. ............................................................................... 638
------------
360,040
------------
Military Electronics 0.2%
100 Computer Sciences Corp. .................................................................... 6,175
100 EG&G, Inc. ................................................................................. 2,088
100 General Dynamics Corp. ..................................................................... 6,738
100 Raytheon Co. ............................................................................... 4,513
------------
19,514
------------
Office/Plant Automation 0.7%
200 3Com Corp.* ................................................................................ 6,550
100 Cabletron Systems Inc.* .................................................................... 2,925
1,400 Cisco Systems, Inc.* ....................................................................... 67,375
300 Novell Inc.* ............................................................................... 2,850
------------
79,700
------------
Precision Instruments 0.1%
100 Perkin-Elmer Corp. ......................................................................... 6,438
------------
Semiconductors 2.7%
100 Advanced Micro Devices Inc.* ............................................................... 4,150
1,900 Intel Corp. ................................................................................ 264,338
100 LSI Logic Corp. ............................................................................ 3,475
</TABLE>
The accompanying notes are an integral part of the financial statements
83
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
300 Micron Technology Inc. ..................................................................... 12,150
100 National Semiconductor Corp. ............................................................... 2,750
300 Texas Instruments Inc. ..................................................................... 22,463
------------
309,326
------------
Energy 10.5%
Engineering 0.1%
100 Fluor Corp. ................................................................................ 5,250
100 Foster Wheeler Corp. ....................................................................... 3,538
------------
8,788
------------
Oil & Gas Production 0.4%
100 Burlington Resources, Inc. ................................................................. 4,275
100 Coastal Corp. .............................................................................. 4,800
1,100 Occidental Petroleum Corp. ................................................................. 27,088
100 Oryx Energy Co. ............................................................................ 1,925
100 Santa Fe Energy Resources, Inc. ............................................................ 1,388
100 Union Pacific Resources Group .............................................................. 2,675
------------
42,151
------------
Oil Companies 9.1%
100 Amerada Hess Corp. ......................................................................... 5,300
1,100 Amoco Corp. ................................................................................ 95,288
100 Ashland Inc. ............................................................................... 4,025
800 Atlantic Richfield Co. ..................................................................... 108,000
1,400 Chevron Corp. .............................................................................. 97,475
2,900 Exxon Corp. ................................................................................ 312,475
900 Mobil Corp. ................................................................................ 117,563
400 Phillips Petroleum Co. ..................................................................... 16,350
1,100 Royal Dutch Petroleum Co. (New York shares) ................................................ 192,500
100 Sun Co., Inc. .............................................................................. 2,613
700 Texaco Inc. ................................................................................ 76,650
100 USX Marathon Group ......................................................................... 2,788
100 Unocal Corp. ............................................................................... 3,813
------------
1,034,840
------------
Oil/Gas Transmission 0.2%
100 ENSERCH Corp. .............................................................................. 2,050
200 Enron Corp. ................................................................................ 7,600
100 Noram Energy Corp. ......................................................................... 1,463
100 PanEnergy Corp. ............................................................................ 4,313
100 Sonat, Inc. ................................................................................ 5,450
100 Williams Cos., Inc. ........................................................................ 4,450
------------
25,326
------------
Oilfield Services/Equipment 0.7%
100 Baker Hughes, Inc. ......................................................................... 3,838
200 Halliburton Co. ............................................................................ 13,550
100 Rowan Companies, Inc. ...................................................................... 2,263
600 Schlumberger Ltd. .......................................................................... 64,350
------------
84,001
------------
Metals & Minerals 0.8%
Precious Metals 0.3%
100 Barrick Gold Corp. ......................................................................... 2,375
100 Battle Mountain Gold Co. "A" ............................................................... 663
100 Echo Bay Mines, Ltd. ....................................................................... 663
700 Freeport McMoRan Copper & Gold, Inc. "B" ................................................... 21,263
100 Homestake Mining Co. ....................................................................... 1,513
</TABLE>
The accompanying notes are an integral part of the financial statements
84
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
100 Newmont Mining Corp. ....................................................................... 3,875
100 Placer Dome Inc. ........................................................................... 1,813
100 Santa Fe Pacific Gold Corp. ................................................................ 1,650
------------
33,815
------------
Steel & Metals 0.5%
100 Alcan Aluminium Ltd. ....................................................................... 3,388
500 Allegheny Teledyne Inc. .................................................................... 14,063
100 Aluminum Co. of America .................................................................... 6,800
100 Asarco, Inc. ............................................................................... 2,813
100 Bethlehem Steel Corp. ...................................................................... 825
100 Cyprus Amax Minerals Co. ................................................................... 2,375
100 Inco Ltd. .................................................................................. 3,263
100 Nucor Corp. ................................................................................ 4,575
100 Phelps Dodge Corp. ......................................................................... 7,313
100 Reynolds Metals Co. ........................................................................ 6,200
200 USX-US Steel Group, Inc. ................................................................... 5,325
------------
56,940
------------
Construction 0.4%
Building Products 0.1%
200 Masco Corp. ................................................................................ 7,150
------------
Forest Products 0.3%
100 Georgia Pacific Corp. ...................................................................... 7,250
100 Louisiana-Pacific Corp. .................................................................... 2,075
100 Potlatch Corp. ............................................................................. 4,113
600 Weyerhaeuser Co. ........................................................................... 26,775
------------
40,213
------------
Transportation 1.3%
Air Freight 0.1%
100 Federal Express Corp. ...................................................................... 5,213
------------
Airlines 0.2%
100 AMR Corp.* ................................................................................. 8,250
100 Delta Air Lines, Inc. ...................................................................... 8,413
100 Southwest Airlines Co. ..................................................................... 2,213
100 USAir Group, Inc. .......................................................................... 2,450
------------
21,326
------------
Railroads 1.0%
100 Burlington Northern Santa Fe ............................................................... 7,400
300 CSX Corp. .................................................................................. 13,950
200 Consolidated Rail Corp. .................................................................... 22,550
300 Norfolk Southern Corp. ..................................................................... 25,575
800 Union Pacific Corp. ........................................................................ 45,400
------------
114,875
------------
Trucking 0.0%
100 Caliber System, Inc. ....................................................................... 2,650
------------
Utilities 5.2%
Electric Utilities 4.7%
300 American Electric Power Co. ................................................................ 12,375
100 Baltimore Gas & Electric Co. ............................................................... 2,675
100 CINergy Corp. .............................................................................. 3,413
100 Carolina Power & Light Co. ................................................................. 3,625
2,600 Central & South West Corp. ................................................................. 55,575
1,300 Consolidated Edison Co. of New York, Inc. .................................................. 39,000
1,100 DTE Energy Co. ............................................................................. 29,563
</TABLE>
The accompanying notes are an integral part of the financial statements
85
<PAGE>
AARP U.S. STOCK INDEX FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
500 Dominion Resources Inc. .................................................................... 18,188
100 Duke Power Co. ............................................................................. 4,413
100 Edison International ....................................................................... 2,250
1,100 Entergy Corp. .............................................................................. 26,950
100 FPL Group, Inc. ............................................................................ 4,413
100 GPU, Inc. .................................................................................. 3,213
700 Houston Industries Inc. .................................................................... 14,613
100 Niagara Mohawk Power Corp. ................................................................. 850
200 Northern States Power Co. .................................................................. 9,475
800 Ohio Edison Co. ............................................................................ 16,900
100 P G & E Corp. .............................................................................. 2,350
2,200 PP&L Resources, Inc. ....................................................................... 44,550
100 PacifiCorp ................................................................................. 2,138
4,300 Peco Energy Co. ............................................................................ 87,613
3,600 Public Service Enterprise Group ............................................................ 94,500
1,100 Southern Company ........................................................................... 23,238
200 Texas Utilities Co., Inc. .................................................................. 6,850
400 Unicom Corp. ............................................................................... 7,800
500 Union Electric Co. ......................................................................... 18,438
------------
534,968
------------
Natural Gas Distribution 0.5%
100 Consolidated Natural Gas Corp. ............................................................. 5,038
200 Eastern Enterprises ........................................................................ 6,175
400 Pacific Enterprises ........................................................................ 12,100
900 Peoples Energy Corp. ....................................................................... 29,813
------------
53,126
------------
Total Common Stocks (Cost $11,793,327) ..................................................... 11,264,231
------------
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $12,022,327) (a) ........................... 101.2 11,493,231
Other Assets and Liabilities, Net ........................................... (1.2) (135,254)
-------- ------------
Net Assets .................................................................. 100.0 11,357,977
======== ============
- -------------------------------------------------------------------------------------------------------------------------------
* Non income producing security.
(a) At March 31, 1997, the net unrealized depreciation on investments based on cost for federal income tax purposes of
$12,022,327 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................................................ $ 88,895
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................................................ (617,991)
------------
Net unrealized depreciation .......................................................................... $ (529,096)
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period February 1, 1997 (commencement of
operations) through March 31, 1997, aggregated $11,793,327 and $0,
respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation.
The Fund's other assets and liabilities are disclosed in the Statement
of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
86
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.7%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
24,489,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at 6.375% to be repurchased at
$24,493,337 on 4/1/97, collateralized by a $25,228,000 U.S. Treasury Bond, 6.5%, 8/15/05
(Cost $24,489,000)................................................................................. 24,489,000
-----------
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.4%
- --------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------
Consumer Discretionary 8.9%
Apparel & Shoes 1.0%
150,000 Nike, Inc. "B" ...................................................................................... 9,300,000
-----------
Department & Chain Stores 5.6%
360,000 Costco Companies, Inc. .............................................................................. 9,945,000
320,000 Gap Inc. ............................................................................................ 10,720,000
360,000 Home Depot, Inc. .................................................................................... 19,260,000
250,000 Walgreen Co. ........................................................................................ 10,468,750
-----------
50,393,750
-----------
Hotels & Casinos 0.9%
400,000 Mirage Resorts Inc.* ................................................................................ 8,500,000
-----------
Specialty Retail 1.4%
320,000 Tiffany & Co. ....................................................................................... 12,160,000
-----------
Consumer Staples 4.0%
Alcohol 1.5%
330,000 Anheuser-Busch Companies, Inc. ...................................................................... 13,901,250
-----------
Package Goods/Cosmetics 2.5%
80,000 Clorox Co. .......................................................................................... 8,970,000
115,000 Procter & Gamble Co. ................................................................................ 13,225,000
-----------
22,195,000
-----------
Health 12.6%
Hospital Management 1.8%
500,800 Columbia/HCA Healthcare Corp. ....................................................................... 16,839,400
-----------
Medical Supply & Specialty 2.2%
308,000 Becton, Dickinson & Co. ............................................................................. 13,860,000
240,000 STERIS Corp.* ....................................................................................... 5,850,000
-----------
19,710,000
-----------
Pharmaceuticals 8.6%
140,000 American Home Products Corp. ........................................................................ 8,400,000
180,000 Johnson & Johnson ................................................................................... 9,517,500
100,000 Merck & Co., Inc. ................................................................................... 8,425,000
197,100 Novartis AG (ADR) ................................................................................... 12,023,100
139,000 Pfizer, Inc. ........................................................................................ 11,693,375
100,000 Schering-Plough Corp. ............................................................................... 7,275,000
234,000 Warner-Lambert Co. .................................................................................. 20,241,000
-----------
77,574,975
-----------
Financial 18.4%
Banks 5.3%
225,000 Citicorp ............................................................................................ 24,356,250
125,000 First Chicago NBD Corp. ............................................................................. 6,765,625
580,000 J.P. Morgan & Co., Inc. ............................................................................. 7,860,000
200,000 Norwest Corp. ....................................................................................... 9,250,000
-----------
48,231,875
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
87
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance 5.8%
180,000 American International Group, Inc. ................................................................... 21,127,500
460,000 EXEL, Ltd. ........................................................................................... 19,435,000
121,000 MBIA Inc. ............................................................................................ 11,600,875
-----------
52,163,375
-----------
Consumer Finance 1.4%
301,700 Associates First Capital Corp. ....................................................................... 12,973,100
-----------
Other Financial Companies 5.9%
425,000 American Express Credit Corp. ........................................................................ 25,446,875
410,000 Federal National Mortgage Association ................................................................ 14,811,250
270,000 Travelers Group, Inc. ................................................................................ 12,926,250
-----------
53,184,375
-----------
Media 1.1%
Advertising
200,000 Omnicom Group, Inc. .................................................................................. 9,975,000
-----------
Service Industries 4.7%
Investment 3.1%
347,500 Franklin Resources Inc. .............................................................................. 17,722,500
120,000 Merrill Lynch & Co., Inc. ............................................................................ 10,305,000
-----------
28,027,500
-----------
Miscellaneous Commercial Services 1.6%
291,000 Manpower, Inc. ....................................................................................... 10,476,000
165,000 Sabre Group Holdings Inc. ............................................................................ 4,166,250
-----------
14,642,250
-----------
Durables 4.3%
Aerospace 3.6%
235,000 Rockwell International Corp. (New) ................................................................... 15,245,625
230,000 United Technologies Corp. ............................................................................ 17,307,500
-----------
32,553,125
-----------
Telecommunications Equipment 0.7%
165,000 Ascend Communications, Inc. .......................................................................... 6,723,750
-----------
Manufacturing 11.6%
Chemicals 3.6%
140,000 E.I. du Pont de Nemours & Co. ........................................................................ 14,840,000
195,700 Praxair Inc. ......................................................................................... 8,782,038
290,000 Sigma-Aldrich Corp. .................................................................................. 8,953,750
-----------
32,575,788
-----------
Diversified Manufacturing 3.8%
95,000 General Electric Co. ................................................................................. 9,428,750
240,000 TRW Inc. ............................................................................................. 12,420,000
120,000 Textron, Inc. ........................................................................................ 12,600,000
-----------
34,448,750
-----------
Electrical Products 1.7%
75,000 ABB AB (ADR) ......................................................................................... 8,118,750
166,000 Emerson Electric Co. ................................................................................. 7,470,000
-----------
15,588,750
-----------
Machinery/Components/Controls 2.5%
200,000 Ingersoll-Rand Co. ................................................................................... 8,725,000
317,000 Parker-Hannifin Group ................................................................................ 13,551,750
-----------
22,276,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
88
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 16.4%
Diverse Electronic Products 5.8%
400,000 Applied Materials, Inc.* ............................................................................. 18,550,000
360,000 General Motors Corp. "H" ............................................................................. 19,530,000
220,000 KLA Instruments Corp.* ............................................................................... 8,030,000
220,000 Teradyne Inc.* ....................................................................................... 6,352,500
-----------
52,462,500
-----------
Electronic Data Processing 7.0%
292,000 Compaq Computer Corp.* ............................................................................... 22,374,500
265,000 Hewlett-Packard Co. .................................................................................. 14,111,250
80,000 International Business Machines Corp. ................................................................ 10,990,000
560,000 Sun Microsystems, Inc. ............................................................................... 16,170,000
-----------
63,645,750
-----------
Office/Plant Automation 0.9%
100,000 Cabletron Systems Inc.* .............................................................................. 2,925,000
106,400 Cisco Systems, Inc. .................................................................................. 5,120,500
-----------
8,045,500
-----------
Semiconductors 2.7%
177,000 Intel Corp. .......................................................................................... 24,625,125
-------------
Energy 12.9%
Engineering 0.9%
150,000 Fluor Corp. .......................................................................................... 7,875,000
-----------
Oil Companies 10.4%
150,000 Amoco Corp. .......................................................................................... 12,993,750
115,000 Atlantic Richfield Co. ............................................................................... 15,525,000
175,000 Exxon Corp. .......................................................................................... 18,856,250
105,000 Mobil Corp. .......................................................................................... 13,715,625
254,800 Repsol SA (ADR) ...................................................................................... 10,383,100
130,000 Royal Dutch Petroleum Co. (New York shares) .......................................................... 22,750,000
-----------
94,223,725
-----------
Oil/Gas Transmission 1.6%
220,000 Enron Corp. .......................................................................................... 8,360,000
130,000 Williams Cos., Inc. .................................................................................. 5,785,000
-----------
14,145,000
-----------
Transportation 1.2%
Airlines
125,000 AMR Corp.* ........................................................................................... 10,312,500
-----------
Utilities 1.3%
Electric Utilities
350,000 Eastern Utilities Association ........................................................................ 6,300,000
150,000 PowerGen PLC (sponsored ADR) ......................................................................... 5,850,000
-----------
12,150,000
-----------
Total Common Stocks (Cost $683,550,405) ............................................................. 881,423,863
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
89
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $708,039,405) (a) ................................................... 100.1 905,912,863
Other Assets and Liabilities, Net .................................................................... (0.1) (669,069)
----- ------------
Net Assets ........................................................................................... 100.0 905,243,794
===== ============
- -------------------------------------------------------------------------------------------------------------------------------
* Non income producing security.
