AARP Investment Program
from SCUDDER
Mid-Year Report
to Shareholders
MARCH 31, 1998
<PAGE>
TABLE OF CONTENTS
Mid-Year Review 2
Message from the Portfolio Managers 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 Short Term 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 Growth and Income Fund 30
Asset Allocation Funds
AARP Managed Investment Portfolios 32
AARP Funds' Investment Portfolios 35
Financial Statements 117
Financial Highlights 135
Notes to Financial Statements 145
Shareholder Meeting Results 155
Officers and Trustees 165
Service Information 168
Glossary 169
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AARP Investment Program
from SCUDDER
Mid-Year Review
The six-month period covered by this Mid-Year Report -- October 1, 1997
through March 31, 1998 -- was an active and successful one for the Program. As
of March 31, 1998, the Program was managing over $17.5 billion in assets
invested in nearly one million shareholder accounts. A year ago we stood at
$13.8 billion with nearly 870,000 accounts. This growth has been stimulated by
the strength of the U.S. stock market, which passed the 9,000 mark (as measured
by the Dow Jones Industrial Average) for the first time. Twelve months ago this
spectacular rise might have seemed impossible -- on March 31, 1997 the Dow
closed at 6583.
As an AARP Investment Program investor, you will be pleased to know
that the AARP Mutual Funds performed well over this period. The Funds have
provided you with competitive returns, with less risk of loss to the portfolios
than similar funds. We are pleased to report that as of March 31, 1998, several
of the AARP Mutual Funds were highly rated by Morningstar, which ranks the
relative risk versus returns of mutual funds. Detailed reviews of the
performance of each of the Funds begins on page 8. First, let us take a look at
the stock and bond markets and other topics of interest.
THE ASIAN CRISIS
The drama of the stock market decline in late October, and its eventual
recovery, has now faded into history, but not without lessons learned. To
understand why the foreign and domestic markets reacted as they did over the
past nine months (the Asian currency crisis began in July 1997), it is important
to acknowledge the complex relationship between the U.S. stock market and the
economic and capital markets overseas. Currencies connect the economies of
different countries together. Because of differences in economic maturity of
their business cycles, and political and regulatory environments, countries are
rarely in sync with each other. It is the fluctuation of currency values that
helps, like an elastic band, to adjust for differences between two economies.
2
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
THE STOCK MARKET
CHART PERIOD: 1993 - 1998
CHART DATA:
MSCI EAFE Index Russell 2000 Index S&P 500 Index
--------------- ------------------ -------------
1993-1994 22.51% 10.97% 1.47%
1994-1995 6.08 5.52 15.57
1995-1996 12.33 29.05 32.10
1996-1997 1.45 5.11 19.83
1997-1998 18.61 42.02 48.00
CAPTION TO PRECEDING CHART:
The stock market total return for the annual period March 31 to March 31, as
measured by the Morgan Stanley Capital International EAFE Index, the Russell
2000 Index, and the S&P 500 Index.
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The currencies in many Asian markets -- particularly Thailand,
Indonesia, Korea, and Malaysia -- declined sharply during this period in
relation to the U.S. dollar. This is because of the weak banking structures,
excess debt, and trade problems in those countries. The impact of the decline in
Asian currencies and stock prices has been to keep inflation, as well as
corporate savings, low. It has also reduced foreign trade with the United
States.
THE U.S. STOCK AND BOND MARKETS
While questions about the ripple effect of the Asian crisis fueled
uncertainty about the outlook for the world's capital markets, the U.S. markets
were relatively unscathed by this crisis. Bond and stock returns remained
positive through the first quarter despite intermittent volatility. The economic
fundamentals of the U.S. remain remarkably healthy, with signs of strong
economic growth, record low inflation, and high levels of consumer confidence.
In fact, for the period ended March 31, 1998, the stock markets continued to
reach new highs. The graph above tracks the performance of large-cap stocks, as
measured by Standard & Poor's Composite Index of 500 Stocks (S&P 500); small-cap
stocks, as measured by the Russell 2000 Index; and international stocks as
measured by the Morgan Stanley Capital International Europe, Australia, and Far
East Index (MSCI EAFE).
The U.S. bond market also reaped the benefits of the Asian crisis, with
foreign investors seeking the safe haven of the United States bond market. The
best performing sectors of the bond
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SIDEBAR TEXT:
A REMINDER FOR INVESTORS --
KEEP A LONG-TERM PERSPECTIVE
While you may be surprised by 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 downturns
in the markets should not be cause for alarm. You can lessen the effect of
downturns by diversifying your assets in a mix of different investments such as
stocks, bonds, and money market funds.
You can also take advantage of an effective investment approach called
dollar cost averaging. This systematic plan for saving involves investing a
specific amount of money on a regular basis -- say monthly. You can invest as
little as $50 per month through the AARP Investment Program's Automatic
Investment Plan. Call 1-800-253-2277 for details.
3
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
THE U.S. BOND MARKET
CHART PERIOD: 1993 - 1998
CHART DATA:
Lehman Brothers Lehman Brothers Merrill Lynch Master
Aggregate Bond Index Municipal Bond Index Mortgage Index
-------------------- -------------------- --------------
1993-1994 2.37% 2.32% 1.85%
1994-1995 4.99 7.43 6.08
1995-1996 10.79 8.38 10.66
1996-1997 4.91 5.45 5.90
1997-1998 11.99 10.72 11.14
CAPTION TO PRECEDING CHART:
The U.S. Bond market yield for the annual period March 31 to March 31, as
measured by the Lehman Brothers Aggregate Bond Index, the Lehman Brothers
Municipal Bond Index and the Merrill Lynch Master Mortgage Index.
- ---------------
market were those offering the highest relative yields, including
mortgages, below-investment-grade issues, and emerging market debt securities.
The graph above shows bond market performance as measured by three different
sectors of the market: Lehman Brothers Aggregate Bond Index, Lehman Brothers
Municipal Bond Index, and Merrill Lynch Master Mortgage Index
LOOKING AHEAD
So far, 1998 has seen the stock market reach new highs, with individual
and institutional investors around the world finding both the U.S. stock and
bond markets attractive. Part of the reason for this is that most indicators of
U.S. economic health remain highly positive. Inflation has remained subdued,
allowing interest rates to be stable. Relatedly, the Federal Reserve Board (the
Fed) is concerned about both inflation and deflation (the decline in the price
of goods and services). By being attuned to both sets of issues, the Fed has
convinced investors that the most responsible policy actions will be taken. The
biggest risk in the outlook for the U.S. markets is the link between
deflationary trends worldwide and corporate earnings, and the historically high
value of stocks. Corporate earnings in the United States are being negatively
affected as growth and pricing weaken overseas. In order for the stock market to
continue to rise it needs investors to "look through" the weakness in corporate
earnings and instead concentrate on the benign interest rate environment.
4
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PROGRAM REVIEW
Scudder-Kemper Alliance
As you know, Scudder, Stevens & Clark, Inc. reached an agreement to
form an alliance with the Zurich Group, a highly regarded worldwide provider of
insurance and investment services. The alliance was completed on December 31,
1997 after approval from shareholders and the boards of Scudder, Stevens &
Clark, the Scudder Mutual Funds, the AARP Mutual Funds, and the Kemper Mutual
Funds. Scudder now represents Zurich's core investment management capability.
Zurich, a 125-year-old financial services company, has a heritage of innovative
and customized problem-solving that takes the form of a disciplined,
conservative, and personal approach to risk management. This is a philosophy
that mirrors Scudder's approach to asset management. As part of the new
relationship, Scudder combined with Zurich Kemper Investments, Inc. changing its
name to Scudder Kemper Investments, Inc. This new alliance is expected to offer
significant benefits in the form of greater access to human and capital
resources that will enhance our investment expertise and services.
CALLOUT:
The four new AARP Mutual Funds introduced in February 1997 have been well
received, having grown to more than 28,550 shareholder accounts with nearly $300
million in assets after 14 months of operation. The two new Managed Investment
Portfolios, which use a variety of AARP Mutual Funds, now have over 13,000
shareholder accounts.
Telephone Service Update
In the first quarter of 1998, we experienced the greatest demand on our
service resources since the inception of the Program. This heavy volume of calls
was due to a number of factors, including confusion about the capital gains tax
law changes, interest in the new Roth IRA, and increased business due to
favorable financial markets. Although the last two factors reflected positively
for the Program and in turn for shareholders, the combination of factors created
calls far in excess of our expectations. As a result, many of you experienced
delays when calling us. To help serve you better we have increased our customer
service staffing by 20% in the first quarter. The number of representatives is
planned to grow by an additional 10% by mid-year. Longer term, we expect to
provide you with choices that go beyond calling us when you need to communicate
with the Program. For example, later this year we
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SIDEBAR TEXT:
WEB SITE
The AARP Investment Program's Web site is located at:
http://aarp.scudder.com.
This dynamic electronic connection to the Program provides visitors easy access
with a broad range of information, including AARP Mutual Funds performance,
which is updated daily, and the complete prospectus.
Our Web site also offers News Stories, featuring important information about the
markets and investing. The Learning Center offers an investor education overview
through Quick Concepts, as well as reliable investment guides, and the Archives
of newsletter back issues. Resources for Investors offers a Glossary and Lists
of Associations and Publications.
The Program's site allows you to communicate your questions and comments
directly to the Program and request informative how-to literature about
investing, published by the AARP Investment Program. Visit us often, as content
is regularly updated.
5
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SIDEBAR TEXT:
LEGACY SERVICE
The AARP Investment Program was pleased to introduce the Legacy Service this
year. It is designed to make it easier for you to put your finances in order, to
keep them in order, and to be sure they are passed to your heirs (including your
spouse) the way you intended. There are many issues to consider after a loved
one has died. That is why a specially trained Legacy Service Representative is
assigned to provide ongoing assistance. These Representatives can help grieving
heirs through a very difficult time by making the transfer of assets as easy as
possible. For more information, please contact us at 1-800-253-2277.
COMPETITIVE FEES AND
EXPENSE RATIOS
All AARP Mutual Funds are pure no-load(TM). You don't pay sales charges, 12b-1
fees or commissions on purchases, exchanges or redemption of fund shares. The
expenses of the Funds, such as management fees and operating costs, were 39%
lower than the industry.* The lower a fund's expense ratio, the more money
investors may get to keep from potential earnings.
* Based on the average of similar mutual funds (1.35%) as of 3/31/98. Source:
Lipper Analytical Services, Inc.
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will offer secured account transactions on the Internet for those shareholders
who currently use our Web site or want to learn how to use it.
CALLOUT:
You can use the EASY-ACCESS LINE to get information about your accounts or the
AARP Investment Program. Call 1-800-631-4636 to access this automated phone line
to receive fund prices, access your account balances, and exchange between
funds, redeem funds, or confirm your last transaction.
While phone delays will unfortunately happen when unusual circumstances
occur, we value your relationship with us and are committed to providing you
with the highest quality service possible in keeping with your expectations and
our own high standards. We offer a commit- ment to provide new, innovative, and
convenient ways to do business with us.
Please contact one of our knowledgeable AARP Mutual Fund
Representatives with any questions you may have. The number is 1-800-253-2277.
If you are checking your fund balances or have simple requests, please
call our automated line at 1-800-631-4636.
These last six months have been remarkable: record markets, the
introduction of the Legacy Service, and the completion of an agreement to form
an alliance with the Zurich Group. These developments add to our ability to
provide you with the AARP Investment Program's signature benefits -- competitive
returns with less risk and outstanding service.
Our best,
/s/Linda C. Coughlin /s/Cornelia Small
Linda C. Coughlin Cornelia Small
Chairperson President and
Investment Director
6
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A MESSAGE FROM THE PORTFOLIO MANAGERS
On the following pages you will find reviews of the investment
performance of the AARP Mutual Funds for the period October 1, 1997 to March 31,
1998.
CALLOUT:
AARP Mutual Funds have a mandate not to invest in tobacco stocks.
Please note that of all the Fund overviews reflect changes effective in
the 1998 Prospectus dated February 1, 1998. Therefore, you will see that the
AARP International Growth and Income Fund and the AARP Diversified Income with
Growth Portfolio have changed their names to better reflect the Funds' overall
objective. Also, the AARP High Quality Short Term Bond Fund changed its name
from the AARP High Quality Bond Fund and modified its objective. We believe
these changes better communicate the Funds' objectives and better meet the needs
of our shareholders.
The summaries of most of the AARP Funds include one-, five-, and
ten-year total returns or, as in the case of those Funds with less than ten
years, life of fund total returns. Remember that one-year returns can be
extremely high or low due to market conditions; it is important to evaluate
one-year returns in relation to five-year and ten-year returns. You will see
that, where appropriate, a one-year total return is expressed in terms of its
two components: distributed income, which includes reinvested dividends, and
capital changes, defined as the change in the price per share and including
reinvested capital gains distributions.
Finally, you will also find the inclusion of relevant information about
the performance of those Funds with at least three years of history. We have
compared the performance of these Funds to various market indices and to similar
mutual funds. Since index benchmarks, such as the S&P 500, may be
unrepresentative of investment information available to you, we measure the risk
and return of your Fund in comparison to a peer universe of similar funds
tracked by either Lipper Analytical Services, Inc., or Morningstar. For more
information on how this evaluation system was developed, please refer to the
1997 Annual Report's Special Section, the March 1998 issue of Financial Focus,
or visit the Learning Center on our Web site to review that issue of Financial
Focus.
We hope this information helps you to make informed investment
decisions and that you feel confident and comfortable in the process.
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SIDEBAR TEXT:
All of the AARP Mutual Funds have an educational objective to help shareholders
- -- especially individuals planning for and living in retirement -- make informed
decisions. This commitment to education is intended to help shareholders better
understand how to make useful financial decisions.
Six of the AARP Mutual Funds are rated by Morningstar* and received the
following 3-year ratings as of 3/31/98.
AARP Growth and Income Fund 5 Star
AARP GNMA and
U.S. Treasury Fund 4 Star
AARP Capital Growth Fund 4 Star
AARP Balanced Stock and
Bond Fund 3 Star
AARP High Quality Short Term
Bond Fund 3 Star
AARP Insured Tax Free
General Bond Fund 3 Star
* Morningstar proprietary rankings reflect historical risk-adjusted performance
and are calculated as of 3/31/98. 2143, 1187, and 638 Equity Funds, 1309, 713,
and 301 Taxable Bond Funds and 1374, 668, and 326 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, and 35% of the funds receive
3 Stars. Past performance is not a guarantee of future results.
7
<PAGE>
AARP HIGH QUALITY MONEY FUND
- ----------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP High Quality Money Fund seeks to provide current income. In doing so,
the Fund seeks to maintain stability and safety of principal and a constant net
asset value of $1.00 per share while offering liquidity. There may be
circumstances under which this goal cannot be achieved.
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
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
John W. Stuebe
Portfolio Manager
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THE FUND'S INVESTMENT STRATEGY
As with most money funds, the performance of the AARP High Quality
Money Fund mirrored the movement of short-term interest rates during the period
covered by this Report. Short-term interest rates, as measured by the
three-month U.S. Treasury Bill, rose slightly from 4.95% on September 30, 1997
to 5.05% on March 31, 1998. In this environment, our aim was for the Fund to
keep a short average maturity -- the date on which a bond is scheduled to be
repaid. Due to the flattening yield curve (where there is little difference
between short and long-term interest rates), it did not make sense to extend the
maturity of the Fund. We therefore gradually shortened the Fund's average
maturity from 55 days on September 30, 1997 to 41 days on March 31, 1998. We did
this by purchasing securities with shorter maturities as our current holdings
matured.
As always, all securities we bought over the past six months were rated
within the two highest quality ratings of at least one of the three leading
national independent rating firms: Fitch Investors Service, Inc., Moody's
Investors Service, Inc., or Standard & Poor's (S&P). In addition, we complied
with the guidelines established by S&P, which are more stringent than the
guidelines most money funds utilize. This enabled us to retain our AAAm rating
from S&P, the highest rating available.
Since we anticipate that the Federal Reserve Board (the Fed) will
remain neutral and not move short-term interest rates in either direction, we
expect the Fund's average maturity to be at approximately 35 days. This strategy
allows us to react to changes quickly, if and when they occur. This, in turn,
should provide shareholders in the Fund with competitive income while
maintaining stability and liquidity.
PORTFOLIO STATISTICS
Number of Issues 29
7-Day Current Yield 4.71%
Average Maturity 41 days
Average Quality AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return 4.82%
Five-Year Average
Annual Total Return 4.12%
Ten-Year Average
Annual Total Return 5.10%
Five-Year Cumulative
Total Return 22.37%
Ten-Year Cumulative
Total Return 64.43%
8
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AARP HIGH QUALITY TAX FREE MONEY FUND
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SIDEBAR TEXT:
FUND OVERVIEW
The AARP High Quality Tax Free Money Fund seeks to provide current income free
from federal taxes.^1 In doing so, the Fund seeks to maintain stability and
safety of principal and a constant net asset value of $1.00 per share while
offering liquidity.
FOR WHOM THE
FUND IS DESIGNED
This Fund may be appropriate for investors seeking tax-free income or those who
do not want the risks associated with investing in stocks or bonds. These
investors include those seeking money market income to meet regular day-to-day
expenses, those needing immediate access to their assets through free
checkwriting, those creating a diversified portfolio who want a portion of their
assets in a conservative investment designed to offer stability, and those
seeking a short-term investment prior to making longer-term investment choices.
PORTFOLIO
MANAGEMENT TEAM
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
Jerri I. Cohen
Portfolio Manager
^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.
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THE FUND'S INVESTMENT STRATEGY
As with most tax-free money funds, the performance of the AARP High
Quality Tax Free Money Fund declined during the period covered by this Report.
In this environment, we gradually shortened the average maturity of the Fund
from 51 days on September 30, 1997 to 34 days on March 31, 1998. We did this by
purchasing tax-free securities with shorter maturities (the date on which a bond
is scheduled to be repaid) as our current holdings matured.
As always, all securities we bought over the past six months were rated
within the two highest quality ratings of at least one of the three leading
national independent rating firms: Fitch Investors Service, Inc., Moody's
Investors Service, Inc., or Standard & Poor's (S&P). For those funds rated by
S&P, there are particular guidelines with which any tax-free money fund must
comply in order to maintain its AAAm rating. In addition, within the universe of
securities that fit within the S&P criteria, Scudder credit analysts approve
only a small percentage. Therefore, the number of securities that we have to
choose from is much smaller and in most cases of better quality than other
tax-free money funds.
The Federal Reserve Board (the Fed) is expected to remain neutral and
not to move short-term interest rates in either direction. We expect the Fund's
average maturity to shorten to and remain at approximately 35 days. This
strategy allows us to react to changes quickly, if and when they occur. This
should provide shareholders in the Fund with competitive tax-free income while
maintaining stability and liquidity.
PORTFOLIO STATISTICS
Number of Issues 53
7-Day Current Yield 2.86%
Average Maturity 34 Days
Average Quality AAAm
PORTFOLIO RETURNS
One-Year Cumulative
Total Return 2.88%
Five-Year Average
Annual Total Return 2.51%
Ten-Year Average
Annual Total Return 3.45%
Five-Year Cumulative
Total Return 13.18%
Ten-Year Cumulative
Total Return 40.38%
9
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AARP GNMA AND U.S. TREASURY FUND
--------------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP GNMA and U.S. Treasury Fund seeks to provide a high level of current
income, but with less risk of loss to the Fund's portfolio than other GNMA
mutual funds. 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 does not apply to the Fund's yield or share price, both of which will
fluctuate daily.
PORTFOLIO
MANAGEMENT TEAM
Richard L. Vandenberg
Lead Portfolio Manager
Scott E. Dolan
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 9.42% 11.15%
5 yr. 30.62% 40.34%
10 yr. 108.34% 140.28%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 9.42% 11.15%
5 yr. 5.49% 7.01%
10 yr. 7.62% 9.16%
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HOW THE FUND HAS PERFORMED
The AARP GNMA and U.S. Treasury Fund provided a 6.05% 30-day SEC yield
on March 31, 1998. The Total Return chart below left shows that the AARP GNMA
and U.S. Treasury Fund's one-year total return of 9.42% (representing 6.92% in
distributions of income and 2.50% in capital change) under-performed the
unmanaged Lehman Brothers GNMA Index of 11.15%. It is important to remember that
the index return does not reflect investment in cash or shorter-term Treasury
securities like those held in the Fund; nor does the index reflect the impact of
servicing, investment management, or administrative expenses that a mutual fund
incurs. The Fund's underperformance was due in part to its holdings of
low-yielding Treasuries and other short-term instruments to meet its objective
to reduce downside risk. Also, the Fund maintains a shorter duration than most
other GNMA funds. Duration measures a portfolio's sensitivity to changes in
interest rates and is adjusted by altering a portfolio's mix of securities.
Essentially, the shorter a portfolio's duration, the less its net asset value
will be adversely affected by an increase in interest rates. At the same time, a
short duration will restrict a portfolio's participation in market rallies.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP GNMA AND U.S. TREASURY FUND:
---------------------------------
LEHMAN BROTHERS
INCOME DIVIDEND CAPITAL CHANGE MORTGAGE GNMA
COMPONENT COMPONENT INDEX+
-------------------------------------------------------------------
1988 $10000 $10000 $10000
1989 10487 9588 10562
1990 11606 9732 12076
1991 13030 10039 13759
1992 14405 10255 15378
1993 15950 10536 17121
1994 16010 9915 17314
1995 16702 9699 18398
1996 18142 9850 20394
1997 19041 9693 21617
1998 20834 9935 24028
-------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP GNMA and U.S. Treasury Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
---------------------------------- Over three years, this fund is in
Lipper the Best 25% of similar funds for
GNMA Peer Monthly Downside Risk, and in the
Return Group* Risk fourth quartile of similar funds
---------------------------------- for Total Return.
Highest Lowest
Return Best 25% XXXX Risk The monthly averages for risk and
------------ ----------- return are for 20 similar funds for
the period April 1995 through March
Next 25% 1998.
------------ -----------
Next 25%
------------ -----------
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------
</TABLE>
* Lipper Analytical Services, Inc. is the source for the peer group information
of similar funds.
- ----------
+ The unmanaged Lehman Brothers Mortgage GNMA Index is a market-value-weighted
measure of all fixed-rate securities backed by mortgage pools of 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>
Twelve-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 may have the opportunity to earn high monthly income. The
investment graph on the top of page 1 shows how $10,000 invested in the Fund on
March 31, 1988 would have grown by March 31, 1998, assuming all distributions
were reinvested.
THE FUND'S INVESTMENT STRATEGY
The past six months were rewarding to bond investors. During this
period, bond prices rose as investors cheered low inflation and the prospects
for a Federal budget surplus. Long-term interest rates, as measured by 30-year
Treasury Bonds, declined from 6.40% on September 30, 1997 to 5.93% on March 31,
1998.
CALLOUT:
This is a unique Fund because it is designed for older Americans who want more
income than fixed-income vehicles, such as CDs, but who also want a
conservatively managed portfolio.
In this environment, we gradually increased the Fund's allocation to
GNMA securities, as valuation levels became attractive. These actions reflected
our belief that GNMAs offer an attractive relative value versus U.S. Treasury
securities. In addition, we were able to maintain the Fund's yield in the face
of interest rate declines. The Fund's holdings in GNMA securities stood at 94%
of the portfolio, with Treasury obligations declining to 4% and cash to 2% as of
March 31, 1998. We continued to invest in a diversified portfolio of GNMA
mortgages with interest coupons between 6.5% and 8.5%, making up more than three
quarters of the portfolio. The remaining portion of the Fund's assets were
invested with an objective of minimizing downside risk and thus allocated to
longer maturity high coupon GNMAs, Treasury obligations, and cash.
We believe you should feel comfortable that the current blend of GNMA
securities has the potential to provide a competitive stream of income, while
the short-term Treasury securities and cash equivalents may continue to dampen
share price volatility.
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SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for conservative investors who want relatively high current
income with less interest rate risk than long-term bonds. 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 DIVERSIFICATION
As of March 31, 1998
Government National
Mortgage Association 94%
U.S. Treasury Obligation 4%
Cash Equivalents 2%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues 2337
30-Day Yield 6.05%
Average Coupon 7.67%
Yield to Maturity 6.79%
Average Maturity 6.14 Years
Average Duration 2.26 Years
Average Quality AAA
11
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
--------------------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP High Quality Short Term Bond Fund seeks to produce a high level of
current income but with less risk of loss to the Fund's portfolio than other
short-term bond mutual fund. The Fund pursues this objective by investing
primarily in high-quality, short-term U.S. government, corporate, and other
fixed-income securities. The Fund modified its investment objective on February
1, 1998 and changed its name from the AARP High Quality Bond Fund. The previous
objective was to invest in high-quality securities, regardless of length of
maturity.
PORTFOLIO
MANAGEMENT TEAM
Stephen A. Wohler
Lead Portfolio Manager
Robert S. Cessine
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 9.37% 11.99%
5 yr. 33.16% 39.87%
10 yr.114.84 135.41%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 9.37% 11.99%
5 yr. 5.89% 6.94%
10 yr. 7.95% 8.93%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP High Quality Short Term Bond Fund's total return for the
one-year period ending March 31, 1998 was 9.37% (representing 6.24% in
distributions of income and 3.13% in capital change) vs. 11.99% for the Lehman
Brothers Aggregate Bond Index.~ When the Fund changed its objective and name on
February 1, 1998, the portfolio management team focused on shortening the Fund's
duration. Duration measures a portfolio's sensitivity to changes in interest
rates and is adjusted by altering a portfolio's mix of securities. Therefore,
the comparison to the Lehman Brothers Aggregate Bond Index -- an index with an
average duration of 4.48 years -- is of limited value. Once the AARP High
Quality Short Term Bond Fund's new objective is in existence for over one year,
we will begin to compare the Fund to a shorter duration index such as the
Merrill Lynch 1-3 year Government/Corporate Index.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP HIGH QUALITY SHORT TERM
BOND FUND:
--------------------------------
LEHMAN BROTHERS
INCOME DIVIDEND CAPITAL CHANGE AGGREGATE BOND
COMPONENT COMPONENT INDEX+
-------------------------------------------------------------
1988 $10000 $10000 $10000
1989 10577 9726 10516
1990 11612 9860 11812
1991 12917 10161 13333
1992 14278 10495 14856
1993 16135 11169 16831
1994 16588 10891 17228
1995 17109 10600 18088
1996 18858 11015 20038
1997 19644 10835 21021
1998 21484 11174 23541
THE FUND'S INVESTMENT STRATEGY
The Fund changed its name from the AARP High Quality Bond Fund and
changed its objective on February 1, 1998. Since then the management team
restructured the portfolio to reduce the Fund's interest rate exposure by
shortening the Fund's duration to under three years. The active management of
overall portfolio duration is integral to the Fund's search for income and
relative price stability. Essentially, the shorter a portfolio's duration, the
less its net asset value will likely be adversely affected by an increase in
interest rates. At the same time, a short duration may restrict a portfolio's
participation in market rallies. We were successful in shortening the duration
to 2.98 years on March 31, 1998. Of course, this type of portfolio adjustment is
done gradually, and we will continue to shorten the duration even further over
time.
In order to accomplish this task, we moved from a barbell strategy --
investing in long-term bonds and short-term bonds -- to a portfolio comprised
mostly of bonds maturing in five years or less.
- ----------
+ 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>
We sold nearly all of our long-term bonds and purchased intermediate Treasury
bonds and short-term corporate bonds.
CALLOUT:
Using active portfolio management, the Fund attempts to reduce downside risk by
emphasizing high-quality, short-term investments, diversifying widely among bond
issuers and market sectors, and limiting average portfolio duration.
The portfolio remained well diversified, with mortgage-backed
securities having a large allocation (27% of net assets as of March 31, 1998).
We favored attractively priced mortgage-backed securities because of their high
quality and income potential. This helped provide our shareholders with a 30-day
SEC yield of 5.55% as of March 31, 1998. We also increased our position of
asset-backed securities to over 19%. Within the corporate sector, 23% of the
portfolio was invested in financials. We favored high-quality AA issues such as
Citicorp, First USA, and Norwest. We also emphasized non-cyclical corporate
issues such as Bass America, TCI Communications, Pitney Bowes, Raytheon and
Amoco. These issues are referred to as non-cyclical because they are not
sensitive to changes in the business cycle.
The Fund continued to maintain its strategy of investing in
high-quality securities. As of March 31, 1998, 81% of the portfolio was invested
in government, AAA-rated or AA-rated securities; 5% of the Fund was invested in
A-rated bonds; and 14% was invested in BBB securities.
We believe that the AARP High Quality Short Term Bond Fund's current
portfolio should provide shareholders with high income and less downside risk
than comparable short-term bond funds. Our emphasis remains on shortening the
Fund's duration to limit the portfolio's exposure to interest rate risk. While
doing so, we seek to deliver high current income from a high-credit-quality,
diversified portfolio.
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART TITLE:
Maturity Structure
As of March 31, 1998
CHART DATA:
Under 2 Years 23%
2 to 3 Years 5%
3 to 4 Years 19%
4 to 5 Years 25%
5 to 7 Years 19%
Over 7 Years 9%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors who want competitive returns from a portfolio
of high-quality short-term debt securities. Investors should be seeking to
invest for the intermediate term (at least three years or more) and be
comfortable with fluctuation in the value of their principal and yield.
PORTFOLIO DIVERSIFICATION
As of March 31, 1998
Corporate Bonds 32%
Asset-Backed 20%
U.S. Government-Backed
Mortgages 14%
Government National
Mortgage Association 13%
U.S. Treasury Obligations 12%
Foreign Bonds -- U.S. $
Denominated 8%
Cash Equivalents 1%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues 58
30-Day SEC Yield 5.55%
Average Coupon 6.82%
Yield to Maturity 6.51%
Average Maturity 4.59 Years
Average Duration 2.98 Years
Average Quality AA
13
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
---------------------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Insured Tax Free General Bond Fund seeks a higher level of current
income free from federal income taxes^1 but with less risk of loss to its
portfolio than other insured tax-free bond mutual funds. The Fund pursues a high
level of current income by investing primarily in high-quality, federally
tax-exempt 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.
PORTFOLIO
MANAGEMENT TEAM
Philip G. Condon
Lead Portfolio Manager
M. Ashton Patton
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 9.93% 10.73%
5 yr. 34.17% 39.11%
10 yr.120.70% 122.89%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 9.93% 10.73%
5 yr. 6.05% 6.82%
10 yr. 8.24% 8.34%
^1 It is the policy of the Fund not to invest in taxable issues. However, the
Fund's income may be subject to state and local taxes. Gains on sales of Fund
shares and distributions of capital gains generally will be subject to
federal, state, and local taxes.
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Insured Tax Free General Bond Fund performed well over the
one-year period ending March 31, 1998, providing you with a competitive return
and high tax-exempt income. The Fund's one-year total return was 9.93%
(representing 5.14% in distributions of income and 4.79% in capital change); its
30-day SEC yield as of March 31, 1998 was 4.08%. This is a taxable equivalent
yield of 6.75% for shareholders in the 39.6% tax bracket.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
AARP INSURED TAX FREE GENERAL
BOND FUND:
--------------------------------
LEHMAN BROTHERS
INCOME DIVIDEND CAPITAL CHANGE MUNICIPAL BOND
COMPONENT COMPONENT INDEX+
------------------------------------------------------------
1988 $10000 $10000 $10000
1989 11097 10372 10719
1990 12131 10644 11851
1991 13204 10891 12943
1992 14430 11256 14238
1993 16450 12187 16022
1994 16746 11839 16393
1995 17871 12011 17611
1996 19163 12272 19088
1997 20077 12243 20129
1998 22070 12830 22289
The Total Return chart to the lower left shows the AARP Insured Tax
Free General Bond Fund's one-year return of 9.93% underperformed the unmanaged
Lehman Brothers Municipal Bond Index's return of 10.73%. It is important to note
that due to the Fund's investment strategy to moderate downside risk, the Fund
will often lag behind similar funds and the index during up markets. Also, the
index return does not reflect investment in cash or the deduction of any
servicing, investment management, or administrative expenses as a mutual fund
does.
Maintaining a long-term focus and staying consistently invested, your
investment has the opportunity to grow over time and overcome down periods in
the market. The graph above shows how $10,000 invested in the Fund on March 31,
1988 would have grown by March 31, 1998.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Insured Tax Free General Bond Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Return Lipper Risk Over three years, this fund is in the Best
Insured 25% of similar funds for Monthly Downside
Muni Debt Risk, and in the Best 50% of similar funds
Peer Group* for Total Return.
-----------------------------------
Highest Lowest The monthly averages for risk and return are
Return Best 25% XXXX Risk for 16 similar funds for the period April
------------ ----------- 1995 through March 1998.
XXXX Next 25%
------------ -----------
Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
</TABLE>
* Lipper Analytical Services, Inc. is the source for the peer group
information of similar funds.
- ----------
+ 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
CALLOUT:
Investing in insured securities of longer intermediate maturities helps reduce
the downside risk of this Fund.
In keeping with the Fund's objective to reduce risk of loss to its
portfolio, 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 the issuer so that it can be refinanced at a lower interest rate.
Our call-protection strategy is intended to provide a more reliable income
stream than would have existed if the Fund held a significant amount of bonds
that could be called in before their stated maturity. As of March 31, 1998, 91%
of the portfolio was invested in non-callable bonds.
The maturity structure of the portfolio was not significantly altered
over the past six months. We still prefer bonds from the 5 to 15 year maturity
range of the market, which accounted for more than 72% of the assets as of March
31, 1998. The remaining 28% of the portfolio was divided equally between shorter
term securities and bonds maturing in more than 15 years. In terms of state
allocation, we continued to favor Texas and Illinois because low or no tax
states offer bonds with higher yields. Therefore, these two states created
bargain opportunities.
In addition, as of March 31, 1998, 96% of the portfolio was invested in
insured securities (or securities escrowed in U.S. Treasuries that provide the
backing of the U.S. government). Remember that this insurance protects the bond
from default but this protection 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 moderate effective
duration of 6.8 years vs. 7.18 years for the Index will continue to serve you
well. Duration measures a portfolio's sensitivity to changes in interest rates
and is adjusted by altering a portfolio's mix of bond maturities. Essentially,
the shorter a portfolio's duration, the less its net asset value will likely be
adversely affected by an increase in interest rates. At the same time, a short
duration may restrict a portfolio's participation in market rallies. We seek to
provide you with high income free from federal income taxes but with less risk
of loss than that of a long-term municipal bond fund.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors in higher tax brackets who want high 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.
MUNICIPAL BOND EFFECTIVE
MATURITIES ALLOCATION
As of March 31, 1998
Less than 1 year 3%
1 to less than 5 years 11%
5 to less than 10 years 33%
10 to less than 15 years 39%
Greater than 15 years 14%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues 367
30-Day SEC Yield 4.08%
Average Coupon 4.69%
Average Maturity 8.8 Years
Effective Duration 6.8 Years
Average Quality AAA
15
<PAGE>
AARP BOND FUND FOR INCOME
-------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Bond Fund for Income seeks to produce a high level of current income
but with less risk of loss to its portfolio than other long-term bond mutual
funds. The Fund pursues current income by investing primarily in short-,
medium-, and long-term investment-grade debt securities.
PORTFOLIO
MANAGEMENT TEAM
Stephen A. Wohler
Lead Portfolio Manager
Kelly D. Babson
Robert Cessine
Portfolio Managers
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 11.23% 11.99%
Life of
Fund* 10.35% 11.02%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 11.23% 11.99%
Life of
Fund* 8.87% 9.42%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Bond Fund for Income has performed well over the one-year
period ending March 31, 1998, providing shareholders in the Fund with a one-year
total return of 11.23% (representing 7.36% in distributions of income and 3.87%
in capital change) vs. 11.99% for the Lehman Brothers Aggregate Bond Index for
the same period. The Fund also provided shareholders with a 30-day SEC yield of
6.65% as of March 31, 1998. It is important to note that due to the Fund's
investment strategy to moderate downside risk, the Fund will often lag behind
similar funds and the index. Also, the index return does not reflect investment
in cash or the deduction of any servicing, investment management, or
administrative expenses as a mutual fund does.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
AARP BOND FUND FOR INCOME:
--------------------------------
LEHMAN BROTHERS
INCOME DIVIDEND CAPITAL CHANGE AGGREGATE BOND
COMPONENT COMPONENT INDEX+
----------------------------------------------------
$10000 $10000 $10000
9921 9813 9914
10266 9980 10279
10606 10133 10621
10875 10213 10993
11034 10193 11102
THE FUND'S INVESTMENT STRATEGY
Since the Fund's inception, we have developed an investment strategy
which invests in the upper end of the low-grade market -- the highest level of
low-grade debt securities (mostly BB quality). We anticipate that these
lower-grade debt securities will offer shareholders in this Fund a higher yield
and more capital appreciation than the other Income Funds offered by the
Program. As of March 31, 1998, 72% was invested in investment-grade bonds of BBB
or higher, 18% in BB bonds, and 10% in B bonds.
CALLOUT:
In pursuit of the highest level of income of any AARP Mutual Fund, the Fund has
the flexibility to invest at least 65% of its assets in investment-grade debt
securities and up to one-third of its assets in lower-grade securities.
We continued to keep the Fund richly diversified, since we can utilize
a wide variety of maturities and credit quality. As of March 31, 1998, 56% of
the portfolio was invested in U.S. and foreign corporate bonds, 6% in
mortgage-backed securities, 5% in asset-backed securities, 19% in U.S.
Treasuries and 14% in cash equivalents. In the corporate sector, we were
invested 35% in industrials, 11% in financials, and 1% in utilities. We also
moved from a barbell strategy (see Glossary), where a portfolio consists of an
almost equal
- ----------
+ The unmanaged Lehman Brothers Aggregate Bond Index is a market-value-weighted
measure of Treasury issues, agency issues, corporate bond issues, and
mortgage securities. Index returns are calculated monthly and assume
reinvestment of dividends. Unlike Fund returns, Index returns do not reflect
any fees or expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
* The Fund commenced operations on February 1, 1997.
16
<PAGE>
distribution of short-term and long-term bonds, to a more even distribution
across the maturity spectrum. As of March 31, 1998, 11% of the portfolio was
invested in securities maturing in less than one year, 25% in the
one-to-five-year range, 25% in the five-to-eight-year range, and 39% in bonds
that mature in more than eight years.
We will continue to manage the AARP Bond Fund for Income for higher
yields than other AARP Income 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
Short Term Bond Fund. Investors in this Fund must therefore be in a position to
exchange greater short-term risk to the value of their investment for the
potential of greater returns over the long term.
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART TITLE:
Maturity Structure
As of March 31, 1998
CHART DATA:
Under One Year 11%
1 to 5 Years 25%
5 to 8 Years 25%
Over 8 Years 39%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund is designed for investors who seek high current income, but are willing
to accept interest rate, credit, and other risks associated with a portfolio of
investment-grade and, to a lesser extent, below- investment-grade bonds (up to
35% of total assets). You should be prepared to invest for the longer term (at
least three years or more) and be comfortable with fluctuation in the value of
your 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 of similar quality.
PORTFOLIO ALLOCATION
As of March 31, 1998
Corporate Bonds 51%
Cash Equivalents 14%
Asset-Backed Securities 5%
Government National
Mortgage Association 5%
Foreign Bonds -- U.S. $
Denominated 5%
U.S. Government-Backed
Mortgages 1%
U.S. Treasury Obligation 19%
----
100%
====
PORTFOLIO STATISTICS
Number of Issues 84
30-Day SEC Yield 6.65%
Average Coupon 7.33%
Yield to Maturity 6.65%
Average Maturity 9.70 Years
Average Duration 5.1 Years
Average Quality A
17
<PAGE>
AARP BALANCED STOCK AND BOND FUND
---------------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Balanced Stock and Bond Fund seeks to provide long-term capital growth
and income but with less risk of loss to its portfolio than other balanced
mutual funds. The Fund pursues capital growth and income by investing primarily
in a diversified mix of stocks with above-average dividend yields, high-quality
bonds, and cash reserves.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Stephen A. Wohler
Lori J. Ensinger
Portfolio Managers
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 30.36% 28.33%
3 yr. 77.46% 73.68%
Life of
Fund* 83.40% 81.65%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 30.36% 28.33%
3 yr. 21.07% 20.18%
Life of
Fund* 15.69% 15.41%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Balanced Stock and Bond Fund has performed well over the
one-year period ending March 31, 1998, with a one-year total return of 30.36%
(representing 4.23% in distributions of income and 26.13% in capital change) and
outperformed the blended index's return of 28.33%. The blended index is made up
of the unmanaged Standard & Poor's Composite Index of 500 Stocks (50%), the
unmanaged Lehman Brothers Aggregate Bond Index (40%), and the three-month
Treasury Bill Index (10%). (Please note that the Fund was introduced on February
1, 1994. Therefore, five-year and ten-year data are not available.)
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Semiannual Periods from February 1, 1994*
to March 31, 1998
CHART DATA:
<TABLE>
<CAPTION>
STANDARD & POOR'S LEHMAN BROTHERS
AARP BALANCED STOCK 500 STOCK PRICE AGGREGATE BOND
AND BOND FUND INDEX INDEX BLENDED INDEX+
------------- ----- ----- --------------
<S> <C> <C> <C> <C>
2/94* $10000 $10000 $10000 $10000
3/94 9520 9305 9583 9490
9/94 9922 9800 9543 9746
3/95 10335 10752 10062 10459
9/95 11589 12715 10885 11774
3/96 12509 14203 11146 12600
9/96 13104 15299 11416 13245
3/97 14069 17019 11694 14154
9/97 16687 21489 12527 16418
3/98 18340 25191 13095 18165
</TABLE>
We would also like to point out that by maintaining a long-term focus
and staying invested through good and bad times, your investment has the
opportunity to grow significantly over time. The graph above shows how a $10,000
investment in the Fund would have grown if you had invested in the Fund on
February 1, 1994, assuming all distributions were reinvested.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Balanced Stock and Bond Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------
Return Lipper Risk Over three years, this fund is in
Balanced the Best 25% of similar funds for
Peer Group* Monthly Downside Risk, and in the
----------------------------------- Best 50% of similar funds for Total
Highest Lowest Return.
Return Best 25% XXXX Risk
------------ ----------- The monthly averages for risk and
return are for 111 similar funds
XXXX Next 25% for the period April 1995 through
------------ ----------- March 1998.
Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
</TABLE>
* Lipper Analytical Services, Inc. is the source for the peer group information
of similar funds.
- ----------
+ 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 traded on the 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>
THE FUND'S INVESTMENT STRATEGY
In general, the stock portion of the Fund (representing 62% of the
portfolio as of March 31, 1998) uses an approach similar to the AARP Growth and
Income Fund. The Fund will usually invest in stocks that are believed to have
favorable long-term capital appreciation outlooks and have above-average
dividend yields. Since the stock portion of the Fund is managed by the same team
and with the same strategy as the AARP Growth and Income Fund, please 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.)
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 62%
Bond Holdings 36%
Cash Equivalents 2%
----
100%
====
CALLOUT:
The Fund attempts to reduce downside risk by following the strict yield
discipline of the AARP Growth and Income Fund in the stock section of the
portfolio, by investing in securities with varying maturities on the bond side,
and by maintaining an appropriate cash position.
The portion of the Fund invested in bonds (representing 36% of the
portfolio as of March 31, 1998) can include corporate issues, U.S. government
securities, mortgage-backed obligations, and other fixed-income securities. At
least 75% of these securities will be securities rated within the three highest
quality ratings (AAA, AA, and A) by Moody's Investors Service, Inc. or Standard
& Poor's (S&P), independent rating organizations. The Fund moved from a barbell
strategy (see Glossary), with an emphasis on short and long maturities, to
intermediate bonds over the past six-month period. As of March 31, 1998, 6% of
the bond portfolio was invested in securities maturing in less than one year,
36% in the one-to- five-year range, 23% in the five-to-eight-year range, 13% in
the eight-to-fifteen-year range and 22% in securities maturing in more than 15
years. As of March 31, 1998, approximately 2% of the Fund's assets were invested
in cash equivalents. (At all times, at least 30% of the Fund's assets will be a
combination of bonds and cash equivalents.)
We continue to believe that stocks will outperform bonds and cash over
the longer term; therefore, a majority of the portfolio will continue to be
invested in stocks. While we are comfortable with our current asset allocation
of 62% stocks, 36% bonds, and 2% cash equivalents, this allocation may be
gradually changed depending upon our expectations for the financial markets.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
This Fund is designed for investors who are seeking long-term growth of their
assets, but who want less risk than money invested 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 moving up and down.
STOCK ALLOCATION
As of March 31, 1998
Financial 25%
Manufacturing 13%
Durables 10%
Utilities 9%
Communications 8%
Consumer Staples 7%
Energy 6%
Health 6%
Consumer Discretionary 5%
Other 11%
----
100%
====
BOND ALLOCATION
As of March 31, 1998
Corporate Bonds 46%
U.S. Treasury Obligations 20%
U.S. Gov't. Agency-Backed
Mortgages 14%
Asset-Backed Securities 8%
Foreign Bonds - U.S. $
Denominated 8%
Collateralized Mortgages 3%
Government National
Mortgage Association 1%
----
100%
====
19
<PAGE>
AARP GROWTH AND INCOME FUND
---------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Growth and Income Fund seeks to provide long-term capital growth and
income but with less risk of loss to its portfolio than other growth and income
mutual funds. The Fund pursues long-term capital growth and income by investing
primarily in common stocks with above-average dividend yields and fixed income
securities which are convertible into common stocks.
PORTFOLIO
MANAGEMENT TEAM
Robert T. Hoffman
Lead Portfolio Manager
Lori J. Ensinger
Kathleen T. Millard
Benjamin W. Thorndike
Portfolio Managers
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 44.33% 48.02%
5 yr. 167.80% 174.70%
10 yr.414.78% 466.77%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 44.33% 48.02%
5 yr. 21.78% 22.38%
10 yr. 17.80% 18.93%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Growth and Income Fund performed well over the one-year period
ended March 31, 1998, providing shareholders with a one-year total return of
44.33% (representing 2.91% in distributions of income and 41.42% in capital
change) vs. 48.02% for the unmanaged Standard & Poor's Composite of 500 Stocks.
It is important to note that due to the Fund's investment strategy to moderate
downside risk, the Fund will often lag behind similar funds and the index. Also,
the index return does not reflect investment in cash or the deduction of any
servicing, investment management, or administrative expenses as a mutual fund
does.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
STANDARD & POOR'S
AARP GROWTH AND 500 STOCK PRICE
INCOME FUND INDEX+
--------------------------------------------------
1988 $10000 $10000
1989 11370 11813
1990 12666 14090
1991 14483 16119
1992 16619 17902
1993 19222 20632
1994 20273 20935
1995 22948 24192
1996 30272 31956
1997 35667 38290
1998 51478 56677
Of course, 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 above shows what $10,000 invested in the Fund
on March 31, 1988 would be worth on March 31, 1998, assuming all distributions
were reinvested.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Growth and Income Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------- Over three years, this fund is in
Return Morningstar Risk the Best 25% of similar funds for
Large Blend Monthly Downside Risk, and in the
Peer Group* Best 50% of similar funds for Total
----------------------------------- Return.
Highest Lowest
Return Best 25% XXXX Risk The monthly averages for risk and
------------ ----------- return are for 299 similar funds
for the period April 1995 through
XXXX Next 25% March 1998.
------------ -----------
Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
</TABLE>
* Morningstar is the source for the peer group information of similar funds.
- ----------
+ 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 traded on the
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>
THE FUND'S INVESTMENT STRATEGY
CALLOUT:
The Fund focuses on stocks with above-average dividends and sound fundamentals
to reduce downside risk.
We continued to focus on investing in undervalued securities with
above-average relative dividend yields. This strategy benefited the portfolio
for the period ended March 31, 1998 because a lack of technology holdings (due
to their characteristically low dividend yields) protected the Fund from the
many profit warnings issued by technology companies that stemmed from the
currency crisis in Asia. Our strategy of increasing the electric utility
weighting, in response to a 10-year peak in the industry's relative yield,
proved timely as these companies, with largely domestically generated earnings,
were immune to the volatility that accompanied slower overseas growth forecasts.
The Fund's health care selections added to the Fund's favorable performance over
this period, due primarily to our weighting in pharmaceutical stocks. As prices
rose, we reduced our weighting by eliminating Warner Lambert and trimming our
position in Schering-Plough. The Fund benefited from the fact that all but one
of our health care holdings significantly outperformed the S&P for this period.
We should point out, however, that many U.S. drug companies have reached full
valuation, as market hype over new product-driven growth has already been
reflected in most companies' stock prices. As enthusiasm increases, so does the
risk of disappointment.
Exposure to cyclicals, which helped the Fund early in the calendar
year, proved to be a modest drag on portfolio performance over the last six
months. Paper and forest product producers were among those hit by the slowdown
of demand from Southeast Asia. While many industries were able to recoup from
October's market plummet, companies such as Georgia-Pacific and Weyerhauser
found it to be a more difficult struggle. BetzDearborn, a specialty chemical
provider, also felt the repercussions of the Asian crisis directly as well as
indirectly through its exposure to the paper and forest product producers.
Our investment discipline has been an important tool in controlling
exposure to price volatility. It has helped to steer us toward undervalued
stocks that have defensive characteristics in volatile and declining markets.
