AARP CASH INVESTMENT FUNDS, N-30D, 1999-12-03

AARP CASH INVESTMENT FUNDS
N-30D, 1999-12-03

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AARP Investment Program
from SCUDDER

ANNUAL REPORT

----------------------

TO SHAREHOLDERS

----------------------

SEPTEMBER 1999

Helping investors

prepare for life's

eventualities

INSIDE

o Letter from the Chairperson: AARP Investment
Program expands invsetor education program

o Introduction of the Financial Library:
A library designed by investors

o Getting online: Real stories from members
who made it and are not looking back

- --------------------------------------------------------------------------------
AARP LAUNCHES A NEW IMPROVED WEB SITE--AARP.SCUDDER.COM
- --------------------------------------------------------------------------------
<PAGE>

HOW TO NAVIGATE THIS REPORT

To make this annual report easy to navigate, we have divided it
into numbered sections. The summaries below show each section title
and number. The first page of each section is marked with the
section number, as shown to the right of each major heading below.

ANNUAL REVIEW /1/
----------------------------------------------------------------------
A message from Linda C. Coughlin, Chairperson, AARP Investment
Program from Scudder.

SPECIAL SECTION /2/
----------------------------------------------------------------------

Introduction of the AARP Investment Program Financial Library.

AARP INVESTMENT PERFORMANCE AND INDIVIDUAL PORTFOLIO REVIEWS /3/
----------------------------------------------------------------------

Cornelia Small, President and Investment Director, gives an
overview of the financial markets and AARP fund performance for the
12-month period, followed by a review of each AARP fund.

AARP FUNDS' INVESTMENT PORTFOLIOS /4/
----------------------------------------------------------------------

A detailed listing of portfolio holdings for each fund, including
the current market value at the end of the period.

FINANCIAL STATEMENTS, HIGHLIGHTS, AND NOTES /5/
----------------------------------------------------------------------

Financial records of the AARP Investment Program. This section also
includes the Financial Highlights, which detail statistical net
income per share and ratio(s) from operations and dividends paid to
shareholders, expense ratios, and other financial information. The
Notes to Financial Statements include detailed information
regarding expenses, organization costs, transactions, and
management fees.

OFFICERS AND TRUSTEES /6/
----------------------------------------------------------------------
A list of the current officers and trustees is provided in this
section.

INVESTOR SERVICES /7/
----------------------------------------------------------------------

Information on services available to shareholders of the AARP
Investment Program from Scudder.

GLOSSARY /8/
----------------------------------------------------------------------

All glossary terms used in the report are highlighted in bold
italics throughout this report for easy reference to this section.

<PAGE>

TABLE OF CONTENTS

ANNUAL REVIEW-- A MESSAGE FROM LINDA C. COUGHLIN 2 /1/
---------------------------------------------------------------------------

SPECIAL SECTION: INTRODUCTION OF THE FINANCIAL LIBRARY 7 /2/
---------------------------------------------------------------------------

AARP INVESTMENT PERFORMANCE AND INDIVIDUAL PORTFOLIO REVIEWS 13 /3/
---------------------------------------------------------------------------
Investment Performance for the 12-month period 14

MONEY MARKET FUNDS
AARP High Quality Money Fund 23
AARP High Quality Tax Free Money Fund 24
AARP Premium Money Fund 25

INC0ME FUNDS
AARP High Quality Short Term Bond Fund 26
AARP GNMA and U.S. Treasury Fund 28
AARP Insured Tax Free General Bond Fund 30
AARP Bond Fund for Income 32

GROWTH AND INCOME FUNDS
AARP Balanced Stock and Bond Fund 34
AARP Growth and Income Fund 36
AARP U.S. Stock Index Fund 40

GROWTH FUNDS
AARP Capital Growth Fund 42
AARP Small Company Stock Fund 44

GLOBAL FUNDS
AARP Global Growth Fund 46
AARP International Stock Fund
(formerly AARP International Growth and Income Fund) 48

MANAGED INVESTMENT PORTFOLIOS
AARP Diversified Income with Growth Portfolio 50
AARP Diversified Growth Portfolio 50

AARP FUNDS' INVESTMENT PORTFOLIOS 53 /4/
---------------------------------------------------------------------------
FINANCIAL STATEMENTS 137 /5/
---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 155

NOTES TO FINANCIAL STATEMENTS 165

REPORT OF INDEPENDENT ACCOUNTANTS 174

TAX INFORMATION 175

OFFICERS AND TRUSTEES 177 /6/
---------------------------------------------------------------------------
INVESTOR SERVICES 181 /7/
---------------------------------------------------------------------------
GLOSSARY 185 /8/
---------------------------------------------------------------------------

<PAGE>

/1/
- --------------------------------------------------------------------------------
AARP Investment Program
from Scudder

THE PRINTED DOCUMENT
CONTAINS A PHOTOGRAPH
OF LINDA C. COUGHLIN
HERE

Linda C. Coughlin
Chairperson

Annual Review

A Message from Linda C. Coughlin, Chairperson
AARP Investment Program from Scudder

Dear Fellow Shareholder,

I am pleased to report to you on the recent activities of the AARP
Investment Program from Scudder and about our vision for the Program going
forward.

For some people, the new millenium will be just another year of new
beginnings, for others it will be a momentous event. Whatever your perspective,
I can tell you that this is a special new dawning in the evolution of the AARP
Investment Program.

This year we adopted a mission statement that articulates our continuing
commitment to investor education and reflects our understanding of life stage
development issues that face shareholders of all ages. Our goal is:

"Helping investors be prepared for life's financial eventualities."

Turning fifty, deciding on a career change, caring for loved ones, or
planning your legacy are all major events. We call them "life's eventualities"
because whether you prepare for them or not, you may face them in your lifetime.
These events are usually accompanied by major financial decisions, which will
require most investors to seek help.

Our approach focuses on helping investors be prepared. We believe that one
of the shortcomings of popularized personal financial advice is a focus on "the
transaction." Financial magazine headlines such as "The Top 10 Mutual Funds to
Buy Now" are typical of this emphasis. While such articles attract attention and
may contain useful information, the articles can distract investors from the
broader issues of planning for one's financial well being. We believe that
investors need to take a step back from individual transactions to develop a
plan to meet their specific needs and financial goals. To help investors with
this task, we are developing a customizable program that gives investors the
tools, resources, and knowledge to be prepared for life's financial
eventualities.

BECOME PREPARED THROUGH LEARNING

Educating shareholders has been an integral component of the AARP
Investment Program since the beginning of our partnership with AARP in 1984.
Over the years many of you have expressed an increasing desire to learn and
understand more about investing so that you can pursue your goals, make your own

<PAGE>

informed decisions, and remain independent. In conjunction with AARP, we stepped
up our commitment to investor education last year with the launch of several new
programs.

One of our first major initiatives was the introduction of the Legacy
Service, a program that is designed to help shareholders feel confident that
their investments will pass easily to their spouse or heirs in the way intended.
With the many emotional and financial issues associated with a death or
incapacitation of a loved one, we realized that the AARP Investment Program
could provide education and practical help at a time when people needed it the
most. By calling the AARP Investment Program's 800 number, surviving family
members can speak with a trained Legacy Service Specialist. In addition to
providing practical information concerning a deceased member's account, each
Specialist is trained to offer emotional support during what can be a painful
and confusing time. Today, this program is among the most sought-after services
of the AARP Investment Program.

In addition to the Legacy Service, we recently introduced another major
educational program, the AARP Investment Program Financial Library. The Library
is comprised of brief and concise guides that focus on specific issues important
to investors such as "Taking Stock of Your Retirement Plan Assets," "Planning
Ahead for the Transfer of Assets When Death Occurs," and "What Individuals 70
and Over Should Know About IRAs." (Please see the Special Section on the
Financial Library beginning on page 5 for additional information.) Many of you
have played an important role in the Library's development by suggesting topics
for the guides. Already we've received some positive feedback. One caller told
Jeneen Hammond, AARP Investment Program Representative, that the information
received was "...informative, nicely done, and he likes the personalization." To
make the guides more meaningful, we are encouraging shareholders to submit
real-life personal experiences relating to each topic so that others can see how
their fellow shareholders are addressing each situation.

We also reached out locally with the launch of our first nationwide seminar
program. Shareholders and AARP members in 17 cities were invited to attend one
of our two seminar programs -- "Investing
Basics" and "Investing: Beyond the Basics." The
high marks received from attendees spurred us to
expand the offering this fall to include a third
program called "Planning Your Legacy," which THE PRINTED DOCUMENT
provides the opportunity for people to learn about CONTAINS A PHOTOGRAPH
and discuss issues pertaining to the transfer of HERE
wealth. Attendees have praised the program saying
"[The seminar] ... was wonderful, informative, and
interesting. The associates and presentations
couldn't have been better." Another attendee
commented, "Very satisfied! Something I should
have done sooner." We are encouraged by this AARP Investment Program
positive feedback and intend to continue the Investment Seminar,
educational seminar series next year. Roanoke, Virgina

3
<PAGE>

We think one of the most exciting chapters for the AARP Investment Program
will begin next year when we will implement the balance of our investor
education program. A key component of the program's design is its integration
across all points of contact no matter which way you choose to interact with us.
Because everyone learns differently -- some prefer attending seminars, others
prefer reading printed materials, and still others may opt for an on-line,
self-paced course or to speak with one of our knowledgeable telephone
representatives -- we intend to offer a consistent learning experience to all
shareholders. The program will allow you to learn at your own pace and achieve
mastery in specific areas.

LEARNING ON-LINE

An important part of providing this unique learning experience will be the
use of the AARP Investment Program's Web site -- aarp.scudder.com. This fall we
rolled out a new and improved version of our Web site where you can browse
through our Financial Library or view your account information and make
exchanges between funds. However, next year we will be adding more features,
including the opportunity to discuss investment issues with other investors and
portfolio managers, and enroll in one of our on-line courses. I encourage you to
visit the site when you receive this report since we are continually adding new
information and features.

We will be offering on-line courses in three major areas:

o Investing for and Investing in Retirement

o Care Planning (long-term care, caring for a family member)

o Wealth Transfer (planning and managing your legacy)

Each course consists of lessons designed to meet specific and measurable
learning objectives. You will be challenged to practice what you learn and apply
key concepts and principles to your own situation through Financial Library
reading assignments and case studies. You will also have the opportunity to
gauge and celebrate your progress through interactive self-assessments.

------------------------------------------------------------

LEARN BY

o Choosing your method and level of interaction with us

o Participating in the design of your learning experience

o Engaging with your peers and our professionals

------------------------------------------------------------

FINDING THE ON-RAMP TO THE INFORMATION SUPERHIGHWAY

For those of you who haven't made the leap to the Internet yet, I would
like to share some words of encouragement with you -- you can do it. Your fellow

4
<PAGE>

AARP members can tell you why. Let me explain. In September, we posted a notice
on the AARP Investment Program Web site asking shareholders and AARP members to
tell us about how they got started with computers and the Internet. In
particular, we wanted to know how shareholders overcame the obstacles of getting
on-line.

The responses we received were fascinating. (Thank you if you
participated!) Each person told a unique story about her or his first and
sometimes frustrating beginnings with the Internet. However, with some
persistence, many described the discovery of a whole new world that included
rekindling old friendships and keeping closer touch with family members. Others
told us about broadened learning experiences through the vast resources
available on the Internet. I've included a few excerpts below that I think speak
for themselves.

"I got [a typing program] to teach me how to type -- at 67. We
spend much time on-line, surfing and e-mailing mostly. We keep
track of investments (including AARP funds), keep in touch with
the kids, grandkids, and one great granddaughter. Getting
on-line is one of our greater privileges of this day."

-- William H. Thompson, Ripshin Mountain, Tennessee

"My first experience was horrible. ... I finally took some
courses [at the] local community college. I wasn't going to give
up. ... [By] February of 1998 I started to get the hang of it. I
used e-mail to contact younger family members who were spread
out through the country. I don't have the problems I had when I
first started but I still have a ways to go. I never regret
buying [a computer]."

-- Andrew Gula, Syracuse, New York

"Although I worry about my privacy and/or my identity being
stolen via the [Information] Superhighway, I can't help but make
much use of its convenience. I can get information 24 hours a
day without ever leaving home. (Ben Franklin would be amazed to
see how his library is now reaching around the globe!) The
Internet also helps to cut down on time spent comparison
shopping. I can arm myself with information about products and
pricing before I head out to the stores."