(a) At March 31, 1997, the net unrealized appreciation on investments based on cost for federal income tax purposes of
$708,039,405 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....................................................... $212,330,888
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value........................................................ (14,457,430)
------------
Net unrealized appreciation ............................................................................... $197,873,458
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term
investments), for the six months ended March 31, 1997, aggregated
$223,375,160 and $225,881,903, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
90
<PAGE>
AARP SMALL COMPANY STOCK FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.3%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
103,000 Repurchase Agreement with State Street Bank and Trust Company dated 3/31/97 at 6% to be
repurchased at $103,017 on 4/1/97, collateralized by a $110,000 U.S. Treasury Bond,
7.125%, 2/15/23 (Cost $103,000)................................................................... 103,000
---------
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 12.7%
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Student Loan Marketing Association Discount Note, 4/01/97 (Cost $1,000,000)...................... 1,000,000
---------
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 90.4%
- --------------------------------------------------------------------------------------------------------------------------------
Shares
- ------
Consumer Discretionary 9.1%
Apparel & Shoes 1.1%
5,100 Brown Group, Inc................................................................................... 84,788
---------
Home Furnishings 5.6%
1,900 Ethan Allen Interiors Inc.......................................................................... 82,650
2,200 Interface, Inc..................................................................................... 55,138
1,600 La-Z-Boy Inc....................................................................................... 54,800
4,400 Oneida Ltd......................................................................................... 86,900
3,100 Thomas Industries, Inc............................................................................. 72,850
2,600 Toro Co............................................................................................ 88,400
---------
440,738
---------
Hotels & Casinos 1.2%
6,000 Prime Hospitality Corp.*........................................................................... 93,750
---------
Specialty Retail 1.2%
1,800 Eagle Hardware & Garden, Inc.*..................................................................... 32,400
1,900 Inacom Corp.*...................................................................................... 43,225
1,100 Zale Corp.*........................................................................................ 20,213
---------
95,838
---------
Consumer Staples 3.8%
Food & Beverage 2.0%
3,900 Nash-Finch Co...................................................................................... 74,588
2,500 Riser Foods, Inc. "A".............................................................................. 82,813
---------
157,401
---------
Textiles 1.8%
2,900 Guilford Mills, Inc................................................................................ 87,363
2,300 Kellwood Company................................................................................... 57,500
---------
144,863
---------
Health 1.5%
Health Industry Services 0.5%
2,300 Rotech Medical Corp................................................................................ 41,975
---------
Medical Supply & Specialty 1.0%
4,300 Bindley Western Industries, Inc.................................................................... 80,625
---------
Financial 13.4%
Banks 8.1%
2,100 ALBANK Financial Corp.............................................................................. 76,383
1,500 Bankers Corp....................................................................................... 37,313
200 Colonial BancGroup, Inc............................................................................ 4,600
2,900 Commerce Bancorp, Inc.............................................................................. 79,750
900 Community First Bankshares, Inc.................................................................... 27,900
</TABLE>
The accompanying notes are an integral part of the financial statements
91
<PAGE>
AARP SMALL COMPANY STOCK FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,100 FirstBank Puerto Rico.............................................................................. 27,913
2,100 Provident Bankshares Corp.......................................................................... 80,850
2,600 RCSB Financial, Inc................................................................................ 78,000
3,600 Riggs National Corp................................................................................ 72,450
4,100 UST Corporation.................................................................................... 82,513
1,600 Usbancorp, Inc..................................................................................... 71,200
---------
638,872
---------
Insurance 4.6%
800 Allied Group, Inc.................................................................................. 27,600
5,100 American Annuity Group, Inc........................................................................ 79,688
600 First American Financial Co........................................................................ 22,350
4,900 Guaranty National Corp............................................................................. 86,363
1,200 Life Re Corp....................................................................................... 48,900
2,300 MMI Companies, Inc................................................................................. 58,650
2,100 Nymagic, Inc....................................................................................... 40,163
---------
363,714
---------
Other Financial Companies 0.7%
5,300 Cash America International, Inc.................................................................... 51,675
---------
Media 0.7%
Advertising
3,100 True North Communications, Inc..................................................................... 58,125
---------
Service Industries 6.5%
Environmental Services 2.1%
6,700 Dames & Moore, Inc................................................................................. 87,100
1,200 Mine Safety Appliance Co........................................................................... 76,200
---------
163,300
---------
Investment 1.0%
10,300 Phoenix Duff & Phelps Corp......................................................................... 78,538
---------
Miscellaneous Commercial Services 2.0%
4,500 ABM Industries, Inc................................................................................ 84,370
2,500 McGrath Rentcorp................................................................................... 74,688
---------
159,058
---------
Printing/Publishing 1.4%
800 Bowne & Co., Inc................................................................................... 21,700
3,700 Merrill Corp....................................................................................... 88,800
---------
110,500
---------
Durables 6.2%
Aerospace 1.2%
3,000 AAR Corp........................................................................................... 90,000
---------
Automobiles 3.9%
2,400 A.O. Smith Corp.................................................................................... 83,700
800 Breed Technologies, Inc............................................................................ 15,600
3,100 Coachmen Industries, Inc........................................................................... 58,513
3,000 Exide Corp......................................................................................... 49,125
2,900 Intermet Corp...................................................................................... 38,063
6,400 Simpson Industries, Inc............................................................................ 63,200
---------
308,201
---------
Construction/Agricultural Equipment 1.1%
2,400 The Manitowoc Company, Inc......................................................................... 86,700
---------
Manufacturing 20.1%
Chemicals 0.9%
900 Mississippi Chemical Corp.......................................................................... 21,488
</TABLE>
The accompanying notes are an integral part of the financial statements
92
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
800 NCH Corp........................................................................................... 47,300
---------
68,788
---------
Containers & Paper 2.3%
2,000 Chesapeake Corp.................................................................................... 55,000
2,100 Clarcor Corp....................................................................................... 48,563
2,200 Mosinee Paper Corp................................................................................. 75,350
---------
178,913
---------
Diversified Manufacturing 4.6%
5,500 Cascade Corp....................................................................................... 84,563
3,300 Robbins & Myers, Inc............................................................................... 87,450
2,800 Scotsman Industries, Inc........................................................................... 78,400
2,100 Tredegar Industries, Inc........................................................................... 84,788
600 Valmont Industries................................................................................. 23,400
---------
358,601
---------
Hand Tools 0.3%
800 L.S. Starrett Corp................................................................................. 22,900
---------
Industrial Specialty 6.2%
4,200 Albany International Corp. "A"..................................................................... 86,625
3,800 Apogee Enterprises, Inc............................................................................ 75,050
2,000 Applied Power, Inc. "A"............................................................................ 84,000
1,200 Barnes Group, Inc.................................................................................. 86,250
2,000 Electro Scientific Industries, Inc.*............................................................... 50,500
4,000 FSI International, Inc............................................................................. 45,000
5,400 Spartech Corp...................................................................................... 60,750
---------
488,175
---------
Machinery/Components/Controls 4.4%
3,800 Amcast Industrial Corp............................................................................. 88,820
2,100 Charter Power Systems, Inc......................................................................... 67,988
1,000 Duriron Company, Inc............................................................................... 22,000
2,800 Graco, Inc......................................................................................... 80,500
3,200 Tennant Company.................................................................................... 88,800
---------
348,108
---------
Wholesale Distributors 1.4%
1,200 Applied Industrial Technology, Inc................................................................. 42,000
2,100 Hughes Supply, Inc................................................................................. 68,513
---------
110,513
---------
Technology 8.2%
Computer Software 1.0%
3,500 MTS Systems Corp................................................................................... 77,000
EDP Peripherals 0.8%
---------
3,900 Gerber Scientific, Inc............................................................................. 60,450
---------
Electronic Components/Distributors 2.9%
1,800 CTS Corp........................................................................................... 91,800
3,562 MicroAge Inc....................................................................................... 48,087
3,800 Park Electrochemical Corp.......................................................................... 86,925
---------
226,812
---------
Military Electronics 2.1%
2,300 Logicon, Inc....................................................................................... 81,363
3,700 Watkins-Johnson Co................................................................................. 84,638
---------
166,001
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
93
<PAGE>
AARP SMALL COMPANY STOCK FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Semiconductors 1.4%
1,200 Burr-Brown Corp.................................................................................... 39,150
7,200 Chips & Technologies, Inc.*........................................................................ 74,700
---------
113,850
---------
Energy 3.3%
Oil & Gas Production 1.6%
1,900 KCS Energy, Inc.................................................................................... 62,463
5,000 Plains Resources, Inc.*............................................................................ 66,250
---------
128,713
---------
Oil Companies 1.1%
3,600 Holly Corp......................................................................................... 83,700
---------
Oilfield Services/Equipment 0.6%
2,300 Getty Petroleum Corp............................................................................... 47,150
---------
Metals & Minerals 6.5%
Steel and Metals
4,000 Brush Wellman, Inc................................................................................. 72,500
5,900 Chaparral Steel Co................................................................................. 72,275
2,100 Cleveland-Cliffs, Inc.............................................................................. 88,725
3,000 Commercial Metals Co............................................................................... 85,875
3,000 Oregon Metallurgical Corp.*........................................................................ 54,000
3,500 Quanex Corp........................................................................................ 87,938
2,300 RMI Titanium Co.*.................................................................................. 47,438
---------
508,751
---------
Construction 5.9%
Building Materials 5.1%
1,800 Ameron International Corp.......................................................................... 89,775
10,500 Fedders Corp....................................................................................... 61,688
2,200 Florida Rock Industries, Inc....................................................................... 72,050
2,100 Lone Star Industries, Inc.......................................................................... 81,375
2,200 Medusa Corp........................................................................................ 82,500
500 Southdown, Inc..................................................................................... 17,125
---------
404,513
---------
Homebuilding 0.8%
2,700 Skyline Corp....................................................................................... 59,063
---------
Transportation 1.9%
Airlines 0.7%
2,100 Alaska Air Group Inc.*............................................................................. 53,813
---------
Trucking 1.2%
3,600 USFreightways Corp................................................................................. 93,150
---------
Utilities 3.3%
Electric Utilities 1.1%
2,300 Northwestern Public Service Co..................................................................... 87,400
---------
Natural Gas Distribution 2.2%
2,800 Energen Corp....................................................................................... 83,650
3,500 Northwest Natural Gas Co........................................................................... 85,750
---------
169,400
---------
Total Common Stocks (Cost $7,275,059).............................................................. 7,104,425
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
94
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Market
Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $8,378,059) (a) ................................................ 104.4 8,207,425
Other Assets and Liabilities, Net................................................................ (4.4) (348,017)
----- ---------
Net Assets ...................................................................................... 100.0 7,859,408
===== =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1997, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $8,378,059 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .................................................... $ 66,515
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value................................................... (237,149)
---------
Net unrealized appreciation.................................. $(170,634)
=========
- -------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period February 1, 1997 (commencement of operations)
through March 31, 1997, aggregated $7,275,059 and $0, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
95
<PAGE>
AARP GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 7.7%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES
8,307,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 3/31/97 at 6.375% to be
repurchased at $8,308,471 on 4/1/97, collateralized by a $7,963,000 U.S. Treasury Note,
7.5%, 10/31/99 (Cost $8,307,000)............................................................. 8,307,000
---------
- -------------------------------------------------------------------------------------------------------------------------------
BONDS 2.5%
- -------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
1,670,000 GBP United Kingdom Treasury Bond, 7.5%, 12/07/06 (Cost $2,781,058)........................... 2,720,536
-----------
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.0%
- -------------------------------------------------------------------------------------------------------------------------------
GHANA
13,000 Ashanti Capital Corp., 5.5%, 3/15/03 (Cost $13,000).......................................... 11,050
-----------
- -------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
Shares
- ---------------
KOREA
7,919 Samsung Electronics Co., Ltd. (Major electronics manufacturer) (b) (Cost $294,732)........... 319,705
-----------
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 88.9%
- -------------------------------------------------------------------------------------------------------------------------------
ARGENTINA 0.5%
19,800 YPF S.A. "D" (ADR) (Petroleum company)....................................................... 524,700
-----------
AUSTRALIA 2.1%
493,058 Foster's Brewing Group Ltd. (Leading brewery)................................................ 1,020,446
166,200 Woodside Petroleum Ltd. (Major oil and gas producer)......................................... 1,223,967
-----------
2,244,413
-----------
AUSTRIA 0.6%
14,100 Flughafen Wien AG (Operator of terminals and facilities at
Vienna International Airport)............................................................. 642,642
-----------
BERMUDA 0.1%
3,450 Mid Ocean Limited (Property and casualty insurance company).................................. 164,738
-----------
BRAZIL 3.9%
38,650 Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp).............................. 705,363
3,071,000 Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility)............................. 1,269,859
6,200,000 Companhia Energetica de Minas Gerais (Electric power utility)................................ 263,394
771,000 Companhia Energetica de Minas Gerais (pfd.).................................................. 31,735
40,400 Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial complex).................... 921,086
5,600,000 Telecomunicacoes Brasileiras S.A.* (pfd.) (Telecommunication services) ...................... 579,429
421,400,000 Usinas Siderurgicas de Minas Gerais S/A (pfd.) (Non-coated flat products
and electrolytic galvanized products)..................................................... 473,416
-----------
4,244,282
-----------
CANADA 1.6%
16,200 Canadian National Railway Co. (Operator of one of Canada's two principal railroads).......... 573,954
47,050 Canadian Pacific Ltd. (Ord.) (Transportation and natural resource conglomerate).............. 1,123,192
-----------
1,697,146
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
96
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE 3.9%
9,328 Compagnie Financiere de Paribas (Finance and investment company)............................. 650,775
11,800 Lafarge SA (Producer of cement, concrete and aggregates)..................................... 819,243
24,907 Michelin "B" (Leading tire manufacturer)..................................................... 1,483,906
21,466 Schneider SA (Manufacturer of electronic components and
automated manufacturing systems).......................................................... 1,231,107
-----------
4,185,031
-----------
GERMANY 18.2%
51,510 BASF AG (Leading international chemical producer)............................................ 1,945,522
43,320 Bayer AG (Leading chemical producer)......................................................... 1,802,403
38,346 Bayerische Vereinsbank AG (Commercial bank).................................................. 1,588,554
17,286 Commerzbank AG (Worldwide multi-service bank)................................................ 497,439
17,300 Daimler-Benz AG (Automobile and truck manufacturer).......................................... 1,383,585
23,505 Deutsche Telekom AG (Telecommunication services)............................................. 539,713
20,566 Deutsche Telekom AG (ADR).................................................................... 449,881
43,550 Hoechst AG (Chemical producer)............................................................... 1,763,671
4,286 Mannesmann AG (Bearer) (Diversified construction and technology company)..................... 1,639,369
525 Muenchener Rueckversicherungs AG (Insurance company)......................................... 959,982
56,882 RWE AG (pfd.) (Producer and marketer of petroleum and chemical products)..................... 2,052,935
4,455 SAP AG (pfd.) (Computer software manufacturer)............................................... 763,867
8,860 Schering AG (Pharmaceutical and chemical producer)........................................... 893,968
12,350 Siemens AG (Leading electrical engineering and electronics company).......................... 665,627
30,723 VEBA AG (Electric utility, distributor of oil and chemicals)................................. 1,739,681
2,060 VIAG AG (Provider of electrical power and natural gas services,
aluminum products, chemicals, ceramics and glass)......................................... 973,189
-----------
19,659,386
-----------
GHANA 0.6%
51,600 Ashanti Goldfields Co., Ltd. (ADS) (Leading gold producer)................................... 709,500
-----------
HONG KONG 1.4%
136,000 Hutchison Whampoa, Ltd. (Container terminal and real estate company)......................... 1,026,753
131,000 Television Broadcasts, Ltd. (Television broadcasting)........................................ 532,541
-----------
1,559,294
-----------
INDONESIA 0.2%
8,200 Asia Pacific Resources International Holdings Ltd. (Manufacturer of rayon
fiber for Asian textile markets, owner of world's leading paper pulp mill)................ 39,463
2,730 Asia Pulp & Paper Co., Ltd.* (ADR) (Producer of pulp and paper).............................. 28,324
185,653 Indah Kiat Pulp & Paper (Foreign registered) (Producer of pulp and paper).................... 137,249
7,059 Indah Kiat Pulp & Paper Warrants* (expiring 4/13/01)......................................... 2,205
18,150 Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper factory)............................... 18,142
-----------
225,383
-----------
JAPAN 5.6%
56,000 Bridgestone Corp. (Leading automobile tire manufacturer)..................................... 1,050,538
46,000 Canon Inc. (Leading producer of visual image and information equipment)...................... 985,688
6,000 Japan Associated Finance Co. (Venture capital company)....................................... 339,613
52,000 Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of consumer
electronic products)...................................................................... 811,515
3,400 Nichiei Co., Ltd. (Finance company for small- and medium-sized firms)........................ 263,928
10,300 SMC Corp. (Leading maker of pneumatic equipment)............................................. 718,760
1,300 Shohkoh Fund & Co., Ltd. (Finance company for small- and medium-sized firms)................. 274,359
10,000 Sony Corp. (Consumer electronic products manufacturer)....................................... 699,442
128,000 Sumitomo Metal Industries, Ltd. (Leading integrated crude steel producer).................... 289,804
101,000 Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper mining company)............. 610,067
-----------
6,043,714
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
97
<PAGE>
AARP GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
KOREA 1.4%
24,600 Korea Electric Power Co. (ADR) (Electric utility)............................................ 430,500
30,174 Korea Express Co., Ltd. (EDR) (General freight transport company)............................ 316,827
4,150 Samsung Display Devices (Leading manufacturer of CRT and picture tubes)...................... 182,591
35,404 Yukong, Ltd. (Korea's leading oil refiner)................................................... 632,567
-----------
1,562,485
-----------
NETHERLANDS 2.9%
19,599 AEGON Insurance Group NV (Insurance company)................................................. 1,380,484
32,107 ING Groep NV (Insurance and financial services).............................................. 1,265,140
11,800 Philips Electronics NV (Leading manufacturer of electrical equipment)........................ 550,535
-----------
3,196,159
-----------
NEW ZEALAND 0.5%
108,700 Telecom Corp. of New Zealand (Telecommunication services).................................... 494,616
-----------
SOUTH AFRICA 1.3%
24,451 Rustenburg Platinum Holdings, Ltd. (ADR) (Leading platinum producer)......................... 394,272
45,760 Sasol Ltd. (Coal mining and processing, crude oil exploration and refining,
petrochemical production)................................................................. 489,232
16,300 South African Breweries (Brewery)............................................................ 516,348
-----------
1,399,852
-----------
SWEDEN 4.5%
53,200 AGA AB "B" (Free) (Producer and distributor of industrial and medical gases)................. 805,483
20,485 Astra AB "A" (Free) (Pharmaceutical company)................................................. 991,684
10,600 Autoliv AB (Manufacturer of automobile safety bags).......................................... 458,244
58,965 S.K.F. AB "B" (Free) (Manufacturer of roller bearings)....................................... 1,550,598
33,252 Skandia Foersaekrings AB (Free) (Financial conglomerate)..................................... 1,048,868
-----------
4,854,877
-----------
SWITZERLAND 10.0%
707 ABB AG (Bearer) (Manufacturer of electrical equipment)....................................... 849,854
11,748 CS Holdings (Registered) (Provider of bank services, management
services and life insurance).............................................................. 1,410,135
1,148 Ciba Specialty Chemical (Manufacturer of chemical products for plastics,
coatings, fibers and fabrics)............................................................. 94,922
9,729 Ciba Specialty Chemical (Registered)......................................................... 804,441
1,865 Clariant AG (Registered) (Manufacturer of color chemicals)................................... 918,764
1,605 Holderbank Financiere Glaris AG (Bearer) (Cement producer)................................... 1,231,184
1,257 Nestle SA (Registered) (Food manufacturer)................................................... 1,471,682
727 Novartis AG (Bearer) (Pharmaceutical company)................................................ 905,719
702 Novartis AG (Registered)..................................................................... 871,159
886 Swiss Reinsurance (Registered) (Life, accident and health insurance company)................. 941,898
4,194 Zurich Insurance Group (Registered) (Insurance company)...................................... 1,320,096
-----------
10,819,854
-----------
UNITED KINGDOM 9.0%
74,990 BOC Group PLC (Producer of industrial gases)................................................. 1,181,774
129,333 Carlton Communications PLC (Television post production products
and services)............................................................................. 1,106,314
230,000 General Electric Co., PLC (Manufacturer of power, communications and
defense equipment and other various electrical components)................................ 1,415,028
224,915 Lonrho PLC (Widely diversified industrial holding company)................................... 536,478
75,605 PowerGen PLC (Electric utility).............................................................. 738,759
54,354 RTZ Corp., PLC (Mining and finance company).................................................. 861,040
57,941 Reuters Holdings PLC (International news agency)............................................. 590,940
</TABLE>
The accompanying notes are an integral part of the financial statements
98
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
76,300 Shell Transport & Trading PLC (Part owner of Royal Dutch Shell Co.).......................... 1,361,821
52,700 SmithKline Beecham PLC* (Manufacturer of ethical drugs and healthcare products).............. 783,691
41,800 Unilever PLC (Manufacturer of consumer goods, food and personal care products)............... 1,109,802
-----------
9,685,647
-----------
UNITED STATES 20.6%
25,800 Advanced Micro Devices Inc.* (Manufacturer of semiconductors and integrated circuits)........ 1,070,700
35,100 Anheuser-Busch Companies, Inc. (Leading brewery)............................................. 1,478,583
5,600 Biogen Inc. (Biotechnology research and development)......................................... 209,300
4,100 Boeing Co. (Manufacturer of jet airplanes)................................................... 404,363
15,500 Charles Schwab Corp. (Discount brokerage services.).......................................... 494,063
11,000 Chiron Corp. (Developer of therapeutic and diagnostic products).............................. 204,875
30,520 EXEL, Ltd. (Provider of liability insurance)................................................. 1,289,470
23,100 Electronic Data Systems Corp. (Provider of information technology services).................. 932,663
22,010 Enron Corp. (Major natural gas pipeline system).............................................. 836,380
23,300 First Data Corp. (Credit-card processing services)........................................... 789,288
1,700 General Re Corp. (Property and casualty reinsurance)......................................... 268,600
23,900 Goodyear Tire & Rubber Co. (Manufacturer of tires and rubber products)....................... 1,248,775
7,600 Guidant Corp. (Developer and manufacturer of products used in
minimally invasive surgery) .............................................................. 467,400
39,250 Homestake Mining Co. (Major international gold producer)..................................... 593,656
10,550 International Business Machines Corp. (Principal manufacturer and servicer of
business and computing machines).......................................................... 1,449,306
18,110 MBIA Inc. (Insurer of municipal bonds)....................................................... 1,736,296
31,100 National Semiconductor Corp. (Manufacturer of integrated circuits and transistors)........... 855,250
14,200 Newmont Mining Corp. (International gold exploration and mining company)..................... 550,250
7,800 Parametric Technology Corp. (Mechanical design software producer)............................ 351,975
8,700 Parker-Hannifin Group (Fluid control components)............................................. 371,925
19,500 Praxair Inc. (Producer of industrial gases and specialized coatings)......................... 875,063
28,300 Sabre Group Holdings Inc.* (Travel reservation system provider).............................. 714,575
32,400 Stillwater Mining Co.* (Exploration and development of mines in Montana
producing platinum, palladium and associated metals)...................................... 635,850
17,200 Toys "R" Us Inc.* (Discount toy supermarts).................................................. 481,600
14,900 UNUM Corp. (Provider of disability, health and life insurance and group
pension products)......................................................................... 1,087,700
43,800 USAir Group, Inc.* (Major airline)........................................................... 1,073,100
25,650 WMX Technologies Inc. (Solid and chemical waste management services)......................... 785,531
17,250 Xerox Corp. (Leading manufacturer of copiers and duplicators)................................ 981,094
-----------
22,237,631
-----------
Total Common Stocks (Cost $88,690,508)....................................................... 96,151,350
-----------
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $100,086,298) (a)................... 99.4 107,509,641
Other Assets and Liabilities, Net.................................... 0.6 633,553
----- -----------
Net Assets .......................................................... 100.0 108,143,194
===== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
99
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non income producing security.