Our investments in the electric utility sector are evidence of this. We think
our relative yield approach, supported by the fundamental research of our
analysts, will ultimately benefit the Fund in a variety of market environments
by providing downside protection and the potential for upside surprises.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
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 of
the value of their principal that is associated with investing in stocks.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1998
Financial 24%
Manufacturing 16%
Durables 10%
Communications 9%
Energy 8%
Consumer Staples 7%
Utilities 7%
Health 6%
Consumer Discretionary 5%
Other 8%
----
100%
====
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 100%
----
100%
====
21
<PAGE>
AARP U.S. STOCK INDEX FUND
--------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP U.S. Stock Index Fund seeks to provide long-term capital growth and
income but with less risk of loss to its portfolio than an S&P 500 Index mutual
fund. The Fund favors securities in S&P 500 companies with above-average
dividend yields, but otherwise seeks to match the investment characteristics of
the S&P 500.
PORTFOLIO
MANAGEMENT TEAM
Philip S. Fortuna
Lead Portfolio Manager
James M. Eysenbach
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 47.25% 48.02%
Life of
Fund 42.23% 43.04%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 47.25% 48.02%
Life of
Fund* 35.53% 36.09%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP U.S. Stock Index Fund's one-year total return for the period
ending March 31, 1998 was 47.25% (representing 2.31% in distributions of income
and 44.94% in capital change) vs. 48.02% for the Standard & Poor's Index of 500
Stocks. The performance of the Fund reflects the similar growth of the Index,
specifically the communications, media, financial, and health sectors.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
STANDARD & POOR'S
AARP U.S. STOCK 500 STOCK PRICE
INDEX FUND INDEX+
------------------------------------------
$10000 $10000
9659 9664
11293 11352
12122 12202
12465 12553
14223 14304
THE FUND'S INVESTMENT STRATEGY
Our strategy is to invest in a broadly diversified portfolio consisting
of more than 400 of the S&P 500 companies. Using a technique referred to as
"sampling," the portfolio is tilted toward those common stocks of S&P 500
companies that are expected to pay higher dividends than S&P 500 companies in
the aggregate. By managing the Fund in this way, we expect performance to be
slightly 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.
Although cash or cash equivalents are normally expected to represent
less than 1% of the Fund's assets, you may see a higher percentage from time to
time. This higher percentage represents the cash available for payment of stocks
already purchased.
The AARP U.S. Stock Index Fund strives to moderate downside risk by
favoring dividend-paying S&P 500 stocks. Stocks of this type historically have
been more stable, especially in periods of market decline.
This Fund has retained Bankers Trust Company as subadvisor to handle
the day-to-day investment and trading functions. The portfolio managers of the
Fund are in regular contact with the subadvisor, to review activity and monitor
returns and relative risk.
- ----------
+ 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 traded on the
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.
* The Fund commenced operations on February 1, 1997.
22
<PAGE>
The AARP U.S. Stock Index Fund offers shareholders a low-cost way of
investing in a diversified stock portfolio that offers a high degree of
performance similarity to the S&P 500.
The sector diversification, excluding cash equivalents as of March 31,
1998:
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART TITLE:
Sector Diversification
As of March 31, 1998
CHART DATA:
Financial 16%
Health 12%
Technology 11%
Manufacturing 11%
Consumer Staples 10%
Energy 8%
Communications 7%
Consumer Discretionary 6%
Durables 6%
Other 13%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund may be appropriate for more conservative stock fund investors who are
seeking higher dividend income and somewhat lower average volatility than an S&P
500 Index mutual fund. You should be prepared to invest for the longer term (at
least five years or more) and be comfortable with the value of your principal
moving up and down in value.
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 90%
Cash Equivalents 10%
----
100%
====
23
<PAGE>
AARP CAPITAL GROWTH FUND
------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Capital Growth Fund is designed to provide long-term capital growth but
with less risk of loss to its portfolio than other growth funds. The Fund
pursues this investment objective by investing primarily in a diversified mix of
common stocks and fixed- income securities convertible into common stock of
established medium- and large-sized companies.
PORTFOLIO
MANAGEMENT TEAM
William F. Gadsden
Lead Portfolio Manager
Bruce F. Beaty
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 49.45% 48.02%
5 yr. 140.38% 174.70%
10 yr.372.60% 466.77%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 49.45% 48.02%
5 yr. 19.17% 22.38%
10 yr 16.80% 18.93%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Capital Growth Fund produced favorable returns for the
one-year period ended March 31, 1998. The Fund's one-year total return of 49.45%
(representing 0.83% in distributions of income and 48.62% in capital change)
outperformed the Standard & Poor's 500 return of 48.02% during the same period.
These strong results were achieved during a difficult period, as the Asian
financial crisis expanded and investors remained concerned over the potential
impact of slowing U.S. exports on corporate earnings. The Fund's conservative
approach to investing, which emphasizes stocks with lower volatility than the
market, should provide a measure of protection during this uncertain time.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Yearly Periods ended March 31
CHART DATA:
STANDARD & POOR'S
AARP CAPITAL 500 STOCK PRICE
GROWTH FUND INDEX+
----------------------------------------------------
1988 $10000 $10000
1989 13170 11813
1990 13967 14090
1991 15208 16119
1992 17522 17902
1993 19661 20632
1994 20010 20935
1995 20826 24192
1996 27229 31956
1997 31624 38290
1998 47260 56677
It is also 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 may have the opportunity to
grow significantly over time. The graph above shows how a $10,000 investment in
the Fund on March 31, 1988 would have grown by March 31, 1998, assuming all
dividends were reinvested.
THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND
TITLE: AARP Capital Growth Fund
Three-Year Risk/Return Performance
CHART DATA: (AARP Fund noted by XXXX)
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------- Over three years, this fund is in
Return Morningstar Risk the Best 25% of similar funds for
Large Monthly Downside Risk, and in the
Growth Best 50% of similar funds for Total
Peer Group* Return.
-----------------------------------
Highest Lowest The monthly averages for risk and
Return Best 25% XXXX Risk return are for 74 similar funds for
------------ ----------- the period April 1995 through March
1998.
XXXX Next 25%
------------ -----------
Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
</TABLE>
* Morningstar is the source for the peer group information of similar funds.
- ----------
+ 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 traded on the
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>
THE FUND'S INVESTMENT STRATEGY
The dominant investment variable that affected U.S. stocks during the
past six months was Asia. Reaction to the Asian currency crisis in the U.S.
stock market was swift, and for certain sectors, punitive. Our exposure to the
energy sector, which was via large multi-national oil companies and oil field
service providers, crimped performance, as oil prices weakened and investors
worried about the sustainability of strong global oil demand in light of a
marked slowdown in Asia. Two stocks affected as a result were Schlumberger Ltd.
and Diamond Offshore Drilling, Inc. Conversely, while those portfolio holdings
suffered, the stocks of companies deemed relatively immune to global activity
surged ahead. Positive contributors in these areas included Costco Companies,
Inc., Fannie Mae, and Pfizer.
CALLOUT:
Through a broadly diversified portfolio consisting primarily of established
medium- to large-sized companies with strong competitive positions in their
industries, the Fund seeks to offer less downside risk than many growth funds.
Despite sharp declines in October and November for selected companies
that were perceived to have significant earnings exposure to Asia, the Fund
continued to benefit from the favorable investment climate in the United States.
The U.S. economy continued to expand, corporate earnings growth in many areas
remained positive, inflation remained benign, and employment rose to one of the
highest levels in 25 years. In this environment, we continued to emphasize the
financial sector, which is benefiting from consolidation and restructuring,
including stocks such as American Express, Citicorp, and BankAmerica. We also
maintained significant positions in line with the S&P 500 Index in the
technology sector. Intel Corp. and Compaq Computer Corp. are examples in this
area and were among the Portfolio's largest holdings at the end of the period.
As we look toward the rest of 1998, we continue to remain cautious
regarding profits, a position we held prior to the crisis in Asia. As a result,
the Asian crisis has not caused us to dramatically alter our investment outlook.
However, our expectations for earnings' growth are trending somewhat lower. With
current stock market valuations rich and with the prospect for meaningful
earnings slim, it is difficult to build the investment case for significant
upward movement in the U.S. stock market over the next year. As a result, we
believe investors should expect stock market returns that are closer to the
long-term historical market average of about 10% annually.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
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 their principal that
is associated with investing in stocks.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1998
Financial 22%
Technology 12%
Energy 12%
Manufacturing 11%
Consumer Discretionary 11%
Health 10%
Service Industries 5%
Durables 5%
Consumer Staples 5%
Other 7%
----
100%
====
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 95%
Cash Equivalents 5%
----
100%
====
25
<PAGE>
AARP SMALL COMPANY STOCK FUND
-----------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The Fund seeks to provide long-term capital growth, but with less risk of loss
to its portfolio than other small company stock mutual funds. The Fund pursues
this objective by investing primarily in a broadly diversified portfolio of
common stocks of small U.S. companies.
PORTFOLIO
MANAGEMENT TEAM
James M. Eysenbach
Philip S. Fortuna
Co-Lead Portfolio Managers
Calvin S. Young
Portfolio Manager
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 44.74% 42.01%
Life of
Fund* 43.87% 32.04%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 44.74% 42.01%
Life of
Fund* 36.87% 27.03%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Small Company Fund's one-year total return of 44.74%
(representing 0.29% in distributions of income and 44.45% in capital change)
outperformed the Russell 2000 Index's~ return of 42.01% for the period ended
March 31, 1998. Consistent with its risk management strategy, the Fund also
exhibited less up and down movement than the Russell 2000 Index of small
companies. The value of the Fund declined less than the Index in 79% of the days
on which the market declined during the one-year period ending March 31, 1998.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
AARP SMALL COMPANY RUSSELL 2000
STOCK FUND INDEX+
-------------------------------------------------
2/1/97* $10000 $10000
3/31/97 9940 9297
6/30/97 11660 10805
9/30/97 13353 12413
12/31/97 13368 11997
3/31/98 14387 13204
THE FUND'S INVESTMENT STRATEGY
CALLOUT:
The Fund seeks to be more stable than other small company stock funds by
targeting undervalued small companies which, as a group, typically pay
above-average dividends.
In pursuing capital appreciation from small company stocks, we utilize
a disciplined approach to identifying undervalued stocks within a broad universe
of small companies. First, we conduct a quantitative evaluation of approximately
2,000 small U.S. stocks, analyzing valuations, sales and earnings growth rates,
price momentum, and risk characteristics. We focus on companies selling at
prices that we believe do not reflect their underlying value. We emphasize those
companies with stable or improving sales and earnings growth or other
characteristics indicating that the undervaluation will be recognized in the
future. Then we build a diversified portfolio by assessing the risk/return
trade-off of various combinations of attractively rated companies, with an
objective of maintaining an overall risk profile approximately 10% to 20% below
that of the Russell 2000 Index. An important element of this strategy, given the
potential cost of trading small stocks, is working with our experienced team of
traders to ensure the most efficient means of executing our purchase and sale
decisions.
The emphasis on valuation is reflected in the resulting portfolio,
which has a median price-to-earnings ratio about 30% lower than that of the
- ----------
+ The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
* The Fund commenced operations on February 1, 1997.
26
<PAGE>
Russell 2000 Index of small companies. (The price-to-earnings [P/E] ratio gives
you an idea of how much you are paying for a company's earning power. The lower
the P/E, the less you are paying for a dollar of earnings. While a high P/E may
be an indication of higher expected earnings growth, high P/E stocks are
typically riskier.) Many of the lower P/E stocks are currently found in the
manufacturing sector of the market. These small U.S. manufacturing firms
currently represent the portfolio's largest sector weighting. The second largest
weighting is in financials, where the Fund's holdings returned more than 50%
over the past year. We have recently been reducing the Fund's weighting in this
sector, as strong performance has reduced the number of attractively valued
finance companies. In terms of size, a typical holding has a market
capitalization (price multiplied by shares outstanding) of $467 million. By
comparison, the typical S&P 500 company has a market capitalization of more than
$7 billion.
As of March 31, 1998, the Fund was well diversified, with 185 stocks
selected from the Russell 2000 Index of small companies. As you may know, the
risks of holding individual small company stocks can be high because small
companies generally have higher business risks than more established companies.
This is because small companies may have untested management, less diversified
product lines, and limited financial resources. This makes small companies more
vulnerable to adverse business developments than larger companies. We attempt to
control these risks by holding a relatively large number of securities in the
portfolio in addition to maintaining an overall above-average dividend yield. As
a direct result, the Fund has experienced low volatility over the past six
months. For example, when the small cap market as represented by the Russell
2000 Index fell 4.4% in October of last year, the AARP Small Company Fund
declined only 2.1%. In the strong up months, such as those experienced at the
end of the period, the Fund trailed the Index. This pattern of declining less in
down markets and rising less rapidly in up markets is consistent with our
risk-controlled approach to investing in small company stocks.
We will continue to apply our disciplined, value-oriented approach to
selecting small company stocks in accordance with the Fund's objective of
seeking long-term capital growth with less downside risk than other small
company stock funds. We believe that the AARP Small Company Stock Fund continues
to be appropriate for investors seeking diversification and exposure to the
small company sector of the stock market as part of a well rounded portfolio.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The AARP Small Company Stock Fund is suitable for investors seeking high
long-term growth of their principal. You should be prepared to invest for the
longer term (at least five years or more) and be comfortable with the value of
your principal moving up and down in value.
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1998
Manufacturing 23%
Financial 14%
Technology 9%
Utilities 9%
Consumer Discretionary 9%
Service Industries 7%
Durables 7%
Construction 6%
Metals & Minerals 5%
Other 11%
----
100%
====
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 95%
Cash Equivalents 5%
----
100%
====
27
<PAGE>
AARP GLOBAL GROWTH FUND
-----------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP Global Growth Fund seeks to offer long-term capital growth in a
globally diversified portfolio, but with less risk of loss to its portfolio than
other global growth mutual funds. The Fund pursues this investment objective by
investing primarily in common stocks of established corporations in a wide
variety of developed countries, including the United States.
PORTFOLIO
MANAGEMENT TEAM
William E. Holzer
Lead Portfolio Manager
Diego Espinosa
Nicholas Bratt
Portfolio Managers
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 25.75% 31.95%
Life of
Fund* 40.10% 47.54%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 25.75% 31.95%
Life of
Fund* 16.88% 19.68%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP Global Growth Fund performed well for the one-year period
ended March 31, 1998, providing shareholders with a one-year total return of
25.75% (representing 1.08% in distributions of income and 24.67% in capital
change) vs. 31.95% for the unmanaged MSCI World Index.~ It is important to note
that due to the Fund's investment strategy to moderate downside risk, the Fund
will often lag behind similar funds and the index. Also, the index return does
not reflect investment in cash or the deduction of any servicing, investment
management, or administrative expenses as a mutual fund does.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1996*
to March 31, 1998
CHART DATA:
AARP GLOBAL MSCI WORLD
GROWTH FUND INDEX+
----------------------------------------------------
2/1/96* $10000 $10000
3/96 10180 10224
6/96 10280 10521
9/96 10327 10661
12/96 10907 11149
3/97 11141 11181
6/97 12399 12863
9/97 12874 13231
12/97 12502 12905
3/98 14010 14754
THE FUND'S INVESTMENT STRATEGY
Our approach to investing in the global equity markets focuses 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 100 issues across many countries. As
of March 31, 1998, the portfolio was 51% invested in Europe, 32% in the United
States and Canada, 4% in Asia/Pacific (excluding Japan), and 13% in Latin
America, Japan and other countries.
Over the past six months cash remained at roughly 5% of the portfolio
as we continue, in the midst of increasingly volatile markets, to search for
good stocks at the best possible valuations. Given the outlook for global
deflation, bonds comprised roughly 10% of the portfolio. This asset mix is not
the result of an asset allocation decision, but rather a product of our thematic
approach.
We introduced a new theme that emerges from the fact that baby boomers
are edging closer to retirement age. As their need for secure retirement income
rises, so does their preference for yield (i.e., bonds and
- ----------
+ 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>
utility stocks) over growth. Since the supply of bonds is falling due to the
shrinking number of regulated utilities, the valuation of these instruments
should rise. Therefore we began buying utilities best positioned to prosper in a
deregulated environment. In order to build up our utility exposure, we reduced
our capital goods position. We are looking to avoid negative effects that the
Asian crisis may have on the demand for these capital goods products.
CALLOUT:
The Fund seeks to offer less downside risk than other global growth funds by
maintaining core holdings in well established companies of developed countries.
We were well positioned for the Asian currency crisis because we had
repositioned the composition of the Fund's emerging markets holdings. We sold
the majority of our Korean holdings early last year and reduced our Brazilian
holdings later in the year. Therefore, we were able to take small positions in
several Hong Kong stocks at reasonable valuations when the crash occurred in
late October.
Looking ahead, the impact of the Asian crisis on stock valuation
remains a big question. As we introduce new themes to the portfolio and evaluate
the relevance of existing themes, we will be keeping a watchful eye on Asia. The
troubles in Asia may give us the clearest example yet of the challenges that
exist in a truly global economy.
PIE CHART TITLE:
Geographical Diversification --
Excludes Cash Equivalents
As of March 31, 1998
CHART DATA:
Europe 51%
U.S. & Canada 32%
Japan 7%
Pacific Basin 4%
Latin America 3%
Africa 1%
Other 2%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The AARP Global Growth Fund is suitable for investors who want to add both U.S.
and foreign equity 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 moving up and down.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1998
Financial 26%
Manufacturing 17%
U.S. and Foreign
Treasury Bonds 9%
Technology 6%
Utilities 5%
Health 5%
Consumer Staples 5%
Metals and Minerals 4%
Energy 4%
Other 19%
----
100%
====
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 85%
Bond Holdings 10%
Cash Equivalents 5%
----
100%
====
29
<PAGE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
-----------------------------------------
SIDEBAR TEXT:
FUND OVERVIEW
The AARP International Growth and Income Fund seeks to offer long-term capital
growth and income but with less risk of loss to its portfolio than other
international mutual funds. The Fund pursues this investment objective by
investing primarily in a diversified portfolio of foreign common stocks with
above-average dividend yields and foreign fixed-income securities convertible
into common stocks. The Fund changed its name from the AARP International Stock
Fund on February 1, 1998.
PORTFOLIO
MANAGEMENT TEAM
Sheridan Reilly
Lead Portfolio Manager
Deborah A. Chaplin
Irene Cheng
Portfolio Managers
TOTAL RETURN
------------
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 27.62% 18.60%
Life of
Fund* 29.41% 20.97%
AVERAGE ANNUAL
FUND INDEX+
----------------------
1 yr. 27.62% 18.60%
Life of
Fund* 24.92% 17.81%
- --------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The AARP International Growth and Income Fund performed well for the
one-year period ended March 31, 1998, providing shareholders with a one-year
total return of 27.62% (representing 0.83% in distributions of income and 26.79%
in capital change). Our favorable performance, which outperformed the MSCI EAFE
Index~ return of 18.60%, was due to the Fund's investment strategy, specifically
our geographic distribution and stock selection. We were underweighted in Japan,
and therefore spared some of the difficulties associated with the problems in
that market. Our overweighting of investments in Western Europe afforded us
protection against the extremely volatile Asian currency markets. It also
allowed us to benefit from the problems in Asia as there was flight from the
weaker currencies of the Far East to the stronger, more stable currencies of the
United States and Western Europe.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
AARP INTERNATIONAL MSCI EAFE
GROWTH AND INCOME FUND INDEX+
-----------------------------------------------------------
2/1/97* $10000 $10000
3/31/97 10140 10201
6/30/97 10960 11524
9/30/97 11573 11443
12/31/97 11147 10546
3/31/98 12941 12097
THE FUND'S INVESTMENT STRATEGY
In pursuit of our objective of long-term growth of capital and current
income, the Fund invests primarily in dividend-paying common stocks and
preferred stocks of companies listed on foreign stock exchanges. We generally
look for well established companies in mature overseas markets. In selecting
stocks for purchase, we look for companies that have high yields relative to
their market. We seek companies whose dividend yields are more than 25% above
their respective market median. On the flip side, if the yield of a stock we are
holding falls to 25% below its market median, due to a rise in its stock price,
we will consider selling that stock. Once we identify companies, we review their
financial statements and earnings estimates, and evaluate the quality and tenure
of management. Extensive consideration is also given to country and sector
diversification. Sector diversification (investing in a broad range of
industries) can reduce investment risk while country diversification allows us
to pursue a broader range of investment opportunities and reduce currency
exchange risk.
- ----------
+ The MSCI (Morgan Stanley Capital International) EAFE Index is an unmanaged
capitalization-weighted measure of global stock markets, including Europe,
Australia, and the Far East. Index returns assume dividends reinvested net of
withholding tax and, unlike fund returns, do not reflect any fees or
expenses.
All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.
* The Fund commenced operations on February 1, 1997.
30
<PAGE>
In keeping with this philosophy, the portfolio was heavily weighted in
Western Europe, as stated above. European consumer goods, in particular, are
expected to strengthen as European economies strengthen. One consumer stock we
bought was an Italian retailer, La Rinascente. The company has been modernizing
its approach to marketing, making excellent gains in increasing sales per square
foot in existing stores and finding attractive sites for opening new stores. It
has also been helped by an increase in consumer spending.
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.
Bank of Austria and Allied Irish Bank are two other good examples of
our investment approach. European banks are established, well regulated, and,
because they are active in the capital markets, they will likely benefit from
the strengthening economies in Europe. We bought shares of Bank of Austria at
below its book value, which means we paid less than the combined assets of the
firm's value. In addition to appreciating in price, it continues to offer an
attractive yield. Allied Irish Bank also offers an attractive yield and strong
prospects for growth.
We think the markets will continue to be volatile. The problems in Asia
are still not completely worked out. By contrast, Europe seems poised to realize
the benefits of closer integration of its economies and the restructuring and
consolidation of its industries. We are confident in the long-term value of our
investment approach and believe the AARP International Growth and Income Fund
will continue to be appropriate for investors who wish to allocate assets
overseas in a relatively conservative fashion as compared to other international
investments.
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
PIE CHART TITLE:
Geographical Diversification -- Excludes Cash Equivalents
As of March 31, 1998
CHART DATA:
Europe 81%
Japan 8%
Pacific Basin 6%
Canada 5%
----
100%
====
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
FOR WHOM THE
FUND IS DESIGNED
The Fund is suitable for investors seeking long-term growth of their principal
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 moving up
and down in value.
(Please note that portfolio changes should not be considered recommendations for
action by individual investors.)
SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of March 31, 1998
Financial 32%
Manufacturing 19%
Communications 13%
Consumer Discretionary 7%
Service Industries 7%
Durables 4%
Consumer Staples 4%
Media 4%
Transportation 3%
Other 7%
----
100%
====
ASSET ALLOCATION
As of March 31, 1998
Stock Holdings 93%
Cash Equivalents 7%
----
100%
====
31
<PAGE>
AARP MANAGED INVESTMENT PORTFOLIOS:
-----------------------------------
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO
SIDEBAR TEXT:
PORTFOLIO OVERVIEWS
The AARP Managed Investment Portfolios are conservatively managed "funds of
funds," portfolios that invest exclusively in other AARP Mutual Funds. The two
portfolios are:
o The AARP Diversified Income with Growth Portfolio seeks current income with
modest long-term appreciation. This investment objective is met by diversifying
among a mix of AARP Bond Mutual Funds, and to a lesser degree in the AARP Stock
Mutual Funds. The Fund changed its name from the AARP Diversified Income
Portfolio on February 1, 1998.
o The AARP Diversified Growth Portfolio seeks long-term growth of capital. This
investment objective is met by diversifying among a mix of AARP Stock Mutual
Funds, and a lesser mix of AARP Bond Mutual Funds. The investment mix in both
portfolios may change when assets appreciate significantly or as economic
conditions change.
PORTFOLIO
MANAGEMENT TEAM
Philip S. Fortuna
Lead Portfolio Manager
Salvatore J. Bruno
Shahram Tajbakhsh
Karla D. Grant
Portfolio Managers
TOTAL RETURN
------------
DIVERSIFIED INCOME WITH
GROWTH PORTFOLIO
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 15.89% 22.06%
Life of
Fund* 15.74% 20.09%
TOTAL RETURN
------------
DIVERSIFIED GROWTH PORTFOLIO
CUMULATIVE
FUND INDEX+
----------------------
1 yr. 27.25% 36.46%
Life of
Fund* 26.91% 32.90%
- --------------------------------------------------------------------------------
HOW THE PORTFOLIOS HAVE PERFORMED
The Diversified Income With Growth Portfolio provided shareholders with
a one-year total return of 15.89% (representing 5.36% in distributions of income
and 10.53% in capital change) vs. the blended index's total return of 22.06% for
the same period. For this Portfolio the blended index is made up of the
unmanaged Standard & Poor's 500 Index (30%) and the Lehman Brothers Aggregate
Bond Index (70%). Both portfolios will often lag the indices because of their
conservative risk posture, especially during strong markets such as that of the
past year.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
AARP Diversified Income with Growth Portfolio
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
AARP DIVERSIFIED STANDARD & POOR'S LEHMAN BROTHERS
INCOME WITH GROWTH 500 STOCK PRICE AGGREGATE BOND
PORTFOLIO INDEX INDEX BLENDED INDEX+
- -------------------------------------------------------------------------------
2/97* $10000 $10000 $10000 $10000
3/97 9897 9664 9914 9839
6/97 10454 11352 10279 10597
9/97 10837 12202 10621 11087
12/97 11001 12553 10933 11416
3/98 11471 14304 11102 12009
The Diversified Growth Portfolio provided shareholders with a one-year
total return for the period ending March 31, 1998 of 27.25% (representing 2.33%
in distributions of income and 24.92% in capital change) vs. the blended index's
total return of 36.46% for the same period. The blended index is made up of the
unmanaged Standard & Poor's 500 Index (70%) and the Lehman Brothers Aggregate
Bond Index (30%).
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT
AARP Diversified Growth Portfolio
CHART PERIOD: Quarterly Periods from February 1, 1997*
to March 31, 1998
CHART DATA:
AARP DIVERSIFIED STANDARD & POOR'S LEHMAN BROTHERS
GROWTH 500 STOCK PRICE AGGREGATE BOND
PORTFOLIO INDEX INDEX BLENDED INDEX+
- --------------------------------------------------------------------------------
2/97* $10000 $10000 10000 10000
3/97 9862 9664 9914 9739
6/97 10804 11352 10279 11026
9/97 11470 12202 10621 11720
12/97 11543 12553 10933 12065
3/98 12549 14304 11102 13290
- ----------
+ The performance of the blended benchmark is a weighting comprised of the
Standard & Poor's 500 Stock Price Index (S&P), and the Lehman Brothers
Aggregate Bond Index (LBAB). The 30/70 measure of the Diversified Income with
Growth Portfolio and 70/30 measure of the Diversified Growth Portfolio is
meant to reflect the anticipated long-range asset mix of 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 traded on the
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.
* These Funds commenced operations on February 1, 1997.
32
<PAGE>
THE PORTFOLIOS' INVESTMENT STRATEGIES
Since the Portfolios' inception, we have been implementing an
investment process that applies our global perspective and judgment of capital
markets, combined with sophisticated quantitative risk management techniques, in
investing in a mix of AARP Mutual Funds.
Back in early 1997, we decided which asset classes we expected to
outperform and compared that to historical trends. We then used this data to
allocate the Portfolios. Over the past six months, these allocations were
altered slightly to reflect current trends.
Diversified Income with Growth
Portfolio Allocation
As of March 31, 1998
AARP High Quality Money Fund 14%
AARP Bond Fund for Income 30%
AARP GNMA and U.S. Treasury Fund 30%
AARP Growth and Income Fund 12%
AARP U.S. Stock Index Fund 6%
AARP Global Growth Fund 8%
----
100%
====
Diversified Growth
Portfolio Allocation
As of March 31, 1998
AARP High Quality Money Fund 1%
AARP GNMA and U.S. Treasury Fund 15%
AARP Bond Fund for Income 18%
AARP U.S. Stock Index Fund 13%
AARP Growth and Income Fund 24%
AARP Global Growth Fund 7%
AARP International Growth and
Income Fund 7%
AARP Small Company Stock Fund 11%
AARP Capital Growth Fund 4%
----
100%
====
As you can see by these breakdowns, both Portfolios were well
diversified among the AARP Fund Family. We believe the current mix of
investments in the Diversified Income with Growth Portfolio will provide
shareholders with a competitive yield from its bond investments and the
potential for growth through its stock exposure. For the Diversified Growth
Portfolio, we believe that the 33% investment in fixed-income securities will
help protect the Fund from downside risk. We also included some international
exposure for further diversification.
We believe that the AARP Managed Investment Portfolios offer
shareholders a simplified, all-in-one approach to diversification. Moreover,
each AARP Mutual Fund is also managed to reduce risk of loss to the Portfolio.
- --------------------------------------------------------------------------------
SIDEBAR TEXT:
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 prefer to entrust the selection
of their portfolios 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 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 with Growth Portfolio may be appropriate for investors in retirement with
an investment horizon of three to five years. The AARP Diversified Growth
Portfolio is designed for investors in pre-retirement with an investment time
horizon of more than five years.
ASSET ALLOCATION
AARP DIVERSIFIED
INCOME WITH GROWTH
PORTFOLIO
As of March 31, 1998
Stock Holdings 26%
Bond Holdings 60%
Cash Equivalents 14%
----
100%
====
ASSET ALLOCATION
AARP DIVERSIFIED
GROWTH PORTFOLIO
As of March 31, 1998
Stock Holdings 66%
Bond Holdings 33%
Cash Equivalents 1%
----
100%
====
33
<PAGE>
This page
intentionally
left blank.
34
<PAGE>
A A R P F U N D S
I N V E S T M E N T P O R T F O L I O S
List of investments as of March 31: A
detailed breakdown of the investments in
each AARP Mutual Fund's portfolio at the
close of the reporting period.
Principal amount/shares: The face value
of a bond or the shares held by an AARP
Mutual Fund.
Cost: The amount the AARP Mutual Fund
actually paid for the listed securities.
In addition, the tax-free AARP Funds
list the credit ratings for each of
their bond holdings. Moody's Investors
Service, Inc., Fitch Investors Service,
Inc., and Standard & Poor's Corporation
-- three independent rating services --
have developed credit rating systems
that are designed to indicate a bond
issuer's ability to meet its
obligations. For example, bonds with the
lowest risk of default receive a rating
of "AAA," while bonds involving greater
risk receive progressively lower
ratings. Bonds rated "BBB" or better are
considered investment grade ("AAA"
ratings are assigned only to bonds with
the highest credit quality). The
Portfolios also show the coupon rates
and maturity dates of the AARP Funds'
bond holdings. The coupon rate is the
interest rate on a debt security the
bond issuer promises to pay to the bond
holder until maturity. The maturity date
is the date on which a bond issuer is
scheduled to repay the principal to the
bond holder.
Market value: The current value of the
securities held in a fund's portfolio.
35
<PAGE>
This page
intentionally
left blank.
36
<PAGE>
AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 1.4%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/98 at
5.75% to be repurchased at $6,885,100 on 4/1/98, collateralized by a
$7,023,800 U.S. Treasury Note, 5.75%, 12/31/98 (Cost $6,884,000) ..................... 6,884,000 6,884,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 62.7%
- -----------------------------------------------------------------------------------------------------------------------------
Ameritech Corp., 5.4%, 6/9/98 ........................................................... 20,000,000 19,786,111
Associates Corp. of North America, 5.51%, 5/12/98 ....................................... 23,000,000 22,854,305
Baront Capital Corp., 5.54%, 5/11/98 .................................................... 20,000,000 19,876,889
BTAB Holdings Funding Co., 5.65%, 4/23/98 ............................................... 12,000,000 11,958,567
CSW Credit Inc., 5.57%, 4/20/98 ......................................................... 10,800,000 10,768,251
Duke Energy, 6.05%, 4/1/98 .............................................................. 20,000,000 20,000,000
General Electric Capital Corp., 5.41%, 4/15/98 .......................................... 23,000,000 22,947,674
GTE Corp., 5.76%, 5/8/98 ................................................................ 20,000,000 19,881,600
FCAR Owner Trust, 5.55%, 4/2/98 ......................................................... 20,000,000 19,996,917
Ford Motor Credit, 5.48%, 4/8/98 ........................................................ 23,000,000 22,972,294
JP Morgan, 5.28%, 10/15/98 .............................................................. 15,000,000 14,548,725
Madison Funding Corp., 5.58%, 4/16/98 ................................................... 12,160,000 12,131,728
New Center Asset Trust, 5.55%, 4/14/98 .................................................. 23,000,000 22,953,904
Old Line Funding Corp., 5.57%, 4/9/98 ................................................... 15,000,000 14,981,433
Private Export, 5.32%, 7/30/98 .......................................................... 20,000,000 19,632,294
Sheffield Receivables Corp., 5.55%, 4/6/98 .............................................. 23,000,000 22,982,271
-----------
Total Commercial Paper (Cost $298,319,265) .............................................. 298,272,963
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 6.3%
- -----------------------------------------------------------------------------------------------------------------------------
Lasalle National Bank, 5.71%, 7/24/98 ................................................... 10,000,000 9,997,958
Lasalle National Bank, 5.91%, 8/12/98 ................................................... 10,000,000 10,002,046
Chase Manhattan Corp., 5.62%, 7/9/98 .................................................... 10,000,000 9,997,454
-----------
Total Certificates Of Deposit (Cost $30,001,001) ........................................ 29,997,458
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 11.0%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 5.28%, 7/14/99* .................................. 17,000,000 16,926,390
Federal National Mortgage Association, 5.28%, 7/26/99* .................................. 20,000,000 19,916,800
Student Loan Marketing Association, 5.28%, 7/12/99* ..................................... 15,500,000 15,451,950
-----------
Total U.S. Government Agency Obligations (Cost $52,412,124) ............................. 52,295,140
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM AND MEDIUM-TERM NOTES 17.9%
- -----------------------------------------------------------------------------------------------------------------------------
American Express Centurion Bank, 5.6575%, 4/24/98* ...................................... 10,000,000 9,999,488
Bank One, Columbus, N.A., 5.5%, 6/10/98* ................................................ 15,000,000 14,997,300
Bank of America Illinois, 6.15%, 5/5/98 ................................................. 10,000,000 10,002,800
Bankers Trust Co., Medium Term Note, 5.71%, 4/14/98* .................................... 20,000,000 20,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements
37
<PAGE>
AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goldman Sachs & Co., Medium Term Note, 5.69%, 3/26/99* .................................. 20,000,000 20,000,000
Huntington National Bank, 5.89%, 9/18/98 ................................................ 10,000,000 10,003,285
-----------
Total Short-Term and Medium-Term Notes (Cost $85,004,387) ............................... 85,002,873
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $472,620,777) (a) ...................................... 99.3 472,452,434
Other Assets and Liabilities, Net ....................................................... 0.7 3,468,644
----- -----------
Net Assets .............................................................................. 100.0 475,921,078
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of
the U.S. Treasury bill rate. These securities are shown at their rate as
of March 31, 1998.
(a) At March 31, 1998, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $472,620,777 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........... $ 7,079
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value .............. (175,422)
--------
Net unrealized depreciation .................................. $(168,343)
=========
- --------------------------------------------------------------------------------
At September 30, 1997, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $132,230, of which $74,841
expires September 30, 2004, and $57,389 expires September 30, 2005. In
addition, from November 1, 1996 through September 30, 1997, the Fund
incurred approximately $3,906 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1998.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
38
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MUNICIPAL INVESTMENTS 99.2%
- -----------------------------------------------------------------------------------------------------------------------------
ALASKA
Alaska Housing Finance Corp., General Mortgage Revenue,
Series 1991-A, Weekly Demand Note, 3.7%, 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, 3.85%, 12/15/18* .............. 1,000,000 A1 1,000,000
Maricopa County AZ, Pollution Control Revenue, Palos Verde Project:
Series 1985 F, Tax Exempt Commercial Paper, 3.55%, 6/16/98 .................. 1,500,000 A1 1,500,000
Series 1985 C, Tax Exempt Municipal Paper, 3.6%, 4/8/98 ..................... 2,000,000 A1 2,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric
Power Co., Series 1982, Weekly Demand Note, 3.85%, 10/1/22* ................. 3,900,000 A1+ 3,900,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly
Demand Note, 3.65%, 12/1/11* ................................................ 1,900,000 A1 1,900,000
Salt River, AZ, Agricultural Improvement & Power District, Tax Exempt
Commercial Paper, 3.35%, 6/16/98 ............................................ 1,000,000 A1+ 1,000,000
CALIFORNIA
Los Angeles County, CA, Tax and Revenue Anticipation Notes,
Series 1997 A, 4.5%, 6/30/98 ................................................ 2,000,000 SP1+ 2,003,086
COLORADO
Clear Creek County, CO, Colorado County Financing Program,
Series 1988, Weekly Demand Note, 3.7%, 6/1/98* .............................. 55,000 A1+ 55,000
Colorado Health Facilities Authority, Composite Issue for Kaiser
Permanente, 1995 Series A, Weekly Demand Note, 3.85%, 8/1/15* ............... 3,000,000 A1+ 3,000,000
DISTRICT OF COLUMBIA
District of Columbia, Tax and Revenue Anticipation Note, Series C, 5%,
9/30/98 ..................................................................... 1,000,000 SP1+ 1,005,545
District of Columbia, Transportation Authority, 4.5%, 9/30/98 .................. 1,500,000 SP1+ 1,504,530
FLORIDA
Dade County, FL, Industrial Development Authority Revenue,
Dolphins Stadium Project:
Series C, Weekly Demand Note, 3.7%, 1/1/16* .............................. 1,000,000 A1+ 1,000,000
Series D, Weekly Demand Note, 3.7%, 1/1/16* .............................. 1,300,000 A1+ 1,300,000
Palm Beach County, FL, Health and Hospital, Tax Exempt Commercial
Paper, 3.5%, 5/7/98 ......................................................... 2,000,000 A1 2,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric
Cooperative Finance Corp., 1984 Series H-1, Weekly Demand Note,
3.8%, 3/15/14* .............................................................. 4,050,000 A1+ 4,050,000
Sarasota County, FL, Public Hospital District, Sarasota Memorial Hospital,
Series 1985 C, Tax Exempt Commercial Paper, 3.75%, 5/13/98 .................. 2,000,000 A1+ 2,000,000
Sunshine State Government Finance Commission, FL, Series 1986,
Tax Exempt Commercial Paper, 3.6%, 5/8/98 ................................... 1,000,000 MIG1 1,000,000
INDIANA
Jasper County, IN, Pollution Control Revenue, Series 88 C, Tax Exempt
Commercial Paper, 3.7%, 5/18/98 ............................................. 1,000,000 A1+ 1,000,000
Sullivan, IN, National Rural Utilities Cooperative Hoosier Energy,
Series 85 L-4, Tax Exempt Commercial Paper, 3.65%, 7/21/98 .................. 1,790,000 A1+ 1,790,000
</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>
IOWA
Iowa Schools Cash Anticipation Program, Series 1997 A, 4.5%, 6/26/98 ........... 1,000,000 SP1+ 1,001,588
West Des Moines, IA, Commercial Development Revenue, Greyhound
Lines, Weekly Demand Note, 3.6%, 12/1/14* ................................... 6,400,000 A1+ 6,400,000
KENTUCKY
Kentucky Economic Development Finance Authority, Hospital Facilities
Revenue, Health Alliance, Series C, Weekly Demand Note,
3.7%, 1/1/22* ............................................................... 2,000,000 MIG1 2,000,000
MARYLAND
Anne Arundel County, MD, Baltimore Electric & Gas Company, Tax
Exempt Commercial Paper, 3.6%, 8/13/98 ...................................... 800,000 A1 800,000
MASSACHUSETTS
Massachusetts Bay Transportation Authority, Series 1997 B, 4.5%,
9/4/98 ...................................................................... 1,000,000 SP1+ 1,002,590
MICHIGAN
Cornell Township, MI, Economic Development Corp., Daily Demand
Note, 3.7%, 11/1/16* ........................................................ 1,500,000 A1+ 1,500,000
MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982,
Weekly Demand Note, 3.67%, 8/1/12* .......................................... 300,000 A1+ 300,000
NEBRASKA
Nebraska Public Power District, Tax Exempt Commercial Paper, 3.5%,
7/20/98 ..................................................................... 1,000,000 P1 1,000,000
NEVADA
Clark County, NV, Airport System, McCarran International Airport,
Series A, Weekly Demand Note, 3.65%, 7/1/12* (c) ............................ 5,100,000 A1+ 5,100,000
NEW HAMPSHIRE
New Hampshire Business Finance Authority, Connecticut Light & Power,
Weekly Demand Note, 3.65%, 12/1/22* ......................................... 1,700,000 A1+ 1,700,000
NEW MEXICO
Albuquerque, NM, Gross Receipts/Lodgers Tax, Series 1991, Weekly
Demand Note, 3.7%, 7/1/22* .................................................. 2,000,000 A1+ 2,000,000
NEW YORK
New York City, NY, Revenue Anticipation Notes, Series 1997 A, 4.5%,
6/30/98 ..................................................................... 1,000,000 SP1+ 1,001,563
NORTH CAROLINA
Raleigh Durham, NC, Airport Authority Special Facilities Revenue,
American Airlines:
Series 1995A, Floating Rate, 3.8%, 11/1/05* .............................. 2,000,000 A1+ 2,000,000
Series B, Daily Demand Note, 3.8%, 11/1/05* .............................. 1,000,000 A1+ 1,000,000
PENNSYLVANIA
Delaware County, PA, Pollution Control Revenue 1998 B, Philadelphia
Electric Company, Tax Exempt Commercial Paper, 3.5%, 4/28/98 ................ 1,800,000 A1+ 1,800,000
Philadelphia, PA, Tax and Revenue Anticipation Note, Series 1997A,
4.5%, 6/30/98 ............................................................... 2,000,000 MIG1 2,002,370
</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 1993A, 4.5%, 7/1/98 (c) .............................................. 2,000,000 AAA 2,002,904
Temple University of the Commonwealth, PA, Higher Education,
Series 1997, 4.75%, 5/18/98 (c) ............................................. 3,000,000 SP1+ 3,003,157
PUERTO RICO
Commonwealth of Puerto Rico, Tax and Revenue Anticipation Notes,
Series 1997 A, 4.5%, 7/30/98 ................................................ 1,000,000 SP1+ 1,002,415
SOUTH CAROLINA
South Carolina Public Service Authority, Tax Exempt Commercial Paper,
3.35%, 6/22/98 .............................................................. 1,000,000 A1 1,000,000
TENNESSEE
Franklin, TN, Industrial Development Revenue, Franklin Oaks
Apartments, Weekly Demand Note, Series 1985, 3.7%, 12/15/21* ................ 5,000,000 MIG1 5,000,000
TEXAS
Austin,TX, Utility System:
Series A, Tax Exempt Commercial Paper, 3.7%, 5/11/98 ........................ 1,000,000 A1+ 1,000,000
Series A, Tax Exempt Commercial Paper, 3.45%, 5/14/98 ....................... 1,600,000 A1+ 1,600,000
Harris County, TX, Children's Hospital, Series 1996, Weekly Demand
Note, 4.1%, 8/1/20* ......................................................... 1,000,000 A1+ 1,000,000
Harris County, TX, Health Facilities Authority, Saint Lukes, Daily Demand
Note, 3.75%, 2/15/27* ....................................................... 2,300,000 A1+ 2,300,000
North Central, TX, Health Facilities Development Corp., Presbyterian
Medical Center, Daily Demand Note, Series C, 3.75%, 12/1/15* ................ 1,500,000 MIG1 1,500,000
San Antonio, TX, Texas Electric & Gas City Public Services, Series
1995 A, Tax Exempt Commercial Paper, 3.45%, 5/12/98 ......................... 2,500,000 A1+ 2,500,000
State of Texas, General Obligation, Veterans Housing Assistance
Refunding Bonds, Series 1995, Weekly Demand Note, 3.65%,
12/1/16* .................................................................... 1,500,000 A1+ 1,500,000
State of Texas, Tax and Revenue Anticipation Note, Series 1998A, 4.75%,
8/31/98 ..................................................................... 1,000,000 A1+ 1,004,319
VERMONT
Vermont Educational & Health Buildings, Financing Agency Revenue,
Capital Asset Financing, Series 2005-A, Weekly Demand Note, 3.7%,
8/1/05* ..................................................................... 3,000,000 MIG1 3,000,000
WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand
Note, 3.65%, 11/1/18* ....................................................... 1,900,000 A1+ 1,900,000
Washington Health Care Facilities Authority, Fred Hutchinson Cancer
Research Center, Series-B, Daily Demand Note, 3.8%, 1/1/18* ................. 1,300,000 MIG1 1,300,000
WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding,
Pacificorp Project, 1990 Series A, Weekly Demand Note, 3.75%,
7/1/15* ..................................................................... 2,000,000 MIG1 2,000,000
-----------
Total Municipal Investments (Cost $99,229,067) 99,229,067
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
41
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $99,229,067) (a) .............................. 99.2 99,229,067
Other Assets and Liabilities, Net .............................................. 0.8 798,068
----- -----------
Net Assets ..................................................................... 100.0 100,027,135
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Floating rate and monthly, weekly, or daily demand notes are securities
whose interest rates vary with a designated market index or market rate,
such as the coupon-equivalent of the U.S. Treasury bill rate. Variable
rate demand notes are securities whose interest rates are reset
periodically at levels that are generally comparable to tax-exempt
commercial paper. These securities are payable on demand within seven
calendar days and normally incorporate an irrevocable letter of credit or
line of credit from a major bank. These notes are carried, for purposes of
calculating average weighted maturity, at the longer of the period
remaining until the next rate change or to the extent of the demand
period.
(a) At March 31, 1998, the cost for federal income tax purposes was
$99,229,067.
(b) (Unaudited) All of the securities held have been determined to be of
appropriate credit quality as required by the Fund's investment
objectives. Credit ratings shown are either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
Unrated securities (NR) and securities rated by Scudder Kemper have been
determined to be of comparable quality to rated eligible securities.
(c) (Unaudited) Bond is insured by one of these companies: AMBAC, FGIC, FSA,
BIG, or MBIA.
- --------------------------------------------------------------------------------
At September 30, 1997, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $655,541, of which $19,559
expires September 30, 1999, $323,801 expires September 30, 2000, $401
expires September 30, 2001, $89,046 expires September 30, 2003, $5,140
expires September 30, 2004, and $217,594 expires September 30, 2005. In
addition, from November 1, 1996 through September 30, 1997, the Fund
incurred approximately $102,679 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1998.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
42
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/98 at 5.85%
to be repurchased at $44,312,200 on 4/1/98, collateralized by a
$44,393,000 U.S. Treasury Note, 5.875%, 2/28/99 ...................................... 44,305,000 44,305,000
Repurchase Agreement with Salomon Brothers dated 3/31/98 at
5.85% to be repurchased at $50,008,125 on 4/1/98, collateralized by a
$37,445,000 U.S. Treasury Bond, 9.25%, 2/15/16 ....................................... 50,000,000 50,000,000
-------------
Total Repurchase Agreements (Cost $94,305,000) .......................................... 94,305,000
-------------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 4.0%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.5%, 1/31/03 ....................................................... 40,000,000 39,743,600
U.S. Treasury Note, 5.5%, 2/28/99 ....................................................... 40,000,000 39,981,200
U.S. Treasury Note, 6%, 6/30/99 ......................................................... 100,000,000 100,500,000
-------------
Total U.S. Treasury Obligations (Cost $180,665,625) 180,224,800
-------------
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 94.5%
- -----------------------------------------------------------------------------------------------------------------------------
6.5% with various maturities to 9/15/25 ................................................. 361,979,866 359,224,202
7% with various maturities to 3/15/28 ................................................... 1,066,823,176 1,080,171,328
7.125%, 7/15/24 ......................................................................... 1,088,675 1,116,230
7.5% with various maturities to 12/15/27 ................................................ 1,034,782,241 1,061,172,893
8.% with various maturities to 10/15/27 ................................................. 916,199,132 953,553,706
8.5% with various maturities to 9/15/22 ................................................. 143,292,651 152,254,762
9% with various maturities to 11/15/25 .................................................. 257,506,322 278,621,360
9.5% with various maturities to 9/15/24 ................................................. 193,436,834 209,992,664
10% with various maturities to 3/15/25 .................................................. 131,436,594 145,752,185
10.25%, 12/15/98 ........................................................................ 12,783 12,912
10.5% with various maturities to 1/20/21 ................................................ 12,530,679 14,003,107
11.5% with various maturities to 2/15/16 ................................................ 2,790,395 3,204,269
12% with various maturities to 7/15/15 .................................................. 5,659,794 6,591,050
12.5% with various maturities to 8/15/15 ................................................ 4,170,690 4,914,969
13% with various maturities to 8/20/15 .................................................. 733,302 871,772
13.5% with various maturities to 10/15/14 ............................................... 622,314 746,846
14% with various maturities to 12/15/14 ................................................. 265,548 316,752
14.5%, 10/15/14 ......................................................................... 93,932 113,423
15% with various maturities to 10/15/12 ................................................. 187,644 226,675
16%, 2/15/12 ............................................................................ 160,037 192,996
-------------
Total Government National Mortgage Association (Cost $4,189,236,752) .................... 4,273,054,101
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
43
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $4,464,207,377) (a) .................................... 100.6 4,547,583,901
Other Assets and Liabilities, Net ....................................................... (.6) (26,624,328)
----- -------------
Net Assets .............................................................................. 100.0 4,520,959,573
===== =============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $4,464,207,377 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 83,957,974
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (581,450)
------------
Net unrealized appreciation ............................... $ 83,376,524
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the six
months ended March 31, 1998 aggregated $1,916,577,336 and $1,284,657,747,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $140,181,250 and $893,289,648, respectively.
