Table of Contents
Letter to Shareholders 2
AARP Fund Reports 5
AARP High Quality Money Fund 6
AARP High Quality Tax Free Money Fund 7
AARP GNMA and U.S. Treasury Fund 9
AARP High Quality Bond Fund 11
AARP Insured Tax Free General Bond Fund 13
AARP Balanced Stock and Bond Fund 15
AARP Growth and Income Fund 17
AARP Capital Growth Fund 20
AARP Funds' Investment Portfolios 23
Financial Statements 62
Financial Highlights 68
Notes to Financial Statements 72
Officers and Trustees 77
Service Information 79
<PAGE>
Letter to Shareholders
AARP Investment Program
from SCUDDER
Dear Shareholders,
As always, the Mid-Year Report lets us--the Chairman, President, and Investment
Director--pause in the middle of the fiscal year to review the performance of
the AARP Mutual Funds. This particular report covers the period from October 1,
1994 through March 31, 1995--a six-month period during which investment
performance was much more favorable than the prior six months. The first quarter
of 1995 has been especially good for the stock and bond markets as inflation
remained low and the U.S. economy continued to grow. In this environment, the
AARP Mutual Funds performed well. Therefore, when you compare the Funds' total
returns included in this report to those in the Annual Report you received last
year, we think you will be pleased that the AARP Mutual Funds' returns have
improved. (Of course, past performance is not a guarantee of future results.)
This reaffirms our ongoing message that it is important to remain patient and
take a long-term view toward investing, despite periodic downturns in the
markets.
When you review the performance of your AARP Mutual Funds in this report, keep
in mind that we expect the returns moving forward will most likely be more in
line with historical returns, and not the unusually high investment returns of
the mid-1980s and early 1990s. Also, since this year marks the 10th anniversary
of the AARP Investment Program from Scudder, you will see ten-year performance
data for some of the Funds included for the first time. We encourage you to give
significant attention to these long-term returns because they provide
perspective on how the AARP Mutual Funds have performed through different types
of markets.
The Stock and Bond Markets
A Look Back
It is difficult to discuss the last six months without looking back at 1994 as a
whole, since 1994 was one of the worst 12-month periods for long-term bonds in
history. Short- and long-term interest rates rose over the year, spurred by
concerns about inflation as the U.S. economy strengthened. Rising interest rates
caused bond values to fall sharply. The stock market also struggled, indicating
that stock investors are greatly influenced by events in the bond market.
2
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Toward the end of 1994 and into 1995, the fear of inflation subsided a bit.
Long-term interest rates, as measured by the 30-year U.S. Treasury bond,
declined to 7.43% by March 31, 1995 from 7.81% on September 30, 1994. The U.S.
economy seemed to have entered a period where earnings growth, low inflation,
and continued economic activity could coexist. Even as corporate earnings
exceeded expectations, inflation remained under control.
These factors all translated into good news for the stock and bond markets. The
unmanaged Standard & Poor's 500 Stock Price Index returned 9.7% from October 1,
1994 to March 31, 1995, and the unmanaged Lehman Brothers Aggregate Bond Index
returned 5.4%. Furthermore, the U.S. markets remained unscathed despite
significant events in the financial world, including the difficulties of Orange
County, California, the collapse of Barings Bank (one of London's oldest
financial institutions), and problems in Mexico. In fact, as problems persisted
in Mexico, Japan, and Europe, the U.S. stock and bond markets enjoyed a steady
flow of capital coming in over the past several months. Foreign investment in
U.S. securities exceeded U.S. investment in foreign securities for the first
time in quite a while.
A Look Ahead
In our opinion, the long-term outlook for the U.S. stock and bond markets is
positive. We expect a combination of factors to keep the economy and inflation
on a moderate course. Corporate profits continue to grow, and business
investment is at an all-time high. These factors ultimately should be viewed as
favorable for the financial markets.
There are, however, several factors that could cause periods of market
volatility over the near term. The U.S. dollar, for example, has fallen this
year to new lows against the Japanese yen and the German mark. If the dollar
continues to decline, the Federal Reserve Board might need to raise the Federal
Funds rate (the rate that banks charge each other for overnight loans) to help
increase the attractiveness of the dollar. With an increase in the Federal Funds
rate, other short-term interest rates would rise, putting pressure on long-term
interest rates. This could affect the value of both bonds and stocks. There is
also uncertainty on the U.S. political front as Congress begins to change fiscal
policy.
What This Means for Investors
Investors need to continue to focus on their long-term investment goals. If you
have an investment time horizon of one to three years when investing in bond
funds, three to five years when investing in income-oriented stock funds, and
five years or more when investing in growth funds -- and can accept that both
the bond and stock market will have periods of volatility -- market volatility
should have little impact on your primary investment goal. In fact, downturns
could provide investment opportunities for the astute investor. Remember that
diversification, or allocating your assets in a mix of different investments
such as stocks, bonds, and money market investments, can be a sensible strategy
to provide you with some protection from market volatility.
3
<PAGE>
The AARP Investment Program from Scudder
As we mentioned earlier in this letter, 1995 marks the 10th anniversary of the
AARP Investment Program. Over the past ten years we have learned more and more
about the needs of our shareholders. Recognizing these needs, all of the AARP
Mutual Funds are managed conservatively and try to moderate share price
volatility. This makes the AARP Mutual Funds distinct from many other mutual
funds which may seek higher returns, but do not focus on reducing share price
fluctuation. At the same time, the AARP Funds should provide the opportunity for
competitive returns. Of course, while the AARP Mutual Funds are conservatively
managed, it is important that you realize that your principal is never insured
or guaranteed, and the value of your investment and your return will move up and
down as market conditions change.
Lastly, we'd like to close by reminding you of our extended service hours. Our
knowledgeable AARP Mutual Fund Representatives are now available from 8:00 A.M.
to 8:00 P.M. Monday through Friday, eastern time toll-free at 1-800-253-2277. We
hope you take advantage of these extended hours.
Sincerely,
/s/Cuyler W. Findlay
Cuyler W. Findlay
Chairman
/s/Linda C. Coughlin
Linda C. Coughlin
President
/s/Douglas M. Loudon
Douglas M. Loudon
Investment Director
<PAGE>
4
<PAGE>
AARP Fund Reports
The following pages contain a summary of each Fund in the AARP Investment
Program from Scudder. Each section contains the one-year total return figures,
five-year total return figures, and ten-year total return figures or Life of
Fund total return figures. Because a one-year total return could be high or low
depending on market conditions over a 12-month period, it is useful to have the
perspective of the five-year returns and ten-year total return figures. Within
each Fund description (except for the AARP money funds), one-year total return
is broken down into two components: distribution of income and capital change.
Distribution of income is defined as reinvested dividends. Capital change is
defined as the change in the price per share including any reinvested capital
gains distributions.
You will also note that all of the AARP Funds, except the AARP money funds, have
been compared to market indices. We are providing these comparisons to comply
with the Securities and Exchange Commission's (SEC) disclosure requirements.
Under these requirements, all mutual funds (except money funds) are required to
compare their performance over the past ten years (or the period of existence,
if shorter) to that of a broad-based securities market index. It is important to
note, however, that these indices have limited relevance to the performance of
mutual funds. They do not reflect the deduction of any servicing, investment
management, or administration expenses.
Also, the AARP Investment Program is unique in the high quality of their
investment portfolios and the emphasis on seeking to reduce share price
fluctuation. This, in turn, can have significant impact on performance.
Therefore, when comparing an AARP Mutual Fund's performance with that of a major
market index, remember that any comparison may be of limited value.
5
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AARP High Quality Money Fund
================================================================================
AARP High Quality Money Fund at a Glance
================================================================================
Fund Overview This high-quality Fund is designed to preserve your
principal while you earn money market returns. The AARP
High Quality Money Fund has quality standards high
enough to have secured an AAAm rating from Standard &
Poor's Ratings Group*, a leading national independent
rating firm. The Fund seeks to maintain a $1.00 share
price, although there may be circumstances under which
this goal cannot be achieved. It is important to note
that unlike bank savings accounts, the Fund is not
insured or guaranteed by the U.S. Government, and the
yield of the Fund will fluctuate.
* The rating for the Fund is historical and is based
on an analysis of the portfolio's credit quality,
market price exposure, and management.
For Whom the Fund This Fund may be appropriate for investors who have
Is Designed short-term needs or who do not want the risk of
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 safety and stability, and those seeking a
short-term investment prior to making longer-term
investment choices.
Q How has the Fund performed?
A As with all money funds, the performance of the AARP High Quality Money
Fund mirrored what happened to short-term interest rates. Short-term
interest rates, as measured by three-month U.S. Treasury Bills, rose over
the past six months. On September 30, 1994 short-term rates were 4.67%. By
March 31, 1995, short-term interest rates rose to 5.69%. Reflecting this
trend, the Fund's 7-day net annualized yield as of March 31, 1995 was
5.06%, up from 3.94% on September 30, 1994. The Fund's one-year total
return was 4.18%, which was made up entirely of income. The five-year
cumulative total return was 23.32%; the five-year average annualized total
return was 4.28%; the cumulative total return since inception on July 22,
1985 was 67.13%; and the average annualized total return since inception
was 5.44%. Of course past performance is not a guarantee of future
results, and yield will fluctuate.
Q What has been the Fund's investment strategy?
A Since the latter part of 1994, the Fund has maintained a relatively short
average maturity of approximately 21 days in order to take advantage of
rising interest rates. This gave the Fund greater flexibility to capture
higher yields. The largest sector in which the Fund was invested was in
U.S. Agency floating rate instruments. These high-quality securities allow
the Fund to "float" with the market as interest rates rise, thereby
helping increase the Fund's yield.
Q What should I expect from the Fund for the rest of 1995?
A We expect short-term interest rates to rise modestly. Consequently, the
yield of the AARP High Quality Money Fund should follow and move upward
slightly as well. The Fund should remain a good alternative for your
short-term assets, or if you are seeking stability of principal.
6
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AARP High Quality Tax Free Money Fund
================================================================================
AARP High Quality Tax Free Money Fund at a Glance
================================================================================
Fund Overview The AARP High Quality Tax Free Money Fund is designed to
offer you stability of principal, along with income free
from federal taxes.1 The quality of the Fund is high
enough to have secured an AAAm rating from Standard &
Poor's Ratings Group (S&P).2 The AARP High Quality Tax
Free Money Fund is designed to maintain a $1.00 share
price, although there may be circumstances under which
this goal cannot be achieved. It is important to note
that, unlike bank savings accounts, the Fund is not
insured or guaranteed by the U.S. Government, and yield
will fluctuate.
1 It is the policy of the Fund not to invest in
taxable issues. However, the Fund's income may be
subject to state and local taxes. Capital gains
may be subject to taxes as well.
2 The rating for the Fund is historical and is based
on an analysis of the portfolio's credit quality,
market price exposure, and management.
For Whom the Fund This Fund may be appropriate for investors seeking
Is Designed tax-free income or who do not want the risk of 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 safety and
stability, and those seeking a short-term investment
prior to making longer-term investment choices.
Q How has the Fund performed?
A Over the past six months, the Fund provided shareholders with modest
returns and a rising yield. The Fund's 7-day net annualized yield as of
March 31, 1995 was 3.14%. This was up from its 2.64% yield on September
30, 1994. The Fund's one-year total return was 2.39%, which was made up
entirely of income. The five-year cumulative total return was 17.45%; the
five-year average annualized total return was 3.27%, the ten-year
cumulative total return was 54.89%; and the ten-year average annualized
total return was 4.47%.
Please note that the five-year and ten-year figures include the
performance of the AARP Insured Tax Free Short Term Fund, which changed
its name and objective to the AARP High Quality Tax Free Money Fund on
August 1, 1991. Of course, past performance is not a guarantee of future
results and yield will fluctuate.
Q What has been the Fund's investment strategy?
A Over the past six months, we shortened the average maturity of the Fund
from 51 days in early October 1994 to 33 days as of March 31, 1995. We
decreased our holdings of securities with maturities of six to twelve
months, and increased our investment in securities with maturities of
three to six months. The shorter average maturity gave us added
flexibility to capture higher yields as short-term interest rates rose.
However, the Fund's structure allows the flexibility to increase the
average maturity if it is deemed appropriate.
As always, all securities we bought over the past six months are rated
within the two highest quality ratings of at least one of the three
leading national independent rating firms: Fitch Investors Service Inc.,
Moody's Investors Service Inc., or S&P. For those money funds rated by
S&P, there are particular guidelines with which each fund must comply in
7
<PAGE>
AARP High Quality Tax Free Money Fund
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.
Q What should I expect from the Fund for the rest of 1995?
A We expect short-term interest rates to rise modestly. The short-term
municipal market should follow that trend. Consequently, we believe the
yield of the AARP High Quality Tax Free Money Fund should follow and move
upward slightly as well. The Fund should continue to provide investors in
high tax brackets with an alternative for their short-term investment
needs.
8
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AARP GNMA and U.S. Treasury Fund
================================================================================
AARP GNMA and U.S. Treasury Fund at a Glance
================================================================================
Fund Overview The AARP GNMA and U.S. Treasury Fund seeks to produce
monthly income from a conservatively managed
high-quality portfolio. Although your principal is not
guaranteed as it is with an insured fixed-rate
Certificate of Deposit (CD) or savings account, the Fund
is managed to help reduce share price fluctuation. While
the securities in the Fund are guaranteed as to the
timely payment of principal and interest, the guarantee
is not related to the Fund's yield or share price, both
of which will fluctuate daily.
For Whom the Fund The Fund is designed for conservative investors who want
Is Designed high current income and a degree of protection from
day-to-day share price volatility. Investors should be
seeking to invest for the longer term (at least one to
three years) and be comfortable with fluctuation in the
value of their principal and yield.
Growth of $10,000 Investment
Yearly AARP GNMA Lehman
Periods and U.S. Brothers
Ended Treasury Mortgage
March 31 Fund++ GNMA Index+
-------- ------ -----------
1 Year $10,432 $10,626
5 Year $14,391 $15,236
10 Year $22,999 $27,532
Total Return
Cumulative
1 Year 4.32% 6.26%
5 Year 43.91% 52.36%
10 Year 129.99% 175.32%
Average Annual
1 Year 4.32% 6.26%
5 Year 7.55% 8.78%
10 Year 8.69% 10.65%
Mountain Chart - Growth of $10,000 Investment
Yearly periods ended March 31++
Chart Data
AARP GNMA and Lehman Brothers
U.S. Treasury Mortgage GNMA
Fund Index
------ -------
10000 10000
12144 12750
13300 14075
13770 14964
14441 15803
15981 18070
17943 20592
19836 23015
21964 25622
22045 25909
22999 27532
Bar chart - Annual Investment Returns and Per Share Information
Yearly periods ended March 31++
Chart Data
AARP GNMA and Lehman Brothers
U.S. Treasury Mortgage GNMA
Fund Index
------ -------
12.27 13.96
10.55 11.77
10.73 11.34
0.37 1.13
4.32 6.26
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Net Asset Value $ 15.35 $ 15.68 $ 16.11 $ 15.16 $ 14.83
Income Dividends $ 1.28 $ 1.24 $ 1.20 $ 1.03 $ 0.95
Capital Gains $ -- $ -- $ -- $ -- $ --
Distributions
Fund Return(%) 12.27 10.55 10.73 0.37 4.32
Index Return(%)+ 13.96 11.77 11.34 1.13 6.26
+ The unmanaged Lehman Brothers Mortgage GNMA Index is a market value
weighted measure of all fixed-rate securities backed by mortgage pools of
the GNMA. Index returns are calculated monthly and assume reinvestment of
dividends. Unlike Fund returns, Index returns do not reflect any fees or
expenses.
++ All performance is historical and assumes reinvestment of all dividends
and capital gains and is not indicative of future results. Investment
return and principal value will fluctuate so an investor's shares when
redeemed may be worth more or less than when purchased.
9
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AARP GNMA and U.S. Treasury Fund
Q How has the Fund performed?
A We believe the AARP GNMA and U.S. Treasury Fund performed well. The Fund's
share price on September 30, 1994 was $14.73; it increased to $14.83 on
March 31, 1995. There was also a steady rise in the Fund's 30-day net
annualized yield, which reached 7.14% by March 31, 1995. However, because
of the Fund's conservative investment philosophy (see investment strategy
to the right), the Fund's one-year total return of 4.32% underperformed
the unmanaged Lehman Brothers Mortgage GNMA Index total return of 6.26%.
The Fund's total return represented 6.50% in distributions of income and a
-2.18% in capital change.
It is important to note that the Fund continued to provide higher yields
than insured fixed-rate 12-month CDs. According to Banxquote, a weekly
financial rate reporter, the nationally averaged yield on the 12-month CD
as of March 31, 1995 was 4.81% -- significantly lower than the 7.14% yield
on the AARP GNMA and U.S. Treasury Fund. (Keep in mind that yield does not
take into consideration the share price fluctuation of the Fund. Unlike
the share price of the Fund, the principal value of a CD remains constant.
Past performance is not a guarantee of future results.)
Q What has been the Fund's investment strategy?
A We remained cautious through the beginning of the fourth quarter of 1994.
To help moderate share price fluctuation, a significant portion of the
Fund's assets were invested in U.S. Government securities with shorter
maturities. As you know, it has been an ongoing strategy to keep some of
the Fund's assets in shorter maturity bonds to help dampen share price
volatility. Over the past four months, however, we began to shift assets
from shorter-term instruments into GNMA securities ranging in coupon
between 7% and 10%. As of March 31, 1995, 70% of the portfolio was
invested in GNMA securities. The remainder of the portfolio was in
short-term U.S. Treasury obligations and cash equivalents with maturities
of one year or less. This strategy offered investors more income without
adding share price volatility.
Q What should I expect from the Fund for the rest of 1995?
A While some fluctuation is expected, we believe the extreme volatility the
bond market experienced in 1994 should be behind us. The mortgage market
in particular looks promising. The yield of mortgages relative to most
other high-quality securities remains intact. Moreover, mortgage investors
should not have to contend with the prepayments that were an issue in 1993
and the price declines of 1994. Therefore, we believe the Fund will
continue to be a sound choice for conservative investors, offering higher
current income than many other alternatives, with a degree of protection
from market volatility.
10
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AARP High Quality Bond Fund
================================================================================
AARP High Quality Bond Fund at a Glance
================================================================================
Fund Overview The AARP High Quality Bond Fund offers you the
opportunity for higher monthly income and higher returns
than you can expect from the AARP GNMA and U.S. Treasury
Fund. In pursuing higher returns, fluctuation in the
value of your principal may also be greater. The Fund
has quality standards that are among the highest of any
general bond fund currently available, with at least 65%
of the portfolio invested in AAA-rated and AA-rated
issues, and the other 35% in nothing less than A-rated
bonds.
For Whom the Fund The Fund is designed for investors who want competitive
Is Designed returns from a portfolio of high credit quality.
Investors should be seeking to invest for the longer
term (at least one to three years) and be comfortable
with fluctuation in the value of their principal and
yield.
Growth of a $10,000 Investment
Yearly Lehman
Periods AARP High Brothers
Ended Quality Aggregate
March 31 Bond Fund++ Bond Index+
-------- --------- ----------
1 Year $10,314 $10,499
5 Year $14,734 $15,316
10 Year $23,181 $26,559
Total Return
Cumulative
1 Year 3.14% 4.99%
5 Year 47.34% 53.16%
10 Year 131.81% 165.59%
Average Annual
1 Year 3.14% 4.99%
5 Year 8.06% 8.89%
10 Year 8.77% 10.25%
Mountain Chart - Growth of a $10,000 Investment
Yearly periods ended March 31++
Chart Data
AARP High Lehman Brothers
Quality Aggregate
Bond Fund Bond Index
--------- ----------
10000 10000
12139 12872
13086 13995
13549 14679
14331 15436
15733 17341
17501 19578
19345 21812
21861 24711
22475 25297
23181 26559
Bar chart - Annual Investment Returns and Per Share Information
Yearly periods ended March 31++
Chart Data
AARP High Lehman Brothers
Quality Aggregate
Bond Fund Bond Index
--------- ----------
11.24 12.89
10.54 11.43
13.01 13.30
2.80 2.37
3.14 4.99
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Net Asset Value $ 15.19 $ 15.69 $ 16.51 $ 15.74 $ 15.32
Income Dividends $ 1.14 $ 1.06 $ 0.97 $ 0.89 $ 0.88
Capital Gains
Distributions $ -- $ -- $ 0.18 $ 0.38 $ --
Fund Return(%) 11.24 10.54 13.01 2.80 3.14
Index Return(%)+ 12.89 11.43 13.30 2.37 4.99
+ 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.
11
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AARP High Quality Bond Fund
Q How has the Fund performed?
A We believe the AARP High Quality Bond Fund performed well over the past
six months as long-term interest rates declined. Long-term interest rates,
as measured by the 30-year U.S. Treasury Bond, declined from 7.81% on
September 30, 1994 to 7.43% on March 31, 1995. As a result, the value of
the securities held by the Fund increased. The Fund's share price rose
from $15.05 to $15.32 over this period.
The Fund's one-year total return was 3.14%, with 5.81% representing
distributions of income and -2.67% representing capital change. Its
one-year total return underperformed the unmanaged Lehman Brothers
Aggregate Bond Index return of 4.99%. The underperformance of the Fund was
due to the Fund being heavily invested in long-term bonds during a period
of rising long-term interest rates in 1994.
Q What has been the Fund's investment strategy?
A Over the past six months, we decreased the portion of the Fund invested in
both long-term bonds and short-term bonds. As of March 31, 1995,
approximately 16% of the Fund (down from 25% in September 1994) was
invested in long-term bonds maturing in 15 years or more, which provided
the Fund with a higher current yield. Another 16% (down from 25% in
September 1994) was invested in short-term bonds maturing in one year or
less, which helped dampen share price volatility. Non-callable bonds
(bonds that cannot be redeemed at the option of the issuer) were also
favored to sustain the Fund's income stream. Although non-callable bonds
offer somewhat lower income than callable bonds, they help to maintain the
Fund's income, since they have no chance of being redeemed prior to
maturity.
The Fund also maintained its objective of investing in high-quality
securities. As of March 31, 1995, 78% of the portfolio was invested in
government, AAA-rated or AA-rated securities; 13% of the Fund was invested
in A-rated bonds; and 9% was in cash equivalents.
Q What should I expect from the Fund for the rest of 1995?
A While some fluctuation is expected, we believe the extreme volatility the
bond market experienced in 1994 should be behind us. Therefore, we believe
the Fund should continue to provide investors with relatively competitive
returns and less share price fluctuation than a higher yielding long-term
bond.
12
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AARP Insured Tax Free General Bond Fund
================================================================================
AARP Insured Tax Free General Bond Fund at a Glance
================================================================================
Fund Overview The AARP Insured Tax Free General Bond Fund seeks to pay
high monthly income that is free from federal taxes.*
The Fund invests in a portfolio consisting primarily of
high-grade municipal securities that are insured against
default. This insurance does not apply to the value of
your shares or the yield of the Fund, both of which will
fluctuate daily. The Fund also aims to keep the value of
its shares more stable than that of a higher yielding
long-term municipal bond.
* 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.
For Whom the Fund The Fund is designed for investors in higher tax
Is Designed brackets who want high income that is free from federal
income taxes. Investors should be seeking to invest for
the longer term (at least one to three years) and be
comfortable with fluctuation in the value of their
principal and yield.
Growth of a $10,000 Investment
Yearly AARP Insured Lehman
Periods Tax Free Brothers
Ended General Municipal
March 31 Bond Fund++ Bond Index++
-------- --------- ----------
1 Year $10,671 $10,743
5 Year $14,732 $14,859
10 Year $23,321 $25,456
Total Return
Cumulative
1 Year 6.71% 7.43%
5 Year 47.32% 48.59%
10 Year 133.21% 154.56%
Average Annual
1 Year 6.71% 7.43%
5 Year 8.06% 8.24%
10 Year 8.84% 9.79%
Mountain Chart - Growth of a $10,000 Investment
Yearly Periods Ended March 31++
Chart Data
AARP Insured
Tax Free Lehman Brothers
General Municipal
Bond Fund Bond Index
--------- ----------
10000 10000
11752 12707
13202 14100
13050 14455
14482 15496
15831 17131
17231 18712
18832 20581
21467 23158
21854 23695
23321 25456
Bar Chart - Annual Investment Returns and Per Share Information
Yearly Periods Ended March 31++
Chart Data
AARP Insured
Tax Free Lehman Brothers
General Municipal
Bond Fund Bond Index
--------- ----------
8.85 9.24
9.28 10.01
14.00 12.51
1.79 2.32
6.71 7.43
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Net Asset Value $ 16.75 $ 17.15 $ 18.13 $ 17.24 $ 17.49
Income Dividends $ 1.02 $ 0.96 $ 0.92 $ 0.86 $ 0.86
Capital Gains
Distributions $ -- $ 0.17 $ 0.43 $ 0.40 $ --
Fund Return(%) 8.85 9.28 14.00 1.79 6.71
Index Return(%)+ 9.24 10.01 12.51 2.32 7.43
+ 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.
13
<PAGE>
AARP Insured Tax Free General Bond Fund
Q How has the Fund performed?
A We believe the AARP Insured Tax Free General Bond Fund performed well over
the past six months as long-term interest rates declined. Long-term
interest rates, as measured by the 30-year U.S. Treasury Bond, declined
from 7.81% on September 30, 1994 to 7.43% on March 31, 1995. As a result,
the value of the securities held by the Fund increased. The Fund's share
price rose from $16.93 to $17.49 over this period.
Due to the Fund's conservative investment approach to reduce share price
volatility, its one-year total return of 6.71% underperformed the
unmanaged Lehman Brothers Municipal Bond Index's return of 7.43%. The
Fund's total return represented 5.26% in distributions of income and 1.45%
in capital change.
Q What has been the Fund's investment strategy?
A In order to reduce share price volatility in the Fund, the Fund's
consistent strategy for the past few years changed slightly. We continued
to favor bonds maturing in less than 20 years in order to provide high
income to shareholders. However, we reduced our position of
intermediate-term bonds maturing in 2 to 10 years and increased our
position in securities maturing in one year or less. This "barbell"
strategy offered shareholders a steady flow of income, with less share
price fluctuation.
We continued to maintain a balance between bonds with good call protection
(securities that cannot be easily redeemed at lower interest rates) and
premium bonds (those selling above the face value of a bond). We also
continued to stress non-callable municipal bonds with over 70% of the
portfolio invested in these securities. Non-callable bond prices tend to
do better over time than callable bond prices. Although non-callable bonds
offer slightly lower income than callable bonds, they help to maintain the
Fund's income, since they have no chance of being redeemed prior to
maturity.
We also continued to favor insured securities. As of March 31, 1995, 90%
of the portfolio was invested in insured securities (or securities
escrowed in U.S. Treasurys which provide the backing of the U.S.
Government). Remember that this insurance does not apply to the value of
your shares or the yield of the Fund, both of which will fluctuate daily.
As always, we invested in securities rated within the top three ratings by
Moody's and Standard & Poor's -- two independent rating services.