(a) At March 31, 1997, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $100,109,977 was as
follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost .......................... $ 10,854,440
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value .......................... (3,454,776)
-----------
Net unrealized appreciation ............................ $ 7,399,664
===========
(b) Securities valued in good faith by the Valuation Committee of the
Board of Trustees amounted to $319,705 (.30% of net assets). The cost
of this security, at March 31, 1997 was $294,732.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1997 aggregated
$29,886,443 and $10,474,756, respectively.
- --------------------------------------------------------------------------------
From February 1, 1996 through September 30, 1996, the Fund incurred
approximately $33,467 of net realized capital losses which the Fund
intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1997.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of
the Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
Currency Abbreviations
GBP British Pound
The accompanying notes are an integral part of the financial statements
100
<PAGE>
AARP INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 3.0%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
140,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
3/31/97 at 6.375% to be repurchased at $140,025 on 4/1/97,
collateralized by a $123,000 U.S. Treasury Note, 8.875%, 2/15/19
(Cost $140,000) .............................................................................. 140,000
---------
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 10.8%
- -------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
500,000 Student Loan Marketing Association Discount Note, 4/1/97 (Cost $500,000) ..................... 500,000
---------
- -------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 1.7%
- -------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
70,000 Hysan Development Finance Co., 6.75%, 6/1/00 (Cost $82,850) .................................. 78,050
---------
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 89.2%
- -------------------------------------------------------------------------------------------------------------------------------
Shares
- -------------
AUSTRALIA 1.8%
41,100 Foster's Brewing Group, Ltd. (Leading brewery) ............................................... 85,062
---------
DENMARK 1.6%
1,390 Tele Danmark A/S (Telecommunication services) ................................................ 73,044
---------
FRANCE 13.6%
197 Bongrain SA (Manufacturer of cheese and other dairy products) ................................ 78,386
957 Credit Local de France (Bank) ................................................................ 103,464
900 Degremont (Builder and operator of water-treatment plants) ................................... 74,539
894 Havas SA (Advertising and broadcasting conglomerate) ......................................... 66,558
3,283 Scor SA (Property, casualty and life reinsurance company) .................................... 134,197
770 Societe Nationale Elf Aquitaine (Petroleum company) .......................................... 79,133
3,073 Sommer-Allibert (Manufacturer of plastic products for automotive industry) ................... 96,878
---------
633,155
---------
GERMANY 13.5%
3,812 BHF-Bank AG (Universal banking services) ..................................................... 99,391
2,267 Bayer AG (Leading chemical producer) ......................................................... 94,322
5,160 Deutsche Lufthansa AG (International airline) ................................................ 74,709
200 Dyckerhoff AG (Producer of cement, ready-mixed concrete and finishing products) .............. 83,333
70 Dyckerhoff AG (pfd.) (Producer of cement, ready-mixed concrete and finishing products) ....... 25,306
1,620 Hochtief AG (Construction and civil engineering services) .................................... 68,374
2,293 RWE AG (Producer and marketer of petroleum and chemical products) ............................ 102,346
350 Thyssen AG (Manufacturer of capital goods and steel products) ................................ 79,002
---------
626,783
---------
HONG KONG 1.6%
48,000 Peregrine Investment Holdings Ltd. (Leading financial services group) ........................ 76,503
---------
IRELAND 2.6%
17,515 Allied Irish Bank PLC (Bank) ................................................................. 120,388
---------
ITALY 1.4%
5,000 Banco Ambrosiano Veneto SpA (Bank) ........................................................... 11,396
16,000 Fiat SpA (Manufacturer of automobiles, commercial vehicles, farm and construction
equipment) ................................................................................ 28,742
</TABLE>
The accompanying notes are an integral part of the financial statements
101
<PAGE>
AARP INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
7,000 Societa Finanziaria Telefonica SpA di Risparmio (Telecommunication services) ................. 24,855
---------
64,993
---------
JAPAN 11.6%
22 East Japan Railway Co. (Railroad operator) ................................................... 89,836
8,000 Hitachi Ltd. (General electronics manufacturer) .............................................. 71,157
9,000 Matsushita Electric Works, Inc. (Leading maker of building materials and lighting
equipment) ................................................................................ 82,235
12,000 Mitsubishi Heavy Industries, Ltd. (Diversified heavy machinery manufacturer and leading
shipbuilder) .............................................................................. 78,111
11,000 Nippon Meat Packers, Inc. (Leading meat processor) ........................................... 113,851
8,000 Shiseido Co., Ltd. (Leading cosmetic producer) ............................................... 103,505
---------
538,695
---------
MALAYSIA 1.2%
25,000 Guinness Anchor (Brewery) .................................................................... 57,500
---------
NETHERLANDS 6.3%
770 DSM NV (Plastics producer) ................................................................... 77,762
1,040 Koninklijke Nedlloyd Groep NV (Container shipping and transportation) ........................ 26,229
2,310 Koninklijke PTT Nederland (Telecommunication services) ....................................... 85,603
580 Royal Dutch Petroleum Co. (Majority shareholder of Royal Dutch/Shell group of petroleum
companies) ................................................................................ 105,334
---------
294,928
---------
NORWAY 0.8%
8,800 Den Norske Bank (Bank) ....................................................................... 37,954
SPAIN 3.9%
2,400 Autopistas del Mare Nostrum SA (Builder and operator of toll motorways) ...................... 32,957
900 Banco Bilbao Vizcaya, S.A. (Leading financial group) ......................................... 54,659
3,900 Compania Telefonica Nacional de Espana S.A. (Telecommunication services) ..................... 94,274
---------
181,890
---------
SWEDEN 7.1%
3,270 AssiDoman AB (Forestry group) ................................................................ 86,860
2,490 OM Gruppen AB (Free) (Operator of financial exchanges and clearing organizations) ............ 81,022
3,640 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ....................................... 95,721
3,500 Svedala Industri AB (Manufacturer of machinery for construction, mineral processing and
materials handling) ....................................................................... 68,332
---------
331,935
---------
SWITZERLAND 8.4%
427 ABB AG (Registered) (Manufacturer of electrical equipment) ................................... 99,095
7 Bobst, SA (Manufacturer of printing presses for board and paper) ............................. 10,336
150 Clariant AG (Registered) (Manufacturer of color chemicals) ................................... 73,895
91 Georg Fischer AG (Manufacturer of automotive products and piping systems) .................... 110,525
139 Winterthur Schweizerische Versicherungs-Gesellschaft "B" (Multi-line insurance company) ...... 96,581
---------
390,432
---------
UNITED KINGDOM 13.8%
6,039 Energy Group PLC* (Electricity generation and distribution) .................................. 50,465
10,650 General Electric Co., PLC (Manufacturer of power, communications and defense equipment
and other various electrical components) .................................................. 65,522
7,248 Hanson PLC (Industrial management company) ................................................... 34,219
8,870 National Power PLC (Electricity generation company) .......................................... 71,205
6,170 Railtrack Group PLC (Operator of most of British railway infrastructure) ..................... 45,775
14,900 Rank Group PLC (Diversified leisure services: hotels, amusement machines, restaurants,
film and television) ...................................................................... 103,924
11,860 Royal & Sun Alliance Insurance Group PLC (Multi-line insurance holding company) .............. 87,599
</TABLE>
The accompanying notes are an integral part of the financial statements
102
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
19,730 Tomkins PLC (Manufacturer of fluid controls, industrial products, garden and leisure
products) ................................................................................. 88,280
7,580 United News & Media PLC (Information and publication services group) ......................... 94,017
---------
641,006
---------
Total Common Stocks (Cost $4,119,186) ........................................................4,154,268
---------
- --------------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS 0.3%
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount
- ---------------
FRF 1,719,000 Put on French Francs, strike price 5.73, expire 12/18/97 ..................................... 4,555
FRF 229,200 Put on French Francs, strike price 5.73, expire 8/7/97 ....................................... 440
FRF 116,600 Put on French Francs, strike price 5.83, expire 8/18/97 ...................................... 142
DEM 510,000 Put on Deutsche Marks, strike price 1.7, expire 12/18/97 ..................................... 5,253
DEM 68,000 Put on Deutsche Marks, strike price 1.7, expire 8/7/97 ....................................... 517
DEM 69,120 Put on Deutsche Marks, strike price 1.728, expire 8/18/97 .................................... 359
GBP 194,805 Put on British Pounds, strike price 1.54, expire 12/18/97 .................................... 2,774
GBP 12,903 Put on British Pounds, strike price 1.55, expire 8/18/97 ..................................... 90
GBP 25,478 Put on British Pounds, strike price 1.57, expire 8/7/97 ...................................... 247
---------
Total Purchased Options (Cost $20,573) ....................................................... 14,377
---------
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $4,862,609) (a) ........................... 105.0 4,886,695
Other Assets and Liabilities, Net .......................................... (5.0) (231,579)
----- ---------
Net Assets ................................................................. 100.0 4,655,116
===== =========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security.
(a) At March 31, 1997, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $4,862,609 was as
follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....... $ 102,042
Aggregate gross unrealized depreciation for all
investments in which there is an excess
of tax cost over value ................................... (77,956)
---------
Net unrealized appreciation .............................. $ 24,086
=========
- -------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period February 1, 1997 (commencement of
operations) through March 31, 1997, aggregated $4,262,226 and $42,679,
respectively.
- -------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of
the Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
Currency Abbreviations
FRF French Francs
DEM Deutsche Marks
GBP British Pound
The accompanying notes are an integral part of the financial statements
103
<PAGE>
AARP DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS 90.6%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
255,537 AARP Bond Fund for Income ............................................................... 3,761,498
254,143 AARP GNMA & U.S. Treasury Fund .......................................................... 3,766,394
68,550 AARP Global Growth Fund ................................................................. 1,141,357
28,976 AARP Growth & Income Fund ............................................................... 1,346,511
1,894,625 AARP High Quality Money Fund ............................................................ 1,894,625
41,937 AARP US Stock Index Fund ................................................................ 605,990
----------
Total Investments (Cost $12,697,950) .................................................... 12,516,375
----------
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $12,697,949) (a) ........................ 90.6 12,516,375
Other Assets and Liabilities, Net ........................................ 9.4 1,296,067
----- ----------
Net Assets ............................................................... 100.0 13,812,442
===== ==========
- --------------------------------------------------------------------------------------------------------------------------
(a) At March 31, 1997, the net unrealized depreciation on investments based on cost for
federal income tax purposes of $12,697,949 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost................................................................ $ -
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value................................................................ (181,574)
----------
Net unrealized depreciation ........................................................................ $(181,574)
=========
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period February 1, 1997 (commencement of
operations) to March 31, 1997, aggregated $10,803,325 and $0,
respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of
the Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or less than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements
104
<PAGE>
AARP DIVERSIFIED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS 93.6%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
137,305 AARP Bond Fund for Income ................................................................ 2,021,132
129,728 AARP GNMA & U.S. Treasury Fund ........................................................... 1,922,568
61,400 AARP Global Growth Fund .................................................................. 1,022,314
42,463 AARP Growth & Income Fund ................................................................ 1,973,255
102,994 AARP High Quality Money Fund ............................................................. 102,994
67,610 AARP International Stock Fund ............................................................ 1,028,344
66,908 AARP Small Company Stock Fund ............................................................ 997,601
67,602 AARP US Stock Index Fund ................................................................. 976,846
----------
Total Investments (Cost $10,244,009) ..................................................... 10,045,054
----------
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $10,244,009)(a) 93.6 10,045,054
Other Assets and Liabilities, Net .............................................. 6.4 686,788
----- ----------
Net Assets ..................................................................... 100.0 10,731,842
===== ==========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1997, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $10,244,009 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost .............. $ 8,311
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value .............. (207,266)
---------
Net unrealized depreciation .................................. $(198,955)
=========
---------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the period beginning February 1, 1997 (commencement of
operations) to March 31, 1997, aggregated $10,141,015 and $0, respectively.
---------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
105
<PAGE>
This Page
intentionally
left blank.