- --------------------------------------------------------------------------------
At September 30, 1997, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $316,261,626, all of which
expires September 30, 2003. In addition, from November 1, 1996 through
September 30, 1997, the Fund incurred approximately $6,993,048 of net
realized capital losses which the Fund intends to elect to defer and treat
as arising in the fiscal year ended September 30, 1998.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
44
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 0.4%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/98 at
5.75% to be repurchased at $1,623,259 on 4/1/98, collateralized by a
$1,620,000 U.S. Treasury Note, 6.375%, 7/15/99 (Cost $1,623,000) ..................... 1,623,000 1,623,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 11.5%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.5%, 2/29/00 ....................................................... 8,000,000 7,984,960
U.S. Treasury Note, 5.625%, 12/31/99 .................................................... 40,000,000 40,018,800
U.S. Treasury Note, 6.25%, 10/31/01 ..................................................... 3,000,000 3,056,250
-----------
Total U.S. Treasury Obligations (Cost $51,203,906) ...................................... 51,060,010
-----------
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 13.0%
- -----------------------------------------------------------------------------------------------------------------------------
7.5% with various maturities to 9/15/27 ................................................. 31,595,027 32,394,697
8% with various maturities to 4/15/27 ................................................... 24,381,871 25,244,726
-----------
Total Government National Mortgage Association (Cost $56,522,053) ....................... 57,639,423
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BACKED MORTGAGES* 14.4%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.53%, 2/3/00 ................................................... 20,000,000 19,928,200
Federal Home Loan Mortgage Corp., 7.74%, 9/1/24 ......................................... 8,227,156 8,557,558
Federal Home Loan Mortgage Corp., 8%, 4/1/08 ............................................ 7,168,559 7,343,113
Federal National Mortgage Association, 6.5%, 11/1/25 .................................... 10,591,892 10,489,256
Federal National Mortgage Association, 8%, with various maturities to 12/1/09 ........... 10,879,642 11,280,775
Federal National Mortgage Association, 8.5%, 11/1/09 .................................... 6,110,798 6,370,507
-----------
Total U.S. Government Backed Mortgages (Cost $63,822,052) ............................... 63,969,409
-----------
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S.$ DENOMINATED 8.3%
- -----------------------------------------------------------------------------------------------------------------------------
Abbey National PLC Global, Medium Term Note, 6.69%, 10/17/05 ............................ 10,000,000 10,186,500
Amoco Canada Petroleum Co., 7.25%, 12/1/02 .............................................. 6,000,000 6,283,320
Cable & Wireless PLC, 6.375%, 3/6/03 .................................................... 10,000,000 10,005,700
Sony Corp., 6.125%, 3/4/03 .............................................................. 10,500,000 10,475,745
-----------
Total Foreign Bonds-- U.S.$ Denominated (Cost $36,823,520) .............................. 36,951,265
-----------
- -----------------------------------------------------------------------------------------------------------------------------
ASSET BACKED 19.5%
- -----------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 3.0%
Ford Credit Automobile Trust, Series 1996-B A3, 6.1%, 3/15/00 ........................... 13,500,000 13,525,245
-----------
Credit Card Receivables 1.2%
Advanta Corp., Series 1997-1 A4, 7.65%, 5/25/27 ......................................... 5,000,000 5,145,313
-----------
Home Equity Loans 8.1%
Contimortgage Home Equity Loan Trust, Series 1997-3 M1-F, 7.31%, 8/15/28 ................ 10,000,000 10,168,750
First Plus, Series 1998-1 A4, 6.2%, 3/10/15 ............................................. 10,000,000 9,962,500
</TABLE>
The accompanying notes are an integral part of the financial statements
45
<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Saxon Asset Securities Trust, Series 1998-A, 7.05%, 12/25/27 ............................ 10,696,000 10,648,938
The Money Store Inc., Home Equity, Series 1997-A A6, 7.21%, 10/15/21 .................... 5,000,000 5,112,500
-----------
35,892,688
-----------
Manufactured Housing 7.2%
Associated Manufactured Housing Corp., Series 1997-1 B1, 7.6%, 6/15/28 .................. 3,750,000 3,768,750
Green Tree Financial Corp., Series 1995-10 B1, 7.05%, 2/15/27 ........................... 3,730,000 3,686,580
Green Tree Financial Corp., Series 1995-6 B1, 7.7%, 9/15/26 ............................. 4,500,000 4,532,310
Green Tree Financial Corp., Series 1996-10 B2, 7.74%, 11/15/28 .......................... 8,000,000 7,407,440
Green Tree Financial Corp., Series 1997-1 B1, 7.23%, 3/15/28 ............................ 4,000,000 3,965,625
Green Tree Financial Corp., Series 1997-1 B2, 7.76%, 3/15/28 ............................ 2,600,000 2,434,555
Green Tree Financial Corp., Series 1997-2 B2, 8.05%, 4/15/28 ............................ 1,500,000 1,437,246
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/11 ............... 4,500,000 4,601,250
-----------
31,833,756
-----------
Total Asset Backed (Cost $86,826,953) ................................................... 86,397,002
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 32.2%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Staples 2.3%
Bass America Inc., 6.625%, 3/1/03 ....................................................... 10,000,000 10,147,500
Financial 22.4%
American Express Co., Senior Note, 6.125%, 11/15/01 ..................................... 5,000,000 4,999,650
Associates Corp. of North America, 5.85%, 1/15/01 ....................................... 5,000,000 4,975,000
Associates Corp. of North America, 6.625%, 5/15/01 ...................................... 15,000,000 15,233,250
Bank One Milwaukee N.A., 6.625%, 4/15/03 ................................................ 5,000,000 5,079,200
CIT Group Holdings Inc., 6.375%, 8/1/02 ................................................. 5,940,000 5,967,383
Citicorp, 8.03%, 2/15/00 ................................................................ 10,000,000 10,369,200
Continental Bank N.A., 7.875%, 2/1/03 ................................................... 12,000,000 12,766,440
EOP Operating L.P., 6.375%, 2/15/03 ..................................................... 6,000,000 5,939,880
First USA Bank, 5.85%, 2/22/01 .......................................................... 10,000,000 9,921,900
Norwest Financial Inc., 6.375%, 9/15/02 ................................................. 10,000,000 10,056,300
Shurgard Storage Centers, Inc. (REIT), 7.5%, 4/25/04 .................................... 5,500,000 5,657,740
Taubman Realty Group L.P., Medium Term Note, 7%, 10/1/03 ................................ 8,250,000 8,350,815
-----------
99,316,758
-----------
Media 1.2%
TCI Communications Inc., 6.375%, 9/15/99 ................................................ 5,500,000 5,521,175
-----------
Manufacturing 2.0%
Pitney Bowes Credit Corp., 5.65%, 1/15/03 ............................................... 9,000,000 8,850,690
-----------
Technology 2.1%
Raytheon Co., 6.45%, 8/15/02 ............................................................ 9,000,000 9,075,690
-----------
Utilities 2.2%
PacifiCorp, 6.15%, 1/15/08 .............................................................. 10,000,000 9,827,000
-----------
Total Corporate Bonds (Cost $142,775,451) ............................................... 142,738,813
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Contracts Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
Put on U.S. Treasury Bond Future, strike price 120, expires 5/16/98
(Cost $56,384) ....................................................................... 64 86,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $439,653,319) (a) ...................................... 99.3 440,464,922
Other Assets and Liabilities, Net ....................................................... 0.7 3,194,120
----- -----------
Net Assets .............................................................................. 100.0 443,659,042
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $439,653,319 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 3,187,229
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (2,375,626)
------------
Net unrealized appreciation ............................... $ 811,603
===========
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1998 was $1,099,680,000.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the six
months ended March 31, 1998 aggregated $200,901,927 and $142,312,897,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $166,012,970 and $209,253,809, respectively.
- --------------------------------------------------------------------------------
At September 30, 1997, and to the extent provided in regulations, the Fund
had a capital loss carryforward of approximately $8,993,357, of which
$7,756,158 expires September 30, 2003, and $1,237,199 expires September
30, 2005. In addition, from November 1, 1996 through September 30, 1997,
the Fund incurred approximately $1,252,429 of net realized capital losses
which the Fund intends to elect to defer and treat as arising in the
fiscal year ended September 30, 1998.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
47
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS 1.2%
- -----------------------------------------------------------------------------------------------------------------------------
ARIZONA
Arizona Educational Loan Marketing Corp., Educational Loan Revenue,
35 Day Auction, Series 1997A, 3.7%, 12/1/02 (e) ............................. 3,000,000 AA 3,000,000
CALIFORNIA
Los Angeles, CA, Regional Airport Improvement Lease, Series 1985,
Variable Demand Note, 3.75%, 12/1/25* ....................................... 200,000 A1+ 200,000
State of California, Revenue Anticipation Note, 4.5%, 6/30/98 .................. 5,000,000 MIG1 5,008,600
KANSAS
Burlington, KS, Environmental Improvement Revenue, Kansas City
Power & Light, Periodic Auction Reset, 3.7%, 12/1/23 (e) .................... 2,250,000 A 2,250,000
NEW YORK
New York City, NY, Revenue Anticipation Notes, Series 1997 A, 4.5%,
6/30/98 ..................................................................... 3,000,000 SP1+ 3,004,860
SOUTH CAROLINA
South Carolina Jobs - Economic Development Authority, Franciscan
Sisters of the Poor, St. Francis Hospital, Variable Rate Daily Demand
Note, 3.75%, 7/1/22* ........................................................ 200,000 MIG1 200,000
TEXAS
Harris County, TX, Health Facilities Authority, Saint Lukes, Daily
Demand Note, 3.75%, 2/15/27* ................................................ 2,500,000 A1+ 2,500,000
North Central, TX, Health Facilities Development Corp., Presbyterian
Medical Center, Daily Demand Note, Series C, 3.75%, 12/1/15* (c) ............ 400,000 MIG1 400,000
State of Texas, Tax and Revenue Anticipation Note, Series 1998A, 4.75%,
8/31/98 ..................................................................... 4,000,000 MIG1 4,017,040
-------------
Total Short-Term Municipal Investments (Cost $20,583,618) 20,580,500
-------------
- -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS 97.9%
- -----------------------------------------------------------------------------------------------------------------------------
ALASKA
Alaska Housing Finance Corp., Veterans Mortgage Project, 8.1%, 9/1/20 .......... 2,775,000 AAA 2,825,228
Anchorage, AK, Electric Utility Revenue, 6.5%, 12/1/07 ......................... 2,620,000 AAA 3,020,231
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series 1997A, Zero Coupon, 6/30/08 (c) ...................................... 7,000,000 AAA 4,317,740
Series A, Zero Coupon, 6/30/06 (c) .......................................... 4,000,000 AAA 2,735,320
Series B, Zero Coupon, 1/1/03 (c) ........................................... 16,000,000 AAA 12,975,520
Series B, Zero Coupon, 6/30/04 (c) .......................................... 15,500,000 AAA 11,729,315
Series B, Zero Coupon, 6/30/05 (c) .......................................... 25,600,000 AAA 18,396,416
ARIZONA
Arizona Municipal Finance Program, Certificate of Participation,
Series 25, 7.875%, 8/1/14 (c) ............................................... 3,500,000 AAA 4,656,120
Maricopa County, AZ, School District #6, Washington Elementary,
Series B, 4.1%, 7/1/13 (c) .................................................. 2,950,000 AAA 2,658,334
Maricopa County, AZ, School District #28, Kyrene Elementary, Series B,
Zero Coupon, 1/1/04 (c) ..................................................... 4,000,000 AAA 3,103,920
</TABLE>
The accompanying notes are an integral part of the financial statements
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maricopa County, AZ, Unified School District #41, Gilbert School, Zero
Coupon, 1/1/05 (c) .......................................................... 5,280,000 AAA 3,894,581
CALIFORNIA
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/09 (c) .......................................................... 8,995,000 AAA 9,614,126
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/19 (c) .............................................................. 960,000 AAA 1,294,742
8%, 1/1/19 (c) .............................................................. 1,080,000 AAA 1,456,585
Big Bear Lake, CA, Series 1996, 6%, 4/1/11 (c) ................................. 3,800,000 AAA 4,288,376
California Housing Finance Agency:
5.3%, 8/1/14 (c) ............................................................ 3,100,000 AAA 3,166,340
5.7%, 8/1/16 (c) ............................................................ 4,775,000 AAA 4,979,131
California State Public Works Board, Lease Revenue, Series A, 6.3%,
12/1/06 (c) (d) ............................................................. 8,095,000 AAA 9,241,657
Los Angeles County, CA, Public Works Authority:
Series 1996A, 6%, 9/1/04 (c) ................................................ 2,920,000 AAA 3,218,015
Series 1996B, 5.25%, 9/1/11 (c) ............................................. 3,000,000 AAA 3,119,520
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/06 (c) ................. 9,000,000 AAA 10,034,550
Los Angeles County, CA, Public Works Finance Authority, Lease
Revenue, Multiple Projects IV, 4.75%, 12/1/10 (c) ........................... 11,140,000 AAA 11,174,868
Madera County, CA, Certificates of Participation, Valley Childrens
Hospital, 6.5%, 3/15/10 (c) ................................................. 2,840,000 AAA 3,329,048
Oakland, CA, Redevelopment Agency, Tax Allocation, 6%, 2/1/07 (c) .............. 2,000,000 AAA 2,239,760
Riverside, CA, Transportation Commission, Sales Tax Revenue, Series A,
5.7%, 6/1/06 (c) ............................................................ 5,400,000 AAA 5,915,646
San Diego Water Authority, CA, Certificate of Participation:
5.632%, 4/25/07 (c) ......................................................... 6,300,000 AAA 6,868,827
5.681%, 4/22/09 (c) ......................................................... 4,500,000 AAA 4,925,835
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue
Refunding, 6.75%, 7/1/10 (c) ................................................ 2,000,000 AAA 2,394,920
San Joaquin, CA, Certificate of Participation, County Public Facilities
Project, 5.5%, 11/15/13 (c) ................................................. 2,000,000 AAA 2,143,400
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road
Revenue, Capital Appreciation, Refunding, Series 1997A, Zero
Coupon, 1/15/12 (c) ......................................................... 3,000,000 AAA 1,514,310
Sweetwater Authority, CA, Water Revenue, 5.25%, 4/1/10 (c) ..................... 10,000,000 AAA 10,584,800
Three Valleys, CA, Municipal Water District, Certificates of Participation,
5%, 11/1/14 (c) ............................................................. 3,000,000 AAA 2,989,830
Whittier, CA, Presbyterian Intercommunity Hospital, Health Facilities
Revenue, 6.25%, 6/1/08 (c) .................................................. 1,780,000 AAA 2,028,648
COLORADO
Castle Rock Ranch, CO, Public Facilities Revenue:
6.3%, 12/1/07 ............................................................... 3,115,000 AA 3,500,450
6.4%, 12/1/08 ............................................................... 3,310,000 AA 3,756,718
6.375%, 12/1/11 ............................................................. 2,000,000 AA 2,278,320
Mesa County, CO, Residual Revenue, Single Family Housing, ETM,
Series 1992, Zero Coupon, 12/1/11 (c) ....................................... 6,435,000 AAA 3,285,389
CONNECTICUT
Connecticut Resource Recovery Authority:
</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
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1996, 6.25%, 11/15/05 (c) ............................................ 2,000,000 AAA 2,238,660
Series 1996A, 6.25%, 11/15/06 (c) ........................................... 4,525,000 AAA 5,095,784
Connecticut State Health Facility Authority, Series 1992B, 6.15%,
11/15/04 .................................................................... 5,000,000 AA 5,282,100
DISTRICT OF COLUMBIA
District of Columbia, General Obligation:
6.5%, 6/1/10 (c) ............................................................ 2,270,000 AAA 2,624,597
Refunding, 1993 Series A, 5.875%, 6/1/05 (c) ................................ 4,750,000 AAA 5,146,008
Series A, Prerefunded 6/1/99 at 102, 7.5%, 6/1/09*** (c) .................... 5,000,000 AAA 5,307,450
Series B, 6.125%, 6/1/03 (c) ................................................ 4,000,000 AAA 4,327,000
Series B, 5.4%, 6/1/06 (c) (d) .............................................. 18,905,000 AAA 19,989,580
Series B, 5.5%, 6/1/07 (c) (d) .............................................. 25,000,000 AAA 26,665,750
Series B, 5.5%, 6/1/08 (c) (d) .............................................. 21,300,000 AAA 22,698,771
Series B, 5.5%, 6/1/09 (c) (d) .............................................. 16,150,000 AAA 17,218,000
Series B, 5.5%, 6/1/09 (c) .................................................. 2,840,000 AAA 3,027,809
Series B, 5.5%, 6/1/10 (c) (d) .............................................. 15,590,000 AAA 16,600,544
Series B, 5.5%, 6/1/12 (c) .................................................. 1,050,000 AAA 1,115,951
Series B, Zero Coupon, 6/1/00 (c) ........................................... 3,500,000 AAA 3,204,005
Series B3, 5.4%, 6/1/06 (c) ................................................. 10,000,000 AAA 10,573,700
FLORIDA
Florida Department of Environmental Preservation, Series A, 4.75%,
7/1/12 (c) .................................................................. 10,000,000 AAA 9,796,500
Florida Municipal Power Agency, Stanton II Project, 4.5%, 10/1/16 (c) .......... 4,400,000 AAA 4,061,420
GEORGIA
Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%,
4/1/11 (c) .................................................................. 2,305,000 AAA 2,503,622
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/11 (c) ........................................ 6,975,000 AAA 7,344,326
Municipal Electrical Authority Power Revenue, Series Y, 6.4%, 1/1/13 ........... 3,500,000 AAA 4,046,455
HAWAII
State of Hawaii, General Obligation, Series 1992 BZ, 6%, 10/1/09 (c) ........... 2,000,000 AAA 2,247,900
ILLINOIS
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue,
Zero Coupon, 5/1/02 (c) ..................................................... 2,245,000 AAA 1,884,722
Chicago, IL, Board of Education, 6.125%, 1/1/06 (c) ............................ 4,000,000 AAA 4,429,280
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/09 (c) (d) ........................................................ 11,990,000 AAA 12,864,671
5.5%, 1/1/10 (c) ............................................................ 7,220,000 AAA 7,749,876
Chicago, IL, General Obligation:
6.25%, 1/1/11 (c) ........................................................... 3,000,000 AAA 3,426,420
Emergency Telephone System, 5.55%, 1/1/08 (c) (d) ........................... 5,820,000 AAA 6,259,526
Series A, 5.375%, 1/1/13 (c) (d) ............................................ 15,410,000 AAA 16,220,874
Series B, 5%, 1/1/10 (c) .................................................... 5,200,000 AAA 5,334,524
Series B, 5%, 1/1/11 (c) .................................................... 1,620,000 AAA 1,658,281
Series B, 5.125%, 1/1/15 (c) ................................................ 9,550,000 AAA 9,738,040
Chicago, IL, General Obligation Lease, Board of Education:
Series 1996, 6.25%, 12/1/11 (c) ............................................. 1,600,000 AAA 1,833,904
Series A, 6.25%, 1/1/10 (c) ................................................. 11,550,000 AAA 13,095,275
Series A, 6.25%, 1/1/15 (c) (d) ............................................. 26,000,000 AAA 29,719,300
</TABLE>
The accompanying notes are an integral part of the financial statements
50
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A, 6%, 1/1/16 (c) .................................................... 11,025,000 AAA 12,297,395
Series A, 6%, 1/1/20 (c) .................................................... 36,625,000 AAA 41,130,593
Chicago, IL, Public Building Commission, Building Revenue:
Series A, 5.25%, 12/1/07 (c) ................................................ 3,500,000 AAA 3,698,100
Series A, 5.25%, 12/1/09 (c) (d) ............................................ 10,420,000 AAA 10,996,643
Series A, 5.25%, 12/1/11 (c) ................................................ 9,705,000 AAA 10,188,115
Chicago, IL, Public Building Commission, Board of Education, Series A,
Zero Coupon, 1/1/06 (c) ..................................................... 2,430,000 AAA 1,710,769
Chicago, IL, O'Hare International Airport, Refunding Revenue:
Series 1996A, 6%, 1/1/06 (c) ................................................ 2,000,000 AAA 2,194,300
Series C, 5%, 1/1/11 (c) .................................................... 6,500,000 AAA 6,634,875
Cook & Dupage Counties, IL, Housing Development Authority:
Zero Coupon, 12/1/07 (c) .................................................... 2,550,000 AAA 1,632,077
Zero Coupon, 12/1/08 (c) .................................................... 2,625,000 AAA 1,594,268
Zero Coupon, 12/1/09 (c) .................................................... 2,860,000 AAA 1,644,500
Cook County, IL, General Obligation:
Series C, 6%, 11/15/07 (c) .................................................. 5,000,000 AAA 5,584,350
Zero Coupon, ETM, 11/1/04** (c) ............................................. 3,205,000 AAA 2,398,782
Cook County, IL, Community High School District #233, Capital
Appreciation:
Series 1993 B, Zero Coupon, 12/1/08 (c) .................................. 1,700,000 AAA 1,032,478
Series 1993 B, Zero Coupon, 12/1/09 (c) .................................. 1,700,000 AAA 977,500
Series 1993 B, Zero Coupon, 12/1/10 (c) .................................. 1,665,000 AAA 901,797
Decatur, IL, General Obligation:
Public Building Commission, Certificate of Participation:
6.5%, 1/1/03 (c) ......................................................... 1,725,000 AAA 1,889,444
6.5%, 1/1/06 (c) ......................................................... 1,500,000 AAA 1,696,425
Series 1991, Zero Coupon, 10/1/03 (c) ....................................... 1,455,000 AAA 1,144,023
Series 1991, Zero Coupon, 10/1/04 (c) ....................................... 1,415,000 AAA 1,061,604
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation,
Junior Lien, Series 1991, Zero Coupon, 5/15/07 .............................. 17,460,000 A 11,307,096
Illinois Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/11 (c) ......................................................... 3,000,000 AAA 3,455,820
6.25%, 12/15/20 (c) ......................................................... 6,975,000 AAA 7,991,467
Series A, 6.5%, 12/15/07 (c) ................................................ 4,765,000 AAA 5,519,538
Series A, 6.5%, 12/15/08 (c) ................................................ 5,255,000 AAA 6,120,236
Illinois Educational Facilities Authority, Loyola University:
1991 Series A, Zero Coupon, 7/1/04 (c) ...................................... 2,860,000 AAA 2,169,567
Zero Coupon, 7/1/05 (c) ..................................................... 4,000,000 AAA 2,882,600
Illinois Health Facilities Authority:
Brokaw-Mennonite Healthcare:
6%, 8/15/06 (c) .......................................................... 1,380,000 AAA 1,518,952
6%, 8/15/07 (c) .......................................................... 1,460,000 AAA 1,615,286
6%, 8/15/08 (c) .......................................................... 1,550,000 AAA 1,716,517
6%, 8/15/09 (c) .......................................................... 1,640,000 AAA 1,815,382
Children's Memorial Hospital, 6.25%, 8/15/13 (c) ............................ 3,400,000 AAA 3,875,558
Felician Healthcare Inc., Series A, 6.25%, 12/1/15 (c) (d) .................. 17,000,000 AAA 19,369,120
Memorial Medical Center, 6.75%, 10/1/11 (c) ................................. 2,135,000 AAA 2,313,913
Methodist Health Service, Series 1985 G, 8%, 8/1/15 (c) ..................... 9,880,000 AAA 10,477,444
</TABLE>
The accompanying notes are an integral part of the financial statements
51
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sherman Hospital, 6.75%, 8/1/11 (c) ......................................... 2,700,000 AAA 2,966,004
SSM Healthcare System, 6.4%, 6/1/08 (c) ..................................... 1,350,000 AAA 1,536,044
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus
Extension Center, 6.7%, 9/1/12 (c) .......................................... 2,500,000 AAA 2,990,600
Kane County, IL, Series 1996A, 6.5%, 2/1/10 (c) ................................ 1,775,000 AAA 2,060,580
Kane, Cook and Dupage Counties, IL, School District #46 Elgin:
Series 1996B, Zero Coupon, 1/1/11 (c) ....................................... 1,040,000 AAA 554,081
Series 1996B, Zero Coupon, 1/1/12 (c) ....................................... 1,300,000 AAA 650,442
Series 1996B, Zero Coupon, 1/1/13 (c) ....................................... 2,095,000 AAA 989,594
Kendall, Kane and Will Counties, IL, Community Unit School District Number 308,
Oswego:
Zero Coupon, 3/1/02 (c) .................................................. 1,055,000 AAA 892,045
Zero Coupon, 3/1/05 (c) .................................................. 1,540,000 AAA 1,126,649
Zero Coupon, 3/1/06 (c) .................................................. 1,595,000 AAA 1,111,029
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project:
Series 1994, Zero Coupon, 6/15/13 (c) .................................... 5,625,000 AAA 2,596,219
Zero Coupon, 12/15/03 (c) ................................................ 3,200,000 AAA 2,493,568
Zero Coupon, 6/15/04 (c) ................................................. 10,300,000 AAA 7,828,824
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply
System Revenue, 6.45%, 5/1/07 (c) ........................................... 2,575,000 AAA 2,940,109
Rosemont, IL, Tax Increment:
Series C, Zero Coupon, 12/1/05 (c) .......................................... 4,455,000 AAA 3,150,621
Series C, Zero Coupon, 12/1/07 (c) .......................................... 2,655,000 AAA 1,699,280
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/11 (c) .............. 3,000,000 AAA 1,527,570
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/03 (c) ................................................................. 2,750,000 AAA 2,162,243
University of Illinois, Board of Trustees:
Series 1991, Zero Coupon, 4/1/03 (c) ........................................ 3,890,000 AAA 3,126,199
Series 1991, Zero Coupon, 4/1/05 (c) ........................................ 3,830,000 AAA 2,791,457
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/00 (c) ................................................ 1,325,000 AAA 1,187,836
Zero Coupon, 12/15/01 (c) ................................................ 1,730,000 AAA 1,481,434
INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, Series A, 6.5%,
11/15/12 (c) ................................................................ 1,400,000 AAA 1,474,102
Indiana Health Facilities Finance Authority:
Series 1990A, 6%, 7/1/03 (c) ................................................ 1,570,000 AAA 1,692,586
Series 1990A, 6%, 7/1/04 (c) ................................................ 1,665,000 AAA 1,810,005
Series 1990A, 6%, 7/1/05 (c) ................................................ 1,765,000 AAA 1,928,227
Series 1990A, 6%, 7/1/06 (c) ................................................ 1,875,000 AAA 2,061,469
Series 1990A, 6%, 7/1/07 (c) ................................................ 1,985,000 AAA 2,193,862
Series 1990A, 6%, 7/1/09 (c) ................................................ 1,125,000 AAA 1,248,446
Series 1990A, 6%, 7/1/10 (c) ................................................ 1,185,000 AAA 1,316,618
Series 1990A, 6%, 7/1/11 (c) ................................................ 1,260,000 AAA 1,402,934
Series 1990A, 6%, 7/1/12 (c) ................................................ 1,345,000 AAA 1,498,276
Series 1990A, 6%, 7/1/13 (c) ................................................ 1,420,000 AAA 1,581,426
Series 1990A, 6%, 7/1/14 (c) ................................................ 1,505,000 AAA 1,674,508
</TABLE>
The accompanying notes are an integral part of the financial statements
52
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1990A, 6%, 7/1/15 (c) ................................................ 1,600,000 AAA 1,781,360
Series 1990A, 6%, 7/1/16 (c) ................................................ 1,700,000 AAA 1,893,103
Series 1990A, 6%, 7/1/17 (c) ................................................ 1,800,000 AAA 2,004,066
Series 1990A, 6%, 7/1/18 (c) ................................................ 1,910,000 AAA 2,133,069
Series 1997A, 6%, 7/1/08 (c) ................................................ 1,085,000 AAA 1,200,466
Indiana Health Facilities Finance Authority, Hospital Revenue:
Community Hospitals Project, 6%, 7/1/01 (c) ................................. 1,395,000 AAA 1,472,171
Community Hospitals Project, 6.4%, 5/1/12 (c) ............................... 5,000,000 AAA 5,399,400
Tax Exempt Custodian Receipts Refund, Series 1997A, 6%, 7/1/02 (c) .......... 1,480,000 AAA 1,580,226
Indiana University, Revenue Refunding:
Series H, Zero Coupon, 8/1/06 (c) ........................................... 8,500,000 AAA 5,790,285
Student Fee Revenue, Series H, Zero Coupon, 8/1/08 (c) ...................... 10,000,000 AAA 6,144,000
Merrillville, IN, Multiple School Building Corp., First Mortgage, Zero
Coupon, 1/15/11 (c) ......................................................... 4,000,000 AAA 2,116,400
IOWA
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c) ............................ 5,000,000 AAA 5,482,150
KANSAS
Kansas City, KS, Utility System Revenue:
Capital Appreciation, Prerefunded, Zero Coupon, 3/1/01*** (c) ............... 4,095,000 AAA 3,629,562
ETM, Zero Coupon, 9/1/04** (c) .............................................. 3,575,000 AAA 2,700,484
ETM, Zero Coupon, 9/1/05** (c) .............................................. 5,300,000 AAA 3,810,117
ETM, Zero Coupon, 9/1/06** (c) .............................................. 1,875,000 AAA 1,283,944
Zero Coupon, 9/1/04 (c) ..................................................... 2,640,000 AAA 2,001,754
Zero Coupon, 9/1/05 (c) ..................................................... 3,950,000 AAA 2,847,871
Zero Coupon, 9/1/06 (c) ..................................................... 1,375,000 AAA 944,666
Wamego, KS, Pollution Control Revenue, 3.57%, 4/15/32 (c) ...................... 1,950,000 AAA 1,950,000
LOUISIANA
Louisiana Public Facilities Authority, Prerefunded 2/15/08 at 100, 4.75%,
5/1/16*** ................................................................... 5,765,000 AAA 5,906,300
New Orleans, LA, General Obligation:
Zero Coupon, 7/15/06 (c) .................................................... 4,850,000 AAA 3,068,498
Zero Coupon, 9/1/07 (c) ..................................................... 10,000,000 AAA 6,540,500
New Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986,
5.95%, 11/1/14 (c) .......................................................... 1,890,000 AAA 2,054,506
MARYLAND
Baltimore, MD, Revenue Exchanged, Auto Parking Revenue, Series
1996A, 5.9%, 7/1/12 (c) ..................................................... 3,100,000 AAA 3,455,570
MASSACHUSETTS
Commonwealth of Massachusetts, General Obligation, Series D, 7%,
10/1/03 (c) ................................................................. 7,000,000 AAA 7,465,500
MICHIGAN
Detroit, MI, General Obligation, Distributable State Aid Refunding, 5.25%,
5/1/08 (c) .................................................................. 1,500,000 AAA 1,585,335
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue, Borgess
Medical Center, Series A, 6%, 7/1/09 (c) .................................... 8,250,000 AAA 8,479,185
Michigan Hospital Finance Authority, Sisters of Mercy Healthcorp
Obligated Group, Series P, 5.25%, 8/15/08 (c) ............................... 8,655,000 AAA 9,129,034
</TABLE>
The accompanying notes are an integral part of the financial statements
53
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MINNESOTA
Northern Minnesota Municipal Power Agency, Series 1989A, 7.25%,
1/1/16 ...................................................................... 7,500,000 A 7,818,150
MISSOURI
Missouri Health & Educational Facilities Authority, SSM Healthcare:
1992 Series AA, 6.35%, 6/1/08 (c) ........................................... 8,125,000 AAA 9,318,481
1992 Series AA, 6.4%, 6/1/09 (c) ............................................ 8,640,000 AAA 9,969,264
NEVADA
Clark County, NV, School District:
General Obligation, Series B, Zero Coupon, 3/1/05 (c) ....................... 8,070,000 AAA 5,907,966
Series 1991B, Zero Coupon, 3/1/09 (c) ....................................... 4,350,000 AAA 2,594,601
NEW JERSEY
New Jersey Highway Authority, ETM, 6.5%, 1/1/11** .............................. 4,596,000 AAA 5,169,213
New Jersey Housing and Finance Agency, Home Mortgage Purchase
Revenue, Zero Coupon, 10/1/16 (c) ........................................... 3,980,000 AAA 632,462
New Jersey Turnpike Authority:
6.5%, 1/1/09 (c) ............................................................ 5,000,000 AAA 5,770,600
Series 1991A, 6.3%, 1/1/01 (c) .............................................. 1,250,000 AAA 1,322,000
NEW YORK
New York City, NY, General Obligation:
5.9%, 2/1/05 (c) ............................................................ 5,500,000 AAA 5,965,080
Prerefunded, D, 1998, 6%, 8/1/08*** (c) ..................................... 215,000 AAA 221,429
Prerefunded 1997, D, 6%, 8/1/06*** (c) ...................................... 55,000 AAA 56,586
Series 1991 A, 3%, 8/15/02 (c) .............................................. 9,000,000 AAA 8,582,850
Series A, 8%, 11/1/01 (c) ................................................... 740,000 AAA 789,876
Series C, 6.4%, 8/1/04 (c) .................................................. 225,000 AAA 245,860
Series C, 6.4%, 8/1/05 (c) .................................................. 195,000 AAA 212,191
Series C, Prerefunded 8/1/02 at 101.50, 6.4%, 8/1/05*** (c) ................. 10,235,000 AAA 11,289,000
Series D, 8%, 8/1/05 (c) .................................................... 5,000 AAA 5,143
Series E, ETM, 7%, 12/1/07** (c) ............................................ 1,385,000 AAA 1,413,212
Unrefunded Bal, D, 1998, 6%, 8/1/08 (c) ..................................... 155,000 AAA 159,390
Unrefunded Bal-1997, D, 6%, 8/1/06 (c) ...................................... 85,000 AAA 87,318
Series C, Prerefunded 8/1/02 at 101.50, 6.4%, 8/1/04*** (c) ................. 275,000 AAA 303,320
New York State Dormitory Authority:
College and University Pooled Capital Program, 7.8%, 12/1/05 (c) ............ 8,840,000 AAA 9,207,479
State University of New York, 6%, 7/1/09 (c) ................................ 2,000,000 AAA 2,238,000
New York State Dormitory Authority Revenue, City University:
Series C, 7.5%, 7/1/10 (c) .................................................. 5,750,000 AAA 7,217,515
Series D, 7%, 7/1/09 (c) .................................................... 4,000,000 AAA 4,804,120
New York State Energy Research and Development Authority, Pollution
Control Revenue, Electric and Gas, 5.9%, 12/1/06 (c) ........................ 5,300,000 AAA 5,851,306
New York State, Urban Development Authority, Correctional Facilities,
6.5%, 1/1/11 (c) ............................................................ 4,500,000 AAA 5,246,280
Suffolk County, NY, Industrial Development Agency, Southwest Sewer
System, 6%, 2/1/07 (c) ...................................................... 8,000,000 AAA 8,853,840
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency:
5.5%, 1/1/07 (c) ............................................................ 2,000,000 AAA 2,138,720
</TABLE>
The accompanying notes are an integral part of the financial statements
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Power System Revenue, Series B, 6%, 1/1/18 (c) .............................. 8,775,000 AAA 9,796,761
North Carolina Municipal Power Agency, Number One, Catawba Electric
Power Revenue:
5.25%, 1/1/08 (c) ........................................................ 2,500,000 AAA 2,634,375
6%, 1/1/11 (c) ........................................................... 8,235,000 AAA 9,227,070
Series 1992, 7.25%, 1/1/07 (c) ........................................... 5,000,000 AAA 5,959,050
Series 1997, 6%, 1/1/08 (c) .............................................. 2,585,000 AAA 2,875,166
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,
Zero Coupon, 5/1/02 (c) ..................................................... 2,850,000 AAA 2,388,015
OHIO
Cleveland, OH, Water Works Revenue, Series 1993G,
5.5%, 1/1/13 (c) (d) ........................................................ 10,000,000 AAA 10,689,300
Hamilton County, OH, Electric System Mortgage Revenue, Series B,
Prerefunded 10/15/98 at 102, 8%, 10/15/22*** (c) ............................ 3,720,000 AAA 3,879,662
Ohio Air Quality Development Authority, Ohio Power Company,
Series B, 7.4%, 8/1/09 (c) .................................................. 5,000,000 AAA 5,311,250
OKLAHOMA
Tulsa, OK, Industrial Development Authority, Hospital Revenue,
St. John's Medical Center:
Zero Coupon, 12/1/02 (c) ................................................. 3,930,000 AAA 3,234,115
Zero Coupon, 12/1/04 (c) ................................................. 5,430,000 AAA 4,073,043
Zero Coupon, 12/1/06 (c) ................................................. 6,430,000 AAA 4,368,606
PENNSYLVANIA
Pennsylvania Industrial Development Authority, Economic Development
Revenue:
5.8%, 1/1/08 (c) ......................................................... 4,250,000 AAA 4,625,828
5.8%, 7/1/08 (c) ......................................................... 4,875,000 AAA 5,323,451
Philadelphia, PA, Water & Wastewater Refunding Revenue:
5.5%, 6/15/07 (c) ........................................................... 5,000,000 AAA 5,345,850
5.625%, 6/15/09 (c) ......................................................... 20,000,000 AAA 21,686,600
5.625%, 6/15/09 (c) ......................................................... 10,855,000 AAA 11,770,402
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/11 (c) .............................. 7,300,000 AAA 7,766,470
PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation Authority
Revenue, 5.5%, 7/1/09 (c) ................................................... 10,940,000 AAA 11,836,314
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 2,092,580
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993 B, 5%, 5/15/10 (c) .............................................. 5,000,000 AAA 5,137,150
Series 1993 B, 5.25%, 5/15/15 (c) (d) ....................................... 22,000,000 AAA 22,703,340
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, 8/1/10 (c) .................................................. 6,200,000 AAA 6,893,904
Series B, 5.8%, 8/1/11 (c) .................................................. 4,525,000 AAA 5,023,157
Series B, 5.8%, 8/1/12 (c) .................................................. 2,500,000 AAA 2,764,975
Series B, 5.8%, 8/1/13 (c) .................................................. 7,340,000 AAA 8,112,829
</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
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH CAROLINA
Piedmont Municipal Power Agency, SC, Electric Revenue:
5.5%, 1/1/12 (c) ............................................................ 2,810,000 AAA 3,006,110
Series 1991 A, 6.5%, 1/1/16 (c) ............................................. 2,570,000 AAA 3,033,268
Series 1991 A, ETM, 6.5%, 1/1/16** (c) ...................................... 430,000 AAA 509,774
Series 1993, 5.5%, 1/1/08 (c) ............................................... 1,075,000 AAA 1,155,496
Series 1993, ETM, 5.5%, 1/1/12** (c) ........................................ 2,190,000 AAA 2,354,272
Series 1993, ETM, 5.5%, 1/1/08** (c) ........................................ 840,000 AAA 907,712
TENNESSEE
Knox County, TN, Health & Educational Hospital Facilities Board, Fort
Sanders Alliance:
5.75%, 1/1/11 (c) ........................................................ 15,405,000 AAA 16,833,506
5.75%, 1/1/12 (c) ........................................................ 17,880,000 AAA 19,498,498
6.25%, 1/1/13 (c) ........................................................ 4,000,000 AAA 4,566,560
Knox County, TN, Health, Education and Housing Facilities Board:
5.75%, 1/1/14 (c) ........................................................... 2,000,000 AAA 2,187,220
Fort Sanders Alliance, 7.25%, 1/1/09 (c) .................................... 3,750,000 AAA 4,545,863
TEXAS
Austin, TX, Utility Systems Revenue Refunding, Series A, Zero Coupon,
11/15/08 (c) ................................................................ 3,460,000 AAA 2,101,431
Austin, TX, Combined Utility System Revenue, Zero Coupon,
11/15/09 (c) ................................................................ 5,020,000 AAA 2,886,048
Bexar County, TX, Health Facilities Development Corp., Baptist Health
System:
Series 1997A, 6%, 11/15/11 (c) ........................................... 2,000,000 AAA 2,231,460
Series 1997, 6%, 11/15/12 (c) ............................................ 3,000,000 AAA 3,348,120
Brownsville, TX, Utility System Revenue, 6.25%, 9/1/10 (c) ..................... 4,085,000 AAA 4,671,157
Cedar Hill, TX, Zero Coupon:
Series 1996, 8/15/09 (c) .................................................... 1,500,000 AAA 872,685
Series 1996, 8/15/10 (c) .................................................... 3,130,000 AAA 1,715,459
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,
Zero Coupon, 10/1/16 (c) .................................................... 6,535,000 AAA 1,001,554
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c) .......................................................... 1,000,000 AAA 1,167,960
7.8%, 11/1/05 (c) ........................................................... 2,000,000 AAA 2,388,180
7.8%, 11/1/06 (c) ........................................................... 2,025,000 AAA 2,424,755
7.375%, 11/1/08 (c) ......................................................... 4,500,000 AAA 5,273,910
7.375%, 11/1/10 (c) ......................................................... 3,500,000 AAA 4,077,430
Harris County, TX, Health Facilities Development:
6.25%, 5/15/08 (c) .......................................................... 2,785,000 AAA 3,158,190
6.25%, 5/15/09 (c) .......................................................... 2,965,000 AAA 3,348,375
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c) ......................... 9,035,000 AAA 6,117,870
Flood Control District, Zero Coupon, 10/1/00 (c) ............................ 1,000,000 AAA 903,510
Toll Road Authority, Subordinate Lien:
Series A, Zero Coupon, 8/15/05 (c) ....................................... 4,025,000 AAA 2,878,439
Toll Road Revenue, Series A, Zero Coupon, 8/15/06 (c) .................... 4,010,000 AAA 2,731,251
Unlimited Tax, Series A, Zero Coupon, 8/15/04 (c) ........................ 2,050,000 AAA 1,543,835
</TABLE>
The accompanying notes are an integral part of the financial statements
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Houston, TX, Water & Sewer System Authority:
Series C, Zero Coupon, 12/1/06 (c) .......................................... 14,575,000 AAA 9,793,963
Series C, Zero Coupon, 12/1/08 (c) .......................................... 19,000,000 AAA 11,515,520
Series C, Zero Coupon, 12/1/09 (c) .......................................... 14,750,000 AAA 8,461,928
Zero Coupon, 12/1/10 (c) .................................................... 5,000,000 AAA 2,701,450
Zero Coupon, Series 1991C, 12/1/12 (c) ...................................... 3,350,000 AAA 1,595,974
Hurst Euless Bedford, TX, Independent School District, Series 1994,
Zero Coupon, 8/15/09 ........................................................ 4,925,000 AAA 2,865,316
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital:
Series B, 5.5%, 12/1/06 (c) ................................................. 3,945,000 AAA 4,158,661
Series B, 5.6%, 12/1/07 (c) ................................................. 2,415,000 AAA 2,566,686
Series B, 5.625%, 12/1/08 (c) ............................................... 4,400,000 AAA 4,684,812
Series B, 5.625%, 12/1/09 (c) ............................................... 4,640,000 AAA 4,914,734
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c) ..................................................... 3,475,000 AAA 2,739,377
Zero Coupon, 9/1/04 (c) ..................................................... 3,475,000 AAA 2,611,810
Zero Coupon, 9/1/05 (c) ..................................................... 3,475,000 AAA 2,480,073
Northeast Hospital Authority, TX, Revenue, Series 1997, 6%, 5/15/10 (c) ........ 2,180,000 AAA 2,420,301
Northwest Texas Independent School District, Capital Appreciation
Bonds, Series 1991, Zero Coupon, 8/15/10 (c) ................................ 3,690,000 AAA 2,022,378
San Antonio, TX, Electric and Gas, Revenue Refunding:
Series A, Zero Coupon, 2/1/05 (c) ........................................... 2,500,000 AAA 1,832,200
Series A, Zero Coupon, 2/1/05 (c) ........................................... 8,000,000 AAA 5,863,040
Series A, Zero Coupon, 2/1/06 (c) ........................................... 17,900,000 AAA 12,496,885
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/06 (c) ................... 2,000,000 AAA 2,211,640
San Antonio, TX, Electric and Gas, 2/1/08 (c) .................................. 8,115,000 AAA 5,114,560
San Antonio, TX, Zero Coupon, Series 1991B, 2/1/09 (c) ......................... 4,400,000 AAA 2,626,448
State of Texas, General Obligation:
Capital Appreciation Bond, Super Collider, Series C, Zero Coupon,
4/1/06 (c) ............................................................... 7,385,000 AAA 5,116,623
Superconductor Revenue, Series C, Zero Coupon, 4/1/05 (c) ................... 8,390,000 AAA 6,102,467
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c) .......................................................... 4,615,000 AAA 5,192,521
6%, 5/15/21 (c) .......................................................... 6,235,000 AAA 6,973,224
Texas Municipal Power Agency:
6.1%, 9/1/07 (c) ............................................................ 9,250,000 AAA 10,383,033
6.1%, 9/1/09 (c) ............................................................ 4,435,000 AAA 5,045,921
Texas Public Finance Authority, Building Authority:
Series B, 6.25%, 2/1/08 (c) ................................................. 5,190,000 AAA 5,896,100
Zero Coupon, 2/1/06 (c) ..................................................... 13,915,000 AAA 9,714,757
UTAH
Associated Municipal Power System, UT, Hunter Project, Refunding
Revenue:
Zero Coupon, 7/1/00 (c) .................................................. 2,755,000 AAA 2,516,224
Zero Coupon, 7/1/02 (c) .................................................. 5,200,000 AAA 4,336,280
Zero Coupon, 7/1/04 (c) .................................................. 5,895,000 AAA 4,474,600
Zero Coupon, 7/1/05 (c) .................................................. 5,900,000 AAA 4,254,844
</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
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Coupon, 7/1/06 (c) .................................................. 5,895,000 AAA 4,047,507
Zero Coupon, 7/1/07 (c) .................................................. 3,750,000 AAA 2,448,938
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/12 (c) .............................................................. 1,000,000 AAA 999,930
Series 1993, 5.55%, 7/1/11 .................................................. 7,000,000 A 7,291,410
Series A, 6.5%, 7/1/08 (c) .................................................. 4,000,000 AAA 4,622,320
Series A, Zero Coupon, 7/1/02 (c) ........................................... 1,655,000 AAA 1,377,225
Series A, Zero Coupon, 7/1/03 (c) ........................................... 1,000,000 AAA 793,280
Series A, Zero Coupon, 7/1/04 (c) ........................................... 1,730,000 AAA 1,309,143
Series B, Zero Coupon, 7/1/02 (c) ........................................... 8,230,000 AAA 6,848,677
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15** (c) ................ 1,800,000 AAA 2,663,658
VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial
Hospital, Series B, 6.125%, 7/1/17 (c) ...................................... 5,500,000 AAA 6,221,270
Southeastern Public Service Authority, VA, Refunding Revenue, Series A,
5.25%, 7/1/10 (c) ........................................................... 7,380,000 AAA 7,789,442
Virginia Beach, VA, Development Authority, Virginia Beach General
Hospital Project:
6%, 2/15/11 (c) .......................................................... 1,595,000 AAA 1,793,466
5.125%, 2/15/18 (c) ...................................................... 3,000,000 AAA 3,003,540
Winchester County, VA, Industrial Development Authority, Hospital
Revenue, 6%, 1/1/15 (c) ..................................................... 5,700,000 AAA 5,899,956
WASHINGTON
Clark County, WA, Public Utility District #1, 6%, 1/1/06 (c) ................... 7,500,000 AAA 8,244,075
Clark County, WA, Public Utility District, Series 1995, 6%, 1/1/08 (c) ......... 2,200,000 AAA 2,443,276
King & Snohomish Counties, WA, General Obligation, School
District #417, 5.6%, 12/1/10 (c) ............................................ 1,650,000 AAA 1,797,015
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c) ............................................... 3,500,000 AAA 3,535,280
Snohomish County, WA, School District #6, 6.5%, 12/1/07 (c) .................... 3,325,000 A 3,832,927
State of Washington, General Obligation Series AT-5, Zero Coupon,
8/1/10 (c) .................................................................. 2,625,000 AAA 1,448,370
Washington Health Care Facilities Authority, Empire Health
Services - Spokane:
5.65%, 11/1/05 (c) .......................................................... 2,155,000 AAA 2,315,504
5.7%, 11/1/06 (c) ........................................................... 3,440,000 AAA 3,723,456
5.75%, 11/1/07 (c) .......................................................... 7,350,000 AAA 8,010,692
5.8%, 11/1/09 (c) ........................................................... 4,595,000 AAA 5,042,323
5.8%, 11/1/10 (c) ........................................................... 2,100,000 AAA 2,306,976
Washington Public Power Supply System, Revenue Refunding:
Nuclear Power Project #1:
6%, 7/1/08 (c) ........................................................... 5,000,000 AAA 5,532,100
Series 1989A, 7.5%, 7/1/15 ............................................... 1,500,000 AAA 1,597,155
Series A, 7%, 7/1/11 (c) ................................................. 3,830,000 AAA 4,146,358
Series A, 7.5%, 7/1/15 (c) ............................................... 1,595,000 AAA 1,698,308
Series A, Prerefunded 7/1/99 at 102, 7.5%, 7/1/15*** (c) ................. 2,405,000 AAA 2,560,772
Series B, 7.25%, 7/1/12 (c) .............................................. 10,895,000 AAA 11,852,997
Nuclear Project #2:
Series 1992A, Zero Coupon, 7/1/11 (c) .................................... 4,200,000 AAA 2,157,834
</TABLE>
The accompanying notes are an integral part of the financial statements
58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount ($) Rating (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A, 7.25%, 7/1/03 (c) .............................................. 2,000,000 AAA 2,175,860
Series A, 5.7%, 7/1/08 (c) ............................................... 5,000,000 AAA 5,411,100
Series C, 7%, 7/1/01 (c) ................................................. 10,000,000 AAA 10,841,500
Series C, 7.375%, 7/1/11 (c) ............................................. 1,370,000 AAA 1,510,329
Nuclear Project #3:
7.5%, 7/1/08 (c) ......................................................... 4,000,000 AAA 4,902,360
Series 1989A, 7/1/10 (c) ................................................. 5,860,000 AAA 3,203,896
Series A, Prerefunded 7/1/99 at 102, 7.25%, 7/1/16*** (c) ................ 3,630,000 AAA 3,854,116
Series A, Zero Coupon, 7/1/04 (c) ........................................ 3,625,000 AAA 2,734,773
Series A, Zero Coupon, 7/1/05 (c) ........................................ 4,125,000 AAA 2,953,789
Washington State Housing Finance, Series A, 7.1%, 12/1/17 ...................... 3,635,000 AAA 3,707,954
WEST VIRGINIA
West Virginia, School Building Authority Revenue, Series B, 6.75%,
7/1/10 (c) .................................................................. 4,000,000 AAA 4,313,600
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c) ............. 3,475,000 AAA 2,647,429
Wisconsin Health & Educational Facilities Authority:
6.1%, 8/15/09 (c) ........................................................... 2,000,000 AAA 2,229,400
Aurora Medical:
5.75%, 11/15/06 (c) ...................................................... 2,000,000 AAA 2,169,480
5.75%, 11/15/07 (c) ...................................................... 1,500,000 AAA 1,637,700
6%, 11/15/08 (c) ......................................................... 4,085,000 AAA 4,546,523
6%, 11/15/09 (c) ......................................................... 4,330,000 AAA 4,866,617
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c) ....................... 5,285,000 AAA 6,073,522
Hospital Sisters Services Inc. - Obligated Group, 5.375%, 6/1/18 (c) ........ 4,800,000 AAA 4,826,544
SSM Healthcare:
Series 1992 AA, 6.4%, 6/1/08 (c) ......................................... 2,335,000 AAA 2,664,912
Series 1992 AA, 6.45%, 6/1/09 (c) ........................................ 2,485,000 AAA 2,880,413
Series 1992 AA, 6.45%, 6/1/10 (c) ........................................ 2,650,000 AAA 3,086,535
Series 1992 AA, 6.5%, 6/1/11 (c) ......................................... 2,820,000 AAA 3,277,658
Series 1992 AA, 6.5%, 6/1/12 (c) ......................................... 3,000,000 AAA 3,523,020
St. Luke's Medical Center, 7.1%, 8/15/11 (c) ................................ 2,000,000 AAA 2,219,260
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c) ......................... 9,230,000 AAA 10,607,116
Wheaton Franciscan Services, 6.1%, 8/15/08 (c) .............................. 4,580,000 AAA 5,149,386
-------------
Total Long-Term Municipal Investments (Cost $1,513,302,373) 1,674,542,839
-------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $1,533,885,991) (a) ........................... 99.1 1,695,123,339
Other Assets and Liabilities, Net .............................................. 0.9 15,886,789
----- -------------
Net Assets ..................................................................... 100.0 1,711,010,128
===== =============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
59
<PAGE>
AARP INSURED TAX FREE GENERAL BOND 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.