Q What should I expect from the Fund for the rest of 1995?
A We believe that the municipal bond market will follow the trend of the
taxable bond market, with a positive long-term outlook. While some
fluctuation in interest rates is expected, we believe the extreme
volatility the bond market experienced in 1994 should be behind us. The
Fund should continue to provide shareholders in higher tax brackets with
high income free from federal taxes and will seek to keep its share price
more stable than that of a higher yielding long-term municipal bond.
14
<PAGE>
AARP Balanced Stock and Bond Fund
================================================================================
AARP Balanced Stock and Bond Fund at a Glance
================================================================================
Fund Overview Through a combination of stocks, bonds, and cash
reserves, the AARP Balanced Stock and Bond Fund seeks to
offer you long-term growth of capital and quarterly
income while attempting to keep the value of its shares
more stable than other potentially higher returning,
higher risk balanced mutual funds.
For Whom the Fund This Fund is designed for investors who are seeking
Is Designed long-term growth of their assets, but want less risk
than an investment solely in stocks. Investors should be
seeking to invest for the longer term (three to five
years) and be comfortable with the value of their
principal fluctuating up and down.
Growth of a $10,000 Investment
Standard & Poor's
500 Stock Price
Index (50%), Lehman
Yearly AARP Brothers Aggregate
Periods Balanced Bond Index (40%), and
Ended Stock and the 3-Month Treasury
March 31 Bond Fund++ Bill Index (10%)+
-------- --------- ---------------------
1 Year $10,856 $11,017
Life of Fund* $10,335 $10,457
Total Return
Cumulative
1 Year 8.56% 10.17%
Life of Fund* 3.35% 4.57%
Average
Annual
1 Year 8.56% 10.17%
Life of Fund* 2.87% 3.92%
Line Chart - Growth of a $10,000 Investment
Yearly periods ended March 31++
Chart Data
Standard & Poor's 500
Index (50%), Lehman
AARP Standard & Lehman Brothers Aggregate
Balanced Poor's 500 Brothers Bond Index (40%), and
Stock and Stock Price Aggregate the 3-Month Treasury
Bond Fund Index Bond Index Bill Index (10%)
--------- ----- ---------- ---------------------
10000 10000 10000 10000
9520 9305 9584 9491
9623 9344 9485 9481
9922 9800 9543 9743
9837 9799 9579 9771
10335 10753 10062 10457
Bar Chart - Annual Investment Returns and Per Share Information
Yearly periods ended March 31++
Chart Data
Standard & Poor's 500
Index (50%), Lehman
AARP Brothers Aggregate
Balanced Bond Index (40%), and
Stock and the 3-Month Treasury
Bond Fund Bill Index (10%)
--------- ---------------------
-4.80 -5.09
8.56 10.17
1994* 1995
----- ----
Net Asset Value $14.26 $14.90
Income Dividends $ 0.02 $ 0.52
Capital Gains
Distributions $ -- $ 0.04
Fund Return(%) -4.80 8.56
S&P 500 Index (50%),
LBAB Index (40%),
and the 3-Month Treasury
Bill Index (10%)(%)+ -5.08 10.17
+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market and
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. The performance of the blended benchmark
is a weighting comprised of 50% Standard & Poor's 500 Stock Price Index,
40% Lehman Brothers Aggregate Bond Index, 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.
++ 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.
15
<PAGE>
AARP Balanced Stock and Bond Fund
Q How has the Fund performed?
A We believe the AARP Balanced Stock and Bond Fund performed well over the
past six months. The Fund's share price was $14.64 on September 30, 1994;
it rose to $14.90 on March 31, 1995. Its one-year total return was 8.56%,
with 3.79% representing distributions of income and 4.77% representing
capital change. By comparison, the unmanaged Standard & Poor's 500 Stock
Price Index and the unmanaged Lehman Brothers Aggregate Bond Index posted
returns of 15.57% and 4.99%, respectively. The blended benchmark (the S&P
Stock Price Index 50%, the Lehman Brothers Aggregate Bond Index 40%, and
3-Month Treasury Bill Index 10%) returned 10.17%. (Please note that the
Fund was introduced on February 1, 1994. Therefore, five-year and ten-year
data are not available.)
Q What has been the Fund's investment strategy?
A In general, the stock portion of the Fund (representing 53% of the
portfolio as of March 31, 1995) uses an approach similar to the AARP
Growth and Income Fund. The Fund will usually invest in stocks of
companies that are believed to have favorable long-term outlooks and have
above-average dividend yields. Since the stock portion of the Fund is
managed by the same individuals and with the same strategy as the AARP
Growth and Income Fund, refer to the AARP Growth and Income Fund Report on
page 18 for details on specific stock selection. (The AARP Balanced Stock
and Bond Fund may invest up to 70% of its assets in stocks.)
The portion of the Fund invested in bonds (representing 32% of the
portfolio as of March 31, 1995) 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, A) by Moody's or
Standard & Poor's Ratings Group, independent rating organizations. Since
the bond portion of the Fund is managed with a similar strategy to the
AARP High Quality Bond Fund, refer to the AARP High Quality Bond Fund
Report on page 12 for more information on the types of bonds in which the
Fund invested. (At all times, at least 30% of the Fund's assets will be a
combination of bonds and cash equivalents.) The remaining 15% of the
Fund's assets were invested in cash or cash equivalents.
Q What should I expect from the Fund for the rest of 1995?
A The current asset allocation for the Fund is 53% stocks, 32% bonds, and
15% cash equivalents. Since the AARP Balanced Stock and Bond Fund is
invested more heavily in stocks, we will concentrate on trends in the
stock market and how they may affect the Fund. For the remainder of 1995,
we believe that our disciplined investment approach should continue to
provide exposure to the long-term benefits of stocks. The Fund will
continue to invest new assets in securities that offer the potential of
long-term growth of capital while providing current income.
16
<PAGE>
AARP Growth and Income Fund
================================================================================
AARP Growth and Income Fund at a Glance
================================================================================
Fund Overview The AARP Growth and Income Fund is a conservatively
managed stock fund that provides the potential for
long-term growth and quarterly income, while still
seeking to moderate share price fluctuation. It invests
in above-average dividend-paying stocks that may offer
the opportunity for long-term growth.
For Whom the Fund The Fund is designed for investors who are seeking
Is Designed long-term growth of their assets and the opportunity to
keep ahead of inflation. Investors should be seeking to
invest for the longer term (three to five years) and be
comfortable with fluctuation in their principal that is
associated with investing in stocks.
Growth of a $10,000 Investment
Standard &
AARP Poor's 500
Yearly Periods Growth and Stock Price
Ended March 31 Income Fund++ Index+
-------------- ----------- -----------
1 Year $11,320 $11,557
5 Year $18,118 $17,167
10 Year $35,180 $38,528
Total Return
Cumulative
1 Year 13.20% 15.57%
5 Year 81.18% 71.67%
10 Year 251.80% 285.28%
Average Annual
1 Year 13.20% 15.57%
5 Year 12.62% 11.41%
10 Year 13.40% 14.43%
Mountain Chart - Growth of a $10,000 Investment
Yearly Periods Ended March 31++
Chart Data
Standard &
AARP Poor's 500
Growth and Stock Price
Income Fund Index
----------- -----------
10000 10000
13848 13766
16484 17374
15330 15926
17431 18817
19417 22442
22203 25677
25476 28512
29468 32854
31079 33338
35180 38528
Bar Chart - Annual Investment Returns and Per Share Information
Yearly periods ended March 31++
Chart Data
Standard &
AARP Poor's 500
Growth and Stock Price
Income Fund Index
----------- -----------
14.36 14.38
14.74 11.03
15.67 15.22
5.47 1.48
13.20 15.57
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Net Asset Value $ 25.89 $ 28.13 $ 31.20 $ 31.65 $ 33.45
Income Dividends $ 1.22 $ 1.01 $ 0.92 $ 1.05 $ 1.03
Capital Gains
Distributions $ 0.13 $ 0.48 $ 0.30 $ 0.21 $ 1.22
Fund Return(%) 14.36 14.74 15.67 5.47 13.20
Index Return(%)+ 14.38 11.03 15.22 1.48 15.57
+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market.
Index returns are calculated monthly and assume reinvestment of dividends.
Unlike Fund returns, Index returns do not reflect any fees or expenses.
++ All performance is historical and assumes reinvestment of all dividends
and capital gains and is not indicative of future results. Investment
return and principal value will fluctuate so an investor's shares when
redeemed may be worth more or less than when purchased.
17
<PAGE>
AARP Growth and Income Fund
Q How did the Fund perform?
A We believe the AARP Growth and Income Fund performed extremely well in the
first quarter of 1995 after a disappointing fourth quarter of 1994. The
Fund's one year total return was 13.20%, with 3.43% representing
distributions of income and 9.77% in capital change. Its one-year total
return underperformed the unmanaged Standard & Poor's 500 Stock Price
Index return of 15.57%. Our underperformance was due to several factors.
Many of the strategies that helped the Fund in the first three quarters of
1994 did not work as well as the year drew to a close. For example,
manufacturing stocks-- the biggest positive contributor in the first nine
months-- provided the most disappointing performance later in the year.
Our lack of exposure to the technology sector also limited our
performance. This sector was by far the best performing sector of the
market. Our discipline (see investment strategy below), which has
contributed to the Fund's long-term success, almost always precludes us
from owning technology stocks. Technology stocks usually pay low dividends
or none at all.
Q What has been the Fund's investment strategy?
A The AARP Growth and Income Fund has had a consistent investment strategy
since its inception. We continue to target stocks that have dividend
yields that are at least 20% above the average market yield at the time of
purchase. Our strict valuation discipline focuses our attention on those
companies whose fundamental outlooks have been misperceived by investors,
as reflected by such stocks' higher than average relative dividend yields.
In keeping with this discipline, we purchased such value companies as H&R
Block, Deluxe Corporation, and Clorox. We also continued to shift the
portfolio from stocks that are economically sensitive to those with
long-term consistent growth. We favored the food, beverage and healthcare
industries by purchasing Anheuser Busch and increasing our positions of
Baxter and Heinz.
We also bought stocks in the electric utility sector over the past several
months. We had largely avoided the electric utility sector for some time
because many of the stocks faced a difficult transition into an era of
utility deregulation. This decision proved favorable as the electric
utility sector declined 30% in 1994. In recent months, however, the
valuations of many of these companies have become much more attractive. We
recently purchased Pacific Gas & Electric and Cinergy, two companies that
we believe can compete effectively in the new industry environment.
The Fund's portfolio management team employs a disciplined process for
sales as well as purchases. If a stock's yield drops below 75% of the S&P
500's yield or if the fundamental outlook for the company has changed, the
holding is sold. This approach led to the elimination of Boise Cascade and
Edison Brothers, and the reduction of Parker Hannifin. Proceeds from these
sales were used to purchase stocks that we believe have more attractive
total return prospects.
(Please note that portfolio changes should not be considered
recommendations for action by individual investors.)
18
<PAGE>
Q What should I expect from the Fund for the remainder of 1995?
A Our aim in managing the Fund is to provide a positive total return when
the stock market is rising, while attempting to shield the portfolio when
the stock market is declining. In 1994, we were pleased to have helped
investors avoid many of the stock market's downturns. For the remainder of
1995, we believe that our disciplined investment approach is an attractive
way for investors to have exposure to the long-term benefits stocks can
provide.
19
<PAGE>
AARP Capital Growth Fund
================================================================================
AARP Capital Growth Fund at a Glance
================================================================================
Fund Overview The AARP Capital Growth Fund is designed to help
investors take advantage of the high growth potential of
stocks while trying to keep the value of its shares more
stable than other potentially higher returning capital
growth mutual funds. In pursuing higher returns,
however, fluctuation in the value of your principal may
be greater than other AARP Funds.
For Whom the Fund The Fund is designed for investors seeking long-term
Is Designed growth of their principal. Investors should be seeking
to invest for the longer term (five years or more) and
be comfortable with fluctuation of their principal that
is associated with investing in stocks.
Growth of a $10,000 Investment
Standard &
AARP Poor's 500
Yearly Periods Capital Stock Price
Ended March 31 Growth Fund++ Index+
-------------- ----------- -----------
1 Year $10,408 $11,557
5 Year $14,911 $17,167
10 Year $31,470 $38,528
Total Return
Cumulative
1 Year 4.08% 15.57%
5 Year 49.11% 71.67%
10 Year 214.70% 285.28%
Average Annual
1 Year 4.08% 15.57%
5 Year 8.32% 11.41%
10 Year 12.15% 14.43%
Mountain Chart - Growth of a $10,000 Investment
Yearly periods ended March 31++
Chart Data
Standard &
AARP Poor's 500
Capital Stock Price
Growth Fund Index
----------- -----------
10000 10000
13466 13766
15825 17374
15111 15926
19901 18817
21105 22442
22980 25677
26478 28512
29710 32854
30238 33338
31470 38528
Bar Chart - Annual Investment Returns and Per Share Information
Yearly periods ended March 31++
Chart Data
Standard &
AARP Poor's 500
Capital Stock Price
Growth Fund Index
----------- -----------
8.88 14.38
15.22 11.03
12.21 15.22
1.78 1.48
4.08 15.57
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Net Asset Value $ 28.10 $ 31.22 $ 33.61 $ 31.47 $ 32.07
Income Dividends $ 0.59 $ 0.23 $ 0.14 $ 0.05 $ 0.01
Capital Gains
Distributions $ 1.79 $ 0.94 $ 1.21 $ 2.90 $ 0.64
Fund Return(%) 8.88 15.22 12.21 1.78 4.08
Index Return(%)+ 14.38 11.03 15.22 1.48 15.57
+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market.
Index returns are calculated monthly and assume reinvestment of dividends.
Unlike Fund returns, Index returns do not reflect any fees or expenses.
++ All performance is historical and assumes reinvestment of all dividends
and capital gains and is not indicative of future results. Investment
return and principal value will fluctuate so an investor's shares when
redeemed may be worth more or less than when purchased.
20
<PAGE>
Q How did the Fund perform over the past year?
A The AARP Capital Growth Fund underperformed over the past six months due
to a weakness in both communications and consumer stocks, two sectors in
which the Fund was heavily weighted. Therefore, the Fund's one-year total
return of 4.08% significantly underperformed the unmanaged Standard &
Poor's 500 Stock Price Index return of 15.57%. The Fund's total return
represented .04% in distributions of income and 4.04 % in capital change.
It is important to note that the Fund has substantially reduced these
sector holdings in the first quarter of 1995 (see investment strategy
below). This contributed to the Fund's improving performance in the first
quarter of 1995. Its share price increased from $31.74 on September 30,
1994 to $32.07 on March 31, 1995.
Q What has been the Fund's investment strategy?
A While the Fund had maintained an investment commitment to the
communications sector for the last several years, we began to shift to a
more diversified, higher-quality portfolio in the last quarter of 1994 and
continuing into 1995. Beginning in November, we began to increase our
position in the health, financial, and energy sectors and reduce our
holdings in the communications, gaming, and media sectors. Specifically,
we reduced our position of Time Warner, Tele-Communications, and Viacom
and eliminated our positions in Comcast, LIN Broadcasting, and Rogers
Communications. We used the proceeds from the sale of such securities to
purchase a more diversified portfolio of stocks.
Some of the major purchases within the health, financial and energy
sectors to which we anticipate attractive earnings growth were Columbia
HCA Healthcare, Merck, Federal National Mortgage Association, American
International Group, and Amoco.
Other major purchases included Hewlett-Packard and Automatic Data
Processing. Both companies are leaders in their industries and should
benefit from an increase in corporate spending and the trend toward
corporations outsourcing some of their operations.
(Please note that portfolio changes should not be considered
recommendations for action by individual investors.)
Q What should I expect from the Fund for the remainder of 1995?
A We expect a combination of factors to keep the world economy and inflation
on a moderate course. Corporate profits continue to grow and business
capital investments are at an all-time high. These developments should be
viewed as favorable for the U.S. stock market. Given this outlook, we
believe a well-diversified portfolio of medium to large leading growth
companies, such as Hewlett-Packard, should benefit from economic
expansion. Moreover, we believe that the AARP Capital Growth Fund's
diversified strategy may provide investors with the opportunity for
long-term growth with less risk -- in terms of share price fluctuation --
than other more aggressive, potentially higher-returning growth funds.
21
<PAGE>
Investment Portfolios,
Financial Statements and
Additional Information
22
<PAGE>
<TABLE>
AARP HIGH QUALITY MONEY FUND
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 3.1%
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10,000,000 Repurchase Agreement with Donaldson, Lufkin and Jenrette dated
3/31/95 at 6.15% to be repurchased at $10,005,125 on 4/3/95,
collateralized by a $9,416,000 U.S. Treasury Note, 8.5%, 4/15/97........ 10,000,000
1,829,000 Repurchase Agreement with State Street Bank and Trust Company
dated 3/31/95 at 5.8% to be repurchased at $1,829,884 on 4/3/95,
collateralized by a $1,895,000 U.S. Treasury Note, 4.625%, 2/29/96...... 1,829,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $11,829,000).............................. 11,829,000
-----------
-----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 31.8%
-----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 2.6%
Food & Beverage
10,000,000 Sara Lee Corp., 6.24%, 8/7/95............................................... 9,776,356
-----------
FINANCIAL 26.5%
Banks 10.6%
7,000,000 Barclays U.S. Funding Corp., 5.97%, 4/7/95.................................. 6,993,035
18,000,000 Deutsche Bank Financial Inc., 5.96%, 4/11/95................................ 17,970,200
15,000,000 NationsBank Corp., 6.15%, 4/10/95........................................... 14,999,742
-----------
39,962,977
-----------
Insurance 3.2%
12,000,000 Prudential Funding Corp., 6.1%, 4/3/95...................................... 11,995,933
-----------
Other Financial Companies 12.7%
10,000,000 Associates Corp. of North America, 5.95%, 4/24/95........................... 9,961,986
19,000,000 Ciesco L.P., 6.05%, 4/5/95.................................................. 18,987,228
19,000,000 Transamerica Finance Corp., 6.2%, 5/30/95................................... 18,808,184
-----------
47,757,398
-----------
UTILITIES 2.7%
Electric Utilities
10,000,000 Northern States Power Co., 5.97%, 4/19/95................................... 9,970,150
-----------
TOTAL COMMERCIAL PAPER (COST $119,463,604).................................. 119,462,814
-----------
-----------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 2.7%
-----------------------------------------------------------------------------------------------------------------
10,000,000 U.S. Treasury Note, 8.5%, 5/15/95 (COST $10,056,086)........................ 10,027,476
-----------
-----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 39.1%
-----------------------------------------------------------------------------------------------------------------
19,250,000 Federal National Mortgage Association, 6.07%, 7/14/99*...................... 18,961,250
10,000,000 Student Loan Marketing Association 6.42%, 4/17/95*.......................... 10,470,588
25,000,000 Student Loan Marketing Association 6.04%, 4/16/96*.......................... 24,965,500
20,000,000 Student Loan Marketing Association 6.195%, 11/27/96*........................ 20,020,000
38,690,000 Student Loan Marketing Association 6.22%, 1/23/97*.......................... 38,748,035
10,000,000 Student Loan Marketing Association 6.17%, 10/30/97*......................... 10,062,800
24,000,000 Student Loan Marketing Association, 6.07%, 7/12/99*......................... 23,700,000
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST $146,998,467).......................... 146,928,173
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
AARP HIGH QUALITY MONEY FUND
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------
MEDIUM-TERM AND SHORT-TERM NOTES 22.2%
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES 2.0%
Food & Beverage
7,500,000 Nestle Capital Corp., 5.92%, 4/6/95*......................................... 7,493,833
-----------
COMMUNICATIONS 2.6%
Telephone/Communications
10,000,000 BellSouth Telecommunications Inc., 5.94%, 4/19/95*........................... 9,970,300
-----------
FINANCIAL 17.6%
Banks
15,000,000 Banc One Texas, Note, 6.31%, 6/2/95*......................................... 15,000,000
18,000,000 First National Bank of Chicago, Note, 6.12%, 6/22/95*........................ 17,996,319
18,000,000 National Bank of Detroit, Bank Note, 6.4%, 8/17/95*.......................... 17,997,307
15,000,000 PNC Bank, Ohio, Note, 5.92%, 6/15/95*........................................ 14,992,245
-----------
65,985,871
-----------
TOTAL MEDIUM-TERM AND SHORT-TERM NOTES (COST $83,471,857).................... 83,450,004
-----------
------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $371,819,014) (a) ........... 98.9 371,697,467
OTHER ASSETS AND LIABILITIES, NET............................. 1.1 4,119,879
----- -----------
NET ASSETS.................................................... 100.0 375,817,346
===== ===========
------------------------------------------------------------------------------------------------------------------
<FN>
(a) At March 31, 1995, the net unrealized depreciation on investments based on cost for federal income
tax purposes of $371,819,014 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost.......................................................... $ 554,633
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value.......................................................... (676,180)
------------
Net unrealized depreciation.................................................................. $ (121,547)
============
* 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, 1995.
------------------------------------------------------------------------------------------------------------------
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 lesser than 100% due to the inclusion of the Fund's assets and
liabilities in the calculation. The Fund's other assets and liabilities are
disclosed in the Statement of Assets and Liabilities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
<TABLE>
AARP HIGH QUALITY TAX FREE MONEY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------
MUNICIPAL INVESTMENTS - 99.2%
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ARIZONA
Apache County, AZ, Industrial Development Authority, Tucson Electric
Power Co., 1983 Series C, Weekly Demand Note, 4.2%, 12/15/18*........... 1,000,000 A-1+ 1,000,000
Maricopa County, AZ, Pollution Control Revenue, Arizona Public Service,
Palo Verde Project, Series C, Daily Demand Note, 4.5%, 5/1/29*.......... 2,000,000 A-1+ 2,000,000
Maricopa County, AZ, Pollution Control Revenue, Public Service of New
Mexico, Weekly Demand Note, 4.1%, 11/1/22*.............................. 4,000,000 A-1+ 4,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric
Power Co., Weekly Demand Note:
4.2%, 10/1/22*........................................................ 3,900,000 A-1+ 3,900,000
1982 Series A, 4.2%, 7/1/22*.......................................... 1,000,000 A-1+ 1,000,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper:
Series 1984, Daily Demand Note, 4.55%, 12/1/09*......................... 400,000 A-1+ 400,000
Weekly Demand Note, 4.25%, 12/1/11*..................................... 1,900,000 A-1+ 1,900,000
Salt River, AZ, Agricultural Improvement District, Tax Exempt
Commercial Paper, 4.15%, 4/7/95......................................... 2,000,000 A-1+ 2,000,000
CALIFORNIA
Butte Office of Education, CA, Tax and Revenue Anticipation Notes,
5%, 10/27/95............................................................ 1,000,000 SP-1+ 1,004,392
California Revenue Anticipation Note, Series A, 5%, 6/28/95............... 1,250,000 SP-1+ 1,252,364
Los Angeles County Unified School District, CA, Tax and Revenue
Anticipation Note, 4.5%, 7/10/95.................................. 1,000,000 SP-1+ 1,002,378
Los Angeles County, CA, Tax and Revenue Anticipation Note,
4.5%, 6/30/95..................................................... 2,000,000 SP-1+ 2,003,086
Orange County, California Water District, Tax Exempt
Commercial Paper 4.3%, 6/8/95..................................... 1,500,000 A-1+ 1,500,000
COLORADO
Clear Creek County, CO, Colorado Counties Financing Program,
Series 1988, Weekly Demand Note, 4.15%, 6/1/98*................... 1,800,000 A-1+ 1,800,000
Colorado State Certificate of Participation, 4.2%, 5/1/95 (c)............. 1,000,000 AAA 1,000,238
DISTRICT OF COLUMBIA
District of Columbia, General Obligation Bond, Daily Demand Note,
4.75%, 10/1/07*................................................... 500,000 A-1 500,000
District of Columbia, Variable Rate Refunding Bond, Daily Demand Note,
4.75%, 10/1/07*................................................... 200,000 A-1+ 200,000
District of Columbia, Tax and Revenue Anticipation Notes, 6.25%, 9/30/95.. 4,000,000 SP-1 4,025,784
FLORIDA
Dade County, FL, Water and Sewer System Revenue, Series 1994,
Weekly Demand Note, 4.15%, 10/5/22*(c)............................ 3,300,000 A-1+ 3,300,000
Jacksonville, FL, Pollution Control, Refunding Revenue, Florida Power
& Light, Tax Exempt Commercial Paper, 4.1%, 4/3/95................ 500,000 A-1 500,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric
Cooperative Finance Corp., 1984 Series H-1, Weekly Demand Note,
4.3%, 3/15/14*.................................................... 4,350,000 A-1+ 4,350,000
GEORGIA
Gordon County, GA, Development Authority Revenue, Sara Lee Corp.,
Weekly Demand Note, 4.15%, 3/1/02*................................ 1,400,000 A-1+ 1,400,000
IDAHO
Idaho General Obligation, Tax Anticipation Note, 4.5%, 6/29/95............ 1,000,000 SP-1+ 1,001,597
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
<TABLE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS
Illinois Development Finance Authority, Deerfield Marriott, Series 1984,
Weekly Demand Note, 4.2%, 11/1/14*.................................... 1,600,000 MIG1 1,600,000
Illinois Educational Facilities Authority, University Pooled Finance
Program, Weekly Demand Note, 4.2%, 12/1/05*(c)........................ 1,115,000 A-1 1,115,000
Illinois Health Facilities Authority, Highland Park Hospital Revenue,
1991 Series B, Optional Put, 3.75%, 6/1/95 (c)........................ 2,000,000 A-1+ 2,000,000
IOWA
West Des Moines, IA, Commercial Development Revenue, Greyhound Lines,
Weekly Demand Note, 4.25%, 12/1/14*................................... 6,400,000 A-1+ 6,400,000
KANSAS
Burlington, KS, Cooperative Finance Corp., Kansas Electric Power Coop.,
Tax Exempt Commercial Paper, 4%, 5/11/95.............................. 1,400,000 A-1+ 1,400,000
KENTUCKY
Kentucky Development Finance Authority, Healthcare System, Appalachian
Regional Health Care, Series 1991, Weekly Demand Note, 4.2%, 9/1/06*.. 7,200,000 A-1+ 7,200,000
LOUISIANA
Parish of DeSoto, LA, Pollution Control Revenue, Central Louisiana
Electric Co., 1991 Series B, Weekly Demand Note, 4%, 7/1/18*.......... 1,900,000 A-1+ 1,900,000
MAINE
Maine Tax Anticipation Note, Series 1994, 4.5%, 6/30/95.................. 1,800,000 SP-1+ 1,802,223
MARYLAND
Anne Arundel County, Maryland Port Facilities, Baltimore Gas &
Electric, Tax Exempt Commercial Paper, 4.2%, 5/8/95................... 1,000,000 A-1 1,000,000
MASSACHUSETTS
Massachusetts Bay Transportation Authority, Series B, 5%, 9/8/95......... 2,000,000 SP-1 2,007,575
MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982,
Weekly Demand Note, 4.25%, 8/1/12*.................................... 300,000 A-1+ 300,000
NEW HAMPSHIRE
New Hampshire Business Finance Authority, Connecticut Light & Power,
Weekly Demand Note, 4.25%, 12/1/22*................................... 1,700,000 A-1+ 1,700,000
NORTH CAROLINA
North Carolina Medical Care Commission, Hospital Revenue, Pooled
Financing Project, 1986 Series A-2, Weekly Demand Note,
4.3%, 7/1/26*(c)...................................................... 505,000 A-1 505,000
OREGON
Klameth Falls, OR, Hydroelectric Facilities Authority, Salt Caves
Project, 1986 Series D, Mandatory Put, ETM, 3.75%, 5/2/95 (d)......... 2,000,000 SP-1+ 2,000,000
Oregon General Obligation, 1973 Series G, Weekly Demand Note,
4.25%, 12/1/18*....................................................... 2,100,000 A-1+ 2,100,000
PENNSYLVANIA
Allegheny County, PA, General Obligation, Tender Option Bond,
Weekly Coupon Reset, Series C38, 4.225%, 9/1/04*(c)................... 1,000,000 AAA 1,000,000
Emmaus, PA, General Authority, Local Government Revenue Bond Pool
Program, Series G4, Weekly Demand Note, 4.25%, 3/1/24*................ 6,000,000 A-1+ 6,000,000
Pennsylvania Tax Anticipation Note, 4.75%, 6/30/95....................... 1,500,000 SP-1+ 1,502,876
Philadelphia, PA, Tax and Revenue Anticipation Note, 4.75%, 6/15/95...... 1,500,000 SP-1 1,502,526
Philadelphia, PA, Gas Works Revenue, Tax Exempt Commercial Paper,
4.05%, 4/11/95........................................................ 2,900,000 A-1+ 2,900,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
AARP HIGH QUALITY TAX FREE MONEY FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Principal Credit
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philadelphia School District, PA, Tax and Revenue Anticipation Note,
4.75%, 6/30/95...................................................... 1,500,000 SP-1+ 1,501,956
TENNESSEE
Clarksville, TN, Public Building Authority, Pooled Financing Revenue,
Weekly Demand Note, 4.1%, 12/1/00*(c)............................... 3,400,000 A-1 3,400,000
Franklin, TN, Industrial Development Revenue, Franklin Oaks Apartments,
Weekly Demand Note, 3.95%, 12/1/07*................................. 7,600,000 A-1 7,600,000
Tennessee Local Development Authority, Bond Anticipation Note,
4.5%, 6/1/95........................................................ 2,700,000 SP-1+ 2,703,632
TEXAS
Harris County, TX, Health Facilities Authority, St. Luke's Episcopal
Hospital, 1985 Series-D, Daily Demand Note, 4.5%, 2/15/16*.......... 1,000,000 A-1+ 1,000,000
Harris County, TX, Toll Road Revenue, Weekly Demand Note, 4.1%, 8/1/20*..... 1,500,000 A-1+ 1,500,000
City of Houston, TX, General Obligation Bond, Tax Exempt
Commercial Paper, 4.2%, 8/21/95..................................... 1,500,000 A-1+ 1,500,000
Port Development Corp., TX, Marine Terminal Refunding Revenue,
Stolt Terminals, Series 1989, Weekly Demand Note, 4.15%, 11/5/14*... 2,500,000 A-1+ 2,500,000
State of Texas, Tax and Revenue Anticipation Notes, 5%, 8/31/95............. 2,000,000 SP-1+ 2,007,106
Texas State Water Development Board, Weekly Demand Note, 4.5%, 3/1/15*...... 600,000 A-1+ 600,000
UTAH
Intermountain Power Agency, UT, Revenue Refunding, Series I,
9.7%, 7/1/98, Prerefunded 7/1/95 at 102............................. 900,000 AAA 929,213
Salt Lake City, UT, Pooled Hospital Financing Program, Tax Exempt
Commercial Paper, 4%, 8/9/95........................................ 2,400,000 A-1 2,400,000
WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note,
4.25%, 11/1/18*..................................................... 1,900,000 A-1+ 1,900,000
Washington General Obligation, Various Purpose, Series B2, Tender Option
Bond, Weekly Coupon Reset, 4.35%, 8/1/02*........................... 2,100,000 A-1+ 2,100,000
Washington Public Power Supply Authority, Projects -1 & -3, Series 1993,
Weekly Demand Note, 4.15%, 7/1/18*.................................. 1,995,000 A-1+ 1,995,000
WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding, Pacificorp
Project, 1990 Series A, Weekly Demand Note, 4.25%, 7/1/15*.......... 2,000,000 A-1+ 2,000,000
-----------
TOTAL MUNICIPAL INVESTMENTS (COST $122,611,946)............................. 122,611,946
-----------
---------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $122,611,946) (A).............................. 99.2 122,611,946
OTHER ASSETS AND LIABILITIES, NET............................................... 0.8 1,006,928
----- -----------
NET ASSETS...................................................................... 100.0 123,618,874
===== ===========
---------------------------------------------------------------------------------------------------------------------
<FN>
* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of the
U.S. Treasury bill rate. Variable rate demand notes are securities whose interest
rates are reset periodically at levels that are generally comparable to tax-exempt
commercial paper. These securities are payable on demand within seven calendar
days and normally incorporate an irrevocable letter of credit or line of credit
from a major bank. Since these securities are payable on demand, they are valued
at 100% of their principal.