-- Lee Hendrickson, Underhill, Vermont

"I have been on the Internet for about six months and found it
extremely easy to use. I felt it is important to keep up with
the current technology and not be `left behind.'"

-- Jane Wilhelm, Excelsior, Minnesota

"We have had no instruction on computers. I bought the computer,
brought it home, set it up myself, got a book and learned how to
use it, then taught mother who said she would never learn, and
now she is on the computer so much we need another and we bought
a laptop to carry in our motor home."

-- Samuel J. and Kay L. Fowler, Williamston, Michigan

(These responses were edited to fit the space available. To view these e-mail
messages in their entirety or to see additional e-mails about "Getting on the
`Net," visit our Web site at aarp.scudder.com.)

5
<PAGE>

The Internet provides us with an opportunity to create a unique experience
tailored to your particular interests and preferences. In addition, it is a very
cost-effective way for the AARP Investment Program to expand its offerings and
provide more value-added services to shareholders. As a result, our goal is
clear -- we must make using our Internet Web site easy and convenient in every
way possible, whether you are checking an account balance, making an exchange
between funds, or taking one of our on-line courses.

If you prefer to interact with us in other ways, we will continue to
provide you with a range of options, including printed materials (e.g., the
Financial Library), local investment seminars, round-the-clock access to our
automated phone system -- Easy Access (800-631-4636) and, of course, our "live"
telephone representatives. However, we believe that the flexibilities and
personalization available through our Web site will provide you with the most
valuable experience.

In closing, I would like you to know that we believe our commitment to
educating investors is unique among investment companies. While other firms
produce educational materials, we are not aware of any that have a stated goal
of educating investors with a commitment to prepare them for life's financial
eventualities. With so many choices available to investors today, we think this
is an important and distinguishing characteristic of the AARP Investment
Program.

As in the past, your suggestions will continue to drive the evolution of
the AARP Investment Program. As a result, we know that we must work hard every
day to maintain your trust. In the months ahead we will continue to improve and
broaden the products and services that are important to you. With your ongoing
input, I am certain that we can make your experience with us not only valuable,
but also memorable.

Thank you for another year of patronage.

My best,

/s/Lin Coughlin

Linda C. Coughlin
Chairperson

6
<PAGE>

/2/
------------------------------------------------------------------------------

S P E C I A L S E C T I O N:

F I N A N C I A L L I B R A R Y

The Special Section appears in the annual report
and highlights a service or topic that the AARP
Investment Program from Scudder believes will help
shareholders prepare for life's financial
eventualities. This year's feature is on the
Program's new Financial Library, part of our
continuing commitment to investor education. The
Library is comprised of a series of guides on
specific topics affecting investors over the age
of 50. This section highlights the goals of the
Financial Library and shows you how you can use it.

<PAGE>

AARP Investment Program
Introduces the Financial Library

This summer the AARP Investment Program from THE PRINTED DOCUMENT
Scudder added a major component to its investor CONTAINS LOGO ART
education effort with the introduction of a Financial HERE
Library. The Financial Library is a collection of
guides on investment topics specially designed for
people age 50 and over. Each guide focuses on a
specific topic and provides additional reading or Web
sites for readers to continue their research. The FINANCIAL
information is impartial, factual, and presented in a ---------
clear and concise manner. At four to six pages, the LIBRARY
guides are intentionally brief and to the point. -------

Nearly all of the subjects for the guides came to us from you, our
shareholders. With over 15 years' experience fielding calls for the AARP
Investment Program, we have gathered a deep well of knowledge about your needs.
Many of you have asked for information on taxes, IRAs, lump sum investing,
handling estates, account ownership, and retirement. The Library reflects these
needs for information, placing them in the context of the most common life
events. The guides cover subjects such as "Taking Stock of Your Retirement Plan
Assets," "Planning Ahead for the Transfer of Assets When Death Occurs," and
"What Individuals 70 and Over Should Know About IRAs." This Library is one way
we intend to help you be prepared for life's financial eventualities.

Helping investors be prepared for life's financial eventualities

As investors change careers or close in on retirement, they need to prepare
for major personal as well as financial transitions. Others who are already
living in retirement are seeking guidance that will help them reduce the risk of
outliving their retirement savings. Many of you will encounter a number of
difficult financial decisions, including funding long-term care, planning an
estate, or coping with the death of a loved one. The Financial Library addresses
a number of these subjects and can help you be prepared for these often complex
decisions.

At the beginning of each guide, you are invited to write to us about your
investing experiences. For example, those of you who lived during the Great
Depression were shaped by the experience, which affected a lifetime of saving
and investing behavior. We would like to invite you to impart some of that
time-tested knowledge to others. We know that most of you have a story to tell
about investing, and believe that other shareholders will benefit from your
experience.

--------------------------------------------------------------------------

"Important life events, such as the birth of a grandchild, send people
in search of sound investment information. We want investors to turn to
us during these times."

-- Jim Thompson
Director of Customer and Associate Education
AARP Investment Program from Scudder

--------------------------------------------------------------------------

8
<PAGE>

------------------------------------------------------------------

The Financial Library --
Designed with investors in mind:

o Topics identified by AARP shareholders
o Covers a specific subject concisely in four to six pages
o Written in an easy to understand style
o Easy on the eyes
o Provides clear action steps

------------------------------------------------------------------

In 1998 we conducted focus group interviews with AARP Investment Program
shareholders to ascertain their reaction to the concept of a financial library.
Those that participated told us in frank terms that most investment information
requires a finance degree to understand, is not well explained, and does not
address the issues they (older people) face. They said that concise,
well-written articles on topics important to them could help them understand and
plan their finances better. This research confirmed the need to create a
financial library.

The principles for developing the Library

Three principals have guided the development of the Library:

#1 Everybody learns differently: Some people want to attend a
seminar; others want to interact with fellow investors over the
Internet; still others are looking for various kinds of printed
materials to help make wise financial decisions. People want to
learn at their own pace and in a way in which they are most
comfortable.

#2 Most people address one or two financial decisions at a time
based on their particular situation or life stage. Turning
fifty, retirement, caring for a loved one, death of a spouse, or
planning one's legacy -- all are major life events that are
usually accompanied by major financial decisions. These singular
events drive many financial decisions and are reflected in the
topics contained in the Library.

#3 Investors do not have the time or inclination to wade through
a large volume of technical information on investing. For
example, is it necessary to read a whole book that broadly
discusses IRAs to understand the specific distribution options
for an IRA holder nearing the required minimum distribution age
of 70 1/2? Most investors live busy, full lives and would rather
spend their time with work, personal projects, or family.

By developing guides that contain bite-sized bits of information on
specific topics in an easy to follow format, we believe that the Library can
help investors be prepared for life's financial eventualities.

The Library is part of a larger investor education program that has been
underway at the AARP Investment Program for some time. This year we offered 47
investment seminars in 17 cities across the country in conjunction with AARP.
The Library reflects many of the topics discussed at the seminars, and we used
attendee feedback to improve seminar materials and to fine-tune the design of
the Financial Library guides.

9
<PAGE>

In the future, on-line planning and investing courses will be offered,
enabling you to learn at your level and pace -- whether you are a beginner or an
experienced investor. To take part, you will need access to the Internet. We are
taking this path because of the rapidly increasing number of AARP members who
are "going on-line." We encourage you to think seriously about taking this step
if you have not yet done so. In the future, our Internet Web site --
aarp.scudder.com -- will continue to grow as a source of rich educational
experiences and practical tools for managing your finances.

Obtaining Financial Library guides

If you have access to the Internet, you can view the most up-to-date list
of guides (we are adding and revising guides continuously) at our Web site --
aarp.scudder.com. You can download guides from the Web site with Adobe Acrobat
Reader (free software that allows you to view and print Library guides).

If you are unable to download a guide, you can still order up to three
guides by calling the AARP Investment Program at 800-253-2277 (limit: three per
request). Please have the document publication number(s) handy when ordering.
Your printed guides will be delivered in one personalized booklet. In the months
ahead, we'll be adding more guides to the Library until it reaches approximately
100 subjects, so check back regularly to see what's new.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Financial Library Titles Pub. #

<S> <C>
Life Stage Investing

o Investing Through the Decades: 50+ (ed1)
o Investing in Your 50s (ed2)
o Investing in Your 60s (ed3)
o Investing in Your 70s (ed4)

Planning for Retirement

o How Do I Choose the IRA That's Right for Me? (ed7)
o The Educational IRA and Other Investing for
Children's Educational Costs (ed8)
o What is a Roth IRA? (ed10)
o Investing for Retirement and Children's College Expenses (ed20)
o Seven Steps Toward Planning for Retirement (ed21)
o What to Do with Your Retirement Plan Distribution (ed22)
o Taking Stock of Your Retirement Plan Assets (ed23)

Living in Retirement

o What Individuals 70 and Over Should Know About IRAs (ed9)
o Investing IRA Distributions to Meet Your Needs and Goals (ed15)
o Adjusting Your Investments to Your Retirement Lifestyle (ed27)
o Turning 65 -- An Investor's Checklist (ed28)

10
<PAGE>

Women and Investing

o Investment and Financial Planning Issues for Women (ed16)
o Getting Married After 50 (ed48)

Investing for Children and Grandchildren

o Understanding UGMA Accounts (ed36)

Care Planning

o When Your Spouse Enters a Long-Term Care Facility (ed50)

Taxes and Mutual Funds

o Tax Issues for Mutual Fund Investors (ed13)

Planning Your Legacy

o Managing the Transfer of Assets During a Bereavement (ed37)
o Planning Ahead for the Transfer of Assets When a
Death Occurs (ed38)

Preparing Financial Plans

o Investing for Financial Emergencies (ed6)
o Choosing a Financial Advisor (ed72)
o Setting Financial Goals (ed76)

Investing and the Markets

o Accepting Financial Risk (ed55)
o Evaluating Mutual Fund Performance (ed56)
o Web Sites for Investors (ed61)
o Protecting Your Privacy (ed71)
o The Fees and Expenses of Mutual Funds (ed77)
</TABLE>

This is a partial list of titles available as of November 19, 1999. For the
most up-to-date list, please visit our Internet Web site at aarp.scudder.com.

11
<PAGE>

This page
intentionally
left blank.

12
<PAGE>

/3/
- -------------------------------------------------------------------------------

A A R P I N V E S T M E N T
P E R F O R M A N C E

Cornelia Small, President and Investment Director of
the AARP Investment Program from Scudder, begins this
section with an overview of the financial markets and
fund performance for the 12-month period ended
September 30, 1999.

Some of the investment terms used in various reviews
require additional explanation. We have highlighted
in bold italics certain words which appear in the
Glossary which begins on page 185. We hope this helps
you to better understand the commentary.

13
<PAGE>

Investment Performance for the 12-month
period ended September 30, 1999

Cornelia Small, President and Investment Director,
AARP Investment Program from Scudder

Dear Fellow Shareholder:

What a difference a year makes! From the depths of THE PRINTED DOCUMENT
what the president of the New York Federal Reserve Bank CONTAINS A PHOTOGRAPH
described as "the greatest financial crisis in 50 OF CORNELIA SMALL HERE
years," the markets have recovered and risen to new
highs with virtually no trace of last year's troubles.
Much of the thanks for the global rebound should go to
the world's central bankers who coordinated a series of Cornelia Small
timely interest rate cuts that restored confidence and
liquidity. Now that the world is firmly back on its President and
feet, the Fed has become less accommodating. The Fed Investment Director
has hiked rates twice, and as of September 30, 1999,
still retained a bias to tighten further. The Fed is
clearly worrying that an overheating economy will cause
inflation to rise.

Because we do not see the traditional forces of higher inflation at work
(rising prices for most goods and services), we think inflation fears are
exaggerated. However, interest rates may continue to rise in response to
accelerating global growth. And growth is certainly robust. America's gross
domestic product (GDP) continued to expand at nearly a 5% annual rate during the
summer, the labor markets are tight, and consumers have been spending at a
furious pace. Rising real estate values and investor stock portfolios have
contributed to consumers' optimism. Overseas, there are signs that some
economies are turning up. In Japan, investor sentiment and economic growth
improved significantly at the beginning of 1999, contributing to a strong stock
market rally. Outside Japan, Asia has bounced strongly off last year's bottom,
and Euroland's economy is gathering strength with each passing month. Not only
the Fed, but also bond markets have taken note, and interest rates are up all
around the world.