** 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, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $1,534,182,650 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $160,971,346
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (30,657)
------------
Net unrealized appreciation ............................... $160,940,689
============
(b) (Unaudited) All of the securities held have been determined to be of
appropriate credit quality as required by the Fund's investment
objectives. Credit ratings shown are either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. Unrated securities (NR) and
securities rated by Scudder Kemper have been determined to be of
comparable quality to rated eligible securities.
(c) (Unaudited) Bond is insured by one of these companies: AMBAC, BIG, MBIA,
FGIC, FSA, PSFG or Capital Guaranty.
(d) At March 31, 1998, this security, in whole or in part, has been pledged to
cover initial margin requirements for open futures contracts.
(e) Auction rate securities carry a short-term coupon that is reset on a
periodic basis, usually every 35 days. The reset occurs through a
marketplace auction process where all bidders receive the highest yield
necessary to sell all of the securities. For maturity purposes, the
securities are said to have the same maturity as the time remaining until
the next auction.
At March 31, 1998, open futures contracts sold short were as follows:
<TABLE>
<CAPTION>
Number of Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Bond .................... June 1998 1,245 149,019,786 149,711,250
Total net unrealized depreciation on open futures contracts sold short ........................... (691,464)
===========
</TABLE>
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1998 was $249,727,309 and $207,373,408,
respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998, aggregated
$1,280,402 and $27,785,332, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
60
<PAGE>
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 9.4%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/98 at
5.75% to be repurchased at $9,559,527 on 4/1/98, collateralized by a
$9,749,438 U. S. Treasury Note, 5.625%, 11/30/99 (Cost $9,558,000) ................... 9,558,000 9,558,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 4.9%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 4/1/98 (Cost $5,000,000) .............................. 5,000,000 5,000,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 19.8%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.625%, 12/31/99 .................................................... 2,000,000 2,000,940
U.S. Treasury Note, 5.5%, 2/29/00 ....................................................... 1,000,000 998,120
U.S. Treasury Note, 5.625%, 11/30/00 .................................................... 6,500,000 6,498,960
U.S. Treasury Note, 5.625%, 12/31/02 .................................................... 7,500,000 7,487,100
U.S. Treasury Note, 6.5%, 5/15/05 ....................................................... 3,000,000 3,133,110
-----------
Total U.S. Treasury Obligations (Cost $20,113,360) ...................................... 20,118,230
-----------
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 5.2%
- -----------------------------------------------------------------------------------------------------------------------------
7.5% with various maturities to 4/15/27 ................................................. 2,878,940 2,952,388
9%, 8/15/21 ............................................................................. 387,214 418,671
9.5%, 11/15/17 .......................................................................... 1,708,337 1,857,868
-----------
Total Government National Mortgage Association (Cost $5,195,415) ........................ 5,228,927
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BACKED MORTGAGES* 0.8%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 7.74%, 9/1/24 (Cost $859,995) ......................... 822,715 855,756
-----------
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U.S.$ DENOMINATED 5.1%
- -----------------------------------------------------------------------------------------------------------------------------
Cable & Wireless PLC, 6.375%, 3/6/03 .................................................... 1,500,000 1,500,855
Fage Dairy Industry SA, 9%, 2/1/07 ...................................................... 250,000 239,375
Hutchison Whampoa, Ltd., 7.5%, 8/1/27 ................................................... 1,000,000 898,350
Petroleos Mexicanos SA, 8.85%, 9/15/07 .................................................. 500,000 503,100
Saga Petroleum A/S, 7.25%, 9/23/27 ...................................................... 1,000,000 996,270
Seagram Co., Ltd., 6.875%, 9/1/23 ....................................................... 1,000,000 980,310
-----------
Total Foreign Bonds - U. S.$ Denominated (Cost $5,213,073) .............................. 5,118,260
-----------
- -----------------------------------------------------------------------------------------------------------------------------
ASSET BACKED 4.6%
- -----------------------------------------------------------------------------------------------------------------------------
Credit Card Receivables 0.5%
Advanta Corp., Series 1997-1 A4, 7.65%, 5/25/27 ......................................... 500,000 514,531
-----------
Home Equity Loans 1.2%
Contimortgage Home Equity Loan Trust, Series 1997-3 M1-F, 7.31%, 8/15/28 ................ 500,000 508,438
The Money Store Inc. Home Equity, Series 1997-A A2, 6.56%, 12/15/09 ..................... 389,512 389,633
</TABLE>
The accompanying notes are an integral part of the financial statements
61
<PAGE>
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Money Store Inc. Home Equity Loan Trust, Series 1996-C A4, 7.4%, 6/15/21 ............ 300,000 305,718
-----------
1,203,789
-----------
Manufactured Housing 2.9%
Associated Manufactured Housing Corp., Series 1997-1 B1, 7.6%, 6/15/28 .................. 375,000 376,875
Green Tree Financial Corp., Series 1997-A A1, 6.3%, 8/15/23 ............................. 140,910 140,998
Green Tree Financial Corp., Series 1995-6 B1, 7.7%, 9/15/26 ............................. 500,000 503,590
Green Tree Financial Corp., Series 1995-10 B1, 7.05%, 2/15/27 ........................... 1,000,000 988,359
Green Tree Financial Corp., Series 1997-1 B2, 7.76%, 3/15/28 ............................ 500,000 468,184
Green Tree Financial Corp., Series 1997-2 B2, 8.05%, 4/15/28 ............................ 500,000 479,082
-----------
2,957,088
-----------
Total Asset Backed (Cost $4,696,300) .................................................... 4,675,408
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 52.8%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Staples 3.4%
Anheuser Busch Co., 6.5%, 1/1/28 ........................................................ 1,500,000 1,466,925
Bass America Inc., 6.625%, 3/1/03 ....................................................... 1,500,000 1,522,125
Polymer Group, Inc., 9%, 7/1/07 ......................................................... 400,000 408,000
-----------
3,397,050
-----------
Health 1.0%
NBTY Inc., 8.625%, 9/15/07 .............................................................. 500,000 510,000
Tenet Healthcare Corp., 8.625%, 1/15/07 ................................................. 500,000 518,750
-----------
1,028,750
-----------
Communications 2.5%
Comcast Cellular, 9.5%, 5/1/07 .......................................................... 1,000,000 1,050,000
McLeodUSA Inc., 8.375%, 3/15/08 ......................................................... 500,000 513,750
Rogers Cantel Inc., 8.3%, 10/1/07 ....................................................... 1,000,000 997,500
-----------
2,561,250
-----------
Financial 11.0%
First Industrial L.P., 7.6%, 5/15/07 .................................................... 1,000,000 1,049,010
First USA Bank, 5.85%, 2/22/01 .......................................................... 1,500,000 1,488,285
First Union Capital II, 7.85%, 1/1/27 ................................................... 1,000,000 1,032,490
General Motors Acceptance Corp., 6.869%, 8/15/07 ........................................ 1,000,000 1,029,258
ICI Investments, 6.75%, 8/7/02 .......................................................... 1,000,000 1,020,000
People's Heritage Bank, 9.06%, 2/1/27 ................................................... 1,000,000 1,101,563
Security Capital Industrial Trust, 7.625%, 7/1/17 ....................................... 1,000,000 1,020,000
Shurgard Storage Centers, Inc. (REIT), 7.5%, 4/25/04 .................................... 500,000 514,340
Spieker Properties, Inc., 7.125%, 7/1/09 ................................................ 1,000,000 1,025,420
Susa Partnership L.P., 8.2%, 6/1/17 ..................................................... 1,000,000 1,075,000
Taubman Realty Group L.P., Medium Term Note, 8%, 7/30/01 ................................ 500,000 518,940
Taubman Realty Group L.P., Medium Term Note, 7%, 10/1/03 ................................ 250,000 253,055
-----------
11,127,361
-----------
Media 10.2%
A.H. Belo Corp., 7.75%, 6/1/27 .......................................................... 1,000,000 1,091,030
Cablevision Systems Corp., 7.875%, 2/15/18 .............................................. 1,500,000 1,485,000
Cox Communications, Inc., 6.85%, 1/15/18 ................................................ 1,000,000 988,750
</TABLE>
The accompanying notes are an integral part of the financial statements
62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harcourt General, Inc., 7.2%, 8/1/27 .................................................... 1,000,000 988,940
Hollinger International, 8.625%, 3/15/05 ................................................ 500,000 525,000
Outdoor Systems, Inc., 8.875%, 6/15/07 .................................................. 1,000,000 1,052,500
TCA Cable TV, Inc., 6.53%, 2/1/28 ....................................................... 1,500,000 1,450,313
Time Warner Inc., 9.125%, 1/15/13 ....................................................... 1,000,000 1,189,880
Viacom Inc., 7.75%, 6/1/05 .............................................................. 1,500,000 1,573,125
-----------
10,344,538
-----------
Service Industries 3.5%
Prime Hospitality Corp., 9.25%, 1/15/06 ................................................. 1,000,000 1,060,000
Primedia Inc., 7.625%, 4/1/08 ........................................................... 1,500,000 1,470,000
ServiceMaster L.P., 7.45%, 8/15/27 ...................................................... 1,000,000 1,018,750
-----------
3,548,750
-----------
Durables 5.4%
BE Aerospace, Inc., 8%, 3/1/08 .......................................................... 2,000,000 1,995,000
Martin Marietta Corp., 6.5%, 4/15/03 .................................................... 1,500,000 1,508,070
Northrop Grumman Corp., 7.875%, 3/1/26 .................................................. 1,500,000 1,684,035
Tracor, Inc., 8.5%, 3/1/07 .............................................................. 250,000 258,438
-----------
5,445,543
-----------
Manufacturing 2.7%
Argo-Tech Corp., 8.625%, 10/1/07 ........................................................ 1,000,000 1,022,500
Columbus McKinnon Corp., 8.5%, 4/1/08 ................................................... 1,000,000 1,005,000
Graham Packaging Co., 8.75%, 1/15/08 .................................................... 750,000 748,125
-----------
2,775,625
-----------
Technology 1.2%
Amphenol Corp., 9.875%, 5/15/07 ......................................................... 1,000,000 1,073,750
Fairchild Semiconductor Corp., 10.125%, 3/15/07 ......................................... 100,000 104,500
-----------
1,178,250
-----------
Energy 5.8%
Barrett Resources Corp., 7.55%, 2/1/07 .................................................. 1,500,000 1,538,438
Chesapeake Energy Corp., 8.5%, 3/15/12 .................................................. 500,000 489,375
Dawson Production Services, Inc., 9.375%, 2/1/07 ........................................ 250,000 257,500
Lomak Petroleum, Inc., 8.75%, 1/15/07 ................................................... 250,000 253,750
Lyondell Petrochemical Co., 7.55%, 2/15/26 .............................................. 1,000,000 1,000,940
Pioneer Natural Resources Co., 7.2%, 1/15/28 ............................................ 2,000,000 1,938,177
Pride Petroleum Services, Inc., 9.375%, 5/1/07 .......................................... 400,000 426,000
-----------
5,904,180
-----------
Metals & Minerals 0.5%
AK Steel Corp., 9.125%, 12/15/06 ........................................................ 500,000 533,750
-----------
Construction 1.7%
American Standard Companies Inc., 7.625%, 2/15/10 ....................................... 1,500,000 1,481,250
Nortek, Inc., 9.25%, 3/15/07 ............................................................ 250,000 260,000
-----------
1,741,250
-----------
Transportation 3.9%
Allied Holdings Inc., 8.625%, 10/1/07 ................................................... 500,000 515,000
Continental Airlines Inc., Series 1997-1B, 7.461%, 4/1/13 ............................... 300,000 316,104
Newport News Shipbuilding Co., 8.625%, 12/1/06 .......................................... 1,500,000 1,578,750
</TABLE>
The accompanying notes are an integral part of the financial statements
63
<PAGE>
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Northwest Airlines Corp., 7.875%, 3/15/08 ............................................... 1,500,000 1,495,590
-----------
3,905,444
-----------
Total Corporate Bonds (Cost $52,978,307) ................................................ 53,491,741
-----------
- -----------------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
Number of
Contracts
-------------
Put on U.S. Treasury Bond Future, strike price 120, expires 5/16/98
(Cost $11,656) ....................................................................... 13 17,469
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $103,626,106) (a) ...................................... 102.6 104,063,791
Other Assets and Liabilities, Net ....................................................... (2.6) (2,676,086)
----- -----------
Net Assets .............................................................................. 100.0 101,387,705
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Effective maturities will be shorter due to prepayments.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $103,626,106 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 871,587
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (433,902)
------------
Net unrealized appreciation ............................. $ 437,685
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the six
months ended March 31, 1998 aggregated $45,919,107 and $15,892,824,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $33,197,854, and $14,075,364, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
64
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 2.2%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/98 at 5.85%
to be repurchased at $16,476,677 on 4/1/98, collateralized by a
$12,015,000 U.S. Treasury Bond, 12.375%, 5/15/04 (Cost $16,474,000) .................. 16,474,000 16,474,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 7.0%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.75%, 12/31/98 ..................................................... 9,000,000 9,016,830
U.S. Treasury Note, 5.875%, 3/31/99 ..................................................... 2,500,000 2,507,800
U.S. Treasury Note, 6.75%, 5/31/99 ...................................................... 3,000,000 3,037,980
U.S. Treasury Note, 6.875%, 7/31/99 ..................................................... 6,000,000 6,096,540
U.S. Treasury Note, 5.875%, 11/15/99 .................................................... 3,000,000 3,012,180
U.S. Treasury Note, 5.625%, 12/31/99 .................................................... 10,000,000 10,004,700
U.S. Treasury Note, 5.5%, 2/29/00 ....................................................... 4,000,000 3,992,480
U.S. Treasury Note, 6.25%, 2/28/02 ...................................................... 1,500,000 1,530,000
U.S. Treasury Note, 5.625%, 12/31/02 .................................................... 9,500,000 9,483,660
U.S. Treasury Note, 6.5%, 5/15/05 ....................................................... 4,000,000 4,177,480
-----------
Total U.S. Treasury Obligations (Cost $52,745,964) ...................................... 52,859,650
-----------
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION** 0.4%
- -----------------------------------------------------------------------------------------------------------------------------
10% with various maturities to 2/15/25 (Cost $3,104,494) ................................ 2,855,044 3,171,218
-----------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BACKED MORTGAGES** 4.8%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 6.5% with various maturities to 3/1/26 ........... 13,627,100 13,495,053
Federal National Mortgage Association, 7% with various maturities to 8/1/26 ............. 23,206,743 23,434,246
-----------
Total U.S. Government Backed Mortgages (Cost $35,433,540) ............................... 36,929,299
-----------
- -----------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.9%**
- -----------------------------------------------------------------------------------------------------------------------------
Residential Funding Mortgage Securities, Series 1993-A2, 6.85%, 9/25/23 ................. 3,370,000 3,376,319
Ryland Mortgage Securities Corp., 8%, 8/25/25 ........................................... 3,238,571 3,322,572
-----------
Total Collateralized Mortgage Obligations (Cost $6,683,792) ............................. 6,698,891
-----------
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS -- U. S.$ DENOMINATED 3.0%
- -----------------------------------------------------------------------------------------------------------------------------
Cable & Wireless PLC, 6.375%, 3/6/03 .................................................... 5,000,000 5,002,850
Norsk Hydro AS, 7.75%, 6/15/23 .......................................................... 5,000,000 5,486,000
Province of Ontario Global, 6%, 2/21/06 ................................................. 3,000,000 2,973,090
Saga Petroleum A/S, 7.25%, 9/23/27 ...................................................... 5,000,000 4,981,350
Seagram Co., Ltd., 6.875%, 9/1/23 ....................................................... 5,000,000 4,901,550
-----------
Total Foreign Bonds-- U.S.$ Denominated (Cost $17,866,830) .............................. 23,344,840
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
65
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ASSET BACKED 2.7%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Receivables 0.9%
Ford Credit Automobile Trust, Series 1996-A A4, 6.75%, 9/15/00 .......................... 4,000,000 4,042,480
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/00 ........... 3,000,000 3,036,540
-----------
7,079,020
-----------
Credit Card Receivables 0.8%
Chase Manhattan Credit Card Master Trust, Series 1996-4A, 6.73%, 2/15/03 ................ 4,000,000 4,041,240
Sears Credit Account Master Trust, Series 1995-A4, 6.25%, 1/15/03 ....................... 1,833,334 1,835,626
-----------
5,876,866
-----------
Home Equity Loans 0.6%
First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/16 ................................ 5,000,000 4,983,594
-----------
Manufactured Housing 0.4%
Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/28 ............................ 3,000,000 3,008,320
-----------
Total Asset Backed (Cost $20,858,786) ................................................... 20,947,800
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 14.8%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.5%
ITT Corp., 7.375%, 11/15/15 ............................................................. 4,000,000 3,629,080
-----------
Consumer Staples 1.3%
Anheuser Busch Co., 6.5%, 1/1/28 ........................................................ 5,000,000 4,889,750
Bass America Inc., 6.625%, 3/1/03 ....................................................... 5,000,000 5,073,750
-----------
9,963,500
-----------
Financial 5.6%
Associates Corp. of North America, 6.625%, 5/15/01 ...................................... 5,850,000 5,940,968
Capital One Bank, Medium Term Note, 5.95%, 2/15/01 ...................................... 4,000,000 3,964,320
First USA Bank, 5.85%, 2/22/01 .......................................................... 3,000,000 2,976,570
Fleet Financial Group, 6.875%, 1/15/28 .................................................. 4,000,000 3,948,520
General Electric Capital Services Inc., 7.5%, 8/21/35 ................................... 1,000,000 1,133,170
Highwoods/Forsyth L.P., 7%, 12/1/06 ..................................................... 5,000,000 4,975,000
ICI Investments, 6.75%, 8/7/02 .......................................................... 4,000,000 4,080,000
Lehman Brothers Holding Corp., Medium Term Note, 6.33%, 8/1/00 .......................... 3,500,000 3,508,120
Meditrust Corp., 7%, 8/15/07 ............................................................ 5,000,000 4,977,050
Southern National Corp., 7.05%, 5/23/03 ................................................. 4,000,000 4,125,560
Spieker Properties, Inc., 7.875%, 12/1/16 ............................................... 1,500,000 1,611,240
Wells Fargo & Co., 6.875%, 4/1/06 ....................................................... 2,000,000 2,053,720
-----------
43,294,238
-----------
Media 1.8%
Cox Communications, Inc., 6.85%, 1/15/18 ................................................ 5,000,000 4,943,750
TCA Cable TV, Inc., 6.53%, 2/1/28 ....................................................... 4,000,000 3,867,500
Time Warner Inc., 9.125%, 1/15/13 ....................................................... 4,500,000 5,354,460
-----------
14,165,710
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 0.7%
ServiceMaster L.P., 7.45%, 8/15/27 ...................................................... 5,000,000 5,093,750
-----------
Durables 1.6%
Lockheed Martin Corp., 7.75%, 5/1/26 .................................................... 2,000,000 2,217,380
Martin Marietta Corp., 6.5%, 4/15/03 .................................................... 3,000,000 3,016,140
McDonnell Douglas Corp., 9.75%, 4/1/12 .................................................. 1,000,000 1,293,750
Northrop Grumman Corp., 7%, 3/1/06 ...................................................... 2,000,000 2,052,980
Northrop Grumman Corp., 7.875%, 3/1/26 .................................................. 3,100,000 3,480,339
-----------
12,060,589
-----------
Technology 0.2%
Loral Corp., 8.375%, 6/15/24 ............................................................ 1,500,000 1,769,925
-----------
Energy 1.1%
PanEnergy Corp., 7.375%, 9/15/03 ........................................................ 4,150,000 4,347,042
Pioneer Natural Resources Co., 7.2%, 1/15/28 ............................................ 4,000,000 3,876,360
-----------
8,223,402
-----------
Transportation 1.2%
AMR Corp., 9.75%, 8/15/21 ............................................................... 2,500,000 3,217,500
Continental Airlines Inc., Series 1997-1A, 7.461%, 4/1/15 ............................... 5,500,000 5,816,800
-----------
9,034,300
-----------
Utilities 0.8%
PacifiCorp, 6.15%, 1/15/08 .............................................................. 6,000,000 5,896,200
-----------
Total Corporate Bonds (Cost $116,081,956) ............................................... 113,130,694
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
Health 0.1%
Pharmaceuticals
Sandoz Capital BVI Ltd., 2%, 10/6/02 .................................................... 290,000 481,400
-----------
Media 0.8%
Advertising
Interpublic Group of Companies Inc., 1.8%, 9/16/04 ...................................... 7,000,000 6,483,750
-----------
Service Industries 0.6%
Environmental Services 0.4%
U.S. Filter Corp., 4.5%, 12/15/01 ....................................................... 2,700,000 2,970,000
-----------
Miscellaneous Commercial Services 0.2%
ADT Operations Inc., Liquid Yield Option Note, Zero Coupon, 7/6/10 ...................... 1,000,000 1,479,375
-----------
Total Convertible Bonds (Cost $9,118,410) ............................................... 11,414,525
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.9%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
Consumer Staples 0.6%
Food & Beverage
Suiza Foods Corp., 2.7% ................................................................. 98,000 4,936,750
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
67
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% .................................................................... 17,654 423,696
-----------
Real Estate 0.01%
Security Capital Industrial Trust "B", 7% ............................................... 18,900 614,250
-----------
Manufacturing 0.2%
Containers & Paper 0.0%
International Paper Co., 5.25% .......................................................... 2,100 108,413
-----------
Industrial Specialty 0.1%
Cooper Industries, Inc., 6% ............................................................. 31,300 637,738
-----------
Office Equipment/Supplies 0.1%
Ikon Office Solutions, Inc., 5.04% ...................................................... 4,700 364,838
-----------
Total Convertible Preferred Stocks (Cost $6,925,096) .................................... 7,085,685
-----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 61.3%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 2.9%
Department & Chain Stores 2.9%
J.C. Penney Co., Inc .................................................................... 78,800 5,964,175
May Department Stores ................................................................... 45,100 2,863,850
Mercantile Stores, Inc. ................................................................. 71,200 4,783,750
Rite Aid Corp. .......................................................................... 98,800 3,383,900
Sears, Roebuck & Co. .................................................................... 87,900 5,048,756
-----------
22,044,431
-----------
Hotels & Casinos 0.0%
Homestead Village, Inc. ................................................................. 15,033 227,374
-----------
Consumer Staples 3.8%
Food & Beverage 3.0%
General Mills, Inc. ..................................................................... 61,200 4,651,200
H.J. Heinz Co. .......................................................................... 185,350 10,819,806
Unilever NV (New York shares) ........................................................... 113,300 7,775,213
-----------
23,246,219
-----------
Package Goods/Cosmetics 0.8%
Avon Products Inc. ...................................................................... 79,600 6,208,800
-----------
Health 3.7%
Pharmaceuticals
American Home Products Corp. ............................................................ 68,000 6,485,500
Baxter International Inc. ............................................................... 67,600 3,726,450
Bristol-Myers Squibb Co. ................................................................ 73,200 7,635,675
SmithKline Beecham PLC (ADR) ............................................................ 78,400 4,904,900
Zeneca Group PLC ........................................................................ 122,100 5,251,855
-----------
28,004,380
-----------
Communications 5.4%
Telephone/Communications
Alltel Corp. ............................................................................ 111,500 4,871,156
Bell Atlantic Corp. ..................................................................... 94,932 9,730,530
</TABLE>
The accompanying notes are an integral part of the financial statements
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BellSouth Corp. ......................................................................... 91,700 6,195,481
Frontier Corp. .......................................................................... 133,400 4,343,838
GTE Corp. ............................................................................... 160,200 9,591,963
Sprint Corp. ............................................................................ 84,900 5,746,669
Telecom Corp. of New Zealand ............................................................ 100,000 476,471
-----------
40,956,108
-----------
Financial 15.6%
Banks 8.5%
Banc One Corp. .......................................................................... 85,550 5,411,038
Bankers Trust New York Corp. ............................................................ 34,900 4,198,906
Centura Banks, Inc. ..................................................................... 11,700 833,625
Chase Manhattan Corp. ................................................................... 90,000 12,138,750
CoreStates Financial Corp. .............................................................. 79,300 7,117,175
First American Corp. (Tennessee) ........................................................ 24,800 1,215,200
First Tennessee National Corp. .......................................................... 24,600 790,275
First Union Corp. ....................................................................... 75,800 4,301,650
Firstar Corp. ........................................................................... 92,400 3,649,800
Fleet Financial Group Inc. .............................................................. 29,000 2,466,813
J.P. Morgan & Co., Inc. ................................................................. 45,700 6,138,081
KeyCorp ................................................................................. 135,200 5,112,250
NationsBank Corp. ....................................................................... 64,200 4,682,588
Old Kent Financial Corp. ................................................................ 71,000 2,724,625
US Bancorp .............................................................................. 34,700 4,328,825
-----------
65,109,601
-----------
Insurance 2.7%
EXEL Ltd. (ADR) ......................................................................... 62,600 4,851,500
Lincoln National Corp. .................................................................. 73,300 6,221,338
Mid Ocean, Ltd. ......................................................................... 42,100 3,262,750
Safeco Corp. ............................................................................ 108,000 5,902,875
-----------
20,238,463
-----------
Other Financial Companies 0.3%
Federal National Mortgage Association ................................................... 38,600 2,441,450
-----------
Real Estate 4.1%
Arden Realty Group, Inc. ................................................................ 85,900 2,448,150
Boston Properties, Inc. (REIT) .......................................................... 63,800 2,244,963
Equity Office Properties Trust (REIT) ................................................... 137,600 4,214,000
General Growth Properties, Inc. (REIT) .................................................. 116,100 4,281,188
Health Care Property Investment Inc. (REIT) ............................................. 66,600 2,460,038
Meditrust Corp. (REIT) .................................................................. 74,138 2,289,011
Nationwide Health Properties Inc. (REIT) ................................................ 101,600 2,540,000
Omega Healthcare Investors (REIT) ....................................................... 26,000 1,014,000
Security Capital Atlantic Inc. .......................................................... 243,962 5,123,202
Security Capital Industrial Trust (REIT) ................................................ 180,954 4,636,946
Security Capital Industrial Trust Warrants (expire 9/18/98) ............................. 22,593 74,839
-----------
31,326,337
-----------
Miscellaneous 0.0%
Jardine Strategic Holdings Ltd. ......................................................... 85,199 232,167
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
69
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 0.8%
Environmental Services
Browning Ferris Industries .............................................................. 178,300 5,817,038
-----------
Durables 6.2%
Aerospace 1.8%
Lockheed Martin Corp. ................................................................... 60,909 6,852,263
Rockwell International Corp. ............................................................ 121,800 6,988,275
-----------
13,840,538
-----------
Automobiles 3.1%
Dana Corp. .............................................................................. 99,600 5,795,475
Echlin, Inc. ............................................................................ 76,200 3,995,738
Ford Motor Co. .......................................................................... 160,800 10,421,850
Meritor Automotive, Inc. ................................................................ 137,466 3,651,441
-----------
23,864,504
-----------
Construction/Agricultural Equipment 0.6%
PACCAR, Inc. ............................................................................ 76,900 4,562,488
-----------
Tires 0.7%
Goodyear Tire & Rubber Co. .............................................................. 65,200 4,938,900
-----------
Manufacturing 8.2%
Chemicals 3.0%
Akzo Nobel N.V. (ADR) ................................................................... 46,600 4,747,375
Dow Chemical Co. ........................................................................ 22,800 2,217,300
Eastman Chemical Co. .................................................................... 63,600 4,289,025
Imperial Chemical Industries PLC (ADR) (New) ............................................ 121,400 8,725,625
Lyondell Petrochemical Co. .............................................................. 93,300 3,178,031
-----------
23,157,356
-----------
Containers & Paper 0.1%
Boise Cascade Corp. ..................................................................... 2,643 95,313
Temple-Inland, Inc. ..................................................................... 17,800 1,105,825
-----------
1,201,138
-----------
Diversified Manufacturing 1.3%
Olin Corp. .............................................................................. 82,600 3,877,038
TRW, Inc. ............................................................................... 104,600 5,766,075
-----------
9,643,113
-----------
Electrical Products 0.8%
Philips Electronics NV (New York shares) ................................................ 31,670 2,325,766
Thomas & Betts Corp. .................................................................... 57,100 3,654,400
-----------
5,980,166
-----------
Industrial Specialty 0.6%
Corning Inc. ............................................................................ 105,000 4,646,250
-----------
Office Equipment/Supplies 1.5%
Xerox Corp. ............................................................................. 105,800 11,261,088
-----------
Specialty Chemicals 0.9%
BetzDearborn Inc. ....................................................................... 55,300 3,120,994
Witco Corp. ............................................................................. 101,100 3,980,813
-----------
7,101,807
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 0.2%
Electronic Components/Distributors
AMP Inc. ................................................................................ 40,100 1,756,881
-----------
Energy 3.9%
Oil Companies 3.4%
Pennzoil Co. ............................................................................ 8,500 549,313
Royal Dutch Petroleum Co. (New York shares) ............................................. 53,200 3,022,425
Societe Nationale Elf Aquitaine (ADR) ................................................... 90,381 5,852,170
Texaco Inc. ............................................................................. 124,000 7,471,000
Total SA (ADR) .......................................................................... 70,201 4,216,448
YPF S.A. "D" (ADR) ...................................................................... 148,200 5,038,800
-----------
26,150,156
-----------
Oil/Gas Transmission 0.5%
Williams Cos., Inc. ..................................................................... 112,800 3,609,600
-----------
Metals & Minerals 1.3%
Steel & Metals
Allegheny Teledyne Inc. ................................................................. 163,935 4,559,442
Freeport McMoRan Copper & Gold, Inc. "A" ................................................ 99,000 1,850,063
Oregon Steel Mills, Inc. ................................................................ 101,500 2,233,000
Phelps Dodge Corp. ...................................................................... 21,900 1,413,919
-----------
10,056,424
-----------
Construction 2.2%
Building Products 0.9%
Georgia Pacific Group ................................................................... 108,100 6,999,475
-----------
Forest Products 1.3%
Georgia Pacific Timber Group ............................................................ 73,500 1,888,031
Westvaco Corp. .......................................................................... 82,100 2,524,575
Weyerhaeuser Co. ........................................................................ 100,700 5,689,550
-----------
10,102,156
-----------
Transportation 1.6%
Airlines 0.6%
Air New Zealand Ltd. "B" ................................................................ 3,200,000 4,422,000
-----------
Marine Transportation 0.5%
Knightsbridge Tankers Ltd. .............................................................. 137,500 3,918,750
-----------
Railroads 0.5%
CSX Corp. ............................................................................... 71,200 4,236,400
-----------
Utilities 5.5%
Electric Utilities
CINergy Corp. ........................................................................... 143,800 5,320,600
CMS Energy Corp. ........................................................................ 20,700 971,606
Duke Energy Corp. ....................................................................... 110,289 6,569,089
PG & E Corp. ............................................................................ 105,200 3,471,600
PacifiCorp .............................................................................. 240,800 5,929,700
PowerGen PLC (ADR) ...................................................................... 16,600 946,200
Southern Company ........................................................................ 129,800 3,593,838
TNP Enterprises, Inc. ................................................................... 216,500 7,158,031
</TABLE>
The accompanying notes are an integral part of the financial statements
71
<PAGE>
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unicom Corp. ............................................................................ 166,300 5,820,500
Wisconsin Energy Corp. .................................................................. 83,400 2,559,338
-----------
42,340,502
-----------
Total Common Stocks (Cost $325,010,478) ................................................. 469,642,060
-----------
- -----------------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
Number of
Contracts
-------------
Put on U.S. Treasury Bond Future, strike price 120, expires 5/16/98
(Cost $32,597) ....................................................................... 37 49,719
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $610,335,943) (a) ...................................... 99.5 761,748,381
Other Assets and Liabilities, Net ....................................................... 0.5 3,603,958
----- -----------
Net Assets .............................................................................. 100.0 765,352,339
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security
** Effective maturities will be shorter due to prepayments.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $610,306,818 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....... $ 154,085,253
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (2,643,690)
-------------
Net unrealized appreciation .............................. $ 151,441,563
=============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the six
months ended March 31, 1998 aggregated $196,515,320 and $98,703,544,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $55,531,067 and $98,703,544, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
72
<PAGE>
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 3.7%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.6%
Department & Chain Stores
Federated Department Stores, Inc., Debenture, 5%, 10/1/03 ............................... 12,550,000 19,452,500
Home Depot Inc., 3.25%, 10/1/01 ......................................................... 17,500,000 26,293,750
-------------
45,746,250
-------------
Consumer Staples 0.4%
Miscellaneous
Ralston Purina Group, 7%, 8/1/00 ........................................................ 490,000 30,931,250
-------------
Health 0.3%
Health Industry Services 0.2%
HEALTHSOUTH Corp., 3.25%, 4/1/03 ........................................................ 19,000,000 19,000,000
-------------
Pharmaceuticals 0.1%
Sandoz Capital BVI Ltd., Debenture, 2%, 10/6/02 ......................................... 6,260,000 10,391,600
-------------
Communications 0.0%
Telephone/Communications
Compania de Telefonos de Chile, S.A., 4.5%, 1/15/03 ..................................... 1,000,000 1,438,125
-------------
Financial 1.2%
Banks 0.7%
Deutsche Bank Financial Inc., Convertible to Daimler Benz AG shares, Zero
Coupon, 2/12/17 ...................................................................... 102,590,000 51,295,000
-------------
Other Financial Companies 0.2%
MBL International Finance Bermuda, 3%, 11/30/02 ......................................... 17,290,000 17,419,675
-------------
Real Estate 0.3%
Security Capital Corp., 6.5%, 3/29/16 (b) (c) ........................................... 18,250,000 21,671,875
-------------
Service Industries 0.8%
Miscellaneous Commercial Services 0.5%
ADT Operations Inc., Liquid Yield Option Note, Zero Coupon, 7/6/10 ...................... 25,000,000 36,984,375
-------------
Miscellaneous Consumer Services 0.3%
CUC International Inc., 3%, 2/15/02 ..................................................... 14,000,000 19,425,000
-------------
Durables 0.1%
Automobiles
Magna International, Inc., 5%, 10/15/02 ................................................. 6,800,000 9,622,000
-------------
Manufacturing 0.3%
Diversified Manufacturing 0.1%
Thermo Electron Corp., 4.25%, 1/1/03 .................................................... 5,000,000 5,812,500
-------------
Industrial Specialty 0.2%
Omnicom Group Inc., 2.25%, 1/6/13 ....................................................... 12,500,000 14,015,625
-------------
Total Convertible Bonds (Cost $217,697,648) ............................................. 283,753,275
-------------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
Consumer Staples 0.9%
Food & Beverage
Suiza Foods Corp., 2.7% ................................................................. 1,400,000 70,525,000
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
73
<PAGE>
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial 0.1%
Consumer Finance 0.0%
Advanta Corp., 6.75% .................................................................... 68,801 1,651,224
-------------
Real Estate 0.1%
Security Capital Industrial Trust "B", 7% ............................................... 321,500 10,448,750
-------------
Manufacturing 0.3%
Containers & Paper 0.0%
International Paper Co. 5.25% ........................................................... 50,200 2,591,575
-------------
Industrial Specialty 0.2%
Cooper Industries, Inc., 6% ............................................................. 652,400 13,292,650
-------------
Office Equipment/Supplies 0.1%
Ikon Office Solutions, Inc., 5.04% ...................................................... 102,800 7,979,850
-------------
Metals & Minerals 0.2%
Precious Metals
Freeport McMoRan Copper & Gold, Inc., Cum. $1.25 ........................................ 500,000 11,406,250
-------------
Total Convertible Preferred Stocks (Cost $112,397,568) .................................. 117,895,299
-------------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 95.3%
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 4.5%
Department & Chain Stores
J.C. Penney Co., Inc. ................................................................... 1,272,500 96,312,344
May Department Stores ................................................................... 782,700 49,701,450
Mercantile Stores, Inc. ................................................................. 1,045,400 70,237,813
Rite Aid Corp. .......................................................................... 1,377,000 47,162,250
Sears, Roebuck & Co. .................................................................... 1,441,600 82,801,900
-------------
346,215,757
-------------
Consumer Staples 6.0%
Food & Beverage 4.8%
General Mills, Inc. ..................................................................... 1,004,800 76,364,800
H.J. Heinz Co. .......................................................................... 3,040,400 177,483,350
Unilever NV ............................................................................. 420,000 28,322,981
Unilever NV (New York shares) ........................................................... 1,306,800 89,679,150
-------------
371,850,281
-------------
Package Goods/Cosmetics 1.2%
Avon Products Inc. ...................................................................... 1,206,300 94,091,400
-------------
Health 5.7%
Pharmaceuticals
American Home Products Corp. ............................................................ 1,115,900 106,428,963
Baxter International Inc. ............................................................... 1,166,300 64,292,288
Bristol-Myers Squibb Co. ................................................................ 1,201,500 125,331,469
SmithKline Beecham PLC (ADR) ............................................................ 1,322,600 82,745,163
Zeneca Group PLC ........................................................................ 1,446,900 62,235,123
-------------
441,033,006
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
74
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 8.7%
Telephone/Communications
Alltel Corp. ............................................................................ 1,896,300 82,844,606
Bell Atlantic Corp. ..................................................................... 1,702,240 174,479,600
BellSouth Corp. ......................................................................... 1,565,800 105,789,363
Frontier Corp. .......................................................................... 2,187,800 71,240,238
GTE Corp. ............................................................................... 2,343,700 140,329,038
Sprint Corp. ............................................................................ 1,393,300 94,308,994
Telecom Corp. of New Zealand ............................................................ 2,036,000 9,700,940
-------------
678,692,779
-------------
Financial 22.5%
Banks 12.2%
Banc One Corp. .......................................................................... 1,403,450 88,768,213
BankAmerica Corp. ....................................................................... 251,000 20,738,875
Bankers Trust New York Corp. ............................................................ 543,500 65,389,844
Chase Manhattan Corp. ................................................................... 1,363,900 183,956,013
CoreStates Financial Corp. .............................................................. 1,257,900 112,896,525
First Chicago NBD Corp. ................................................................. 279,400 24,622,125
First Union Corp. ....................................................................... 1,294,700 73,474,225
Fleet Financial Group Inc. .............................................................. 467,600 39,775,225
J.P. Morgan & Co., Inc. ................................................................. 749,200 100,626,925
KeyCorp ................................................................................. 1,960,400 74,127,625
NationsBank Corp. ....................................................................... 1,098,600 80,129,138
US Bancorp .............................................................................. 643,500 80,276,625
-------------
944,781,358
-------------
Insurance 4.1%
EXEL Ltd. (ADR) ......................................................................... 979,100 75,880,250
Lincoln National Corp. .................................................................. 1,011,800 85,876,525
Mid-Ocean, Ltd. ......................................................................... 754,300 58,458,250
Safeco Corp. ............................................................................ 1,729,500 94,527,984
-------------
314,743,009
-------------
Other Financial Companies 0.5%
Federal National Mortgage Association ................................................... 640,200 40,492,650
-------------
Real Estate 5.6%
Arden Realty Group, Inc. ................................................................ 1,298,700 37,012,950
Avalon Properties, Inc. (REIT) .......................................................... 495,800 14,378,200
Boston Properties, Inc. (REIT) .......................................................... 888,900 31,278,169
Camden Property Trust (REIT) ............................................................ 386,200 11,441,175
Equity Office Properties Trust (REIT) ................................................... 1,298,100 39,754,313
General Growth Properties, Inc. (REIT) (d) .............................................. 2,004,900 73,930,688
Health Care Property Investment Inc. (REIT) ............................................. 409,800 15,136,988
Mark Centers Trust (REIT) ............................................................... 31,100 277,956
Meditrust Corp. (REIT) .................................................................. 550,212 16,987,796
Nationwide Health Properties Inc. (REIT) ................................................ 876,600 21,915,000
Prentiss Properties Trust ............................................................... 1,000,000 26,125,000
Security Capital Group, Inc.* (b) (c) ................................................... 17,398 23,838,953
Security Capital Industrial Trust (REIT) ................................................ 2,816,172 72,164,408
Security Capital Industrial Trust Warrants (expire 9/18/98) ............................. 88,318 292,553
</TABLE>
The accompanying notes are an integral part of the financial statements
75
<PAGE>
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Security Capital US Realty (REIT) ....................................................... 2,688,521 35,488,477
Spieker Properties, Inc. ................................................................ 150,000 6,187,500
Vornado Realty Trust (REIT) ............................................................. 204,200 8,895,463
-------------
435,105,589
-------------
Miscellaneous 0.1%
Jardine Strategic Holdings Ltd. ......................................................... 2,305,615 6,282,801
-------------
Service Industries 1.1%
Environmental Services
Browning Ferris Industries .............................................................. 2,695,900 87,953,738
-------------
Durables 10.3%
Aerospace 2.9%
Lockheed Martin Corp. ................................................................... 1,001,823 112,705,088
Rockwell International Corp. ............................................................ 2,002,900 114,916,388
-------------
227,621,476
-------------
Automobiles 5.5%
Dana Corp. .............................................................................. 1,833,300 106,675,144
Echlin, Inc. ............................................................................ 1,160,300 60,843,231
Ford Motor Co. .......................................................................... 3,037,200 196,848,525
Meritor Automotive, Inc. ................................................................ 2,219,366 58,951,909
-------------
423,318,809
-------------
Construction/Agricultural Equipment 0.9%
PACCAR, Inc. ............................................................................ 1,158,700 69,015,069
-------------
Tires 1.0%
Goodyear Tire & Rubber Co. .............................................................. 986,200 74,704,650
-------------
Manufacturing 15.1%
Chemicals 5.7%
Akzo-Nobel NV ........................................................................... 474,115 96,303,366
Dow Chemical Co. ........................................................................ 498,300 48,459,675
Eastman Chemical Co. .................................................................... 945,000 63,728,438
Imperial Chemical Industries PLC ........................................................ 8,662,000 154,889,639
Lyondell Petrochemical Co. .............................................................. 2,304,300 78,490,218
-------------
441,871,336
-------------
Containers & Paper 0.8%
Boise Cascade Corp. ..................................................................... 1,235,281 44,547,321
Temple-Inland, Inc. ..................................................................... 291,200 18,090,800
-------------
62,638,121
-------------
Diversified Manufacturing 1.9%
Olin Corp. .............................................................................. 1,404,600 65,928,413
TRW Inc. ................................................................................ 1,534,100 84,567,263
-------------
150,495,676
-------------
Electrical Products 1.4%
Philips Electronics NV .................................................................. 338,400 24,832,826
Philips Electronics NV (New York shares) ................................................ 212,900 15,634,844
Thomas & Betts Corp. .................................................................... 1,014,600 64,934,400
-------------
105,402,070
-------------
Industrial Specialty 1.0%
Corning Inc. ............................................................................ 1,692,400 74,888,700
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
76
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 0.5%
S.K.F. AB "B" (Free) .................................................................... 1,600,000 37,926,074
-------------
Office Equipment/Supplies 2.3%
Xerox Corp. ............................................................................. 1,707,950 181,789,928
-------------
Specialty Chemicals 1.5%
ARCO Chemical Co. ....................................................................... 204,800 9,702,400
BetzDearborn Inc. ....................................................................... 709,000 40,014,188
Witco Corp. ............................................................................. 1,649,900 64,964,813
-------------
114,681,401
-------------
Technology 0.4%
Electronic Components/Distributors
AMP Inc. ................................................................................ 673,000 29,485,813
-------------
Energy 7.5%
Oil Companies 6.7%
Amoco Corp. ............................................................................. 442,100 38,186,388
Chevron Corp. ........................................................................... 440,400 35,369,625
Pennzoil Co. ............................................................................ 392,900 25,391,163
Royal Dutch Petroleum Co. (New York shares) ............................................. 785,500 44,626,219
Societe Nationale Elf Aquitaine ......................................................... 759,800 99,549,431
Texaco Inc. ............................................................................. 1,875,400 112,992,850
Total SA "B" ............................................................................ 558,448 67,040,793
Total SA (ADR) .......................................................................... 569,496 34,205,354
YPF SA "D" (ADR) ........................................................................ 1,943,800 66,089,200
-------------
523,451,023
-------------
Oil/Gas Transmission 0.8%
Williams Cos., Inc. ..................................................................... 1,839,400 58,860,800
-------------
Metals & Minerals 1.6%
Steel & Metals
Allegheny Teledyne Inc. ................................................................. 2,677,010 74,454,326
Freeport McMoRan Copper & Gold, Inc. "A" ................................................ 579,010 10,820,249
J & L Specialty Steel, Inc. ............................................................. 1,879,100 17,851,450
Phelps Dodge Corp. ...................................................................... 340,800 22,002,900
-------------
125,128,925
-------------
Construction 3.5%
Building Products 1.5%
Georgia Pacific Group ................................................................... 1,778,300 115,144,925
-------------
Forest Products 2.0%
Georgia Pacific Timber Group ............................................................ 1,146,200 29,443,013
Westvaco Corp. .......................................................................... 1,200,000 36,900,000
Weyerhaeuser Co. ........................................................................ 1,646,500 93,027,250
-------------
159,370,263
-------------
Transportation 1.1%
Railroads
CSX Corp. ............................................................................... 1,148,600 68,341,700
Norfolk Southern Corp. .................................................................. 423,300 15,820,838
-------------
84,162,538
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
77
<PAGE>
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities 7.3%
Electric Utilities
CINergy Corp. ........................................................................... 2,133,100 78,924,700
Duke Energy Corp. ....................................................................... 1,819,120 108,351,335
PacifiCorp .............................................................................. 3,640,900 89,657,163
PG & E Corp. ............................................................................ 2,391,600 78,922,800
PowerGen PLC ............................................................................ 1,452,478 20,294,055
PowerGen PLC (ADR) ...................................................................... 289,103 16,478,871
Southern Company ........................................................................ 2,170,200 60,087,413
Unicom Corp. ............................................................................ 2,316,000 81,060,000
Wisconsin Energy Corp. .................................................................. 1,183,600 36,321,725
-------------
570,098,062
-------------
Total Common Stocks (Cost $4,925,936,814) ............................................... 7,391,298,027
-------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $5,256,032,030) (a) .................................... 100.5 7,792,946,601
Other Assets and Liabilities, Net ....................................................... (0.5) (38,840,832)
----- -------------
Net Assets .............................................................................. 100.0 7,754,105,769
===== =============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $5,253,578,938 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $2,557,408,861
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (18,041,198)
--------------
Net unrealized appreciation ............................. $2,539,367,663
==============
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees amounted to $45,510,828 (0.59% of net assets). Their values have
been estimated by the Board of Trustees in the absence of readily
ascertainable market values. However, because of the inherent uncertainty
of valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the securities
existed, and the difference could be material. The cost of these
securities at March 31, 1998 was $36,500,000. These securities may also
have certain restrictions as to resale.