106
<PAGE>
F I N A N C I A L S T A T E M E N T S
107
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
AARP High AARP High AARP GNMA AARP High AARP Insured
Quality Quality Tax Free and U.S. Quality Tax Free General
March 31, 1997 (Unaudited) Money Fund Money Fund Treasury Fund Bond Fund Bond fund
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) $ 454,230,675 $ 104,586,930 $ 4,611,569,158 $ 454,297,440 $1,669,657,215
Cash .......................................... 807 28,408 207 996 23,902
Receivable on investments sold ................ -- 100,000 -- 8,031,037 6,760,940
Investment income receivable .................. 2,004,706 763,111 37,376,430 6,475,181 21,439,204
Receivable on Fund shares sold ................ 7,478,750 450,644 2,515,487 239,554 768,373
Unrealized appreciation on forward currency
exchange contracts ......................... -- -- -- -- --
Daily variation margin on futures
contracts .................................. -- -- -- -- 152,344
Reimbursement from Fund Manager ............... -- -- -- -- --
Deferred organization expenses ................ -- -- -- -- --
Other assets .................................. 11,765 3,253 138,791 11,611 37,568
------------- ------------- --------------- ------------- -------------
Total assets .................................. 463,726,703 105,932,346 4,651,600,073 469,055,819 1,698,839,546
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Investments purchased ......................... -- 327,510 -- -- 3,000,000
Fund shares redeemed .......................... 3,214,456 175,709 5,879,926 1,066,389 1,852,368
Dividends payable ............................. 147,171 42,857 10,850,010 695,573 2,896,059
Unrealized depreciation on forward currency
exchange contracts ......................... -- -- -- -- --
Management fee ................................ 149,282 34,877 1,608,928 193,100 695,399
Other payables and accrued expenses ........... 110,186 38,848 1,343,831 179,464 278,684
------------- ------------- --------------- ------------- -------------
Total liabilities ............................. 3,621,095 619,801 19,682,695 2,134,526 8,722,510
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $ 460,105,608 $ 105,312,545 $ 4,631,917,378 $ 466,921,293 $1,690,117,036
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed (overdistributed)
net investment income (loss) ............... $ -- $ -- $ -- $ 176,290 $ --
Net unrealized appreciation (depreciation) on:
Investments ................................ (218,153) -- (22,019,180) (8,728,827) 69,684,340
Futures contracts .......................... -- -- -- -- 2,915,831
Options .................................... -- -- -- -- --
Foreign currency related transactions ...... -- -- -- -- --
Accumulated net realized capital gain (loss) .. (67,491) (825,973) (329,671,728) (9,229,924) (20,601,214)
Paid-in capital ............................... 460,391,252 106,138,518 4,983,608,286 484,703,754 1,638,118,079
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $ 460,105,608 $ 105,312,545 $ 4,631,917,378 $ 466,921,293 $ 1,690,117,036
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .... 460,326,926 105,318,031 312,536,423 29,823,311 95,259,068
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption
price per share ............................ $1.00 $1.00 $14.82 $15.66 $17.74
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
AARP Bond AARP Balanced AARP Growth AARP U.S.
Fund for Stock and Bond and Income Stock Index
March 31, 1997 (Unaudited) Income Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) $ 13,442,915 $ 493,201,862 $4,873,530,485 $ 11,493,231
Cash .......................................... 1,441 606 36,626,822 10,278
Receivable on investments sold ................ -- 93,666 70,234,881 --
Investment income receivable .................. 69,497 3,068,459 17,574,504 13,977
Receivable on Fund shares sold ................ 435,898 1,604,490 2,944,252 222,282
Unrealized appreciation on forward currency
exchange contracts ......................... -- -- -- --
Daily variation margin on futures
contracts .................................. -- -- -- --
Reimbursement from Fund Manager ............... 59,040 -- -- 67,768
Deferred organization expenses ................ 12,594 16,622 -- 15,501
Other assets .................................. -- 8,327 91,095 --
------------- ------------- ------------- -------------
Total assets .................................. 14,021,385 497,994,032 5,001,002,039 11,823,037
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Investments purchased ......................... 1,499,652 5,410,684 44,541,312 354,555
Fund shares redeemed .......................... 24,983 1,103,311 -- 22,794
Dividends payable ............................. 9,878 -- -- --
Unrealized depreciation on forward currency
exchange contracts ......................... -- -- -- --
Management fee ................................ 5,172 202,546 1,868,338 3,436
Other payables and accrued expenses ........... 64,962 28,240 1,087,926 84,275
------------- ------------- ------------- -------------
Total liabilities ............................. 1,604,647 6,744,781 47,497,576 465,060
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $ 12,416,738 $ 491,249,251 $4,953,504,463 $ 11,357,977
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed (overdistributed)
net investment income (loss) ............... $ -- $ 66,904 $ 3,722,220 $ (3,144)
Net unrealized appreciation (depreciation) on:
Investments ................................ (171,214) 55,019,122 1,193,782,697 (529,096)
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- 1,663 (365,877) --
Accumulated net realized capital gain (loss) .. (7,472) 6,492,161 163,022,499 --
Paid-in capital ............................... 12,595,424 429,669,401 3,593,342,924 11,890,217
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................... $ 12,416,738 $ 491,249,251 $4,953,504,463 $ 11,357,977
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .... 843,514 26,768,671 106,586,312 786,198
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption
price per share ............................ $14.72 $18.35 $46.47 $14.45
- ------------------------------------------------------------------------------------------------------------------------------------
</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
108 & 109
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
AARP Capital AARP Small AARP AARP
Growth Company Growth International
March 31, 1997 (Unaudited) Fund Stock Fund Fund Stock Fund
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) ..... $ 905,912,863 $ 8,207,425 $107,509,641 $4,886,695
Cash, including foreign currency .................... 625 9,812 30,656 87,776
Receivable on investments sold ...................... -- -- -- 8,241
Investment income receivable ........................ 652,317 5,338 261,674 12,381
Receivable on Fund shares sold ...................... 477,157 290,066 492,648 174,089
Unrealized appreciation on forward currency
exchange contracts ............................... -- -- 72,755 --
Daily variation margin on futures
contracts ........................................ -- -- -- --
Reimbursement from Fund Manager ..................... -- 67,936 81,126 67,550
Deferred organization expenses ...................... -- 12,594 11,519 12,594
Other assets ........................................ 17,034 -- 1,690 --
------------- --------------- ----------- ---------
Total assets ........................................ 907,059,996 8,593,171 108,461,709 5,249,326
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
Investments purchased ............................... -- 644,478 -- 509,980
Fund shares redeemed ................................ 995,899 1,574 56,977 --
Dividends payable ................................... -- -- -- --
Unrealized depreciation on forward currency
exchange contracts ............................... -- -- 8,919 --
Management fee ...................................... 492,202 4,177 140,839 2,808
Other payables and accrued expenses ................. 328,101 83,534 111,780 81,422
------------- --------------- ----------- ---------
Total liabilities ................................... 1,816,202 733,763 318,515 594,210
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 905,243,794 $ 7,859,408 $108,143,194 $ 4,655,116
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed (overdistributed)
net investment income (loss) ..................... $ 2,821,920 $ 6,931 $ (129,270) $ 13,831
Net unrealized appreciation (depreciation) on:
Investments ...................................... 197,873,458 (170,634) 7,423,343 24,086
Futures contracts ................................ -- -- -- --
Options .......................................... -- -- -- --
Foreign currency related transactions ............ -- -- 64,119 (1,565)
Accumulated net realized capital gain (loss) ........ 40,998,975 -- 271,662 2,374
Paid-in capital ..................................... 663,549,441 8,023,111 100,513,340 4,616,390
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 905,243,794 $ 7,859,408 $108,143,194 $ 4,655,116
- ---------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 20,984,463 527,025 6,496,092 306,011
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption
price per share .................................. $43.14 $14.91 $16.65 $15.21
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------
AARP Diversified AARP Diversified
Income Growth
March 31, 1997 (Unaudited) Portfolio Portfolio
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) ..... $ 12,516,375 $ 10,045,054
Cash, including foreign currency .................... -- --
Receivable on investments sold ...................... 182,593 171,351
Investment income receivable ........................ 34,253 16,318
Receivable on Fund shares sold ...................... 1,312,218 690,897
Unrealized appreciation on forward currency
exchange contracts ............................... -- --
Daily variation margin on futures
contracts ........................................ -- --
Reimbursement from Fund Manager ..................... -- --
Deferred organization expenses ...................... -- --
Other assets ........................................ -- --
---------- ----------
Total assets ........................................ 14,045,439 10,923,620
- --------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------
Investments purchased ............................... 216,672 187,528
Fund shares redeemed ................................ 5,965 4,250
Dividends payable ................................... 10,360 --
Unrealized depreciation on forward currency
exchange contracts ............................... -- --
Management fee ...................................... -- --
Other payables and accrued expenses ................. -- --
---------- ----------
Total liabilities ................................... 232,997 191,778
- --------------------------------------------------------------------------------------------
Net assets at value ................................. $ 13,812,442 $ 10,731,842
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------
Accumulated undistributed (overdistributed)
net investment income (loss) ..................... $ 4,064 $ 31,234
Net unrealized appreciation (depreciation) on:
Investments ...................................... (181,574) (198,955)
Futures contracts ................................ -- --
Options .......................................... -- --
Foreign currency related transactions ............ -- --
Accumulated net realized capital gain (loss) ........ -- --
Paid-in capital ..................................... 13,989,952 10,899,563
- --------------------------------------------------------------------------------------------
Net assets at value ................................. $ 13,812,442 $ 10,731,842
- --------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 925,552 717,478
- --------------------------------------------------------------------------------------------
Net asset value, offering and redemption
price per share .................................. $14.92 $14.96
- --------------------------------------------------------------------------------------------
</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
110 & 111
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
AARP High AARP High AARP GNMA AARP High AARP Insured
Six Months Ended March 31, 1997 Quality Quality Tax Free and U.S. Quality Tax Free General
(Unaudited) Money Fund Money Fund Treasury Fund Bond Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Interest ............................................. $ 11,913,098 $ 1,870,013 $ 171,669,357 $ 16,606,863 $ 47,964,737
Dividends ............................................ -- -- -- -- --
------------ ------------ ------------- ------------ ------------
11,913,098 1,870,013 171,669,357 16,606,863 47,964,737
Less foreign taxes withheld .......................... -- -- -- -- --
------------ ------------ ------------- ------------ ------------
11,913,098 1,870,013 171,669,357 16,606,863 47,964,737
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ....................................... 852,701 209,565 9,866,205 1,193,580 4,161,987
Services to shareholders ............................. 838,757 159,110 4,452,439 870,629 1,078,131
Trustees' fees and expenses .......................... 12,812 13,158 13,794 13,772 13,163
Shareholder communications ........................... 113,604 28,148 724,031 121,989 262,714
Legal ................................................ 2,165 1,565 3,468 485 3,028
Auditing ............................................. 13,000 13,000 31,775 23,225 28,350
Custodian and accounting fees ........................ 44,731 26,194 472,625 58,822 174,735
Registration expenses ................................ 57,839 11,391 40,588 16,897 36,995
Amortization of organization expenses ................ -- -- -- -- --
Other ................................................ 15,786 7,888 68,796 9,260 24,240
------------ ------------ ------------- ------------ ------------
Total expenses before reductions ........................ 1,951,395 470,019 15,673,721 2,308,659 5,783,343
Expense reductions ...................................... -- -- -- -- --
------------ ------------ ------------- ------------ ------------
Expenses, net ........................................... 1,951,395 470,019 15,673,721 2,308,659 5,783,343
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ................................... 9,961,703 1,399,994 155,995,636 14,298,204 42,181,394
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................ (3,165) -- (7,236,209) (915,590) 2,837,134
Futures contracts .................................. -- -- -- 651,976 (4,133,344)
Options ............................................ -- -- -- (28,219) --
Foreign currency related transactions .............. -- -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ........................................ (83,033) -- (19,591,638) (4,158,883) (9,197,289)
Futures contracts .................................. -- -- -- -- 4,807,906
Written options .................................... -- -- -- -- --
Foreign currency related transactions .............. -- -- -- -- --
------------ ------------ ------------- ------------ ------------
Net gain (loss) on investments .......................... (86,198) -- (26,827,847) (4,450,716) (5,685,593)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............................ $ 9,875,505 $ 1,399,994 $ 129,167,789 $ 9,847,488 $ 36,495,801
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
AARP Bond AARP Balanced AARP Growth AARP U.S.
Six Months Ended March 31, 1997 Fund for Stock and Bond and Income Stock Index
(Unaudited) Income (a) Fund Fund Fund (a)
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest ............................................. $ 62,666 $ 6,558,121 $ 5,876,997 $ 6,488
Dividends ............................................ -- 4,199,786 67,916,837 26,740
--------- ------------ ------------- ---------
62,666 10,757,907 73,793,834 33,228
Less foreign taxes withheld .......................... -- (67,585) (1,356,837) --
--------- ------------ ------------- ---------
62,666 10,690,322 72,436,997 33,228
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ....................................... 5,172 1,087,201 11,011,082 3,436
Services to shareholders ............................. 8,112 595,821 3,950,994 15,913
Trustees' fees and expenses .......................... 2,087 13,956 13,070 2,087
Shareholder communications ........................... 3,299 38,528 478,315 4,451
Legal ................................................ 2,649 326 (1,708) 2,306
Auditing ............................................. 1,282 15,775 1,229 858
Custodian and accounting fees ........................ 10,701 76,663 511,567 29,806
Registration expenses ................................ 22,355 26,457 94,800 11,535
Amortization of organization expenses ................ 406 4,435 -- 499
Other ................................................ 2,977 8,070 61,919 2,819
--------- ------------ ------------- ---------
Total expenses before reductions ........................ 59,040 1,867,232 16,121,268 73,710
Expense reductions ...................................... (59,040) -- -- (67,768)
--------- ------------ ------------- ---------
Expenses, net ........................................... -- 1,867,232 16,121,268 5,942
- ----------------------------------------------------------------------------------------------------------------------
Net investment income ................................... 62,666 8,823,090 56,315,729 27,286
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................ (7,472) 7,455,021 180,800,730 --
Futures contracts .................................. -- -- -- --
Options ............................................ -- -- 19,199 --
Foreign currency related transactions .............. -- 1,648 253,341 --
Net unrealized appreciation (depreciation) on:
Investments ........................................ (171,214) 13,434,559 232,249,592 (529,096)
Futures contracts .................................. -- -- -- --
Written options .................................... -- -- 801 --
Foreign currency related transactions .............. -- 1,500 (355,491) --
--------- ------------ ------------- ---------
Net gain (loss) on investments .......................... (178,686) 20,892,728 412,968,172 (529,096)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............................ $(116,020) $ 29,715,818 $ 469,283,901 $(501,810)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These Funds commenced operations on February 1, 1997.
The accompanying notes are an integral part of the financial statements
112 & 113
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
AARP Capital AARP Small AARP Global AARP
Six Months Ended March 31, 1997 Growth Company Growth International
(Unaudited) Fund Stock Fund (a) Fund Stock Fund (a)
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest .............................................. $ 732,373 $ 6,576 $ 288,373 $ 6,439
Dividends ............................................. 6,894,398 9,036 487,691 15,020
Income distributions from Underlying Funds ............ $ -- $ -- -- --
----------- ---------- ----------- --------
7,626,771 15,612 776,064 21,459
Less foreign taxes withheld ........................... (75,186) -- (47,411) (2,112)
----------- ---------- ----------- --------
7,551,585 15,612 728,653 19,347
- ------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ........................................ 2,737,801 4,177 389,916 2,808
Services to shareholders .............................. 1,058,641 21,499 316,246 10,941
Trustees' fees and expenses ........................... 12,834 2,087 12,579 2,087
Shareholder communications ............................ 152,554 5,025 30,120 5,441
Legal ................................................. 1,072 2,649 2,922 3,175
Auditing .............................................. 21,350 858 15,350 2,328
Custodian and accounting fees ......................... 86,944 25,716 84,346 31,655
Registration expenses ................................. 44,446 11,021 34,529 8,809
Amortization of organization expenses ................. -- 406 1,494 406
Other ................................................. 17,236 3,179 3,734 5,416
----------- ---------- ----------- --------
Total expenses before reductions 4,132,878 76,617 891,236 73,066
Expense reductions ....................................... -- (67,936) (81,126) (67,550)
----------- ---------- ----------- --------
Expenses, net ............................................ 4,132,878 8,681 810,110 5,516
- ------------------------------------------------------------------------------------------------------------------------
Net investment income .................................... 3,418,707 6,931 (81,457) 13,831
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................... 50,498,728 -- 334,593 3,062
Futures contracts ................................... -- -- -- --
Options ............................................. -- -- -- --
Foreign currency related transactions ............... 603 -- (29,464) (688)
Net unrealized appreciation (depreciation) on:
Investments ......................................... 23,645,470 (170,634) 6,441,117 24,086
Futures contracts ................................... -- -- -- --
Written options ..................................... -- -- -- --
Foreign currency related transactions ............... (74) -- 64,455 (1,565)
----------- ---------- ----------- --------
Net gain (loss) on investments ........................... 74,144,727 (170,634) 6,810,701 24,895
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ....................................... $77,563,434 $ (163,703) $ 6,729,244 $ 38,726
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------
AARP Diversified AARP Diversified
Six Months Ended March 31, 1997 Income Growth
(Unaudited) Portfolio (a) Portfolio (a)
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest .............................................. $ -- $ --
Dividends ............................................. -- --
Income distributions from Underlying Funds ............ 45,090 31,234
--------- ---------
45,090 31,234
Less foreign taxes withheld ........................... -- --
--------- ---------
45,090 31,234
- ------------------------------------------------------------------------------------------------
Expenses:
Management fee ........................................ -- --
Services to shareholders .............................. -- --
Trustees' fees and expenses ........................... -- --
Shareholder communications ............................ -- --
Legal ................................................. -- --
Auditing .............................................. -- --
Custodian and accounting fees ......................... -- --
Registration expenses ................................. -- --
Amortization of organization expenses ................. -- --
Other ................................................. --
--------- ---------
Total expenses before reductions -- --
Expense reductions ....................................... -- --
--------- ---------
Expenses, net ............................................ -- --
- ------------------------------------------------------------------------------------------------
Net investment income .................................... 45,090 31,234
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................... -- --
Futures contracts ................................... -- --
Options ............................................. -- --
Foreign currency related transactions ............... -- --
Net unrealized appreciation (depreciation) on:
Investments ......................................... (181,574) (198,955)
Futures contracts ................................... -- --
Written options ..................................... -- --
Foreign currency related transactions ............... -- --
--------- ---------
Net gain (loss) on investments ........................... (181,574) (198,955)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ....................................... $(136,484) $(167,721)
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) These Funds commenced operations on February 1, 1997.