(a) The cost for federal income tax purposes was $122,611,946.
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings shown
are either Standard & Poor's Ratings Group, Moody's Investors Service, Inc.
or Fitch Investors Service, Inc. Unrated securities (NR) have been determined
to be of comparable quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, or MBIA.
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
AARP HIGH QUALITY TAX FREE MONEY FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(d) 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.
--------------------------------------------------------------------------------
At September 30, 1994, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $1,309,217 of which $176,679
expires September 30, 1995, $618,345 expires September 30, 1996, $170,432
expires September 30, 1997, $19,559 expires September 30, 1999, $323,801
expires September 30, 2000 and $401 expires September 30, 2001. In
addition, from November 1, 1993 through September 30, 1994, the Fund
incurred approximately $10,343 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1995.
--------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or lesser than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
AARP GNMA AND U.S. TREASURY FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.5%
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
27,165,000 Repurchase Agreement with State Street Bank and Trust, dated 3/31/95
at 6%, to be repurchased at $27,178,583 on 4/3/95, collateralized by a
$28,090,000 U.S. Treasury Note, 6.28%, 1/31/96 (COST $27,165,000).......... 27,165,000
-------------
-----------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 25.5%
-----------------------------------------------------------------------------------------------------------------
100,000,000 U.S. Treasury Bill, 8/24/95.................................................. 97,684,000
300,000,000 U.S. Treasury Note, 3.875%, 8/31/95.......................................... 297,234,000
400,000,000 U.S. Treasury Note, 3.88%, 9/30/95........................................... 395,500,000
250,000,000 U.S. Treasury Note, 3.875%, 10/31/95......................................... 246,602,500
300,000,000 U.S. Treasury Note, 6.625%, 3/31/97.......................................... 299,202,900
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $1,331,018,507)........................ 1,336,223,400
-------------
-----------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 71.5%
-----------------------------------------------------------------------------------------------------------------
575,000,000 7.00% with various maturities to 8/15/24..................................... 537,803,250
107,799,975 7.50% with various maturities to 6/15/24..................................... 104,026,975
691,145,066 8.00% with various maturities to 2/15/25..................................... 684,835,774
594,431,357 8.50% with various maturities to 11/15/24.................................... 601,526,812
596,173,244 9.00% with various maturities to 10/15/24.................................... 612,442,842
444,528,043 9.50% with various maturities to 11/15/24.................................... 465,784,897
615,626,814 10.00% with various maturities to 3/15/25.................................... 665,630,880
344,938 10.25% with various maturities to 12/15/98................................... 365,635
29,182,322 10.50% with various maturities to 1/20/21.................................... 31,428,313
5,962,270 11.50% with various maturities to 2/15/16.................................... 6,618,120
11,523,694 12.00% with various maturities to 9/15/15.................................... 12,906,217
8,810,207 12.50% with various maturities to 8/15/15.................................... 9,915,792
2,206,588 13.00% with various maturities to 11/15/15................................... 2,464,957
1,132,551 13.50% with various maturities to 12/15/14................................... 1,282,614
348,154 14.00% with various maturities to 11/15/14................................... 396,896
97,240 14.50% with various maturities to 10/15/14................................... 111,522
294,736 15.00% with various maturities to 10/15/12................................... 341,339
375,230 16.00% with various maturities to 2/15/12.................................... 436,438
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(COST $3,740,294,652).................................................... 3,738,319,273
-------------
-----------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $5,098,478,159)(a)................................ 97.5 5,101,707,673
NET RECEIVABLE FOR SECURITIES SOLD................................................. 2.1 108,480,107
OTHER ASSETS AND LIABILITIES, NET.................................................. 0.4 19,339,235
----- -------------
NET ASSETS......................................................................... 100.0 5,229,527,015
===== =============
-----------------------------------------------------------------------------------------------------------------
<FN>
* Effective maturities will be shorter due to amortization and prepayments.
(a) At March 31, 1995, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $5,098,478,159 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost..................................................... $ 21,378,790
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value..................................................... (18,149,276)
------------
Net unrealized appreciation.............................................................. $ 3,229,514
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
AARP GNMA AND U.S. TREASURY FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Purchases and sales of investment securities, all of which were U.S.
Government obligations and U.S. Government Agencies (excluding short#term
investments), for the six months ended March 31, 1995, aggregated
$2,696,707,756 and $1,660,628,755, respectively.
--------------------------------------------------------------------------------
From November 1, 1993 through September 30, 1994, the Fund incurred
approximately $304,560,473 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year ended
September 30, 1995.
--------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the Fund.
The total net assets of the Fund are comprised of the Fund's investment
portfolio, other assets and liabilities. The percentage of the investment
portfolio may be greater or lesser than 100% due to the inclusion of the
Fund's assets and liabilities in the calculation. The Fund's other assets and
liabilities are disclosed in the Statement of Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
<TABLE>
AARP HIGH QUALITY BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 8.8%
26,200,000 Associates Corp. of North America, 6.2%, 4/3/95.......................................... 26,200,000
19,889,000 Household Finance Corp., 6.25%, 4/3/95................................................... 19,889,000
-----------
TOTAL COMMERCIAL PAPER (COST $46,089,000)................................................ 46,089,000
-----------
---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES 30.8%
---------------------------------------------------------------------------------------------------------------------------
15,000,000 Federal National Mortgage Association, 9.65%, 8/10/20.................................... 16,162,500
2,000,000 Resolution Funding Corp., Zero Coupon, 1/15/08 (7.69%)**................................. 762,200
2,400,000 Resolution Funding Corp., Zero Coupon, 7/15/08 (7.73%)**................................. 876,264
1,800,000 Resolution Funding Corp., Zero Coupon, 1/15/09 (7.75%)**................................. 631,080
2,400,000 Resolution Funding Corp., Zero Coupon, 7/15/09 (7.79%)**................................. 805,608
2,100,000 Resolution Funding Corp., Zero Coupon, 1/15/10 (7.81%)**................................. 676,536
3,800,000 Resolution Funding Corp., Zero Coupon, 7/15/10 (7.83%)**................................. 1,174,732
10,000,000 U.S. Treasury Note, 7.875%, 7/15/96...................................................... 10,150,000
35,000,000 U.S. Treasury Note, 5.5%, 9/30/97........................................................ 33,922,700
21,000,000 U.S. Treasury Note, 6.875%, 7/31/99...................................................... 20,835,990
25,000,000 U.S. Treasury Note, 7.5%, 5/15/02........................................................ 25,488,250
21,000,000 U.S. Treasury Note, 5.875%, 2/15/04...................................................... 19,139,610
55,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 5/15/09 (7.62%**)...... 19,137,800
25,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 8/15/09 (7.63%**) (b).. 8,523,500
10,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/10 (7.68%**)..... 3,080,100
-----------
TOTAL U.S. GOVERNMENT & AGENCIES (COST $163,342,069)..................................... 161,366,870
-----------
---------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 5.0%
---------------------------------------------------------------------------------------------------------------------------
24,240,000 Government National Mortgage Association Pass-thru, 10%, 2/15/25
(COST $26,095,875)................................................................... 25,982,129
-----------
---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY PASS-THRUS* 20.1%
---------------------------------------------------------------------------------------------------------------------------
5,010,725 Federal Home Loan Mortgage Corp., 9.5%, 1/1/25........................................... 5,231,497
7,654,613 Federal Home Loan Mortgage Corp., 9.5%, 1/1/25........................................... 7,991,875
5,493,219 Federal Home Loan Mortgage Corp., 9.5%, 2/1/25........................................... 5,735,250
4,997,684 Federal Home Loan Mortgage Corp., 9.5%, 2/1/25........................................... 5,217,882
1,434,407 Federal Home Loan Mortgage Corp., 9.5%, 2/1/25........................................... 1,497,608
26,000,000 Federal Home Loan Mortgage Corp., 7.5%, 3/1/25........................................... 25,228,060
24,750,000 Federal Home Loan Mortgage Corp., 9.5%, 4/1/25........................................... 25,840,485
29,693,096 Federal National Mortgage Association, 7.5%, 10/1/22..................................... 28,737,275
-----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS (COST $104,774,976).............................. 105,479,932
-----------
---------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 4.7%
---------------------------------------------------------------------------------------------------------------------------
18,154,702 Federal Home Loan Mortgage Corp. Separate Trading Registered
Principal only, 5/1/99............................................................... 14,977,629
10,000,000 Prudential Home Mortgage Securities Co., 1993-4 Series A3, 7%, 2/25/24................... 9,744,970
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $25,995,756)............................. 24,722,599
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
<TABLE>
AARP HIGH QUALITY BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN BONDS - U.S.$ DENOMINATED 8.7%
---------------------------------------------------------------------------------------------------------------------------
13,000,000 ABN-AMRO Bank NV, subordinated note, 7.125%, 10/15/2093.................................. 10,856,560
10,000,000 Hydro-Quebec, 9.5%, 11/15/30............................................................. 10,927,500
12,000,000 Province of Ontario, 7.375%, 1/27/03..................................................... 11,706,960
8,000,000 Svensk Export Kredit AB, 8.625%, 4/15/26................................................. 7,630,000
4,300,000 Tokyo Metropolis, Japan, 9.25%, 10/11/98................................................. 4,548,927
----------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $49,148,112)............................... 45,669,947
----------
---------------------------------------------------------------------------------------------------------------------------
ASSET BACKED 5.2%
---------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 1.1%
5,728,917 Capital Automobile Receivable Asset Trust, Series A6, 4.9%, 2/15/98...................... 5,693,111
----------
CREDIT CARD RECEIVABLES 0.6%
3,000,000 Standard Credit Card Trust Series 1991-1, 8.5%, 6/7/96................................... 3,048,750
----------
HOME EQUITY LOANS 2.2%
2,722,510 Fleet Financial Home Equity Trust Series 1991-2A, 6.7%, 10/16/06......................... 2,675,718
9,308,399 United Companies Financial Corp., Home Loan Trust, Series 1993 B1,
6.075%, 7/25/14...................................................................... 8,689,949
----------
11,365,667
----------
MANUFACTURED HOUSING 1.3%
4,500,000 Merrill Lynch Mortgage Investors Inc. Series 1991-D, 9.85%, 7/15/11...................... 4,743,270
2,118,347 Security Pacific Acceptance Corp., 7.85%, 9/15/11........................................ 2,117,012
----------
6,860,282
----------
TOTAL ASSET BACKED (COST $27,369,709).................................................... 26,967,810
----------
---------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 15.9%
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL 3.9%
1,500,000 American Express Credit Corp., 11.625%, 12/12/00......................................... 1,667,813
4,000,000 British Telecom Financial, Inc., 9.375%, 2/15/99......................................... 4,263,400
4,500,000 Grand Metropolitan Investment Corp., 8.125%, 8/15/96..................................... 4,560,030
10,000,000 Toyota Motor Credit Corp., 5.75%, 6/15/95................................................ 9,984,900
----------
20,476,143
----------
DURABLES 4.0%
15,000,000 Ford Motor Co., 8.875%, 1/15/22.......................................................... 15,975,450
5,000,000 Ford Motor Credit Co., 6.25%, 2/26/98.................................................... 4,844,800
----------
20,820,250
----------
ENERGY 3.4%
15,000,000 Atlantic Richfield Co., 9.125%, 8/1/31................................................... 16,443,750
3,100,000 Halliburton Co., Zero Coupon, 3/13/06 (6.25%)**.......................................... 1,581,000
----------
18,024,750
----------
TRANSPORTATION 1.1%
5,000,000 Consolidated Rail Corp., 9.75%, 6/15/20.................................................. 5,804,200
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
<TABLE>
AARP HIGH QUALITY BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES 3.5%
15,000,000 Pacific Bell, 7.125%, 3/15/26........................................................... 13,317,450
4,500,000 Pacific Gas & Electric Co., 1984 Series D, 12.75%, 11/1/17.............................. 4,877,235
----------
18,194,685
----------
TOTAL CORPORATE BONDS (COST $85,630,540)................................................ 83,320,028
----------
---------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $528,446,037) (a).................................... 99.2 519,598,315
OTHER ASSETS AND LIABILITIES, NET..................................................... 0.8 4,406,009
----- -----------
NET ASSETS............................................................................ 100.0 524,004,324
===== ===========
---------------------------------------------------------------------------------------------------------------------------
<FN>
* Effective maturities will be shorter due to amortization and prepayments.
** Yield; bond equivalent yield to maturity; not a coupon rate.
(a) At March 31, 1995, the net unrealized depreciation on investments based on cost for federal income
tax purposes of $528,446,037 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost.................................................................. $ 5,314,309
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value.................................................................. (14,162,031)
----------
Net unrealized depreciation.......................................................................... $ (8,847,722)
============
(b) At March 31, 1995, this security, in part, was pledged to cover initial margin
requirements for open futures contracts.
</TABLE>
<TABLE>
At March 31, 1995, open futures contracts sold short were as follows (Note 1):
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
--------------------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Notes........ June 1995 112 11,486,818 11,637,500
---------- ----------
Total net unrealized depreciation on open futures contracts sold short....... (150,682)
----------
</TABLE>
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1995 was $22,661,310 and $22,875,925
respectively.
--------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), aggregated $10,656,900 and $38,533,162, respectively.
Purchases and sales of U.S. Government obligations and U.S. Government
Agencies, for the six months ended March 31, 1995, aggregated $190,102,550
and $194,811,991, respectively.
--------------------------------------------------------------------------------
From November 1, 1993 through September 30, 1994, the Fund incurred
approximately $16,822,991 of net realized capital losses which the
Fund intends to elect to defer and treat as arising in the fiscal year
ended September 30, 1995.
--------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or lesser than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS (Under 1 year) - 6.0%
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
Sacramento, CA, Municipal Utility District, Electric Revenue, Periodic
Auction Reset, Series D, 4.5%, 11/15/15* (c) (d)............................... 3,800,000 AAA 3,800,000
COLORADO
Colorado Housing Finance Agency, Multi-Family Revenue, Central Park
Coven, Weekly Demand Note, 4.15%, 5/1/97*...................................... 14,500,000 A1 14,500,000
DISTRICT OF COLUMBIA
District of Columbia, General Obligation:
Daily Demand Note, Series A3, 4.75%, 10/1/07*.................................. 2,000,000 A1+ 2,000,000
Daily Demand Note, Series A4, 4.75%, 10/1/07*.................................. 9,800,000 A1+ 9,800,000
Daily Demand Note, Series A5, 4.75%, 10/1/07*.................................. 6,100,000 A1+ 6,100,000
District of Columbia, Tax and Revenue Anticipation Note, 6.25%, 9/30/95................ 4,350,000 SP-1 4,381,755
FLORIDA
Halifax Hospital Medical Center, FL, Hospital Revenue, Periodic Auction
Reset, Series A, 4.3%, 10/1/19* (c)............................................ 18,650,000 AAA 18,650,000
IOWA
Des Moines, IA, Hospital Facility Revenue, Iowa Methodist Hospital,
Periodic Auction Reset, 4.25%, 8/15/21* (c).................................... 6,300,000 A1+ 6,300,000
KANSAS
Burlington, Kansas, Environmental Improvement Revenue, Kansas City
Power and Light, Periodic Auction Reset, 4.08%, 12/1/23*....................... 17,000,000 MIG1 17,000,000
MISSOURI
Missouri Environment Improvement & Energy Resource Authority, Union
Electric Project, Periodic Auction Reset, 4.09%, 12/1/22*...................... 17,000,000 A 17,000,000
PENNSYLVANIA
Chester County, PA, Health and Education Facility Authority, Main Line
Health, Periodic Auction Reset, 3.99%, 5/15/20* (c)............................ 5,000,000 AAA 5,000,000
PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation Authority,
Periodic Auction Reset, Series W, 3.495%, 7/1/10*.............................. 4,500,000 A 4,500,000
-----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (COST $109,026,590)............................. 109,031,755
-----------
---------------------------------------------------------------------------------------------------------------------------
LONGER-TERM MUNICIPAL INVESTMENTS (Over 1 year) - 92.8%
---------------------------------------------------------------------------------------------------------------------------
ALABAMA
Birmingham, AL, Baptist Medical Center, Series A, 5.5%, 8/15/13 (c).................... 2,800,000 AAA 2,639,252
Montgomery, AL, Special Care Facilities, Baptist Medical Center, Series A,
5.75%, 1/1/12 (c).............................................................. 2,000,000 AAA 1,937,120
ALASKA
Anchorage, AK, Certificate of Participation, Series A, 7.8%, 2/15/06 (c)............... 10,000,000 AAA 10,462,800
North Slope Borough, AK, General Obligation:
Series I, 6.55%, 6/30/95 (c)................................................... 2,000,000 AAA 2,010,920
Series I, Zero Coupon, 6/30/95 (c)............................................. 3,500,000 AAA 3,462,515
Series B, Zero Coupon, 1/1/03 (c).............................................. 16,000,000 AAA 10,342,240
Zero Coupon, 6/30/04........................................................... 15,500,000 AAA 9,158,175
Series B, Zero Coupon, 6/30/05................................................. 21,600,000 AAA 11,984,760
ARIZONA
Arizona Municipal Finance Program, Certificate of Participation,
Series 25, 7.875%, 8/1/14 (c).................................................. 3,500,000 AAA 4,355,995
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maricopa County, AZ:
Hospital District -1, Hospital Facilities Revenue, 1985 Series A,
9.25%, 6/30/12, Prerefunded 6/30/95 at 102 (c)........................ 1,500,000 AAA 1,547,745
School District -68, Alhambra Elementary, Zero Coupon, 7/1/03 (c)............. 2,860,000 AAA 1,829,370
School District -68, Alhambra Elementary, Zero Coupon, 7/1/04 (c)............. 2,860,000 AAA 1,723,608
School District -68, Alhambra Elementary, Zero Coupon, 7/1/05 (c)............. 2,850,000 AAA 1,616,406
School District -41, Gilbert School, Zero Coupon, 1/1/05 (c).................. 5,280,000 AAA 3,078,610
School District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/04 (c)..... 6,000,000 AAA 3,716,280
School District -6, Washington Elementary, Series B, 4.1%, 7/1/13 (c)......... 2,950,000 AAA 2,341,504
Scottsdale, AZ, Industrial Development Authority, Scottsdale Memorial
Hospital, 8.5%, 9/1/17 (c).................................................... 1,050,000 AAA 1,154,265
CALIFORNIA
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/09 (c)............................................................ 5,615,000 AAA 5,433,411
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/19 (c)................................................................ 1,080,000 AAA 1,361,113
8%, 1/1/19 (c)................................................................ 960,000 AAA 1,209,878
California General Obligation, Revenue Anticipation Warrants, Series C,
5.75%, 4/25/96................................................................ 15,000,000 SP-1 15,192,600
California Health Facilities Finance Authority, Hospital Revenue,
Centinella Hospital Medical Center, 9.375%, 9/1/15, Prerefunded
9/1/95 at 102 (c)..................................................... 5,000,000 AAA 5,204,350
California Public Works Board Lease Revenue:
Department of Corrections:
Series A, 5.25%, 12/1/07 (c).......................................... 9,000,000 AAA 8,771,760
Series A, 5.25%, 12/1/08 (c).......................................... 3,000,000 AAA 2,883,780
Del Norte/Imperial, Series C, 5%, 12/1/07 (c)......................... 6,000,000 AAA 5,702,100
Secretary of State, Series A, 6.3%, 12/1/06 (c)............................... 8,095,000 AAA 8,639,227
California Sate Department of Water Resources, Series M, 4.9%, 12/1/09................ 4,485,000 AAA 4,015,959
California Statewide Communities Development Corporation,
Certificate of Participation, Children's Hospital, 5%, 6/1/06 (c)............. 2,035,000 AAA 1,963,917
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/06 (c)........................ 9,000,000 AAA 9,359,280
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue,
Multiple Projects IV, 4.75%, 12/1/10 (c)...................................... 11,140,000 AAA 9,768,220
Northern California Power Agency, Public Power Revenue, Geothermal
Project #3, 11.5%, 7/1/10, Prerefunded 7/1/95 at 103.......................... 85,000 AAA 86,503
Northern California Transmission Revenue, Ore Transmission Project,
Series A, 5.1%, 5/1/06 (c).................................................... 5,000,000 AAA 4,785,350
Norwalk, CA, Redevelopment Agency, Tax Allocation, 9.1%, 12/1/15...................... 7,000,000 NR 7,346,150
Oakland, CA, Redevelopment Agency, Tax Allocation, 6%, 2/1/07 (c)..................... 2,000,000 AAA 2,066,600
Palomar Pomerado, CA, Health Systems, Series B, Zero Coupon, 11/1/02 (c).............. 3,080,000 AAA 2,041,054
Riverside, CA, Transportation Commission, Sales Tax Revenue, Series A:
5.7%, 6/1/06 (c).............................................................. 5,400,000 AAA 5,493,258
5.75%, 6/1/07 (c)............................................................. 3,000,000 AAA 3,032,400
San Diego Water Authority, CA, Certificate of Participation:
5.632%, 4/25/07 (c)........................................................... 6,300,000 AAA 6,218,541
5.681%, 4/22/09 (c)........................................................... 4,500,000 AAA 4,393,665
San Diego, CA, Transportation Authority, Series A, 5.25%, 4/1/07 (c).................. 2,500,000 AAA 2,439,175
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue
Refunding, 6.75%, 7/1/10 (c).................................................. 2,000,000 AAA 2,188,200
San Joaquin, CA, Certificate of Participation, County Public Facilities
Project, 5.5%, 11/15/13 (c)................................................... 2,000,000 AAA 1,862,120
Sweetwater, CA, Water Revenue, 5.25%, 4/1/10 (c)...................................... 13,240,000 AAA 12,529,542
Three Valleys Municipal Water District Certificates of Participation, CA,
5%, 11/1/14 (c)............................................................... 3,000,000 AAA 2,647,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DISTRICT OF COLUMBIA
District of Columbia, Georgetown University, 7.1%, 4/1/12............................. 3,000,000 A 3,169,740
District of Columbia, General Obligation:
Refunding Revenue, 5.875%, 6/1/05 (c)......................................... 4,750,000 AAA 4,783,868
Series A, 7.5%, 6/1/09, Prerefunded 6/1/99 at 102 (c)......................... 5,000,000 AAA 5,561,800
Series B, 6.125%, 6/1/03 (c).................................................. 4,000,000 AAA 4,101,520
Series B, 5.4%, 6/1/06 (c).................................................... 10,000,000 AAA 9,610,000
Series B, 5.4%, 6/1/06 (c).................................................... 18,905,000 AAA 18,167,705
Series B, 5.5%, 6/1/07 (c).................................................... 25,000,000 AAA 24,180,000
Series B, 5.5%, 6/1/08 (c).................................................... 21,300,000 AAA 20,375,154
Series B, 5.5%, 6/1/09 (c).................................................... 15,150,000 AAA 14,390,682
Series B, 5.5%, 6/1/09 (c).................................................... 2,840,000 AAA 2,697,659
Series B, 5.5%, 6/1/10 (c).................................................... 15,590,000 AAA 14,612,663
Series B, 5.5%, 6/1/12 (c).................................................... 1,050,000 AAA 971,870
Series B, Zero Coupon, 6/1/00................................................. 3,500,000 AAA 2,632,420
6.5%, 6/1/10 (c).............................................................. 2,270,000 NR 2,349,654
FLORIDA
Dade County, FL, Health Facilities Authority, Miami Children's Hospital,
5%, 8/1/23, Prerefunded 2/1/10 at 100......................................... 1,400,000 AAA 1,330,882
Florida Department of Environmental Preservation, Series A,
4.75%, 7/1/12 (c)............................................................. 10,000,000 AAA 8,784,500
Florida Municipal Power Agency, Stanton II Project, 4.5%, 10/1/16 (c)................. 4,400,000 AAA 3,572,008
Florida Turnpike Authority, Department of Transportation, Series A,
5.25%, 7/1/07 (c)............................................................. 9,000,000 AAA 8,871,300
Orange County, FL, Health Facilities Authority Refunding Program, 1985
Series A, 7.875%, 12/1/25 (c)................................................. 16,970,000 AAA 18,073,050
Orange County, FL, Tax Revenue, Tourist Development, Series A,
5.75%, 10/1/07 (c)............................................................ 2,000,000 AAA 2,061,180
Orlando, FL, Utility Commission, Water & Electric Refunding Revenue,
8.5%, 10/1/09, Prerefunded 10/1/95 at 102..................................... 3,200,000 AAA 3,330,848
Sarasota County, FL, School Board Finance Corporation:
Lease Revenue, 5%, 7/1/10 (c)................................................. 3,800,000 AAA 3,527,388