(c) Restricted Securities are securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
The aggregate fair value of restricted securities at March 31, 1998,
amounted to $45,510,828 which represents .59% of net assets. Information
concerning such restricted securities at March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Cost ($)
-------- ---------------- ------------
<S> <C> <C>
Security Capital Group, Inc. 4/19/96 18,250,000
Security Capital Group, Inc., 6.5%, 3/29/16 4/19/96 18,250,000
</TABLE>
The accompanying notes are an integral part of the financial statements
78
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) Affiliated Issuer (See Notes to Financial Statements)
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998, aggregated
$1,807,428,084 and $1,291,991,960, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities. The accompanying notes are an integral part of the financial
statements
79
<PAGE>
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 9.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 3/31/98 at
5.75% to be repurchased at $6,028,963 on 4/1/98, collateralized by a
$4,625,000 U.S. Treasury Bond, 8.875%, 8/15/17 (Cost $6,028,000) ..................... 6,028,000 6,028,000
----------
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 0.3%
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 4/30/98 (Cost $204,139) ............................................. 205,000 204,145
----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.0%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
Consumer Discretionary 5.6%
Apparel & Shoes 0.1%
Liz Claiborne Inc. ...................................................................... 300 14,963
Nike, Inc. "B" .......................................................................... 1,900 84,075
----------
99,038
----------
Department & Chain Stores 4.5%
CVS Corp. ............................................................................... 800 60,400
Charming Shoppes Inc. ................................................................... 100 475
Consolidated Stores Corp. ............................................................... 300 12,881
Costco Companies, Inc. .................................................................. 1,100 58,713
Dayton Hudson Corp. ..................................................................... 1,900 167,200
Dillard's Inc. .......................................................................... 100 3,694
Gap Inc. ................................................................................ 3,100 139,500
Home Depot, Inc. ........................................................................ 5,200 350,675
J.C. Penney Co., Inc. ................................................................... 4,900 370,869
Kmart Corp. ............................................................................. 400 6,675
Limited Inc. ............................................................................ 3,600 103,275
Longs Drug Stores, Inc. ................................................................. 600 18,263
Lowe's Companies, Inc. .................................................................. 1,000 70,188
May Department Stores ................................................................... 3,200 203,200
Mercantile Stores, Inc. ................................................................. 200 13,438
Nordstrom, Inc. ......................................................................... 800 51,050
Rite Aid Corp. .......................................................................... 2,300 78,775
Sears, Roebuck & Co. .................................................................... 4,100 235,494
TJX Companies, Inc. (New) ............................................................... 1,400 63,350
Wal-Mart Stores Inc. .................................................................... 16,800 853,650
Walgreen Co. ............................................................................ 3,500 123,156
----------
2,984,921
----------
Home Furnishings 0.3%
Newell Companies Inc. ................................................................... 1,000 48,438
Rubbermaid, Inc. ........................................................................ 2,300 65,550
Tupperware Corp. ........................................................................ 3,800 101,175
----------
215,163
----------
Hotels & Casinos 0.1%
Hilton Hotels Corp. ..................................................................... 1,000 31,875
</TABLE>
The accompanying notes are an integral part of the financial statements
80
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marriott International, Inc. ............................................................ 125 4,383
Marriott International, Inc. "A" ........................................................ 100 3,581
----------
39,839
----------
Recreational Products 0.2%
Brunswick Corp. ......................................................................... 900 31,388
Hasbro, Inc. ............................................................................ 1,050 37,078
Mattel Inc. ............................................................................. 2,300 91,138
----------
159,604
----------
Restaurants 0.3%
Darden Restaurants Inc. ................................................................. 100 1,556
McDonald's Corp. ........................................................................ 1,800 108,000
Tricon Global Restaurants ............................................................... 1,820 54,714
Wendy's International, Inc. ............................................................. 100 2,231
----------
166,501
----------
Specialty Retail 0.1%
AutoZone, Inc*. ......................................................................... 100 3,388
Circuit City Stores Inc. ................................................................ 100 4,275
Pep Boys-- Manny, Moe & Jack ............................................................ 100 2,319
Tandy Corp. ............................................................................. 900 42,300
Toys "R" Us Inc. ........................................................................ 100 3,006
----------
55,288
----------
Consumer Staples 9.4%
Alcohol 0.2%
Anheuser-Busch Companies, Inc. .......................................................... 2,500 115,781
Seagram Co., Ltd. ....................................................................... 800 30,550
----------
146,331
----------
Consumer Electronic & Photographic Products 0.5%
Eastman Kodak Co. ....................................................................... 4,000 259,500
Maytag Corp. ............................................................................ 1,100 52,594
Polaroid Corp. .......................................................................... 100 4,400
Whirlpool Corp. ......................................................................... 500 34,281
----------
350,775
----------
Consumer Specialties 0.3%
American Greeting Corp., "A" ............................................................ 100 4,600
Jostens, Inc. ........................................................................... 7,300 175,200
----------
179,800
----------
Farming 0.0%
Archer-Daniels-Midland Co. .............................................................. 105 2,303
Pioneer Hi-Bred International, Inc. ..................................................... 80 7,805
----------
10,108
----------
Food & Beverage 4.9%
Albertson's Inc. ........................................................................ 900 47,363
American Stores Co. ..................................................................... 500 13,000
Bestfoods ............................................................................... 900 105,188
Campbell Soup Co. ....................................................................... 2,200 124,850
Coca-Cola Co., Inc. (b) ................................................................. 17,200 1,331,925
</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>
ConAgra Inc. ............................................................................ 3,100 99,588
General Mills, Inc. ..................................................................... 2,000 152,000
Giant Food, Inc. "A" .................................................................... 100 3,863
H.J. Heinz Co. .......................................................................... 3,000 175,125
Hershey Foods Corp. ..................................................................... 100 7,163
Kellogg Co. ............................................................................. 2,700 116,438
PepsiCo Inc. ............................................................................ 10,800 461,025
Quaker Oats Co. ......................................................................... 2,500 143,125
Ralston Purina Group .................................................................... 200 21,200
SUPERVALU, Inc. ......................................................................... 700 32,638
Unilever NV (New York shares) ........................................................... 4,200 288,225
Vlasic Foods International Inc. ......................................................... 220 5,624
William Wrigley Jr. Co. ................................................................. 100 8,175
Winn-Dixie Stores, Inc. ................................................................. 1,900 88,113
----------
3,224,628
----------
Package Goods/Cosmetics 3.3%
Avon Products Inc. ...................................................................... 2,100 163,800
Clorox Co. .............................................................................. 900 77,119
Colgate-Palmolive Co. ................................................................... 2,700 233,888
Gillette Co. ............................................................................ 3,900 462,881
International Flavors & Fragrances, Inc. ................................................ 3,800 179,075
Kimberly-Clark Corp. .................................................................... 3,900 195,488
Procter & Gamble Co. .................................................................... 10,300 869,063
----------
2,181,314
----------
Textiles 0.2%
Springs Industries, Inc. "A" ............................................................ 200 10,988
VF Corporation .......................................................................... 1,700 89,356
----------
100,344
----------
Health 11.9%
Biotechnology 0.3%
Amgen Inc.* ............................................................................. 1,200 73,050
Guidant Corp. ........................................................................... 1,600 117,400
----------
190,450
----------
Health Industry Services 0.4%
HBO & Company, Inc. ..................................................................... 1,600 96,600
HEALTHSOUTH Corp. ....................................................................... 1,900 53,319
Humana, Inc. ............................................................................ 100 2,481
Perkin-Elmer Corp. ...................................................................... 200 14,463
Shared Medical Systems Corp. ............................................................ 400 31,350
United Healthcare Corp. ................................................................. 900 58,275
----------
256,488
----------
Hospital Management 0.2%
Columbia/HCA Healthcare Corp. ........................................................... 2,900 93,525
Tenet Healthcare Corp.* ................................................................. 500 18,156
----------
111,681
----------
Medical Supply & Specialty 0.8%
Bausch & Lomb, Inc. ..................................................................... 2,000 91,375
</TABLE>
The accompanying notes are an integral part of the financial statements
82
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Becton, Dickinson & Co. ................................................................. 700 47,644
Biomet Inc. ............................................................................. 400 12,000
Boston Scientific Corp.* ................................................................ 1,300 87,750
C.R. Bard, Inc. ......................................................................... 2,000 73,500
Mallinckrodt, Inc. ...................................................................... 100 3,950
Medtronic Inc. .......................................................................... 3,700 191,938
U.S. Surgical Corp. ..................................................................... 700 23,100
----------
531,257
----------
Pharmaceuticals 10.2%
Abbott Laboratories ..................................................................... 6,400 482,000
Allergan, Inc.* ......................................................................... 105 3,861
American Home Products Corp. ............................................................ 6,000 572,250
Baxter International Inc. ............................................................... 4,200 231,525
Bristol-Myers Squibb Co. ................................................................ 8,000 834,500
Eli Lilly & Co. ......................................................................... 8,400 500,850
Johnson & Johnson ....................................................................... 10,200 747,788
Merck & Co., Inc. ....................................................................... 9,300 1,193,888
Pfizer, Inc. ............................................................................ 10,000 996,875
Pharmacia & Upjohn, Inc. ................................................................ 6,000 262,500
Schering-Plough Corp. ................................................................... 5,800 473,788
Warner-Lambert Co. ...................................................................... 2,400 408,750
----------
6,708,575
----------
Communications 6.7%
Cellular Telephone 0.0%
AirTouch Communications, Inc.* .......................................................... 100 4,894
----------
Telephone/Communications 6.7%
Alltel Corp. ............................................................................ 1,100 48,056
American Telephone & Telegraph Co. ...................................................... 12,800 840,000
Ameritech Corp. ......................................................................... 8,100 400,444
Bell Atlantic Corp. ..................................................................... 7,503 769,058
BellSouth Corp. ......................................................................... 4,500 304,031
Frontier Corp. .......................................................................... 2,200 71,638
GTE Corp. ............................................................................... 8,800 526,900
MCI Communications Corp. ................................................................ 900 44,550
SBC Communicatons, Inc. ................................................................. 12,438 542,608
Sprint Corp. ............................................................................ 300 20,306
US West Inc. ............................................................................ 11,400 624,150
WorldCom, Inc. .......................................................................... 5,500 236,844
----------
4,428,585
----------
Financial 15.3%
Banks 9.1%
BB&T Corporation ........................................................................ 1,100 74,456
Banc One Corp. .......................................................................... 6,710 424,408
Bank of New York Co., Inc. .............................................................. 2,400 150,750
BankAmerica Corp. ....................................................................... 5,000 413,125
BankBoston Corp. ........................................................................ 1,600 176,400
Chase Manhattan Corp. ................................................................... 3,500 472,063
Citicorp ................................................................................ 3,200 454,400
</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>
Comerica Inc. ........................................................................... 700 74,069
CoreStates Financial Corp. .............................................................. 2,300 206,425
Fifth Third Bancorp. .................................................................... 150 12,825
First Chicago NBD Corp. ................................................................. 2,200 193,875
First Union Corp. ....................................................................... 6,200 351,850
Fleet Financial Group Inc. .............................................................. 2,600 221,163
H.F. Ahmanson & Co. ..................................................................... 100 7,750
Huntington Bancshares Inc. .............................................................. 1,200 43,725
J.P. Morgan & Co., Inc. ................................................................. 2,500 335,781
KeyCorp ................................................................................. 5,100 192,844
MBNA Corp. .............................................................................. 4,650 166,528
Mellon Bank Corp. ....................................................................... 2,700 171,450
Mercantile Bancorporation Inc. .......................................................... 1,100 60,294
National City Corp. ..................................................................... 3,400 249,263
NationsBank Corp. ....................................................................... 7,406 540,175
Norwest Corp. ........................................................................... 5,300 220,281
PNC Bank Corp. .......................................................................... 3,800 227,763
State Street Corp. ...................................................................... 300 20,419
Summit Bancorp. ......................................................................... 1,800 90,113
SunTrust Banks, Inc. .................................................................... 100 7,538
US Bancorp .............................................................................. 1,702 212,325
Wachovia Corp. .......................................................................... 1,300 110,256
Washington Mutual, Inc. ................................................................. 1,360 97,538
----------
5,979,852
----------
Insurance 3.0%
Aetna Inc. .............................................................................. 100 8,344
Allstate Corp. .......................................................................... 2,500 229,844
American General Corp. .................................................................. 3,100 200,531
American International Group, Inc. ...................................................... 3,700 465,969
Aon Corp. ............................................................................... 1,550 100,363
Chubb Corp. ............................................................................. 200 15,675
Cigna Corp. ............................................................................. 400 82,000
Cincinnati Financial Corp. .............................................................. 300 37,575
Conseco, Inc. ........................................................................... 700 39,638
General Re Corp. ........................................................................ 200 44,125
Hartford Financial Services Group Inc. .................................................. 200 21,700
Jefferson Pilot Corp. ................................................................... 600 53,363
Lincoln National Corp. .................................................................. 1,400 118,825
Marsh & McLennan Companies, Inc. ........................................................ 3,000 261,938
Providian Financial Corp. ............................................................... 600 34,463
Safeco Corp. ............................................................................ 1,700 92,916
St. Paul Companies, Inc. ................................................................ 1,100 98,038
SunAmerica, Inc. ........................................................................ 850 40,694
Torchmark Corp. ......................................................................... 400 18,325
Transamerica Corp. ...................................................................... 100 11,650
UNUM Corp. .............................................................................. 200 11,038
USF&G Corp. ............................................................................. 100 2,494
----------
1,989,508
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
84
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Finance 0.2%
Beneficial Corp. ........................................................................ 800 99,450
----------
Other Financial Companies 3.0%
American Express Co.* ................................................................... 3,300 302,981
Federal Home Loan Mortgage Corp. ........................................................ 3,200 151,800
Federal National Mortgage Association ................................................... 8,000 506,000
Green Tree Financial Corp. .............................................................. 900 25,594
Household International, Inc. ........................................................... 900 123,975
Morgan Stanley, Dean Witter Discover Co. ................................................ 4,995 364,011
Travelers Group, Inc. ................................................................... 8,919 535,140
----------
2,009,501
----------
Media 2.3%
Advertising 0.1%
Interpublic Group of Companies Inc. ..................................................... 250 15,531
Omnicom Group, Inc. ..................................................................... 1,600 75,300
----------
90,831
----------
Broadcasting & Entertainment 1.6%
CBS Corp. ............................................................................... 5,300 179,869
Clear Channel Communications, Inc.* ..................................................... 100 9,800
Time Warner Inc. ........................................................................ 3,800 273,600
U.S. West Media Group ................................................................... 1,600 55,600
Viacom Inc. "B" ......................................................................... 800 43,000
Walt Disney Co. ......................................................................... 4,700 501,725
----------
1,063,594
----------
Cable Television 0.3%
Comcast Corp. "A" ....................................................................... 2,100 74,156
Tele-Communications Inc. "A" ............................................................ 4,027 125,215
----------
199,371
----------
Print Media 0.3%
Gannett Co., Inc. ....................................................................... 2,000 143,750
Harcourt General, Inc. .................................................................. 100 5,538
Knight-Ridder, Inc. ..................................................................... 200 11,175
New York Times Co. "A" .................................................................. 100 7,000
Times Mirror Co. "A" .................................................................... 100 6,338
Tribune Co. ............................................................................. 500 35,250
----------
209,051
----------
Service Industries 3.0%
EDP Services 0.2%
Automatic Data Processing, Inc. 1,300 88,481
First Data Corp. 1,500 48,750
----------
137,231
----------
Environmental Services 0.5%
Browning Ferris Industries 3,700 120,713
Waste Management Inc. 6,600 203,363
----------
324,076
----------
</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>
Investment 0.5%
Charles Schwab Corp. .................................................................... 1,850 70,300
Lehman Brothers Holdings, Inc. .......................................................... 600 44,925
Merrill Lynch & Co., Inc. ............................................................... 2,700 224,100
----------
339,325
----------
Miscellaneous Commercial Services 0.1%
Cognizant Corp. ......................................................................... 300 17,213
Ecolab, Inc. ............................................................................ 200 5,800
Safety-Kleen Corp. ...................................................................... 100 2,838
Sysco Corp. ............................................................................. 800 20,500
----------
46,351
----------
Miscellaneous Consumer Services 0.4%
Cendant Corporation ..................................................................... 4,980 197,333
H & R Block Inc. ........................................................................ 1,400 66,588
Service Corp. International ............................................................. 200 8,488
----------
272,409
----------
Printing/Publishing 1.3%
Deluxe Corp. ............................................................................ 8,200 270,088
Dow Jones & Co., Inc. ................................................................... 400 21,175
Dun & Bradstreet Corp. .................................................................. 8,400 287,175
Equifax Inc. ............................................................................ 700 25,550
John H. Harland Co. ..................................................................... 500 7,781
McGraw-Hill Inc. ........................................................................ 1,800 136,913
R.R. Donnelley & Sons Co. ............................................................... 2,100 86,231
----------
834,913
----------
Durables 5.8%
Aerospace 1.3%
AlliedSignal Inc. ....................................................................... 3,400 142,800
Boeing Co. .............................................................................. 5,950 310,144
Lockheed Martin Corp. ................................................................... 1,100 123,750
Northrop Grumman Corp. .................................................................. 700 75,206
Rockwell International Corp. ............................................................ 1,400 80,325
United Technologies Corp. ............................................................... 1,500 138,469
----------
870,694
----------
Automobiles 2.4%
Chrysler Corp. .......................................................................... 8,700 361,594
Cummins Engine Co., Inc. ................................................................ 200 11,025
Dana Corp. .............................................................................. 900 52,369
Eaton Corp. ............................................................................. 500 47,594
Echlin, Inc. ............................................................................ 100 5,244
Ford Motor Co. .......................................................................... 10,200 661,088
General Motors Corp. .................................................................... 5,300 357,419
Genuine Parts Co. ....................................................................... 2,800 106,750
Midas Inc. .............................................................................. 16 330
----------
1,603,413
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
86
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction/Agricultural Equipment 0.5%
Case Corp. .............................................................................. 100 6,813
Caterpillar Inc. ........................................................................ 3,300 181,706
Deere & Co. ............................................................................. 1,900 117,681
----------
306,200
----------
Leasing Companies 0.0%
Ryder System, Inc. ...................................................................... 100 3,800
----------
Telecommunications Equipment 1.5%
Andrew Corp.* ........................................................................... 250 4,953
DSC Communications Corp. ................................................................ 800 14,550
General Instrument Corp. ................................................................ 500 10,469
Lucent Technologies Inc. ................................................................ 4,800 613,800
Northern Telecom Ltd. ................................................................... 4,000 258,500
Scientific-Atlanta, Inc. ................................................................ 300 5,869
Tellabs, Inc. ........................................................................... 1,400 93,975
----------
1,002,116
----------
Tires 0.1%
Cooper Tire & Rubber Co. ................................................................ 100 2,375
Goodyear Tire & Rubber Co. .............................................................. 1,000 75,750
----------
78,125
----------
Manufacturing 11.0%
Chemicals 2.2%
B.F. Goodrich Co., Inc. ................................................................. 1,100 56,169
Dow Chemical Co. ........................................................................ 4,000 389,000
E.I. du Pont de Nemours & Co. ........................................................... 8,800 598,400
Eastman Chemical Co. .................................................................... 1,300 87,669
Engelhard Corp. ......................................................................... 100 1,900
Great Lakes Chemicals Corp. ............................................................. 100 5,400
Hercules, Inc. .......................................................................... 1,200 59,250
Monsanto Co. ............................................................................ 3,100 161,200
Morton International, Inc. .............................................................. 400 13,125
Praxair, Inc. ........................................................................... 100 5,144
Rohm & Haas Co. ......................................................................... 500 51,656
Sigma-Aldrich Corp. ..................................................................... 100 3,725
Union Carbide Corp. ..................................................................... 600 30,075
W.R. Grace & Co. (New) .................................................................. 100 8,369
----------
1,471,082
----------
Containers & Paper 0.5%
Crown Cork & Seal Co. Inc. .............................................................. 400 21,400
Fort James Corp. ........................................................................ 1,700 77,881
International Paper Co. ................................................................. 2,000 93,625
Stone Container Corp. ................................................................... 200 2,500
Temple-Inland, Inc. ..................................................................... 200 12,425
Union Camp Corp. ........................................................................ 1,800 107,550
----------
315,381
----------
Diversified Manufacturing 5.4%
Aeroquip-Vickers Inc. ................................................................... 300 17,344
Cooper Industries, Inc. ................................................................. 2,100 124,819
</TABLE>
The accompanying notes are an integral part of the financial statements
87
<PAGE>
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dover Corp. ............................................................................. 1,000 38,000
Dresser Industries, Inc. ................................................................ 2,200 105,738
General Electric Co. .................................................................... 26,100 2,249,494
Honeywell, Inc. ......................................................................... 900 74,419
ITT Industries Inc. ..................................................................... 500 19,031
Minnesota Mining & Manufacturing Co. .................................................... 4,400 401,225
National Service Industries, Inc. ....................................................... 1,100 64,694
TRW, Inc. ............................................................................... 300 16,538
Tenneco, Inc. ........................................................................... 3,000 128,063
Textron, Inc. ........................................................................... 1,300 100,100
Tyco International Ltd. (New) ........................................................... 4,200 229,425
Whitman Corp. ........................................................................... 100 1,975
----------
3,570,865
----------
Electrical Products 0.5%
Emerson Electric Co. .................................................................... 4,100 267,269
Raychem Corp. ........................................................................... 400 16,625
Thomas & Betts Corp. .................................................................... 900 57,600
----------
341,494
----------
Hand Tools 0.2%
Black & Decker Corp. .................................................................... 100 5,306
Briggs & Stratton Corp. ................................................................. 600 27,488
Snap-On, Inc. ........................................................................... 300 13,688
Stanley Works ........................................................................... 900 50,175
----------
96,657
----------
Industrial Specialty 0.5%
Avery Dennison Corp. .................................................................... 800 42,700
Corning Inc. ............................................................................ 2,300 101,775
PPG Industries, Inc. .................................................................... 1,700 115,494
Pall Corp. .............................................................................. 4,200 90,300
Sherwin-Williams Co. .................................................................... 200 7,100
----------
357,369
----------
Machinery/Components/Controls 0.4%
Cincinnati Milacron, Inc. ............................................................... 800 25,500
General Signal Corp. .................................................................... 1,800 84,150
Harnischfeger Industries, Inc. .......................................................... 100 3,419
Illinois Tool Works Inc. ................................................................ 900 58,275
Ingersoll-Rand Co. ...................................................................... 1,150 55,128
Parker-Hannifin Group ................................................................... 900 46,125
Timken Co. .............................................................................. 400 13,525
----------
286,122
----------
Office Equipment/Supplies 1.2%
Moore Corp. Ltd. ........................................................................ 18,800 313,079
Pitney Bowes, Inc. ...................................................................... 3,000 150,563
Xerox Corp. ............................................................................. 2,900 308,669
----------
772,311
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
88
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Specialty Chemicals 0.1%
Air Products & Chemicals, Inc. .......................................................... 500 41,438
Nalco Chemical Co. ...................................................................... 900 36,506
----------
77,944
----------
Technology 10.9%
Computer Software 3.4%
Adobe Systems Inc. ...................................................................... 500 22,594
Autodesk, Inc. .......................................................................... 500 21,563
Bay Networks Inc.* ...................................................................... 2,100 56,963
Computer Associates International, Inc. ................................................. 4,300 248,325
Microsoft Corp. ......................................................................... 18,100 1,619,950
Oracle Systems Corp. .................................................................... 7,000 220,938
Parametric Technology Corp. ............................................................. 900 29,981
----------
2,220,314
----------
Diverse Electronic Products 0.7%
Applied Materials, Inc.* ................................................................ 3,100 109,469
Harris Corp. ............................................................................ 800 41,700
KLA Tencor Corp. ........................................................................ 1,000 38,250
Motorola Inc. ........................................................................... 4,500 272,813
----------
462,232
----------
EDP Peripherals 0.2%
EMC Corp. ............................................................................... 3,800 143,688
Seagate Technology, Inc. ................................................................ 800 20,200
----------
163,888
----------
Electronic Components/Distributors 0.3%
AMP Inc. ................................................................................ 4,000 175,250
----------
Electronic Data Processing 3.2%
Apple Computer, Inc.* ................................................................... 800 22,000
Ceridian Corp.* ......................................................................... 100 5,394
Compaq Computer Corp. ................................................................... 11,430 295,751
Data General Corp. ...................................................................... 200 3,538
Dell Computer Corp ...................................................................... 5,700 386,175
Digital Equipment Corp..* ............................................................... 1,100 57,544
Hewlett-Packard Co. ..................................................................... 6,900 437,288
International Business Machines Corp. ................................................... 7,100 737,513
Silicon Graphics Inc .................................................................... 700 9,756
Sun Microsystems, Inc. .................................................................. 2,300 95,953
Unisys Corp. ............................................................................ 3,200 60,800
----------
2,111,712
----------
Military Electronics 0.2%
Computer Sciences Corp. ................................................................. 200 11,000
EG&G, Inc. .............................................................................. 1,800 52,313
General Dynamics Corp. .................................................................. 100 8,613
Raytheon Co. "B" ........................................................................ 1,200 70,050
----------
141,976
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
89
<PAGE>
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office/Plant Automation 1.0%
3Com Corp. .............................................................................. 2,500 89,844
Cabletron Systems Inc. .................................................................. 500 7,281
Cisco Systems, Inc.* .................................................................... 7,650 523,069
Novell Inc. ............................................................................. 700 7,503
----------
627,697
----------
Semiconductors 1.9%
Advanced Micro Devices Inc. ............................................................. 1,100 31,969
Intel Corp. ............................................................................. 12,000 936,750
LSI Logic Corp. ......................................................................... 1,300 32,825
Micron Technology Inc. .................................................................. 1,700 49,406
National Semiconductor Corp. ............................................................ 900 18,844
Texas Instruments Inc. .................................................................. 3,700 200,263
----------
1,270,057
----------
Energy 7.6%
Engineering 0.2%
Fluor Corp. ............................................................................. 700 34,825
Foster Wheeler Corp. .................................................................... 1,700 51,956
McDermott International Inc. ............................................................ 300 12,394
----------
99,175
----------
Oil & Gas Production 0.3%
Burlington Resources, Inc. .............................................................. 100 4,794
Kerr-McGee Corp. ........................................................................ 200 13,913
Occidental Petroleum Corp. .............................................................. 5,900 172,944
----------
191,651
----------
Oil Companies 6.4%
Amerada Hess Corp. ...................................................................... 100 5,831
Amoco Corp. ............................................................................. 4,800 414,600
Ashland Inc. ............................................................................ 100 5,663
Atlantic Richfield Co. .................................................................. 4,500 353,813
Chevron Corp. ........................................................................... 5,500 441,719
Exxon Corp. ............................................................................. 18,300 1,237,538
Mobil Corp. ............................................................................. 6,600 505,725
Phillips Petroleum Co. .................................................................. 1,900 94,881
Royal Dutch Petroleum Co. (New York shares) ............................................. 15,100 857,816
Sun Co., Inc. ........................................................................... 400 16,350
Texaco Inc. ............................................................................. 4,200 253,050
USX Marathon Group ...................................................................... 800 30,100
Unocal Corp. ............................................................................ 100 3,869
----------
4,220,955
----------
Oil/Gas Transmission 0.0%
Enron Corp. ............................................................................. 200 9,275
Sonat, Inc. ............................................................................. 100 4,350
Williams Cos., Inc. ..................................................................... 400 12,800
----------
26,425
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
90
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 0.7%
Baker Hughes, Inc. ...................................................................... 1,300 52,325
Halliburton Co. ......................................................................... 2,400 120,450
Rowan Companies, Inc. ................................................................... 400 11,600
Schlumberger Ltd. ....................................................................... 4,000 303,000
----------
487,375
----------
Metals & Minerals 0.7%
Precious Metals 0.2%
Barrick Gold Corp. ...................................................................... 100 2,163
Battle Mountain Gold Co. "A" ............................................................ 100 638
Echo Bay Mines, Ltd. .................................................................... 100 231
Freeport McMoRan Copper & Gold, Inc. "B" ................................................ 5,600 111,650
Homestake Mining Co. .................................................................... 100 1,088
Newmont Mining Corp. .................................................................... 143 4,370
Placer Dome Inc. ........................................................................ 100 1,312
----------
121,452
----------
Steel & Metals 0.5%
Alcan Aluminium Ltd. .................................................................... 300 9,375
Allegheny Teledyne Inc. ................................................................. 1,800 50,063
Aluminum Co. of America ................................................................. 400 27,525
Asarco, Inc. ............................................................................ 100 2,669
Bethlehem Steel Corp..* ................................................................. 100 1,356
Cyprus Amax Minerals Co. ................................................................ 4,500 74,813
Inco Ltd. ............................................................................... 100 1,869
Nucor Corp. ............................................................................. 100 5,444
Phelps Dodge Corp. ...................................................................... 800 51,650
Reynolds Metals Co. ..................................................................... 800 49,150
USX-US Steel Group, Inc. ................................................................ 900 33,975
Worthington Industries, Inc..* .......................................................... 2,000 36,250
----------
344,139
----------
Construction 0.7%
Building Products 0.2%
Armstrong World Industries, Inc. ........................................................ 600 51,938
Georgia Pacific Group ................................................................... 400 25,900
Hussmann International, Inc. ............................................................ 50 938
Masco Corp. ............................................................................. 1,200 71,400
----------
150,176
----------
Forest Products 0.4%
Louisiana-Pacific Corp. ................................................................. 300 6,975
Potlatch Corp. .......................................................................... 2,200 94,738
Westvaco Corp. .......................................................................... 800 24,600
Weyerhaeuser Co. ........................................................................ 2,900 163,850
----------
290,163
----------
Homebuilding 0.1%
Kaufman & Broad Home Corp. .............................................................. 200 6,513
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
91
<PAGE>
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation 1.0%
Air Freight 0.0%
FDX Corp. ............................................................................... 160 11,380
----------
Airlines 0.2%
Southwest Airlines Co. .................................................................. 400 11,825
US Airways Group, Inc..* ................................................................ 1,300 96,363
----------
108,188
----------
Railroads 0.8%
Burlington Northern Santa Fe ............................................................ 800 83,200
CSX Corp. ............................................................................... 2,500 148,750
Norfolk Southern Corp. .................................................................. 3,500 130,813
Union Pacific Corp. ..................................................................... 2,700 151,706
----------
514,469
----------
Miscellaneous 0.0%
Laidlaw, Inc. ........................................................................... 1,600 25,460
----------
Utilities 5.1%
Electric Utilities 4.5%
Ameren Corp. ............................................................................ 3,100 130,588
American Electric Power Co. ............................................................. 300 15,075
Baltimore Gas & Electric Co. ............................................................ 500 16,344
CINergy Corp. ........................................................................... 600 22,200
Carolina Power & Light Co. .............................................................. 100 4,525
Central & South West Corp. .............................................................. 12,400 331,700
Consolidated Edison Inc. ................................................................ 4,500 210,375
DTE Energy Co. .......................................................................... 3,400 133,663
Dominion Resources Inc. ................................................................. 6,600 277,200
Duke Energy Corp. ....................................................................... 204 12,151
Edison International .................................................................... 100 2,938
Entergy Corp. ........................................................................... 4,800 142,800
FPL Group, Inc. ......................................................................... 100 6,425
FirstEnergy Corp. ....................................................................... 1,900 58,544
GPU, Inc. ............................................................................... 100 4,425
Houston Industries Inc. ................................................................. 9,911 284,941
Northern States Power Co. ............................................................... 200 11,800
P G & E Corp. ........................................................................... 100 3,300
PP&L Resources, Inc. .................................................................... 14,000 330,750
PacifiCorp .............................................................................. 100 2,463
Peco Energy Co. ......................................................................... 11,300 250,013
Public Service Enterprise Group ......................................................... 12,700 481,013
Southern Company ........................................................................ 6,000 166,125
Texas Utilities Co., Inc. ............................................................... 222 8,727
Unicom Corp. ............................................................................ 1,600 56,000
----------
2,964,085
----------
Natural Gas Distribution 0.6%
Consolidated Natural Gas Corp. .......................................................... 600 34,613
Eastern Enterprises ..................................................................... 1,500 64,500
NICOR, Inc. ............................................................................. 100 4,225
ONEOK, Inc. ............................................................................. 200 8,150
</TABLE>
The accompanying notes are an integral part of the financial statements
92
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pacific Enterprises ..................................................................... 2,100 85,706
Peoples Energy Corp. .................................................................... 4,600 167,325
----------
364,519
----------
Total Common Stocks (Cost $52,793,132) .................................................. 63,993,871
----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $59,025,271) (a) ....................................... 106.4 70,226,016
Other Assets and Liabilities, Net ....................................................... (6.4) (4,228,841)
----- ----------
Net Assets .............................................................................. 100.0 65,997,175
===== ==========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $59,025,271 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 11,593,966
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (393,221)
------------
Net unrealized appreciation ............................... $ 11,200,745
============
(b) At March 31, 1998, this security, in whole or in part, has been pledged to
cover initial margin requirements for open futures contracts.
At March 31, 1998, open futures contracts purchased were as follows:
<TABLE>
<CAPTION>
Number of Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
S&P 500 Index ........................... June, 1998 4 1,115,899 1,111,000
----------
Total net unrealized depreciation on open futures contracts purchased .............................. (4,899)
==========
</TABLE>
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1998 was $21,557,180 and $22,819,192,
respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998 aggregated
$21,392,180 and $317,139, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
93
<PAGE>
AARP CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 5.1%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/98 at 5.85%
to be repurchased at $70,880,517 on 4/1/98, collateralized by a $21,065,000
U.S. Treasury Note, 6.375%, 3/31/01 and a $48,692,000 U.S. Treasury Note,
6.125%, 12/31/01 (Cost $70,869,000) .................................................. 70,869,000 70,869,000
-------------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 94.9%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
Consumer Discretionary 10.1%
Department & Chain Stores 6.9%
Costco Companies, Inc. .................................................................. 353,700 18,878,738
Dayton Hudson Corp. ..................................................................... 275,200 24,217,600
Home Depot, Inc. ........................................................................ 540,000 36,416,250
Walgreen Co. ............................................................................ 500,000 17,593,750
-------------
97,106,338
-------------
Hotels & Casinos 1.0%
Mirage Resorts, Inc. .................................................................... 525,000 12,764,063
-------------
Specialty Retail 2.2%
AutoZone, Inc.* ......................................................................... 463,700 15,707,838
Tiffany & Co.* .......................................................................... 320,000 15,580,000
-------------
31,287,838
-------------
Consumer Staples 5.0%
Food & Beverage 2.6%
H.J. Heinz Co. .......................................................................... 300,000 17,512,500
Keebler Foods Co. ....................................................................... 111,700 3,351,000
Suiza Foods Corp. ....................................................................... 258,600 15,903,900
-------------
36,767,400
-------------
Package Goods/Cosmetics 2.4%
Procter & Gamble Co. .................................................................... 391,400 33,024,375
-------------
Health 9.7%
Health Industry Services 1.8%
HEALTHSOUTH Corp. ....................................................................... 636,200 17,853,363
Total Renal Care Holdings, Inc. ......................................................... 224,900 7,491,981
-------------
25,345,344
-------------
Medical Supply & Specialty 1.5%
Becton, Dickinson & Co. ................................................................. 314,000 21,371,625
-------------
Pharmaceuticals 6.4%
American Home Products Corp. ............................................................ 140,000 13,352,500
Bristol-Myers Squibb Co. ................................................................ 185,500 19,349,969
Johnson & Johnson ....................................................................... 174,300 12,778,369
Merck & Co., Inc. ....................................................................... 100,000 12,837,500
Novartis AG (ADR) ....................................................................... 197,100 17,511,103
Schering-Plough Corp. ................................................................... 168,900 13,797,019
-------------
89,626,460
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
94
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 1.7%
Telephone/Communications
Ameritech Corp. ......................................................................... 290,600 14,366,538
WorldCom, Inc.* ......................................................................... 230,900 9,943,131
-------------
24,309,669
-------------
Financial 20.9%
Banks 3.6%
BankAmerica Corp. ....................................................................... 350,600 28,968,325
Citicorp ................................................................................ 155,000 22,010,000
-------------
50,978,325
-------------
Insurance 9.1%
Allstate Corp. .......................................................................... 150,000 13,790,625
American International Group, Inc. ...................................................... 293,200 36,924,875
Conseco, Inc. ........................................................................... 375,000 21,234,375
EXEL Ltd. (ADR) ......................................................................... 520,000 40,300,000
MBIA, Inc. .............................................................................. 192,000 14,880,000
-------------
127,129,875
-------------
Consumer Finance 1.7%
Associates First Capital Corp. .......................................................... 301,700 23,834,300
-------------
Other Financial Companies 6.5%
American Express Co.* ................................................................... 409,900 37,633,944
Federal National Mortgage Association ................................................... 410,000 25,932,500
Travelers Group, Inc. ................................................................... 462,300 27,738,000
-------------
91,304,444
-------------
Media 3.4%
Advertising 1.8%
Omnicom Group, Inc. ..................................................................... 537,000 25,272,563
-------------
Cable Television 1.6%
Tele-Comm Liberty Media Group "A"* ...................................................... 630,000 21,656,250
Tele-Communications Inc. "A"* ........................................................... 8,071 250,958
-------------
21,907,208
-------------
Service Industries 4.3%
Investment 2.8%
Franklin Resources, Inc. ................................................................ 353,400 18,730,200
Merrill Lynch & Co., Inc. ............................................................... 240,000 19,920,000
-------------
38,650,200
-------------
Miscellaneous Commercial Services 1.5%
AccuStaff, Inc.* ........................................................................ 627,900 21,662,550
-------------
Durables 5.2%
Aerospace 4.0%
Lockheed Martin Corp. ................................................................... 182,600 20,542,500
Rockwell International Corp. ............................................................ 235,000 13,483,125
United Technologies Corp.* .............................................................. 230,000 21,231,875
-------------
55,257,500
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
95
<PAGE>
AARP CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications Equipment 1.2%
Nokia AB Oy "A" (ADR) ................................................................... 159,200 17,183,650
-------------
Manufacturing 10.8%
Chemicals 3.0%
E.I. du Pont de Nemours & Co. ........................................................... 280,000 19,040,000
Praxair, Inc. ........................................................................... 195,700 10,066,319
Sigma-Aldrich Corp. ..................................................................... 352,000 13,112,000
-------------
42,218,319
-------------
Diversified Manufacturing 3.6%
Dresser Industries, Inc. ................................................................ 325,000 15,620,313
General Electric Co. .................................................................... 190,000 16,375,625
Textron, Inc. ........................................................................... 240,000 18,480,000
-------------
50,475,938
-------------
Electrical Products 0.8%
Emerson Electric Co. .................................................................... 166,000 10,821,125
-------------
Machinery/Components/Controls 3.3%
Ingersoll-Rand Co. ...................................................................... 300,000 14,381,250
Parker-Hannifin Group ................................................................... 605,500 31,031,875
-------------
45,413,125
-------------
Office Equipment/Supplies 0.1%
Steelcase, Inc. ......................................................................... 51,200 1,868,800
-------------
Technology 11.4%
Computer Software 1.0%
Computer Associates International, Inc. ................................................. 242,100 13,981,275
-------------
Diverse Electronic Products 2.3%
Applied Materials, Inc.* ................................................................ 516,700 18,245,969
Harris Corp. ............................................................................ 261,300 13,620,263
-------------
31,866,232
-------------
Electronic Data Processing 5.8%
Compaq Computer Corp. ................................................................... 960,000 24,840,000
Hewlett-Packard Co. ..................................................................... 265,000 16,794,375
International Business Machines Corp. ................................................... 199,100 20,681,513
Sun Microsystems, Inc. .................................................................. 460,000 19,190,625
-------------
81,506,513
-------------
Semiconductors 2.3%
Intel Corp. ............................................................................. 405,000 31,615,313
-------------
Energy 11.1%
Oil Companies 6.9%
Atlantic Richfield Co. .................................................................. 200,000 15,725,000
Exxon Corp. ............................................................................. 350,000 23,668,750
Mobil Corp. ............................................................................. 180,000 13,792,500
Repsol SA (ADR) ......................................................................... 254,800 12,962,950
Royal Dutch Petroleum Co. (New York shares) ............................................. 520,000 29,542,500
-------------
95,691,700
-------------
Oil/Gas Transmission 1.1%
Williams Cos., Inc. ..................................................................... 474,800 15,193,600
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements
96
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 3.1%
Diamond Offshore Drilling, Inc. ......................................................... 240,000 10,890,000
Santa Fe International Corp.* ........................................................... 280,000 10,622,500
Schlumberger Ltd. ....................................................................... 295,000 22,346,250
-------------
43,858,750
-------------
Transportation 1.3%
Airlines 0.7%
AMR Corp.* .............................................................................. 70,000 10,023,119
-------------
Railroads 0.6%
Wisconsin Central Transportation Co. .................................................... 318,200 8,959,319
-------------
Total Common Stocks (Cost $786,321,796) ................................................. 1,328,276,855
-------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $857,190,796) (a) ...................................... 100.0 1,399,145,855
Other Assets and Liabilities, Net ....................................................... 0.0 503,785
----- -------------
Net Assets .............................................................................. 100.0 1,399,649,640
===== =============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non income producing security.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $857,190,796 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $546,099,663
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (4,144,604)
------------
Net unrealized appreciation ............................. $541,955,059
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998, aggregated
$276,677,633 and $259,905,319, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
97
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 5.4%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 4/1/98 (Cost $5,225,000) .............................. 5,225,000 5,225,000
----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.7%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
Consumer Discretionary 8.9%
Apparel & Shoes 0.8%
Brown Group, Inc. ....................................................................... 20,000 287,500
Oxford Industries, Inc. ................................................................. 15,200 476,900
----------
764,400
----------
Department & Chain Stores 0.7%
Ames Department Stores, Inc.* ........................................................... 31,600 667,550
----------
Home Furnishings 3.3%
Bush Industries, Inc. "A" ............................................................... 9,400 266,725
Ethan Allen Interiors Inc. .............................................................. 7,200 430,200
Interface, Inc. ......................................................................... 11,100 461,344
La-Z-Boy Inc. ........................................................................... 11,800 589,263
Mikasa, Inc. ............................................................................ 17,900 241,650
Oneida Ltd. ............................................................................. 25,200 768,600
Thomas Industries, Inc. ................................................................. 19,500 433,875
----------
3,191,657
----------
Hotels & Casinos 0.2%
Prime Hospitality Corp.* ................................................................ 8,100 157,950
----------
Restaurants 0.5%
IHOP Corp.* ............................................................................. 11,800 452,825
----------
Specialty Retail 3.4%
Aaron Rents, Inc. ....................................................................... 25,700 624,831
Cellstar Corp. .......................................................................... 12,000 384,000
Eagle Hardware & Garden, Inc. ........................................................... 3,500 61,688
Hancock Fabrics, Inc. ................................................................... 43,800 681,638
Inacom Corp.* ........................................................................... 5,300 146,413
Toro Co. ................................................................................ 14,200 544,038
Wet Seal, Inc. "A" ...................................................................... 14,900 563,406
Zale Corp. .............................................................................. 7,400 213,675
----------
3,219,689
----------
Consumer Staples 3.6%
Consumer Electronic & Photographic Products 0.1%
Harman International Industries, Inc. ................................................... 2,700 118,800
----------
Food & Beverage 1.9%
Michael Foods, Inc. ..................................................................... 22,900 612,575
Nash-Finch Co. .......................................................................... 26,000 516,750
Riviana Foods, Inc. ..................................................................... 17,300 393,575
Ruddick Corp. ........................................................................... 18,000 334,125
----------
1,857,025
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
98
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Textiles 1.6%
Guilford Mills, Inc. .................................................................... 32,850 969,075
Kellwood Company ........................................................................ 18,300 565,013
----------
1,534,088
----------
Health 2.6%
Health Industry Services 0.5%
Integrated Health Services .............................................................. 5,167 203,128
Prime Medical Services, Inc.* ........................................................... 27,000 317,250
----------
520,378
----------
Hospital Management 0.6%
Mariner Health Group, Inc. .............................................................. 35,300 604,513
----------
Medical Supply & Specialty 1.5%
Bindley Western Industries, Inc. ........................................................ 22,600 857,388
West Co., Inc. .......................................................................... 18,200 548,275
----------
1,405,663
----------
Financial 13.7%
Banks 7.8%
ALBANK Financial Corp. .................................................................. 14,100 706,763
Banknorth Group, Inc. ................................................................... 12,900 941,700
Chittenden Corp. ........................................................................ 18,875 705,453
Commerce Bancorp, Inc. .................................................................. 4,305 237,044
F.N.B. Corp. ............................................................................ 15,800 612,250
FirstBank Puerto Rico ................................................................... 8,000 368,500
Heritage Financial Services, Inc. ....................................................... 13,600 442,000
NBT Bancorp Inc. ........................................................................ 11,865 332,220
Riggs National Corp. .................................................................... 13,500 381,375
Susquehanna Bancshares, Inc. ............................................................ 12,900 478,913
UST Corporation ......................................................................... 16,900 479,538
USBANCORP, Inc. ......................................................................... 8,700 670,988
Vermont Financial Services Corp. ........................................................ 15,000 414,375
Westcorp, Inc. .......................................................................... 40,700 681,725
----------
7,452,844
----------
Insurance 5.1%
Allied Group, Inc. ...................................................................... 1,200 38,700
American Annuity Group, Inc.* ........................................................... 9,200 205,850
American Heritage Life Investment Corp.* ................................................ 30,400 627,000
First American Financial Co. ............................................................ 1,650 105,600
Harleysville Group, Inc. ................................................................ 33,800 878,800
Hilb, Rogal & Hamilton Co. .............................................................. 51,900 963,394
Kansas City Life Insurance Co. .......................................................... 3,000 259,500
Life Re Corp. ........................................................................... 3,100 228,625
Nymagic, Inc. ........................................................................... 13,600 402,900
RLI Corp. ............................................................................... 12,600 680,400
Selective Insurance Group, Inc. ......................................................... 18,800 505,250
----------
4,896,019
----------
Consumer Finance 0.3%
Aames Financial Corp. ................................................................... 17,000 235,875
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
99
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Financial Companies 0.5%
Cash America International, Inc. ........................................................ 30,300 492,375
----------
Media 1.2%
Advertising
Grey Advertising, Inc. .................................................................. 1,510 560,210
True North Communications, Inc. ......................................................... 18,300 603,900
----------
1,164,110
----------
Service Industries 6.4%
EDP Services 0.3%
Plexus Corp. ............................................................................ 15,000 298,125
----------
Environmental Services 1.6%
Dames & Moore, Inc. ..................................................................... 49,700 661,631
Mine Safety Appliance Co. ............................................................... 12,000 828,000
----------
1,489,631
----------
Investment 1.6%
Dain Rauscher Corp. ..................................................................... 7,700 443,231
Jefferies Group, Inc. ................................................................... 18,800 1,062,200
----------
1,505,431
----------
Miscellaneous Commercial Services 1.7%
ABM Industries, Inc. .................................................................... 20,400 633,675
Copart, Inc. ............................................................................ 9,000 150,750
Investment Technology Group, Inc. ....................................................... 6,000 196,500
McGrath Rentcorp ........................................................................ 32,900 653,888
----------
1,634,813
----------
Printing/Publishing 1.2%
Bowne & Co., Inc. ....................................................................... 9,200 380,650