The accompanying notes are an integral part of the financial statements
114 & 115
<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 Six Months Ended Year
March 31, Ended March 31, Ended
1997 Sept. 30, 1997 Sept. 30,
(Unaudited) 1996 (Unaudited) 1996
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................ $ 9,961,703 $ 17,543,476 $ 1,399,994 $ 3,191,255
Net realized gain (loss) from:
Investments ................................ (3,165) 2,595 -- 1,553
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ................................ (83,033) 355,595 -- --
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- -- -- --
----------- ----------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations ............................. 9,875,505 17,901,666 1,399,994 3,192,808
----------- ----------- ---------- ----------
Distributions to shareholders:
Net investment income ........................ (9,961,703) (17,543,476) (1,399,994) (3,191,255)
Net realized gains ........................... -- -- -- --
----------- ----------- ---------- ----------
Total distributions ........................... (9,961,703) (17,543,476) (1,399,994) (3,191,255)
----------- ----------- ---------- ----------
Fund share transactions:
Proceeds from sale of shares ................. 263,057,650 370,605,211 13,470,067 30,976,787
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 8,976,852 15,692,224 1,122,721 2,545,162
Cost of shares redeemed ...................... (223,968,889) (358,425,484) (20,544,971) (42,004,745)
------------ ------------ ----------- -----------
Net increase (decrease) in net assets from Fund
share transactions .......................... 48,065,613 27,871,951 (5,952,183) (8,482,796)
------------ ------------ ----------- -----------
Increase (decrease) in net assets .............. 47,979,415 28,230,141 (5,952,183) (8,481,243)
Net assets at beginning of period .............. 412,126,193 383,896,052 111,264,728 119,745,971
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................ $ 460,105,608 $ 412,126,193 $ 105,312,545 $ 111,264,728
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 412,261,312 384,389,361 111,270,214 119,753,010
------------ ------------ ----------- -----------
Shares sold .................................. 263,057,651 370,605,211 13,470,067 30,976,787
Shares issued to shareholders in
reinvestment of distributions ............. 8,976,852 15,692,224 1,122,721 2,545,162
Shares redeemed .............................. (223,968,889) (358,425,484) (20,544,971) (42,004,745)
------------ ------------ ----------- -----------
Net increase (decrease) in Fund shares ......... 48,065,614 27,871,951 (5,952,183) (8,482,796)
------------ ------------ ----------- -----------
Shares outstanding at end of period ............ 460,326,926 412,261,312 105,318,031 111,270,214
- -----------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .............................. $ -- $ -- $ -- $ --
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
AARP GNMA AARP High
and U.S. Quality
Treasury Fund Bond Fund
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Six Months Ended Year
March 31, Ended March 31, Ended
1997 Sept. 30, 1997 Sept. 30,
(Unaudited) 1996 (Unaudited) 1996
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................ $ 155,995,636 $ 334,151,619 $ 14,298,204 $ 30,375,516
Net realized gain (loss) from:
Investments ................................ (7,236,209) 23,690,016 (915,590) (2,756,840)
Futures contracts .......................... -- -- 651,976 4,190,615
Options .................................... -- -- (28,219) (214,688)
Foreign currency related transactions ...... -- -- -- --
Net unrealized appreciation (depreciation) on:
Investments ................................ (19,591,638) (117,084,004) (4,158,883) (7,844,325)
Futures contracts .......................... -- -- -- --
Options .................................... -- -- -- --
Foreign currency related transactions ...... -- -- -- --
--------------- --------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................. 129,167,789 240,757,631 9,847,488 23,750,278
--------------- --------------- ------------- -------------
Distributions to shareholders:
Net investment income ........................ (155,995,636) (334,151,619) (14,298,204) (30,375,516)
Net realized gains ........................... -- -- -- --
--------------- --------------- ------------- -------------
Total distributions ........................... (155,995,636) (334,151,619) (14,298,204) (30,375,516)
--------------- --------------- ------------- -------------
Fund share transactions:
Proceeds from sale of shares ................. 143,331,152 346,027,868 19,633,912 64,115,868
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 89,335,799 193,739,502 9,964,520 21,458,457
Cost of shares redeemed ...................... (478,361,570) (793,984,012) (70,131,589) (100,466,218)
--------------- --------------- ------------- -------------
Net increase (decrease) in net assets from Fund
share transactions .......................... (245,694,619) (254,216,642) (40,533,157) (14,891,893)
--------------- --------------- ------------- -------------
Increase (decrease) in net assets .............. (272,522,466) (347,610,630) (44,983,873) (21,517,131)
Net assets at beginning of period .............. 4,904,439,844 5,252,050,474 511,905,166 533,422,297
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................ $ 4,631,917,378 $ 4,904,439,844 $ 466,921,293 $ 511,905,166
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 328,879,292 345,829,087 32,366,706 33,312,382
--------------- --------------- ------------- -------------
Shares sold .................................. 9,535,440 22,947,708 1,230,021 4,006,214
Shares issued to shareholders in
reinvestment of distributions ............. 5,943,550 12,859,585 624,194 1,341,850
Shares redeemed .............................. (31,821,859) (52,757,088) (4,397,610) (6,293,740)
--------------- --------------- ------------- -------------
Net increase (decrease) in Fund shares ......... (16,342,869) (16,949,795) (2,543,395) (945,676)
--------------- --------------- ------------- -------------
Shares outstanding at end of period ............ 312,536,423 328,879,292 29,823,311 32,366,706
- -------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .............................. $ -- $ -- $ 176,290 $ 176,290
<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 Year Period Ended
March 31, Ended March 31,
1997 Sept. 30, 1997 (a)
(Unaudited) 1996 (Unaudited)
----------- --------- -----------
<S> <C> <C> <C>
Operations:
Net investment income ........................ $ 42,181,394 $ 86,584,408 $ 62,666
Net realized gain (loss) from:
Investments ................................ 2,837,134 15,073,015 (7,472)
Futures contracts .......................... (4,133,344) 3,404,797 --
Options .................................... -- -- --
Foreign currency related transactions ...... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ................................ (9,197,289) (1,155,352) (171,214)
Futures contracts .......................... 4,807,906 (1,262,186) --
Options .................................... -- -- --
Foreign currency related transactions ...... -- -- --
--------------- --------------- ------------
Net increase (decrease) in net assets resulting
from operations ............................. 36,495,801 102,644,682 (116,020)
--------------- --------------- ------------
Distributions to shareholders:
Net investment income ........................ (42,181,394) (86,584,408) (62,666)
Net realized gains ........................... (8,693,174) -- --
--------------- --------------- ------------
Total distributions ........................... (50,874,568) (86,584,408) (62,666)
--------------- --------------- ------------
Fund share transactions:
Proceeds from sale of shares ................. 51,452,451 124,978,818 12,627,834
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 31,361,125 52,441,004 52,032
Cost of shares redeemed ...................... (133,729,995) (245,115,196) (85,942)
--------------- --------------- ------------
Net increase (decrease) in net assets from Fund
share transactions .......................... (50,916,419) (67,695,374) 12,593,924
--------------- --------------- ------------
Increase (decrease) in net assets .............. (65,295,186) (51,635,100) 12,415,238
Net assets at beginning of period .............. 1,755,412,222 1,807,047,322 1,500
- --------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................ $ 1,690,117,036 $ 1,755,412,222 $ 12,416,738
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- --------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 98,088,821 101,872,699 100
--------------- --------------- ------------
Shares sold .................................. 2,864,936 6,963,608 845,696
Shares issued to shareholders in
reinvestment of distributions ............. 1,744,375 2,918,782 3,521
Shares redeemed .............................. (7,439,064) (13,666,268) (5,803)
--------------- --------------- ------------
Net increase (decrease) in Fund shares ......... (2,829,753) (3,783,878) 843,414
--------------- --------------- ------------
Shares outstanding at end of period ............ 95,259,068 98,088,821 843,514
- --------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .............................. $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
116 & 117
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
AARP Balanced AARP Growth AARP U.S.
Stock and Bond and Income Stock Index
Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Six Months Ended Year Period Ended
March 31, Ended March 31, Ended March 31,
1997 Sept. 30, 1997 Sept. 30, 1997 (a)
(Unaudited) 1996 (Unaudited) 1996 (Unaudited)
----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income ..................... $ 8,823,090 $ 13,198,291 $ 56,315,729 $ 105,747,332 $ 27,286
Net realized gain (loss) from:
Investments ............................. 7,455,021 4,984,143 180,800,730 161,815,047 --
Futures contracts ....................... -- 34,436 -- -- --
Options ................................. -- -- 19,199 -- --
Foreign currency related transactions ... 1,648 334,451 253,341 (411,014) --
Net unrealized appreciation (depreciation) on:
Investments ............................. 13,434,559 20,509,469 232,249,592 381,330,506 (529,096)
Futures contracts ....................... -- 3,391 -- -- --
Options ................................. -- -- 801 (801) --
Foreign currency related transactions ... 1,500 (159,786) (355,491) (16,214) --
------------ ------------ -------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations ................ 29,715,818 38,904,395 469,283,901 648,464,856 (501,810)
------------ ------------ -------------- -------------- -------------
Distributions to shareholders:
Net investment income ..................... (9,292,085) (12,975,460) (59,833,421) (102,016,492) (30,430)
Net realized gains ........................ (5,003,640) (3,378,368) (167,523,006) (67,064,704) --
------------ ------------ -------------- -------------- -------------
Total distributions ......................... (14,295,725) (16,353,828) (227,356,427) (169,081,196) (30,430)
------------ ------------ -------------- -------------- -------------
Fund share transactions:
Proceeds from sale of shares .............. 97,303,836 164,077,214 556,876,295 960,952,133 11,971,548
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................... 13,148,539 14,941,233 208,210,247 153,099,566 23,889
Cost of shares redeemed ................... (37,803,156) (45,596,030) (272,492,951) (380,970,538) (106,720)
------------ ------------ -------------- -------------- -------------
Net increase (decrease) in net assets from
Fund share transactions .................. 72,649,219 133,422,417 492,593,591 733,081,161 11,888,717
------------ ------------ -------------- -------------- -------------
Increase (decrease) in net assets ........... 88,069,312 155,972,984 734,521,065 1,212,464,821 11,356,477
Net assets at beginning of period ........... 403,179,939 247,206,955 4,218,983,398 3,006,518,577 1,500
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ............. $491,249,251 $403,179,939 $4,953,504,463 $4,218,983,398 $ 11,357,977
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ----------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ... 22,865,594 15,074,610 96,018,596 78,371,684 100
------------ ------------ -------------- -------------- -------------
Shares sold ............................... 5,227,898 9,582,056 11,877,887 23,131,229 791,594
Shares issued to shareholders in
reinvestment of distributions .......... 709,384 873,110 4,523,275 3,734,230 1,587
Shares redeemed ........................... (2,034,205) (2,664,182) (5,833,446) (9,218,547) (7,083)
------------ ------------ -------------- -------------- -------------
Net increase (decrease) in Fund shares ...... 3,903,077 7,790,984 10,567,716 17,646,912 786,098
------------ ------------ -------------- -------------- -------------
Shares outstanding at end of period ......... 26,768,671 22,865,594 106,586,312 96,018,596 786,198
- ----------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .......................... $ 66,904 $ 535,899 $ 3,722,220 $ 7,239,912 $ (3,144)
<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 Period Ended
March 31, Ended March 31,
1997 Sept. 30, 1997(a)
(Unaudited) 1996 (Unaudited)
----------- --------- -----------
<S> <C> <C> <C>
Operations:
Net investment income ..................... $ 3,418,707 $ 7,892,107 $ 6,931
Net realized gain (loss) from:
Investments ............................. 50,498,728 71,644,200 --
Futures contracts ....................... -- -- --
Options ................................. -- -- --
Foreign currency related transactions ... 603 (38,602) --
Net unrealized appreciation (depreciation) on:
Investments ............................. 23,645,470 32,512,381 (170,634)
Futures contracts ....................... -- -- --
Options ................................. -- -- --
Foreign currency related transactions ... (74) 4,863 --
---------- ----------- ---------
Net increase (decrease) in net assets
resulting from operations ................ 77,563,434 112,014,949 (163,703)
---------- ----------- ---------
Distributions to shareholders:
Net investment income ..................... (7,776,756) (7,038,882) --
Net realized gains ........................ (75,673,786) (9,204,690) --
---------- ----------- ---------
Total distributions ......................... (83,450,542) (16,243,572) --
---------- ----------- ---------
Fund share transactions:
Proceeds from sale of shares .............. 73,155,428 133,269,510 8,055,082
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................... 79,684,673 15,425,567 --
Cost of shares redeemed ................... (67,845,912) (110,338,687) (33,471)
---------- ----------- ---------
Net increase (decrease) in net assets from
Fund share transactions .................. 84,994,189 38,356,390 8,021,611
---------- ----------- ---------
Increase (decrease) in net assets ........... 79,107,081 134,127,767 7,857,908
Net assets at beginning of period ........... 826,136,713 692,008,946 1,500
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (b) ............. $905,243,794 $826,136,713 $ 7,859,408
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ... 19,005,749 18,041,977 100
---------- ----------- ---------
Shares sold ............................... 1,622,030 3,299,011 529,128
Shares issued to shareholders in
reinvestment of distributions .......... 1,860,053 400,664 --
Shares redeemed ........................... (1,503,369) (2,735,903) (2,203)
---------- ----------- ---------
Net increase (decrease) in Fund shares ...... 1,978,714 963,772 526,925
---------- ----------- ---------
Shares outstanding at end of period ......... 20,984,463 19,005,749 527,025
- -----------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .......................... $ 2,821,920 $ 7,179,969 $ 6,931
<CAPTION>
- --------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
AARP Global AARP
Growth International
Fund Stock Fund
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------------------
Six Months Ended Year Period Ended
March 31, Ended March 31,
1997 Sept. 30, 1997 (a)
(Unaudited) 1996 (Unaudited)
----------- --------- -----------
<S> <C> <C> <C>
Operations:
Net investment income ..................... $ (81,457) $ 325,474 $ 13,831
Net realized gain (loss) from:
Investments ............................. 334,593 (33,467) 3,062
Futures contracts ....................... -- -- --
Options ................................. -- -- --
Foreign currency related transactions ... (29,464) (36,843) (688)
Net unrealized appreciation (depreciation) on:
Investments ............................. 6,441,117 982,226 24,086
Futures contracts ....................... -- -- --
Options ................................. -- -- --
Foreign currency related transactions ... 64,455 (336) (1,565)
---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations ................ 6,729,244 1,237,054 38,726
---------- ---------- ---------
Distributions to shareholders:
Net investment income ..................... (336,444) -- --
Net realized gains ........................ -- -- --
---------- ---------- ---------
Total distributions ......................... (336,444) -- --
---------- ---------- ---------
Fund share transactions:
Proceeds from sale of shares .............. 35,377,773 82,274,150 4,653,244
Net asset value of shares issued to
shareholders in reinvestment of
distributions ........................... 321,411 -- --
Cost of shares redeemed ................... (11,600,768) (5,860,726) (38,354)
---------- ---------- ---------
Net increase (decrease) in net assets from
Fund share transactions .................. 24,098,416 76,413,424 4,614,890
---------- ---------- ---------
Increase (decrease) in net assets ........... 30,491,216 77,650,478 4,653,616
Net assets at beginning of period ........... 77,651,978 1,500 1,500
- --------------------------------------------------------------------------------------------------
Net assets at end of period (b) ............. $108,143,194 $77,651,978 $ 4,655,116
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- --------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ... 5,012,508 100 100
---------- ---------- ---------
Shares sold ............................... 2,177,788 5,395,570 308,454
Shares issued to shareholders in
reinvestment of distributions .......... 19,853 -- --
Shares redeemed ........................... (714,057) (383,162) (2,543)
---------- ---------- ---------
Net increase (decrease) in Fund shares ...... 1,483,584 5,012,408 305,911
---------- ---------- ---------
Shares outstanding at end of period ......... 6,496,092 5,012,508 306,011
- --------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on
February 1, 1997.
(b) Includes accumulated undistributed
(overdistributed) net investment
income (loss) .......................... $ (129,270) $ 288,631 $ 13,831
</TABLE>
The accompanying notes are an integral part of the financial statements
118 & 119
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AARP AARP
Diversified Diversified
Income Portfolio Growth Portfolio
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------
Period Ended Period Ended
March 31, March 31,
1997 (a) 1997 (a)
(Unaudited) (Unaudited)
----------- -----------
Operations:
<S> <C> <C>
Net investment income ........................ $ 45,090 $ 31,234
Net realized gain (loss) from:
Investments ................................ -- --
Futures contracts .......................... -- --
Options .................................... -- --
Foreign currency related transactions ...... -- --
Net unrealized appreciation (depreciation) on:
Investments ................................ (181,574) (198,995)
Futures contracts .......................... -- --
Options .................................... -- --
Foreign currency related transactions ...... -- --
----------- -----------
Net increase (decrease) in net assets resulting
from operations ............................. (136,484) (167,721)
----------- -----------
Distributions to shareholders:
Net investment income ........................ (41,026) --
Net realized gains ........................... -- --
----------- -----------
Total distributions ............................ (41,026) --
----------- -----------
Fund share transactions:
Proceeds from sale of shares ................. 14,030,721 10,863,916
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 30,105 --
Cost of shares redeemed ...................... (120,874) (14,353)
----------- -----------
Net increase (decrease) in net assets from Fund
share transactions .......................... 13,939,952 10,849,563
----------- -----------
Increase (decrease) in net assets .............. 13,762,442 10,681,842
Net assets at beginning of period .............. 50,000 50,000
- --------------------------------------------------------------------------------
Net assets at end of period (b) ................ $13,812,442 $10,731,842
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- --------------------------------------------------------------------------------
Shares outstanding at beginning of period ...... 3,333 3,333
----------- -----------
Shares sold .................................. 928,201 715,096
Shares issued to shareholders in
reinvestment of distributions ............. 2,016 --
Shares redeemed .............................. (7,998) (951)
----------- -----------
Net increase (decrease) in Fund shares ......... 922,219 714,145
----------- -----------
925,552 717,478
- --------------------------------------------------------------------------------
</TABLE>
(a) These Funds commenced operations on February 1, 1997.