Lease Revenue, Refunding Revenue, 5%, 7/1/09 (c).............................. 5,595,000 AAA 5,246,935
GEORGIA
Cobb County, GA, Kennestone Hospital Authority, Series A,
5.625%, 4/1/11 (c)............................................................ 5,305,000 AAA 5,168,608
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/11 (c).......................................... 11,225,000 AAA 10,521,529
Municipal Electric Authority of Georgia, 5th Crossover, Project #1,
6.4%, 1/1/13 (c).............................................................. 3,500,000 AAA 3,682,560
Municipal Electric Authority of Georgia, Power Revenue, 5.5%, 1/1/12 (c).............. 1,600,000 AAA 1,529,040
ILLINOIS
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue:
Zero Coupon, 5/1/02 (c)....................................................... 2,245,000 AAA 1,520,224
5.3%, 5/1/06 (c).............................................................. 2,120,000 AAA 2,104,121
5.4%, 5/1/07 (c).............................................................. 2,280,000 AAA 2,261,920
Chicago O'Hare International Airport, IL, Revenue Refunding, Series C:
5%, 1/1/10 (c)................................................................ 15,410,000 AAA 14,125,885
5%, 1/1/11 (c)................................................................ 16,500,000 AAA 15,004,440
5%, 1/1/18 (c)................................................................ 5,900,000 AAA 5,067,805
Chicago, IL, Wastewater Transmission Revenue:
5.3%, 1/1/05 (c).............................................................. 2,400,000 AAA 2,351,520
5.5%, 1/1/09 (c).............................................................. 11,990,000 AAA 11,773,581
5.5%, 1/1/10 (c).............................................................. 7,220,000 AAA 7,034,374
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chicago, IL, General Obligation:
6.25%, 1/1/11.................................................................. 3,000,000 AAA 3,106,380
Emergency Telephone System, 5.55%, 1/1/08 (c).................................. 5,820,000 AAA 5,777,398
Series A, 5.375%, 1/1/13 (c)................................................... 15,410,000 AAA 14,461,206
Series B, 5%, 1/1/08 (c)....................................................... 3,485,000 AAA 3,280,744
Series B, 5%, 1/1/10 (c)....................................................... 5,200,000 AAA 4,805,424
Series B, 5%, 1/1/11 (c)....................................................... 1,620,000 AAA 1,473,163
Series B, 5%, 1/1/12 (c)....................................................... 5,000,000 AAA 4,529,750
Series B, 5.125%, 1/1/15 (c)................................................... 9,550,000 AAA 8,538,846
Chicago, IL, General Obligation Lease, Board of Education, Series A:
6.25%, 1/1/10 (c).............................................................. 6,800,000 AAA 7,065,472
6.25%, 1/1/15 (c).............................................................. 23,000,000 AAA 23,846,860
6%, 1/1/16 (c)................................................................. 11,025,000 AAA 10,971,860
6%, 1/1/20 (c)................................................................. 36,625,000 AAA 36,155,468
Chicago, IL, Motor Fuel Tax Revenue, 6.5%, 1/1/16, Prerefunded 1/1/01
at 100 (c)..................................................................... 2,000,000 AAA 2,137,820
Chicago, IL, Public Building Commission:
Building Revenue, Series A, 5.25%, 12/1/11 (c)................................. 9,705,000 AAA 9,109,113
Building Revenue, Series A, 5.25%, 12/1/09 (c)................................. 10,420,000 AAA 9,937,241
Building Revenue, Series A, 5.25%, 12/1/07 (c)................................. 3,500,000 AAA 3,426,850
Board of Education, Series A, Zero Coupon, 1/1/06 (c).......................... 2,430,000 AAA 1,306,028
Series A, 5%, 6/1/09 (c)....................................................... 5,425,000 AAA 4,999,246
Chicago, IL, School Finance Authority, General Obligation:
Series A, 4.8%, 6/1/01 (c)..................................................... 3,255,000 AAA 3,148,496
Cook County, IL, General Obligation:
Zero Coupon, 11/1/04 (c)....................................................... 3,205,000 AAA 1,923,353
Series C, 6%, 11/15/07 (c)..................................................... 5,000,000 AAA 5,151,450
Decatur, IL, General Obligation, Series 1991, Zero Coupon:
10/1/03 (c).................................................................... 1,455,000 AAA 906,843
10/1/04 (c).................................................................... 1,415,000 AAA 829,586
Decatur, IL, Public Building Commission, General Obligation,
Certificate of Participation:
6.5%, 1/1/03 (c)....................................................... 1,725,000 AAA 1,847,061
6.5%, 1/1/06 (c)....................................................... 1,500,000 AAA 1,615,290
Illinois Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/11 (c)............................................................ 3,000,000 AAA 3,107,010
6.25%, 12/15/20 (c)............................................................ 6,975,000 AAA 7,154,955
Series A, 6.5%, 12/15/08 (c)................................................... 4,400,000 AAA 4,713,808
Illinois Educational Facilities Authority, Loyola University:
Series 1991 A, Zero Coupon, 7/1/04 (c)......................................... 2,860,000 AAA 1,700,499
Zero Coupon, 7/1/05 (c)........................................................ 4,000,000 AAA 2,234,920
Illinois Health Facilities Authority, Brokaw-Mennonite Healthcare:
6%, 8/15/06 (c)................................................................ 1,380,000 AAA 1,424,684
6%, 8/15/07 (c)................................................................ 1,460,000 AAA 1,497,069
6%, 8/15/08 (c)................................................................ 1,550,000 AAA 1,578,412
6%, 8/15/09 (c)................................................................ 1,640,000 AAA 1,663,550
Illinois Health Facilities Authority:
Children's Memorial Hospital, 6.25%, 8/15/13 (c)............................... 2,000,000 AAA 2,064,020
Felician Healthcare Inc., Series A, 6.25%, 12/1/15 (c)......................... 17,000,000 AAA 17,465,800
Memorial Medical Center, 6.75%, 10/1/11 (c).................................... 2,135,000 AAA 2,245,038
Methodist Health Service, Series 1985 G, 8%, 8/1/15 (c)........................ 10,210,000 AAA 11,235,492
SSM Health Care System, 6.4%, 6/1/08 (c)....................................... 1,350,000 AAA 1,423,710
Sherman Hospital, 6.75%, 8/1/11 (c)............................................ 2,700,000 AAA 2,853,630
Illinois State Toll Highway Authority, Series 1992 A, 5.75%, 1/1/17 (c)................ 15,400,000 AAA 14,576,716
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joliet, IL, Junior College Assistance Corporation, Lease Revenue, North
Campus Extension Center, 6.7%, 9/1/12 (c)..................................... 2,500,000 AAA 2,715,650
Kendall, Kane and Will Counties, IL, Community Unit School District
#308, Oswego, Zero Coupon:
3/1/02 (c)............................................................ 1,055,000 AAA 720,976
3/1/05 (c)............................................................ 1,540,000 AAA 876,907
3/1/06 (c)............................................................ 1,595,000 AAA 849,034
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project, Zero Coupon:
12/15/03 (c).......................................................... 3,200,000 AAA 1,971,808
6/15/04 (c)........................................................... 10,300,000 AAA 6,139,624
Northern Cook County, IL, Solid Waste Agency Contract Revenue,
6.5%, 5/1/09 (c).............................................................. 6,000,000 AAA 6,262,920
Northwest Suburban Municipal Joint Action Water Agency, IL,
Supply System Revenue, 6.45%, 5/1/07 (c)...................................... 2,575,000 AAA 2,751,104
Rosemont, IL, Tax Increment, Series C, Zero Coupon:
12/1/05 (c)................................................................... 4,455,000 AAA 2,430,960
12/1/07 (c)................................................................... 2,655,000 AAA 1,261,762
State University Retirement System, IL, Special Revenue,
Zero Coupon, 10/1/03 (c)...................................................... 2,750,000 AAA 1,713,965
University of Illinois, Board of Trustees, Series 1991, Zero Coupon:
4/1/03 (c).................................................................... 3,890,000 AAA 2,492,907
4/1/05 (c).................................................................... 3,830,000 AAA 2,170,576
Will County, IL, Community Unit School District #201-U,
Crete-Monee, Capital Appreciation:
Zero Coupon, 12/15/00 (c)............................................. 1,325,000 AAA 973,849
Zero Coupon, 12/15/01 (c)............................................. 1,730,000 AAA 1,200,793
INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, Series A, 6.5%, 11/15/12 (c).............. 1,400,000 AAA 1,436,120
Indiana Health Facilities Finance Authority, Hospital Revenue:
Ancilla Systems Inc., Series A, 6%, 7/1/18 (c)................................ 27,635,000 AAA 27,206,381
Community Hospital Project, 6.4%, 5/1/12 (c).................................. 5,000,000 AAA 5,103,050
Indiana Municipal Power Agency, Power Supply System, Series B:
5.875%, 1/1/10 (c)............................................................ 5,300,000 AAA 5,299,364
6%, 1/1/11 (c)................................................................ 15,455,000 AAA 15,563,030
6%, 1/1/12 (c)................................................................ 2,000,000 AAA 2,003,940
Indiana University:
Revenue Refunding, Series H, Zero Coupon, 8/1/06 (c).......................... 8,500,000 AAA 4,416,940
Student Fee Revenue, Series J, 5%, 8/1/18 (c)................................. 4,200,000 AAA 3,582,264
Revenue Refunding, Student Fee Revenue, Series H, Zero Coupon,
8/1/08 (c)............................................................ 10,000,000 AAA 4,511,100
Madison County, IN, Community Hospital of Anderson, 8%, 1/1/14,
Prerefunded 1/1/98 at 102 (c)................................................. 7,055,000 AAA 7,753,092
Merrillville, IN, Multiple School Building Corporation, First Mortgage,
Zero Coupon, 1/15/11 (c)...................................................... 4,000,000 AAA 1,504,440
Porter County, IN, Hospital Authority, Porter Memorial Hospital,
Series 1993, 5.25%, 6/1/14 (c)................................................ 8,750,000 AAA 7,869,750
IOWA
Muscatine, IA, Electric Utility, Revenue Refunding, 7.625%, 1/1/04 (c)................ 6,600,000 AAA 6,867,894
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c)................................... 5,000,000 AAA 5,390,250
KANSAS
Kansas City, KS, Utility System Revenue:
ETM, Zero Coupon, 9/1/04** (c)................................................ 3,575,000 AAA 2,164,520
ETM, Zero Coupon, 9/1/05** (c)................................................ 5,300,000 AAA 3,023,915
ETM, Zero Coupon, 9/1/06** (c)................................................ 1,875,000 AAA 1,004,719
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Coupon, 9/1/04 (c)..................................................... 2,640,000 AAA 1,576,555
Zero Coupon, 9/1/05 (c)..................................................... 3,950,000 AAA 2,219,703
Zero Coupon, 9/1/06 (c)..................................................... 1,375,000 AAA 723,003
KENTUCKY
Kentucky State Property and Buildings Commission, Project #55,
4.5%, 9/1/02 (c)............................................................ 4,300,000 AAA 4,040,796
LOUISIANA
Louisiana Public Facilities Authority, 4.75%, 5/1/16, Prerefunded 2/15/08
at 100...................................................................... 5,765,000 AAA 5,274,802
New Orleans, LA, General Obligation, Zero Coupon, 9/1/07 (c)........................ 10,000,000 AAA 4,910,800
MARYLAND
University of Maryland, Facilities & Tuition Revenue, 4.75%, 10/1/07 (c)............ 14,605,000 AAA 13,266,890
MASSACHUSETTS
Commonwealth of Massachusetts General Obligation:
Series A, 7%, 3/1/99 (c).................................................... 4,850,000 AAA 5,201,528
Series C, 4.95%, 8/1/05 (c)................................................. 10,000,000 AAA 9,539,700
Series C, 5%, 8/1/06 (c).................................................... 20,000,000 AAA 19,277,600
Series D, 7%, 10/1/03 (c)................................................... 7,000,000 AAA 7,596,120
Massachusetts Bay Transportation Authority, General Transportation
System:
5.25%, 3/1/06 (c)................................................... 10,000,000 AAA 9,772,300
Series A, 5.4%, 3/1/07 (c).......................................... 5,000,000 AAA 4,982,350
Massachusetts Housing Finance Agency, Multi-Family Mortgage Purchase
Revenue, 9.25%, 12/1/14 (c)................................................. 2,500,000 AAA 2,625,550
Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue, Series A:
5.1%, 7/1/06 (c).................................................... 8,795,000 AAA 8,395,443
5.1%, 7/1/07 (c).................................................... 1,640,000 AAA 1,537,434
5.1%, 7/1/08 (c).................................................... 5,715,000 AAA 5,288,261
MICHIGAN
Brighton, MI, Area School District, Series I, Zero Coupon, 5/1/20,
Prerefunded 5/1/05 at 34.134 (c)............................................ 22,000,000 AAA 4,298,140
Detroit, MI, General Obligation, Distributable State Aid Refunding:
5.2%, 5/1/07 (c)............................................................ 3,000,000 AAA 2,949,660
5.25%, 5/1/08 (c)........................................................... 1,500,000 AAA 1,447,635
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue,
Borgess Medical Center, Series A, 6%, 7/1/09 (c)............................ 8,250,000 AAA 8,616,135
Michigan Hospital Finance Authority, Sisters of Mercy Healthcorp
Obligated Group, Series P:
5.1%, 8/15/07 (c)................................................... 3,000,000 AAA 2,841,540
5.25%, 8/15/08 (c).................................................. 8,655,000 AAA 8,200,266
Michigan Housing Development Authority:
Single Family Mortgage Revenue, Series 1993 B, 3.55%, 12/1/18 (c)........... 13,100,000 AA 13,077,861
Rental Revenue, Series B, 5.7%, 4/1/12...................................... 6,275,000 A 5,823,765
MISSISSIPPI
Mississippi Hospital Equipment Facilities Authority, North Mississippi
Health Services, 5.5%, 5/15/09 (c).......................................... 5,050,000 AAA 4,890,673
MISSOURI
Missouri Health & Educational Facilities Authority, SSM Healthcare,
1992 Series AA:
6.35%, 6/1/08 (c)................................................... 8,125,000 AAA 8,624,119
6.4%, 6/1/09 (c).................................................... 8,640,000 AAA 9,169,632
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEVADA
Clark County, NV, General Obligation, School District, Series B,
Zero Coupon, 3/1/05 (c)...................................................... 8,070,000 AAA 4,595,219
NEW JERSEY
New Jersey Housing and Finance Agency, Home Mortgage Purchase
Revenue, Zero Coupon, 10/1/16 (c)............................................ 5,155,000 AAA 560,297
NEW YORK
Metropolitan Transportation Authority, NY, Transit Facilities Revenue,
Series N, 4.9%, 7/1/07 (c)................................................... 8,500,000 AAA 7,912,565
New York City, NY, General Obligation:
8.125%, 11/1/05 (c).......................................................... 1,400,000 AAA 1,543,990
Series A, 8%, 11/1/01 (c).................................................... 760,000 AAA 826,910
Series A, ETM, 8%, 11/1/01** (c)............................................. 740,000 AAA 861,819
Series A, 3%, 8/15/02 (c).................................................... 9,000,000 AAA 7,685,370
Series C, 6.4%, 8/1/04 (c)................................................... 500,000 AAA 533,720
Series C, 6.4%, 8/1/05 (c)................................................... 430,000 AAA 458,999
Series C, 6.4%, 8/1/05, Prerefunded 8/1/02 at 101.50 (c)..................... 10,000,000 AAA 10,928,300
Series D, 8%, 8/1/05, Prerefunded 8/1/97 at 102 (c).......................... 830,000 AAA 910,676
Series D, 8%, 8/1/05......................................................... 170,000 AAA 184,741
Series D, 6%, 8/1/06 (c)..................................................... 140,000 AAA 142,167
Series D, 6%, 8/1/08 (c)..................................................... 370,000 AAA 373,748
Series E, 7%, 12/1/07 (c).................................................... 115,000 AAA 122,384
Series E, ETM, 7%, 12/1/07** (c)............................................. 1,385,000 AAA 1,476,438
New York State Dormitory Authority Revenue:
City University, Series D, 7%, 7/1/09 (c).................................... 4,000,000 AAA 4,498,040
City University, Series C, 7.5%, 7/1/10 (c).................................. 5,750,000 AAA 6,755,560
New York College & University, Pooled Capital Program, 7.8%, 12/1/05 (c)..... 11,805,000 AAA 12,995,180
New York State Medical Care Facilities Agency, Mental Health Services,
Series F, 4.8%, 8/15/05 (c).................................................. 10,000,000 AAA 9,125,900
New York State Urban Development Corporation, Correctional Facilities,
Series A, 5%, 1/1/07 (c)..................................................... 4,315,000 AAA 4,129,671
Suffolk County, NY, Industrial Development Agency, Southwest Sewer
System, 6%, 2/1/07 (c)....................................................... 8,000,000 AAA 8,322,640
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Series B, 6%, 1/1/18 (c)..................................................... 8,775,000 AAA 8,730,774
North Carolina Municipal Power Agency, Catawba Electric Revenue:
5.25%, 1/1/08 (c)............................................................ 2,500,000 AAA 2,415,250
6%, 1/1/11 (c)............................................................... 8,235,000 AAA 8,411,147
NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center,
Series 1991, Zero Coupon, 5/1/02 (c)......................................... 2,850,000 AAA 1,929,906
OHIO
Hamilton, OH, Electric System Mortgage Revenue, Series B,
8%, 10/15/22, Prerefunded 10/15/98 at 102 (c)................................ 3,720,000 AAA 4,155,649
Ohio Air Quality Development Authority, Ohio Power Company, Series B,
7.4%, 8/1/09 (c)............................................................. 5,000,000 AAA 5,474,800
Ohio State Building Authority, Worker's Compensation Building,
Series A, 4.9%, 4/1/07 (c)................................................... 3,375,000 AAA 3,163,556
OKLAHOMA
Tulsa, OK, Industrial Development Authority:
Hospital Revenue, St. John's Medical Center, Zero Coupon, 12/1/04 (c)........ 5,430,000 AAA 3,153,853
St. John's Medical Center, Zero Coupon, 12/1/02 (c).......................... 3,930,000 AAA 2,577,137
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA
Commonwealth of Pennsylvania, Certificates of Participation:
Series A, 5.25%, 7/1/11 (c).................................................. 14,000,000 AAA 13,083,420
Series A, 5.4%, 7/1/09 (c)................................................... 4,495,000 AAA 4,325,988
Pennsylvania Industrial Development Authority:
Economic Development Revenue, 5.8%, 1/1/08................................... 4,250,000 AAA 4,310,733
Economic Development Revenue, 5.8%, 7/1/08 (c)............................... 4,875,000 AAA 4,946,565
Economic Development Revenue, 5.8%, 1/1/09 (c)............................... 2,500,000 AAA 2,518,600
Philadelphia, PA, Gas Works Revenue, Series 8, 8.7%, 5/1/05, Prerefunded
5/15/95 at 102.5 (c)......................................................... 3,250,000 AAA 3,347,728
Philadelphia, PA, General Obligation, 8.25%, 2/15/09, Prerefunded 2/15/96
at 102 (c)................................................................... 1,215,000 AAA 1,279,711
Philadelphia, PA, Water & Wastewater Revenue:
5.2%, 6/15/05 (c)............................................................ 9,000,000 AAA 8,735,670
5.5%, 6/15/07 (c)............................................................ 5,000,000 AAA 4,986,350
5.625%, 6/15/08 (c).......................................................... 2,100,000 AAA 2,098,824
5.625%, 6/15/09 (c).......................................................... 10,855,000 AAA 10,827,645
5.625%, 6/15/09 (c).......................................................... 20,000,000 AAA 19,949,600
Philadelphia, PA, Municipal Authority Revenue, Series B, 6.9%,
11/15/03 (c)................................................................. 2,000,000 AAA 2,233,460
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/11 (c)............................... 6,750,000 AAA 6,470,550
PUERTO RICO
Commonwealth of Puerto Rico, General Obligation, Public Improvement
Refunding, Zero Coupon, 7/1/02 (c)........................................... 5,700,000 AAA 6,058,872
RHODE ISLAND
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/15 (c).................................. 2,000,000 AAA 1,855,060
Rhode Island Convention Center Authority, Refunding Revenue,
Series 1993 B:
5%, 5/15/10 (c)...................................................... 5,000,000 AAA 4,565,200
5.25%, 5/15/15 (c)................................................... 22,000,000 AAA 19,989,860
Rhode Island Depositors Economic Protection Corporation, Special
Obligation, Series B:
5.8%, 8/1/10 (c)..................................................... 6,200,000 AAA 6,180,656
5.8%, 8/1/11 (c)..................................................... 4,525,000 AAA 4,472,872
5.8%, 8/1/12 (c)..................................................... 2,500,000 AAA 2,443,700
5.8%, 8/1/13 (c)..................................................... 7,340,000 AAA 7,137,563
Rhode Island Public Building Authority, Public Projects,
Series A, 8.2%, 2/1/08, Prerefunded 2/1/98 at 102 (c)........................ 2,200,000 AAA 2,434,190
SOUTH CAROLINA
Charleston County, SC, Hospital Facilities Authority, Medical Society
Project, 5.5%, 10/1/19 (c)................................................... 2,500,000 AAA 2,272,225
Piedmont Municipal Power Agency, SC, Electric Revenue:
5.5%, 1/1/08 (c)............................................................. 1,915,000 AAA 1,909,600
Series C, 5.5%, 1/1/12 (c)................................................... 5,000,000 AAA 4,798,750
Series A, 6.5%, 1/1/16 (c)................................................... 3,000,000 AAA 3,202,200
TENNESSEE
Knox County, TN, Health & Educational Hospital Facilities Board, Fort
Sanders Alliance:
7.25%, 1/1/09 (c).................................................... 3,150,000 AAA 3,591,158
5.75%, 1/1/11 (c).................................................... 15,405,000 AAA 15,293,160
5.75%, 1/1/12 (c).................................................... 17,880,000 AAA 17,707,458
6.25%, 1/1/13 (c).................................................... 5,000,000 AAA 5,235,350
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS
Collin County, TX, General Obligation, Jail Facility, 5.875%, 3/1/07 (c)............. 800,000 AAA 805,352
Dallas, TX, Housing Finance Corporation, Single Family Mortgage
Revenue, Zero Coupon, 10/1/16 (c)............................................ 7,450,000 AAA 795,437
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c)........................................................... 1,000,000 AAA 1,162,640
7.8%, 11/1/05 (c) ........................................................... 2,000,000 AAA 2,386,340
7.8%, 11/1/06 (c) ........................................................... 2,025,000 AAA 2,395,109
7.375%, 11/1/08 (c).......................................................... 4,500,000 AAA 5,151,555
7.375%, 11/1/10 (c).......................................................... 3,500,000 AAA 3,955,630
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c).......................... 9,035,000 AAA 4,691,785
Flood Control District, Zero Coupon, 10/1/00 (c)............................. 1,000,000 AAA 746,360
Toll Road Authority, Subordinate Lien, Unlimited Tax, Series A:
Zero Coupon, 8/15/04 (c) ............................................ 2,050,000 AAA 1,218,869
Zero Coupon, 8/15/05 (c) ............................................ 4,025,000 AAA 2,251,424
Zero Coupon, 8/15/06 (c) ............................................ 4,010,000 AAA 2,097,591
Toll Road Authority, Senior Lien, 5%, 8/15/07 (c)............................ 3,500,000 AAA 3,323,075
Houston, TX, Water & Sewer System Authority, Series C:
Zero Coupon, 12/1/06 (c) .................................................... 14,575,000 AAA 7,497,089
Zero Coupon, 12/1/08 (c) .................................................... 10,000,000 AAA 4,469,500
Zero Coupon, 12/1/09 (c) .................................................... 14,750,000 AAA 6,127,445
Lubbock, TX, Health Facilities Development Corporation, Methodist
Hospital, Series B:
5.5%, 12/1/06 (c).................................................... 3,945,000 AAA 3,971,629
5.6%, 12/1/07 (c).................................................... 2,415,000 AAA 2,423,453
5.625%, 12/1/08 (c).................................................. 4,400,000 AAA 4,397,536
Lubbock, TX, Health Facilities Development Corporation, Series B,
5.625%, 12/1/09 (c).......................................................... 4,640,000 AAA 4,587,104
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c)...................................................... 3,475,000 AAA 2,190,188
Zero Coupon, 9/1/04 (c)...................................................... 3,475,000 AAA 2,060,988
Zero Coupon, 9/1/05 (c)...................................................... 3,475,000 AAA 1,938,981
North Central Texas Health Facilities Development Corporation,
Presbyterian Hospital, 8.75%, 12/1/15, Prerefunded 12/1/97 at 102 (c)........ 5,000,000 AAA 5,599,900
San Antonio, TX, Electric & Gas Revenue Refunding, Series A:
Zero Coupon, 2/1/05 (c)...................................................... 2,500,000 AAA 1,441,275
Zero Coupon, 2/1/05 (c)...................................................... 8,000,000 AAA 4,612,080
Zero Coupon, 2/1/06 (c)...................................................... 17,900,000 AAA 9,655,260
Tarrant County, TX, Health Facilities Development Corporation, Hospital
Refunding Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c)...................................................... 4,615,000 AAA 4,666,965
6%, 5/15/21 (c)...................................................... 6,235,000 AAA 6,121,523
Texas General Obligation:
Superconductor Revenue, Series C, Zero Coupon, 4/1/05 (c).................... 4,300,000 AAA 2,455,945
Capital Appreciation Bond, Super Collider, Series C, Zero Coupon, 4/1/06 5,385,000 AAA 2,877,152
Texas Municipal Power Agency:
5.25%, 9/1/09 (c)............................................................ 6,235,000 AAA 6,002,809
5.75%, 9/1/12 (c)............................................................ 785,000 AAA 815,646
6.1%, 9/1/07 (c)............................................................. 9,250,000 AAA 9,692,983
6.1%, 9/1/09 (c)............................................................. 4,435,000 AAA 4,647,614
Texas State Public Finance Authority, Building Authority:
Zero Coupon, 2/1/06 (c)...................................................... 13,915,000 AAA 7,505,751
Series B, 6.25%, 2/1/08 (c).................................................. 5,190,000 AAA 5,490,449
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTAH
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:
Zero Coupon, 7/1/00 (c)...................................................... 2,755,000 AAA 2,075,286
Zero Coupon, 7/1/02 (c)...................................................... 5,200,000 AAA 3,489,096
Zero Coupon, 7/1/04 (c)...................................................... 5,895,000 AAA 3,505,049
Zero Coupon, 7/1/05 (c)...................................................... 5,900,000 AAA 3,296,507
Zero Coupon, 7/1/06 (c)...................................................... 5,895,000 AAA 3,078,133
Zero Coupon, 7/1/07 (c)...................................................... 3,750,000 AAA 1,826,288
Intermountain Power Agency, UT, Power Supply Revenue:
Series A, Zero Coupon, 7/1/02 (c)............................................ 1,655,000 AAA 1,116,744
Series A, Zero Coupon, 7/1/03 (c)............................................ 1,000,000 AAA 636,060
Series A, Zero Coupon, 7/1/04 (c)............................................ 1,730,000 AAA 1,035,578
Series B, Zero Coupon, 7/1/02 (c)............................................ 8,230,000 AAA 5,553,357
5%, 7/1/12 (c)............................................................... 1,000,000 AAA 894,340
9.625%, 7/1/08, Prerefunded 7/1/95 at 102.50 (c)............................. 200,000 AAA 207,484