Merrill Corp. ........................................................................... 35,800 787,600
----------
1,168,250
----------
Durables 6.9%
Aerospace 1.7%
AAR Corp. ............................................................................... 11,100 302,475
Curtiss-Wright Corp. .................................................................... 12,900 499,875
Kaman Corp. "A" ......................................................................... 46,300 850,763
----------
1,653,113
----------
Automobiles 4.3%
Coachmen Industries, Inc. ............................................................... 14,300 386,100
Excel Industries Inc. ................................................................... 33,200 684,750
Intermet Corp. .......................................................................... 27,900 627,750
Simpson Industries, Inc. ................................................................ 17,800 249,200
Standard Motor Products, Inc. ........................................................... 15,000 287,813
Thor Industries, Inc. ................................................................... 15,500 634,531
Titan International, Inc. ............................................................... 35,500 683,375
Wynn's International, Inc. .............................................................. 25,400 577,850
----------
4,131,369
----------
Construction/Agricultural Equipment 0.5%
The Manitowoc Company, Inc. ............................................................. 12,800 494,400
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
100
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous 0.4%
MotivePower Industries, Inc. ............................................................ 12,100 334,263
----------
Manufacturing 22.6%
Chemicals 2.5%
LeaRonal Inc. ........................................................................... 28,200 821,325
Mississippi Chemical Corp. .............................................................. 900 18,056
NCH Corp. ............................................................................... 11,400 805,838
Stepan Co. .............................................................................. 23,600 716,850
----------
2,362,069
----------
Containers & Paper 0.6%
Chesapeake Corp. ........................................................................ 2,000 69,000
Clarcor, Inc. ........................................................................... 10,500 349,125
Wausau-Mosinee Paper Corp. .............................................................. 4,970 114,621
----------
532,746
----------
Diversified Manufacturing 1.8%
Cascade Corp. ........................................................................... 36,800 595,700
Robbins & Myers, Inc. ................................................................... 11,000 419,375
Scotsman Industries, Inc. ............................................................... 9,000 258,750
Tredegar Industries, Inc. ............................................................... 4,400 318,725
Valmont Industries ...................................................................... 3,500 84,875
----------
1,677,425
----------
Electrical Products 1.4%
C&D Technologies, Inc. .................................................................. 14,900 775,731
Kuhlman Corp. ........................................................................... 12,000 584,250
----------
1,359,981
----------
Hand Tools 1.0%
L.S. Starrett Corp. ..................................................................... 23,600 917,450
----------
Industrial Specialty 6.9%
Albany International Corp. "A" .......................................................... 25,100 655,738
Apogee Enterprises, Inc. ................................................................ 39,600 524,700
Applied Power, Inc. "A" ................................................................. 11,000 423,500
Barnes Group, Inc. ...................................................................... 23,600 786,175
Chart Industries, Inc. .................................................................. 21,200 630,700
Commercial Intertech Corp. .............................................................. 33,600 802,200
Flowserve Corp. ......................................................................... 5,300 172,913
Lawson Products, Inc. ................................................................... 37,600 1,005,800
Regal-Beloit Corp. ...................................................................... 20,200 641,350
Spartech Corp. .......................................................................... 25,300 555,003
W.H. Brady Co. "A" ...................................................................... 11,800 395,300
----------
6,593,379
----------
Machinery/Components/Controls 6.1%
Amcast Industrial Corp. ................................................................. 22,600 488,725
Asyst Technologies, Inc.* ............................................................... 13,600 316,200
Columbus McKinnon Corp. ................................................................. 19,400 533,500
DT Industries, Inc. ..................................................................... 15,400 590,975
Gleason Corp. ........................................................................... 17,300 606,581
Graco, Inc. ............................................................................. 25,050 759,328
Reliance Steel & Aluminum Co. ........................................................... 12,800 492,800
</TABLE>
The accompanying notes are an integral part of the financial statements
101
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shaw Group, Inc. ........................................................................ 10,700 266,831
Tennant Company ......................................................................... 16,100 662,113
Woodhead Industries, Inc. ............................................................... 13,900 262,363
Woodward Governor Co. ................................................................... 8,400 234,150
Zero Corporation ........................................................................ 20,800 587,600
----------
5,801,166
----------
Wholesale Distributors 2.3%
A.M. Castle & Co. ....................................................................... 35,200 814,000
Applied Industrial Technology, Inc. ..................................................... 24,800 668,050
Hughes Supply, Inc. ..................................................................... 19,850 718,322
----------
2,200,372
----------
Technology 8.6%
Computer Software 1.1%
Activision, Inc. ........................................................................ 41,000 440,750
MTS Systems Corp. ....................................................................... 38,900 622,400
----------
1,063,150
----------
Diverse Electronic Products 1.1%
Cohu, Inc. .............................................................................. 12,300 467,400
Cubic Corp. ............................................................................. 25,200 592,200
----------
1,059,600
----------
EDP Peripherals 2.3%
Black Box Corp.* ........................................................................ 5,400 199,125
Gerber Scientific, Inc. ................................................................. 31,500 820,969
In Focus Systems, Inc.* ................................................................. 48,200 433,800
Telxon Corp. ............................................................................ 26,600 704,900
----------
2,158,794
----------
Electronic Components/Distributors 3.7%
Applied Magnetics Corp.* ................................................................ 41,600 481,000
CTS Corp. ............................................................................... 22,700 770,381
HMT Technology Corp. .................................................................... 20,600 266,513
Hutchinson Technology, Inc. ............................................................. 8,700 230,550
MicroAge Inc. ........................................................................... 15,662 197,733
Park Electrochemical Corp. .............................................................. 18,200 469,788
Pioneer Standard Electronics, Inc. ...................................................... 43,100 527,975
Technitrol, Inc. ........................................................................ 15,600 611,325
----------
3,555,265
----------
Precision Instruments 0.4%
Innovex, Inc. ........................................................................... 15,900 387,563
----------
Energy 2.9%
Oil & Gas Production 1.0%
Benton Oil & Gas Co. .................................................................... 26,700 295,369
Lomak Petroleum, Inc. ................................................................... 12,700 207,963
Plains Resources, Inc.* ................................................................. 24,600 418,200
----------
921,532
----------
Oil Companies 0.3%
Holly Corp. ............................................................................. 12,000 325,500
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
102
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment 1.6%
Patterson Energy, Inc. .................................................................. 27,100 311,650
Pool Energy Services Co.* ............................................................... 26,800 626,450
RPC, Inc. ............................................................................... 49,500 606,375
----------
1,544,475
----------
Metals & Minerals 5.2%
Coal Mining 0.9%
Zeigler Coal Holding Co. ................................................................ 52,600 900,775
----------
Steel & Metals 4.3%
Allegheny Teledyne Inc. ................................................................. 18,662 519,037
Brush Wellman, Inc. ..................................................................... 31,300 892,050
Cleveland-Cliffs, Inc. .................................................................. 14,600 784,750
Commercial Metals Co. ................................................................... 6,900 241,500
Maverick Tube Corp. ..................................................................... 43,700 772,944
Quanex Corp. ............................................................................ 21,000 631,313
RMI Titanium Co. ........................................................................ 12,400 268,150
----------
4,109,744
----------
Construction 5.6%
Building Materials 3.9%
Ameron International Corp. .............................................................. 16,200 946,688
Fedders Corp. ........................................................................... 65,800 378,350
Florida Rock Industries, Inc. ........................................................... 15,800 451,288
Lone Star Industries, Inc. .............................................................. 13,500 937,406
Puerto Rican Cement Co., Inc. ........................................................... 15,900 811,894
Southdown, Inc. ......................................................................... 3,300 229,969
----------
3,755,595
----------
Building Products 0.5%
Zurn Industries, Inc. ................................................................... 11,000 521,125
----------
Homebuilding 0.5%
Skyline Corp. ........................................................................... 16,400 500,200
----------
Miscellaneous 0.7%
Granite Construction, Inc. .............................................................. 25,400 711,200
----------
Transportation 1.1%
Airlines 0.5%
Alaska Air Group Inc. ................................................................... 9,600 520,200
----------
Marine Transportation 0.3%
Hvide Marine, Inc. "A" .................................................................. 17,900 315,488
----------
Trucking 0.3%
USFreightways Corp. ..................................................................... 8,000 288,000
----------
Utilities 8.4%
Electric Utilities 3.3%
Black Hills Corp. ....................................................................... 37,700 874,169
Northwestern Public Service Co. ......................................................... 30,300 695,006
Public Service Co. of New Mexico ........................................................ 19,700 481,419
SIGCORP, Inc. ........................................................................... 13,000 415,188
TNP Enterprises, Inc. ................................................................... 22,100 730,681
----------
3,196,463
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
103
<PAGE>
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Distribution 4.3%
CTG Resources Inc. ...................................................................... 14,000 359,625
Colonial Gas Co. ........................................................................ 28,000 803,250
Connecticut Energy Corp. ................................................................ 13,900 427,425
Eastern Enterprises ..................................................................... 7,700 331,100
Energen Corp. ........................................................................... 30,800 677,600
Laclede Gas Co. ......................................................................... 21,900 548,869
NUI Corp. ............................................................................... 24,200 662,475
Northwest Natural Gas Co. ............................................................... 7,100 199,688
ONEOK, Inc. ............................................................................. 2,400 97,800
----------
4,107,832
----------
Water Supply 0.8%
California Water Service Group .......................................................... 28,700 776,694
----------
Total Common Stocks (Cost $80,676,395) .................................................. 93,608,939
----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $85,901,395) (a) ....................................... 103.1 98,833,939
Other Assets and Liabilities, Net ....................................................... (3.1) (3,008,269)
----- ----------
Net Assets .............................................................................. 100.0 95,825,670
===== ==========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $85,901,395 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $14,368,527
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (1,435,983)
-----------
Net unrealized appreciation ............................... $12,932,544
===========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998 aggregated
$42,405,773 and $3,306,439, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
104
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 4.6%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/98 at 5.85%
to be repurchased at $7,403,203 on 4/1/98, collateralized by a
$5,102,000 U.S. Treasury Bond, 12.75%, 11/15/10 (Cost $7,402,000) ................. 7,402,000 7,402,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
TIME DEPOSITS 0.4%
- -----------------------------------------------------------------------------------------------------------------------------
Bank of New York Time Deposit, 4.78%, 4/1/98 (Cost $700,000) ......................... 700,000 700,000
-----------
- -----------------------------------------------------------------------------------------------------------------------------
BONDS 9.9%
- -----------------------------------------------------------------------------------------------------------------------------
JAPAN 0.7%
Sumitomo Bank, Variable Rate Bond, 9.4%, 12/29/49 .................................... 1,000,000 1,033,750
-----------
UNITED KINGDOM 2.8%
United Kingdom Treasury Bond, 8.5%, 7/16/07 .......................................... GBP 1,627,000 3,211,440
United Kingdom Treasury Bond, 3.5%, 12/29/49 ......................................... GBP 1,287,200 1,280,293
-----------
4,491,733
-----------
UNITED STATES 6.4%
U.S. Treasury Bond, 6.375%, 8/15/27 .................................................. 5,565,000 5,878,031
U.S. Treasury STRIP, Principal only, 8.125%, 8/15/21 ................................. 18,000,000 4,403,340
-----------
10,281,371
-----------
Total Bonds (Cost $15,210,516) 15,806,854
-----------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
GHANA
Ashanti Capital Corp., 5.5%, 3/15/03 (Cost $13,000) .................................. 13,000 9,815
-----------
- -----------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK 0.1%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
KOREA
Samsung Electronics Co., Ltd. (Major electronics manufacturer) (Cost $294,732) ....... 7,919 109,780
-----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 84.5%
- -----------------------------------------------------------------------------------------------------------------------------
ARGENTINA 0.7%
YPF S.A. "D" (ADR) (Petroleum company) ............................................... 32,200 1,094,800
-----------
AUSTRALIA 1.7%
Broken Hill Proprietary Co. Ltd. (Petroleum, minerals and steel) ..................... 74,500 760,738
Foster's Brewing Group, Ltd. (Leading brewery) ....................................... 445,458 969,246
Woodside Petroleum Ltd. (Major oil and gas producer) ................................. 154,500 1,021,786
-----------
2,751,770
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
105
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AUSTRIA 0.4%
Flughafen Wien AG (Operator of terminals and facilities at Vienna International
Airport) .......................................................................... 14,100 636,393
-----------
BERMUDA 1.6%
EXEL Ltd. (ADR) (Provider of liability insurance) .................................... 29,120 2,256,800
Mid Ocean, Ltd. (Property and casualty insurance company) ............................ 3,450 267,375
-----------
2,524,175
-----------
BRAZIL 2.1%
Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp) ...................... 38,650 579,750
Companhia Cervejaria Brahma (pfd.) (Leading beer producer and distributor) ........... 1,410,000 1,092,533
Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial complex) ............ 55,200 1,303,536
Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Steel manufacturer) ................. 42,140 340,974
-----------
3,316,793
-----------
CANADA 2.8%
BCE, Inc. (Telecommunication services) ............................................... 21,600 906,891
Canadian National Railway (Railroad operator) ........................................ 24,000 1,543,662
Canadian Pacific Ltd. (Ord.) (Transportation and natural resource conglomerate) ...... 46,050 1,364,781
Molson Cos., Ltd. "A" (Brewery) ...................................................... 39,700 682,140
-----------
4,497,474
-----------
FRANCE 4.2%
AXA S.A. (Insurance group providing insurance, finance and real estate services) ..... 16,695 1,718,662
Assurances Generales de France (Markets health, life, and liability insurance) ....... 40,315 2,268,308
Michelin "B" (Leading tire manufacturer) ............................................. 23,025 1,374,255
Schneider S.A. (Manufacturer of electronic components and automated
manufacturing systems) ............................................................ 18,557 1,428,268
-----------
6,789,493
-----------
GERMANY 14.7%
Allianz AG (Multi-line insurance company) ............................................ 7,521 2,270,774
Allianz AG New ....................................................................... 221 66,247
BASF AG (Leading international chemical producer) .................................... 37,640 1,673,635
Bayer AG (Leading chemical producer) ................................................. 40,903 1,870,678
Bayerische Vereinsbank AG (Commercial bank) .......................................... 36,980 2,698,832
Commerzbank AG (Worldwide multi-service bank) ........................................ 38,413 1,387,171
Deutsche Telekom AG (Telecommunication services) ..................................... 18,932 410,920
Deutsche Telekom AG (ADR) ............................................................ 16,566 364,452
Heidelberger Druckmaschinen AG* (Manufacturer of commercial printing
presses) .......................................................................... 5,763 443,332
Hoechst AG* (Chemical producer) ...................................................... 49,784 1,949,860
Muenchener Rueckversicherungs-Gesellschaft AG (Insurance company) .................... 4,862 1,406,190
Muenchener Rueckversicherungs-Gesellschaft AG (Registered) ........................... 1,478 639,204
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) ............. 54,782 2,466,937
SAP AG (pfd.) (Computer software manufacturer) ....................................... 4,180 1,777,257
Schering AG (Pharmaceutical and chemical producer) ................................... 8,860 1,043,198
VEBA AG (Electric utility, distributor of oil and chemicals) ......................... 29,356 2,082,121
VIAG AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) .......................................... 1,892 1,030,996
-----------
23,581,804
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
106
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GHANA 0.3%
Ashanti Goldfields Co., Ltd. (GDR) (Leading gold producer) ........................... 52,978 493,358
-----------
HONG KONG 1.7%
Cheung Kong Holdings Ltd. (Real estate company) ...................................... 59,000 418,775
Citic Pacific Ltd. (Diversified holding company) ..................................... 84,000 295,943
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ................. 164,000 1,153,469
Kerry Properties, Ltd. (Real estate company) ......................................... 356,607 430,296
New World Development Co., Ltd. (Property investment and development,
construction and engineering, hotels and restaurants, telecommunications) ......... 118,256 416,631
-----------
2,715,114
-----------
ITALY 1.2%
Istituto Nazionale delle Assicurazione (Insurance company) ........................... 597,600 1,937,365
JAPAN 5.8%
Canon Inc. (Leading producer of visual image and information equipment) .............. 35,000 790,589
Daiwa Securities Co., Ltd. (Brokerage and other financial services) .................. 103,000 432,854
Jafco Co. Ltd. (Venture capital company) ............................................. 6,000 202,619
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of consumer
electronic products) .............................................................. 68,000 1,092,042
Minebea Co., Ltd. (Manufacturer of bearings, electronic equipment, machinery
parts) ............................................................................ 88,000 964,166
Nichiei Co., Ltd. (Finance company for small- and medium-sized firms) ................ 2,860 253,259
Nomura Securities Co., Ltd. (Financial advisor, securities broker and underwriter) ... 98,000 1,154,628
Ono Pharmaceutical Co., Ltd. (Producer of medicines for human and veterinary
uses) ............................................................................. 13,000 281,941
SMC Corp. (Leading maker of pneumatic equipment) ..................................... 10,300 765,998
Shohkoh Fund & Co., Ltd. (Finance company for small- and medium-sized
firms) ............................................................................ 2,400 801,471
Sony Corp. (Consumer electronic products manufacturer) ............................... 10,000 847,998
Sumitomo Metal Industries, Ltd. (Leading integrated crude steel producer) ............ 128,000 212,285
Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper mining
company) .......................................................................... 77,000 300,477
The Nichido Fire & Marine Insurance Co., Ltd. (Property and casualty insurance
company) .......................................................................... 82,000 443,060
Yamanouchi Pharmaceutical Co., Ltd. (Leading manufacturer of ethical drugs) .......... 31,000 711,868
-----------
9,255,255
-----------
KOREA 0.2%
Samsung Display Devices Co. (Leading manufacturer of CRT and picture tubes) .......... 6,190 290,505
Samsung Electronics Co., Ltd. (Major electronics manufacturer) ....................... 131 6,905
-----------
297,410
-----------
NETHERLANDS 2.8%
AEGON Insurance Group NV (Insurance company) ......................................... 18,599 2,261,372
ING Groep NV (Insurance and financial services) ...................................... 30,107 1,708,270
Philips Electronics NV (Leading manufacturer of electrical equipment) ................ 6,900 506,343
-----------
4,475,985
-----------
NEW ZEALAND 0.3%
Telecom Corp. of New Zealand (Telecommunication services) ............................ 108,700 517,923
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
107
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA 1.0%
Anglo American Platinum Co., Ltd. (ADR) (Leading platinum producer) .................. 26,265 403,824
Sasol Ltd. (Coal mining and processing, crude oil exploration and refining,
petrochemical production) ......................................................... 82,460 668,130
South African Breweries (Brewery) .................................................... 16,577 491,829
-----------
1,563,783
-----------
SWEDEN 2.5%
AGA AB "B" (Free) (Producer and distributor of industrial and medical gases) ......... 54,600 744,437
Astra AB "A" (Free) (Pharmaceutical company) ......................................... 49,626 1,024,240
S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ............................... 8,765 207,764
Skandia Foersaekrings AB (Free) (Financial conglomerate) ............................. 31,552 2,056,238
-----------
4,032,679
-----------
SWITZERLAND 9.0%
Ciba Specialty Chemical (Registered) (Manufacturer of chemical products for
plastics, coatings, fibers and fabrics) ........................................... 10,877 1,390,830
Clariant AG (Registered) (Manufacturer of color chemicals) ........................... 1,760 1,898,492
Credit Suisse Group (Registered) (Provider of bank services, management
services and life insurance) ...................................................... 14,558 2,911,600
Holderbank Financiere Glaris AG (Bearer) (Cement producer) ........................... 1,500 1,573,770
Nestle SA (Registered) (Food manufacturer) ........................................... 1,197 2,286,466
Novartis AG (Bearer) (Pharmaceutical company) ........................................ 673 1,195,954
Novartis AG (Registered) ............................................................. 648 1,146,429
Swiss Reinsurance (Registered) (Life, accident and health insurance company) ......... 929 2,040,145
-----------
14,443,686
-----------
UNITED KINGDOM 10.1%
BOC Group PLC (Producer of industrial gases) ......................................... 90,076 1,438,013
Carlton Communications PLC (Television post production products and services) ........ 217,533 1,733,664
General Electric Co., PLC (Manufacturer of power, communications and defense
equipment and other various electrical components) ................................ 263,400 2,082,671
Lonrho PLC (Widely diversified industrial holding company) ........................... 224,915 408,584
National Grid Co., PLC (Owner and operator of electric transmission systems) ......... 240,210 1,418,702
Norwich Union PLC (Multi-line insurance company) ..................................... 38,900 303,344
PowerGen PLC (Electric utility) ...................................................... 77,602 1,084,257
Railtrack Group PLC (Operator of railway infrastructure) ............................. 50,600 830,251
Reuters Holdings PLC (International news agency) ..................................... 61,268 662,673
Rio Tinto PLC (Mining and finance company) ........................................... 47,254 634,916
Shell Transport & Trading PLC (Part owner of Royal Dutch Shell Co.) .................. 217,000 1,594,079
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare
products) ......................................................................... 89,120 1,122,832
Unilever PLC (Manufacturer of branded and packaged consumer goods, food,
detergents and personal care products) ............................................ 295,600 2,796,313
-----------
16,110,299
-----------
UNITED STATES 21.4%
Advanced Micro Devices Inc. (Manufacturer of semiconductors and integrated
circuits) ......................................................................... 49,500 1,438,594
Autoliv Inc. (Manufacturer of automobile safety bags) ................................ 12,100 375,856
Biogen Inc. (Biotechnology research and development) ................................. 3,200 154,200
</TABLE>
The accompanying notes are an integral part of the financial statements
108
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boeing Co. (Manufacturer of jet airplanes) ........................................... 30,400 1,584,600
Boston Scientific Corp.* (Developer and producer of medical devices) ................. 15,100 1,019,250
CINergy Corp. (Holding company of electrical utilities in Ohio, Indiana and
Kentucky) ......................................................................... 73,300 2,712,100
Charles Schwab Corp. (Discount brokerage services) ................................... 14,650 556,700
Chiron Corp.* (Developer of therapeutic and diagnostic products) ..................... 6,200 129,813
Duke Energy Corp. (Electric utility in the Carolinas) ................................ 15,200 905,350
Electronic Data Systems Corp. (Provider of information technology services) .......... 44,500 2,041,438
Enron Corp.* (Major natural gas pipeline system) ..................................... 27,310 1,266,501
Entergy Corp. (Energy company with power production, distribution operations
and related services) ............................................................. 26,900 800,275
First Data Corp. (Credit-card processing services) ................................... 53,500 1,738,750
Guidant Corp. (Developer and manufacturer of products used in minimally
invasive surgery) ................................................................. 10,900 799,788
International Business Machines Corp. (Principal manufacturer and servicer of
business and computing machines) .................................................. 19,300 2,004,788
Lockheed Martin Corp. (Manufacturer of aircraft, missiles and space equipment) ....... 10,700 1,203,750
MBIA, Inc. (Insurer of municipal bonds) .............................................. 34,920 2,706,300
Newmont Mining Corp. (International gold exploration and mining company) ............. 11,000 336,188
Parametric Technology Corp. (Mechanical design software producer) .................... 40,400 1,345,825
Praxair, Inc. (Producer of industrial gases and specialized coatings) ................ 29,000 1,491,688
Sabre Group Holdings Inc. (Travel reservation system provider) ....................... 25,100 900,463
Security Capital Industrial Trust (REIT) (Global owner of corporate distribution
facilities) ....................................................................... 20,100 515,063
Sterling Commerce, Inc. (Producer of electronic data interchange products and
services) ......................................................................... 7,300 338,538
Stillwater Mining Co. (Exploration and development of mines in Montana
producing platinum, palladium and associated metals) .............................. 32,400 820,125
Tele-Communications Inc. "A" (Cable TV systems and microwave services) ............... 39,400 1,225,094
Tele-Communications International, Inc. "A" (Telecommunication and broadband
cable television services) ........................................................ 21,600 434,700
UNUM Corp. (Provider of disability, health and life insurance and group pension
products) ......................................................................... 28,000 1,545,250
US Airways Group, Inc.* (Major airline) .............................................. 33,100 2,453,538
Williams Cos., Inc. (Gas pipeline operator, petroleum producer) ...................... 44,000 1,408,000
-----------
34,252,525
-----------
Total Common Stocks (Cost $105,386,161) .............................................. 135,288,084
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $129,006,409) (a) ................................... 99.5 159,316,533
Other Assets and Liabilities, Net .................................................... 0.5 766,407
----- -----------
Net Assets ........................................................................... 100.0 160,082,940
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
109
<PAGE>
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Non income producing security.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $129,220,011 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....... $ 35,972,202
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (5,875,680)
------------
Net unrealized appreciation .............................. $ 30,096,522
============
(b) Principal amount is stated U.S. Dollars, unless otherwise specified.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the year ended March 31, 1998 aggregated $37,263,765 and
$32,684,914, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
Currency Abbreviations (These abbreviations have been used throughout
this report)
DEM Deutsche Mark
GBP British Pound
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements
110
<PAGE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 7.9%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/98 at 5.85%
to be repurchased at $2,537,412 on 4/1/98, collateralized by a
$1,909,000 U.S. Treasury Bond, 11.75%, 2/15/10 (Cost $2,537,000) ..................... 2,537,000 2,537,000
----------
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 2.8%
- -----------------------------------------------------------------------------------------------------------------------------
BERMUDA 1.8%
MBL International Finance Bermuda, 3%, 11/30/02 ......................................... 565,000 569,238
----------
HONG KONG 1.0%
Hysan Development Finance Co., Ltd., 6.75%, 6/1/00 ...................................... 350,000 339,500
----------
Total Convertible Bonds (Cost $997,650) ................................................. 908,738
----------
- -----------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK 2.3%
- -----------------------------------------------------------------------------------------------------------------------------
Shares
-----------
AUSTRIA
Bank Austria AG (Commercial and corporate banking and financial services)
(Cost $362,988) ...................................................................... 11,070 736,611
----------
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 89.4%
- -----------------------------------------------------------------------------------------------------------------------------
AUSTRALIA 2.6%
Commonwealth Bank of Australia (Bank) ................................................... 34,011 404,045
Foster's Brewing Group, Ltd. (Leading brewery) .......................................... 198,052 430,930
----------
834,975
----------
CANADA 4.3%
BCE, Inc. (Telecommunication services) .................................................. 24,500 1,028,649
Moore Corp. Ltd. (Manufacturer of business communication products) ...................... 20,200 336,393
----------
1,365,042
----------
FINLAND 2.7%
Merita Ltd. "B" (Financial services group) .............................................. 81,040 450,347
Metsa-Serla Oy "B" (Manufacturer of papers, corrugated and paper board, soft
and hardwood pulp) ................................................................... 44,800 398,971
----------
849,318
----------
FRANCE 9.6%
Accor S.A. (Catering, hotels, travel services) .......................................... 1,823 467,700
Dexia France (Municipal and local development financing) ................................ 3,590 480,791
Havas S.A. (Advertising, publishing and broadcasting conglomerate) ...................... 6,599 546,234
Scor S.A. (Property, casualty and life reinsurance company) ............................. 11,190 640,976
Societe Nationale Elf Aquitaine (Petroleum company) ..................................... 3,422 448,352
Sommer-Allibert (Manufacturer of plastic products for automotive industry) .............. 11,212 488,100
----------
3,072,153
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
111
<PAGE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY 7.4%
BHF-Bank AG (Universal banking services) ................................................ 16,756 525,380
Bayer AG (Leading chemical producer) .................................................... 13,162 601,960
Dyckerhoff AG (Producer of cement, ready-mixed concrete and finishing
products) ............................................................................ 200 57,303
Dyckerhoff AG (pfd.) .................................................................... 852 237,204
Hochtief AG (Construction and civil engineering services) ............................... 6,220 253,871
RWE AG (Producer and marketer of petroleum and chemical products) ....................... 8,713 468,669
Thyssen AG (Manufacturer of capital goods and steel products) ........................... 1,056 226,922
----------
2,371,309
----------
IRELAND 2.6%
Allied Irish Bank PLC (Bank) ............................................................ 68,466 840,076
----------
ITALY 7.7%
Banca Commerciale Italiana SpA (Commercial bank) ........................................ 125,000 623,629
Banca di Roma SpA (Commercial and savings bank)* ........................................ 333,000 561,698
La Rinascente SpA (Department store chain) .............................................. 11,400 121,942
La Rinascente SpA di Risparmio .......................................................... 89,000 561,437
Telecom Italia SpA (Telecommunications, electronics, network construction) .............. 99,000 606,599
----------
2,475,305
----------
JAPAN 7.0%
Matsushita Electric Works, Inc. (Leading maker of building materials and lighting
equipment) ........................................................................... 30,000 294,923
Nintendo Co., Ltd. (Game equipment manufacturer) ........................................ 7,400 638,625
Nippon Meat Packers, Inc. (Leading meat processor) ...................................... 27,000 364,714
Sakura Bank Ltd. (Full service bank) .................................................... 129,000 457,897
Teijin Ltd. (Manufacturer of polyester products) ........................................ 168,000 497,993
----------
2,254,152
----------
NETHERLANDS 5.8%
KLM Royal Dutch Air Lines NV (World-wide full service airline) .......................... 9,530 381,209
Koninklijke Nedlloyd Groep NV (Container shipping and transportation) ................... 11,550 277,539
Koninklijke PTT Nederland (Telecommunication services) .................................. 7,100 367,779
Philips Electronics NV (Leading manufacturer of electrical equipment) ................... 7,060 518,084
Royal Dutch Petroleum Co. (Owner of 60% of Royal Dutch/Shell Group) ..................... 5,480 310,147
----------
1,854,758
----------
NEW ZEALAND 1.6%
Telecom Corp. of New Zealand (Telecommunication services) ............................... 104,300 496,959
----------
NORWAY 1.6%
Christiania Bank og Kreditkasse (Commercial bank) ....................................... 123,270 523,824
----------
PORTUGAL 1.0%
Portugal Telecom S.A. (Telecommunication services) ...................................... 6,050 314,753
----------
SPAIN 6.0%
Autopistas del Mare Nostrum S.A. (Builder and operator of toll motorways) ............... 17,200 362,261
Banco Bilbao Vizcaya S.A. (Commercial bank) ............................................. 13,100 615,263
Compania Telefonica Nacional de Espana S.A. (Telecommunication services) ................ 11,900 524,777
Iberdrola S.A. (Electric utility) ....................................................... 28,000 425,567
----------
1,927,868
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
112
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SWEDEN 6.0%
AssiDoman AB (Forestry group) ........................................................... 10,050 274,051
OM Gruppen AB (Free) (Operator of financial exchanges and clearing
organizations) ....................................................................... 55,370 990,416
Skanska AB "B" (International construction company) ..................................... 7,150 321,971
Svedala Industri AB (Manufacturer of machinery for construction, mineral
processing and materials handling) ................................................... 16,700 336,319
----------
1,922,757
----------
SWITZERLAND 5.4%
Credit Suisse Group (Registered) (Provider of bank services, management services
and life insurance) .................................................................. 4,028 805,600
Georg Fischer AG (Registered) (Manufacturer of automotive products and piping
systems) ............................................................................. 1,180 441,049
Sika Finanz AG (Manufacturer of water management products and systems) .................. 7,993 487,442
----------
1,734,091
----------
UNITED KINGDOM 18.1%
Albright & Wilson PLC (Manufacturer of phosphates, surfactants and specialty
chemicals) ........................................................................... 132,900 382,725
British Telecom PLC (Telecommunication services) ........................................ 57,500 624,325
Courtaulds Textiles PLC (Producer of clothing, fabrics and home furnishings) ............ 57,010 334,864
Dorling Kindersley Holdings PLC (Book publisher) ........................................ 157,927 581,717
EMI Group PLC (Music recording and retailing company) ................................... 65,900 548,371
Elementis (1998) PLC (Producer of specialty performance chemicals) ...................... 46,422 108,814
Energy Group PLC (Electricity generation and distribution) .............................. 31,229 439,731
General Electric Co., PLC (Manufacturer of power, communications and defense
equipment and other various electrical components) ................................... 49,480 391,232
Laporte PLC (Producer of specialty chemicals) ........................................... 23,722 313,152
Man (ED&F) Group PLC (Commodities trading company) ...................................... 105,050 441,472
Rank Group PLC (Diversified leisure services: hotels, amusement machines,
restaurants, film and television) .................................................... 49,060 332,671
Royal & Sun Alliance Insurance Group PLC (Multi-line insurance holding
company) ............................................................................. 38,790 493,590
Tomkins PLC (Manufacturer of fluid controls, industrial products, garden and
leisure products) .................................................................... 86,330 527,940
Transport Development Group PLC (Distribution, leasing, storage
and transport)* ...................................................................... 88,050 296,318
----------
5,816,922
----------
Total Common Stocks (Cost $23,644,746) .................................................. 28,654,262
----------
- -----------------------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS 0.2%
- -----------------------------------------------------------------------------------------------------------------------------
Number of
Contracts
-------------
Call on Japanese Yen, strike price 180 JPY, expires 6/20/98 (Cost $53,499) .............. 137 71,069
----------
</TABLE>
The accompanying notes are an integral part of the financial statements
113
<PAGE>
AARP INTERNATIONAL GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $27,595,883) (a) ....................................... 102.6 32,907,680
Other Assets and Liabilities, Net ....................................................... (2.6) (840,384)
----- ----------
Net Assets .............................................................................. 100.0 32,067,296
===== ==========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $27,595,883 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 5,810,499
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (498,702)
------------
Net unrealized appreciation ............................. $ 5,311,797
============
- --------------------------------------------------------------------------------
At March 31, 1998, outstanding written call options were as follows:
<TABLE>
<CAPTION>
Number of Market
Expiration Date Contracts Strike Price Value ($)
--------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Royal & Sun Alliance .................... April 15, 1998 29,122 6.94 GBP 33,156
General Electric Co., PLC ............... April 15, 1998 47,071 4.27 GBP 35,465
------
Total outstanding written options (premiums received $15,603) ........................................ 68,621
======
</TABLE>
Transactions in written options for the six months ended March 31, 1998
were:
<TABLE>
<CAPTION>
Options on Securities
-----------------------------------------------------------
Premiums
Shares Received ($)
------ ------------
<S> <C> <C>
Outstanding at September 30, 1997 .......... -- --
------ ------
Written:
Royal & Sun Alliance ....................... 29,122 8,972
General Electric Co., PLC .................. 47,071 6,631
-------
Outstanding at March 31, 1998 ................................................. 15,603
=======
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the six months ended March 31, 1998, aggregated
$12,644,951 and $4,427,167, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
Currency Abbreviations
GBP British Pound
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements
114
<PAGE>
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET 14.0%
- -----------------------------------------------------------------------------------------------------------------------------
AARP High Quality Money Fund (Cost $9,289,972) .......................................... 9,289,972 9,289,972
----------
- -----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME 59.6%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Bond Fund for Income ............................................................... 1,279,690 19,540,861
AARP GNMA and U.S. Treasury Fund ........................................................ 1,309,570 19,892,366
----------
Total Fixed Income (Cost $38,931,769) ................................................... 39,433,227
----------
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY 26.4%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Global Growth Fund ................................................................. 264,320 5,328,695
AARP Growth and Income Fund ............................................................. 133,787 8,013,866
AARP U.S. Stock Index Fund .............................................................. 196,383 4,084,761
----------
Total Equity (Cost $14,946,134) ......................................................... 17,427,322
----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $63,167,875) (a) ....................................... 100.0 66,150,521
Other Assets and Liabilities, Net ....................................................... 0.0 (32,993)
----- ----------
Net Assets .............................................................................. 100.0 66,117,528
===== ==========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $63,167,875 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 2,982,646
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... --
------------
Net unrealized appreciation ............................. $ 2,982,646
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 1998, aggregated
$18,486,654 and $357,548, respectively.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
115
<PAGE>
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
LIST OF INVESTMENTS AS OF MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
AARP High Quality Money Fund (Cost $1,115,003) .......................................... 1,115,003 1,115,003
-----------
- -----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME 33.3%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Bond Fund for Income ............................................................... 1,244,979 19,010,825
AARP GNMA and U.S. Treasury Fund ........................................................ 1,070,303 16,257,909
-----------
Total Fixed Income (Cost $34,974,316) ................................................... 35,268,734
-----------
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY 65.5%
- -----------------------------------------------------------------------------------------------------------------------------
AARP Capital Growth Fund ................................................................ 72,916 4,310,809
AARP Global Growth Fund ................................................................. 375,426 7,568,579
AARP Growth and Income Fund ............................................................. 427,951 25,634,266
AARP International Growth and Income Fund ............................................... 403,142 7,704,039
AARP Small Company Stock Fund ........................................................... 511,190 10,959,918
AARP U.S. Stock Index Fund .............................................................. 633,541 13,177,656
-----------
Total Equity (Cost $61,077,332) ......................................................... 69,355,267
-----------
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio (Cost $97,166,651) (a) ....................................... 99.8 105,739,004
Other Assets and Liabilities, Net ....................................................... 0.2 199,015
----- -----------
Net Assets .............................................................................. 100.0 105,938,019
===== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $97,165,607 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 8,573,397
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ --
-----------
Net unrealized appreciation ............................... $ 8,573,397
===========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding money market
investments) for the six months ended March 31, 1998, aggregated
$39,202,522 and $490,545, 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 reported in the Statement of Assets and
Liabilities.
The accompanying notes are an integral part of the financial statements
116
<PAGE>
F I N A N C I A L S T A T E M E N T S
Financial Statements are records of the
financial status of an organization.
They are prepared by management and must
conform to Generally Accepted Accounting
Principles (GAAP), which are standards
established by the Financial Accounting
Standards Board (FASB), the Securities
and Exchange Commission (SEC), and
various committees of the American
Institute of Certified Public
Accountants (AICPA).
The AARP Investment Program's Financial
Statements consist of three different
financial statements for each AARP
Mutual Fund: Statements of Assets and
Liabilities, Statements of Operations,
and Statements of Changes in Net Assets.
The Notes to Financial Statements
explain the significant accounting
policies that financial statements
reflect.
117
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
The Statements of Assets and Liabilities show the assets of
the Funds in the AARP Investment Program.
Assets include:
o Investments at value: The market value of the AARP
Mutual Fund's holdings on the last day of the
reporting period;
o Cash: The actual amount of the uninvested assets held
in each AARP Mutual Fund;
o Receivables: Money owed to an AARP Mutual Fund. Sources
of receivables include:
o Investments sold: For which the cash will be paid
to the Fund on a later settlement date;
o Fund shares sold: Proceeds that the Fund will
receive from shares sold to shareholders;
o Dividends and interest earned on the Funds'
securities but not yet paid to the Fund;
o Expense reimbursements due from the Fund manager.
o Daily variation margin on open futures contract:
Payments due to/from the broker that reflect the change
in value from the previous day of any futures contract
held in an AARP Mutual Fund's portfolio (this figure
could show up as an asset or a liability).
Liabilities include amounts owed for:
o Investments purchased for the AARP Mutual Fund's
portfolio but that are not yet paid for;
o Fund shares redeemed but not yet paid to shareholders;
o Dividends declared but not yet paid to shareholders;
o Management fees and shareholder servicing fees incurred
but unpaid at fiscal year end;
o Administrative expenses incurred but unpaid at fiscal
year end;
o Other accrued expenses incurred but unpaid at fiscal
year end.
The section Net Assets Consist Of includes the following:
o Undistributed (overdistributed) net investment income:
An AARP Mutual Fund's accumulated investment income
less expenses and less distributions paid from net
investment income;
118
<PAGE>
o Unrealized appreciation (or depreciation) on
investments: Represents the current value of
investments held less their cost;
o Accumulated net realized capital gain (loss): An AARP
Mutual Fund's accumulated realized gains and losses
from sales of investments, minus distributions paid
from net realized gains;
o Paid-in capital: Represents the dollars invested by
shareholders, minus the amount of money redeemed since
the applicable AARP Mutual Fund began operations.
The Statement of Assets and Liabilities also shows the net
asset value (NAV) for each AARP Mutual Fund. Net asset value
is calculated by taking a Fund's total assets (securities,
cash, etc.), deducting liabilities, and then dividing this
amount by the total number of shares outstanding.
STATEMENTS OF OPERATIONS
The Statements of Operations includes investment income from
interest and dividends and the various expenses associated
with the operation of the AARP Mutual Funds for the period
ended March 31, 1998. The Statements of Operations also
shows net gains and losses for various categories of
investments, both realized and unrealized gains and losses,
for securities sold and held in each AARP Mutual Fund's
portfolio. The bottom line tells you whether an AARP Mutual
Fund's net assets have increased or decreased as a result of
Fund operations.
STATEMENTS OF CHANGES
The Statements of Changes compares increases and decreases
from each AARP Mutual Fund's operations and shareholder
transactions with those of the previous year. Most of the
terms used in the Statements of Changes are identical to
those that are used in the other two statements. The
categories in the sections Fund Shares Transaction include:
o Proceeds from the sale of shares: The amount received
by selling new shares to shareholders;
o Net asset value of shares issued due to reinvested
dividends and distributions;
o Cost of shares redeemed (or sold): The amount paid to
shareholders from the exchange or redemption of shares.
119
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP High
AARP High Quality Tax Free AARP GNMA and U.S.
March 31, 1998 (Unaudited) Quality Money Fund Money Fund Treasury Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) ................... $ 472,452,434 $ 99,229,067 $ 4,547,583,901
Cash ................................................ 978,983 118,007 --
Receivable on investments sold ...................... -- -- 53,804,471
Investment income receivable ........................ 2,515,858 745,121 28,602,922
Receivable on Fund shares sold ...................... 3,176,757 160,628 1,653,155
Daily variation margin on futures contracts ......... -- -- --
Reimbursement from Fund Manager ..................... -- -- --
Deferred organization expenses ...................... -- -- --
Other assets ........................................ 8,638 2,467 103,289
-------------------- --------------------- ---------------------
Total assets ........................................ 479,132,670 100,255,290 4,631,747,738
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Investments purchased ............................... -- -- 94,820,434
Notes payable ....................................... -- -- --
Fund shares redeemed ................................ 2,664,633 119,402 2,146,686
Dividends payable ................................... 149,888 40,195 10,868,233
Daily variation margin on futures contracts ......... -- -- --
Unrealized depreciation on forward currency
exchange contracts ................................ -- -- --
Management fee payable .............................. 152,797 32,339 1,538,458
Written options, at market .......................... -- -- --
Other payables and accrued expenses ................. 244,274 36,219 1,414,354
-------------------- --------------------- ---------------------
Total liabilities ................................... 3,211,592 228,155 110,788,165
- ----------------------------------------------------- -------------------- --------------------- ---------------------
Net assets at value ................................. $ 475,921,078 $ 100,027,135 $ 4,520,959,573
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ................................ $ -- $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments ...................................... (168,343) -- 83,376,524
Futures contracts ................................ -- -- --
Written options .................................. -- -- --
Foreign currency related transactions ............ -- -- --
Accumulated net realized capital gain (loss) ........ (136,136) (836,507) (315,269,079)
Paid-in capital ..................................... 476,225,557 100,863,642 4,752,852,128
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 475,921,078 $ 100,027,135 $ 4,520,959,573
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 476,090,579 100,032,206 297,668,642
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and Redemption price
per share ........................................ $1.00 $1.00 $15.19
- -----------------------------------------------------------------------------------------------------------------------------
</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
120
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP High AARP Insured AARP Bond
Quality Short Term Tax Free General Bond Fund for
March 31, 1998 (Unaudited) Bond Fund Fund Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) ................... $ 440,464,922 $ 1,695,123,339 $ 104,063,791
Cash ................................................ 435 329,825 1,782
Receivable on investments sold ...................... 5,401,327 -- 3,842,429
Investment income receivable ........................ 4,525,710 19,988,172 1,363,900
Receivable on Fund shares sold ...................... 217,387 293,801 541,142
Daily variation margin on futures contracts ......... -- -- --
Reimbursement from Fund Manager ..................... -- -- 174,874
Deferred organization expenses ...................... -- -- 10,842
Other assets ........................................ 7,899 24,793 --
--------------------- --------------------- ---------------------
Total assets ........................................ 450,617,680 1,715,759,930 109,998,760
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Investments purchased ............................... 5,538,706 -- 8,345,060
Notes payable ....................................... -- -- --
Fund shares redeemed ................................ 291,940 398,033 37,172
Dividends payable ................................... 642,516 2,823,568 158,994
Daily variation margin on futures contracts ......... -- 583,594 --
Unrealized depreciation on forward currency
exchange contracts ................................ -- -- --
Management fee payable .............................. 323,573 682,434 --
Written options, at market .......................... -- -- --
Other payables and accrued expenses ................. 161,903 262,173 69,829
--------------------- --------------------- ---------------------
Total liabilities ................................... 6,958,638 4,749,802 8,611,055
- ----------------------------------------------------- -----------------------------------------------------------------------------
Net assets at value ................................. $ 443,659,042 $ 1,711,010,128 $ 101,387,705
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ................................ $ 174,201 $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments ...................................... 811,603 161,237,348 437,685
Futures contracts ................................ -- (691,464) --
Written options .................................. -- -- --
Foreign currency related transactions ............ -- -- --
Accumulated net realized capital gain (loss) ........ (4,312,227) (33,560,326) 655,684
Paid-in capital ..................................... 446,985,465 1,584,024,570 100,294,336
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 443,659,042 $ 1,711,010,128 $ 101,387,705
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 27,465,475 92,272,062 6,638,721
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and Redemption price
per share ........................................ $16.15 $18.54 $15.27
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP Balanced AARP Growth and
March 31, 1998 (Unaudited) Stock and Bond Fund Income Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) ................... $ 761,748,381 $ 7,792,946,601
Cash ................................................ 6,777 197
Receivable on investments sold ...................... 1,309,303 43,888,253
Investment income receivable ........................ 4,436,267 20,416,102
Receivable on Fund shares sold ...................... 1,225,033 6,453,517
Daily variation margin on futures contracts ......... -- --
Reimbursement from Fund Manager ..................... -- --
Deferred organization expenses ...................... 7,455 --
Other assets ........................................ 5,122 57,672
-------------------- --------------------
Total assets ........................................ 768,738,338 7,863,762,342
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Investments purchased ............................... 2,283,160 62,987,805
Notes payable ....................................... -- 37,572,000
Fund shares redeemed ................................ 513,316 4,248,221
Dividends payable ................................... -- --
Daily variation margin on futures contracts ......... -- --
Unrealized depreciation on forward currency
exchange contracts ................................ -- --
Management fee payable .............................. 313,389 2,996,605
Written options, at market .......................... -- --
Other payables and accrued expenses ................. 276,134 1,851,942
-------------------- --------------------
Total liabilities ................................... 3,385,999 109,656,573
- ----------------------------------------------------- ----------------------------------------------
Net assets at value ................................. $ 765,352,339 $ 7,754,105,769
- -----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ................................ $ 559,840 $ 7,824,830
Net unrealized appreciation (depreciation) on:
Investments ...................................... 151,412,438 2,536,914,571
Futures contracts ................................ -- --
Written options .................................. -- --
Foreign currency related transactions ............ (1,233) (12,047)
Accumulated net realized capital gain (loss) ........ 20,436,653 394,416,908
Paid-in capital ..................................... 592,944,641 4,814,961,507
- -----------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 765,352,339 $ 7,754,105,769
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 34,688,310 129,459,336
- -----------------------------------------------------------------------------------------------------
Net asset value, offering and Redemption price
per share ........................................ $22.06 $59.90
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
121
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Capital
AARP U.S. Growth
March 31, 1998 (Unaudited) Stock Index Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) .................. $ 70,226,016 $ 1,399,145,855
Cash ................................................ 444 887
Receivable on investments sold ...................... -- --
Investment income receivable ........................ 72,208 726,646
Receivable on Fund shares sold ...................... 452,915 1,067,290
Daily variation margin on futures contracts ......... 5,318 --
Reimbursement from Fund Manager ..................... 120,217 --
Deferred organization expenses ...................... 13,149 --
Unrealized appreciation on forward currency
exchange contracts ............................... -- --
Other assets ........................................ -- 10,423
-------------------- ---------------------
Total assets ........................................ 70,890,267 1,400,951,101
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Investments purchased ............................... 4,642,984 --
Fund shares redeemed ................................ 115,837 223,741
Dividends payable ................................... -- --
Unrealized depreciation on forward currency
exchange contracts ............................... -- --
Management fee payable .............................. -- 684,314
Written options, at market .......................... -- --
Other payables and accrued expenses ................. 134,271 393,406
-------------------- ---------------------
Total liabilities ................................... 4,893,092 1,301,461
- -----------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 65,997,175 $ 1,399,649,640
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income ........................................... $ (25,420) $ 1,988,058
Net unrealized appreciation (depreciation) on:
Investments ...................................... 11,200,745 541,955,059
Futures contracts ................................ (4,899) --
Written options .................................. -- --
Foreign currency related transactions ............ -- --
Accumulated net realized capital gain (loss) ........ 292,382 50,546,549
Paid-in capital ..................................... 54,534,367 805,159,974
- -----------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 65,997,175 $ 1,399,649,640
- -----------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 3,173,126 23,676,531
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per
share ............................................ $20.80 $59.12
- -----------------------------------------------------------------------------------------------------------------------
</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
122
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Small AARP Global AARP International
Company Growth Growth and
March 31, 1998 (Unaudited) Stock Fund Fund Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) .................. $ 98,833,939 $ 159,316,533 $ 32,907,680
Cash ................................................ 1,394 54,327 473
Receivable on investments sold ...................... -- 494,749 --
Investment income receivable ........................ 74,071 380,747 203,480
Receivable on Fund shares sold ...................... 860,708 73,615 176,761
Daily variation margin on futures contracts ......... -- -- --
Reimbursement from Fund Manager ..................... -- -- --
Deferred organization expenses ...................... 9,995 7,780 9,995
Unrealized appreciation on forward currency
exchange contracts ............................... -- 265,472 --
Other assets ........................................ -- 1,041 22,998
-------------------- -------------------- ---------------------
Total assets ........................................ 99,780,107 160,594,264 33,321,387
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Investments purchased ............................... 3,736,376 111,127 1,119,697
Fund shares redeemed ................................ 85,220 64,576 17,229
Dividends payable ................................... -- -- --
Unrealized depreciation on forward currency
exchange contracts ............................... -- -- --
Management fee payable .............................. 68,053 204,107 8,382
Written options, at market .......................... -- -- 68,621
Other payables and accrued expenses ................. 64,788 131,514 40,162
-------------------- -------------------- ---------------------
Total liabilities ................................... 3,954,437 511,324 1,254,091
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 95,825,670 $ 160,082,940 $ 32,067,296
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income ........................................... $ (12,279) $ 436,467 $ 136,801
Net unrealized appreciation (depreciation) on:
Investments ...................................... 12,932,544 30,310,124 5,311,797
Futures contracts ................................ -- -- --
Written options .................................. -- -- (53,018)
Foreign currency related transactions ............ -- 264,230 (2,146)
Accumulated net realized capital gain (loss) ........ 693,250 2,193,173 (816,777)
Paid-in capital ..................................... 82,212,155 126,878,946 27,490,639
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 95,825,670 $ 160,082,940 $ 32,067,296
- -----------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 4,468,536 7,940,495 1,677,867
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per
share ............................................ $21.44 $20.16 $19.11
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP Diversified AARP Diversified
Income with Growth
March 31, 1998 (Unaudited) Growth Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------------
Investments, at value (for cost, see accompanying
lists of investment portfolios) .................. $ 66,150,521 $ 105,739,004
Cash ................................................ -- --
Receivable on investments sold ...................... -- 958,696
Investment income receivable ........................ 251,859 195,296
Receivable on Fund shares sold ...................... 129,112 310,426
Daily variation margin on futures contracts ......... -- --
Reimbursement from Fund Manager ..................... -- --
Deferred organization expenses ...................... -- --
Unrealized appreciation on forward currency
exchange contracts ............................... -- --
Other assets ........................................ -- --
-------------------- --------------------
Total assets ........................................ 66,531,492 107,203,422
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------
Investments purchased ............................... 250,820 1,153,223
Fund shares redeemed ................................ 23,732 112,180
Dividends payable ................................... 139,412 --
Unrealized depreciation on forward currency
exchange contracts ............................... -- --
Management fee payable .............................. -- --
Written options, at market .......................... -- --
Other payables and accrued expenses ................. -- --
-------------------- --------------------
Total liabilities ................................... 413,964 1,265,403
- ------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 66,117,528 $ 105,938,019
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income ........................................... $ 29,601 $ 624,606
Net unrealized appreciation (depreciation) on:
Investments ...................................... 2,982,646 8,572,353
Futures contracts ................................ -- --
Written options .................................. -- --
Foreign currency related transactions ............ -- --
Accumulated net realized capital gain (loss) ........ 590,763 1,773,825
Paid-in capital ..................................... 62,514,518 94,967,235
- ------------------------------------------------------------------------------------------------------------
Net assets at value ................................. $ 66,117,528 $ 105,938,019
- ------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* .......... 4,021,249 5,702,996
- ------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per
share ............................................ $16.44 $18.58
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
123
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP High
Six Months Ended March 31, 1998 AARP High Quality Tax Free AARP GNMA and U.S.