(b) Includes accumulated undistributed (overdistributed)
net investment income (loss) .............. $ 4,064 $ 31,234
The accompanying notes are an integral part of the financial statements
120
<PAGE>
F I N A N C I A L H I G H L I G H T S
121
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997 ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992(b)
---------------------------------------------------------------
<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 ...................................... .023 .045 .049 .028 .021 .040
Distributions from net investment income ................... (.023) (.045) (.049) (.028) (.021) (.040)(a)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------
Total Return (%) .............................................. 2.27(c) 4.62 4.99 2.84 2.13 4.12
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 460 412 384 333 254 323
Ratio of operating expenses, net to average net assets (%) .... .893(d) .963 .978 1.125 1.312 1.151
Ratio of operating expenses before expense reductions,
to average net assets (%) .................................. .893(d) .963 .978 1.125 1.312 1.190
Ratio of net investment income to average net assets (%) ...... 4.557(d) 4.535 4.887 2.889 2.123 3.613
(a) Includes approximately $.005 per share of net realized
short-term capital gains.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997 ----------------------------------------------------
(Unaudited) 1996 1995 1994(a) 1993(a) 1992(a)
---------------------------------------------------------------
Net asset value, beginning of period .......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------
Net investment income ...................................... .013 .028 .029 .017 .016 .026
Distributions from net investment income ................... (.013) (.028) (.029) (.017) (.016) (.026)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------
Total Return (%) .............................................. 1.30(b) 2.80 2.99 1.76 1.62 2.58
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 105 111 120 129 134 127
Ratio of operating expenses, net to average net assets (%) .... .87(c) .85 .87 .90 .93 .95
Ratio of operating expenses before expense reductions,
to average net assets (%) .................................. .87(c) .85 .87 .91 1.15 1.13
Ratio of net investment income to average net assets (%) ...... 2.61(c) 2.77 2.94 1.75 1.60 2.54
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not Annualized
(c) Annualized
122
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997 ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 14.91 $ 15.19 $ 14.73 $ 15.96 $ 16.19 $ 15.72
---------------------------------------------------------------
Income from investment operations:
Net investment income ...................................... .49 .99 1.01 .93 1.15 1.22
Net realized and unrealized gain (loss) on investments ..... (.09) (.28) .46 (1.23) (.23) .47
---------------------------------------------------------------
Total from investment operations .............................. .40 .71 1.47 (.30) .92 1.69
---------------------------------------------------------------
Less distributions:
Net investment income ...................................... (.49) (.99) (.98) (.93) (1.15) (1.22)
Tax return of capital ...................................... -- -- (.03) -- -- --
---------------------------------------------------------------
Total distributions ........................................... (.49) (.99) (1.01) (.93) (1.15) (1.22)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 14.82 $ 14.91 $ 15.19 $ 14.73 $ 15.96 $ 16.19
---------------------------------------------------------------
Total Return (%) .............................................. 2.66(a) 4.79 10.31 (1.90) 5.89 11.19
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 4,632 4,904 5,252 5,585 6,712 5,232
Ratio of operating expenses to average net assets (%) ......... .65(b) .64 .67 .66 .70 .72
Ratio of net investment income to average net assets (%) ...... 6.48(b) 6.55 6.77 6.09 7.15 7.69
Portfolio turnover rate (%) ................................... 43.06(b) 83.44 70.35 114.54 105.49 74.33
(a) Not Annualized
(b) Annualized
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP HIGH QUALITY BOND FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997 ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
---------------------------------------------------------------
Net asset value, beginning of period .......................... $ 15.82 $ 16.01 $ 15.05 $ 17.19 $ 16.44 $ 15.71
---------------------------------------------------------------
Income from investment operations:
Net investment income ...................................... .46 .92 .94 .85 .93 1.03
Net realized and unrealized gain (loss) on investments ..... (.16) (.19) .95 (1.76) .93 .73
---------------------------------------------------------------
Total from investment operations .............................. .30 .73 1.89 (.91) 1.86 1.76
---------------------------------------------------------------
Less distributions:
Net investment income ...................................... (.46) (.92) (.93) (.85) (.93) (1.03)
Net realized gains on investments .......................... -- -- -- -- (.18) --
In excess of net realized gains on investments ............. -- -- -- (.38) -- --
---------------------------------------------------------------
Total distributions ........................................... (.46) (.92) (.93) (1.23) (1.11) (1.03)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 15.66 $ 15.82 $ 16.01 $ 15.05 $ 17.19 $ 16.44
---------------------------------------------------------------
Total Return (%) .............................................. 1.93(a) 4.59 12.98 (5.55) 11.88 11.56
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 467 512 533 568 604 384
Ratio of operating expenses to average net assets (%) ......... .93(b) .91 .95 .95 1.01 1.13
Ratio of net investment income to average net assets (%) ...... 5.75(b) 5.76 6.13 5.31 5.64 6.40
Portfolio turnover rate (%) ................................... 104.92(b) 169.96 201.07 63.75 100.98 63.00
</TABLE>
(a) Not Annualized
(b) Annualized
123
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997 ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 17.90 $ 17.74 $ 16.93 $ 19.00 $ 17.88 $ 17.30
---------------------------------------------------------------
Income from investment operations:
Net investment income ...................................... .44 .87 .87 .86 .90 .93
Net realized and unrealized gain (loss) on investments ..... (.07) .16 .81 (1.67) 1.55 .75
---------------------------------------------------------------
Total from investment operations .............................. .37 1.03 1.68 (.81) 2.45 1.68
---------------------------------------------------------------
Less distributions:
Net investment income ...................................... (.44) (.87) (.87) (.86) (.90) (.93)
Net realized gains on investments .......................... (.09) -- -- (.34) (.43) (.17)
In excess of net realized gains on investments ............. -- -- -- (.06) -- --
---------------------------------------------------------------
Total distributions ........................................... (.53) (.87) (.87) (1.26) (1.33) (1.10)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 17.74 $ 17.90 $ 17.74 $ 16.93 $ 19.00 $ 17.88
---------------------------------------------------------------
Total Return (%) .............................................. 2.06(a) 5.88 10.21 (4.48) 14.31 10.01
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 1,690 1,755 1,807 1,914 2,087 1,487
Ratio of operating expenses to average net assets (%) ......... .67(b) .66 .69 .68 .72 .74
Ratio of net investment income to average net assets (%) ...... 4.87(b) 4.83 5.06 4.80 4.90 5.31
Portfolio turnover rate (%) ................................... 7.73(b) 18.69 17.45 38.39 47.96 62.45
(a) Not Annualized
(b) Annualized
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------
Net asset value, beginning of period .................................................................... $ 15.00
--------
Income from investment operations:
Net investment income ................................................................................ .16
Net realized and unrealized gain (loss) on investments ............................................... (.28)
--------
Total from investment operations ........................................................................ (.12)
--------
Less distributions from net investment income ........................................................... (.16)
--------
Net asset value, end of period .......................................................................... $ 14.72
--------
Total Return (%)(b) ..................................................................................... (.79)(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................................................. 12
Ratio of operating expenses, net to average net assets (%) .............................................. --(d)
Ratio of operating expenses before expense reductions, to
average net assets (%) ................................................................................. 6.75(d)
Ratio of net investment income to average net assets (%) ................................................ 7.16(d)
Portfolio turnover rate (%) ............................................................................. 47.97(d)
</TABLE>
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
124
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended For the Period
March 31, Years Ended September 30, February 1, 1994
1997(a) ---------------------------- to September
(Unaudited) 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 17.63 $ 16.40 $ 14.64 $ 15.00
-------------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .36 .66 .61 .25
Net realized and unrealized gain (loss) on investment .94 1.44 1.79 (.37)(c)
-------------------------------------------------------------------
Total from investment operations ........................... 1.30 2.10 2.40 (.12)
-------------------------------------------------------------------
Less distributions:
Net investment income ................................... (.37) (.66) (.60) (.24)
Net realized gains on investments ....................... (.21) (.21) (.04) --
-------------------------------------------------------------------
Total distributions ........................................ (.58) (.87) (.64) (.24)
-------------------------------------------------------------------
Net asset value, end of period ............................. $ 18.35 $ 17.63 $ 16.40 $ 14.64
-------------------------------------------------------------------
Total Return (%) ........................................... 7.36(e) 13.08 16.80 (.78)(e)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 491 403 247 175
Ratio of operating expenses to average net assets (%) ...... .82(f) .88 1.01 1.31(f)
Ratio of net investment income to average net assets (%) 3.90(f) 4.09 4.12 3.58(f)
Portfolio turnover rate (%) ................................ 27.78(f) 35.22 63.77 49.32(f)
Average commission rate paid (d) ........................... $ .0563 $ .0549 $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations
(c) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Fund shares in relation to fluctuating market values during the period.
(d) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
(e) Not Annualized (f) Annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997(a) ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 43.94 $ 38.36 $ 34.13 $ 32.91 $ 28.67 $ 26.97
---------------------------------------------------------------
Income from investment operations:
Net investment income ...................................... .56 1.17 1.11 .94 .83 .97
Net realized and unrealized gain on investments ............ 4.28 6.40 5.44 1.62 4.58 2.11
---------------------------------------------------------------
Total from investment operations .............................. 4.84 7.57 6.55 2.56 5.41 3.08
---------------------------------------------------------------
Less distributions from:
Net investment income ...................................... (.59) (1.15) (1.09) (1.13) (.87) (.90)
Net realized gains on investments .......................... (1.72) (.84) (1.23) (.21) (.30) (.48)
---------------------------------------------------------------
Total distributions ........................................... (2.31) (1.99) (2.32) (1.34) (1.17) (1.38)
---------------------------------------------------------------
Net asset value, end of period ................................ $ 46.47 $ 43.94 $ 38.36 $ 34.13 $ 32.91 $ 28.67
---------------------------------------------------------------
Total Return (%) .............................................. 11.09(c) 20.20 20.43 7.99 19.38 11.59
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 4,954 4,219 3,007 2,312 1,560 748
Ratio of operating expenses to average net assets (%) ......... .69(d) .69 .72 .76 .84 .91
Ratio of net investment income to average net assets (%) ...... 2.42(d) 2.94 3.28 3.00 3.08 3.84
Portfolio turnover rate (%) ................................... 44.31(d) 25.02 31.26 31.82 17.44 36.40
Average commission rate paid(b) ............................... $ .0630 $ .0542 $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
(c) Not Annualized (d) Annualized
125
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------------------
Net asset value, beginning of period .................................. $ 15.00
--------
Income from investment operations:
Net investment income .............................................. .04
Net realized and unrealized gain (loss) on investments ............. (.55)
--------
Total from investment operations ...................................... (.51)
--------
Less distributions from net investment income ......................... (.04)
--------
Net asset value, end of period ........................................ $ 14.45
--------
Total Return (%)(b) ................................................... (3.41)(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................ 11
Ratio of operating expenses, net to average net assets (%) ............ .50(d)
Ratio of operating expenses before expense reductions, to
average net assets (%) ............................................... 6.20(d)
Ratio of net investment income to average net assets (%) .............. 2.30(d)
Portfolio turnover rate (%) ........................................... --
Average commission rate paid .......................................... $ .0268
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AARP CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
Six Months Ended
March 31, Years Ended September 30,
1997(a) ----------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 43.47 $ 38.36 $ 31.74 $ 36.20 $ 30.30 $ 30.23
---------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .17 .42 .36 .00 .06 .15
Net realized and unrealized gain (loss) on investments .. 3.90 5.59 6.91 (1.51) 7.19 1.09
---------------------------------------------------------------
Total from investment operations ........................... 4.07 6.01 7.27 (1.51) 7.25 1.24
---------------------------------------------------------------
Less distributions from:
Net investment income ................................... (.41) (.39) (.01) (.05) (.14) (.23)
Net realized gains on investments ....................... (3.99) (.51) (.64) (2.90) (1.21) (.94)
---------------------------------------------------------------
Total distributions ........................................ (4.40) (.90) (.65) (2.95) (1.35) (1.17)
---------------------------------------------------------------
Net asset value, end of period ............................. $ 43.14 $ 43.47 $ 38.36 $ 31.74 $ 36.20 $ 30.30
---------------------------------------------------------------
Total Return (%) ........................................... 9.40(b) 15.97 23.47 (4.70) 24.53 3.94
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 905 826 692 683 607 424
Ratio of operating expenses, to average net assets (%) ..... .92(c) .90 .95 .97 1.05 1.13
Ratio of net investment income to average net assets (%) ... .76(c) 1.05 1.00 .02 .22 .61
Portfolio turnover rate (%) ................................ 51.62(c) 64.84 98.44 79.65 100.63 89.20
Average commission rate paid(d) ............................ $ .0581 $ .0614 $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Not Annualized (c) Annualized
(d) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
126
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AARP SMALL COMPANY STOCK FUND
- ----------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and
other performance information derived from the financial statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------------------
Net asset value, beginning of period ....................... $ 15.00
--------
Income from investment operations:
Net investment income ................................... .01
Net realized and unrealized gain (loss) on investments .. (.10)
--------
Total from investment operations ........................... (.09)
--------
Net asset value, end of period ............................. $ 14.91
--------
Total Return (%)(b) ........................................ (.60)(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 8
Ratio of operating expenses, net to average net assets (%) . 1.75(d)
Ratio of operating expenses before expense reductions, to
average net assets (%) .................................... 15.45(d)
Ratio of net investment income to average net assets (%) ... 1.40(d)
Portfolio turnover rate (%) ................................ --
Average commission rate paid ............................... $ .0304
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
<CAPTION>
- ----------------------------------------------------------------------------------------------
AARP GLOBAL GROWTH FUND
- ----------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Six Months Ended
March 31, For the Period
1997(a) February 1, 1996(b)
(Unaudited) to September 30, 1996
----------- ---------------------
<S> <C> <C>
Net asset value, beginning of period .................... $ 15.49 $ 15.00
--------------------------
Income from investment operations:
Net investment income (loss) ......................... (.02) .06
Net realized and unrealized gain on investments ...... 1.24 .43
--------------------------
Total from investment operations ........................ 1.22 .49
--------------------------
Less distributions from net investment income ........... (.06) --
--------------------------
Net asset value, end of period .......................... $ 16.65 $ 15.49
--------------------------
Total Return (%)(c) ..................................... 7.88(d) 3.27(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 108 78
Ratio of operating expenses, net to average net assets (%) 1.75(e) 1.75(e)
Ratio of operating expenses before expense reductions, to
average net assets (%) ................................. 1.92(e) 2.31(e)
Ratio of net investment income to average net assets (%) (.18)(e) 1.03(e)
Portfolio turnover rate (%) ............................. 24.42(e) 12.56(e)
Average commission rate paid ............................ $ .0002 $ .0150
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations
(c) Total returns would have been lower had certain expenses not been reduced.
(d) Not Annualized (e) Annualized
127
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AARP INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------------------
Net asset value, beginning of period ...................... $ 15.00
--------
Income from investment operations:
Net investment income .................................. .05
Net realized and unrealized gain (loss) on investments . .16
--------
Total from investment operations .......................... .21
--------
Net asset value, end of period ............................ $ 15.21
--------
Total Return (%)(b) ....................................... 1.40(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................... 5
Ratio of operating expenses, net to average net assets (%) 1.75(d)
Ratio of operating expenses before expense reductions, to
average net assets (%) ................................... 23.19(d)
Ratio of net investment income to average net assets (%) .. 4.39(d)
Portfolio turnover rate (%) ............................... 9.44(d)
Average commission rate paid .............................. $ .0399
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
- --------------------------------------------------------------------------------
AARP DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------------------
Net asset value, beginning of period ..................... $ 15.00
--------
Income from investment operations:
Net investment income ................................. .06
Net realized and unrealized gain (loss) on investments (.08)
--------
Total from investment operations ......................... (.02)
--------
Less distribution from net investment income ............. (.06)
--------
Net asset value, end of period ........................... $ 14.92
--------
Total Return (%) ......................................... (.13)(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 14
Ratio of operating expenses, net to average net assets (%) -- (d)
Ratio of net investment income to average net assets (%) . 4.4(c)
Portfolio turnover rate (%) .............................. --
(a) Commencement of operations
(b) Not Annualized
(c) Annualized
(d) This Portfolio invests in other AARP Funds, and although the Portfolio did
not incur any direct expenses for the period, the Portfolio did bear its
share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
128
<PAGE>
- --------------------------------------------------------------------------------
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
For the Period
February 1, 1997(a)
to March 31, 1997
(Unaudited)
--------------------
Net asset value, beginning of period ..................... $ 15.00
--------
Income from investment operations:
Net investment income ................................. .04
Net realized and unrealized gain (loss) on investments (.08)
--------
Total from investment operations ......................... (.04)
--------
Net asset value, end of period ........................... $ 14.96
--------
Total Return (%) ......................................... (.26)(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 11
Ratio of operating expenses, net to average net assets (%) -- (d)
Ratio of net investment income to average net assets (%) . 3.7(c)
Portfolio turnover rate (%) .............................. --
(a) Commencement of operations
(b) Not Annualized
(c) Annualized
(d) This Portfolio invests in other AARP Funds, and although the Portfolio did
not incur any direct expenses for the period, the Portfolio did bear its
share of the operating, administrative and advisory expenses of the
Underlying Scudder Funds.
129
<PAGE>
This Page
intentionally
left blank.
130
<PAGE>
N O T E S T O
F I N A N C I A L S T A T E M E N T S
131
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Organization and Significant Accounting Policies.
The following AARP Mutual Funds from Scudder (the "AARP Funds" or the
"Funds") are 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.
Trust name: Series name:
- ----------------------------------------------------------------------------
AARP Cash Investment Funds:
AARP High Quality Money Fund
AARP Income Trust:
AARP GNMA & U.S. Treasury Fund
AARP High Quality Bond 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 & Bond Fund
AARP Growth & Income Fund
AARP Global Growth Fund
AARP Capital Growth Fund
AARP U.S. Stock Index Fund
AARP Small Company Stock Fund
AARP International Stock Fund
AARP Managed Investment Portfolios
Trust:
AARP Diversified Income Portfolio
AARP Diversified Growth Portfolio
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 Portfolios
within the AARP Managed Investment Portfolio Trust invest primarily in existing
AARP Mutual Funds from Scudder (the "Underlying AARP Funds").