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15** (c)...................... 1,800,000 AAA 2,735,082
VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial
Hospital, Series B, 6.125%, 7/1/17 (c)....................................... 5,500,000 AAA 5,624,025
Southeastern Public Service Authority, VA, Refunding Revenue, Series A,
5.25%, 7/1/10 (c) ........................................................... 7,380,000 AAA 7,014,985
Virginia Beach, VA, Development Authority, Virginia Beach General
Hospital Project:
5%, 2/15/06 (c)...................................................... 1,750,000 AAA 1,699,880
5%, 2/15/07 (c)...................................................... 1,800,000 AAA 1,723,662
5.1%, 2/15/08 (c).................................................... 1,345,000 AAA 1,282,605
6%, 2/15/11 (c)...................................................... 1,595,000 AAA 1,614,427
5.125%, 2/15/18 (c).................................................. 3,000,000 AAA 2,661,810
Winchester County, VA, Industrial Development Authority, Hospital
Revenue, 6%, 1/1/15 (c)...................................................... 5,700,000 AAA 5,240,694
WASHINGTON
King County, WA, Public Hospital District #1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c)................................................ 3,500,000 AAA 3,217,060
North Shore, WA, General Obligation, School District -417:
5.45%, 12/1/06 (c)........................................................... 2,825,000 AAA 2,842,911
5.5%, 12/1/07 (c) ........................................................... 4,860,000 AAA 4,855,189
5.6%, 12/1/10 (c) ........................................................... 1,650,000 AAA 1,616,159
Snohomish County, WA:
Public Utilities District #1, 5.5%, 1/1/14 (c)............................... 10,000,000 AAA 9,281,500
Public Utilities District #1, 5.5%, 1/1/15 (c)............................... 1,350,000 AAA 1,243,053
School District #6, 6.5%, 12/1/07 (c)........................................ 3,325,000 AAA 3,596,686
Washington Health Care Facilities Authority, Empire Health Services -
Spokane:
5.65%, 11/1/05 (c)................................................... 2,155,000 AAA 2,166,809
5.7%, 11/1/06 (c).................................................... 3,440,000 AAA 3,480,489
5.75%, 11/1/07 (c)................................................... 3,675,000 AAA 3,704,253
5.8%, 11/1/09 (c).................................................... 2,500,000 AAA 2,497,375
5.8%, 11/1/10 (c).................................................... 2,100,000 AAA 2,080,743
Washington Public Power Supply Revenue, Revenue Refunding:
Nuclear Project #1, Series A, 7%, 7/1/11 (c)................................. 3,830,000 AAA 4,100,666
Nuclear Project #1, Series A, 7.5%, 7/1/15 (c)............................... 1,595,000 AAA 1,715,008
Nuclear Project #1, Series A, 7.5%, 7/1/15, Prerefunded 7/1/99 at 102 (c).... 2,405,000 AAA 2,679,218
Nuclear Project #1, Series B, 7.25%, 7/1/12 (c).............................. 10,895,000 AAA 11,689,463
Nuclear Project #2, Series A, 7.25%, 7/1/03 (c).............................. 2,000,000 AAA 2,219,500
Nuclear Project #2, Series A, 5.7%, 7/1/08 (c)............................... 5,000,000 AAA 4,985,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
<TABLE>
AARP INSURED TAX FREE GENERAL BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Credit Market
Amount ($) Rating (b) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nuclear Project #2, Series C, 7%, 7/1/01 (c)................................. 10,000,000 AAA 10,860,100
Nuclear Project #2, Series C, 7.375%, 7/1/11 (c)............................. 1,370,000 AAA 1,544,730
Nuclear Project #3, Series A, Zero Coupon, 7/1/04 (c)........................ 3,625,000 AAA 2,132,225
Nuclear Project #3, Series A, Zero Coupon, 7/1/05 (c)........................ 4,125,000 AAA 2,277,413
Nuclear Project #3, Series A, 7.25%, 7/1/16, Prerefunded 7/1/99 at 102 (c)... 3,630,000 AAA 4,012,421
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c)................... 3,475,000 AAA 2,075,896
Wisconsin Health & Educational Facilities Authority:
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c)........................ 5,285,000 AAA 5,388,216
Hospital Sisters Services Inc. - Obligated Group, 5.375%, 6/1/18 (c)......... 4,800,000 AAA 4,326,960
Riverview Hospital Association Project, 9%, 5/1/11 (c)....................... 2,500,000 AAA 2,660,150
SSM Healthcare, Series 1992 AA, 6.4%, 6/1/08 (c)............................. 2,335,000 AAA 2,478,019
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/09 (c)............................ 2,485,000 AAA 2,634,373
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/10 (c)............................ 2,650,000 AAA 2,799,937
SSM Healthcare, Series 1992 AA, 6.5%, 6/1/11 (c) ............................ 2,820,000 AAA 2,988,354
SSM Healthcare, Series 1992 AA, 6.5%, 6/1/12 (c) ............................ 3,000,000 AAA 3,172,260
St. Luke's Medical Center, 7.1%, 8/15/11 (c)................................. 2,000,000 AAA 2,145,620
Wheaton Franciscan Services, 6.1%, 8/15/08 (c)............................... 4,580,000 AAA 4,727,705
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c).......................... 9,230,000 AAA 9,410,254
-------------
TOTAL LONGER-TERM MUNICIPAL INVESTMENTS (COST $1,648,552,680)........................ 1,692,604,840
-------------
---------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO (COST $1,757,579,270) (a)....................... 98.8 1,801,636,595
OTHER ASSETS AND LIABILITIES, NET.......................................... 1.2 21,109,972
----- -------------
NET ASSETS................................................................. 100.0 1,822,746,567
===== =============
---------------------------------------------------------------------------------------------------------------------------
<FN>
* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of the
U.S. Treasury bill rate. Variable rate demand notes are securities whose interest
rates are reset periodically at levels that are generally comparable to tax-exempt
commercial paper. These securities are payable on demand within seven calendar
days and normally incorporate an irrevocable letter of credit or line of credit
from a major bank. Since these securities are payable on demand, they are valued
at 100% of their principal.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are collateralized
by U.S. Treasury securities which are held in escrow by a trustee and used
to pay principal and interest on bonds so designated.
(a) At March 31, 1995, the net unrealized appreciation on investments based on cost for
federal income tax purposes of $1,757,593,192 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ........................................................... $ 62,080,576
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ........................................................... (18,037,173)
------------
Net unrealized appreciation.................................................................... $ 44,043,403
============
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings shown
are either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.
Unrated securities (NR) have been determined to be of comparable quality to
rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC or MBIA.
(d) At March 31, 1995, these securities, in part, have been pledged to cover initial
margin requirements for open futures contracts.
At March 31, 1995, open futures contracts sold short were as follows (Note 1):
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ----------
U.S. Treasury Bond ......... June 1995 900 93,737,225 93,515,625
Municipal Bond ............. June 1995 400 35,917,500 35,825,000
----- ----------- -----------
1,300 129,654,725 129,340,625
===== =========== ===========
Total net unrealized appreciation on open futures contracts sold short................. 314,100
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
AARP INSURED TAX FREE GENERAL BOND FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended March 31, 1995 was $283,709,880 and $196,812,106,
respectively.
--------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended March 31, 1995, aggregated
$154,260,492 and $257,235,870, respectively.
--------------------------------------------------------------------------------
From November 1, 1993 through September 30, 1994, the Fund incurred
approximately $1,547,279 of net realized capital losses which the Fund
intends to elect to defer and treat as arising in the fiscal year ended
September 30, 1995.
--------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of
the investment portfolio may be greater or lesser than 100% due to the
inclusion of the Fund's assets and liabilities in the calculation. The
Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 6.6%
3,326,000 Repurchase Agreement with State Street Bank and Trust Company
dated 3/31/95 at 5.8% to be repurchased at $3,327,608 on 4/3/95,
collateralized by a $3,440,000 U.S. Treasury Note, 4.625%, 2/29/96 .................... 3,326,000
9,000,000 Repurchase Agreement with Salomon Brothers Inc., dated
3/31/95 at 6.2% to be repurchased at $9,004,650 on 4/3/95,
collateralized by a $9,030,000 U.S. Treasury Note, 6.5%, 5/15/97 ...................... 9,000,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $12,326,000) .......................................... 12,326,000
-----------
---------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 8.4%
---------------------------------------------------------------------------------------------------------------------------
15,780,000 Federal Home Loan Mortgage Corp. Discount Note, 4/18/95
(COST $15,735,886) .................................................................... 15,735,886
-----------
---------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 16.9%
---------------------------------------------------------------------------------------------------------------------------
3,000,000 U.S. Treasury Bond, 7.25%, 5/15/16 ...................................................... 2,900,610
1,000,000 U.S. Treasury Bond, 7.875%, 2/15/21 ..................................................... 1,031,870
2,000,000 U.S. Treasury Note, 4.625%, 2/29/96 ..................................................... 1,967,500
6,000,000 U.S. Treasury Note, 5.5%, 9/30/97 ....................................................... 5,815,320
2,500,000 U.S. Treasury Note, 5.13%, 4/30/98 ...................................................... 2,375,775
2,500,000 U.S. Treasury Note, 5.875%, 3/31/99 ..................................................... 2,401,175
3,250,000 U.S. Treasury Note, 6.875%, 7/31/99 ..................................................... 3,224,618
3,250,000 U.S. Treasury Note, 7.5%, 5/15/02 ....................................................... 3,313,473
4,000,000 U.S. Treasury Note, 5.75%, 8/15/03 ...................................................... 3,628,760
5,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/09 (7.604**) ..... 1,775,650
5,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 5/15/09 (7.617**) ..... 1,739,800
5,000,000 U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/10 (7.682**) .... 1,540,050
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $31,473,408) ...................................... 31,714,601
-----------
---------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 1.7%
---------------------------------------------------------------------------------------------------------------------------
3,030,000 Government National Mortgage Association Pass-thru 10%,
2/15/25 (COST $3,261,984) ............................................................. 3,247,766
-----------
---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS* 6.9%
---------------------------------------------------------------------------------------------------------------------------
3,400,000 Federal Home Loan Mortgage Corp., 7.5%, 3/1/25 .......................................... 3,299,054
6,136,650 Federal Home Loan Mortgage Corp., 9.5% with various maturities to 4/1/25 ................ 6,407,030
3,266,241 Federal National Mortgage Association, 7.5%, 10/1/24 .................................... 3,161,100
-----------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS (COST $12,787,416) ..................... 12,867,184
-----------
---------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS - U.S.$ DENOMINATED 2.0%
---------------------------------------------------------------------------------------------------------------------------
1,000,000 ABN-AMRO Bank NV, subordinated note, 7.13%, 10/15/2093 .................................. 835,120
1,500,000 Hydro-Quebec, 8.625%, 6/15/29 ........................................................... 1,493,670
1,655,000 United Mexican States Tesobonos, 8/17/95 ................................................ 1,475,398
-----------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $3,920,971) ............................... 3,804,188
-----------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS 3.8%
---------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 0.9%
Food and Beverage
2,000,000 Borden Inc., 7.875%, 2/15/23 ............................................................ 1,746,920
-----------
DURABLES 2.1%
Aerospace 1.0%
1,000,000 Boeing Co., 6.875%, 10/15/43 ............................................................ 837,430
1,000,000 McDonnell Douglas Corp., 9.75%, 4/1/12 .................................................. 1,102,470
-----------
1,939,900
-----------
Automobiles 1.1%
1,000,000 Ford Motor Co., 8.875%, 1/15/22 ......................................................... 1,065,030
1,000,000 General Motors Acceptance Corp., 5.75%, 4/4/96 .......................................... 987,280
-----------
2,052,310
-----------
TECHNOLOGY 0.8%
Military Electronics
1,500,000 Loral Corp., 8.375%, 6/15/24 ............................................................ 1,458,435
-----------
TOTAL CORPORATE BONDS (COST $7,456,925) ................................................. 7,197,565
-----------
---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.1%
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL 0.1%
Other Financial Companies
200,000 First Financial Management Corp., 5%, 12/15/99 .......................................... 237,500
-----------
CONSTRUCTION 0.0%
Homebuilding
30,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04 ..................................... 9,675
-----------
TOTAL CONVERTIBLE BONDS (COST $230,000) ................................................. 247,175
-----------
---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 2.9%
---------------------------------------------------------------------------------------------------------------------------
Shares
---------------------------------------------------------------------------------------------------------------------------
HEALTH 0.9%
Health Industry Services
57,900 FHP International Corp., "A", Cum. $1.25 ................................................ 1,606,725
-----------
SERVICE INDUSTRIES 1.0%
EDP Services
31,000 General Motors Corp., Series C, Cum. $3.25 (convertible into GM "E") .................... 1,782,500
-----------
DURABLES 0.3%
Automobiles
5,500 Ford Motor Co., Series A, Cum. $4.20 .................................................... 485,375
-----------
FINANCIAL 0.0%
Other Financial Companies
100,000 Jardine Strategic Holdings Ltd. ......................................................... 126,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING 0.6%
Containers & Paper 0.4%
3,300 Boise Cascade Corp. "G", Cum. $1.58 ..................................................... 97,763
23,500 Bowater, Inc. "B" ....................................................................... 728,500
-----------
826,263
-----------
Industrial Specialty 0.2%
7,900 Corning Delaware L.P., Cum. $3.00 ....................................................... 426,600
-----------
ENERGY 0.1%
Oil & Gas Production
4,200 Parker & Parsley Capital Corp. .......................................................... 197,400
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $5,063,932) .................................... 5,450,863
-----------
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 49.9%
---------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 1.6%
Department & Chain Stores
20,900 J.C. Penney Co., Inc. ................................................................... 937,888
30,100 Rite Aid Corp. .......................................................................... 737,450
23,300 Sears, Roebuck & Co. .................................................................... 1,243,638
-----------
2,918,976
-----------
CONSUMER STAPLES 5.2%
Alcohol & Tobacco 0.7%
22,200 Anheuser Busch Companies, Inc. .......................................................... 1,301,475
-----------
Food & Beverage 2.4%
25,800 General Mills, Inc. ..................................................................... 1,538,325
44,900 H.J. Heinz Co. .......................................................................... 1,728,650
39,200 Quaker Oats Co. ......................................................................... 1,298,500
-----------
4,565,475
-----------
Package Goods/Cosmetics 2.1%
26,300 Avon Products Inc. ...................................................................... 1,591,150
12,400 Clorox Co. .............................................................................. 744,000
33,700 Tambrands Inc. .......................................................................... 1,503,863
-----------
3,839,013
-----------
HEALTH 7.2%
Health Industry Services 0.2%
7,200 McKesson Corp. (New) .................................................................... 290,700
-----------
Pharmaceuticals 7.0%
20,700 American Home Products Corp. ............................................................ 1,474,875
76,500 Baxter International Inc. ............................................................... 2,505,375
19,400 Bristol-Myers Squibb Co. ................................................................ 1,222,200
31,000 Carter-Wallace Inc. ..................................................................... 368,125
38,600 Eli Lilly Co. ........................................................................... 2,822,625
21,100 Schering-Plough Corp. ................................................................... 1,569,313
19,200 SmithKline Beecham PLC (ADR) ............................................................ 720,000
24,100 Warner-Lambert Co. ...................................................................... 1,885,825
40,800 Zeneca Group PLC......................................................................... 580,152
-----------
13,148,490
-----------
COMMUNICATIONS 2.5%
Telephone/Communications
52,300 Alltel Corp. ............................................................................ 1,503,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
37,300 GTE Corp. ............................................................................... 1,240,225
56,700 Hong Kong Telecommunications Ltd. (ADR) ................................................. 1,098,563
29,900 Tele Danmark A/S (ADR) .................................................................. 792,350
-----------
4,634,763
-----------
FINANCIAL 8.8%
Banks 3.0%
25,700 Chemical Banking Corp. .................................................................. 970,175
34,700 CoreStates Financial Corp. .............................................................. 1,110,400
54,500 First Bank System Inc. .................................................................. 2,200,438
22,500 J.P. Morgan & Co., Inc. ................................................................. 1,372,500
-----------
5,653,513
-----------
Insurance 1.5%
20,800 EXEL, Ltd. .............................................................................. 917,800
45,100 Lincoln National Corp. .................................................................. 1,815,275
-----------
2,733,075
-----------
Other Financial Companies 2.0%
13,200 Federal National Mortgage Association ................................................... 1,074,150
64,600 Great Western Financial Corp. ........................................................... 1,211,250
40,700 Student Loan Marketing Association ...................................................... 1,419,413
-----------
3,704,813
-----------
Real Estate 2.3%
39,300 Health Care Property Investment Inc. (REIT) ............................................. 1,164,263
33,100 McArthur/Glen Realty Corp. (REIT) ....................................................... 463,400
40,700 Meditrust SBI (REIT) .................................................................... 1,210,825
24,100 Nationwide Health Properties Inc. (REIT) ................................................ 888,688
26,000 Omega Healthcare Investors (REIT) ....................................................... 617,500
-----------
4,344,676
-----------
SERVICE INDUSTRIES 1.4%
Miscellaneous Consumer Services 0.7%
31,300 H & R Block Inc. ........................................................................ 1,357,638
-----------
Printing/Publishing 0.7%
44,600 Deluxe Corp. ............................................................................ 1,271,100
-----------
DURABLES 4.2%
Aerospace 3.9%
25,700 AAR Corp. ............................................................................... 311,613
28,772 Lockheed Corp. .......................................................................... 1,521,320
36,400 Rockwell International Corp. ............................................................ 1,419,600
42,800 Thiokol Corp. ........................................................................... 1,214,450
42,000 United Technologies Corp. ............................................................... 2,903,250
-----------
7,370,233
-----------
Automobiles 0.3%
23,000 Dana Corp. .............................................................................. 586,500
-----------
MANUFACTURING 8.3%
Chemicals 2.1%
15,600 Dow Chemical Co. ........................................................................ 1,138,800
26,500 E.I. du Pont de Nemours & Co. ........................................................... 1,603,250
48,200 Lyondell Petrochemical Co. .............................................................. 1,168,850
-----------
3,910,900
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Containers & Paper 0.9%
8,400 Federal Paper Board Co., Inc. ........................................................... 239,400
29,000 Kimberly-Clark Corp. .................................................................... 1,508,000
-----------
1,747,400
-----------
Diversified Manufacturing 1.9%
53,000 Dresser Industries Inc. ................................................................. 1,126,250
34,200 TRW Inc. ................................................................................ 2,355,525
-----------
3,481,775
-----------
Electrical Products 0.6%
17,700 Thomas & Betts Corp. .................................................................... 1,146,075
-----------
Machinery/Components/Controls 0.4%
1,500 Parker-Hannifin Group ................................................................... 66,375
18,600 Timken Co. .............................................................................. 660,300
-----------
726,675
-----------
Office Equipment/Supplies 1.0%
16,700 Xerox Corp. ............................................................................. 1,960,163
-----------
Specialty Chemicals 1.4%
32,000 Betz Laboratories Inc. .................................................................. 1,400,000
40,900 Witco Corp. ............................................................................. 1,201,438
-----------
2,601,438
-----------
TECHNOLOGY 0.4%
Military Electronics
16,000 E-Systems, Inc. ......................................................................... 726,000
-----------
ENERGY 6.6%
Engineering 0.7%
52,200 McDermott International Inc. ............................................................ 1,428,975
-----------
Oil Companies 5.0%
19,200 Exxon Corp. ............................................................................. 1,281,600
30,000 Murphy Oil Corp. ........................................................................ 1,293,750
23,400 Pennzoil Co. ............................................................................ 1,108,575
16,100 Repsol SA (ADR) ......................................................................... 466,900
7,200 Royal Dutch Petroleum Co. (New York shares) ............................................. 864,000
31,119 Societe Nationale Elf Aquitaine (ADR) ................................................... 1,205,861
13,400 Texaco Inc. ............................................................................. 891,100
36,500 Total SA (ADR) .......................................................................... 1,095,000
61,700 YPF SA "D" (ADR) ........................................................................ 1,172,300
-----------
9,379,086
-----------
Oil/Gas Transmission 0.3%
20,200 El Paso Natural Gas Co. ................................................................. 578,225
-----------
Oilfield Services/Equipment 0.6%
30,100 Halliburton Co. ......................................................................... 1,094,888
-----------
METALS AND MINERALS 0.7%
Steel & Metals
59,400 Freeport McMoRan Copper & Gold, Inc. "A" ................................................ 1,299,375
-----------
TRANSPORTATION 0.2%
Marine Transportation 0.2%
19,200 Alexander & Baldwin Inc. ................................................................ 432,000
-----------
UTILITIES 2.8%
Electric Utilities
33,700 CINergy Corp. ........................................................................... 838,288
20,700 CMS Energy Corp. ........................................................................ 483,863
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
<TABLE>
AARP BALANCED STOCK AND BOND FUND
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
15,200 Centerior Energy Corp. .................................................................. 134,900
10,900 Empresa Nacional de Electricidad SA (ADR) ............................................... 461,888
38,700 National Power PLC (ADR)*** ............................................................. 416,025
5,700 PacifiCorp .............................................................................. 110,433
29,300 Pacific Gas & Electric Co. .............................................................. 728,832
27,600 PowerGen PLC (ADR) ...................................................................... 334,650
46,300 Southern Company ........................................................................ 943,363
37,700 Unicom Corp. ............................................................................ 895,376
-----------
5,347,618
-----------
TOTAL COMMON STOCKS (COST $88,852,070) .................................................. 93,581,033
-----------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $181,108,592) (A) ............ 99.2 186,172,261
OTHER ASSETS AND LIABILITIES, NET ............................. 0.8 1,579,312
------ ------------
NET ASSETS .................................................... 100.0 187,751,573
====== ============
<FN>
REIT Real Estate Investment Trust
* Effective maturities will be shorter due to amortization and prepayments.
** Yield; bond equivalent yield to maturity; not a coupon rate.
*** Nonincome producing security.
(a) At March 31, 1995, the net unrealized appreciation on investments based on cost for federal
income tax purposes of $181,131,367 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of
value over tax cost ................................................................................... $ 7,531,146
Aggregate gross unrealized depreciation for all investments in which there is an excess of
tax cost over value ................................................................................... (2,490,252)
------------
Net unrealized appreciation ........................................................................... $ 5,040,894
============
---------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term investments), for the six months ended March 31,
1995, aggregated $64,322,894 and $48,279,304, respectively.
---------------------------------------------------------------------------------------------------------------------------
From February 1, 1994 through September 30, 1994, the Fund incurred approximately $426,090 of net realized capital
losses which the Fund intends to elect to defer and treat as arising in the fiscal year ended September 30, 1995.