Despite rising rates, strong corporate earnings have helped support the
U.S. equity market. Second quarter operating earnings for S&P 500 companies came
in 10.7% above levels a year ago, the first double-digit rise since 1997, due in
part to the explosive earnings growth of companies in the technology sector.
Early reports on the third quarter are also very encouraging. Yet, the good
earnings news could not cancel the impact of higher rates. The tussle between
the two kept the market on a roller coaster ride for much of the summer. Stocks
closed the period little changed from mid-April levels.

14
<PAGE>

THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART TITLE:

---------------------------------------------------------------
THE STOCK MARKETS
---------------------------------------------------------------

CHART PERIOD:

As of September 30, 1999

CHART DATA
Index 12-month total return
----- ---------------------

Technology Stocks 96.26%
MSCI Japan 77.37%
Nasdaq Composite (price only) 62.13%
MSCI Pacific Free (excl. Japan) 41.11%
Large-cap growth stocks 34.85%
Small-cap growth stocks 32.63%
MSCI World (excl. U.S.) 31.28%
S&P 500 27.82%
MSCI Latin America 26.84%
Large-cap value stocks 18.72%
MSCI Europe 17.21%
Small-cap value stocks 5.83%

All indices are unmanaged, market-capitalization-weighted,
and in U.S. dollars for the 12-month period. Unlike mutual
funds, index returns do not reflect management fees and
expenses. The S&P 500 Index is a broad-based index of large
U.S. stocks; the Russell 1000 Growth Index represents
large-cap growth stocks; the Russell 1000 Value Index
represents large-cap value stocks; the Russell 2000 Growth
Index represents small-cap growth stocks; the Russell 2000
Value Index represents small-cap value stocks; and the
Pacific Stock Exchange Technology Index represents
technology stocks. The MSCI (Morgan Stanley Capital
International) World (excluding U.S.) Index is a broad-based
index of international stocks.

----------

GROWTH AND TECHNOLOGY STOCKS DOMINATED THE U.S. MARKETS

Despite a rally in value and smaller-cap issues in the second calendar
quarter, large-cap growth stocks dominated market returns for most of the
12-month period. Beneath the surface of the broad indices, the overall market
weakened substantially. As investors became more concerned with the effects of
rising rates on future earnings and stock valuations, market leadership remained
confined to a shrinking number of large-cap growth and technology stocks for
much of the period. As a result, the performance of the major U.S. stock indices
has masked the fact that the majority of U.S. equities has actually fallen so
far in 1999, after their sharp recovery at the end of 1998. While the changed
environment resulted in price declines in the third calendar quarter, total
returns for the 12 months were anything but disappointing for most equity
investors (see chart above).

STRONGER GROWTH, CONSOLIDATION BOOST FOREIGN STOCKS

The investment picture has been brighter overseas, where restructuring,
consolidation, and an ongoing economic recovery are boosting market performance.
Japan's second consecutive rise in quarterly GDP surprised almost everybody, and
the forward looking

15
<PAGE>

THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART TITLE:

---------------------------------------------------------------
THE BOND MARKETS
---------------------------------------------------------------

CHART PERIOD:

As of September 30, 1999

CHART DATA

Index 12-month total teturn
----- ---------------------

Merrill Lynch
3-Month Treasury Bill 4.73%

Lehman Bros.
High Yield Bond 2.89%

Lehman Bros. GNMA 2.39%

Lehman Bros. Corporate Bond
(Intermediate) 0.30%

Lehman Bros. Aggregate -0.38%

Lehman Bros.
Municipal Bond -0.70%

Lehman Bros. Government
Bond (Intermediate) -5.06%

Unlike mutual funds, indices are unmanaged and returns do
not reflect management fees and expenses. The Lehman
Brothers High Yield Bond Index is a broad-based index of
below investment grade bonds. The Lehman Brothers GNMA Index
is a broad-based index of GNMA securities. The Lehman
Brothers Corporate Bond Index is a broad-based index of
intermediate term corporate bonds. The Lehman Brothers
Aggregate Index is a broad-based index of U.S. investment
grade bonds. The Lehman Brothers Municipal Bond Index is a
broad-based index of municipal bonds. The Lehman Brothers
Government Bond Index is a broad-based index of intermediate
term U.S. government debt obligations.

----------

indicators promise more growth to come. In addition, investors viewed the
announcement of the three-way merger between Fuji Bank, Industrial Bank of
Japan, and Daichi Kangyo Bank as evidence that meaningful financial reform is
finally underway in Japan. As foreign investment capital has flowed back into
the country, the yen has staged a powerful rally in U.S. dollar terms, rising
from 122 on July 8 to a high of 103 on September 23. (A decline indicates fewer
yen are required to buy one U.S. dollar.) The U.S. interest rate outlook has
more negatively influenced Europe's markets, but many individual stocks have
risen on acceleration in merger activity. In addition, the economies of the
Continent have begun to show signs of life after several years in the doldrums.
The presence of these powerful trends combined with attractive valuations for
many foreign stocks suggests to us that international markets are poised for a
period of outperformance.

OVERVIEW OF AARP FUND PERFORMANCE

Two of our most aggressive domestic equity funds provided excellent returns
- -- AARP Capital Growth Fund and AARP U.S. Stock Index Fund. Both funds benefited
from the strong performance of large-cap and technology stocks, especially
during the first six months of the period. AARP Capital Growth Fund's 36.83%
12-month return reflects our "growth at a reasonable price" investment
discipline. The fund's investment in many dominant, well-run companies also

16
<PAGE>

contributed to its ranking among the top 6% of 357 large-cap core funds as
ranked by Lipper.^1 The AARP U.S. Stock Index Fund, which seeks to mirror the
performance of the S&P 500 with less risk than other index funds by emphasizing
dividend-paying stocks, also exceeded the performance of its benchmark with a
28.02% return.

Except for a brief period in the second calendar quarter when value and
smaller-cap stocks led performance, large-cap and technology stocks provided the
best performance for the period. This environment proved challenging for many
mutual funds with diversified portfolios that seek attractively valued stocks,
such as AARP Growth and Income Fund and the equity portion of AARP Balanced
Stock and Bond Fund. While both funds outperformed the S&P 500 in the second
quarter as value stocks rallied, investor sentiment shifted back to large-cap
stocks in the third quarter. Historically, these funds have provided competitive
returns with less risk, but their emphasis on stocks with attractive valuations
precluded investment in many of the higher-risk stocks that led performance
during this period.

As you may know, growth stocks outdistanced value stocks by a wide margin
over the 12-month period. The disparity in performance between growth and value
stocks stood at its widest point in 20 years, with the Russell 1000 Growth Index
returning 34.85% while the Russell 1000 Value Index returned 18.72% for the 12
months. With the AARP Growth and Income Fund's investment universe having a
value orientation, the fund faced a substantial head wind in this unusual
environment. Nevertheless, we continue to believe that the fund's emphasis on
stocks with attractive valuations will provide investors with competitive
returns with less risk over the long term. Evidence of the fund's success with
this approach is measured by Morningstar, which rates fund performance on a
risk-adjusted basis. As of September 30, 1999, the fund held an overall
four-star Morningstar Rating(TM) for its risk-adjusted return among 3,210
domestic equity funds.^2

Small-cap stocks reported respectable gains for the period with a 19.07%
return as measured by the Russell 2000 Index. If it hadn't been for the outsized
gains of other sectors, this return would have seemed generous. Due to its
value-orientation and smaller market capitalization, the AARP Small Company
Stock Fund trailed the performance of the Russell 2000 Index for the 12 months.
Despite its short-term performance, the fund has outperformed the index since
inception and has done so with less price volatility. With small-cap stocks
recently reaching a 20-year low relative to large-cap stocks, we believe that
small-caps remain poised for a rebound at some point.

- --------------------------------------------------------------------------------
1 Source: Lipper Analytical Services, Inc. As of 9/30/99, AARP Capital Growth
Fund ranked in the top 34% of 108 funds for the five-year period and in the
top 75% of 47 funds for the ten-year period. Past performance is no
guarantee of future results.

2 Morningstar proprietary ratings reflect historical risk-adjusted
performance through 9/30/99. The ratings are subject to change every month.
Morningstar ratings are calculated from the fund's three-, five-, and
ten-year returns (with fee adjustments) in excess of 90-day Treasury bill
returns, and a risk factor that reflects fund performance below 90-day
T-bill returns. AARP Growth and Income Fund received three stars for the
three- and five-year periods and four stars for the ten-year period among
3210, 2010, and 751 domestic equity funds in its broad asset class,
respectively. The top 10% of funds in its broad asset class receive five
stars, the next 22.5% receive four stars, and the next 35% receive three
stars. Past performance is no guarantee of future results.

17
<PAGE>

In the international area, we are pleased to report that AARP Global Growth
Fund earned its first Morningstar Rating(TM) this year. Reflecting the fund's
continuing commitment to competitive returns with less risk, the fund was
assigned an overall four-star rating for its risk-adjusted performance (among
1,025 international funds as of 9/30/99).^3 AARP International Stock Fund
rebounded sharply in the second half of the period due in part to increased
exposure to the Japanese market (which rallied strongly) and value stocks'
return to favor. These funds were the two next best performing AARP funds after
AARP Capital Growth Fund and AARP U.S. Stock Index Fund.

While the rising interest rate environment resulted in price declines for
most income-oriented investors, fixed income funds with the shortest durations
- -- such as money market funds and short term bond funds -- fared the best. This
environment helped propel the 7-day average yield of AARP Premium Money Fund
above 5% as of the end of the period. AARP High Quality Short Term Bond Fund
continued to add to its long-term performance record with an overall four-star
Morningstar Rating(TM) for its risk-adjusted return (among 1,585 taxable bond
funds as of 9/30/99).^4 Despite the potential for increased income going
forward, funds that invest in longer-term and lower-quality bonds generally
experienced price declines and flat to negative total returns. Mortgage-backed
securities, such as those in which AARP GNMA and U.S. Treasury Fund invests,
weathered this difficult period better than corporate bonds or Treasury
securities. AARP GNMA and U.S. Treasury Fund continued its long-term record of
competitive returns with less risk by earning an overall four-star Morningstar
Rating(TM) for its risk-adjusted performance (among 1,585 taxable bond funds as
of 9/30/99).^5

IN PERSPECTIVE

While it is impossible to predict which market or sector will perform the
best next year, we believe that longer-term patterns exist. Many markets and
industries tend to move in cycles with imbalances tending to correct themselves
over time. These shifts in investor sentiment and markets provide opportunities
for long-term investors. For example, we have been expecting the foreign markets
to rebound for some time. In early 1999 we began to see renewed interest in this
area with the rebound in the Japanese stock market. Japan's resurgence is a good
example for the need to maintain exposure to several asset classes -- not just
U.S. growth stocks or technology shares. As investors recognize attractive
values, they enter a market or invest in a stock, and the price often rises
quickly. In many cases if you are not "there" in the beginning, you likely will
miss a large fraction of the upside. Therefore, we believe that maintaining
diversified exposure to a range of asset classes can provide investors with the
potential for greater portfolio returns and less risk over time.

- --------------------------------------------------------------------------------

3 AARP Global Growth Fund received four stars for the three-year period in
its broad asset class of 1025 international funds. The fund is not rated
for the five- or ten-year period because it commenced operations on 2/1/96.
See footnote 2 for additional information.

4 AARP High Quality Short Term Bond Fund received four stars for the three-
and five-year periods, and three stars for the ten-year period among 1585,
1153, and 374 taxable bond funds in its broad asset class, respectively.
See footnote 2 for additional information.

5 AARP GNMA and U.S. Treasury Fund received four stars for the three-, five-,
and ten-year periods among 1585, 1153, and 374 taxable bond funds in its
broad asset class, respectively. See footnote 2 for additional information.

18
<PAGE>

As we look toward the new year, we think U.S. economic growth will slow
with the possibility of further increases in interest rates tempering potential
domestic stock and bond market returns. Nevertheless, we continue to believe
that there will be many great opportunities for investors, especially in markets
outside the United States. One consequence of our truly global economy and
financial markets is that international capital has become more important to the
performance of the world's financial markets than trade flows. As a result, we
are expecting more price volatility in the global markets as investors continue
to adjust to an acceleration of global growth.