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Funds in
preparation of their financial statements.
A. Security Valuation. The AARP High Quality Money Fund uses the penny
rounding method of security valuation as permitted under Rule 2a-7 of the 1940
Act. Under this method, securities for which market quotations are readily
available and which have remaining maturities of sixty-one days or more from the
date of valuation are valued at the mean between the over-the-counter bid and
asked prices by an independent registered broker/dealer. On the sixtieth day
prior to maturity and thereafter until maturity, securities originally purchased
with more than sixty days remaining to maturity are valued at amortized cost
calculated daily, based upon the market valuation of the securities on the
sixty-first day prior to maturity. The AARP High Quality Tax Free Money Fund
uses the amortized cost method of security valuation as permitted under Rule
2a-7 of the 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 is
no such bid and asked quotations the most recent bid quotation is used. Unlisted
securities quoted on the National Association of Securities Dealers
132
<PAGE>
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Unlisted securities
which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is valued at the mean between the most recent
bid and asked quotations. If there are no such bid and asked quotations the most
recent bid quotation is used.
Portfolio debt securities with remaining maturities greater than sixty days
are valued by pricing agents approved by the Trustees, which prices reflect
broker/dealer supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used.
Short-term investments with remaining maturities of 60 days or less are
valued at amortized cost. Variable rate demand notes are carried at cost which
together with accrued interest approximates market.
Investments of the AARP Diversified Income 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 Trustees.
B. Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with selected banks and broker/dealers whereby each Fund, through its
custodian, receives delivery of the securities collateralizing repurchase
agreements, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market value,
depending on the maturity of the underlying collateral, is at least equal to the
repurchase price.
C. Futures Contracts. The Funds in the AARP Income Trust, the AARP Insured
Tax Free General Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP
Global Growth Fund, the AARP International Stock Fund, the AARP U.S. Stock Index
Fund, and the AARP Small Company Stock Fund may enter into futures contracts. A
futures contract is an agreement between a buyer or seller and an established
futures exchange or its clearinghouse in which the buyer or seller agrees to
take or make a delivery of a specific amount of an item at a specified price on
a specific date (settlement date). During the period, the AARP High Quality Bond
Fund and the AARP Insured Tax Free General Bond Fund purchased and sold interest
rate futures to hedge against declines in the value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the
risk that an illiquid secondary market will limit the Fund's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge, the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
D. Options. In an option contract, the writer of the option grants the buyer
of the option the right to purchase from (call option), or sell to (put option),
the writer a designated instrument at a specified price within a specified
period of time. Certain options, including options on indices, will require cash
settlement by the Fund if the option is exercised.
133
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Funds in the AARP Income Trust, the AARP Insured Tax Free General Bond
Fund, the AARP Balanced Stock and Bond Fund, the AARP Global Growth Fund, the
AARP International Stock Fund, and the AARP Small Company Stock Fund may enter
into options on futures contracts. The Funds in the AARP Growth Trust and the
AARP Income Trust may write covered call options. The Funds in the AARP Growth
Trust may purchase put and call options on stock indices.
During the period the AARP International Stock Fund purchased put options on
currencies as a hedge against potential adverse price movements in the value of
portfolio assets. Also, during the period, the AARP High Quality Bond Fund
purchased call options on futures as a temporary substitute for purchasing
selected investments.
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 price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange
for the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts the risk of a
decline in the market value of the underlying security or currency below the
exercise price. Over-the-counter options have the risk of the potential
inability of counterparties to meet the terms of their contracts. The Fund's
maximum exposure to purchased options is limited to the premium initially paid.
In addition, certain risks may arise upon entering into option contracts
including the risk that an illiquid secondary market will limit the Fund's
ability to close out an option contract prior to the expiration date and, that a
change in the value of the option contract may not correlate exactly with
changes in the value of the securities or currencies hedged.
E. Securities Purchased on a Forward Delivery or When-Issued Basis. The AARP
High Quality Money Fund, the Funds in the AARP Income Trust and in the AARP Tax
Free Income Trust, and the AARP Balanced Stock and Bond Fund may purchase
securities on a forward delivery or when-issued basis. Municipal, corporate and
government securities are frequently offered on a forward delivery or
when-issued basis. At the time the Fund makes the commitment to purchase a
security on a forward delivery or when-issued basis, the price of the underlying
security is fixed. The Fund will record the transaction at the time of the
commitment and reflect the value of the security in determining its net asset
value. The settlement date of the transaction can occur within one month or more
after the date the commitment was made. During the period between purchase and
settlement date, no payment is made on behalf of the Fund and no interest
accrues to the Fund.
F. Forward Currency Exchange Contracts. The Funds in the AARP Growth Trust,
the AARP High Quality Bond Fund and the AARP Bond Fund for Income may, in
connection with portfolio purchases and sales of securities denominated in a
foreign currency, enter into forward currency exchange contracts ("forward
contracts"). Additionally, from time to time, each Fund may enter into contracts
to hedge certain foreign currency denominated assets. A forward contract is a
commitment to purchase or sell a foreign currency at the settlement date at a
negotiated rate. During the period, the AARP Balanced Stock and Bond Fund, the
AARP Growth and Income Fund, and the
134
<PAGE>
AARP Global Growth Fund utilized forward contracts as a hedge against changes in
exchange rates relating to foreign currency denominated assets, and as a hedge
in connection with portfolio purchases and sales of securities denominated in
foreign currencies. Also, during the period, the 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.
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 and payment dates on dividends,
interest, and foreign withholding taxes.
H. Securities Transactions and Related Investment Income. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security. Acquisition discount is
accreted on taxable securities purchased with original maturity dates of one
year or less. Premium on securities purchased by the AARP Tax Free Income Trust
is amortized on an effective yield basis over the life of the security.
Distributions of income and capital gains earned by the Diversified Growth and
Diversified Income Portfolios from the Underlying AARP Funds are recorded on the
ex-dividend date.
Each Fund uses the specific identification method for determining the
realized gain or loss on investments sold for both financial and federal income
tax reporting purposes.
I. Federal Income Taxes. Each of the Funds is treated as a single entity for
federal income tax purposes. It is the policy of each Fund to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies, and to distribute all of its
taxable and tax exempt income to its shareholders. Accordingly, the Funds paid
no U.S. federal income taxes, and no provisions for federal income taxes were
required.
J. Distribution of Income and Gains. Each AARP Fund intends to follow the
practice of distributing all of its net investment income to shareholders.
Dividends from the AARP High Quality Money Fund and the Funds in the AARP Income
Trust and the AARP Tax Free Income Trust are declared daily and distributed
monthly. Dividends from the AARP Diversified Income Portfolio are declared and
paid monthly. Dividends from 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
135
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 may take into account realized
gains and losses on the sales of securities in its daily distributions. An
additional distribution may be made by each Fund to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments, mortgage backed
securities, REIT and certain securities sold at a loss. As a result, net
investment income and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such period.
Accordingly, the Funds may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
K. Expenses. Each Fund (except for the AARP Diversified Income and
Diversified Growth Portfolios) is charged for those expenses that are directly
attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a Fund,
such as reports to shareholders, portions of Trustees' and legal fees, are
allocated among all the Funds.
The AARP Diversified Income and Diversified Growth Portfolios ("the
Portfolios") have entered into a Special Servicing Agreement with Scudder,
Stevens & Clark, Inc. (the "Fund Manager"), the Underlying Scudder 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 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 and Diversified Growth
Portfolios during the period.
L. Organization Cost. Costs incurred by the AARP Balanced Stock and Bond
Fund, the AARP Global Growth Fund, the AARP U.S. Stock Index Fund, the AARP Bond
Fund for Income, the AARP International Stock Fund, and the AARP Small Company
Stock Fund in connection with their organization have been deferred and are
being amortized on a straight-line basis over a five-year period. The Fund
Manager has assumed the organization costs of the AARP Diversified Growth and
AARP Diversified Income Portfolios.
M. Portfolio Insurance. The cost of premiums paid by the AARP Insured Tax
Free General Bond Fund for insurance on individual securities is
non-cancellable, runs the life of such securities, and is added to the cost
basis of such securities. This insurance provides for the timely payment of
principal and interest on these securities when due and protects the Fund
against loss from default by the Municipal issuer. It does not protect the
investor from losses due to changes in market values.
136
<PAGE>
Note 2. 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 and 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 and Diversified Growth Portfolios).
The Annual Base Fee is calculated as follows:
.35% of the first $2.0 billion of such assets
.33% of the next $2.0 billion of such assets
.30% of the next $2.0 billion of such assets
.28% of the next $2.0 billion of such assets
.26% of the next $3.0 billion of such assets
.25% of the next $3.0 billion of such assets
.24% of such assets thereafter
In addition to the Base Fee, each Fund (excluding the AARP U.S. Stock Index
Fund, and the AARP Diversified Income and 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, 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.
The Individual Fund Fee Rate is calculated at the following percentages of
the average daily net assets of each Fund:
<TABLE>
<CAPTION>
Fund Rate
- ----------------------------------------------------------------- -------------
<S> <C>
AARP High Quality Money Fund .................................... .10%
AARP High Quality Tax Free Money Fund ........................... .10%
AARP GNMA & U.S. Treasury Fund .................................. .12%
AARP High Quality Bond Fund ..................................... .19%
AARP Insured Tax Free General Bond Fund ......................... .19%
AARP Bond Fund For Income ....................................... .28%
AARP Balanced Stock & Bond Fund ................................. .19%
AARP Growth & Income Fund ....................................... .19%
AARP U.S. Stock Index Fund ...................................... 0%
AARP Capital Growth Fund ........................................ .32%
AARP Small Company Stock Fund ................................... .55%
AARP Global Growth Fund ......................................... .55%
AARP International Stock Fund ................................... .60%
</TABLE>
The total amount of management fees for each Fund is shown in the Statement
of Operations as Management Fee.
As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund Manager
under the Management Agreement will provide certain administrative services in
accordance with such Agreement. The Fund Manager has also entered into a Member
Services Agreement with AARP Financial Services Corp. ("AFSC"), a subsidiary of
AARP, and pays portions of its investment management and advisory fee to AFSC.
For the period October 1, 1996 through January 1, 1997, the Fund Manager
agreed to waive a portion of its management fee and reimburse a portion of
expenses in order to maintain the annualized expenses of the AARP Global Growth
Fund at no more than 1.75% of average daily net assets. Effective February 1,
1997, 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, 1998: AARP Stock Index
Fund, .50% of average daily net assets; AARP Bond Fund for Income, 0.00% of
average daily net assets; AARP International Stock Fund, 1.75% of average daily
net assets; and AARP Small Company 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 shown in the Statement of Operations as Expense
Reductions.
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
137
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
For the period ended March 31, 1997 the amounts charged by SSC and SFAC to
the Funds were as follows:
<TABLE>
<CAPTION>
Total SSC
Amount Unpaid at Amount Total SFAC
Charged To March 31, Charged To Unpaid at
Fund Fund by SSC 1997* Fund by SFAC March 31, 1997*
- ------------------------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund $ 759,906 $ 86,241 $ 26,540 $ 4,512
AARP High Quality Tax Free Money Fund 134,278 21,183 15,023 2,500
AARP GNMA & U.S. Treasury Fund 3,422,946 568,128 244,163 40,043
AARP High Quality Bond Fund 746,856 123,459 43,570 6,229
AARP Insured Tax Free General Bond Fund 891,419 145,495 82,075 13,651
AARP Bond Fund For Income 5,517 5,517 6,250 6,250
AARP Balanced Stock & Bond Fund 575,620 -- 45,923 8,184
AARP Growth & Income Fund 2,904,334 646,541 150,999 27,384
AARP U.S. Stock Index Fund 11,014 11,014 21,497 21,497
AARP Capital Growth Fund 824,313 175,840 53,148 9,270
AARP Small Company Stock Fund 16,567 16,567 12,088 12,088
AARP Global Growth Fund 258,275 50,140 40,909 7,577
AARP International Stock Fund 7,731 7,731 8,333 8,333
</TABLE>
* Total unpaid amounts are included in Other payables and accrued expenses
in the Statements of Assets and Liabilities.
Until September 30, 1996, each Fund paid each Trustee not affiliated with
Scudder or AARP $2,000 annually, $270 for each Trustees' meeting, $200 for each
audit committee meeting attended, and $100 for other committee meetings, plus
expenses, subject to certain maximums per Trustee for meetings held jointly with
other funds. As of October 1, 1996, each Fund pays each Trustee unaffiliated
with Scudder or AARP an annual retainer of $10,000, $175 for each Trustee's
meeting, $150 for each audit and contract committee meeting attended, $100 for
attending nominating committee meetings and $125 for each additional committee
meeting. The amount for each Fund has been shown in the Statement of Operations
as Trustees' fees and expenses.
Note 3. Commitments.
As of March 31, 1997, the AARP Global Growth Fund had entered into the following
forward currency exchange contracts resulting in net unrealized appreciation of
$63,836.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
- ------------------------- ------------------------- -------------------- ----------------
<S> <C> <C> <C>
DEM 7,903,094 USD 4,820,000 4/30/97 $ 72,755
DEM 3,337,679 USD 1,998,000 5/14/97 (8,919)
---------
$ 63,836
=========
</TABLE>
138
<PAGE>
O F F I C E R S A N D T R U S T E E S
139
<PAGE>
OFFICERS AND TRUSTEES
---------------------
CAROLE LEWIS ANDERSON
- ---------------------
Trustee of AARP Funds; President, MASDUN Capital Advisors; Formerly
Principal, Suburban Capital Markets; Director, VICORP Restaurants, Inc.;
Member of the Board, Association for Corporate Growth of Washington,
D.C.; Trustee, Hasbro Children's Foundation and Mary Baldwin College.
ADELAIDE ATTARD
- ---------------
Trustee of AARP Funds; Member, New York City Department of Aging
Advisory Council--Appointed by Mayor (1995); Consultant, Gerontology;
Commissioner, County of Nassau, NY, Department of Senior Citizen Affairs
(1971-1991); Board Member, American Association of International Aging
(1981 to 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 AARP Funds; Director, International Longevity Center and
Professor of Geriatrics and Adult Development; Chairman, Henry L.
Schwartz Department of Geriatrics and Adult Development, Mount Sinai
Medical Center; Formerly Director, National Institute on Aging, National
Institute of Health (1976-1982).
ESTHER CANJA
- ------------
Trustee of AARP Funds; Vice President, American Association of Retired
Persons; Trustee and Chair, AARP Group Health Insurance Plan; Board
Liaison, National Volunteer Leadership Network Advisory Committee;
Chair, Board Operations Committee; AARP State Director of Florida
(1990-1992).
LINDA C. COUGHLIN*
- ------------------
Chairman and Trustee of AARP Funds; Managing Director and Member, Board
of Directors of Scudder, Stevens & Clark, Inc.
HORACE B. DEETS
- ---------------
Vice Chairman and Trustee of AARP Funds; Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus
Gerontology Center; Member of the Board, HelpAge International.
EDGAR R. FIEDLER
- ----------------
Trustee of AARP Funds; Senior Fellow and Economic Counselor, The
Conference Board, Inc.; Director: The Stanley Works, Zurich-American
Insurance Company, HT Insight Funds, and Emerging Mexico Fund.
CUYLER W. FINDLAY*
- ------------------
Trustee of AARP Funds; Advisory Managing Director of Scudder, Stevens &
Clark, Inc., Senior Vice President and Director, Scudder Investor
Services, Inc.
EUGENE P. FORRESTER
- -------------------
Trustee of AARP Funds; Consultant; International Trade Counselor; Lt.
General (Retired), U.S. Army; Command General, U.S. Army Western
Command, Honolulu; Consultant: Digital Equipment Corp., DHI, Philip
Morris, PICS Previews, and Whittle Communications.
WAYNE F. HAEFER
- ---------------
Trustee of AARP Funds; Director, Membership Division of AARP; Trustee,
Employee's Pension and Welfare Trusts of AARP and Retired Persons
Services, Inc.; Formerly Director, Administration and Data Management
Division of AARP.
GEORGE L. MADDOX, JR.
- ---------------------
Trustee of AARP Funds; Professor Emeritus and Director, Long Term Care
Resources Program, Duke University Medical Center; Senior Fellow, Center
for the Study of Aging and Human Development, Duke University; Professor
Emeritus of Sociology, Departments of Sociology and Psychiatry, Duke
University.
140
<PAGE>
ROBERT J. MYERS
- ---------------
Trustee of AARP Funds; Actuarial Consultant; Formerly Executive
Director, National Commission on Social Security Reform; Director: NASL
Series Trust, Inc. and North American Funds, Inc.; Formerly Director,
Board of Pensions, Evangelical Lutheran Church in America; Formerly
Chairman, Commission on Railroad Retirement Reform; Member, U.S. Office
of Technology Assessment, Prospective Payment Assessment Commission.
JAMES H. SCHULZ
- ---------------
Trustee of AARP Funds; Professor of Economics and Kirstein Professor of
Aging Policy, Policy Center of Aging, Florence Heller School, Brandeis
University.
GORDON SHILLINGLAW
- ------------------
Trustee of AARP Funds; Professor Emeritus of Accounting, Columbia
University Graduate School of Business; Formerly Director and Treasurer,
FERIS Foundation of America.
CORNELIA SMALL*
- ---------------
Investment Director, President and Trustee of AARP Funds; Managing
Director of Scudder, Stevens & Clark, Inc.
<TABLE>
<C> <C>
THOMAS W. JOSEPH* EDWARD J. O'CONNELL*
- ----------------- --------------------
Vice President Vice President and Assistant Treasurer
DAVID S. LEE* JAMES W. PASMAN*
- ------------- ----------------
Vice President and Assistant Treasurer Vice President
THOMAS F. MCDONOUGH* KATHRYN L. QUIRK*
- -------------------- -----------------
Vice President and Assistant Secretary Vice President and Secretary
PAMELA A. MCGRATH* HOWARD SCHNEIDER*
- ------------------ -----------------
Vice President and Treasurer Vice President
</TABLE>
*Scudder, Stevens & Clark, Inc.