(Unaudited) Quality Money Fund Money Fund Treasury Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ 13,283,801 $ 1,813,261 $ 163,237,410
Dividends ........................................ -- -- --
-------------------- --------------------- ---------------------
13,283,801 1,813,261 163,237,410
Less foreign taxes withheld ...................... -- -- --
-------------------- --------------------- ---------------------
13,283,801 1,813,261 163,237,410
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ................................... 899,161 192,740 9,126,105
Services to shareholders ......................... 1,012,851 139,846 4,020,803
Trustees' fees and expenses ...................... 8,355 10,010 7,738
Shareholder communications ....................... 96,316 17,746 370,043
Legal ............................................ 5,652 4,879 7,505
Auditing ......................................... 14,761 15,258 29,637
Custodian and accounting fees .................... 38,649 21,157 407,093
Registration expenses ............................ 39,474 10,112 29,694
Amortization of organization expenses ............ -- -- --
Other ............................................ 8,518 6,821 70,627
-------------------- --------------------- ---------------------
Total expenses before reductions .................... 2,123,737 418,569 14,069,245
Expense reductions .................................. -- -- --
-------------------- --------------------- ---------------------
Expenses, net ....................................... 2,123,737 418,569 14,069,245
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income ............................... 11,160,064 1,394,692 149,168,165
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... -- 415 7,985,595
Futures contracts .............................. -- -- --
Written options ................................ -- -- --
Foreign currency related transactions .......... -- -- --
Net unrealized appreciation (depreciation) on:
Investments .................................... (47,880) -- (168,108)
Futures contracts .............................. -- -- --
Written options ................................ -- -- --
Foreign currency related transactions .......... -- -- --
-------------------- --------------------- ---------------------
Net gain (loss) on investments ...................... (47,880) 415 7,817,487
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 11,112,184 $ 1,395,107 $ 156,985,652
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
124
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP High AARP Insured AARP Bond
Six Months Ended March 31, 1998 Quality Short Term Tax Free General Bond Fund for
(Unaudited) Bond Fund Fund Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ 15,155,418 $ 45,872,825 $ 2,781,760
Dividends ........................................ -- -- --
--------------------- --------------------- ---------------------
15,155,418 45,872,825 2,781,760
Less foreign taxes withheld ...................... -- -- --
--------------------- --------------------- ---------------------
15,155,418 45,872,825 2,781,760
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ................................... 1,059,529 4,031,165 224,660
Services to shareholders ......................... 768,436 999,213 115,186
Trustees' fees and expenses ...................... 7,955 5,909 9,677
Shareholder communications ....................... 84,367 74,159 6,531
Legal ............................................ 7,611 6,231 5,334
Auditing ......................................... 25,713 29,393 15,282
Custodian and accounting fees .................... 47,902 157,873 24,040
Registration expenses ............................ 13,741 42,489 34,684
Amortization of organization expenses ............ -- -- 1,295
Other ............................................ 12,813 32,038 478
--------------------- --------------------- ---------------------
Total expenses before reductions .................... 2,028,067 5,378,470 437,167
Expense reductions .................................. -- -- (399,535)
--------------------- --------------------- ---------------------
Expenses, net ....................................... 2,028,067 5,378,470 37,632
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ............................... 13,127,351 40,494,355 2,744,128
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... 6,163,168 201,138 744,469
Futures contracts .............................. 48,649 (5,985,621) (22,779)
Written options ................................ -- -- --
Foreign currency related transactions .......... -- -- --
Net unrealized appreciation (depreciation) on:
Investments .................................... (5,612,624) 20,232,577 (417,436)
Futures contracts .............................. -- 1,583,432 --
Written options ................................ -- -- --
Foreign currency related transactions .......... -- -- --
--------------------- --------------------- ---------------------
Net gain (loss) on investments ...................... 599,193 16,031,526 304,254
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 13,726,544 $ 56,525,881 $ 3,048,382
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Six Months Ended March 31, 1998 AARP Balanced AARP Growth and
(Unaudited) Stock and Bond Fund Income Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ 8,666,574 $ 8,405,688
Dividends ........................................ 6,034,872 88,245,929
-------------------- --------------------
14,701,446 96,651,617
Less foreign taxes withheld ...................... (91,955) (927,773)
-------------------- --------------------
14,609,491 95,723,844
- ------------------------------------------------------------------------------------------------------
Expenses:
Management fee ................................... 1,596,299 16,052,577
Services to shareholders ......................... 1,024,184 5,488,921
Trustees' fees and expenses ...................... 10,597 6,016
Shareholder communications ....................... 146,829 577,565
Legal ............................................ 4,483 5,471
Auditing ......................................... 19,281 15,556
Custodian and accounting fees .................... 58,773 661,187
Registration expenses ............................ 35,528 130,504
Amortization of organization expenses ............ 4,435 --
Other ............................................ 5,414 101,959
-------------------- --------------------
Total expenses before reductions .................... 2,905,823 23,039,756
Expense reductions .................................. -- --
-------------------- --------------------
Expenses, net ....................................... 2,905,823 23,039,756
- ------------------------------------------------------------------------------------------------------
Net investment income ............................... 11,703,668 72,684,088
- ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... 25,247,446 459,458,361
Futures contracts .............................. (61,504) --
Written options ................................ -- --
Foreign currency related transactions .......... 7,085 (135,455)
Net unrealized appreciation (depreciation) on:
Investments .................................... 30,208,718 406,382,557
Futures contracts .............................. -- --
Written options ................................ -- --
Foreign currency related transactions .......... (1,364) (24,968)
-------------------- --------------------
Net gain (loss) on investments ...................... 55,400,381 865,680,495
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 67,104,049 $ 938,364,583
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
125
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Capital
Six Months Ended March 31, 1998 AARP U.S. Growth
(Unaudited) Stock Index Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ 56,556 $ 1,407,966
Dividends ........................................ 438,557 6,316,344
Income distributions from Underlying Funds ....... -- --
-------------------- ---------------------
495,113 7,724,310
Less foreign taxes withheld ...................... (1,195) (23,231)
-------------------- ---------------------
493,918 7,701,079
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ................................... 64,950 3,743,923
Services to shareholders ......................... 109,668 1,372,577
Trustees' fees and expenses ...................... 9,839 5,912
Shareholder communications ....................... 8,098 156,495
Legal ............................................ 4,762 5,598
Auditing ......................................... 14,827 21,661
Custodian and accounting fees .................... 59,616 105,307
Registration expenses ............................ 25,732 38,605
Amortization of organization expenses ............ 1,594 --
Other ............................................ 1,095 21,445
-------------------- ---------------------
Total expenses before reductions .................... 300,181 5,471,523
Expense reductions .................................. (185,166) --
-------------------- ---------------------
Expenses, net ....................................... 115,015 5,471,523
- -----------------------------------------------------------------------------------------------------------------------
Net investment income ............................... 378,903 2,229,556
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... 49,157 52,177,673
Futures contracts .............................. 334,314 --
Written options ................................ -- --
Foreign currency related transactions .......... -- --
Capital gain distributions from Underlying Funds.. -- --
Net unrealized appreciation (depreciation) on:
Investments .................................... 7,464,417 88,445,412
Futures contracts .............................. (14,238) --
Written options ................................ -- --
Foreign currency related transactions .......... -- --
-------------------- ---------------------
Net gain (loss) on investments ...................... 7,833,650 140,623,085
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 8,212,553 $ 142,852,641
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
126
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Small AARP Global AARP International
Six Months Ended March 31, 1998 Company Growth Growth and
(Unaudited) Stock Fund Fund Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ 99,351 $ 822,335 $ 65,188
Dividends ........................................ 507,930 1,025,868 318,367
Income distributions from Underlying Funds ....... -- -- --
--------------------- --------------------- ---------------------
607,281 1,848,203 383,555
Less foreign taxes withheld ...................... -- (86,022) (28,614)
--------------------- --------------------- ---------------------
607,281 1,762,181 354,941
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee ................................... 269,719 609,501 97,690
Services to shareholders ......................... 196,716 408,172 84,715
Trustees' fees and expenses ...................... 10,200 9,244 9,528
Shareholder communications ....................... 19,973 52,044 6,574
Legal ............................................ 4,517 4,608 4,727
Auditing ......................................... 14,539 20,059 16,384
Custodian and accounting fees .................... 23,372 106,360 42,739
Registration expenses ............................ 32,086 15,642 21,586
Amortization of organization expenses ............ 1,296 1,370 1,296
Other ............................................ 751 3,483 619
--------------------- --------------------- ---------------------
Total expenses before reductions .................... 573,169 1,230,483 285,858
Expense reductions .................................. (5,786) -- (69,453)
--------------------- --------------------- ---------------------
Expenses, net ....................................... 567,383 1,230,483 216,405
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income ............................... 39,898 531,698 138,536
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... 696,823 3,637,916 (786,110)
Futures contracts .............................. -- -- --
Written options ................................ -- -- --
Foreign currency related transactions .......... -- (15,307) (8,997)
Capital gain distributions from Underlying Funds.. -- -- --
Net unrealized appreciation (depreciation) on:
Investments .................................... 5,298,418 8,014,500 3,873,816
Futures contracts .............................. -- -- --
Written options ................................ -- -- (53,018)
Foreign currency related transactions .......... -- 527,647 (1,496)
--------------------- --------------------- ---------------------
Net gain (loss) on investments ...................... 5,995,241 12,164,756 3,024,195
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 6,035,139 $ 12,696,454 $ 3,162,731
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP Diversified AARP Diversified
Six Months Ended March 31, 1998 Income with Growth
(Unaudited) Growth Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------
Income:
Interest ......................................... $ -- $ --
Dividends ........................................ -- --
Income distributions from Underlying Funds ....... 1,416,209 1,326,807
-------------------- --------------------
1,416,209 1,326,807
Less foreign taxes withheld ...................... -- --
-------------------- --------------------
1,416,209 1,326,807
- --------------------------------------------------------------------------------------------------------
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 ............................... 1,416,209 1,326,807
- --------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................... 17,713 44,267
Futures contracts .............................. -- --
Written options ................................ -- --
Foreign currency related transactions .......... -- --
Capital gain distributions from Underlying Funds.. 696,010 2,068,563
Net unrealized appreciation (depreciation) on:
Investments .................................... 1,148,072 4,625,967
Futures contracts .............................. -- --
Written options ................................ -- --
Foreign currency related transactions .......... -- --
-------------------- --------------------
Net gain (loss) on investments ...................... 1,861,795 6,738,797
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. $ 3,278,004 $ 8,065,604
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
127
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP High AARP High
Quality Quality Tax Free
Money Fund Money Fund
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (Unaudited) 1997
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 11,160,064 $ 20,990,921 $ 1,394,692 $ 2,927,078
Net realized gain (loss) on investment
transactions ................................. -- -- 415 --
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (47,880) 14,657 -- --
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 11,112,184 21,005,578 1,395,107 2,927,078
----------------- ---------------- ----------------- ----------------
Distributions to shareholders:
Net investment income .......................... (11,160,064) (20,990,921) (1,394,692) (2,927,078)
Net realized gains ............................. -- -- -- --
----------------- ---------------- ----------------- ----------------
Total distributions ............................... (11,160,064) (20,990,921) (1,394,692) (2,927,078)
----------------- ---------------- ----------------- ----------------
Fund share transactions:
Proceeds from sale of shares ................... 304,868,148 586,180,766 15,210,040 28,579,750
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 10,122,163 18,980,197 1,125,042 2,345,700
Cost of shares redeemed (310,332,220) (545,990,946) (18,922,255) (39,576,285)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 4,658,091 59,170,017 (2,587,173) (8,650,835)
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ................. 4,610,211 59,184,674 (2,586,758) (8,650,835)
Net assets at beginning of period ................. 471,310,867 412,126,193 102,613,893 111,264,728
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................... $ 475,921,078 $ 471,310,867 $ 100,027,135 $ 102,613,893
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 471,432,488 412,261,312 102,619,379 111,270,214
----------------- ---------------- ----------------- ----------------
Shares sold ....................................... 304,868,148 586,181,925 15,210,040 28,579,750
Shares issued to shareholders in reinvestment of
distributions .................................. 10,122,163 18,980,197 1,125,042 2,345,700
Shares redeemed ................................... (310,332,220) (545,990,946) (18,922,255) (39,576,285)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in Fund shares ............ 4,658,091 59,171,176 (2,587,173) (8,650,835)
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ............... 476,090,579 471,432,488 100,032,206 102,619,379
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes Undistributed (overdistributed) net
investment income $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
128
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP GNMA AARP High
and U.S. Quality Short Term
Treasury Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (Unaudited) 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 149,168,165 $ 306,582,822 $ 13,127,351 $ 27,958,146
Net realized gain (loss) on investment
transactions ................................. 7,985,595 (7,559,113) 6,211,817 (1,677,305)
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (168,108) 85,972,174 (5,612,624) 10,994,171
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 156,985,652 384,995,883 13,726,544 37,275,012
------------------ ------------------ ------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (149,168,165) (306,582,822) (13,129,440) (27,958,146)
Net realized gains ............................. -- -- -- --
------------------ ------------------ ------------------ ------------------
Total distributions ............................... (149,168,165) (306,582,822) (13,129,440) (27,958,146)
------------------ ------------------ ------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ...................
Net asset value of shares issued to 192,961,150 305,492,609 23,531,808 38,051,215
shareholders in reinvestment of
distributions ................................ 85,826,625 175,180,674 9,133,310 19,402,825
Cost of shares redeemed (349,626,149) (879,545,728) (44,472,698) (123,806,554)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (70,838,374) (398,872,445) (11,807,580) (66,352,514)
------------------ ------------------ ------------------ ------------------
Increase (decrease) in net assets ................. (63,020,887) (320,459,384) (11,210,476) (57,035,648)
Net assets at beginning of period ................. 4,583,980,460 4,904,439,844 454,869,518 511,905,166
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................... $ 4,520,959,573 $ 4,583,980,460 $ 443,659,042 $ 454,869,518
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 302,304,535 328,879,292 28,196,489 32,366,706
------------------ ------------------ ------------------ ------------------
Shares sold ....................................... 12,709,967 20,334,844 1,446,685 2,386,782
Shares issued to shareholders in reinvestment of
distributions .................................. 5,641,020 11,645,941 562,649 1,215,401
Shares redeemed ................................... (22,986,880) (58,555,542) (2,740,348) (7,772,400)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in Fund shares ............ (4,635,893) (26,574,757) (731,014) (4,170,217)
------------------ ------------------ ------------------ ------------------
Shares outstanding at end of period ............... 297,668,642 302,304,535 27,465,475 28,196,489
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes Undistributed (overdistributed) net $ -- $ -- $ 174,201 $ 176,290
investment income
<CAPTION>
AARP Insured
Tax Free General
Bond Fund
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
March 31, 1998 September 30,
Operations: (Unaudited) 1997
------------------ ------------------
<S> <C> <C>
Net investment income .......................... $ 40,494,355 $ 83,718,654
Net realized gain (loss) on investment
transactions ................................. (5,784,483) (3,663,217)
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 21,816,009 61,740,321
------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 56,525,881 141,795,758
------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (40,494,355) (83,718,654)
Net realized gains ............................. (4,608,507) (8,693,174)
------------------ ------------------
Total distributions ............................... (45,102,862) (92,411,828)
------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ...................
Net asset value of shares issued to 58,981,349 103,693,632
shareholders in reinvestment of
distributions ................................ 27,186,594 55,906,529
Cost of shares redeemed (98,589,002) (252,388,145)
------------------ ------------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (12,421,059) (92,787,984)
------------------ ------------------
Increase (decrease) in net assets ................. (998,040) (43,404,054)
Net assets at beginning of period ................. 1,712,008,168 1,755,412,222
- ------------------------------------------------------------------------------------------
Net assets at end of period (a) ................... $ 1,711,010,128 $ 1,712,008,168
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 92,944,577 98,088,821
------------------ ------------------
Shares sold ....................................... 3,181,453 5,746,587
Shares issued to shareholders in reinvestment of
distributions .................................. 1,465,242 3,094,529
Shares redeemed ................................... (5,319,210) (13,985,360)
------------------ ------------------
Net increase (decrease) in Fund shares ............ (672,515) (5,144,244)
------------------ ------------------
Shares outstanding at end of period ............... 92,272,062 92,944,577
- ------------------------------------------------------------------------------------------
(a) Includes Undistributed (overdistributed) net $ -- $ --
investment income
</TABLE>
The accompanying notes are an integral part of the financial statements
129
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Bond AARP Balanced
Fund for Stock and Bond
Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Period Six Months Year
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (a) (Unaudited) 1997
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 2,744,128 $ 1,266,014 $ 11,703,668 $ 18,953,996
Net realized gain (loss) on investment
transactions ................................. 721,690 32,537 25,193,027 27,065,207
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (417,436) 855,121 30,207,354 79,619,125
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 3,048,382 2,153,672 67,104,049 125,638,328
----------------- ---------------- ----------------- ----------------
Distributions to shareholders:
Net investment income .......................... (2,744,128) (1,266,014) (11,369,485) (19,390,434)
Net realized gains ............................. (105,326) -- (30,730,876) (5,003,640)
----------------- ---------------- ----------------- ----------------
Total distributions ............................... (2,849,454) (1,266,014) (42,100,361) (24,394,074)
----------------- ---------------- ----------------- ----------------
Fund share transactions:
Proceeds from sale of shares ................... 51,015,693 59,830,356 110,543,045 193,384,596
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 2,035,623 959,174 38,988,815 22,371,689
Cost of shares redeemed ........................ (10,186,685) (3,354,542) (47,539,466) (81,824,221)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 42,864,631 57,434,988 101,992,394 133,932,064
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ................. 43,063,559 58,322,646 126,996,082 235,176,318
Net assets at beginning of period ................. 58,324,146 1,500 638,356,257 403,179,939
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 101,387,705 $ 58,324,146 $ 765,352,339 $ 638,356,257
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 3,836,332 100 29,829,626 22,865,594
----------------- ---------------- ----------------- ----------------
Shares sold ....................................... 3,334,306 3,995,177 5,201,519 10,047,891
Shares issued to shareholders in reinvestment of
distributions .................................. 133,054 63,663 1,896,341 1,156,073
Shares redeemed ................................... (664,971) (222,608) (2,239,176) (4,239,932)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in Fund shares ............ 2,802,389 3,836,232 4,858,684 6,964,032
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ............... 6,638,721 3,836,332 34,688,310 29,829,626
- -----------------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ -- $ -- $ 559,840 $ 225,657
</TABLE>
The accompanying notes are an integral part of the financial statements
130
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Growth AARP U.S.
and Income Stock Index
Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Period
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (Unaudited) 1997 (a)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 72,684,088 $ 124,954,648 $ 378,903 $ 266,300
Net realized gain (loss) on investment
transactions ................................. 459,322,906 532,817,544 383,471 208,409
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 406,357,589 1,169,023,017 7,450,179 3,745,667
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 938,364,583 1,826,795,209 8,212,553 4,220,376
------------------ ------------------ ------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (68,180,646) (126,615,982) (410,597) (277,755)
Net realized gains ............................. (581,929,952) (167,523,016) (299,496) --
------------------ ------------------ ------------------ ------------------
Total distributions ............................... (650,110,598) (294,138,998) (710,093) (277,755)
------------------ ------------------ ------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ................... 660,378,303 1,183,350,802 28,290,865 36,277,789
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 597,352,097 268,600,153 646,154 242,587
Cost of shares redeemed ........................ (397,891,513) (597,577,667) (8,527,377) (2,379,424)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets from Fund 859,838,887 854,373,288 20,409,642 34,140,952
share transactions ............................. ------------------ ------------------ ------------------ ------------------
Increase (decrease) in net assets ................. 1,148,092,872 2,387,029,499 27,912,102 38,083,573
Net assets at beginning of period ................. 6,606,012,897 4,218,983,398 38,085,073 1,500
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 7,754,105,769 $ 6,606,012,897 $ 65,997,175 $ 38,085,073
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 113,474,683 96,018,596 2,117,187 100
------------------ ------------------ ------------------ ------------------
Shares sold ....................................... 11,692,958 23,887,562 1,479,282 2,243,958
Shares issued to shareholders in reinvestment of
distributions .................................. 11,365,333 5,612,664 34,460 14,065
Shares redeemed ................................... (7,073,638) (12,044,139) (457,803) (140,936)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in Fund shares ............ 15,984,653 17,456,087 1,055,939 2,117,087
------------------ ------------------ ------------------ ------------------
Shares outstanding at end of period ............... 129,459,336 113,474,683 3,173,126 2,117,187
- ------------------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ 7,824,830 $ 3,321,388 $ (25,420) $ 6,274
<CAPTION>
AARP Capital
Growth
Fund
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
March 31, 1998 September 30,
Operations: (Unaudited) 1997
------------------ ------------------
<S> <C> <C>
Net investment income .......................... $ 2,229,556 $ 7,016,141
Net realized gain (loss) on investment
transactions ................................. 52,177,673 100,379,274
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 88,445,412 279,281,585
------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 142,852,641 386,677,000
------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (6,661,535) (7,776,073)
Net realized gains ............................. (92,509,359) (75,674,469)
------------------ ------------------
Total distributions ............................... (99,170,894) (83,450,542)
------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ................... 115,410,373 155,757,996
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 94,606,720 79,684,673
Cost of shares redeemed ........................ (82,429,154) (136,425,886)
------------------ ------------------
Net increase (decrease) in net assets from Fund 127,587,939 99,016,783
share transactions ............................. ------------------ ------------------
Increase (decrease) in net assets ................. 171,269,686 402,243,241
Net assets at beginning of period ................. 1,228,379,954 826,136,713
- -------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 1,399,649,640 $ 1,228,379,954
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 21,237,515 19,005,749
------------------ ------------------
Shares sold ....................................... 2,071,609 3,214,860
Shares issued to shareholders in reinvestment of
distributions .................................. 1,855,398 1,860,053
Shares redeemed ................................... (1,487,991) (2,843,147)
------------------ ------------------
Net increase (decrease) in Fund shares ............ 2,439,016 2,231,766
------------------ ------------------
Shares outstanding at end of period ............... 23,676,531 21,237,515
- -------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ 1,988,058 $ 6,420,037
</TABLE>
The accompanying notes are an integral part of the financial statements
131
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP Small AARP Global
Company Growth
Stock Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Period Six Months Year
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (a) (Unaudited) 1997
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 39,898 $ 54,756 $ 531,698 $ 609,798
Net realized gain (loss) on investment
transactions ................................. 696,823 243,254 3,622,609 3,282,024
Capital gain distributions from
Underlying Funds ............................. -- -- -- --
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 5,298,418 7,634,126 8,542,147 21,062,454
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................ 6,035,139 7,932,136 12,696,454 24,954,276
----------------- ---------------- ----------------- ----------------
Distributions to shareholders:
Net investment income .......................... (123,413) -- (1,240,117) (336,444)
Net realized gains ............................. (246,828) -- (4,107,884) --
----------------- ---------------- ----------------- ----------------
Total distributions ............................... (370,241) -- (5,348,001) (336,444)
----------------- ---------------- ----------------- ----------------
Fund share transactions:
Proceeds from sale of shares ................... 51,192,002 45,455,488 17,279,343 67,490,929
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 359,305 -- 5,161,710 321,411
Cost of shares redeemed ........................ (11,662,008) (3,117,651) (17,735,939) (22,052,777)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 39,889,299 42,337,837 4,705,114 45,759,563
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ................. 45,554,197 50,269,973 12,053,567 70,377,395
Net assets at beginning of period ................. 50,271,473 1,500 148,029,373 77,651,978
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 95,825,670 $ 50,271,473 $ 160,082,940 $ 148,029,373
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 2,510,889 100 7,693,438 5,012,508
----------------- ---------------- ----------------- ----------------
Shares sold ....................................... 2,522,887 2,689,583 915,835 3,954,573
Shares issued to shareholders in reinvestment of
distributions .................................. 18,267 -- 288,364 19,853
Shares redeemed ................................... (583,507) (178,794) (957,142) (1,293,496)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in Fund shares ............ 1,957,647 2,510,789 247,057 2,680,930
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ............... 4,468,536 2,510,889 7,940,495 7,693,438
- -----------------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ (12,279) $ 71,236 $ 436,467 $ 1,144,886
</TABLE>
The accompanying notes are an integral part of the financial statements
132
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AARP AARP
International Growth Diversified Income
and Income Fund with Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Period Six Months Period
Ended Ended Ended Ended
March 31, 1998 September 30, March 31, 1998 September 30,
Operations: (Unaudited) 1997 (a) (Unaudited) 1997 (a)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net investment income .......................... $ 138,536 $ 156,217 $ 1,416,209 $ 880,498
Net realized gain (loss) on investment
transactions ................................. (795,107) 175,100 17,713 44,276
Capital gain distributions from
Underlying Funds ............................. -- -- 696,010 --
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 3,819,302 1,437,331 1,148,072 1,834,574
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 3,162,731 1,768,648 3,278,004 2,759,348
------------------ ------------------ ------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (156,766) -- (1,397,325) (869,781)
Net realized gains ............................. (213,772) -- (167,236) --
------------------ ------------------ ------------------ ------------------
Total distributions ............................... (370,538) -- (1,564,561) (869,781)
------------------ ------------------ ------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ................... 12,293,243 20,394,042 27,270,152 45,476,743
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 359,913 -- 1,261,239 671,013
Cost of shares redeemed ........................ (3,637,115) (1,905,128) (7,573,724) (4,640,905)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 9,016,041 18,488,914 20,957,667 41,506,851
------------------ ------------------ ------------------ ------------------
Increase (decrease) in net assets ................. 11,808,234 20,257,562 22,671,110 43,396,418
Net assets at beginning of period ................. 20,259,062 1,500 43,446,418 50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 32,067,296 $ 20,259,062 $ 66,117,528 $ 43,446,418
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 1,166,775 100 2,721,909 3,333
------------------ ------------------ ------------------ ------------------
Shares sold ....................................... 703,872 1,283,093 1,690,628 2,973,907
Shares issued to shareholders in reinvestment of
distributions .................................. 21,853 -- 78,114 42,898
Shares redeemed ................................... (214,633) (116,418) (469,402) (298,229)
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in Fund shares ............ 511,092 1,166,675 1,299,340 2,718,576
------------------ ------------------ ------------------ ------------------
Shares outstanding at end of period ............... 1,677,867 1,166,775 4,021,249 2,721,909
- ------------------------------------------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ 136,801 $ 155,031 $ 29,601 $ 10,717
<CAPTION>
AARP
Diversified
Growth Portfolio
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------
Six Months Period
Ended Ended
March 31, 1998 September 30,
Operations: (Unaudited) 1997 (a)
------------------ ------------------
<S> <C> <C>
Net investment income .......................... $ 1,326,807 $ 645,438
Net realized gain (loss) on investment
transactions ................................. 44,267 82,133
Capital gain distributions from
Underlying Funds ............................. 2,068,563 --
Net unrealized appreciation (depreciation) on
investment transactions during the period .... 4,625,967 3,946,386
------------------ ------------------
Net increase (decrease) in net assets resulting
from operations ................................ 8,065,604 4,673,957
------------------ ------------------
Distributions to shareholders:
Net investment income .......................... (1,347,639) --
Net realized gains ............................. (421,138) --
------------------ ------------------
Total distributions ............................... (1,768,777) --
------------------ ------------------
Fund share transactions:
Proceeds from sale of shares ................... 45,016,293 60,765,788
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................................ 1,724,532 --
Cost of shares redeemed ........................ (8,896,451) (3,692,927)
------------------ ------------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 37,844,374 57,072,861
------------------ ------------------
Increase (decrease) in net assets ................. 44,141,201 61,746,818
Net assets at beginning of period ................. 61,796,818 50,000
- -------------------------------------------------------------------------------------------------
Net assets at end of period (b) ................... $ 105,938,019 $ 61,796,818
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
- -------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 3,551,018 3,333
------------------ ------------------
Shares sold ....................................... 2,558,246 3,770,457
Shares issued to shareholders in reinvestment of
distributions .................................. 100,909 --
Shares redeemed ................................... (507,177) (222,772)
------------------ ------------------
Net increase (decrease) in Fund shares ............ 2,151,978 3,547,685
------------------ ------------------
Shares outstanding at end of period ............... 5,702,996 3,551,018
- -------------------------------------------------------------------------------------------------
(a) These Funds commenced operations on February 1, 1997.
(b) Includes Undistributed (overdistributed) net
investment income $ 624,606 $ 645,438
</TABLE>
The accompanying notes are an integral part of the financial statements
133
<PAGE>
This page
intentionally
left blank.
134
<PAGE>
F I N A N C I A L H I G H L I G H T S
This section shows you the statistical
per share income and ratio(s),
information from operations, dividends
paid to shareholders, total returns,
expense ratios of the AARP Mutual Funds,
and other information. It is designed to
help you understand how a Fund performed
and allows you to compare this year's
performance and expenses to those of
prior years.
135
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a Six Months
share outstanding throughout each period and Ended March 31, Years Ended September 30,
other performance information derived from the 1998 ---------------------------------------------------------
financial statements. (Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------
<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 ................................ .024 .046 .045 .049 .028 .021
Distributions from net investment income ............. (.024) (.046) (.045) (.049) (.028) (.021)
-----------------------------------------------------------------------
Net asset value, end of period .......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------
Total Return (%) ........................................ 2.39(a) 4.72 4.62 4.99 2.84 2.13
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................. 476 471 412 384 333 254
Ratio of operating expenses to average daily net
assets (%) ........................................... .90(b) .91 .96 .98 1.13 1.31
Ratio of net investment income to average daily net
assets (%) ........................................... 4.74(b) 4.63 4.54 4.89 2.89 2.12
</TABLE>
(a) Not annualized
(b) Annualized
- --------------------------------------------------------------------------------
AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a Six Months
share outstanding throughout each period and Ended March 31, Years Ended September 30,
other performance information derived from the 1998 ---------------------------------------------------------
financial statements. (Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------
Net investment income .......................... .014 .028 .028 .029 .017 .016
Distributions from net investment income ....... (.014) (.028) (.028) (.029) (.017) (.016)
-----------------------------------------------------------------------------
Net asset value, end of period .................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------
Total Return (%) .................................. 1.39(b) 2.80 2.80 2.99 1.76(a) 1.62(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............ 100 103 111 120 129 134
Ratio of operating expenses, net, to average daily
net assets (%) ................................. .83(c) .85 .85 .87 .90 .93
Ratio of operating expenses, before expense
reductions, to average daily net assets (%) .... .83(c) .85 .85 .87 .91 1.15
Ratio of net investment income to average daily net
assets (%) ..................................... 2.77(c) 2.76 2.77 2.94 1.75 1.60
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not annualized
(c) Annualized
136
<PAGE>
- --------------------------------------------------------------------------------
AARP GNMA AND U.S. TREASURY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a
share outstanding throughout each period and Six Months
other performance information derived from the Ended
financial statements. March 31, Years Ended September 30,
1998 ------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 15.16 $ 14.91 $ 15.19 $ 14.73 $ 15.96 $ 16.19
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .50 .98 .99 1.01 .93 1.15
Net realized and unrealized gain (loss) on
investments .................................. .03 .25 (.28) .46 (1.23) (.23)
-------------------------------------------------------------------------------
Total from investment operations .................. .53 1.23 .71 1.47 (.30) .92
-------------------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (.50) (.98) (.99) (.98) (.93) (1.15)
Tax return of capital .......................... -- -- -- (.03) -- --
-------------------------------------------------------------------------------
Total distributions ............................... (.50) (.98) (.99) (1.01) (.93) (1.15)
-------------------------------------------------------------------------------
Net asset value, end of period .................... $ 15.19 $ 15.16 $ 14.91 $ 15.19 $ 14.73 $ 15.96
-------------------------------------------------------------------------------
Total Return (%) .................................. 3.54(a) 8.49 4.79 10.31 (1.90) 5.89
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............ 4,521 4,584 4,904 5,252 5,585 6,712
Ratio of operating expenses to average daily net
assets (%) ..................................... .62(b) .65 .64 .67 .66 .70
Ratio of net investment income to average daily net
assets (%) ..................................... 6.57(b) 6.51 6.55 6.77 6.09 7.15
Portfolio turnover rate (%) ....................... 92.21(b) 86.76 83.44 70.35 114.54 105.49
</TABLE>
(a) Not annualized (b) Annualized
- --------------------------------------------------------------------------------
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a
share outstanding throughout each period and Six Months
other performance information derived from the Ended
financial statements. March 31, Years Ended September 30,
1998 ---------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............................ $ 16.13 $ 15.82 $ 16.01 $ 15.05 $ 17.19 $ 16.44
-----------------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .47 .93 .92 .94 .85 .93
Net realized and unrealized gain (loss) on
investments ................................................ .02 .31 (.19) .95 (1.76) .93
-----------------------------------------------------------------
Total from investment operations ................................ .49 1.24 .73 1.89 (.91) 1.86
-----------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.47) (.93) (.92) (.93) (.85) (.93)
Net realized gains on investments ............................ -- -- -- -- -- (.18)
In excess of net realized gains on investments ............... -- -- -- -- (.38) --
-----------------------------------------------------------------
Total distributions ............................................. (.47) (.93) (.92) (.93) (1.23) (1.11)
-----------------------------------------------------------------
Net asset value, end of period .................................. $ 16.15 $ 16.13 $ 15.82 $ 16.01 $ 15.05 $ 17.19
-----------------------------------------------------------------
Total Return (%) ................................................ 3.08(a) 8.15 4.59 12.98 (5.55) 11.88
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................... 444 455 512 533 568 604
Ratio of operating expenses to average daily net
assets (%) ................................................... .90(b) .93 .91 .95 .95 1.01
Ratio of net investment income to average daily net
assets (%) ................................................... 5.85(b) 5.84 5.76 6.13 5.31 5.64
Portfolio turnover rate (%) ..................................... 166.27(b) 83.26 169.96 201.07 63.75 100.98
</TABLE>
(a) Not annualized (b) Annualized
137
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AARP INSURED TAX FREE GENERAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a share
outstanding throughout each period and Six Months
other performance information derived from the Ended
financial statements. March 31, Years Ended September 30,
1998 ----------------------------------------------------
Unaudited) 1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 18.42 $ 17.90 $ 17.74 $ 16.93 $ 19.00 $ 17.88
-----------------------------------------------------------------
Income from investment operations:
Net investment income ................................. .44 .88 .87 .87 .86 .90
Net realized and unrealized gain (loss) on
investments ......................................... .17 .61 .16 .81 (1.67) 1.55
-----------------------------------------------------------------
Total from investment operations ......................... .61 1.49 1.03 1.68 (.81) 2.45
-----------------------------------------------------------------
Less distributions from:
Net investment income ................................. (.44) (.88) (.87) (.87) (.86) (.90)
Net realized gains on investments ..................... (.05) (.09) -- -- (.34) (.43)
In excess of net realized gains on investments ........ -- -- -- -- (.06) --
-----------------------------------------------------------------
Total distributions ...................................... (.49) (.97) (.87) (.87) (1.26) (1.33)
-----------------------------------------------------------------
Net asset value, end of period ........................... $ 18.54 $ 18.42 $ 17.90 $ 17.74 $ 16.93 $ 19.00
-----------------------------------------------------------------
Total Return (%) ......................................... 3.33(a) 8.57 5.88 10.21 (4.48) 14.31
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 1,711 1,712 1,755 1,807 1,914 2,087
Ratio of operating expenses to average daily net
assets (%) ............................................ .63(b) .66 .66 .69 .68 .72
Ratio of net investment income to average daily
net assets (%) ........................................ 4.74(b) 4.87 4.83 5.06 4.80 4.90
Portfolio turnover rate (%) .............................. .15(b) 7.61 18.69 17.45 38.39 47.96
</TABLE>
(a) Not annualized (b) Annualized
- --------------------------------------------------------------------------------
AARP BOND FUND FOR INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended February 1, 1997
share outstanding throughout each period and March 31, (a) to
other performance information derived from the 1998 September 30,
financial statements. (Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period .................................................. $ 15.20 $ 15.00
---------------------------------
Income from investment operations:
Net investment income .............................................................. .52 .69
Net realized and unrealized gain (loss) on investments ............................. .09 .20
---------------------------------
Total from investment operations ...................................................... .61 .89
---------------------------------
Less distributions from:
Net investment income .............................................................. (.52) (.69)
Net realized gains on investments .................................................. (.02) --
---------------------------------
Total distributions ................................................................... (.54) (.69)
---------------------------------
Net asset value, end of period ........................................................ $ 15.27 $ 15.20
---------------------------------
Total Return (%) (b) .................................................................. 4.04(c) 6.06(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................ 101 58
Ratio of operating expenses, net, to average daily net assets (%) ..................... 0.09(d) --(d)
Ratio of operating expenses, before expense reductions, to average daily
net assets (%) ..................................................................... 1.08(d) 1.53(d)
Ratio of net investment income to average daily net assets (%) ........................ 6.81(d) 7.03(d)
Portfolio turnover rate (%) ........................................................... 95.35(d) 13.69(d)
</TABLE>
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
138
<PAGE>
- --------------------------------------------------------------------------------
AARP BALANCED STOCK AND BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended Years Ended February 1, 1994
share outstanding throughout each period and March 31, September 30, (b) to
other performance information derived from the 1998(a) --------------------------- September 30,
financial statements. (Unaudited) 1997(a) 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 21.40 $ 17.63 $ 16.40 $ 14.64 $ 15.00
--------------------------------------------------------------
Income from investment operations:
Net investment income ...................................... .36 .72 .66 .61 .25
Net realized and unrealized gain (loss) on investments ..... 1.65 3.98 1.44 1.79 (.37)
--------------------------------------------------------------
Total from investment operations .............................. 2.01 4.70 2.10 2.40 (.12)
--------------------------------------------------------------
Less distributions from:
Net investment income ...................................... (.35) (.72) (.66) (.60) (.24)
Net realized gains on investments .......................... (1.00) (.21) (.21) (.04) --
--------------------------------------------------------------
Total distributions ........................................... (1.35) (.93) (.87) (.64) (.24)
--------------------------------------------------------------
Net asset value, end of period ................................ $ 22.06 $ 21.40 $ 17.63 $ 16.40 $ 14.64
--------------------------------------------------------------
Total Return (%) .............................................. 9.90(d) 27.34 13.08 16.80 (.78)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 765 638 403 247 175
Ratio of operating expenses to average daily net assets (%) ... .86(e) .91 .88 1.01 1.31(e)
Ratio of net investment income to average daily net
assets (%) ................................................. 3.46(e) 3.71 4.09 4.12 3.58(e)
Portfolio turnover rate (%) ................................... 45.62(e) 26.79 35.22 63.77 49.32(e)
Average commission rate paid (c) .............................. $ .0296 $ .0547 $ .0549 $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
(d) Not Annualized (e) Annualized
- --------------------------------------------------------------------------------
AARP GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a Six Months
share outstanding throughout each period and Ended March Years Ended September 30,
other performance information derived from the 31, 1998(a) ---------------------------------------------------------
financial statements. (Unaudited) 1997(a) 1996 1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 58.22 $ 43.94 $ 38.36 $ 34.13 $ 32.91 $ 28.67
----------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .60 1.19 1.17 1.11 .94 .83
Net realized and unrealized gain (loss) on investments .. 6.71 16.00 6.40 5.44 1.62 4.58
----------------------------------------------------------------
Total from investment operations ........................... 7.31 17.19 7.57 6.55 2.56 5.41
----------------------------------------------------------------
Less distributions from:
Net investment income ................................... (.56) (1.19) (1.15) (1.09) (1.13) (.87)
Net realized gains on investments ....................... (5.07) (1.72) (.84) (1.23) (.21) (.30)
----------------------------------------------------------------
Total distributions ........................................ (5.63) (2.91) (1.99) (2.32) (1.34) (1.17)
----------------------------------------------------------------
Net asset value, end of period ............................. $ 59.90 $ 58.22 $ 43.94 $ 38.36 $ 34.13 $ 32.91
----------------------------------------------------------------
Total Return (%) ........................................... 13.96(c) 40.70 20.20 20.43 7.99 19.38
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 7,754 6,606 4,219 3,007 2,312 1,560
Ratio of operating expenses to average daily
net assets (%) .......................................... .68(d) .71 .69 .72 .76 .84
Ratio of net investment income to average daily
net assets (%) .......................................... 2.14(d) 2.38 2.94 3.28 3.00 3.08
Portfolio turnover rate (%) ................................ 38.34(d) 33.40 25.02 31.26 31.82 17.44
Average commission rate paid (b) ........................... $ .0561 $ .0619 $ .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
139
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AARP U.S. STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended February 1, 1997
share outstanding throughout each period (e) and March 31, (a) to
other performance information derived from the 1998 September 30,
financial statements. (Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period ..................................................... $ 17.99 $ 15.00
---------------------------------
Income from investment operations:
Net investment income ................................................................. .15 .20
Net realized and unrealized gain (loss) on investments ................................ 2.94 2.97
---------------------------------
Total from investment operations ......................................................... 3.09 3.17
---------------------------------
Less distributions from:
Net investment income ................................................................. (.15) (.18)
Net realized gain on investments ...................................................... (.13) --
---------------------------------
Total distributions ...................................................................... (.28) (.18)
---------------------------------
Net asset value, end of period ........................................................... $ 20.80 $ 17.99
---------------------------------
Total Return (%) (b) ..................................................................... 17.33(c) 21.22(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................... 66 38
Ratio of operating expenses, net, to average daily net assets (%) ........................ .50(d) .50(d)
Ratio of operating expenses, before expense reductions, to average daily net assets (%) .. 1.31(d) 2.38(d)
Ratio of net investment income to average daily net assets (%) ........................... 1.65(d) 1.94(d)
Portfolio turnover rate (%) .............................................................. 1.40(d) 14.52(d)
Average commission rate paid ............................................................. $ .0300 $ .0288
</TABLE>
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
(e) Based on monthly average shares outstanding during the period.
- --------------------------------------------------------------------------------
AARP CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a Six Months
share outstanding throughout each period and Ended
other performance information derived from the March 31,
financial statements. 1998(a) Years Ended September 30,
----------------------------------------------------------------
(Unaudited) 1997(a) 1996 1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 57.84 $ 43.47 $ 38.36 $ 31.74 $ 36.20 $ 30.30
----------------------------------------------------------------
Income from investment operations:
Net investment income ..................................... .10 .34 .42 .36 -- .06
Net realized and unrealized gain (loss) on investments .... 5.80 18.43 5.59 6.91 (1.51) 7.19
----------------------------------------------------------------
Total from investment operations ............................. 5.90 18.77 6.01 7.27 (1.51) 7.25
----------------------------------------------------------------
Less distributions from:
Net investment income ..................................... (.31) (.41) (.39) (.01) (.05) (.14)
Net realized gains on investments ......................... (4.31) (3.99) (.51) (.64) (2.90) (1.21)
----------------------------------------------------------------
Total distributions .......................................... (4.62) (4.40) (.90) (.65) (2.95) (1.35)
----------------------------------------------------------------
Net asset value, end of period ............................... $ 59.12 $ 57.84 $ 43.47 $ 38.36 $ 31.74 $ 36.20
----------------------------------------------------------------
Total Return (%) ............................................. 11.46(c) 46.72 15.97 23.47 (4.70) 24.53
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 1,400 1,228 826 692 683 607
Ratio of operating expenses to average daily net
assets (%) ................................................ .88(d) .92 .90 .95 .97 1.05
Ratio of net investment income to average daily net
assets (%) ................................................ .36(d) .70 1.05 1.00 .02 .22
Portfolio turnover rate (%) .................................. 43.22(d) 39.04 64.84 98.44 79.65 100.63
Average commission rate paid (b) ............................. $ .0576 $ .0576 $ .0614 $ -- $ -- $ --
</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
140
<PAGE>
- --------------------------------------------------------------------------------
AARP SMALL COMPANY STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended February 1, 1997
share outstanding throughout each period (e) March 31, (a) to
and other performance information derived 1998 September 30,
from the financial statements. (Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period ................................................. $ 20.02 $ 15.00
---------------------------------
Income from investment operations:
Net investment income ............................................................. .01 .04
Net realized and unrealized gain (loss) on investments ............................ 1.53 4.98
---------------------------------
Total from investment operations ..................................................... 1.54 5.02
Less distributions from:
Net investment income ............................................................. (.04) --
Net realized gains on investments ................................................. (.08) --
---------------------------------
Total distributions .................................................................. (.12) --
---------------------------------
Net asset value, end of period ....................................................... $ 21.44 $ 20.02
---------------------------------
Total Return (%) (b) ................................................................. 7.74(c) 33.53(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 96 50
Ratio of operating expenses, net, to average daily net assets (%) .................... 1.75(d) 1.75(d)
Ratio of operating expenses, before expense reductions, to average daily net
assets (%) ........................................................................ 1.77(d) 2.79(d)
Ratio of net investment income to average daily net assets (%) ....................... .12(d) 0.40(d)
Portfolio turnover rate (%) .......................................................... 10.30(d) 5.01(d)
Average commission rate paid ......................................................... $ .0325 $ .0274
</TABLE>
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
(e) Based on monthly average shares outstanding during the period.
- --------------------------------------------------------------------------------
AARP GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended March February 1, 1996
share outstanding throughout each period (a) and 31, (b) to
other performance information derived from the 1998 Year Ended September 30,
financial statements. (Unaudited) September 30, 1996
1997
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .................................. $ 19.24 $ 15.49 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income .............................................. .07 .09 .06
Net realized and unrealized gain (loss) on investments ............. 1.54 3.72 .43
---------------------------------------------------
Total from investment operations ...................................... 1.61 3.81 .49
---------------------------------------------------
Less distributions from:
Net investment income .............................................. (.16) (.06) --
Net realized gain on investments ................................... (.53) -- --
---------------------------------------------------
Total distributions ................................................... (.69) (.06) --
---------------------------------------------------
Net asset value, end of period ........................................ $ 20.16 $ 19.24 $ 15.49
---------------------------------------------------
Total Return (%) ...................................................... 8.82(d) 24.67(c) 3.27(c)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................ 160 148 78
Ratio of operating expenses, net, to average daily net assets (%) ..... 1.68(e) 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to average
daily net assets (%) ............................................... 1.68(e) 1.82 2.31(e)
Ratio of net investment income to average daily net assets (%) ........ .73(e) .55 1.03(e)
Portfolio turnover rate (%) ........................................... 46.54(e) 31.34 12.56(e)
Average commission rate paid .......................................... $ .0357 $ .0004 $ .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
141
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AARP INTERNATIONAL GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended February 1, 1997
share outstanding throughout each period (e) March 31, (a) to
and other performance information derived 1998 September 30,
from the financial statements. (Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period ..................................................... $ 17.36 $ 15.00
---------------------------------
Income from investment operations:
Net investment income ................................................................. .10 .23
Net realized and unrealized gain (loss) on investments ................................ 1.91 2.13
---------------------------------
Total from investment operations ......................................................... 2.01 2.36
Less distributions from:
Net investment income ................................................................. (.11) --
Net realized gains on investments ..................................................... (.15) --
---------------------------------
Total distributions ...................................................................... (.26) --
---------------------------------
Net asset value, end of period ........................................................... $ 19.11 $ 17.36
---------------------------------
Total Return (%) (b) ..................................................................... 11.82(c) 15.73(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................... 32 20
Ratio of operating expenses, net, to average daily net assets (%) ........................ 1.75(d) 1.75(d)
Ratio of operating expenses, before expense reductions, to average daily net assets (%) .. 2.31(d) 4.28(d)
Ratio of net investment income to average daily net assets (%) ........................... 1.12(d) 2.35(d)
Portfolio turnover rate (%) .............................................................. 37.80(d) 50.73(d)
Average commission rate paid ............................................................. $ .0160 $ .0309
</TABLE>
(a) Commencement of operations
(b) Total return would have been lower had certain expenses not been reduced.