Thank you for your continued support of the AARP Investment Program from
Scudder.

Sincerely,

/s/Cornelia Small

Cornelia Small
President and Investment Director

- --------------------------------------------------------------------------------
The mention of individual securities in this report should not be deemed a
recommendation.

19
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20
<PAGE>

A A R P
I N D I V I D U A L
P O R T F O L I O R E V I E W S

Individual Portfolio Reviews for each AARP fund detail
the individual fund objective, performance, portfolio
composition, asset allocation, and sector
diversification. In addition, each portfolio
management team comments on how its fund performed
during the period in relation to the market.

Some investment terms require additional explanation.
As a result, we have highlighted in bold italics
certain words which appear in the Glossary beginning
on page 185. We hope this helps you to better
understand the Individual Portfolio Reviews.

21
<PAGE>

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left blank.

22
<PAGE>

AARP HIGH QUALITY MONEY FUND
- ----------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide current income and liquidity, consistent
with stability and safety of principal, while maintaining a constant
share price of $1. The fund pursues its goal by investing principally
in short-term debt securities issued by U.S. corporations and
financial institutions, and the U.S. government and its agencies.

FOR WHOM THE
FUND IS DESIGNED

This fund may be appropriate for investors who have short-term needs
or who do not want the risks associated with investing in stocks or
bonds. These investors include those seeking income to help meet
regular day-to-day needs, those who need immediate access to their
assets through free checkwriting, those who want to diversify their
investments with an investment designed to provide a degree of safety
and stability, and those seeking a short-term investment prior to
making longer-term investment choices.

PORTFOLIO
MANAGEMENT TEAM

Frank J. Rachwalski, Jr.
Lead Portfolio Manager

Jerri I. Cohen
Portfolio Manager

- ----------------------------------------------------------------------

INVESTMENT STRATEGY

The performance of the AARP High Quality Money Fund reflected the
movement of short-term interest rates over the 12-month period ended
September 30, 1999. The short-term yield curve returned to a positive
slope during the period, indicating that the Federal Reserve has
switched from an accommodative to a restrictive monetary policy. Over
the summer, it raised the Federal Funds rate two times to 5.25% as a
preemptive strike against signs of modest inflationary pressures. Our
strategy over the period was to maintain a conservative stance in
order to be able to take advantage of higher yields that we expect
will be available from securities maturing after the calendar
year-end.

All securities purchased during the period were rated within the
two highest quality ranges of at least one of the three leading
national independent rating firms: Fitch Investors Service, Inc.,
Moody's Investors Service, Inc., or Standard & Poor's Corporation
(S&P). We also complied with the guidelines to maintain an AAAm rating
from S&P, the highest rating available (approximately 5% of money
funds are rated AAAm, which provides an added degree of assurance for
discriminating investors).1 In addition, within the universe of
securities that fit within the S&P criteria, Scudder Kemper credit
analysts adhere to even stricter guidelines, approving only a small
percentage. Thus the universe of securities from which we construct
the fund's portfolio is smaller and generally of better quality than
most other money market funds.

OUTLOOK

The AARP High Quality Money Fund can be an excellent vehicle for
investors seeking to preserve capital, earn current income, and
maintain liquidity. In the current economic environment, we expect the
fund to meet its goal of favorable investment returns with a high
degree of safety.

PORTFOLIO STATISTICS

Number of Issues..........26
7-Day Current Yield....4.63%
Average Maturity.....35 Days
Average Quality........ AAAm

PORTFOLIO RETURNS

One-Year Cumulative
Total Return...........4.38%
Five-Year Average
Annual Total Return....4.71%
Ten-Year Average
Annual Total Return....4.64%
Five-Year Cumulative
Total Return..........25.90%
Ten-Year Cumulative
Total Return..........57.32%

- ----------------------------------------------------------------------
^1 The rating for the fund is historical and is based on an analysis
of the portfolio's credit quality, market price exposure, and
management.

Past performance is no guarantee of future results. The fund's
yield will fluctuate with market conditions. An investment in
this fund is not insured or guaranteed by the FDIC or any other
government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the
fund.

23
<PAGE>

AARP HIGH QUALITY TAX FREE MONEY FUND
- -------------------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide liquidity and current income that is free
from federal income tax,* consistent with stability and safety of
principal, while maintaining a constant share price of $1. The fund
pursues its goal by investing at least 80% of assets in tax-exempt,
short-term municipal securities.

FOR WHOM THE
FUND IS DESIGNED

This fund may be appropriate for investors seeking tax-free income or
those who do not want the risks associated with investing in stocks or
bonds. These investors include those seeking tax-free money market
income to meet regular day-to-day expenses, those needing immediate
access to their assets through free checkwriting, those creating a
diversified portfolio who want a portion of their assets in a
conservative investment designed to offer stability, and those seeking
a short-term investment prior to making longer-term investment
choices.

PORTFOLIO
MANAGEMENT TEAM

Frank J. Rachwalski, Jr.
Lead Portfolio Manager

Jerri I. Cohen
Portfolio Manager

* It is the policy of the fund not to invest in taxable issues. However, the
fund's income may be subject to state and local taxes. Capital gains may be
subject to taxes as well.

- ----------------------------------------------------------------------
INVESTMENT STRATEGY

The performance of the AARP High Quality Tax Free Money Fund
reflected the movement of short-term interest rates over the 12-month
period ended September 30, 1999. The short-term yield curve returned
to a positive slope during the period, indicating that the Federal
Reserve has switched from an accommodative to a restrictive monetary
policy. Over the summer, it raised the Federal Funds rate two times to
5.25% as a preemptive strike against signs of modest inflationary
pressures. Our strategy over the period was to maintain a conservative
stance in order to be able to take advantage of higher yields that we
anticipate will be available from securities maturing after the
calendar year-end. Over the coming months, we expect to maintain an
average maturity of between 20 and 50 days.

OUTLOOK

The AARP High Quality Tax Free Money Fund can be an excellent
vehicle for investors seeking to preserve capital, earn tax-free
income, and maintain liquidity. In the current economic environment,
we expect the fund to meet its goal of favorable investment returns
with a high degree of safety.

PORTFOLIO STATISTICS

Number of Issues...........58
7-Day Current Yield.....2.88%
Average Maturity......38 Days
Average Quality..........AAAm

PORTFOLIO RETURNS

One-Year Cumulative
Total Return............2.37%
Five-Year Average
Annual Total Return.....2.76%
Ten-Year Average
Annual Total Return.....3.18%
Five-Year Cumulative
Total Return...........14.56%
Ten-Year Cumulative
Total Return...........36.69%

Past performance is no guarantee of future results. The fund's
yield will fluctuate with market conditions. An investment
in this fund is not insured or guaranteed by the FDIC or any other
government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the
fund.

24
<PAGE>

AARP PREMIUM MONEY FUND
- -----------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide high current income and liquidity,
consistent with stability and safety of principal, while maintaining a
constant share price of $1. The fund pursues its goal by investing in
short-term debt securities issued by U.S. corporations and financial
institutions, and the U.S. government and its agencies.

FOR WHOM THE
FUND IS DESIGNED

PORTFOLIO
MANAGEMENT TEAM

Frank J. Rachwalski, Jr.
Lead Portfolio Manager

Jerri I. Cohen
Portfolio Manager

- ----------------------------------------------------------------------

Welcome to the first annual report for the AARP Premium Money
Fund, covering the abbreviated fiscal period from February 1, 1999,
through September 30, 1999. The fund seeks higher yields than the AARP
High Quality Money Fund primarily through a lower expense structure,
made possible by a higher investment minimum.

FUND PERFORMANCE

For the eight-month period ended September 30, 1999, the fund
posted a 3.09% total return. The fund's 7-day current yield was 5.06%
as of the close of the period. The performance of the AARP Premium
Money Fund reflected the movement of short-term interest rates over
the abbreviated annual period. The short-term yield curve was
positively sloped during the period, indicating that the Federal
Reserve has switched to a restrictive monetary policy. Over the
summer, it raised the Federal Funds rate two times to 5.25% as a
preemptive strike against signs of modest inflationary pressures. And
though the Fed did not raise rates at its meeting shortly after the
close of the period (on October 5), it declared a bias toward raising
rates going forward. Our strategy over the period was to maintain a
conservative stance in order to be able to take advantage of higher
yields that we expect will be available from securities maturing after
the calendar year-end.

INVESTMENT PROCESS

While the fund has slightly more flexibility to invest in a
broader range of money market securities than the AARP High Quality
Money Fund, we purchased only securities rated within the highest
rating categories of at least one of the three leading national
statistical rating organizations: Fitch Investors Service, Inc.,
Moody's Investors Service, Inc., or Standard & Poor's Corporation
(S&P). In addition, within the universe of securities that meet the
fund's eligibility requirements for purchase, we adhered to even
stricter guidelines, approving only a small percentage. Thus the
universe of securities from which the fund's portfolio is constructed
is limited to highly creditworthy issues with a proven ability to
repay their debt.

PORTFOLIO STATISTICS

Number of Issues...........33
7-Day Current Yield....5.06%^1
Average Maturity......45 Days

- ----------------------------------------------------------------------
^1 Fund expenses are being maintained until 1/31/00. Without such
maintenance, the yield for the AARP Premium Money Fund would have
been 4.66%.

Past performance is no guarantee of future results. The fund's
yield will fluctuate with market conditions. An investment
in this fund is not insured or guaranteed by the FDIC or any other
government agency. Although the fund strives to maintain a $1 share
price, it is possible that you could lose money by investing in the
fund.

<PAGE>
AARP HIGH QUALITY SHORT TERM BOND FUND
- --------------------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to produce a high level of current income while actively seeking
to reduce downside risk as compared with other short-term bond mutual funds. The
fund pursues its goal by investing principally in short-term debt securities and
by maintaining a weighted average portfolio duration of less than three years.
The fund modified its investment objective on February 1, 1998 and changed its
name from the AARP High Quality Bond Fund. The previous objective was to invest
in high quality securities regardless of maturity length.

PORTFOLIO
MANAGEMENT TEAM

Robert S. Cessine
John E. Dugenske
Co-Lead Portfolio Managers

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX++
-------------------------

1 yr. 1.21% 2.90%

5 yr. 39.55% 35.82%

10 yr. 99.81% 93.87%

AVERAGE ANNUAL

FUND INDEX++
-------------------------
1 yr. 1.21% 2.90%

5 yr. 6.89% 6.31%

10 yr. 7.17% 6.84%

- --------------------------------------------------------------------------------

The combination of continued strong growth in the United States and a
resurgence in the economies of Asia and Europe has stoked inflation fears and
prompted the Federal Reserve to raise interest rates twice in recent months. All
sectors of the bond market have suffered as a result, but corporate bonds, which
make up the majority of fund assets, have been particularly poor performers due
to record levels of new issuance. Short-term bonds were not immune to the
unfavorable environment, but they generally outperformed bonds with longer
maturities.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: Growth of a $10,000 Investment

CHART PERIOD: Yearly Periods ended September 30

CHART DATA:
SALOMON BROTHERS INC.
AARP HIGH QUALITY LEHMAN BROTHERS TREASURY/GOVERNMENT
SHORT TERM BOND AGGREGATE BOND SPONSORED CORPORATE
FUND INDEX+ INDEX (1-3 YEARS)++
- ------------------------------------------------------------------------------
1989 10000 10000 10000
1990 10521 10754 10939
1991 12146 12473 12176
1992 13549 14040 13407
1993 15159 15440 14098
1994 14318 14941 14274
1995 16176 17043 15448
1996 16919 17875 16339
1997 18298 19614 17471
1998 19743 21870 18841
1999 19981 21785 19387

FUND PERFORMANCE

For the 12 months ended September 30, 1999, the fund returned 1.21%, which
consisted of 5.47% in income distributions and -4.26% in capital change. Over
the same time frame, the fund's unmanaged benchmark, the Salomon Brothers Inc.
Treasury/Government Sponsored Corporate Index (1-3 years), returned 2.90%. The
fund's 30-day SEC yield was 5.78% as of the end of the period versus 5.25% on
March 31, 1999.