---------------------------------------------------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the Fund. The total net assets of the Fund are
comprised of the Fund's investment portfolio, other assets and liabilities. The percentage of the investment
portfolio may be greater or lesser than 100% due to the inclusion of the Fund's assets and liabilities in the
calculation. The Fund's other assets and liabilities are disclosed in the Statement of Assets and Liabilities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 0.2%
--------------------------------------------------------------------------------------------------------------
5,573,000 Repurchase Agreement with Donaldson, Lufkin and Jenrette dated 3/31/95
at 6.15% to be repurchased at $5,575,856 on 4/3/95, collateralized
by a $5,188,000 U.S. Treasury Note, 8.75%, 10/15/97 (Cost $5,573,000) ........... 5,573,000
----------
--------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 1.1%
--------------------------------------------------------------------------------------------------------------
10,000,000 Harris Trust and Savings Bank, 6.25%, 4/10/95 ..................................... 10,000,000
7,150,000 Rincon Securities Inc., 6.05%, 4/6/95 ............................................. 7,143,992
10,550,000 Rincon Securities Inc., 6%, 5/4/95 ................................................ 10,491,975
----------
TOTAL COMMERCIAL PAPER (COST $27,635,967) ......................................... 27,635,967
----------
--------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES 1.5%
--------------------------------------------------------------------------------------------------------------
11,300,000 BellSouth Telecommunications Inc., 5.94%, 4/19/95 ................................. 11,281,292
10,000,000 Federal Home Loan Mortgage Corp., Discount Note, 4/10/95 .......................... 9,985,225
15,000,000 Federal Home Loan Mortgage Corp., Discount Note, 4/20/95 .......................... 14,953,133
----------
TOTAL SHORT-TERM NOTES (COST $36,219,650) ......................................... 36,219,650
----------
--------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 0.2%
--------------------------------------------------------------------------------------------------------------
MANUFACTURING
Electrical Products
4,500,000 Siemens Capital Corp., with warrants, 8%, 6/24/02 (COST $5,885,818) ............... 5,895,000
----------
--------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 2.0%
--------------------------------------------------------------------------------------------------------------
HEALTH 0.1%
Health Industry Services
2,000,000 Hillhaven Corp., 7.75%, 11/1/02 ................................................... 3,240,000
----------
COMMUNICATIONS 0.0%
Telephone/Communications
1,000,000 Compania de Telefonos de Chile, SA, 4.5%, 1/15/03 ................................. 930,000
----------
FINANCIAL 0.5%
Banks 0.2%
9,000,000 Banco Nacional de Mexico, 7%, 12/15/99 ............................................ 4,680,000
----------
Other Financial Companies 0.3%
5,200,000 First Financial Management Corp., 5%, 12/15/99 .................................... 6,175,000
----------
MEDIA 0.1%
Broadcasting & Entertainment
8,000,000 Time Warner Inc., Zero Coupon Liquid Yield Option Note, 6/22/13 ................... 3,060,000
----------
TECHNOLOGY 0.3%
Electronic Data Processing 0.2%
8,000,000 Silicon Graphics Inc., 11/5/13 .................................................... 4,700,000
----------
Precision Instruments 0.1%
1,000,000 Thermo Instruments Systems Inc., 6.625%, 8/15/01 .................................. 1,905,000
----------
ENERGY 0.2%
Oil & Gas Production
4,000,000 Amoco Canada Petroleum Co., 7.375%, 9/1/13 ....................................... 4,920,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
CONSTRUCTION 0.1%
Homebuilding
10,670,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04 ............................... 3,441,075
-----------
TRANSPORTATION 0.5%
Airlines
13,500,000 Delta Air Lines, Inc., 3.23%, 6/15/03 ............................................. 11,205,000
-----------
UTILITIES 0.2%
Electric Utilities
2,500,000 National Power PLC, 9.961%, 9/23/08 ............................................... 4,089,814
-----------
TOTAL CONVERTIBLE BONDS (COST $57,106,347) ........................................ 48,345,889
-----------
--------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 4.6%
--------------------------------------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------------------------------------
HEALTH 1.2%
Health Industry Services
1,091,200 FHP International Corp., "A", Cum. $1.25 .......................................... 30,280,800
-----------
SERVICE iNDUSTRIES 1.2%
Edp Services
529,800 General Motors Corp., Series C, Cum. $3.25 ........................................ 30,463,500
-----------
DURABLES 0.4%
Automobiles
124,900 Ford Motor Co., Series A, Cum. $4.20 .............................................. 11,022,425
-----------
MANUFACTURING 0.5%
Containers & Paper 0.1%
61,900 Boise Cascade Corp. "G", Cum. $1.58 ............................................... 1,833,788
-----------
Industrial Specialty 0.4%
211,600 Corning Delaware L.P., Cum. $3.00 ................................................. 11,426,400
-----------
TECHNOLOGY 0.2%
Electronic Data Processing
50,000 Ceridian Corp., Cum. $2.75 ........................................................ 3,850,000
-----------
FINANCIAL 0.2%
Other Financial Companies
2,711,000 Jardine Strategic Holdings Ltd. .................................................. 3,415,860
-----------
ENERGY 0.4%
Oil & Gas Production
215,300 Parker & Parsley Capital Corp. .................................................... 10,119,100
-----------
METALS AND MINERALS 0.5%
Precious Metals
500,000 Freeport McMoRan Copper & Gold, Inc., Cum. $1.25 .................................. 11,250,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $105,310,160) ............................ 113,661,873
-----------
--------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 0.3%
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS
Telephone/Communications
140,000 Philippine Long Distance Telephone Co. (Cost $7,000,000) .......................... 7,892,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS 89.5%
--------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 2.9%
Department & Chain Stores
448,900 J.C. Penney Co., Inc. ............................................................ 20,144,388
815,200 Rite Aid Corp. .................................................................... 19,972,400
578,000 Sears, Roebuck & Co. .............................................................. 30,850,750
-----------
70,967,538
-----------
CONSUMER STAPLES 9.2%
Alcohol & Tobacco 1.2%
502,100 Anheuser Busch Companies, Inc. .................................................... 29,435,613
-----------
Consumer Specialties 0.2%
320,900 A.T. Cross Co. "A" ............................................................... 4,733,275
-----------
Food & Beverage 4.3%
598,000 General Mills, Inc. .............................................................. 35,655,750
1,237,800 H.J. Heinz Co. .................................................................... 47,655,300
732,900 Quaker Oats Co. .................................................................. 24,277,313
-----------
107,588,363
-----------
Package Goods/Cosmetics 3.5%
561,000 Avon Products Inc. ................................................................ 33,940,500
299,600 Clorox Co. ....................................................................... 17,976,000
776,400 Tambrands Inc. ................................................................... 34,646,850
-----------
86,563,350
-----------
HEALTH 13.1%
Health Industry Services 0.3%
194,800 McKesson Corp. (New) .............................................................. 7,865,050
-----------
Pharmaceuticals 12.8%
480,800 American Home Products Corp. ...................................................... 34,257,000
1,821,800 Baxter International Inc. ........................................................ 59,663,950
463,900 Bristol-Myers Squibb Co. ......................................................... 29,225,700
849,400 Carter-Wallace Inc. .............................................................. 10,086,625
896,200 Eli Lilly Co. .................................................................... 65,534,625
502,600 Schering-Plough Corp. ............................................................. 37,380,875
660,900 SmithKline Beecham PLC (ADR) ...................................................... 24,783,750
562,000 Warner-Lambert Co. ................................................................ 43,976,500
859,900 Zeneca Group PLC .................................................................. 12,227,278
-----------
317,136,303
-----------
COMMUNICATIONS 4.7%
Telephone/Communications
1,403,100 Alltel Corp. ..................................................................... 40,339,125
891,800 GTE Corp. ......................................................................... 29,652,350
1,214,300 Hong Kong Telecommunications Ltd. (ADR) ........................................... 23,527,063
270,300 Sprint Corp. ..................................................................... 8,176,575
504,900 Tele Danmark A/S "B" (ADR) ........................................................ 13,379,850
898,915 Telecom Italia SIP ................................................................ 2,102,817
-----------
117,177,780
-----------
FINANCIAL 16.3%
Banks 7.0%
286,000 AmSouth BanCorp. ................................................................. 9,009,000
72,000 Argentaria Corporacion Bancaria de Espana ........................................ 2,111,428
612,600 Chemical Banking Corp. ........................................................... 23,125,650
983,000 CoreStates Financial Corp. ....................................................... 31,456,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
545,500 Corporacion Bancaria de Espana (ADR) .............................................. 7,841,563
1,318,700 First Bank System Inc. ........................................................... 53,242,513
432,800 J.P. Morgan & Co., Inc. .......................................................... 26,400,800
293,100 Summit Bancorporation ............................................................. 5,495,625
27,360 Swiss Bank Corp. (PC) ............................................................. 9,062,950
760 Swiss Bank Corp. Warrants* (expire 6/30/95) ....................................... 10,630
295,300 Wilmington Trust Corp. ........................................................... 7,161,025
-----------
174,917,184
-----------
Insurance 3.0%
692,250 EXEL, Ltd. ....................................................................... 30,545,531
22,300 Hartford Steam Boiler Inspection & Insurance Co. ................................. 958,900
1,046,000 Lincoln National Corp. ........................................................... 42,101,500
-----------
73,605,931
-----------
Other Financial Companies 3.2%
314,500 Federal National Mortgage Association ............................................. 25,592,438
1,272,200 Great Western Financial Corp. .................................................... 23,853,750
38,500 Security Capital Industrial Trust ................................................. 625,625
864,700 Student Loan Marketing Association ................................................ 30,156,413
-----------
80,228,226
-----------
Real Estate 3.1%
245,800 Avalon Properties, Inc. (REIT) ................................................... 4,823,825
386,200 Camden Property Trust (REIT) ...................................................... 8,255,025
88,500 Charles E. Smith Residential Realty, Inc. (REIT) .................................. 2,046,563
28,000 Equity Residential Properties Trust (REIT) ........................................ 728,000
312,700 General Growth Properties, Inc. (REIT) ............................................ 6,410,350
409,000 Health Care Property Investment Inc. (REIT) ....................................... 12,116,625
31,100 Mark Centers Trust (REIT) ......................................................... 396,525
161,600 McArthur/Glen Realty Corp. (REIT) ................................................. 2,262,400
457,000 Meditrust SBI (REIT) .............................................................. 13,595,750
399,500 Nationwide Health Properties Inc. (REIT) .......................................... 14,731,563
71,200 Post Properties Inc. (REIT) ....................................................... 2,109,300
451,200 Southwestern Properties Trust (REIT) .............................................. 5,414,400
102,100 Vornado Realty Trust (REIT) ....................................................... 3,662,838
-----------
76,553,164
-----------
SERVICE INDUSTRIES 2.3%
Miscellaneous Consumer Services 1.3%
740,900 H & R Block Inc. ................................................................. 32,136,538
-----------
Printing/Publishing 1.0%
871,700 Deluxe Corp. ..................................................................... 24,843,450
-----------
DURABLES 6.1%
Aerospace 5.5%
459,600 AAR Corp. ........................................................................ 5,572,650
690,300 Lockheed Corp. ................................................................... 36,499,613
839,400 Rockwell International Corp. ..................................................... 32,736,600
65,000 Thiokol Corp. .................................................................... 1,844,375
862,600 United Technologies Corp. ....................................................... 59,627,225
-----------
136,280,463
-----------
Automobiles 0.6%
612,100 Dana Corp. ....................................................................... 15,608,550
-----------
MANUFACTURING 15.8%
Chemicals 4.1%
477,500 BOC Group Inc. PLC (ADR) ......................................................... 5,444,216
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
260,700 Dow Chemical Co. ................................................................. 19,031,100
541,600 E.I. du Pont de Nemours & Co. .................................................... 32,766,800
1,160,600 Lyondell Petrochemical Co. ....................................................... 28,144,550
518,900 Union Carbide Corp. .............................................................. 15,891,313
-----------
101,277,979
-----------
Containers & Paper 1.5%
240,700 Federal Paper Board Co., Inc. .................................................... 6,859,950
608,200 Kimberly-Clark Corp. ............................................................. 31,626,400
-----------
38,486,350
-----------
Diversified Manufacturing 3.6%
1,432,600 Dresser Industries Inc. .......................................................... 30,442,750
109,100 Honeywell, Inc. .................................................................. 4,077,613
784,600 TRW Inc. ........................................................................ 54,039,325
-----------
88,559,688
-----------
Electrical Products 1.0%
377,100 Thomas & Betts Corp. ............................................................. 24,417,225
-----------
Machinery/Components/Controls 0.5%
37,700 Parker-Hannifin Group ............................................................. 1,668,225
273,500 Timken Co. ........................................................................ 9,709,250
-----------
11,377,475
-----------
Office Equipment/Supplies 1.9%
398,300 Xerox Corp. ....................................................................... 46,750,463
-----------
Specialty Chemicals 3.2%
204,800 ARCO Chemical Co. ................................................................ 9,113,600
709,000 Betz Laboratories Inc. ........................................................... 31,018,750
306,400 Petrolite Corp. .................................................................. 8,272,800
1,105,200 Witco Corp. ...................................................................... 32,465,250
-----------
80,870,400
-----------
TECHNOLOGY 0.7%
Military Electronics
391,800 E-Systems, Inc. .................................................................. 17,777,925
-----------
ENERGY 11.1%
Engineering 1.4%
1,287,800 McDermott International Inc. ..................................................... 35,253,525
-----------
Oil & Gas Production 1.2%
437,500 Pacific Enterprises ............................................................... 10,828,125
257,000 Societe Nationale Elf Aquitaine .................................................. 20,159,237
-----------
30,987,362
-----------
Oil Companies 6.5%
433,400 Exxon Corp. ....................................................................... 28,929,450
234,200 Murphy Oil Corp. .................................................................. 10,099,875
564,500 Pennzoil Co. ...................................................................... 26,743,188
353,000 Repsol SA (ADR) .................................................................... 10,237,000
168,100 Royal Dutch Petroleum Co. ......................................................... 20,172,000
373,500 Texaco Inc. ...................................................................... 24,837,750
125,795 Total SA "B" ...................................................................... 7,522,544
539,252 Total SA (ADR) ..................................................................... 16,177,560
908,700 YPF SA "D" (ADR) ................................................................... 17,265,300
-----------
161,984,667
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
AARP GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
Oilfield Services/Equipment 2.0%
1,326,500 Halliburton Co. .................................................................. 48,251,438
-------------
METALS AND MINERALS 1.2%
Precious Metals 0.4%
405,000 De Beers Consolidated Mines Ltd. (ADR) ............................................ 10,074,375
-------------
Steel & Metals 0.8%
579,010 Freeport McMoRan Copper & Gold, Inc. "A" .......................................... 12,665,844
120,100 Reynolds Metals Co. .............................................................. 5,719,763
-------------
18,385,607
-------------
TRANSPORTATION 0.9%
Marine Transportation 0.3%
300,100 Alexander & Baldwin Inc. .......................................................... 6,752,250
-------------
Railroads 0.6%
141,100 Norfolk Southern Corp. ........................................................... 9,436,063
117,200 Union Pacific Corp. .............................................................. 6,446,000
-------------
15,882,063
-------------
UTILITIES 5.2%
Electric Utilities
801,700 CINergy Corp. .................................................................... 19,942,288
261,200 CMS Energy Corp. ................................................................. 6,105,550
411,200 Centerior Energy Corp. ........................................................... 3,649,400
1,468,800 China Light & Power Co., Ltd. (ADR) ............................................... 7,123,386
229,220 Empresa Nacional de Electricidad SA (ADR) ......................................... 9,713,198
250,000 National Power PLC (ADR)* ........................................................ 2,687,500
530,000 Niagara Mohawk Power Corp. ........................................................ 7,287,500
157,400 PacifiCorp ........................................................................ 3,049,620
696,700 Pacific Gas & Electric Co. ....................................................... 17,330,407
791,103 PowerGen PLC (ADR) ................................................................ 9,592,124
1,069,400 Southern Company .................................................................. 21,789,025
876,100 Unicom Corp. ..................................................................... 20,807,376
-------------
129,077,374
-------------
TOTAL COMMON STOCKS (COST $1,963,750,174) ......................................... 2,221,806,944
-------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $2,208,481,116) (a) ................... 99.4 2,467,030,823
OTHER ASSETS AND LIABILITIES, NET ..................................... 0.6 14,143,510
----- -------------
NET ASSETS ............................................................. 100.0 2,481,174,333
===== =============
--------------------------------------------------------------------------------------------------------------
<FN>
REIT Real Estate Investment Trust
* Nonincome producing security.
(a) At March 31, 1995, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $2,207,367,029 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ........................................... $ 300,114,075
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .......................................... (40,450,281)
-------------
Net unrealized appreciation ................................................... $ 259,663,794
=============
--------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments) for the six months ended
March 31, 1995, aggregated $729,507,096 and $472,088,710, respectively.
--------------------------------------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the Fund. The total net assets of the
Fund are comprised of the Fund's investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or lesser than 100% due to the inclusion of the Fund's assets and
liabilities in the calculation. The Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS 2.3%
--------------------------------------------------------------------------------------------------------------
14,047,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette, dated 3/31/95 at
6.15%, to be repurchased at $14,054,199 on 4/3/95, collateralized by a
$14,392,000 U.S. Treasury Bill, 6/29/95 (Cost $14,047,000) .................... 14,047,000
-----------
--------------------------------------------------------------------------------------------------------------
COMMON STOCKS 96.3%
--------------------------------------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 6.6%
Apparel & Shoes 0.2%
41,800 Luxottica Group SpA (ADR) ........................................................ 1,504,800
-----------
Department & Chain Stores 2.7%
100,000 J.C. Penney Co., Inc. ........................................................... 4,487,500
100,000 Limited Inc. .................................................................... 2,312,500
193,000 Wal-Mart Stores Inc. ............................................................ 4,921,500
100,000 Walgreen Co. .................................................................... 4,812,500
-----------
16,534,000
-----------
Hotels & Casinos 0.7%
174,000 Carnival Corp., Class A .......................................................... 4,067,250
-----------
Restaurants 1.2%
210,000 McDonald's Corp. ................................................................ 7,166,250
-----------
Specialty Retail 1.8%
120,000 Pep Boys - Manny, Moe & Jack ..................................................... 3,720,000
300,000 Toys "R" Us Inc.* ............................................................... 7,687,500
-----------
11,407,500
-----------
CONSUMER STAPLES 10.4%
Alcohol & Tobacco 1.5%
157,000 Anheuser Busch Companies, Inc. ................................................... 9,204,125
-----------
Food & Beverage 6.0%
185,000 Albertson's Inc. .................................................................. 5,966,250
340,000 ConAgra Inc. ...................................................................... 11,262,500
130,000 Nestle SA (ADR)* ................................................................. 6,378,515
345,000 PepsiCo Inc. ..................................................................... 13,455,000
-----------
37,062,265
-----------
Package Goods/Cosmetics 2.9%
79,900 American Safety Razor Co.* ....................................................... 938,825
150,000 Clorox Co. ....................................................................... 9,000,000
125,000 Colgate-Palmolive Co. ............................................................ 8,250,000
-----------
18,188,825
-----------
HEALTH 13.8%
Health Industry Services 1.8%
250,000 U.S. HealthCare, Inc. ............................................................ 11,062,500
-----------
Hospital Management 3.5%
500,000 Columbia/HCA Healthcare Corp. ..................................................... 21,500,000
-----------
Medical Supply & Specialty 0.7%
60,000 Medtronic Inc. ................................................................... 4,162,500
-----------
Pharmaceuticals 7.8%
140,000 American Home Products Corp. .................................................... 9,975,000
365,000 Astra AB "B" (Free) .............................................................. 9,484,022
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
170,000 Johnson & Johnson ................................................................ 10,115,000
250,000 Merck & Co. Inc. ................................................................ 10,656,250
110,000 Schering-Plough Corp. ........................................................... 8,181,250
-----------
48,411,522
-----------
COMMUNICATIONS 6.8%
Cellular Telephone 1.2%
159,100 AirTouch Communications, Inc.* .................................................. 4,335,475
100,800 Vodafone Group PLC (ADR) ......................................................... 3,339,000
-----------
7,674,475
-----------
Telephone/Communications 5.6%
280,000 Alltel Corp. .................................................................... 8,050,000
128,500 American Telephone & Telegraph Co. .............................................. 6,649,875
97,200 Century Telephone Enterprises .................................................... 2,952,450
165,000 Hong Kong Telecommunications Ltd. (ADR) .......................................... 3,196,875
145,404 SBC Communications, Inc. ......................................................... 6,125,144
275,000 Tele Danmark A/S "B" (ADR) ....................................................... 7,287,500
-----------
34,261,844
-----------
FINANCIAL 13.7%
Banks 3.7%
100,000 Chemical Banking Corp. .......................................................... 3,775,000
80,000 J.P. Morgan & Co., Inc. ......................................................... 4,880,000
347,300 MBNA Corp. ...................................................................... 10,071,700
125,000 State Street Boston Corp. ....................................................... 3,984,375
-----------
22,711,075
-----------
Insurance 6.7%
54,000 AMBAC Inc. ...................................................................... 2,193,750
120,000 American International Group, Inc. .............................................. 12,510,000
140,000 EXEL, Ltd. ...................................................................... 6,177,500
77,800 General Re Corp. ................................................................. 10,269,600
141,000 MBIA Inc. ....................................................................... 8,865,375
65,800 Mid Ocean Limited* .............................................................. 1,793,050
-----------
41,809,275
-----------
Other Financial Companies 3.3%
250,000 Federal National Mortgage Association ............................................ 20,343,750
-----------
MEDIA 5.3%
Broadcasting & Entertainment 4.5%
135,000 Capital Cities/ABC Inc. .......................................................... 11,913,750
420,000 Time Warner Inc. ................................................................. 15,855,000
-----------
27,768,750
-----------
Cable Television 0.8%
251,789 Tele-Communications Inc. "A" (New) ................................................ 5,287,569
-----------
Service Industries 3.5%
EDP Services 2.4%
165,000 Automatic Data Processing, Inc. ................................................. 10,395,000
117,000 General Motors Corp. "E" ........................................................ 4,548,375
-----------
14,943,375
-----------
Printing/Publishing 1.1%
145,000 Reuters Holdings PLC "B" (ADR) .................................................. 6,670,000
-----------
DURABLES 6.7%
Aerospace 1.8%
150,000 Rockwell International Corp. ..................................................... 5,850,000
75,000 United Technologies Corp. ....................................................... 5,184,375
-----------
11,034,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
Automobiles 1.9%
110,000 Autoliv AB ........................................................................ 4,164,164
275,000 Ford Motor Co. ................................................................... 7,425,000
-----------
11,589,164
-----------
Telecommunications Equipment 1.5%
100,000 DSC Communications Corp.* ........................................................ 3,256,250
31,500 Nokia AB Oy ....................................................................... 4,616,790
22,000 Nokia AB Oy (ADR) ................................................................. 1,617,000
-----------
9,490,040
-----------
Tires 1.5%
335,000 Cooper Tire & Rubber Co. ......................................................... 9,505,625
-----------
MANUFACTURING 2.7%
Diversified Manufacturing 1.8%
95,000 Dover Corp. ..................................................................... 6,151,250
95,000 General Electric Co. ............................................................ 5,141,875
-----------
11,293,125
-----------
Electrical Products 0.9%
83,000 Emerson Electric Co. ............................................................. 5,519,500
-----------
TECHNOLOGY 10.9%
Computer Software 1.8%
62,600 Microsoft Corp.* ................................................................ 4,452,425
120,000 Oracle Systems Corp.* ........................................................... 3,750,000
70,000 Sybase Inc.* .................................................................... 2,800,000
-----------
11,002,425
-----------
Diverse Electronic Products 1.0%
110,100 Motorola Inc. ................................................................... 6,014,212
-----------
Electronic Components/Distributors 0%
69 Samsung Electronics Co., Ltd. (New)* ............................................ 10,675
-----------
EDP Peripherals 3.3%
130,000 Hewlett-Packard Co. ............................................................. 15,648,750
60,000 International Business Machines Corp. ........................................... 4,912,500
-----------
20,561,250
-----------
Military Electronics 0.8%
110,000 E-Systems, Inc. ................................................................. 4,991,250
-----------
Office/Plant Automation 1.7%
150,000 Cabletron Systems Inc.* ......................................................... 6,731,250
100,000 Cisco Systems, Inc.* ............................................................ 3,812,500
-----------
10,543,750
-----------
Semiconductors 2.3%
95,000 Intel Corp. ..................................................................... 8,063,125
68,000 Texas Instruments Inc. .......................................................... 6,018,000
-----------
14,081,125
-----------
ENERGY 8.3%
Engineering 0.5%
60,000 Fluor Corp. ..................................................................... 2,895,000
-----------
Oil Companies 7.8%
200,000 Amoco Corp. ..................................................................... 12,725,000
100,000 Chevron Corp. .................................................................... 4,800,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
AARP CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
--------------------------------------------------------------------------------------------------------------
<S> <C>
155,000 Exxon Corp. ....................................................................... 10,346,250
90,000 Mobil Corp. ....................................................................... 8,336,250
254,800 Repsol SA (ADR) ................................................................... 7,389,200
160,000 Total SA (ADR) .................................................................... 4,800,000
-----------
48,396,700
-----------
METALS AND MINERALS 0.9%
Steel & Metals
110,700 Allegheny Ludlum Corp. .......................................................... 2,310,863
55,700 Nucor Corp. ..................................................................... 3,133,125
-----------
5,443,988
-----------
TRANSPORTATION 0.6%
Railroads
65,000 Union Pacific Corp. ............................................................. 3,575,000
-----------
UTILITIES 6.1%
Electric Utilities
700,000 China Light & Power Co., Ltd. (ADR) .............................................. 3,394,860
145,500 Destec Energy Inc. .............................................................. 1,455,000
250,000 Eastern Utilities Association .................................................... 5,968,750
238,000 Empresa Nacional de Electricidad SA (ADR) ........................................ 10,085,250
75,000 Houston Industries Inc. ......................................................... 2,859,375
60,000 Illinova Corp. .................................................................. 1,365,000
225,000 NIPSCO Industries Inc. ........................................................... 7,003,125
275,000 Southern Company ................................................................. 5,603,125
-----------
37,734,485
-----------
TOTAL COMMON STOCKS (COST $542,989,472) .......................................... 595,423,339
-----------
<CAPTION>
--------------------------------------------------------------------------------------------------------------
SUMMARY % OF NET ASSETS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENT PORTFOLIO (COST $557,036,472) (a) ................ 98.6 609,470,339
OTHER ASSETS AND LIABILITIES, NET ................................ 1.4 8,605,427
----- -----------
NET ASSETS ........................................................ 100.0 618,075,766
===== ===========
--------------------------------------------------------------------------------------------------------------
<FN>
* Nonincome producing security.