(c) Not Annualized (d) Annualized
(e) Based on monthly average shares outstanding during the period.
- --------------------------------------------------------------------------------
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months For the Period
The following table includes selected data for a Ended February 1, 1997
share outstanding throughout each period and March 31, (a) to
other performance information derived from the 1998 (f) September 30,
financial statements. (Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period ................................................... $ 15.96 $ 15.00
---------------------------------
Income from investment operations:
Net investment income ............................................................... .42 .43
Net realized and unrealized gain (loss) on investments .............................. .50 .96
---------------------------------
Total from investment operations ....................................................... .92 1.39
---------------------------------
Less distribution from:
Net investment income ............................................................... (.39) (.43)
Net realized gains on investments ................................................... (.05) --
---------------------------------
Total distributions .................................................................... (.44) (.43)
---------------------------------
Net asset value, end of period ......................................................... $ 16.44 $ 15.96
---------------------------------
Total Return (%) (e) ................................................................... 5.85(b) 9.35(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................. 66 43
Ratio of operating expenses to average daily net assets (%) (d) ........................ -- --
Ratio of net investment income to average daily net assets (%) ......................... 5.18(c) 5.13(c)
Portfolio turnover rate (%) ............................................................ 1.52(c) 5.57(c)
</TABLE>
(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 AARP Funds.
(e) If the Fund Manager had not maintained some of the underlying AARP Funds'
expenses, the total return for this Fund would have been lower.
(f) Based on monthly average shares outstanding during the period.
142
<PAGE>
- --------------------------------------------------------------------------------
AARP DIVERSIFIED GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table includes selected data for a share outstanding throughout each Six Months For the Period
period (e) and other performance information derived from the financial statements. Ended February 1, 1997
March 31, (a) to
1998 September 30,
(Unaudited) 1997
---------------------------------
<S> <C> <C>
Net asset value, beginning of period ................................................... $ 17.40 $ 15.00
---------------------------------
Income from investment operations:
Net investment income ............................................................... .30 .34
Net realized and unrealized gain (loss) on investments .............................. 1.30 2.06
---------------------------------
Total from investment operations ....................................................... 1.60 2.40
---------------------------------
Less distributions from:
Net investment income ............................................................... (.32) --
Net realized gain on investment ..................................................... (.10) --
---------------------------------
Total distributions .................................................................... (.42) --
---------------------------------
Net asset value, end of period ......................................................... $ 18.58 $ 17.40
---------------------------------
Total Return (%) (f) ................................................................... 9.41(b) 16.00(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................. 106 62
Ratio of operating expenses to average daily net assets (%) (d) ........................ -- --
Ratio of net investment income to average daily net assets (%) ......................... 3.41(c) 3.52(c)
Portfolio turnover rate (%) ............................................................ 1.26(c) 7.67(c)
</TABLE>
(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 periods presented, the Portfolio did
bear its share of the operating, administrative and advisory expenses of the
Underlying AARP Funds.
(e) Based on monthly average shares outstanding during the period.
(f) If the Fund Manager had not maintained some of the Underlying AARP Funds'
expenses, the total return for this Fund would have been lower.
143
<PAGE>
This page
intentionally
left blank.
144
<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
More definitive information about the
Financial Statements is found in the
Notes section. This information includes
further elaboration on Expenses,
Organization Cost, and Transactions, as
well as Management fees and Commitments.
Service Information: Provides you with
toll-free numbers and several addresses
where you can get answers to questions
regarding your holdings in the AARP
Investment Program.
Officers and Trustees: Identifies the
various members of the AARP Board of
Trustees and the Officers from Scudder
Kemper Investments, Inc. responsible for
overseeing the growth and strategic
direction of the AARP Investment
Program.
145
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies.
The following AARP Mutual Funds (the "AARP Funds" or the "Funds") from
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Fund Manager") are a
series of five entities organized as Massachusetts business trusts and are
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as open-end management investment companies (the "Trusts").
<TABLE>
<CAPTION>
Trust name: Series name:
------------------------------------------------------------------------------------------------
<S> <C>
AARP Cash Investment Funds:
AARP High Quality Money Fund
AARP Income Trust:
AARP GNMA and U.S. Treasury Fund
AARP High Quality Short Term Bond Fund
(formerly 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 Global Growth Fund
AARP Capital Growth Fund
AARP U.S. Stock Index Fund
AARP Small Company Stock Fund
AARP International Growth and Income Fund
(formerly AARP International Stock Fund)
AARP Managed Investment Portfolios Trust:
AARP Diversified Income with Growth Portfolio
(formerly AARP Diversified Income Portfolio)
AARP Diversified Growth Portfolio
</TABLE>
All Funds are diversified. The Declaration of Trust of each Trust permits
its Trustees to create an unlimited number of series and to issue an unlimited
number of full and fractional shares of each separate series. The Funds within
the AARP Managed Investment Portfolios Trust (the "AARP Diversified Portfolios")
invest primarily in existing AARP Mutual Funds from Scudder Kemper (the
"Underlying AARP Funds").
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Funds in
preparation of their financial statements.
A. Security Valuation. The AARP 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 securities purchased with original maturities of 61 days or more
are valued at market. Securities purchased with an original maturity of 60 days
or less are valued at amortized cost. 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.
146
<PAGE>
Security valuation with respect to each of the remaining Funds is
performed in the following manner:
Common and preferred stocks traded on U.S. or foreign securities exchanges
are valued at the most recent sale price on such exchange where the security is
principally traded. If no sale occurred, the security is valued at the mean
between the most recent bid and asked quotations on such exchanges. If there are
no such bid and asked quotations the most recent bid quotation is used. Unlisted
securities quoted on the Nasdaq Stock Market, Inc. (Nasdaq), for which there
have been sales, are valued at the most recent sale price reported on Nasdaq. If
there are no such sales, the value is the 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 there are no such sales, the value is the most recent bid quotation.
Portfolio debt securities other than money market securities are valued by
pricing agents approved by the Trustees, 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.
Money market instruments purchased with an original maturity of sixty days
or less are valued at amortized cost. Variable rate demand notes are carried at
cost which together with accrued interest approximates market.
Investments of the AARP Diversified Income with Growth Portfolio and AARP
Diversified Growth Portfolio are valued at the net asset value per share of each
Underlying AARP Fund as of the close of regular trading on the New York Stock
Exchange.
The value of all other securities is determined in good faith under the
direction of the Board of Trustees.
B. Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with selected banks and broker/dealers whereby each Fund, through its
custodian, receives delivery of the securities collateralizing repurchase
agreements, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market value,
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 Growth and Income 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 Short Term Bond Fund, the AARP Insured Tax Free General Bond Fund, the
AARP Bond Fund for Income and the AARP Balanced Stock and Bond Fund sold
interest rate futures to hedge against declines in the value of portfolio
securities and the AARP High Quality Short Term Bond Fund, the AARP Balanced
Stock and Bond Fund and the AARP Bond Fund for Income purchased interest rate
futures to manage the duration of the portfolio. Also, during the period, the
AARP U.S. Stock Index Fund purchased index futures as a temporary substitute for
purchasing selected investments.
Upon entering into a futures contract, the Fund is required to deposit
with a financial intermediary an amount equal to a certain percentage of the
face value indicated in the futures contract ("initial margin"). Subsequent
payments ("variation margin") are made or received by 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.
147
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 applicable Fund if the option is exercised.
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 Growth and Income Fund, and the AARP Small Company Stock Fund
may enter into purchased and written options on futures contracts. The Funds in
the AARP Growth Trust and the AARP Income Trust may write covered call options.
The Funds of the AARP Growth Trust may purchase put and call options on stock
indices.
During the period, the AARP International Growth and Income Fund purchased
call options on currencies to lock in the purchase price of a currency it
expected to purchase in the near future. Also, during the period, the AARP High
Quality Short Term Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP
Bond Fund for Income purchased call options on futures to manage duration. The
AARP International Growth and Income Fund wrote call options on securities
during the period as a temporary substitute for selling 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 prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange
for the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts the risk of a
decline in the market value of the underlying security or currency below the
exercise price. Over-the-counter options have the risk of the potential
inability of counterparties to meet the terms of their contracts. The Fund's
maximum exposure to purchased options is limited to the premium initially paid.
In addition, certain risks may arise upon entering into option contracts
including the risk that an illiquid secondary market will limit the Fund's
ability to close out an option contract prior to the expiration date and, that a
change in the value of the option contract may not correlate exactly with
changes in the value of the securities or currencies hedged.
148
<PAGE>
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 of the AARP Growth
Trust, the AARP High Quality Short Term 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 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 Growth and Income
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of
the underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge, the Fund gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
G. Foreign Currency Translations. Foreign currency transactions from
foreign investment activity are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The Funds do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex-dividend and payment dates on
dividends, interest, and foreign withholding taxes.
H. Securities Transactions and Related Investment Income. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security. Acquisition discount is
accreted on taxable securities purchased with original maturity dates of
149
<PAGE>
NOTES TO FINANCIAL STATEMENTS
one year or less. Premiums on securities purchased by the AARP Tax Free Income
Trust are amortized on an effective yield basis over the life of the security.
Distributions of income and capital gains earned by the Diversified Growth and
Diversified Income with Growth Portfolios from the Underlying AARP Funds are
recorded on the ex-dividend date.
Each Fund uses the specific identification method for determining the
realized gain or loss on investments sold for both financial and federal income
tax reporting purposes.
I. Federal Income Taxes. Each of the Funds is treated as a single entity
for federal income tax purposes. It is the policy of each Fund to comply with
the requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies, and to distribute all of its
taxable and tax exempt income to its shareholders. Accordingly, the Funds paid
no U.S. federal income taxes, and no provisions for federal income taxes were
required.
J. Distribution of Income and Gains. Each AARP Fund intends to follow the
practice of distributing all of its net investment income to shareholders.
Dividends from the AARP High Quality Money Fund and the Funds of the AARP Income
Trust and the AARP Tax Free Income Trust are declared daily and distributed
monthly. Dividends from the AARP Diversified Income with Growth Portfolio 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 quarterly. Dividends from the AARP Global Growth Fund, the AARP Small
Company Stock Fund, the AARP International Growth and Income Fund, the AARP
Diversified Growth Portfolio, and the AARP Capital Growth Fund are declared and
paid annually. During any particular year, net realized gains for each Fund
which are in excess of any available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders in the following fiscal year. The AARP High Quality Money Fund may
take into account realized gains and losses on the sales of securities in its
daily distributions. Additional distributions may be made by each Fund if
necessary.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments, mortgage backed
securities, Real Estate Investment Trusts (REITs) and certain securities sold at
a loss. As a result, net investment income and net realized gain (loss) on
investment transactions for a reporting period may differ from distributions
during such period. Accordingly, each Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Fund.
K. Expenses. Each Fund (except for the AARP Diversified Income with Growth
and Diversified Growth Portfolios) is charged for those expenses that are
directly attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a Fund,
such as reports to shareholders, portions of Trustees' and legal fees, are
allocated among all the Funds.
The AARP Diversified Income with Growth and Diversified Growth Portfolios
("the Portfolios") have entered into a Special Servicing Agreement with Scudder
Kemper, the Underlying AARP Funds, Scudder Service Corporation, Scudder Fund
Accounting Corporation and Scudder Investor Services, whereby the Fund Manager
arranges for all services pertaining to the operations of the Portfolios. If the
aggregate expenses of the Portfolios are less than the estimated savings to the
Underlying AARP Funds from the operation of each Portfolio, each of the
Underlying AARP Funds will bear those expenses in proportion to the average
daily value of its shares owned by the respective Portfolio. Consequently, no
Underlying AARP Fund will be expected to carry expenses that are in excess of
the estimate of savings to the respective Underlying AARP Fund. These estimated
savings result from the reduction in shareholder servicing costs due to the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying AARP Funds. In the event that the
150
<PAGE>
financial benefits to the Underlying AARP Funds do not exceed aggregate expenses
of any Portfolio, the Fund Manager will pay certain costs on behalf of the
respective Portfolio. In accordance with the Special Servicing Agreement, as
discussed above, no expenses were charged to the AARP Diversified Income with
Growth and Diversified Growth Portfolios during the period. For the six months
ended March 31, 1998, the Fund Manager paid expenses in the amount approximately
$31,000 and $69,000, on behalf of the Diversified Income with Growth and
Diversified Growth Portfolios, respectively. Additionally, the Fund Manager has
assumed the organization costs of each Portfolio.
For the six months ended March 31, 1998, the amounts charged to the
Underlying AARP Funds under the Special Servicing Agreement, as shown in the
Statement of Operations as part of the Services to shareholders expense, were as
follows:
<TABLE>
<S> <C> <C> <C>
AARP High Quality Money Fund $ 24,801 AARP Global Growth Fund $ 36,114
AARP Growth and Income Fund $ 57,570 AARP Capital Growth Fund $ 8,003
AARP GNMA and U.S. Treasury Fund $ 84,822 AARP Small Company Stock Fund $ 7,556
AARP International Growth and Income Fund $ 11,216 AARP U.S. Stock Index Fund $ 21,727
AARP Bond Fund for Income $ 25,934
</TABLE>
The AARP High Quality Tax Free Money Fund, the AARP High Quality Short
Term Bond Fund, the AARP Insured Tax Free General Bond Fund, and the
AARP Balanced Stock and Bond Fund are not subject to the Special
Servicing Agreement.
L. Organization Cost. Costs incurred by the AARP Balanced Stock and Bond
Fund, the AARP Global Growth Fund, the AARP U.S. Stock Index Fund, the AARP Bond
Fund for Income, the AARP International Growth and Income Fund, and the AARP
Small Company Stock Fund in connection with their organization and initial
registration of shares have been deferred and are being amortized on a
straight-line basis over a five-year period. The Fund Manager has assumed the
organization costs of the AARP Diversified Growth and the AARP Diversified
Income with Growth Portfolios.
M. 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.
N. Transactions in Securities of Affiliated Issuers. The AARP Growth and
Income Fund had transactions in securities of affiliated issuers. An affiliated
issuer is a company in which the Fund has ownership of at least 5% of the voting
securities. A summary of the Fund's transactions with companies which are or
were affiliates for the six months ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Beginning Purchases Sales
Affiliate Cost ($) Cost ($) Cost ($) Ending Cost ($) Market Value ($)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Growth Properties, Inc. 49,335,005 -- -- 49,335,005 73,930,688
=========================================================================================
<CAPTION>
Realized Gain/Loss ($) Dividend Income ($)
----------------------------------------------------------------------
<S> <C> <C>
Affiliated Issuers ............ -- 902,205
Unaffiliated Issuers .......... 459,458,361 87,343,724
----------------------------------------------------------------------
Total ......................... 459,458,361 88,245,929
======================================================================
</TABLE>
The AARP Diversified Portfolios do not invest in the Underlying AARP Funds
for the purpose of exercising management or control; however, investments within
the set limits may represent a significant portion of an Underlying AARP Fund's
net assets. At March 31, 1998, the Diversified Income with Growth Portfolio held
5% or more of the following Underlying AARP Funds' outstanding shares:
approximately 19% of the AARP Bond Fund
151
<PAGE>
NOTES TO FINANCIAL STATEMENTS
for Income; and 6% of the AARP U.S. Stock Index Fund. The Diversified Growth
Portfolio held 5% or more of the following Underlying AARP Funds' outstanding
shares at March 31, 1998: approximately 24% of the AARP International Growth and
Income Fund; 19% of the AARP Bond Fund for Income; 20% of the U.S. Stock Index
Fund; and 11% of the AARP Small Company Stock Fund.
Note 2. Management Fee and other Related Transactions.
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder")
and The Zurich Insurance Company ("Zurich"), an international insurance and
financial services organization, formed a new global investment organization by
combining Scudder's business with that of Zurich's subsidiary, Zurich Kemper
Investments, Inc. As a result of the transaction, Scudder changed its name to
Scudder Kemper Investments, Inc. The transaction between Scudder and Zurich
resulted in the termination of the Funds' Investment Management Agreement with
Scudder. However, a new Investment Management Agreement (the "Management
Agreement") between each Trust, on behalf of its Funds, and Scudder Kemper was
approved by the Trusts' Board of Trustees and by each Fund's Shareholders. Each
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Funds.
Under the investment management and advisory agreement (the "Management
Agreement") between each Trust (excluding the AARP Diversified Portfolios) and
the Fund Manager, the management fee consists of two elements: a Base Fee and an
Individual Fund Fee. The Base Fee is calculated as a percentage of the combined
net assets of all of the AARP Funds ("Program Assets") except the AARP
Diversified Income with Growth and the Diversified Growth Portfolios, and each
AARP Fund pays, as its portion of the Base Fee, an amount equal to the ratio of
its daily net assets to the daily net assets of all of the AARP Funds (excluding
the AARP Diversified Income with Growth and the Diversified Growth Portfolios).
The Annual Base Fee is calculated as follows:
<TABLE>
<S> <C>
.35% of the first $2.0 billion of such assets .26% of the next $3.0 billion of such assets
.33% of the next $2.0 billion of such assets .25% of the next $3.0 billion of such assets
.30% of the next $2.0 billion of such assets .24% of such assets thereafter
.28% of the next $2.0 billion of such assets
</TABLE>
In addition to the Base Fee, each Fund (excluding the AARP Diversified
Income with Growth and the AARP Diversified Growth Portfolios) agrees to pay the
Fund Manager a flat Individual Fund Fee based on the average daily net assets of
that Fund. The Individual Fund Fee Rate recognizes the different characteristics
of each Fund, and the varying levels of complexity of investment research and
securities trading required to manage each Fund. The Fund Manager has retained
Bankers Trust Company as Subadviser to the AARP U.S. Stock Index Fund; under the
Subadvisory Agreement, the Fund Manager pays a quarterly fee to the Subadviser,
which amounted to $33,750 for the period ended March 31, 1998.
The Individual Fund Fee Rate is calculated at the following percentages of
the average daily net assets of each Fund:
<TABLE>
<CAPTION>
Fund Rate Fund Rate
--------------------------------------------- ----------- ------------------------------------------------- ----------
<S> <C> <C> <C>
AARP High Quality Money Fund ................ .10% AARP Balanced Stock and Bond Fund ............... .19%
AARP High Quality Tax Free Money Fund ....... .10% AARP Growth and Income Fund ..................... .19%
AARP GNMA and U.S. Treasury Fund ............ .12% AARP Capital Growth Fund ........................ .32%
AARP High Quality Short Term Bond Fund ...... .19% AARP Small Company Stock Fund ................... .55%
AARP Insured Tax Free General Bond Fund ..... .19% AARP Global Growth Fund ......................... .55%
AARP Bond Fund for Income ................... .28% AARP International Growth and Income Fund ....... .60%
</TABLE>
The total amount of management fees for each Fund is shown in the Statement
of Operations as Management Fee.
152
<PAGE>
As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund Manager
under the Management Agreement will provide certain administrative services in
accordance with such Agreement. The Fund Manager has also entered into a Member
Services Agreement with AARP Financial Services Corp. ("AFSC"), a subsidiary of
AARP, and pays portions of its investment management and advisory fee to AFSC.
The Fund Manager has agreed to waive all or a portion of its management
fee and reimburse all or a portion of expenses in order to maintain the
following annualized expense ratios until July 31, 1998: AARP Bond Fund for
Income, 0.25% of average daily net assets; AARP U.S. Stock Index Fund, 0.50% of
average daily net assets; AARP Small Company Stock Fund, 1.75% of average daily
net assets; and AARP International Growth and Income Fund, 1.75% of average
daily net assets. The amount of expenses waived and/or reimbursed by the Fund
Manager, if any, for each Fund has been shown in the Statement of Operations as
Expense Reductions.
The Fund Manager did not impose any or a portion of its Management Fee for
certain Funds during the period ended March 31, 1998, as follows: AARP Bond Fund
for Income $224,660; AARP U.S. Stock Index Fund $64,950; AARP Small Company
Stock Fund $5,786; and AARP International Growth and Income Fund $69,453.
These Trusts also have a shareholder servicing agreement with Scudder
Service Corporation ("SSC"), a subsidiary of the Fund Manager. As shareholder
servicing agent, SSC provides various transfer agent, dividend disbursing, and
shareholder communication functions. The amount for each Fund is shown in the
table below and is included in Services to shareholders in the Statements of
Operations.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Fund
Manager, is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records of the Funds. The
amount for each Fund is shown in the table below, and is included in Custodian
and accounting fees in the Statements of Operations.
For the period ended March 31, 1998, the amounts charged by SSC and SFAC
to the Funds were as follows:
<TABLE>
<CAPTION>
Amount Total SSC Amount Total SFAC
Charged To Unpaid at Charged To Unpaid at
Fund Fund by SSC(a) March 31, 1998* Fund by SFAC(b) March 31, 1998*
------------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund .................... $ 720,413 $ 116,425 $ 27,441 $ 4,558
AARP High Quality Tax Free Money Fund ........... 113,743 18,144 15,000 2,500
AARP GNMA and U.S. Treasury Fund ................ 3,150,323 513,216 238,495 41,124
AARP High Quality Short Term Bond Fund .......... 659,264 105,432 34,024 5,741
AARP Insured Tax Free General Bond Fund ......... 806,218 130,475 80,535 13,301
AARP Bond Fund for Income ....................... -- -- -- --
AARP Balanced Stock and Bond Fund ............... 842,026 148,705 55,445 10,330
AARP Growth and Income Fund ..................... 4,190,610 731,478 197,893 36,692
AARP U.S. Stock Index Fund ...................... -- -- -- --
AARP Capital Growth Fund ........................ 1,118,684 192,409 61,582 10,668
AARP Small Company Stock Fund ................... 158,175 38,227 24,133 5,984
AARP Global Growth Fund ......................... 296,311 48,830 63,632 10,133
AARP International Growth and Income Fund ....... 58,181 9,679 25,000 4,167
</TABLE>
* Total unpaid amounts are included in Other payables and accrued
expenses in the Statements of Assets and Liabilities.
(a) SSC did not impose any or a portion of its fee for the AARP Bond
Fund for Income and AARP U.S. Stock Index Fund, amounting to
$72,734, and $71,439, respectively.
(b) SFAC did not impose any or a portion of its fee for the AARP Bond
Fund for Income and AARP U.S. Stock Index Fund, amounting to
$18,820, and $38,400, respectively.
153
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The AARP Investment Program pays each Trustee unaffiliated with Scudder
Kemper or AARP an annual retainer, plus specified amounts are paid by each Fund
for board and committee meetings attended. The amounts for each Fund have been
shown in the Statement of Operations as Trustees' fees and expenses.
Note 3. Commitments.
As of March 31, 1998, the AARP Global Growth Fund had entered into the
following forward currency exchange contracts resulting in net unrealized
appreciation of $265,472.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
------------------------- ------------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
DEM 7,903,094 $ 4,386,221 4/30/98 $ 106,463
DEM 7,640,324 $ 4,229,417 8/17/98 $ 67,019
JPY 528,203,000 $ 4,103,440 6/26/98 91,990
-----------
$ 265,472
===========
</TABLE>
Note 4. Lines of Credit.
Effective December 1, 1997, the AARP Small Company Stock Fund, the AARP
International Growth and Income Fund, the AARP Global Growth Fund, and several
other Scudder Funds (the "Participants") share in a $500 million revolving
credit facility for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. The Participants are charged an annual commitment fee which is
allocated among each of the Participants. Interest is calculated based on the
market rates at the time of the borrowing. Each Fund may borrow up to a maximum
of 33 percent of its net assets under the agreement. In addition, all of the
AARP Funds also maintain an uncommitted line of credit.
During the period ended March 31, 1998, the AARP Growth and Income Fund
periodically borrowed amounts from a bank under this uncommitted line of credit
arrangement at the existing prime rates. The arrangement with the bank allows
the Fund to borrow a maximum amount based on total net assets. During the period
ended March 31, 1998, the weighted average outstanding daily balance of bank
loans (based on the average number of days the loans were outstanding) was
approximately $12.9 million, with a weighted average interest rate of 6.56%.
Interest expense for the period ended March 31, 1998, was approximately $11,000
(less than $.005 per share).
154
<PAGE>
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders (the "Meeting") of the AARP Funds was held on
October 22, 1997, at the offices of Scudder Kemper Investments, Inc. (formerly
Scudder, Stevens & Clark, Inc.), Two International Place, Boston, Massachusetts.
At the Meeting, as adjourned and reconvened, the following matters were voted
upon by the shareholders (the resulting votes for each matter are presented
below). With regard to certain proposals, it was recommended that the Meeting be
reconvened in order to provide shareholders with an additional opportunity to
return their proxies. The date of the reconvened meeting at which the matters
were decided is noted after the proposed matter.
1. The election of 12 Trustees to hold office until their respective
successors shall have been duly elected and qualified.
<TABLE>
<CAPTION>
AARP Cash Investment Funds AARP Income Trust
Trustee: Number of Votes: Number of Votes:
-------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Broker Broker
For Withheld Non-Votes* For Withheld Non-Votes*
--- -------- ---------- --- -------- ----------
Carole Lewis Anderson 292,320,434 9,715,134 0 207,911,139 5,860,839 0
Adelaide Attard 292,793,047 9,242,522 0 207,919,131 5,852,847 0
Robert N. Butler, M.D. 292,323,782 9,711,786 0 207,667,255 6,104,723 0
Esther Canja - - - 207,697,827 6,074,151 0
Linda C. Coughlin 292,789,135 9,246,434 0 207,868,778 5,903,200 0
Horace B. Deets 292,379,447 9,656,121 0 - - -
Edgar R. Fiedler 292,080,995 9,954,573 0 207,838,463 5,933,515 0
Lt. Gen. Eugene P. Forrester 292,578,098 9,457,471 0 207,722,758 6,049,220 0
George L. Maddox, Jr. 292,770,031 9,265,537 0 207,818,354 5,953,623 0
Robert J. Myers 292,367,267 9,668,302 0 207,566,442 6,205,536 0
James H. Schulz 292,867,578 9,167,991 0 207,960,511 5,811,467 0
Gordon Shillinglaw 292,653,658 9,381,911 0 207,813,922 5,958,055 0
Jean Gleason Stromberg 292,749,399 9,286,169 0 207,871,241 5,900,737 0
AARP Tax Free Income Trust AARP Growth Trust
Trustee: Number of Votes: Number of Votes:
-------- ---------------- ----------------
Broker Broker
For Withheld Non-Votes* For Withheld Non-Votes*
--- -------- ---------- --- -------- ----------
Carole Lewis Anderson 126,397,736 3,856,958 0 113,665,293 2,786,456 0
Adelaide Attard 126,375,140 3,879,554 0 113,681,949 2,769,800 0
Robert N. Butler, M.D. 126,344,190 3,910,504 0 113,579,967 2,871,782 0
Linda C. Coughlin 126,400,653 3,854,041 0 113,667,424 2,784,325 0
Horace B. Deets 126,308,411 3,946,283 0 113,504,912 2,946,837 0
Edgar R. Fiedler 126,379,079 3,875,615 0 113,607,020 2,844,729 0
Lt. Gen. Eugene P. Forrester 126,370,791 3,883,903 0 113,575,455 2,876,294 0
George L. Maddox, Jr. 126,366,633 3,888,061 0 113,616,659 2,835,090 0
Robert J. Myers 126,004,657 4,250,037 0 113,444,742 3,007,006 0
James H. Schulz 126,411,069 3,843,625 0 113,716,179 2,735,570 0
Gordon Shillinglaw 126,350,135 3,904,559 0 113,589,346 2,862,403 0
Jean Gleason Stromberg 126,396,474 3,858,220 0 113,656,899 2,794,850 0
</TABLE>
155
<PAGE>
AARP Managed Investment Portfolios Trust
Trustee: Number of Votes:
-------- ----------------------------------------
Broker
For Withheld Non-Votes*
--- -------- ----------
Carole Lewis Anderson 4,027,381 48,286 0
Adelaide Attard 4,018,791 56,876 0
Robert N. Butler, M.D. 4,025,332 50,335 0
Esther Canja 4,019,600 56,067 0
Linda C. Coughlin 4,025,405 50,263 0
Edgar R. Fiedler 4,027,188 48,480 0
Lt. Gen. Eugene P. Forrester 4,026,655 49,012 0
George L. Maddox, Jr. 4,026,229 49,438 0
Robert J. Myers 4,019,220 56,447 0
James H. Schulz 4,027,381 48,286 0
Gordon Shillinglaw 4,026,493 49,174 0
Jean Gleason Stromberg 4,027,381 48,286 0
2. To approve the new Investment Management Agreement between each Fund and
Scudder Kemper Investments, Inc.
<TABLE>
<CAPTION>
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
<S> <C> <C> <C> <C>
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 285,730,321 9,600,173 6,705,073 0
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Short Term Bond Fund 17,019,114 398,549 337,640 0
AARP GNMA and U.S. Treasury Fund 184,498,829 4,148,020 4,689,714 0
AARP Bond Fund for Income 2,642,081 26,408 11,620 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 63,352,367 855,788 1,449,485 0
AARP Insured Tax Free General Bond Fund 61,319,467 1,506,074 1,771,510 0
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 18,822, 197 388,045 355,231 0
AARP Growth and Income Fund 71,226,299 1,961,864 1,455,551 0
AARP U.S. Stock Index Fund 1,515,306 17,067 19,724 0
AARP Global Growth Fund 5,130,916 108,399 91,247 0
AARP Capital Growth Fund 12,461,002 336,516 241,491 0
AARP International Growth and Income Fund 783,281 24,425 8,769 0
AARP Small Company Stock Fund 1,447,671 37,900 18,838 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 1,820,954 46,276 49,015 0
AARP Diversified Growth Fund 2,083,854 32,144 43,418 0
</TABLE>
156
<PAGE>
3. To approve the new Member Services Agreement between AARP Financial
Services Corporation and Scudder Kemper Investments, Inc.
<TABLE>
<CAPTION>
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
<S> <C> <C> <C> <C>
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 286,300,371 9,125,361 6,609,836 0
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Short Term Bond Fund 17,037,447 387,298 330,558 0
AARP GNMA and U.S. Treasury Fund 184,565,673 4,078,766 4,692,123 0
AARP Bond Fund for Income 2,641,498 27,447 11,164 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 63,672,107 803,774 1,181,759 0
AARP Insured Tax Free General Bond Fund 61,371,302 1,434,563 1,791,187 0
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 18,826,700 371,814 366,959 0
AARP Growth and Income Fund 71,241,706 1,931,945 1,470,062 0
AARP U.S. Stock Index Fund 1,518,514 13,606 19,978 0
AARP Global Growth Fund 5,134,423 107,920 88,218 0
0AARP Capital Growth Fund 12,438,975 348,427 251,607 0
AARP International Growth and Income Fund 785,227 24,241 7,007 0
AARP Small Company Stock Fund 1,446,049 39,379 18,981 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 1,822,280 44,146 49,818 0
AARP Diversified Growth Fund 2,093,612 29,973 35,836 0
4. To approve the Board's discretionary authority to convert each Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 265,259,296 19,793,024 16,983,248 0
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Short Term Bond Fund 16,064,221 887,693 790,025 13,364
AARP GNMA and U.S. Treasury Fund 174,155,593 8,830,909 10,177,874 172,187
AARP Bond Fund for Income 2,598,013 41,968 49,128 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 60,456,514 1,852,490 3,348,636 0
AARP Insured Tax Free General Bond Fund 57,507,187 3,383,212 3,683,938 22,715
157
<PAGE>
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 17,679,140 971,470 905,933 8,931
AARP Growth and Income Fund 65,857,169 4,778,865 3,897,734 109,946
AARP U.S. Stock Index Fund 1,469,670 37,918 44,509 0
AARP Global Growth Fund 4,901,941 223,175 204,358 1,088
AARP Capital Growth Fund 11,723,073 731,688 566,025 18,223
AARP International Growth and Income Fund 750,354 40,767 25,354 0
AARP Small Company Stock Fund 1,393,324 69,969 41,116 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 1,775,763 75,107 65,374 0
AARP Diversified Growth Fund 1,984,842 81,421 93,158 0
</TABLE>
5. To approve certain amendments to the Declaration of Trust. (Approved
December 2, 1997 for AARP Cash Investment Trust, AARP Income Trust, AARP
Tax Free Income Trust and AARP Growth Trust.)
<TABLE>
<CAPTION>
AARP Cash Investment Funds AARP Income Trust
Number of Votes: Number of Votes:
---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- ---------- --- ------- ------- ----------
327,417,767 17,350,883 20,434,991 0 236,756,236 8,617,536 13,372,730 138,217
AARP Tax Free Income Trust AARP Growth Trust
Number of Votes: Number of Votes:
---------------- ----------------
Broker Broker
For Against Abstain Non-Votes* For Against Abstain Non-Votes*
--- ------- ------- ---------- --- ------- ------- ----------
137,305,670 4,877,893 7,055,671 2,679 123,453,660 5,687,987 6,142,826 28,560
</TABLE>
AARP Managed Investment Portfolios Trust
Number of Votes:
----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
3,830,887 100,137 144,642 0
6. To approve the revision of certain fundamental investment policies and
restrictions.
<TABLE>
<CAPTION>
AARP Cash Investment Funds
--------------------------
AARP High Quality Money Fund Number of Votes:
----------------
<S> <C> <C> <C> <C> <C>
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 271,571,829 13,502,616 16,961,123 0
6.2 Borrowing 270,450,997 14,623,448 16,961,123 0
6.3 Senior securities 271,344,570 13,728,994 16,962,004 0
6.4 Concentration 271,119,790 13,954,654 16,961,123 0
6.5 Underwriting of securities 271,531,324 13,539,971 16,964,273 0
6.6 Investment real estate 271,502,639 13,568,656 16,964,273 0
6.7 Purchase of physical commodities 271,311,429 13,759,866 16,964,273 0
6.8 Lending 271,406,594 11,351,300 19,277,674 0
158
<PAGE>
AARP Income Trust
-----------------
AARP High Quality Short Term Bond Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 16,294,331 621,533 826,075 13,364
6.2 Borrowing 16,242,883 673,094 825,962 13,364
6.3 Senior securities 16,291,491 624,331 826,118 13,364
6.4 Concentration 16,293,252 622,612 826,075 13,364
6.5 Underwriting of securities 16,288,711 627,266 825,962 13,364
6.6 Investment real estate 16,291,365 624,403 826,172 13,364
6.7 Purchase of physical commodities 16,280,179 552,082 909,679 13,364
6.8 Lending 16,287,198 545,008 909,733 13,364
AARP GNMA and U.S. Treasury Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 176,937,251 5,928,191 10,298,934 172,187
6.2 Borrowing 176,446,497 6,405,232 10,312,647 172,187
6.3 Senior securities 176,873,292 5,985,683 10,305,401 172,187
6.4 Concentration 176,836,450 6,022,629 10,305,297 172,187
6.5 Underwriting of securities 176,862,775 5,997,167 10,304,434 172,187
6.6 Investment real estate 176,884,191 5,978,009 10,302,176 172,187
6.7 Purchase of physical commodities 176,806,163 5,294,077 11,064,135 172,187
6.8 Lending 176,869,990 5,235,425 11,058,960 172,187
AARP Bond Fund for Income Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 2,605,733 31,749 42,627 0
6.2 Borrowing 2,605,602 31,880 42,627 0
6.3 Senior securities 2,605,602 31,880 42,627 0
6.4 Concentration 2,605,566 31,916 42,627 0
6.5 Underwriting of securities 2,605,058 32,424 42,627 0
6.6 Investment real estate 2,605,733 31,749 42,627 0
6.7 Purchase of physical commodities 2,605,733 31,749 42,627 0
6.8 Lending 2,605,733 30,281 44,095 0
159
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AARP Tax Free Income Trust
--------------------------
AARP High Quality Tax Free Money Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 61,384,974 1,298,449 2,974,217 0
6.2 Borrowing 61,284,742 1,398,680 2,974,217 0
6.3 Senior securities 61,317,584 1,365,839 2,974,217 0
6.4 Concentration 61,355,799 1,327,624 2,974,217 0
6.5 Underwriting of securities 61,332,423 1,351,000 2,974,217 0
6.6 Investment real estate 61,314,584 1,368,838 2,974,217 0
6.7 Purchase of physical commodities 61,337,244 1,346,179 2,974,217 0
6.8 Lending 61,344,092 1,035,997 3,277,551 0
6.9 Tax exempt securities 61,301,616 1,078,473 3,277,551 0
AARP Insured Tax Free General Bond Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 58,471,407 2,289,861 3,813,069 22,715
6.2 Borrowing 58,257,975 2,503,294 3,813,069 22,715
6.3 Senior securities 58,442,573 2,317,418 3,814,346 22,715
6.4 Concentration 58,435,969 2,321,062 3,817,306 22,715
6.5 Underwriting of securities 58,450,670 2,310,598 3,813,069 22,715
6.6 Investment real estate 58,476,752 2,284,516 3,813,069 22,715
6.7 Purchase of physical commodities 58,470,571 2,290,697 3,813,069 22,715
6.8 Lending 58,468,501 2,129,464 3,976,371 22,715
6.9 Tax exempt securities 58,485,743 2,109,998 3,978,596 22,715
AARP Growth Trust
-----------------
AARP Balanced Stock and Bond Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 18,087,273 610,616 858,653 8,931
6.2 Borrowing 18,009,324 688,565 858,653 8,931
6.3 Senior securities 18,077,396 620,446 858,700 8,931
6.4 Concentration 18,073,658 624,231 858,653 8,931
6.5 Underwriting of securities 18,083,388 614,501 858,653 8,931
6.6 Investment real estate 18,078,921 618,968 858,653 8,931
6.7 Purchase of physical commodities 18,076,571 621,318 858,653 8,931
6.8 Lending 18,077,040 569,598 909,904 8,931
160
<PAGE>
AARP Growth and Income Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 67,829,943 3,125,913 3,577,912 109,946
6.2 Borrowing 67,448,754 3,500,644 3,584,369 109,946
6.3 Senior securities 67,778,929 3,177,141 3,577,698 109,946
6.4 Concentration 67,744,503 3,207,554 3,581,711 109,946
6.5 Underwriting of securities 67,793,646 3,159,636 3,580,486 109,946
6.6 Investment real estate 67,769,967 3,184,900 3,578,900 109,946
6.7 Purchase of physical commodities 67,769,717 3,186,149 3,577,902 109,946
6.8 Lending 67,765,264 2,972,442 3,796,061 109,946
AARP U.S. Stock Index Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 1,503,705 18,302 30,091 0
6.2 Borrowing 1,499,804 22,203 30,091 0
6.3 Senior securities 1,503,628 18,379 30,091 0
6.4 Concentration 1,503,406 18,601 30,091 0
6.5 Underwriting of securities 1,503,589 18,418 30,091 0
6.6 Investment real estate 1,503,705 18,302 30,091 0
6.7 Purchase of physical commodities 1,503,705 18,302 30,091 0
6.8 Lending 1,502,934 17,921 31,243 0
AARP Global Growth Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 4,955,067 166,893 207,513 1,088
6.2 Borrowing 4,939,091 182,791 207,592 1,088
6.3 Senior securities 4,951,689 170,594 207,191 1,088
6.4 Concentration 4,947,069 174,891 207,513 1,088
6.5 Underwriting of securities 4,949,328 172,632 207,513 1,088
6.6 Investment real estate 4,949,793 172,489 207,191 1,088
6.7 Purchase of physical commodities 4,948,113 174,170 207,191 1,088
6.8 Lending 4,950,397 157,153 221,924 1,088
161
<PAGE>
AARP Capital Growth Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 11,968,086 509,420 543,280 18,223
6.2 Borrowing 11,921,565 555,269 543,952 18,223
6.3 Senior securities 11,959,366 518,117 543,304 18,223
6.4 Concentration 11,952,736 524,770 543,280 18,223
6.5 Underwriting of securities 11,958,796 517,986 544,004 18,223
6.6 Investment real estate 11,951,082 525,701 544,004 18,223
6.7 Purchase of physical commodities 11,951,739 525,043 544,004 18,223
6.8 Lending 11,957,776 477,674 585,336 18,223
AARP International Growth and Income Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 765,853 28,397 22,225 0
6.2 Borrowing 765,709 30,139 22,626 0
6.3 Senior securities 763,452 28,798 22,225 0
6.4 Concentration 765,327 28,922 22,225 0
6.5 Underwriting of securities 765,421 28,828 22,225 0
6.6 Investment real estate 765,985 28,265 22,225 0
6.7 Purchase of physical commodities 765,692 28,558 22,225 0
6.8 Lending 765,279 27,566 23,629 0
AARP Small Company Stock Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 1,417,038 49,670 37,701 0
6.2 Borrowing 1,413,710 52,998 37,701 0
6.3 Senior securities 1,416,309 50,399 37,701 0
6.4 Concentration 1,416,207 50,501 37,701 0
6.5 Underwriting of securities 1,416,884 49,824 37,701 0
6.6 Investment real estate 1,416,718 49,990 37,701 0
6.7 Purchase of physical commodities 1,416,759 49,949 37,701 0
6.8 Lending 1,414,818 50,372 39,220 0
162
<PAGE>
AARP Managed Investment Portfolios Trust
----------------------------------------
AARP Diversified Income With Growth Fund Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 1,800,653 53,450 62,141 0
6.2 Borrowing 1,795,676 58,428 62,141 0
6.3 Senior securities 1,800,252 53,852 62,141 0
6.4 Concentration 1,799,050 55,054 62,141 0
6.5 Underwriting of securities 1,800,150 53,954 62,141 0
6.6 Investment real estate 1,800,653 53,450 62,141 0
6.7 Purchase of physical commodities 1,799,141 54,962 62,141 0
6.8 Lending 1,799,120 51,479 65,646 0
AARP Diversified Growth Fund Number of Votes:
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
6.1 Diversification 2,023,703 59,005 76,713 0
6.2 Borrowing 2,018,241 64,467 76,713 0
6.3 Senior securities 2,023,703 59,005 76,713 0
6.4 Concentration 2,022,079 60,629 76,713 0
6.5 Underwriting of securities 2,023,608 59,100 76,713 0
6.6 Investment real estate 2,023,549 59,159 76,713 0
6.7 Purchase of physical commodities 2,022,473 60,235 76,713 0
6.8 Lending 2,022,023 57,560 79,838 0
</TABLE>
7. To ratify the selection of Price Waterhouse LLP as the Fund's independent
accountants.
<TABLE>
<CAPTION>
AARP Cash Investment Funds Number of Votes:
-------------------------- ----------------
<S> <C> <C> <C> <C>
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Money Fund 286,959,663 3,456,868 11,619,037 0
AARP Income Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Short Term Bond Fund 17,005,418 178,104 571,782 0
AARP GNMA and U.S. Treasury Fund 184,611,417 1,731,627 6,993,519 0
AARP Bond Fund for Income 2,640,136 18,657 21,316 0
AARP Tax Free Income Trust Number of Votes:
-------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP High Quality Tax Free Money Fund 62,968,970 371,025 2,317,645 0
AARP Insured Tax Free General Bond Fund 61,568,363 620,529 2,408,160 0
163
<PAGE>
AARP Growth Trust Number of Votes:
----------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Balanced Stock and Bond Fund 18,808,261 204,901 552,312 0
AARP Growth and Income Fund 71,729,480 817,335 2,096,899 0
AARP U.S. Stock Index Fund 1,520,999 5,503 25,596 0
AARP Global Growth Fund 5,126,127 46,895 157,540 0
AARP Capital Growth Fund 12,523,372 145,231 370,407 0
AARP International Growth and Income Fund 782,741 14,994 18,739 0
AARP Small Company Stock Fund 1,451,967 18,810 33,631 0
AARP Managed Investment Portfolios Trust Number of Votes:
---------------------------------------- ----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
AARP Diversified Income With Growth Fund 1,847,671 14,158 54,416 0
AARP Diversified Growth Fund 2,089,816 19,170 50,435 0
</TABLE>
8. To approve a new Subadvisory Agreement between Scudder Kemper Investments,
Inc. and Bankers Trust Company.
AARP U.S. Stock Index Fund
Number of Votes:
----------------
Broker
For Against Abstain Non-Votes*
--- ------- ------- ----------
1,516,428 10,152 25,517 0
* Broker non-votes are proxies received by the Fund from brokers or
nominees when the broker or nominee neither has received instructions
from the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter.
164
<PAGE>
O F F I C E R S A N D T R U S T E E S
165
<PAGE>
OFFICERS AND TRUSTEES
CAROLE LEWIS ANDERSON
Trustee of AARP Funds; President, MASDUN Capital Advisors; Principal,
Suburban Capital Markets; Director, VICORP Restaurants, Inc.; Member of
the Board, Association for Corporate Growth of Washington, D.C.;
Trustee, Hasbro Children's Foundation and Mary Baldwin College.
ADELAIDE ATTARD
Trustee of AARP Funds; Member, New York City Department of Aging
Advisory Council--Appointed by Mayor (1995-Present); Consultant,
Gerontology; Commissioner, County of Nassau, NY, Department of Senior
Citizen Affairs (1971-1991); Board Member, American Association of
International Aging (1981-1996); Member, NYS Community Services for the
Elderly Advisory Council--Appointed by Governor (1987-1991);
Chairperson, Federal Council on Aging (1981-1986); U.S. Delegate to 1982
United Nations World Assembly on Aging.
ROBERT N. BUTLER, M.D.
Trustee of 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 Managed Investment Portfolios Trust and AARP Income
Trust; Vice President, American Association of Retired Persons; Trustee
and Chair, AARP Group Health Insurance Plan; Board Liaison, National
Volunteer Leadership Network Advisory Committee; Board Member, Board
Operations Committee; AARP State Director of Florida (1990-1992).
LINDA C. COUGHLIN*
Chairperson and Trustee of AARP Funds; Managing Director and Member,
Board of Directors of Scudder Kemper Investments, Inc.
HORACE B. DEETS
Vice Chairman of each AARP Trust and Trustee of AARP Cash Investment
Funds, AARP Growth Trust and AARP Tax Free Income Trust; Executive
Director, American Association of Retired Persons; Member, Board of
Councilors, Andrus Gerontology Center; Member of the Board, HelpAge
International.
EDGAR R. FIEDLER
Trustee of AARP Funds; Senior Fellow and Economic Counselor, The
Conference Board, Inc.; Director: The Stanley Works, HT Insight Funds,
and Emerging Mexico Fund.
EUGENE P. FORRESTER
Trustee of 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.
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.
166
<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.
JEAN GLEASON STROMBERG
Trustee of AARP Funds; Consultant; Formerly Director, Financial
Institutions Issues, U.S. General Accounting Office; Formerly Partner,
Fulbright & Jaworski Law Firm.
CORNELIA SMALL* HOWARD SCHNEIDER*
President Vice President
WILLIAM GLAVIN* THOMAS F. MCDONOUGH*
Vice President Vice President and Assistant Secretary
THOMAS W. JOSEPH* KATHRYN L. QUIRK*
Vice President Vice President, Treasurer and Secretary
JAMES W. PASMAN* JOHN R. HEBBLE*
Vice President Assistant Treasurer
*Scudder Kemper Investments, 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.
167
<PAGE>
SERVICE INFORMATION
SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives
SERVICE LINE are available to answer questions about the
Program or your account Monday through Friday,
1-800-253-2277 between 8:00 a.m. and 8:00 p.m., Eastern time.
Transactions can be made Monday through Friday
between 8:00 a.m. and 4:00 p.m., Eastern time.
Write: AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
For overnight AARP Investment Program from Scudder
and certified 42 Longwater Drive
mail: Norwell, MA 02061-1612
EASY-ACCESS LINE Shareholders with a Touch-Tone telephone may call
this automated line to obtain AARP Fund
1-800-631-4636 performance and account information, or to
exchange or sell (redeem) AARP Mutual Fund shares.
This service is available 24 hours a day, 7 days a
week.
TRANSACTIONS If you have access to a fax machine, you can fax
BY FAX transaction requests. Any exchange or redemption
request received after 4:00 p.m. business days or
1-800-821-6234 on weekends will be processed the next business
day. All faxes are kept confidential.
TDD (TELECOMMUNICATIONS AARP members with hearing or speech impairments
DEVICE FOR THE DEAF AND and access to TDD equipment can communicate with
SPEECH IMPAIRED) the AARP Investment Program Monday through Friday
between 8:00 a.m. and 5:00 p.m., Eastern time.
1-800-634-9454 Transactions can be made between 8:00 a.m. and
4:00 p.m., Eastern time.
168
<PAGE>
Glossary
Average Annualized The one-year return of an investment based on its
Total Return 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
barbell 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.
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.
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.
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 by 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.
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The paper used for the cover and internal pages of this report incorporates
recycled corrugated containers. The "Crystal Recycling Process" which created
this paper saved four and one half truck-loads of boxes from being placed in
landfills. When you are finished with the report, please continue the process
and recycle it.
(logo) Printed on recycled paper
176