THE FUND'S INVESTMENT STRATEGY

The primary reason for the fund's underperformance was the fact that its
duration (interest rate sensitivity) was above that of its benchmark for most of
the period. While we have been steadily reducing the fund's duration -- from 2.4
years on September 30, 1998, to 2.3 on March 31, 1999, to 2.1 at present -- our
positioning had a negative impact on performance at a time when bonds with
maturities of 2-5 years generally underperformed those with maturities of two
years or less. Going forward, we intend to keep duration close to that of its
benchmark until such time as we see an indication that the economy is slowing,
or we gain a clearer indication that the Fed is adopting a more neutral bias
with respect to interest rates. The fund's average credit quality remains steady
at AA.

- --------------------------------------------------------------------------------
+ The unmanaged Lehman Brothers Aggregate Bond Index is a market-value-weighted
measure of Treasury issues, agency issues, corporate bond issues, and
mortgage securities.

++ Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1-3
years) is composed of Treasury, Government Sponsored Agency, and Corporate
securities with maturities of one to three years. Index returns are
calculated monthly and assume reinvestment of dividends. Unlike fund returns,
index returns do not reflect any fees or expenses.

26
<PAGE>

In the corporate sector, we continued to underweight the so-called
"smokestack" industries in favor of bonds issued by high-quality companies in
the financial and consumer non-durables sectors. In the latter group, we have
focused on companies with steady revenue streams, such as Safeway, Gillette, and
Racers-Kellogg. Although our holdings in these sectors have not performed as
well for us recently as they have over the past two years, we believe that a
focus on quality will benefit the fund over the long-term.

In recent months, we have begun to pare back on our positions in some of
the more thinly traded asset-backed securities in the portfolio in favor of
those that offer better liquidity. We also plan to trim our position in
corporates in favor of U.S government agency notes and mortgage-backed
securities. While all three sectors have performed poorly in recent months, we
feel that the relative value offered by high-quality mortgages and agency notes
is extremely compelling at this juncture.

OUTLOOK

We continue to hold a neutral outlook on the fixed income markets. On one
hand, we remain cautious due to the ongoing strength of the U.S. economy. While
the fears of inflation have not yet been substantiated by actual evidence, it is
likely that the market will react strongly if the economic boom in the U.S. does
indeed cause inflation to accelerate. On the other hand, we believe that from
the standpoint of a long-term investment horizon, the recent slump in the bond
market has produced some intriguing values. We will strive to capitalize on the
these values in the months ahead, and will continue to seek the optimal
combination of strong returns and lower risk. Although the fund has
underperformed in recent months, we continue to believe in the long-term value
of our investment strategy.

PORTFOLIO DIVERSIFICATION
As of September 30, 1999

Corporate Bonds 55%
Asset-Backed 19%
U.S. Government Agency
Pass-Throughs 17%
Cash Equivalents 5%
U.S. Treasury Obligations 2%
Government National
Mortgage Association 2%
----
100%
====

- --------------------------------------------------------------------------------
SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want a source of regular monthly income

o Desire an income component for diversification

o Can invest for at least three years

o Can handle some ups and downs in investment performance

MATURITY STRUCTURE
As of September 30, 1999

Under 2 Years...........43.3%
2 to 3 Years............20.8%
3 to 4 Years............24.5%
4 to 5 Years.............5.4%
5 to 8 Years.............3.8%
Over 8 Years.............2.2%
----
100%
====

PORTFOLIO STATISTICS

Number of Issues...........74
30-Day SEC Yield........5.78%
Average Coupon..........6.46%
Yield to Maturity.......6.31%
Average Maturity....2.6 Years
Average Duration....2.1 Years
Average Quality............AA

27
<PAGE>

AARP GNMA AND U.S. TREASURY FUND
- --------------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to produce a high level of income while actively seeking to
reduce downside risk as compared with other GNMA mutual funds. The fund pursues
its goal by investing primarily in high quality GNMA and U.S. Treasury
securities. While GNMAs and Treasuries are guaranteed as to timely payment of
principal and interest, the guarantee does not apply to the fund's yield or
share price, both of which will fluctuate daily.

PORTFOLIO
MANAGEMENT TEAM

Richard L. Vandenberg
Lead Portfolio Manager

Scott E. Dolan
John E. Dugenske
Portfolio Managers

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX++
-------------------------
1 yr. 0.99% 2.39%

5 yr. 37.29% 47.77%

10 yr. 96.98% 121.26%

AVERAGE ANNUAL

FUND INDEX++
-------------------------

1 yr. 0.99% 2.39%

5 yr. 6.54% 8.12%

10 yr. 7.01% 8.26%

- --------------------------------------------------------------------------------

Interest rates generally rose and bond prices declined over the 12
months, as strong domestic economic growth and a rebound in selected foreign
markets heightened inflation concerns. Mortgage-backed securities weathered the
difficult period better than other classes of fixed-income securities, such as
corporate bonds, asset-backed securities, or Treasuries.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Yearly Periods ended September 30

CHART DATA:

AARP GNMA AND LEHMAN BROTHERS
U.S. TREASURY FUND GNMA INDEX+
--------------------------------------------------

1989 10000 10000
1990 10886 10944
1991 12423 12761
1992 13813 14219
1993 14626 15156
1994 14348 14973
1995 15828 17078
1996 16585 18082
1997 17993 19940
1998 19506 21609
1999 19699 22126

FUND PERFORMANCE

The environment improved significantly for mortgage-backed securities
toward the end of the 12-month period, which helped the fund rank in the top 42%
of 54 GNMA funds, according to Lipper Analytical Services, Inc., an independent
analyst of investment performance. Longer term, the fund ranked in the top 77%
of 38 funds for the five-year period and in the top 76% of 24 funds for the
ten-year period ended September 30, 1999.

For the same 12-month period, the fund returned 0.99%, which consisted of
6.12% in income distributions and -5.13% in capital change. The fund's benchmark
- -- the Lehman Brothers GNMA Index -- returned 2.39% for the same period.
Reflecting the rising rate environment, the fund's 30-day standardized SEC yield
rose from 5.96% a year ago to 6.10% as of the end of the period.

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND

LINE CHART TITLE: AARP GNMA and U.S. Treasury Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)

<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Lipper GNMA Over the three years, this
Return Peer Group Risk fund is among the top 25% of
----------------------------------- similar funds for monthly
Highest Lowest downside risk and in the
Return Best 25% XXXX Risk fourth quartile of similar
------------ ----------- funds for total return.

Next 25% The monthly averages for risk
------------ ----------- and return are for 18 similar
funds for the period October
Next 25% 1, 1996 through September 30,
------------ ----------- 1999.
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------

Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>

- --------------------------------------------------------------------------------
+ The unmanaged Lehman Brothers GNMA Index is a market-value-weighted measure
of all fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association. Index returns are calculated monthly and
assume reinvestment of dividends. Unlike fund returns, index returns do not
reflect any fees or expenses.

28
<PAGE>

THE FUND'S INVESTMENT STRATEGY

In pursuing the fund's objective we employ a top-down approach that focuses
on four key factors: the portfolio's sensitivity to changes in interest rates
(duration), the allocation between GNMA and Treasury securities, the vintage and
"seasoning" of issues, and the fund's positioning with respect to the yield
curve.

In an effort to reduce price volatility as interest rates began to rise
during the first six months of the fiscal period, we increased the fund's
exposure to GNMAs by increasing the duration of the fund's mortgage holdings and
reducing the duration of the fund's Treasury holdings. Overall portfolio
duration rose from 2.5 years to 3.4 years in the first six months primarily
because duration lengthens when rates rise. During the last six months of the
period we reduced the fund's holdings of GNMAs to 88% of the portfolio (down
from 90% a year ago) in an effort to reduce the fund's exposure to the duration
extension risk that is inherent in all mortgages when interest rates rise and to
take advantage of the defensive characteristics of Treasuries in advance of Y2K
concerns. Despite our strategy of attempting to limit duration extension risk,
the portfolio's duration continued to rise, contributing to its underperformance
relative to its benchmark index. At the end of the period, the fund's duration
stood at 4.3 years.

In the first half of the period we focused on trimming the fund's exposure
to high coupon mortgages, which are more susceptible to refinancing and
prepayment risk, by reducing holdings of GNMAs with coupons of 8% or more.
Toward the end of the period we emphasized GNMAs with coupons close to current
rates (7.5% coupons) because we believed these securities offered more relative
value.

OUTLOOK

As we near the close of 1999 we are not expecting a calamity of any sort
related to Y2K, but we are expecting decreased liquidity as some investors move
into high quality and highly liquid investments. This should create a positive
environment for Treasury securities. Longer term, we have a favorable outlook
for mortgage securities. With mortgages currently trading at relatively high
yields compared to Treasuries, we expect these securities to return to more
normal levels resulting in higher prices.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE FUND IS DESIGNED

The fund is designed for investors who:

o Want a source of regular monthly income

o Desire an income component for diversification

o Can invest for at least three years

o Can handle some ups and downs in investment performance

PORTFOLIO DIVERSIFICATION
As of September 30, 1999

Government National
Mortgage Association 88%

Cash Equivalents 6%

U.S. Treasury Obligations 6%
----
100%
====

PORTFOLIO STATISTICS

Number of Issues........2,069
30-Day Yield............6.10%
Average Coupon..........7.53%
Yield to Maturity.......7.07%
Average Maturity....9.5 Years
Average Duration....4.3 Years
Average Quality...........AAA

<PAGE>

AARP INSURED TAX FREE GENERAL BOND FUND
- ---------------------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to produce a high level of income that is free from federal
income taxe^1 while actively seeking to reduce downside risk as compared with
other insured tax-free bond mutual funds. The fund pursues its goal by investing
at least 80% of its assets in high quality, tax-exempt municipal securities,
most of which carry insurance that would pay the principal and interest in the
event of default. This insurance does not apply to the fund's yield or share
price, both of which will fluctuate daily.

PORTFOLIO
MANAGEMENT TEAM

Philip G. Condon
Ashton P. Goodfield
Co-Lead Portfolio Managers

------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. -1.21% -0.70%

5 yr. 34.64% 38.78%

10 yr. 93.15% 103.84%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. -1.21% -0.70%

5 yr. 6.13% 6.77%

10 yr. 6.80% 7.38%

^1 It is the policy of the fund not to invest in taxable issues. However, the
fund's income may be subject to state and local taxes. Gains on sales of
fund shares and distributions of capital gains generally will be subject to
federal, state, and local taxes.

- --------------------------------------------------------------------------------

FUND PERFORMANCE

During a difficult period for most fixed-income securities, including
municipal bonds, the AARP Insured Tax Free General Bond Fund posted a negative
return but displayed strong competitive performance. The fund's total return for
its most recent fiscal year ended September 30, 1999 was -1.21%. The fund's
30-day SEC yield as of September 30 was 4.31%, equivalent to a 7.14% taxable
yield for investors in the 39.6% tax bracket.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Yearly Periods ended September 30

CHART DATA:

AARP INSURED TAX FREE LEHMAN BROTHERS
GENERAL BOND FUND MUNICIPAL BOND INDEX+
---------------------------------------------------------
1989 10000 10000
1990 10489 10681
1991 11941 12089
1992 13137 13355
1993 15018 15056
1994 14346 14688
1995 15811 16332
1996 16741 17317
1997 18176 18883
1998 19552 20528
1999 19315 20384

The fund performed well compared with its peers during the period, ranking
in the top 3% of 42 insured municipal debt funds for the 12 months ended
September 30 according to Lipper Analytical Services, Inc. Longer term, the fund
ranked in the top 25% of 31 funds for the five-year period, and in the top 25%
of 15 funds for the ten-year period.

THE FUND'S INVESTMENT STRATEGY

During the fund's most recent fiscal year, fixed income investors reacted
negatively to news of tightening U.S. labor markets, the worldwide economic
revival, and a weakening dollar. Yields on 10-year Treasury bonds

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND

LINE CHART TITLE: AARP Insured Tax Free General Bond Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)

<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Lipper Over the three years,
Return Insured Muni Risk this fund is among the best
Debt Peer 50% of similar funds for total
Group return and in the first
----------------------------------- quartile of similar funds for
Highest Lowest monthly downside risk.
Return Best 25% XXXX Risk
------------ ----------- The monthly averages for
risk and return are for 9
XXXX Next 25% similar funds for the period
------------ ----------- October 1, 1996 through
September 30, 1999.
Next 25%
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------

Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>

- --------------------------------------------------------------------------------
^+ The unmanaged Lehman Brothers Municipal Bond Index is a market-value-weighted
measure of municipal bonds with a maturity of at least two years. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
fund returns, index returns do not reflect any fees or expenses.