Effective January 1, 1995, each member of and nominee for the Board of
Trustees must own shares of one or more of the Funds within the AARP
Investment Program of which he/she serves as Trustee.
141
<PAGE>
<TABLE>
<CAPTION>
SERVICE INFORMATION
-------------------
<S> <C> <C>
SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives are available
SERVICE LINE to answer questions about the Program or your account Monday
through Friday, between 8:00 a.m. and 8:00 p.m., Eastern time.
1-800-253-2277 Transactions can be made Monday through Friday between 8:00 a.m.
and 4:00 p.m., Eastern time.
Write: AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
For overnight AARP Investment Program from Scudder
and certified mail: 42 Longwater Drive
Norwell, MA 02061-1612
EASY-ACCESS LINE Shareholders with a touch-tone telephone may call this automated line
to obtain AARP Fund performance and account information, or to
1-800-631-4636 exchange or sell (redeem) AARP Mutual Fund shares. This service is
available 24 hours a day, 7 days a week.
TRANSACTIONS If you have access to a fax machine, you can fax transaction requests.
BY FAX Any exchange or redemption request received after 4:00 p.m. business
Days or on weekends will be processed the next business day. All faxes
1-800-821-6234 are kept confidential.
TDD (TELECOMMUNICATIONS AARP members with hearing or speech impairments and access to
DEVICE FOR THE DEAF AND TDD equipment can communicate with the AARP Investment Program
SPEECH IMPAIRED) 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.,
1-800-634-9454 Eastern time.
</TABLE>
142
<PAGE>
GLOSSARY
--------
AVERAGE ANNUALIZED The one-year return of an investment
TOTAL RETURN based on its compounded total return. The
annualized return gives the investor an idea
of the performance during each year of a
listed period, such as 3 years, 5 years or
10 years.
BARBELL STRATEGY An investment strategy where the portfolio
manager holds bonds with short maturities
and long maturities that would give the
impression of a bar bell if the clusters of
bonds on either end were illustrated.
COUPON The name given to the interest payments that
could be clipped and sent to the issuer for
payment. The average coupon rate would be
the expected interest rates of all the bonds
held in a portfolio.
QUALITY Quality is a measure of a bond issuer's
ability to repay interest and principal in a
timely manner. The average quality is a
designation of all the bonds held in the
portfolio.
DURATION Duration is a mathematical calculation of
the average life of a bond (or bonds in a
bond fund) that serves as a useful measure
of its 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 fall 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.
MATURITY The date upon which bonds mature, that is,
the date when the issuer must pay back the
face amount of the bond. An investor who
buys $10,000 worth of 25-year bonds will
receive $10,000 at the end of 25 years,
after having received interest payments
(coupons) over the 25-year period.
PREPAYMENT RISK The possibility that, as interest rates
fall, homeowners will refinance their home
mortgages, resulting in the prepayment of
GNMA securities.
TOTAL RETURN A measure of an investment's performance
that takes into account income paid, other
distributions, and any increase or decline
in the value of the principal over a given
period of time.
VALUATION The process in which the value of a security
is assessed or determined.
YIELD The income per share paid to mutual fund
shareholders from the dividends and interest
of that fund, expressed as a percentage for
a stated period of time. It is based on past
performance and measured in time increments.
YIELD TO MATURITY Concept used to determine the rate of return
an investor will receive if a long-term,
interest-bearing investment, such as a bond,
is held until its maturity date.
143
<PAGE>
The paper used for the cover and internal pages of this report uses recycled
corrugated containers. The "Crystal Recycling Process" which created this paper
used four and one half truck-loads of boxes that would otherwise have been
placed in landfills. When you are finished with the report, please continue the
process and recycle it.
(LOGO) Printed on recycled paper
144
<PAGE>
AARP TAX FREE INCOME TRUST
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for the ten fiscal years ended
September 30, 1996 and for the six month period ended
March 31, 1997.
Included in Part B of this Registration Statement:
Lists of Investments as of September 30, 1996 and for
the six month period ended March 31, 1997
Statements of Assets and Liabilities as of September 30,
1996 and for the six month period ended March 31, 1997
Statements of Operations for the fiscal year ended
September 30, 1996 and for the six month period ended
March 31, 1997
Statements of Changes in Net Assets for the fiscal year
ended September 30, 1996 and for the six month period
ended March 31, 1997
Financial Highlights for the five fiscal years ended
September 30, 1996 and for the six month period ended
March 31, 1997
Notes to Financial Statements
Statements, schedules and historical information other than
those listed above have been omitted since they are either not
applicable or are not required.
b. Exhibits:
1. (a)(1) Declaration of Trust dated June 8, 1984, as amended November 1, 1984.
(Previously filed as Exhibit 1(a) to Post-Effective Amendment No. 1
to the Registration Statement.)
(a)(2) Certificate of Amendment dated September 15, 1989 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(2) to Post-Effective Amendment No.
10 to the Registration Statement.)
(a)(3) Certificate of Amendment dated June 26, 1991 to Declaration of Trust.
(Previously filed as Exhibit 1(a)(3) to Post-Effective Amendment No.
12 to the Registration Statement.)
(a)(4) Certificate of Amendment dated January 25, 1994 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(4) to Post-Effective Amendment No.
16 to the Registration Statement.)
Part C - Page 1
<PAGE>
(a)(5) Amended and Restated Declaration of Trust dated September 13, 1996.
(Previously filed as Exhibit (a)(5) to Post-Effective Amendment No.
20 to the Registration Statement.)
(b)(1) Establishment of Series dated November 27, 1984.
(Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 4
to the Registration Statement.)
(b)(2) Redesignation of Series dated June 26, 1991.
(Previously filed as Exhibit 1(b)(2) to Post-Effective Amendment No.
12 to the Registration Statement.)
2. (a)(1) By-Laws of the Registrant as amended June 17, 1992.
(Previously filed as Exhibit 2 to Post-Effective Amendment No. 13 to
the Registration Statement.)
(a)(2) By-Laws of the Registrant as amended March 17, 1993.
(Previously filed as Exhibit (2)(a)(2) to Post-Effective Amendment
No. 14 to the Registration Statement.)
(a)(3) Certificate as to Resolution of Board Members dated June 24, 1996.
(Previously filed as Exhibit (a)(3) to Post-Effective Amendment No.
20 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest
having a par value of $.01 per share.
(Previously filed as Exhibit 4 to Post-Effective Amendment No. 1 to
the Registration Statement.)
5. (a) Investment Management and Advisory Agreement between the Registrant
and AARP/Scudder Financial Management Company dated December 16,
1985.
(Previously filed as Exhibit 5(a) to Post-Effective Amendment No. 5
to the Registration Statement.) Terminated February 1, 1994.
(a)(1) Investment Management Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. dated February 1, 1994.
(Previously filed as Exhibit 5(a)(1) to Post-Effective Amendment No.
16 to the Registration Statement.)
(b) Subadvisory Agreement among AARP/Scudder Financial Management
Company, Scudder, Stevens & Clark Ltd., the Registrant, AARP Income
Trust and AARP Growth Trust dated December 16, 1985.
(Previously filed as Exhibit 5(b) to Post-Effective Amendment No. 5
to the Registration Statement.) Terminated February 1, 1994.
6. Underwriting Agreement between the Registrant and Scudder Fund
Distributors, Inc. dated September 4, 1985.
(Previously filed as Exhibit 6 to Post-Effective Amendment No. 4 to
the Registration Statement.)
Part C - Page 2
<PAGE>
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(1) to Post-Effective Amendment No.
4 to the Registration Statement.)
(a)(2) Fee schedule for Exhibit 8(a)(l).
(Previously filed as Exhibit 8(a)(2) to Post-Effective Amendment No.
4 to the Registration Statement.)
(a)(3) Additional Provision to Custodian Agreement between the Registrant
and State Street Bank and Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(3) to Post-Effective Amendment No.
4 to the Registration Statement.)
(a)(4) Amendment No. 1 to Custodian Contract between the Registrant and
State Street Bank and Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(4) to Post-Effective Amendment No.
4 to the Registration Statement.)
(a)(5) Amendment dated September 15, 1988 to Custodian Contract between
Registrant and State Street Bank and Trust Company, dated November
30, 1984.
(Previously filed as Exhibit 8(a)(5) to Post-Effective Amendment No.
9 to the Registration Statement.)
(a)(6) Form of revised fee schedule for Exhibit 8(a)(1).
(Previously filed as Exhibit 8(a)(6) to Post-Effective Amendment No.
17 to the Registration Statement.)
(b) Subcustodian Agreement between State Street Bank and Trust Company
and Morgan Guaranty Trust Company of New York, dated November 25,
1985.
(Previously filed as Exhibit 8(b) to Post-Effective Amendment No. 9
to the Registration Statement.)
(c) Subcustodian Agreement between State Street Bank and Trust Company
and Irving Trust Company, dated November 30, 1987.
(Previously filed as Exhibit 8(c) to Post-Effective Amendment No. 9
to the Registration Statement.)
(d) Subcustodian Agreement between State Street Bank and Trust Company
and Security Pacific National Trust Company (New York), dated
February 18, 1988.
(Previously filed as Exhibit 8(d) to Post-Effective Amendment No. 9
to the Registration Statement.)
(e) Subcustodian Agreement between State Street Bank and Trust Company
and Chemical Bank, dated May 31, 1988.
(Previously filed as Exhibit 8(e) to Post-Effective Amendment No. 9
to the Registration Statement.)
Part C - Page 3
<PAGE>
9. (a) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Previously filed as Exhibit 9(a) to Post-Effective Amendment No. 10
to the Registration Statement.)
(b) Member Services Agreement among AARP/Scudder Financial Management
Company, AARP Financial Services Corp., the Registrant, AARP Income
Trust and AARP Growth Trust dated November 30, 1984.
(Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 5
to the Registration Statement.) Terminated February 1, 1994.
(b)(1) Member Services Agreement between AARP Financial Services Corp. and
Scudder, Stevens & Clark, Inc. dated February 1, 1994.
(Previously filed as Exhibit 9(b)(1) to Post-Effective Amendment No.
16 to the Registration Statement.)
(c) Service Mark License Agreement among Scudder, Stevens & Clark,
American Association of Retired Persons, the Registrant, AARP Income
Trust and AARP Growth Trust dated November 30, 1984.
(Previously filed as Exhibit 9(c) to Post-Effective Amendment No. 5
to the Registration Statement.)
(c)(1) Service Mark License Agreement among Scudder, Stevens & Clark, Inc.,
American Association of Retired Persons, the Registrant, AARP Cash
Investment Trust, AARP Growth Trust and AARP Income Trust dated
March 20, 1996.
(Previously filed as Exhibit (c)(1) to Post-Effective Amendment No.
20 to the Registration Statement.)
(d) Shareholder Service Agreement between the Registrant and Scudder
Service Corporation dated June 1, 1988.
(Previously filed as Exhibit 9(d) to Post-Effective Amendment No. 9
to the Registration Statement.)
(e) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP High Quality Tax Free Money Fund and Scudder Fund Accounting
Corporation dated October 6, 1995.
(Previously filed as Exhibit 9(e) to Post-Effective Amendment No. 17
to the Registration Statement.)
(f) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Insured Tax Free General Bond Fund and Scudder Fund
Accounting Corporation dated November 10, 1995.
(Previously filed as Exhibit 9(f) to Post-Effective Amendment No. 17
to the Registration Statement.)
10. Inapplicable.
11. Consent of Independent Accountants.
(Previously filed as Exhibit 11 to Post-Effective Amendment No. 20
to the Registration Statement.)
12. Inapplicable.
Part C - Page 4
<PAGE>
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Schedule for Computation of Performance Data.
(Previously filed as Exhibit 16 to Post-Effective Amendment No. 10
to the Registration Statement.)
17. Financial Data Schedules.
(Previously filed as Exhibit 17 to Post-Effective Amendment No. 17
to the Registration Statement.)
18. Inapplicable.
</TABLE>
Power of Attorney for Cuyler W. Findlay, Cyril F. Brickfield, Edgar R. Fiedler,
Eugene P. Forrester, George L. Maddox, Jr., James H. Schulz and Gordon
Shillinglaw is incorporated by reference to the Signature Page of Post-Effective
Amendment No. 8.
Power of Attorney for Linda C. Coughlin, Horace Deets and Wayne F. Haefer is
incorporated by reference to the Signature Page of Post-Effective Amendment No.
17 to the Registration Statement.
Power of Attorney for Carole Lewis Anderson, Adelaide Attard, Robert N. Butler
and Esther Canja is incorporated by reference to the Signature Page of
Post-Effective Amendment No. 19 to the Registration Statement.
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of May 30, 1997).
- -------- -----------------------------------------------------
<TABLE>
(1) (2)
Title of Class Number of Record Shareholders
-------------- ----------------------------
<S> <C>
Shares of beneficial interest
with par value of $.01
AARP High Quality Tax Free Money Fund 8,568
AARP Insured Tax Free General Bond Fund 60,985
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its affiliates, including Scudder Investor Services, Inc., and
all of the registered investment companies advised by Scudder,
Stevens & Clark, Inc. insures the Registrant's Trustees and
officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of
Trust provide as follows:
Section 4.1 No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
Part C - Page 5
<PAGE>
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability, provided that any such expenses shall be paid
solely out of the funds and property of the series of the
Trust with respect to which such Shareholders Shares are
issued. The rights accruing to a Shareholder under this
Section 4.1 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything
herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 4.2 Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, agent or service provider thereof for any
action or failure to act by him (or her) or any other such
Trustee, officer, employee, agent or service provider
(including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust)
except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the
conduct of his office. The term "service provider" as used in
this Section 4.2, shall include any investment adviser,
principal underwriter or other person with whom the Trust has
an agreement for provision of services.
Section 4.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the
words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust or the
Shareholders by reason of a final adjudication by the
court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) resulting in a payment
by a Trustee or officer, unless there has been a
Part C - Page 6
<PAGE>
determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office;
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office act on
the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall inure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3 provided
that either:
(i) such undertaking is secured by a surety bond or
some appropriate security provided by the recipient,
or the Trust shall be insured against losses arising
out of any such advances: or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Part C - Page 7
<PAGE>
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V.
(investment company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities
I & II (investment company) +
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporation oo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment
company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Part C - Page 8
<PAGE>
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
Part C - Page 9
<PAGE>
President & Trustee, Scudder Funds Trust (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company)
Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
(investment company)**
Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
company)**
Director, Scudder Global Fund, Inc. (investment company)**
Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
company)**
Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust (investment company)*
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Part C - Page 10
<PAGE>
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund
(investment company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)**
President, AARP Income Trust (investment company)**
President, AARP Tax Free Income Trust (investment company)**
President, AARP Managed Investment Portfolio Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities
I & II (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporation oo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Part C - Page 11
<PAGE>
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Director, IBJ Global Investment Management S.A., (Luxembourg investment
management company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon, U.K.
Item 29. Principal Underwriters.
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
Part C - Page 12
<PAGE>
(b)
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President Chairman & Trustee
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Trustee
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
David S. Lee Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Thomas F. McDonough Assistant Clerk Vice President & Assistant
Two International Place Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President & Assistant
345 Park Avenue Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110
Part C - Page 13
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Kathryn L. Quirk Director, Senior Vice President and Vice President & Secretary
345 Park Avenue Clerk
New York, NY 10154
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
The Underwriter has employees who are denominated officers of an operational
area. Such persons do not have corporation-wide responsibilities and are not
considered officers for the purpose of this Item 29.
(c)
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 30th day of June, 1997.
AARP TAX FREE INCOME TRUST
By /s/Thomas F. McDonough
-------------------------------------------
Thomas F. McDonough, Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/Linda C. Coughlin
- ------------------------
Linda C. Coughlin* Chairman and Trustee June 30, 1997
/s/Carole Lewis Anderson
- ------------------------
Carole Lewis Anderson* Trustee June 30, 1997
/s/Adelaide Attard
- ------------------------
Adelaide Attard* Trustee June 30, 1997
/s/Cuyler W. Findlay
- ------------------------
Cuyler W. Findlay Trustee June 30, 1997
/s/Robert N. Butler
- ------------------------
Robert N. Butler* Trustee June 30, 1997
/s/Esther Canja
- ------------------------
Esther Canja* Trustee June 30, 1997
/s/Horace Deets
- ------------------------
Horace Deets* Vice Chairman and June 30, 1997
Trustee
/s/Edgar R. Fiedler
- ------------------------
Edgar R. Fiedler* Trustee June 30, 1997
/s/Eugene P. Forrester
- ------------------------
Eugene P. Forrester* Trustee June 30, 1997
/s/Wayne F. Haefer
- ------------------------
Wayne F. Haefer* Trustee June 30, 1997
/s/George L. Maddox, Jr.
- -----------------------
George L. Maddox, Jr.* Trustee June 30, 1997
/s/Robert J. Myers
- -----------------------
Robert J. Myers* Trustee June 30, 1997
<PAGE>
/s/James H. Schulz
- -----------------------
James H. Schulz* Trustee June 30, 1997
/s/Gordon Shillinglaw
- -----------------------
Gordon Shillinglaw* Trustee June 30, 1997
/s/Pamela A. McGrath
- -----------------------
Pamela A. McGrath Treasurer (Principal June 30, 1997
Financial and
Accounting Officer)
</TABLE>
*By/s/Thomas F. McDonough
--------------------------
Thomas F. McDonough
Attorney-in-fact pursuant to a
power of attorney contained in
the signature pages of
Post-Effective Amendment No. 8
to the Registration Statement
filed December 4, 1987,
Post-Effective Amendment No.
17 to the Registration
Statement filed January 19,
1996, and Post-Effective
Amendment No. 19 to the
Registration Statement filed
July 1, 1996.
<PAGE>
File No. 2-91579
File No. 811-4050
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 20
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 22
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AARP TAX FREE INCOME TRUST
<PAGE>
AARP TAX FREE INCOME TRUST
EXHIBIT INDEX