(a) At March 31, 1995, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $557,036,472 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ....................................... $ 60,663,487
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ....................................... (8,229,620)
-------------
Net unrealized appreciation ............................................... $ 52,433,867
=============
--------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term investments), for the six months
ended March 31, 1995, aggregated $435,335,530 and $507,704,044, 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 lesser than 100% due to the inclusion of the Fund's assets and
liabilities in the calculation. The Fund's other assets and liabilities are disclosed in the Statement of
Assets and Liabilities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
AARP HIGH AARP HIGH AARP GNMA
QUALITY QUALITY TAX FREE AND
MARCH 31, 1995 (UNAUDITED) MONEY FUND MONEY FUND U.S. TREASURY FUND
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios)............. $ 371,697,467 $ 122,611,946 $ 5,101,707,673
Cash ....................................................... 249,384 87,628 5,863
Other receivables:
Investments sold ........................................ 502,750 - 1,029,130,946
Dividends and interest .................................. 2,493,828 1,086,368 35,882,575
Fund shares sold ....................................... 2,010,091 55,638 730,741
Daily variation margin on open futures
contracts (Note 1) .................................... - - -
Due from Fund Manager (Note 2) .......................... - 1,447 -
Deferred organization expenses (Note 1) .................... - - -
Other assets ............................................... 3,624 1,462 52,856
------------- ------------- ---------------
Total assets ............................................... 376,957,144 123,844,489 6,167,510,654
-------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to custodian bank ................................... - - -
Investments purchased ................................... - - 920,650,839
Fund shares redeemed .................................... 654,526 52,535 2,414,199
Dividends ............................................... 164,049 61,354 11,772,311
Daily variation margin on open futures
contracts (Note 1) .................................... - - -
Management fee (Note 2) ................................. 126,131 46,572 1,862,339
Transfer and dividend disbursing agent (Note 2) ......... 130,900 29,183 673,734
Other accrued expenses .................................. 64,192 35,971 610,217
------------- ------------- ---------------
Total liabilities .......................................... 1,139,798 225,615 937,983,639
-------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 375,817,346 $ 123,618,874 $ 5,229,527,015
-------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed net investment income ............ $ - $ - $ -
Unrealized appreciation (depreciation) on:
Investments ............................................. (121,547) - 3,229,514
Futures contracts ....................................... - - -
Accumulated net realized capital loss ...................... (6,938) (1,324,809) (385,256,272)
Shares of beneficial interest, at par ...................... 3,759,458 123,624 3,525,263
Additional paid-in capital ................................. 372,186,373 124,820,059 5,608,028,510
-------------------------------------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 375,817,346 $ 123,618,874 $ 5,229,527,015
-------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01 par
value, unlimited number of shares authorized.
(Note) AARP High Quality Tax Free Money Fund
has a $.001 par value ................................... 375,945,831 123,623,722 352,526,314
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share (net assets at value, per fund, divided by the
respective shares of beneficial interest outstanding).... $1.00 $1.00 $14.83
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
AARP INSURED AARP BALANCED
AARP HIGH TAX FREE STOCK AND
MARCH 31, 1995 (UNAUDITED) QUALITY BOND FUND GENERAL BOND FUND BOND FUND
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) ............ $ 519,598,315 $ 1,801,636,595 $ 186,172,261
Cash ....................................................... 1,776 468,032 46
Other receivables:
Investments sold ........................................ - - 1,046,006
Dividends and interest .................................. 5,738,121 25,212,261 1,003,340
Fund shares sold ....................................... 230,301 449,098 221,526
Daily variation margin on open futures
contracts (Note 1) .................................... 27,586 - -
Due from Fund Manager (Note 2) .......................... - - -
Deferred organization expenses (Note 1) .................... - - 43,268
Other assets ............................................... 2,124 9,769 -
------------- --------------- -------------
Total assets ............................................... 525,598,223 1,827,775,755 188,486,447
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to custodian bank ................................... - - -
Investments purchased ................................... - - 324,277
Fund shares redeemed .................................... 329,683 947,713 206,537
Dividends ............................................... 789,628 2,899,315 -
Daily variation margin on open futures
contracts (Note 1) .................................... - 50,000 -
Management fee (Note 2) ................................. 217,631 755,475 76,864
Transfer and dividend disbursing agent (Note 2) ......... 143,006 178,419 41,615
Other accrued expenses .................................. 113,951 198,266 85,581
------------- --------------- -------------
Total liabilities .......................................... 1,593,899 5,029,188 734,874
------------------------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 524,004,324 $ 1,822,746,567 $ 187,751,573
------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed net investment income ............ $ 456,831 $ - $ 86,553
Unrealized appreciation (depreciation) on:
Investments ............................................. (8,847,722) 44,057,325 5,063,669
Futures contracts ....................................... (150,682) 314,100 -
Accumulated net realized capital loss ...................... (21,069,941) (19,454,402) (1,509,149)
Shares of beneficial interest, at par ...................... 342,063 1,042,306 126,004
Additional paid-in capital ................................. 553,273,775 1,796,787,238 183,984,496
------------------------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 524,004,324 $ 1,822,746,567 $ 187,751,573
------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01 par
value, unlimited number of shares authorized.
(Note) AARP High Quality Tax Free Money Fund
has a $.001 par value ................................... 34,206,280 104,230,621 12,600,381
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share (net assets at value, per fund, divided by the
respective shares of beneficial interest outstanding).... $15.32 $17.49 $14.90
------------------------------------------------------------------------------------------------------------------
<CAPTION>
AARP GROWTH AARP CAPITAL
AND INCOME FUND GROWTH FUND
---------------------------------
<S> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios) ............ $ 2,467,030,823 $ 609,470,339
Cash ....................................................... - 500
Other receivables:
Investments sold ........................................ 21,557,482 14,275,328
Dividends and interest .................................. 8,719,313 982,456
Fund shares sold ....................................... 1,702,164 198,159
Daily variation margin on open futures
contracts (Note 1) .................................... - -
Due from Fund Manager (Note 2) .......................... - -
Deferred organization expenses (Note 1) .................... - -
Other assets ............................................... 7,553 2,727
-------------- -------------
Total assets ............................................... 2,499,017,335 624,929,509
------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to custodian bank ................................... 2,633 -
Investments purchased ................................... 13,585,936 5,633,830
Fund shares redeemed .................................... 2,614,567 669,117
Dividends ............................................... - -
Daily variation margin on open futures
contracts (Note 1) .................................... - -
Management fee (Note 2) ................................. 1,013,087 324,615
Transfer and dividend disbursing agent (Note 2) ......... 273,810 97,833
Other accrued expenses .................................. 352,969 128,348
---------------- -------------
Total liabilities .......................................... 17,843,002 6,853,743
------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 2,481,174,333 $ 618,075,766
------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Accumulated undistributed net investment income ............ $ 15,896,868 $ 2,262,100
Unrealized appreciation (depreciation) on:
Investments ............................................. 258,549,707 52,433,867
Futures contracts ....................................... - -
Accumulated net realized capital loss ...................... (6,877,858) (19,098,374)
Shares of beneficial interest, at par ...................... 741,670 192,749
Additional paid-in capital ................................. 2,212,863,946 582,285,424
------------------------------------------------------------------------------------------------
Net assets at value ........................................ $ 2,481,174,333 $ 618,075,766
------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding, $.01 par
value, unlimited number of shares authorized.
(Note) AARP High Quality Tax Free Money Fund
has a $.001 par value ................................... 74,167,024 19,274,897
------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per
share (net assets at value, per fund, divided by the
respective shares of beneficial interest outstanding).... $33.45 $32.07
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
------------------------------------------------------------------------------------------------------------
AARP HIGH AARP HIGH AARP GNMA
SIX MONTHS ENDED MARCH 31, 1995 QUALITY QUALITY TAX FREE AND
(UNAUDITED) MONEY FUND MONEY FUND U.S. TREASURY FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Interest ........................................... $ 10,575,207 $ 2,381,370 $ 195,969,202
Dividends .......................................... - - -
------------ ----------- -------------
10,575,207 2,381,370 195,969,202
Less foreign taxes withheld ........................ - - -
------------ ----------- -------------
10,575,207 2,381,370 195,969,202
EXPENSES:
Management fee (Note 2) ............................. 727,813 251,182 11,102,409
Services to shareholders:
Transfer and dividend disbursing expense (Note 2).. 764,044 179,632 4,186,908
Other expenses .................................... 79,205 33,481 559,613
Trustees' fees and expenses (Note 2) ................ 9,065 14,486 13,339
Shareholder communications .......................... 110,121 35,063 1,207,986
Legal ............................................... 5,728 6,440 17,896
Auditing ............................................ 13,088 13,565 34,647
Custodian fees ...................................... 39,239 27,226 566,950
Registration expenses ............................... 58,078 15,218 87,380
Amortization of organization expenses (Note 1) ...... - - -
Other ............................................... 5,488 3,760 99,062
------------ ----------- -------------
Total expenses before reimbursement from Fund
Manager ............................................. 1,811,869 580,053 17,876,190
Reimbursement of expenses from Fund Manager (Note 2)... - (1,447) -
------------ ----------- -------------
Expenses, net ......................................... 1,811,869 578,606 17,876,190
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ................................. 8,763,338 1,802,764 178,093,012
------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investments ......................................... (6,938) (2,949) (80,695,799)
Futures contracts (Note 1) .......................... - - -
Option contracts (Note 1) ........................... - - -
Foreign currency related transactions (Note 1) ...... - - -
Net unrealized appreciation (depreciation) on:
Investments ......................................... 134,155 - 113,144,243
Futures contracts ................................... - - -
------------ ----------- -------------
Net gain (loss) on investments ........................ 127,217 (2,949) 32,448,444
------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $ 8,890,555 $ 1,799,815 $ 210,541,456
------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
AARP INSURED AARP BALANCED
SIX MONTHS ENDED MARCH 31, 1995 AARP HIGH TAX FREE STOCK AND AARP GROWTH AARP CAPITAL
(UNAUDITED) QUALITY BOND FUND GENERAL BOND FUND BOND FUND AND INCOME FUND GROWTH FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Interest ....................................... $ 19,246,398 $ 52,912,317 $ 2,952,384 $ 40,938,816 $ 815,041
Dividends ...................................... - - 1,639,791 6,227,575 4,659,097
----------- ------------ ---------- ------------ -----------
19,246,398 52,912,317 4,592,175 47,166,391 5,474,138
Less foreign taxes withheld .................... - - (6,012) (128,807) (20,313)
----------- ------------ ---------- ------------ -----------
19,246,398 52,912,317 4,586,163 47,037,584 5,453,825
---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2) ........................ 1,302,171 4,376,480 436,682 5,712,062 1,972,206
Services to shareholders:
Transfer and dividend disbursing expense (Note 2) 892,389 1,113,917 241,028 1,597,614 608,809
Other expenses .................................. 118,360 144,761 38,410 298,701 128,232
Trustees' fees and expenses (Note 2) ............ 15,065 14,699 8,930 13,713 13,634
Shareholder communications ...................... 159,561 271,421 76,228 600,098 220,438
Legal ........................................... 6,186 48,658 3,602 10,365 4,218
Auditing ........................................ 24,658 29,602 18,088 24,227 22,529
Custodian fees .................................. 64,604 169,096 48,983 192,969 92,773
Registration expenses ........................... 30,167 62,492 42,033 161,547 31,140
Amortization of organization expenses (Note 1) .. - - 5,624 - -
Other ........................................... 11,972 46,538 7,964 41,799 14,803
----------- ------------ ---------- ------------ -----------
Total expenses before reimbursement from Fund
Manager ......................................... 2,625,133 6,277,664 927,572 8,653,095 3,108,782
Reimbursement of expenses from Fund Manager (Note 2) - - - - -
----------- ------------ ---------- ------------ -----------
Expenses, net ..................................... 2,625,133 6,277,664 927,572 8,653,095 3,108,782
---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ............................. 16,621,265 46,634,653 3,658,591 38,384,489 2,345,043
---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investments ..................................... (4,489,472) (2,736,415) (572,060) 35,730,300 (18,995,842)
Futures contracts (Note 1) ...................... (27,285) (10,098,469) - - -
Option contracts (Note 1) ....................... - - - - -
Foreign currency related transactions (Note 1) .. - - (4,606) (13,427) (41,298)
Net unrealized appreciation (depreciation) on:
Investments ..................................... 13,226,897 66,488,870 4,332,777 9,598,162 35,109,748
Futures contracts ............................... (386,146) 100,275 - - -
----------- ------------ ---------- ------------ -----------
Net gain (loss) on investments .................... 8,323,994 53,754,261 3,756,111 45,315,035 16,072,608
---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................. $ 24,945,259 $ 100,388,914 $ 7,414,702 $ 83,699,524 $18,417,651
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
AARP HIGH AARP HIGH AARP GNMA
QUALITY QUALITY TAX FREE AND
MONEY FUND MONEY FUND U.S. TREASURY FUND
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
MARCH 31, ENDED MARCH 31, ENDED MARCH 31, ENDED
1995 SEPT. 30, 1995 SEPT. 30, 1995 SEPT. 30,
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) 1994 (UNAUDITED) 1994 (UNAUDITED) 1994
----------- --------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income................. $ 8,763,338 $ 8,576,806 $ 1,802,764 $ 2,330,435 $ 178,093,012 $ 377,835,579
Net realized gain (loss) from:
Investments ........................ (6,938) - (2,949) (10,344) (80,695,799) (301,854,645)
Future contracts ................... - - - - - -
Option contracts ................... - - - - - (2,842,351)
Foreign currency related
transactions ..................... - - - - - -
Net unrealized appreciation
(depreciation) on:
Investments ....................... 134,155 (551,482) - - 113,144,243 (194,039,955)
Future contracts .................. - - - - - -
------------ ------------ ------------ ------------ ------------ --------------
Net increase (decrease) in net assets
resulting from operations ......... 8,890,555 8,025,324 1,799,815 2,320,091 210,541,456 (120,901,372)
------------ ------------ ------------ ------------ ------------ --------------
Distributions to shareholders:
Net investment income ............. (8,763,338) (8,576,806) (1,802,764) (2,330,435) (178,093,012) (377,835,579)
Net realized gains ................ - - - - - -
In excess of net realized gains ... - - - - - -
------------ ------------ ------------ ------------ ------------ --------------
(8,763,338) (8,576,806) (1,802,764) (2,330,435) (178,093,012) (377,835,579)
------------ ------------ ------------ ------------ ------------ --------------
Fund share transactions:
Proceeds from sale of shares ...... 235,238,872 457,195,131 26,080,666 72,891,766 160,681,495 767,903,410
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................... 7,767,571 7,471,832 1,430,723 1,833,452 104,117,674 243,322,806
Cost of shares redeemed ........... (200,754,373) (384,553,352) (33,299,211) (78,946,046) (653,205,788) (1,639,307,179)
------------ ------------ ------------ ------------ ------------ --------------
Net increase (decrease) in net assets
from Fund share transactions ...... 42,252,070 80,113,611 (5,787,822) (4,220,828) (388,406,619) (628,080,963)
------------ ------------ ------------ ------------ ------------ --------------
Increase (decrease) in net assets ..... 42,379,287 79,562,129 (5,790,771) (4,231,172) (355,958,175) (1,126,817,914)
Net assets at beginning of period ..... 333,438,059 253,875,930 129,409,645 133,640,817 5,585,485,190 6,712,303,104
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ....... $375,817,346 $333,438,059 $123,618,874 $129,409,645 $5,229,527,015 $5,585,485,190
-----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
FUND SHARES:
Shares outstanding at beginning
of period ......................... 333,693,761 253,580,150 129,411,544 133,632,372 379,121,168 420,695,404
------------ ------------ ------------ ------------ ------------ --------------
Shares sold ....................... 235,238,872 457,195,131 26,080,666 72,891,766 11,087,136 49,495,268
Shares issued to shareholders in
reinvestment of distributions
from net investment income
and net realized gains .......... 7,767,571 7,471,832 1,430,723 1,833,452 7,090,408 15,901,711
Shares redeemed ................... (200,754,373) (384,553,352) (33,299,211) (78,946,046) (44,772,398) (106,971,215)
------------ ------------ ------------ ------------ ------------ --------------
Net increase (decrease) in
Fund shares ....................... 42,252,070 80,113,611 (5,787,822) (4,220,828) (26,594,854) (41,574,236)
------------ ------------ ------------ ------------ ------------ --------------
Shares outstanding at end of period ... 375,945,831 333,693,761 123,623,722 129,411,544 352,526,314 379,121,168
-----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes accumulated
undistributed net investment
income $ - $ - $ - $ - $ - $ -
(b) Commencement of Operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
AARP INSURED AARP BALANCED
AARP HIGH TAX FREE STOCK AND
QUALITY BOND FUND GENERAL BOND FUND BOND FUND
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS FOR THE
ENDED YEAR ENDED YEAR ENDED PERIOD
MARCH 31, ENDED MARCH 31, ENDED MARCH 31, FEBRUARY 1,
1995 SEPT. 30, 1995 SEPT. 30, 1995 1994 (B) TO
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) 1994 (UNAUDITED) 1994 (UNAUDITED) SEPT. 30, 1994
------------ ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income................. $ 16,621,265 $ 32,320,652 $ 46,634,653 $ 98,275,887 $ 3,658,591 $ 2,679,894
Net realized gain (loss) from:
Investments ........................ (4,489,472) (12,214,126) (2,736,415) (782,787) (572,060) (481,337)
Future contracts ................... (27,285) 1,131,998 (10,098,469) 5,547,043 -- --
Option contracts ................... -- -- -- -- -- --
Foreign currency related
transactions ..................... -- -- -- -- (4,606) 56,480
Net unrealized appreciation
(depreciation) on:
Investments ....................... 13,226,897 (56,963,191) 66,488,870 (198,675,783) 4,332,777 730,892
Future contracts .................. (386,146) 163,838 100,275 119,639 -- --
------------ ------------ -------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......... 24,945,259 (35,560,829) 100,388,914 (95,516,001) 7,414,702 2,985,929
------------ ------------ -------------- -------------- ------------ ------------
Distributions to shareholders:
Net investment income ............. (16,164,434) (32,320,652) (46,634,653) (98,275,887) (3,714,633) (2,565,619)
Net realized gains ................ -- -- -- (38,761,058) (479,306) --
In excess of net realized gains ... -- (13,990,833) -- (6,584,253) -- --
------------ ------------ -------------- -------------- ------------ ------------
(16,164,434) (46,311,485) (46,634,653) (143,621,198) (4,193,939) (2,565,619)
------------ ------------ -------------- -------------- ------------ ------------
Fund share transactions:
Proceeds from sale of shares ...... 18,815,575 168,940,806 63,150,000 384,083,220 30,245,501 190,243,552
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................... 11,476,744 34,534,021 28,708,689 97,111,633 3,784,614 970,439
Cost of shares redeemed ........... (83,054,727) (157,452,199) (237,137,336) (414,495,879) (24,997,175) (16,137,931)
------------ ------------ -------------- -------------- ------------ ------------
Net increase (decrease) in net assets
from Fund share transactions ...... (52,762,408) 46,022,628 (145,278,647) 66,698,974 9,032,940 175,076,060
------------ ------------ -------------- -------------- ------------ ------------
Increase (decrease) in net assets ..... (43,981,583) (35,849,686) (91,524,386) (172,438,225) 12,253,703 175,496,370
Net assets at beginning of period ..... 567,985,907 603,835,593 1,914,270,953 2,086,709,178 175,497,870 1,500
-------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ....... $524,004,324 $567,985,907 $1,822,746,567 $1,914,270,953 $187,751,573 $175,497,870
-------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
FUND SHARES:
Shares outstanding at beginning
of period ......................... 37,734,181 35,123,046 113,066,680 109,849,454 11,983,629 100
------------ ------------ -------------- -------------- ------------ ------------
Shares sold ....................... 1,251,290 10,342,361 3,759,530 21,237,027 2,075,357 13,025,672
Shares issued to shareholders in
reinvestment of distributions
from net investment income
and net realized gains .......... 761,308 2,141,000 1,707,452 5,382,600 259,746 67,628
Shares redeemed ................... (5,540,499) (9,872,226) (14,303,041) (23,402,401) (1,718,351) (1,109,771)
------------ ------------ -------------- -------------- ------------ ------------
Net increase (decrease) in
Fund shares ....................... (3,527,901) 2,611,135 (8,836,059) 3,217,226 616,752 11,983,529
------------ ------------ -------------- -------------- ------------ ------------
Shares outstanding at end of period ... 34,206,280 37,734,181 104,230,621 113,066,680 12,600,381 11,983,629
-------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes accumulated
undistributed net investment
income $ 456,831 $ -- $ -- $ -- $ 86,553 $ 142,595
(b) Commencement of Operations
------------------------------------------------------------------------------------------------------
AARP GROWTH AARP CAPITAL
AND INCOME FUND GROWTH FUND
------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
MARCH 31, ENDED MARCH 31, ENDED
1995 SEPT. 30, 1995 SEPT. 30,
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) 1994 (UNAUDITED) 1994
-------------- -------------- ------------- -------------
Operations:
Net investment income................. $ 38,384,489 $ 58,944,890 $ 2,345,043 $ 120,099
Net realized gain (loss) from:
Investments ........................ 35,730,300 54,940,316 (18,995,842) 17,135,778
Future contracts ................... -- -- -- --
Option contracts ................... -- -- -- --
Foreign currency related
transactions ..................... (13,427) (92,431) (41,298) 2,595
Net unrealized appreciation
(depreciation) on:
Investments ....................... 9,598,162 38,962,776 35,109,748 (53,012,292)
Future contracts .................. -- -- -- --
-------------- -------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ......... 83,699,524 152,755,551 18,417,651 (35,753,820)
-------------- -------------- ------------- -------------
Distributions to shareholders:
Net investment income ............. (26,531,653) (66,829,027) (205,631) (916,825)
Net realized gains ................ (97,457,059) (11,016,834) (13,160,374) (53,175,158)
In excess of net realized gains ... -- -- -- --
-------------- -------------- ------------- -------------
(123,988,712) (77,845,861) (13,366,005) (54,091,983)
-------------- -------------- ------------- -------------
Fund share transactions:
Proceeds from sale of shares ...... 304,327,769 915,359,577 32,717,503 277,949,808
Net asset value of shares issued to
shareholders in reinvestment of
distributions ................... 111,898,796 57,428,013 12,786,953 51,627,257
Cost of shares redeemed ........... (206,900,960) (295,649,512) (115,280,249) (164,072,900)
-------------- -------------- ------------- -------------
Net increase (decrease) in net assets
from Fund share transactions ...... 209,325,605 677,138,078 (69,775,793) 165,504,165
-------------- -------------- ------------- -------------
Increase (decrease) in net assets ..... 169,036,417 752,047,768 (64,724,147) 75,658,362
Net assets at beginning of period ..... 2,312,137,916 1,560,090,148 682,799,913 607,141,551
------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ....... $2,481,174,333 $2,312,137,916 $ 618,075,766 $ 682,799,913
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
FUND SHARES:
Shares outstanding at beginning
of period ......................... 67,740,274 47,404,023 21,513,985 16,773,892
-------------- -------------- ------------- -------------
Shares sold ....................... 9,205,571 27,412,953 1,049,989 8,230,221
Shares issued to shareholders in
reinvestment of distributions
from net investment income
and net realized gains .......... 3,506,387 1,732,575 424,681 1,522,034
Shares redeemed ................... (6,285,208) (8,809,277) (3,713,758) (5,012,162)
-------------- -------------- ------------- -------------
Net increase (decrease) in
Fund shares ....................... 6,426,750 20,336,251 (2,239,088) 4,740,093
-------------- -------------- ------------- -------------
Shares outstanding at end of period ... 74,167,024 67,740,274 19,274,897 21,513,985
------------------------------------------------------------------------------------------------------
(a) Includes accumulated
undistributed net investment
income $ 15,896,868 $ 4,044,032 $ 2,262,100 $ 122,688
(b) Commencement of Operations
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
AARP HIGH QUALITY MONEY FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ------------------------------------------
<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 (a).......................... .024 .028 .021 .040 .060 .073
Distributions from net investment income........... (.024) (.028) (.021) (.040)(b) (.060) (.073)
------------------------------------------------------
Net asset value, end of period............................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
======================================================
TOTAL RETURN (%) (c)....................................... 2.42(d) 2.84 2.13 4.12 6.22 7.58
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)..................... 376 333 254 323 357 376
Ratio of operating expenses to average net assets (%) (a).. .993(e) 1.125 1.312 1.151 1.053 1.058
Ratio of net investment income to average net assets (%) .. 4.801(e) 2.889 2.123 3.613 6.050 7.319
<FN>
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of: $ -- $ -- $ -- $ .000 $ .001 $ .001
(b) Includes approximately $.005 per share of net realized
short-term capital gains.
(c) Total returns in some periods were higher due to maintenance of the Fund's expenses.
(d) Not Annualized
(e) Annualized
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
AARP HIGH QUALITY TAX FREE MONEY FUND (b)
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
UNDER PRIOR
SIX MONTHS OBJECTIVES (b)
ENDED ----------------
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $1.000 $1.000 $1.000 $1.000 $ .996 $ .998
----------------------------------------------------
Income from investment operations:
Net investment income (a)............................... .014 .017 .016 .026 .055 .061
Net realized and unrealized gain (loss) on investments.. -- -- -- -- .004 (.002)
----------------------------------------------------
Total from investment operations........................... .014 .017 .016 .026 .059 .059
----------------------------------------------------
Less distributions from net investment income.............. (.014) (.017) (.016) (.026) (.055) (0.61)
----------------------------------------------------
Net asset value, end of period............................. $1.000 $1.000 $1.000 $1.000 $1.000 $ .996
====================================================
TOTAL RETURN (%) (c)....................................... 1.41(d) 1.76 1.62 2.58 6.10 6.02
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)..................... 124 129 134 127 119 98
Ratio of operating expenses to average net assets (%) (a).. .90(e) .90 .93 .95 1.06 1.12
Ratio of net investment income to average net assets (%) .. 2.80(e) 1.75 1.60 2.54 5.43 6.06
Portfolio turnover rate (%)................................ -- -- -- -- -- 39.88
<FN>
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of: $ .000 $ .000 $ .002 $ .002 $ .001 $ --
(b) On August 1, 1991 the Fund implemented a 15.17 to 1.00 stock split and adopted its present name and investment
objectives. Prior to that date, the Fund was known as the AARP Insured Tax Free Short Term Fund. Financial
Highlights, for the years ended September 30, 1990 and 1991, have been restated to reflect the stock split and
should not be considered representative of the present Fund.
(c) Total returns om some periods were higher due to maintenance of the Fund's expenses.
(d) Not Annualized
(e) Annualized
</TABLE>
68
<PAGE>
<TABLE>
AARP GNMA AND U.S. TREASURY FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $14.73 $15.96 $16.19 $15.72 $14.95 $14.98
---------------------------------------------------
Income from investment operations:
Net investment income................................... .49 .93 1.15 1.22 1.26 1.31
Net realized and unrealized gain (loss) on investments.. .10 (1.23) (.23) .47 .77 (.03)
---------------------------------------------------
Total from investment operations........................... .59 (.30) .92 1.69 2.03 1.28
---------------------------------------------------
Less distributions from net investment income.............. (.49) (.93) (1.15) (1.22) (1.26) (1.31)
---------------------------------------------------
Net asset value, end of period............................. $14.83 $14.73 $15.96 $16.19 $15.72 $14.95
---------------------------------------------------
TOTAL RETURN (%)........................................... 4.09(a) (1.90) 5.89 11.19 14.12 8.86
===================================================
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)..................... 5,230 5,585 6,712 5,232 3,311 2,583
Ratio of operating expenses to average net assets (%)...... .67(b) .66 .70 .72 .74 .79
Ratio of net investment income to average net assets (%)... 6.72(b) 6.09 7.15 7.69 8.23 8.71
Portfolio turnover rate (%)................................ 94.08(b) 114.54 105.49 74.33 86.64 60.54
<FN>
(a) Not Annualized
(b) Annualized
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------
AARP HIGH QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $15.05 $17.19 $16.44 $15.71 $14.63 $15.04
---------------------------------------------------
Income from investment operations:
Net investment income (a)................................ .47 .85 .93 1.03 1.10 1.17
Net realized and unrealized gain (loss) on investments... .26 (1.76) .93 .73 1.08 (.41)
---------------------------------------------------
Total from investment operations............................ .73 (.91) 1.86 1.76 2.18 .76
---------------------------------------------------
Less distributions:
Net investment income.................................... (.46) (.85) (.93) (1.03) (1.10) (1.17)
Net realized gains on investments........................ -- -- (.18) -- -- --
In excess of net realized gains on investments........... -- (.38) -- -- -- --
---------------------------------------------------
Total distributions......................................... (.46) (1.23) (1.11) (1.03) (1.10) (1.17)
---------------------------------------------------
Net asset value, end of period.............................. $15.32 $15.05 $17.19 $16.44 $15.71 $14.63
===================================================
TOTAL RETURN (%) (b)........................................ 4.91(c) (5.55) 11.88 11.56 15.44 5.21
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)...................... 524 568 604 384 201 151
Ratio of operating expenses to average net assets (%) (a)... .99(d) .95 1.01 1.13 1.17 1.14
Ratio of net investment income to average net assets (%).... 6.24(d) 5.31 5.64 6.40 7.26 7.86
Portfolio turnover rate (%)................................. 87.03(d) 63.75 100.98 63.00 90.43 47.39
<FN>
(a) Reflects a per share reimbursement of expenses during
the period by the Fund Manager of: $ -- $ -- $ -- $ -- $ -- $ .009
(b) Total returns in some periods were higher due to maintenance of the Fund's expenses.