30
<PAGE>

rose approximately one and one-half percentage point and their prices declined
10% over the 12-month period. In comparison, municipal bond yields rose one
percentage point, and their prices declined 7%. Our strategy in light of these
market conditions was to continue to maintain a shorter portfolio duration than
most other insured municipal bond funds. Over the period, the fund's duration
declined from 7.6 years to 6.7 years.

Within the fund's portfolio, we maintained exposure to a broad range of
geographically diversified high quality insured municipal securities. We focused
on AAA-rated municipal bonds with 5- to 13-year maturities during the period.
Our exposure to longer-term bonds (15- to 30-year maturities), which performed
poorly by comparison, was limited to 13% of assets.

During the 12-month period, we maintained a two-part strategy: First, we
focused on premium "cushion" bonds -- high coupon bonds trading at a premium to
face value that can be redeemed prior to maturity. We believe that the extra
yield provided by cushion bonds adequately compensated us for the call feature
in the current environment.

Second, we continued the fund's strong emphasis on call protection.
(Generally a bond is called in by its issuer so that it can be refinanced at a
lower prevailing rate.) Our call-protection strategy provides a more reliable
income stream for the fund than would exist if the portfolio held a significant
proportion of bonds that could be called in before their stated maturities.

OUTLOOK

In terms of the fund's day-to-day strategy, we will continue to seek
competitive returns by purchasing 6- to 13-year bonds over the coming months.
And rather than attempting to make investment decisions based on short-term
interest rate movements, we will search for the most attractively valued bonds
as we seek a high level of tax-free income for our shareholders.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want a source of regular monthly income

o Desire tax-free income^1

o Can invest for at least three years

o Can handle some ups and downs in investment performance

MUNICIPAL BOND
EFFECTIVE MATURITIES
ALLOCATION
As of September 30, 1999

Less than 1 year..........3%
1 to less than 5 years...12%
5 to less than 10 years..41%
10 to less than 15 years.31%
Greater than 15 years....13%
----
100%
====

PORTFOLIO STATISTICS

Number of Issues..........352
30-Day SEC Yield........4.31%
Average Coupon..........4.49%
Average Maturity....9.4 Years
Effective Duration..6.7 Years
Average Quality...........AAA

31
<PAGE>

AARP BOND FUND FOR INCOME
- -------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to produce a high level of current income while actively seeking
to reduce downside risk as compared with other long-term bond mutual funds. The
fund pursues its goal by investing at least 65% of its assets in high quality
bonds of any maturity with credit ratings of investment grade. The fund may also
invest up to 35% in high yield, low quality bonds.

PORTFOLIO
MANAGEMENT TEAM

Robert S. Cessine
Lead Portfolio Manager

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
------------------------

1 yr. -0.46% -0.38%

Life of
Fund* 14.52% 17.96%

AVERAGE ANNUAL

FUND INDEX+
------------------------

1 yr. -0.46% -0.38%

Life of
Fund* 5.23% 6.40%

- --------------------------------------------------------------------------------

The combination of continued strong growth in the United States and a
resurgence in the economies of Asia and Europe has stoked inflation fears and
prompted the Federal Reserve to raise interest rates twice in recent months. All
sectors of the bond market performed poorly as a result, but corporate issues
and longer-term bonds, two areas in which we tend to focus, were hit
particularly hard.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999
CHART DATA:

AARP BOND FUND LEHMAN BROTHERS
FOR INCOME AGGREGATE BOND INDEX+
----------------------------------------------------------
2/1/97* 10000 10000
3/97 9882 9914
9/97 10565 10621
3/98 10992 11102
9/98 11460 11842
3/99 11539 11821
9/99 11408 11796

FUND PERFORMANCE

Even in this difficult environment, the AARP Bond Fund for Income performed
well versus its peers in the BBB-rated corporate bond category, according to
Lipper Analytical Services, Inc., an independent analyst of investment
performance. In returning -0.46% over the 12 months ended September 30, 1999,
the fund beat the -0.99% average for taxable bond funds and finished in the top
35% out of 126 funds in its category. Over the same period, the fund's unmanaged
benchmark, the Lehman Brothers Aggregate Bond Index, returned -0.38%. The fund's
return consisted of 6.51% in income distributions and -6.97% capital change, and
its 30-day SEC yield was 7.22%^1 as of the close of the period, versus 6.34% on
March 31, 1999.

THE FUND'S INVESTMENT STRATEGY

Our conservative strategy with respect to duration was a key element in the
fund's strong performance. Duration stood at 4.9 years at the end of the period,
below the year ago level of 5.2 years, which helped the fund to avoid the full
impact of the bond market's slump. Going forward, we intend to keep duration in
line with the benchmark until it becomes apparent the Fed is finished raising
rates for this cycle.

Within the corporate sector, we continue to favor bonds issued by companies
with steady, recurring cashflows over those in the so-called "smokestack"
industries. We have emphasized the consumer nondurables

- --------------------------------------------------------------------------------

^+ 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.

^1 Fund expenses are being maintained until 1/31/2000. Without such
maintenance, the total return would have been lower and the yield on the
AARP Bond Fund for Income would have been 6.74%.

* The fund commenced operations on February 1, 1997.

32
<PAGE>

sector, which includes companies such as Safeway and Pepsi Bottling Holdings, as
well as issues in the telecommunications and media sectors, such as Sprint, Time
Warner, and TCI-Communications. While our heavy weighting in bonds issued by
companies with relatively stable cash flows has contributed positively to the
fund's performance over the past two years, such issues generally underperformed
during the worst of the bond market's slump. Nevertheless, we continue to
believe that a focus on quality will benefit the fund over time. Looking ahead,
we intend to focus on A-rated corporate bonds, which we believe to be
undervalued in relation to BBB's.

Outside of the corporate sector, we have begun to look more closely at U.S.
government agency notes, which were poor performers during the third calendar
quarter. We have been gradually building up our position in agencies on the
belief that these securities offer substantial value in relation to other
sectors of the bond market.

OUTLOOK

Our outlook for the fixed income markets is neutral at this time. While we
remain cautious due to the ongoing strength of the U.S. economy, we also believe
that from the standpoint of a long-term investment horizon, the recent slump in
the bond market has produced some interesting opportunities. Going forward, we
will strive to capitalize on the values that have emerged during the
April-September period, and will continue to seek the optimal balance of risk
and return.

PORTFOLIO ALLOCATION
As of September 30, 1999

Corporate Bonds 60%
U.S. Treasury Obligations 20%
U.S. Government-Backed
Mortgages 6%
Government National
Mortgage Association 4%
Asset-Backed Securities 3%
Foreign Bonds -- U.S. $
Denominated 3%
Cash Equivalents 2%
Collateralized Mortgage
Obligations 2%
----
100%
====

- --------------------------------------------------------------------------------
SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want a source of regular monthly income

o Desire an income component for diversification

o Can invest for at least three years

o Can handle some ups and downs in investment performance

MATURITY STRUCTURE
As of September 30, 1999

Under One Year.............3%
1 to 5 Years..............28%
5 to 8 Years..............21%
Over 8 Years..............48%
----
100%
====

PORTFOLIO STATISTICS

Number of Issues..........101
30-Day SEC Yield.........7.22%
Average Coupon....... ...7.27%
Yield to Maturity........7.39%
Average Maturity.....8.2 Years
Average Duration.....4.9 Years
Average Quality..............A

33
<PAGE>

AARP BALANCED STOCK AND BOND FUND
- ---------------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth and income while actively
seeking to reduce downside risk as compared with other balanced mutual funds.
The fund pursues its goal by investing primarily in a diversified mix of stocks
with above-average dividend yields, high quality bonds, and cash reserves.

PORTFOLIO
MANAGEMENT TEAM

Kathleen T. Millard
Lead Portfolio Manager

Robert S. Cessine
Portfolio Manager

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 5.84% 13.70%

5 yr. 80.25% 111.12%

Life of
Fund* 78.85% 105.78%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 5.84% 13.70%

5 yr. 12.51% 16.11%

Life of
Fund* 10.81% 13.58%

- --------------------------------------------------------------------------------

Investors have been paying an increasing premium for a shrinking number of
companies with strong current fundamentals and positive earnings momentum, while
punishing companies with improving long-term fundamentals and earnings
shortfalls, despite already depressed valuations. For fixed income investors,
rising interest rates also contributed to declining prices. This environment
proved challenging for the fund's emphasis on undervalued stocks and investment
grade bonds.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Annual Periods from February 1, 1994*
to September 30, 1999

CHART DATA:

AARP BALANCED LEHMAN BROTHERS
STOCK AND BOND STANDARD & POOR'S AGGREGATE BOND BLENDED
FUND 500 INDEX INDEX INDEX+
- ----------------------------------------------------------------------------
2/94* 10000 10000 10000 10000
9/94 10050 9800 9543 9747
9/95 11738 12715 10885 11776
9/96 13272 15299 11416 13247
9/97 16901 21489 12527 16421
9/98 17115 23432 13968 18098
9/99 18114 29952 13914 20578

FUND PERFORMANCE

For the 12-month period ended September 30, 1999, the fund returned 5.84%
while the fund's blended index returned 13.70% for the same period. The fund's
underperformance can be explained primarily by three factors: a lack of exposure
to large-cap growth and technology stocks, an unusually high number of portfolio
companies announcing results significantly below expectations and, in the fixed
income portion of the portfolio, price declines resulting from rising interest
rates.

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE, SHOWING A THREE-YEAR
RISK/RETURN PERFORMANCE OF THE FUND

TITLE: AARP Balanced Stock and Bond Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)
<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Lipper Over the three years,
Return Balanced Risk this fund is among the best
Peer Group 50% of similar funds for
----------------------------------- monthly downside risk and in
Highest Lowest the fourth quartile of similar
Return Best 25% Risk funds for total return.
------------ -----------
The monthly averages for
Next 25% XXXX risk and return are for 163
------------ ----------- similar funds for the period
October 1, 1996 through
Next 25% September 30, 1999.
------------ -----------
Lowest Highest
Return XXXX Worst 25% Risk
------------ -----------

Lipper Analytical Services, Inc. is the source for the
peer group information of similar funds.
</TABLE>

- --------------------------------------------------------------------------------

^+ The performance of the blended benchmark is a weighting comprised of 50%
Standard & Poor's 500 Index (S&P), 40% Lehman Brothers Aggregate Bond Index
(LBAB), and 10% the 3-Month Treasury Bill Index. The 50/40/10 measure is
meant to reflect the anticipated long-range asset mix of the fund, which
may change over time. The Standard & Poor's 500 Index is a
capitalization-weighted index of 500 stocks. The index is designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. The
unmanaged Lehman Brothers Aggregate Bond Index is a market-value-weighted
measure of Treasury issues, agency issues, corporate bond issues, and
mortgage securities. Index returns are calculated monthly and assume
reinvestment of dividends. Unlike fund returns, index returns do not
reflect any fees or expenses.

* The fund commenced operations on February 1, 1994.

34
<PAGE>

THE FUND'S INVESTMENT STRATEGY

The stock portion of the fund is managed with a similar investment strategy
to the AARP Growth and Income Fund, which focuses on undervalued stocks. As you
may know, we modified our investment approach on June 30 so that the fund will
not have to rely solely on its high relative yield screen to uncover investment
opportunities. Two other valuation metrics have now been added to the fund's
investment screen -- price/earnings ratios (P/E) and price-to-cash flow ratios
- -- which effectively expand the fund's universe without compromising its
traditional investment objective.

Historically, the fund's discipline has limited its exposure to technology
- -- an area that dramatically outperformed the rest of the stock market over the
period. The sector's unprecedented performance was a substantial limitation for
the fund. Going forward, we expect the fund's enhanced investment screen to
include a greater number of technology companies. One addition we made in the
technology area was Computer Associates, the world's third largest independent
software provider, but we were also able to participate in technology in other
ways, specifically through Corning, the world's leading producer of fiber
optics.

While the fund did benefit from good stock selection in the
telecommunications sector (Bell Atlantic, GTE, and Sprint) and the energy sector
(Elf Aquitaine, Texaco, and Mobil), returns suffered from a few large positions
in companies announcing revenue and/or earnings shortfalls. Some of the most
noteworthy included Avon Products, Xerox, and American Home Products. In each
particular case, we have met with company management, analyzed the problem
areas, and believe that current prices more than reflect revised expectations
for the companies.

For the fixed income portion of the portfolio, we maintained a relatively
conservative strategy. Duration stood at 4.9 years at the end of the period,
below the year ago level of 5.1 years, which helped us avoid the full impact of
the bond market slump. However, our emphasis on corporate bonds and longer-term
bonds hurt performance as rates rose. Nevertheless, we believe that quality
corporate bonds (A-rated or better) are undervalued relative to BBB-rated bonds
and will benefit the portfolio going forward.

OUTLOOK

In contrast to this time last year, the Federal Reserve's policy has
shifted from lowering interest rates to raising rates. Coupled with a likely
decline in trading volume as year-end approaches, we believe this will
exacerbate market volatility. In this environment, we believe that the fund's
broad diversification in undervalued stocks and quality bonds will provide a
valuable buffer for shareholders.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want long-term growth with less risk than a purely growth-oriented investment

o Can invest for at least three to five years

o Can handle some ups and downs in investment performance

o Are building a diversified portfolio with a few core investments

ASSET ALLOCATION
As of September 30, 1999

Stock Holdings 64%

Bond Holdings 35%

Cash Equivalents 1%
----
100%
====

STOCK ALLOCATION
As of September 30, 1999

Communications 18%

Financial 18%

Manufacturing 15%

Energy 11%

Durables 8%

Transportation 6%

Health 5%

Consumer Staples 4%

Utilities 4%

Other 11%
----
100%
====

35
<PAGE>

AARP GROWTH AND INCOME FUND
- ---------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth and income while actively
seeking to reduce downside risk as compared with other growth and income mutual
funds. The fund pursues its goal by investing primarily in common stocks and
securities convertible into common stocks.

PORTFOLIO
MANAGEMENT TEAM

Kathleen T. Millard
Lead Portfolio Manager

Benjamin W. Thorndike
Portfolio Manager

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 12.10% 27.82%

5 yr. 118.69% 205.64%

10 yr. 259.31% 373.50%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 12.10% 27.82%

5 yr. 16.94% 25.02%

10 yr. 13.64% 16.81%

- --------------------------------------------------------------------------------

Investors have been paying an increasing premium for a shrinking number of
companies with strong current fundamentals and positive earnings momentum, while
punishing companies with improving long-term fundamentals and earnings
shortfalls, despite already depressed valuations. This environment proved
challenging for the fund's emphasis on stocks with attractive valuations.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Yearly Periods ended September 30

CHART DATA:

AARP GROWTH AND STANDARD & POOR'S
INCOME FUND 500 INDEX+
-------------------------------------------------------
1989 10000 10000
1990 8981 9077
1991 11422 11905
1992 12745 13223
1993 15215 14942
1994 16430 15492
1995 19787 20100
1996 23785 24186
1997 33465 33972
1998 32052 37044
1999 35931 47350

FUND PERFORMANCE

For the 12-month fiscal period, the fund's 12.10% return trailed the 27.82%
return of the S&P 500 Index. A portion of the fund's underperformance relative
to the S&P 500 can be explained by the fund's lack of exposure to large-cap
growth and technology stocks, which were strong performers over much of the
period. The remaining underperformance can be attributed to an unusually high
number of portfolio companies announcing results significantly below
expectations, leading to sharp price declines. Longer term, the fund's record of
competitive returns with less risk was in evidence as it maintained an overall
four-star Morningstar Rating(TM) among 3,210 domestic equity funds for its
risk-adjusted performance as of 9/30/99.^1

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND

LINE CHART TITLE: AARP Growth and Income Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)

<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Large Blend Over the three years,
Return and Value Risk this fund is among the bottom
Peer Group 25% of similar funds for total
----------------------------------- return and in the first
Highest Lowest quartile of similar funds for
Return Best 25% XXXX Risk monthly downside risk.
------------ -----------
The monthy averages for
Next 25% risk and return are for 510
------------ ----------- similar funds for the period
October 1, 1996 through
Next 25% September 30, 1999.
------------ -----------
Lowest Highest Morningstar is the source
Return XXXX Worst 25% Risk for the peer group information
------------ ----------- of similar funds.

</TABLE>

- --------------------------------------------------------------------------------
+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns are calculated monthly and
assume reinvestment of dividends. Unlike fund returns, index returns do not
reflect any fees or expenses.

^1 Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 9/30/99. Ratings are subject to change every month and are calculated
from the fund's three-, five-, and ten-year average annual returns in excess
of 90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. In its
broad asset class, the top 10% of funds receive 5 stars, the next 22.5%
receive 4 stars, and the next 35% receive 3 stars. In the domestic equity
category, the fund received a 3-star rating for the three- and five-year
periods, and a 4-star rating for the ten-year period among 3210, 2010, and
751 funds in its broad asset class, respectively. Past performance is no
guarantee of future results.

36
<PAGE>

THE FUND'S INVESTMENT STRATEGY

Our investment strategy continues to focus on undervalued stocks. As you
may know, we modified our investment approach on June 30 so that the fund will
not have to rely solely on its high relative yield screen to uncover investment
opportunities. Two other valuation metrics have now been added to the fund's
investment screen -- price/earnings ratios (P/E) and price-to-cash flow ratios
- -- which effectively expands the fund's universe without compromising its
traditional investment objective.

In recent years, there has been a fundamental shift in U.S. corporate
policy in favor of share repurchases and the reinvestment of cash flow, rather
than in making regular dividend payments. For instance, 36% of the largest 1000
companies as measured by the Russell 1000 Index currently pay no dividends. In
addition, fully 25% of the companies that comprise the Russell 1000 Value Index
also make no dividend payments. We believe this modification will enable the
fund to increase its exposure on an opportunistic basis to sectors that are
heavily populated by low- or non-dividend-paying securities such as health care
and technology. By broadening the fund's investment universe and sector base, we
also expect that the fund will be able to perform more as an "all weather" fund.

Historically, the fund's discipline has limited its exposure to technology
- -- an area that dramatically outperformed the rest of the stock market. In fact,
the S&P 500 technology sector gained over 70% over the 12-month period while the
overall S&P 500 Index rose 28%. Technology comprises about 20% of the S&P 500
while the fund held approximately 4% in this area. The sector's unprecedented
performance and the fund's relatively small exposure to it was a substantial
limitation on fund performance over the period. Going forward, we expect the
fund's enhanced investment screen to include a greater number of technology
companies.

One addition we made in the technology area was Computer Associates, the
world's third largest independent software provider offering over 500
applications. The company's suite of products provides corporations with a total
solution for various hardware and software platforms. An increase in capital
spending that was diverted in favor of Y2K readiness, the company's recent
acquisition of Platinum Technology, and modest valuation made the company's
shares attractive.

We were also able to participate in technology in other ways, specifically
through Corning, the fund's number one holding at the end of the period.
Corning's top position in the portfolio is both a reflection of the stock's
success (the stock rose 136%) and our conviction in it. We began adding shares
of the stock to the portfolio over a year ago and have

(Continued on next page)

- --------------------------------------------------------------------------------
SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want long-term growth with less risk than a purely growth-oriented investment

o Can invest for at least five years

o Can handle some ups and downs in investment performance

o Are building a diversified portfolio with a few core investments

37
<PAGE>

AARP GROWTH AND INCOME FUND (continued)

SIDEBAR TEXT:

SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of September 30, 1999

Financial 18%
Communications 17%
Manufacturing 15%
Energy 13%
Durables 8%
Health 5%
Consumer Staples 5%
Transportation 5%
Technology 4%
Other 10%
----
100%
====

ASSET ALLOCATION
As of September 30, 1999

Stock Holdings 98%
Cash Equivalents 2%
----
100%
====

- --------------------------------------------------------------------------------

increased our position since then. Corning is the world's leading producer of
fiber optics, a key product for capitalizing on the demand for bandwidth. We are
continuing to see strong demand for fiber optics even with other competing
communication modes. Corning has remained the leader in this field and this
summer won a major contract to supply 80% of a new five million mile fiber optic
network that will connect 17 European nations.

The financial sector constitutes the fund's largest weighting due primarily
to the fact that there are many attractively valued companies in this sector.
However, the fund's exposure to financial companies also held back performance.
This was due primarily to two factors: the negative effects of rising interest
rates and disappointing results from several key holdings. While we believe that
modestly rising interest rates are not necessarily bad for bank stocks (as long
as the Federal Reserve does not embark on an aggressive campaign to fight
inflation by raising rates dramatically), it did not help returns. In
particular, we were disappointed with First Union, which announced a profit
warning relating to the bank's higher than expected Internet banking expenses
and lower than expected synergies from recent acquisitions. While we trimmed our
exposure in the stock, we are maintaining a position based on the bank's strong
East Coast franchise and attractive valuation. We were also disappointed with
Bank One, which reported a 7% decline in current estimates for the year as a
result of slower growth in its credit card operation.

While the fund did benefit from strong stock selection in the
telecommunications sector (Bell Atlantic, GTE, & Sprint) and the energy sector
(Elf Aquitaine, Texaco, and Mobil), returns suffered from a few large positions
in companies announcing revenue and/or earnings shortfalls. Some of the most
noteworthy included Avon Products, which declined on lower revenue caused by
weakness in Latin America and softness in domestic holiday orders; Xerox, which
disappointed us based on intensifying competition, lower than expected revenues,
and currency exposure; and American Home Products, which received an unfavorable
ruling on the Fen-Phen diet drug case.

In each particular case, we have met with the management of each company,
analyzed the problem areas and believe that current prices more than reflect
revised expectations for the companies. In the case of Avon, we purchased more
shares, while with Xerox, we believe the issues will take a few quarters to
resolve. As such, we cut the fund's position of Xerox in half early in October
(after the end of the fiscal reporting period). Going forward, we believe that
these companies should provide significant positive potential from current
levels.

On the sell side we sold out of a number of our cyclical names due to
either valuation or management concerns. Caterpillar, Dow Chemical, and

38
<PAGE>

DuPont were all sold for valuation reasons. While many of the smaller cyclical
names had given back much of their spring valuation bounce, these three
larger-cap names held up nicely. With signs of potential pricing deterioration
in many of their end markets, we decided to side-step the potential stock price
deterioration that might follow.

The portfolio remains positioned to take advantage of our positive outlook
in the energy and finance sectors. In energy, a doubling of world oil prices to
over $20 a barrel, more favorable supply/demand conditions, consolidation, and
cost cutting is encouraging. The finance sector has underperformed in the face
of rising interest rates and some company specific earnings disappointments. In
the banking industry, consolidation has enabled many companies to diversify and
add fee-based revenue streams, which lessens their overall exposure to rising
rates. Insurance companies have suffered from intense competition, poor pricing,
and recent losses related to Hurricane Floyd. Since these trends have
effectively harmed all participants, we expect pricing to improve going forward.
Despite positive fundamentals in the real estate market, real estate investment
trusts (REITs) have been lackluster performers as investors have preferred
larger-cap and more highly valued technology companies.

OUTLOOK

In contrast to this time last year, the Federal Reserve's policy has
shifted 180 degrees. Last year's interest rate cuts by the Federal Reserve to
avoid a global financial meltdown has now shifted to two subsequent hikes in
short-term rates and a bias toward raising rates again. We believe this
pronouncement coupled with a likely decline in trading volume as we near
year-end will exacerbate both the market and individual stock volatility. Four
consecutive years of 20%-plus equity returns and a significant disparity between
a few of the largest technology companies and the rest of the stock market will
likely keep overall returns in a fairly tight range.

10 LARGEST EQUITY HOLDINGS
(28% OF PORTFOLIO AS OF 9/30/99)
- ----------------------------------------------------------------
1. Corning Inc. 6. Bank of America Corp.
2. Bell Atlantic Corp. 7. Ford Motor Co.
3. Xerox Corp. 8. BellSouth Corp.
4. GTE Corp. 9. Elf Aquitaine S.A.
5. Sprint Corp. 10. CSX Corp.