(c) Not Annualized
(d) Annualized
</TABLE>
69
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
AARP INSURED TAX FREE GENERAL BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................... $16.93 $19.00 $17.88 $17.30 $16.12 $16.61
----------------------------------------------------
Income from investment operations:
Net investment income................................... .44 .86 .90 .93 1.00 1.04
Net realized and unrealized gain (loss) on
investments............................................. .56 (1.67) 1.55 .75 1.18 (.24)
----------------------------------------------------
Total from investment operations........................ 1.00 (.81) 2.45 1.68 2.18 .80
----------------------------------------------------
Less distributions:
Net investment income................................... (.44) (.86) (.90) (.93) (1.00) (1.04)
Net realized gains on investments....................... -- (.34) (.43) (.17) -- (.25)
In excess of net realized gains on investments.......... -- (.06) -- -- -- --
----------------------------------------------------
Total distributions........................................ (.44) (1.26) (1.33) (1.10) (1.00) (1.29)
----------------------------------------------------
Net asset value, end of period............................. $17.49 $16.93 $19.00 $17.88 $17.30 $16.12
====================================================
TOTAL RETURN (%)........................................... 6.01(a) (4.48) 14.31 10.01 13.85 4.89
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)..................... 1,823 1,914 2,087 1,487 1,068 771
Ratio of operating expenses to average net assets (%)...... .70(b) .68 .72 .74 .77 .80
Ratio of net investment income to average net assets (%)... 5.21(b) 4.80 4.90 5.31 5.92 6.29
Portfolio turnover rate (%)................................ 18.55(b) 38.39 47.96 62.45 32.18 48.24
<FN>
(a) Not Annualized
(b) Annualized
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------
AARP BALANCED STOCK AND BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
FOR THE
SIX MONTHS PERIOD
ENDED FEBRUARY 1,
MARCH 31, 1994 (A) TO
1995 SEPTEMBER 30,
(UNAUDITED) 1994
----------- -------------
<S> <C> <C>
Net asset value, beginning of period ......................................... $14.64 $15.00
-----------------------------
Income from investment operations: ...........................................
Net investment income ..................................................... .29 .25
Net realized and unrealized loss on investments............................ .31 (.37)(b)
-----------------------------
Total from investment operations ............................................. .60 (.12)
-----------------------------
Less distributions:
Net investment income...................................................... (.30) (.24)
Net realized gains on investments.......................................... (.04) --
-----------------------------
Total distributions........................................................... (.34) (.24)
-----------------------------
Net asset value, end of period................................................ $14.90 $14.64
=============================
TOTAL RETURN (%) ............................................................. 4.16(c) (.78)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)........................................ 188 175
Ratio of operating expenses to average net assets (%)......................... 1.04(d) 1.31(d)
Ratio of net investment income to average net assets (%)...................... 4.10(d) 3.58(d)
Portfolio turnover rate (%)................................................... 70.14(d) 49.32(d)
<FN>
(a) Commencement of operations
(b) The amount shown for a share outstanding throughout the period does not accord with the change in the
aggregate gains and losses in the portfolio securities during the period because of the timing of sales
and repurchases of Fund shares in relation to fluctuating market values during the period.
(c) Not Annualized
(d) Annualized
</TABLE>
70
<PAGE>
<TABLE>
AARP GROWTH AND INCOME FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $34.13 $32.91 $28.67 $26.97 $22.30 $26.11
------------------------------------------------------
Income from investment operations:
Net investment income................................... .70 .94 .83 .97 1.11 1.11
Net realized and unrealized gain (loss) on investments.. .39 1.62 4.58 2.11 4.78 (3.69)
------------------------------------------------------
Total from investment operations.......................... 1.09 2.56 5.41 3.08 5.89 (2.58)
------------------------------------------------------
Less distributions from:
Net investment income................................... (.55) (1.13) (.87) (.90) (1.17) (1.15)
Net realized gains on investments ...................... (1.22) (.21) (.30) (.48) (.05) (.08)
------------------------------------------------------
Total distributions....................................... (1.77) (1.34) (1.17) (1.38) (1.22) (1.23)
------------------------------------------------------
Net asset value, end of period............................ $33.45 $34.13 $32.91 $28.67 $26.97 $22.30
======================================================
TOTAL RETURN (%).......................................... 3.47(a) 7.99 19.38 11.59 27.19 (10.19)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions).................... 2,481 2,312 1,560 748 392 248
Ratio of operating expenses to average net assets (%)..... .74(b) .76 .84 .91 .96 1.03
Ratio of net investment income to average net assets (%).. 3.29(b) 3.00 3.08 3.84 4.61 4.76
Portfolio turnover rate (%)............................... 42.59(b) 31.82 17.44 36.40 53.68 58.47
<FN>
(a) Not Annualized
(b) Annualized
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------------------
AARP CAPITAL GROWTH FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial statements.
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
1995 ----------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $31.74 $36.20 $30.30 $30.23 $23.32 $34.17
------------------------------------------------------
Income from investment operations:
Net investment income (a)............................... .12 .00 .06 .15 .24 .54(b)
Net realized and unrealized gain (loss) on investments .86 (1.51) 7.19 1.09 9.05 (9.27)
------------------------------------------------------
Total from investment operations.......................... .98 (1.51) 7.25 1.24 9.29 (8.73)
------------------------------------------------------
Less distributions from:
Net investment income................................... (.01) (.05) (.14) (.23) (.59) (.19)
Net realized gains on investments ...................... (.64) (2.90) (1.21) (.94) (1.79) (1.93)
------------------------------------------------------
Total distributions....................................... (.65) (2.95) (1.35) (1.17) (2.38) (2.12)
------------------------------------------------------
Net asset value, end of period............................ $32.07 $31.74 $36.20 $30.30 $30.23 $23.32
======================================================
TOTAL RETURN (%) (c)...................................... 3.19(d) (4.70) 24.53 3.94 42.81 (26.94)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions).................... 618 683 607 424 242 160
Ratio of operating expenses to average net assets (%) (a). .98(e) .97 1.05 1.13 1.17 1.11
Ratio of net investment income to average net assets (%).. .74(e) .02 .22 .61 .90 2.00
Portfolio turnover rate (%)............................... 140.93(e) 79.65 100.63 89.20 99.62 83.28
<FN>
(a) Reflects a per share reimbursement of expenses during
the period by the Fund Manager of: $ -- $ -- $ -- $ -- $ -- $ .009
(b) Net investment income per share includes non recurring
dividend income amounting to $.18 per share.
(c) Total returns in some periods were higher due to maintenance of the Fund's expenses.
(d) Not Annualized
(e) Annualized
</TABLE>
71
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.
The AARP Cash Investment Funds, consisting of the AARP High Quality
Money Fund, the AARP Income Trust, consisting of the AARP GNMA and U.S.
Treasury Fund and the AARP High Quality Bond Fund, the AARP Tax Free Income
Trust, consisting of the AARP High Quality Tax Free Money Fund, (formerly AARP
Insured Tax Free Short Term Fund), and the AARP Insured Tax Free General Bond
Fund, and the AARP Growth Trust, consisting of the AARP Balanced Stock and Bond
Fund, AARP Growth and Income Fund, and the AARP Capital Growth Fund are each
Massachusetts business trusts and are registered under the Investment Company
Act of 1940, as amended, as open-end management investment companies. All funds
are diversified. The AARP Cash Investment Funds, has one series, the AARP
Growth Trust has three series and each of the other Trusts have two series. The
Declaration of Trust of each Trust permits its Trustees to create an unlimited
number of series and to issue an unlimited number of full and fractional shares
of each separate series.
The policies described below are followed consistently by the funds in
preparation of their financial statements and are in conformity with generally
accepted accounting principles.
A. SECURITY VALUATION. The AARP High Quality Money Fund uses the penny
rounding method of security valuation as permitted under Rule 2a-7 of the
Investment Company Act of 1940. Under this method, securities for which market
quotations are readily available and which have remaining maturities of
sixty-one days or more from the date of valuation are valued at the mean
between the over-the-counter bid and asked prices by an independent registered
broker/dealer. On the sixtieth day prior to maturity and thereafter until
maturity, securities originally purchased with more than sixty days remaining
to maturity are valued at amortized cost calculated daily, based upon the
market valuation of the securities on the sixty-first day prior to maturity.
The AARP High Quality Tax Free Money Fund uses the amortized cost method of
security valuation as permitted under Rule 2a-7 of the Investment Company Act
of 1940. Under this method, the value of a security is determined by adjusting
its original cost to face value through the amortization of any acquisition
discount or premium at a constant rate until maturity, which approximates
market. Security valuation with respect to each of the remaining funds is
performed in the following manner:
Common and preferred stocks traded on national securities exchanges
are valued at the most recent sale price on such exchange where the security
is principally traded. If no sale occurred, the security is valued at the mean
between the most recent bid and asked quotations on such exchanges. If there
is no such bid and asked quotations the most recent bid quotation is used.
Unlisted securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Unlisted
securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such
market. If no sale occurred, the security is valued at the mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations the most recent bid quotation is used.
Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the Trustees, which prices
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments with remaining maturities of 60 days or less
are valued at amortized cost. Variable rate demand notes are carried at cost
which together with accrued interest approximates market.
The value of all other securities is determined in good faith under
the direction of the Trustees.
B. REPURCHASE AGREEMENTS. The AARP High Quality Money Fund, AARP Growth
Funds and AARP GNMA and U.S. Treasury Fund regularly invest in repurchase
agreements. Each of the AARP funds may enter into repurchase agreements with
selected banks and broker/dealers whereby each fund, through its custodian,
receives delivery of the securities collateralizing
72
<PAGE>
repurchase agreements, the amount of which at the time of purchase and each
subsequent business day is required to be maintained at such a level that the
market value, depending on the maturity of the underlying collateral, is equal
to at least 101% of the resale price.
C. COVERED CALL OPTIONS. The AARP growth funds and the AARP income
funds may write (sell) exchange listed and over-the-counter covered call option
contracts on their securities. When a fund writes a covered call option, it
gives the purchaser of the option the right to buy the underlying security at
the price specified in the option (the "exercise price") at any time during
the option period, generally ranging up to nine months. If the option expires
unexercised, the fund will realize a capital gain to the extent of the net
premium received. If the option is terminated through a closing purchase
transaction, the fund will realize a capital gain (or loss if the cost of the
closing purchase transaction exceeds the net premium received) and the
liability will be eliminated. If the option is exercised, a decision over which
a fund has no control, the fund must sell the underlying security to the option
holder at the exercise price.
The proceeds of the sale are increased by the net premium originally
received and the fund will realize a capital gain or loss on the transaction.
By writing a covered call option, the fund foregoes, in exchange for
the premium less any commission paid, the opportunity to profit during the
option period from an increase in the market value of the underlying security
above the exercise price.
When a fund writes a covered call option, the premium received by the
fund is included in the fund's "Statement of Assets and Liabilities" as a
deferred credit (liability). The liability of a traded option will be
marked-to-market 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 if no
bid or asked price is available. Over-the-Counter written options are valued
using dealer supplied valuations.
D. OPTIONS ON FUTURES CONTRACTS. Each of the funds in the AARP Income
Trust, the AARP Insured Tax Free General Bond Fund and the AARP Balanced Stock
and Bond Fund may purchase and write (sell) call and put options on futures
contracts which are traded on exchanges for bona fide hedging purposes. Options
on futures contracts are valued in accordance with the security and options
valuation policies described above.
E. FUTURES CONTRACTS. Each of the funds in the AARP Income Trust, the
AARP Insured Tax Free General Bond Fund and the AARP Balanced Stock and Bond
Fund may enter into futures contracts. Such contracts may either be based on
indices of particular groups of securities (index futures contracts) or be for
the purchase or sale of a debt obligation (debt futures contracts). Upon
entering into a futures contract, the fund is required by the exchange to
deposit cash or pledge U.S. Government securities with a broker in an amount
(initial margin) equal to a certain percentage of the purchase price indicated
in the futures contract. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying index or security, are made or
received by the fund each day (daily variation margin). The aggregate of these
payments or receipts through the expiration of the futures contracts is
recorded for book purposes as unrealized gains or losses by the fund. If the
fund enters into a closing transaction, it will realize, for book purposes, a
gain or loss equal to the difference between the value of the futures contract
at the time it was opened or purchased and its value at the time it was closed.
Open futures contracts are valued at the most recent settlement price. Certain
risks may arise upon entering into futures contracts from the contingency of
imperfect market conditions.
F. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of the funds in
the AARP Growth Trust, in connection with portfolio purchases and sales of
securities denominated in a foreign currency, may enter into forward foreign
currency exchange contracts ("contracts"). Additionally, from time to time,
each fund may enter into contracts to hedge certain foreign currency
denominated assets. Contracts are recorded at market value. Certain risks may
arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized gains or losses
arising from such transactions are included in net realized gain (loss) from
foreign currency related transactions.
73
<PAGE>
NOTES TO FINANCIAL STATEMENTS
G. FOREIGN CURRENCY TRANSLATIONS. Foreign currency transactions from
foreign investment activity are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The Funds do not isolate that portion of gains and losses on
investments which is due to changes in foreign exchange rates from that which
is due to changes in market prices of the investments. Such fluctuations are
included with the net realized and unrealized gains and losses from
investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
H. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security.
Acquisition discount is accreted on taxable securities purchased with original
maturity dates of one year or less. Premium on securities purchased by the AARP
Tax Free Income Trust is amortized on an effective yield basis over the life of
the security.
The funds use 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 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. All of the net investment income
of each fund is declared as a dividend to shareholders. The dividends from
AARP High Quality Money Fund and each of the funds in the AARP Income Trust
and the AARP Tax Free Income Trust are declared daily and distributed monthly.
The dividends from AARP Balanced Stock and Bond Fund and AARP Growth and Income
Fund are declared and paid quarterly. The dividends from AARP Capital Growth
Fund are declared and paid annually. During any particular year, net realized
gains from securities transactions for each fund which are in excess of any
available capital loss carryforwards, would be taxable to the fund if not
distributed and, therefore, will be distributed to shareholders in the
following fiscal year. The AARP High Quality Money Fund takes into account
realized gains and losses on the sales of securities held less than one year in
its daily distributions. An additional distribution may be made by each fund to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments and mortgage backed
securities. As a result, net investment income and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
K. EXPENSES. Each fund is charged for those expenses that are directly
attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a
fund, such as reports to shareholders, portions of Trustees' and legal fees,
are allocated among all the funds.
L. ORGANIZATION COST. Costs incurred by the AARP Balanced Stock and
Bond Fund in connection with its organization and initial registration of
shares have been deferred and are being
74
<PAGE>
amortized on a straight-line basis over a five-year period.
M. PORTFOLIO INSURANCE. The cost of premiums paid by the AARP Insured
Tax Free General Bond Fund for insurance, which covers individual securities,
is non-cancellable and runs the life of such securities, is added to the cost
basis of such securities. This insurance provides for the timely payment of
principal and interest on these securities when due and protects the fund
against loss from default by the Municipal issuer. It does not protect the
investor from losses due to changes in market values.
N. SECURITIES PURCHASED ON A FORWARD DELIVERY OR WHEN-ISSUED BASIS.
The AARP High Quality Money Fund, each of the funds in the AARP Income Trust
and AARP Tax Free Income Trust, and AARP Balanced Stock and Bond Fund may
purchase securities on a forward delivery or when-issued basis. Municipal,
corporate and government securities are frequently offered on a forward
delivery or when-issued basis. At the time the fund makes the commitment to
purchase a security on a forward delivery or when-issued basis, the price of
the underlying security is fixed. The fund will record the transaction at the
time of the commitment and reflect the value of the security in determining its
net asset value. The settlement date of the transaction can occur within one
month or more after the date the commitment was made. During the period between
purchase and settlement date, no payment is made on behalf of the fund and no
interest accrues to the fund.
NOTE 2. MANAGEMENT FEE AND OTHER RELATED TRANSACTIONS.
Under the investment management and advisory agreement (the "Management
Agreement") between each Trust and Scudder, Stevens & Clark, Inc. (the "Fund
Manager") the management fee consists of two elements: a Base Fee and an
Individual Fund Fee. The Base Fee is calculated as a percentage of the combined
net assets of all of the AARP Funds ("Program Assets"). Each AARP Fund pays, as
its portion of the Base Fee, an amount equal to the ratio of its daily net
assets to the daily net assets of all of the AARP Funds. The Annual Base Fee is
calculated as follows: .35%, of the first $2.0 billion of such assets, .33% of
the next $2.0 billion of such assets, .30% of the next $2.0 billion of such
assets, .28% of the next $2.0 billion of such assets, .26% of the next $3.0
billion of such assets, .25% of the next $3.0 billion of such assets, .24% of
such assets in excess of $14.0 billion.
In addition to the Base Fee Rate, each Fund agrees to pay the Fund
Manager a flat Individual Fund Fee based on the average daily net assets of
that Fund. The Individual Fund Fee Rate recognizes the different
characteristics of each Fund, the varying levels of complexity of investment
research and securities trading required to manage each Fund. The Individual
Fund Fee Rate is calculated at the following percentages of the average daily
net assets of each fund: .10% for AARP High Quality Money Fund and AARP High
Quality Tax Free Money Fund; .12% for AARP GNMA and U.S. Treasury Fund; .19%
for AARP High Quality Bond Fund, AARP Insured Tax Free General Bond Fund, AARP
Balanced Stock and Bond Fund and AARP Growth and Income Fund; .32% for AARP
Capital Growth Fund. The amount for each fund is shown in the Statement of
Operations as Management Fee.
As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund
Manager under the Management Agreement will provide certain administrative
services in accordance with such Agreement. The Fund Manager has also entered
into a Member Services Agreement with AARP Financial Services Corp. ("AFSC"), a
subsidiary of AARP, and pays portions of its investment management and advisory
fee to AFSC.
The Management Agreement also provides that the Fund Manager will
reimburse the funds for annual expenses in excess of the lowest state
limitations imposed, exclusive of taxes, brokerage commissions, interest and
extraordinary expenses. The Fund Manager agreed to maintain the annualized
expenses of the AARP High Quality Tax Free Money Fund at not more than 0.90% of
average daily net assets until February 1, 1996. The amount of expenses
reimbursed by the Fund Manager, if any, for each fund has been shown in the
Statement of Operations as Reimbursement of expenses from Fund Manager.
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NOTES TO FINANCIAL STATEMENTS
Each Trust has a shareholder servicing agreement with Scudder Service
Corporation ("SSC"), a wholly-owned subsidiary of Scudder. As shareholder
servicing agent, SSC provides various transfer agent, dividend disbursing, and
shareholder communication functions. The amount for each fund has been shown in
the Statement of Operations as Transfer and Dividend Disbursing Expense.
Each fund pays each Trustee not affiliated with Scudder or AARP $2,000
annually, $270 for each Trustees' meeting, $200 for each audit committee
meeting attended, and $100 for other committee meetings, plus expenses, subject
to certain maximums per Trustee for meetings held jointly with other funds. The
amount for each fund has been shown in the Statement of Operations as Trustees'
fees and expenses.
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Officers and Trustees
Adelaide Attard
Trustee of AARP Cash Investment Funds, AARP Income Trust and AARP Growth Trust;
Consultant, Gerontology; Commissioner, County of Nassau, NY, Department of
Senior Citizen Affairs (1971-1991); Board Member, American Association of
International Aging (1983-1992); Member, NYS Community Services for the Elderly
Advisory Council--Appointed by Governor (1987-1990); Chairperson, Federal
Council on Aging (1981-1986); U.S. Senior Advisor to 1982 United Nations World
Assembly on Aging.
Cyril F. Brickfield
Trustee of AARP Income Trust, AARP Tax Free Income Trust, AARP Growth Trust;
Honorary Trustee, AARP Cash Investment Funds; Honorary President and Special
Counsel, American Association of Retired Persons; Board Member, American
Association of International Aging, National Alzheimer's Association, and
American Federation of Aging Research (AFAR).
Robert N. Butler, M.D.
Trustee of AARP Income Trust and AARP Growth Trust; Brookdale 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).
Linda C. Coughlin
President and Trustee of AARP Cash Investment Funds, AARP Income Trust, AARP Tax
Free Income Trust and AARP Growth Trust; Managing Director and Member, Board of
Directors of Scudder, Stevens & Clark, Inc.; Director of Scudder Investor
Services, Inc.
Horace B. Deets
Vice Chairman and Trustee of AARP Cash Investment Funds, AARP Income Trust, AARP
Tax Free Income Trust and AARP Growth Trust; Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.
Mary Johnston Evans
Trustee of AARP Cash Investment Funds, AARP Tax Free Income Trust and AARP
Growth Trust; Director, Baxter International, Inc., Delta Air Lines, Inc.,
Household International, Inc., The Sun Company and Dun & Bradstreet Corporation.
Edgar R. Fiedler
Trustee of AARP Cash Investment Funds, AARP Income Trust and AARP Tax Free
Income Trust; Vice President and Economic Counsellor, The Conference Board,
Inc.; Director of The Stanley Works, Zurich-American Insurance Company, HT
Insight Funds, and Emerging Mexico Fund.
Cuyler W. Findlay
Chairman and Trustee of AARP Cash Investment Funds, AARP Income Trust, AARP Tax
Free Income Trust, and AARP Growth Trust; Managing Director of Scudder, Stevens
& Clark, Inc., Senior Vice President and Director, Scudder Investor Services,
Inc.
Eugene P. Forrester
Trustee of AARP Income Trust and AARP Tax Free Income Trust; Consultant,
International Trade; Lt. General (Retired), U.S. Army; Command General, U.S.
Army Western Command, Honolulu; Consultant, Digital Equipment Corp., DHI, Philip
Morris, PICS Previews, and Whittle Communications.
Wayne F. Haefer
Trustee of AARP Income Trust, AARP Tax Free Income Trust, and AARP Growth Trust;
Director, Membership Division of AARP; Secretary, Employee's Pension and Welfare
Trusts of AARP and Retired Persons Services, Inc.; Formerly Director,
Administration and Data Management Division of AARP.
William B. Macomber
Trustee of AARP Tax Free Income Trust and AARP Growth Trust; Formerly Teacher,
History and Government, Nantucket High School, Nantucket, MA; Director, Becton,
Dickinson & Co.; Trustee, Carnegie Endowment for International Peace; Formerly
President, The Metropolitan Museum of Art and U.S. Ambassador to Turkey and to
Jordan.
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Officers and Trustees
George L. Maddox, Jr.
Trustee of AARP Income Trust and AARP Tax Free Income Trust; Director and
Professor, Long Term Care Resources Program, Duke University Medical Center;
Senior Fellow, Center for the Study of Aging and Human Development, Duke
University; Professor of Sociology, Departments of Sociology and Psychiatry,
Duke University.
Robert J. Myers
Trustee of AARP Cash Investment Funds, AARP Income Trust and AARP Growth Trust;
Actuarial Consultant; Formerly Executive Director, National Commission on Social
Security Reform; Director, NASL Series Trust, Inc.; Formerly Director, Board of
Pensions, Evangelical Lutheran Church in America; Formerly Chairman, Commission
on Railroad Retirement Reform; Member, Commission on the Social Security Notch
Issue (appointed by Senate Majority Leader), 1993.
Joseph S. Perkins
Trustee of AARP Cash Investment Funds, AARP Income Trust, AARP Tax Free Income
Trust, and AARP Growth Trust; Director, American Association of Retired Persons;
Corporate Retirement Manager, Polaroid Corporation.
James H. Schulz
Trustee of AARP Income Trust, AARP Tax Free Income Trust and AARP Growth Trust;
Professor of Economics and Kirstein Professor of Aging Policy, Policy Center of
Aging, Florence Heller School, Brandeis University.
Gordon Shillinglaw
Trustee of AARP Cash Investment Funds, AARP Tax Free Income Trust, AARP Growth
Trust; Professor Emeritus of Accounting, Columbia University Graduate School of
Business; Director and Treasurer, FERIS Foundation of America
Edward V. Creed*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President and Assistant Treasurer
Douglas M. Loudon*
Vice President
Thomas F. McDonough*
Vice President and Assistant Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Secretary
Howard Schneider*
Vice President
Cornelia M. Small*
Vice President
*Scudder, Stevens & Clark, Inc.
Effective January 1, 1995, each member of and nominee for the Board of Trustees
must own shares of one or more of the Funds within the AARP Investment Program
of which he/she serves as Trustee.
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Service Information
Shareholder Service Line
1-800-253-2277
Our knowledgeable AARP Mutual Fund Representatives are available to answer
questions about the Program or your account Monday through Friday, between 8:00
a.m. and 8:00 p.m., eastern time. Transactions can be made Monday through Friday
between 8:00 a.m. and 4:00 p.m., eastern time.
WRITE:
AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540
AARP Investment Program from Scudder
(for overnight and certified mail)
1099 Hingham Street
Rockland, MA 02370
Easy-Access Line
1-800-631-4636
Shareholders may call for a recorded message to find out AARP Fund performance
information and, with a touch-tone telephone, current account information, 24
hours a day, 7 days a week. Also, with a touch-tone phone you can exchange or
sell (redeem) your AARP Mutual Fund shares.
Transactions by Fax
1-800-821-6234
If you have access to a fax machine, you can fax transaction requests. Any
exchange or redemption request received after 4:00 p.m. business days or on
weekends, will be processed the next business day. All faxes are kept
confidential.
Telecommunications Device for the Deaf and Speech Impaired (TDD)
1-800-634-9454
AARP members with hearing or speech impairments and access to TDD equipment can
communicate with the AARP Investment Program Monday through Friday between 8:00
a.m. and 6:00 p.m., eastern time. Transactions can be made between 8:00 a.m. and
4:00 p.m., eastern time.
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