- --------------------------------------------------------------------------------

39
<PAGE>

AARP U.S. STOCK INDEX FUND
- --------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other S&P 500 Index mutual funds. The fund
pursues its goal by investing at least 95% of its assets in stocks of companies
in the S&P 500 Index, as well as futures contracts and options based on the
index.

PORTFOLIO
MANAGEMENT TEAM

Bankers Trust
Subadviser

James M. Eysenbach
Robert Tymoczko
Scudder Liaisons

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 28.02% 27.82%

Life of
Fund* 69.75% 70.08%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 28.02% 27.82%

Life of
Fund* 22.01% 22.07%

- --------------------------------------------------------------------------------

A small number of large-cap and technology stocks dominated U.S. stock
market performance over most of the 12-month period, contributing to strong
gains for the unmanaged S&P 500 Index and the fund. In the second calendar
quarter, market sentiment shifted briefly toward value and smaller-cap stocks,
only to return to a short list of technology names in the third quarter.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999

CHART DATA:

AARP U.S. STOCK STANDARD & POOR'S
INDEX FUND 500 INDEX+
-------------------------------------------------
2/1/97* 10000 10000
3/97 9589 9664
9/97 12034 12202
3/98 14120 14304
9/98 13163 13306
3/99 16668 16945
9/99 16852 17008

FUND PERFORMANCE

Despite the fact that a limited number of stocks rose over most of the
12-month period that ended September 30, 1999, the fund performed well,
surpassing the return of its benchmark. The fund returned 28.02%, edging out the
27.82% return of the S&P 500 Index for the same period. Among 357 large-cap core
funds, the fund ranked in the top 50% according to Lipper Analytical Services,
Inc., an independent analyst of investment performance.

While the S&P 500's return for the period was well above its long-running
average return, the investment environment began to change in the last three
months of the period. Rising U.S. interest rates and fears of accelerating
inflation contributed to a general decline in stock prices in the third calendar
quarter.

The dominance of large-cap and technology stocks favored many of the stocks
that comprise the S&P 500 Index and the fund's portfolio. Technology led the way
with a price gain of more than 70% for the period. Other sectors also made
strong contributions, including communication services up 49%, health care up
40%, and consumer cyclicals up 29%. The basic materials sector declined 8% and,
despite a near doubling in the price of oil, the energy sector was down 7%.
Financial stocks, which comprise a significant weight in the index, were up only
9% for the 12 months, as some bank stocks were held back by rising interest
rates and earnings disappointments.

- --------------------------------------------------------------------------------

^+ The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks
representing all major industries. Index returns are calculated monthly and
assume reinvestment of dividends. Unlike fund returns, index returns do not
reflect any fees or expenses.

All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. The adviser has agreed to maintain
expenses until 1/31/00. If the adviser had not maintained expenses, total
returns would have been lower.

* The fund commenced operations on February 1, 1997.

40
<PAGE>

THE FUND'S INVESTMENT STRATEGY

The fund's benchmark -- the S&P 500 Index -- is widely regarded as the
standard for measuring large-cap U.S. stock market performance. This popular
index includes a representative sample of leading companies in leading
industries and is used by the majority of U.S. money managers and pension plan
sponsors to evaluate large-cap portfolios.

The fund is designed to track the performance of the unmanaged S&P 500
Index (typically within 1% per year), while offering slightly less downside
risk. The fund seeks to reduce downside risk by adhering to a "yield tilt
strategy." This strategy entails investing in a large majority of the S&P 500
stocks, but gives slightly more weight to stocks paying higher dividends.
Dividend-paying stocks historically have been more stable, especially in periods
of market decline.

The fund's other investment characteristics, such as sector weightings and
average market capitalization, are kept roughly in line with the index. Similar
to the S&P 500 Index, the fund gives more weight to the largest companies. This
strategy benefited the fund over the period, as the largest stocks performed
substantially better than other stocks. In periods when the largest
capitalization stocks are not dominating performance, however, the fund is
likely to underperform relative to funds that do not follow an index-based
strategy.

OUTLOOK

The S&P 500 has achieved a 20%-plus return for four consecutive years, an
unparalleled performance this century. With valuations for large-cap stocks at
historically high levels at period end and growth picking up abroad, we think
investors should be mindful of an ongoing need for diversification that includes
investment in foreign, small-cap, and short-term fixed income securities. While
we believe the fund's investments in many of the largest and strongest companies
will continue to reward shareholders, one should not overlook other
opportunities for diversification.

10 LARGEST EQUITY HOLDINGS
(21% OF PORTFOLIO AS OF 9/30/99)
-----------------------------------------------------------------------

1. Microsoft Corp. 6. Wal-Mart Stores Inc.
2. General Electric Co. 7. Exxon Corp.
3. Intel Corp. 8. Lucent Technologies Inc.
4. Cisco Systems, Inc. 9. Merck & Co., Inc.
5. International Business Machines Corp. 10. Citigroup Inc.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want long-term growth with less risk than a purely growth-oriented investment

o Can invest for at least five years

o Can handle some ups and downs in investment performance

o Are building a diversified portfolio with a few core investments

SECTOR DIVERSIFICATION
As of September 30, 1999

Technology 20%
Financial 13%
Health 11%
Manufacturing 9%
Communications 9%
Energy 8%
Consumer Staples 7%
Consumer Discretionary 7%
Durables 5%
Other 11%
----
100%
====

ASSET ALLOCATION
As of September 30, 1999

Stock Holdings 99%
Cash Equivalents 1%
----
100%
====

41
<PAGE>

AARP CAPITAL GROWTH FUND
- ------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other growth mutual funds. The fund
pursues its goal by utilizing individual stock selection to invest primarily in
the common stocks and securities convertible into common stocks of established
medium- to large-sized companies.

PORTFOLIO
MANAGEMENT TEAM

Bruce F. Beaty
William F. Gadsden
Co-Lead Portfolio Managers

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 36.83% 27.82%

5 yr. 177.71% 205.64%

10 yr. 257.32% 373.50%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 36.83% 27.82%

5 yr. 22.66% 25.02%

10 yr. 13.58% 16.81%

- --------------------------------------------------------------------------------

As the financial markets adjusted to an environment of higher interest
rates, investors sought shelter in companies that have demonstrated the ability
to generate consistent earnings growth over time. The fund, which emphasizes
large-cap growth stocks, was ideally positioned to thrive in these conditions.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Yearly Periods ended September 30

CHART DATA:

AARP CAPITAL STANDARD & POOR'S
GROWTH FUND 500 INDEX+
------------------------------------------------
89 10000 10000
90 7304 9077
91 10430 11905
92 10841 13223
93 13500 14942
94 12867 15492
95 15886 20100
96 18423 24186
97 27031 33972
98 26114 37044
99 35732 47350

FUND PERFORMANCE

AARP Capital Growth Fund returned 36.83% for the period, beating the 27.82%
return of its unmanaged benchmark, the S&P 500 Index. The fund also performed
well against its peers: according to Lipper Analytical Services, it finished in
the top 6% of its peer group -- Large Cap Core Funds -- for the one-year period
ended September 30, 1999, and in the top 14% over the three-year period ended on
the same date.^1 We believe that the fund's strong performance is a result of
our disciplined stock selection methodology, as well as the fact that the market
climate was highly favorable for the stocks in our investment universe.

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND

LINE CHART TITLE: AARP Capital Growth Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)

<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Morningstar Over the three years, this
Return Large Growth Risk fund is among the best 50% of
Peer Group similar funds for total return
----------------------------------- and in the second quartile of
Highest Lowest similar funds for monthly
Return Best 25% Risk downside risk.
------------ -----------
The monthly averages for risk
XXXX Next 25% XXXX and return are for 212 similar
------------ ----------- funds for the period October
1, 1996 through September 30,
Next 25% 1999.
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
Morningstar is the source for the peer group information of similar funds.

</TABLE>

Index returns are calculated monthly and assume reinvestment of dividends.
Unlike fund returns, index returns do not reflect any fees or expenses.

^1 Source: Lipper Analytical Services, Inc. Lipper Analytical Services, Inc. is
an independent analyst of investment performance. Performance includes
reinvestment of dividends and capital gains. For the period ended September
30, 1999, AARP Capital Growth Fund's Lipper ranking was 21 out of 357
large-cap core funds for the one-year period, 26 out of 185 funds for the
three-year period, 36 out of 108 for the five-year period, and 36 out of 47
for the ten-year period.

42
<PAGE>

THE FUND'S INVESTMENT STRATEGY

In managing the fund, we use a method known as GARP, which stands for
"growth at a reasonable price." We utilize this technique to unearth compelling
values among growth companies, and to gauge when a stock has reached a price
that appears to be excessive in light of its long-term growth prospects. We
believe that good companies that offer superior long-term growth characteristics
are worth more than less reliable companies that are often "cheap" for a reason.
This disciplined methodology has allowed us to participate in some of the
market's biggest winners, and to avoid an inordinate number of negative
surprises.

The fund's substantial position in technology stocks was one of the key
factors behind its strong performance. In our view, one of the most important
themes of recent years has been the convergence of technology and
telecommunications brought about by the explosive growth of the Internet. The
companies at the forefront of this convergence will experience the fastest
growth, which will in turn justify their higher price/earnings ratios. Examples
of stocks in this category that have performed well for us are Sun Microsystems
(up 273% over the 12 months), Corning (136%), EMC (149%), Cisco Systems (122%),
MCI WorldCom (47%), and Lucent Technologies (88%).

In other sectors, we continued to favor media and health care. While both
have endured choppy performance in recent months, we feel that our holdings in
these industries are on track for continued strong earnings growth over time.
Conversely, we have been trimming our positions in retail and financial stocks,
two sectors that we believe will be unable to sustain their current growth
rates.

OUTLOOK

Over the past few years, some investors have underestimated the resilience
of the U.S. economy. As such, we believe it has proven worthwhile to keep a
long-term view and to avoid the temptation to sell when market conditions
deteriorate. While we feel that caution is warranted as long as the threat of
higher interest rates is an issue, we believe that our disciplined investment
style will continue to position the fund for outperformance over time.

10 LARGEST EQUITY HOLDINGS
(27% OF PORTFOLIO AS OF 9/30/99)
- -------------------------------------------------------------------------
1. Microsoft Corp. 6. Proctor & Gamble Co.
2. Intel Corp. 7. International Business Machines Corp.
3. General Electric Co. 8. Sun Microsystems, Inc.
4. Home Depot, Inc. 9. Bristol Myers Squibb
5. MCI WorldCom, Inc. 10. Federal National Mortgage Association

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want long-term growth of principal

o Are not looking for a source of regular income

o Can invest for at least five years

o Can handle potentially large ups and downs in investment performance

o Are looking for a fund to invest for the growth portion of their portfolio

SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of September 30, 1999

Technology 21%
Health 15%
Consumer Discretionary 12%
Financial 10%
Manufacturing 9%
Media 7%
Consumer Staples 7%
Service Industries 6%
Energy 5%
Other 8%
----
100%
====

ASSET ALLOCATION
As of September 30, 1999

Stock Holdings 97%
Cash Equivalents 3%
----
100%
====

43
<PAGE>

AARP SMALL COMPANY STOCK FUND
- -----------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other small company stock funds. The fund
pursues its goal by investing primarily in stocks of small U.S. companies with
potential for above-average long-term capital growth.

PORTFOLIO
MANAGEMENT TEAM

James M. Eysenbach
Lead Portfolio Manager

Calvin S. Young
Portfolio Manager

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 5.70% 19.07%

Life of
Fund* 20.09% 19.67%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 5.70% 19.07%

Life of
Fund* 7.13% 6.98%

- --------------------------------------------------------------------------------

FUND PERFORMANCE

Large-cap technology stocks dominated the market averages during most of
AARP Small Company Stock Fund's fiscal year. Over the 12-month period ended
September 30, 1999, the fund posted a 5.70% total return, compared with the
19.07% return of the fund's benchmark, the Russell 2000 Index. Since its
inception on February 1, 1997, the fund's average annual return was 7.13%,
compared with the 6.98% return of the Russell 2000 Index.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999

CHART DATA:

AARP SMALL COMPANY RUSSELL 2000
STOCK FUND INDEX+
---------------------------------------------------------
2/1/97* 10000 10000
3/97 9940 9297
9/97 13353 12413
3/98 14387 13202
9/98 11362 10050
3/99 10989 11055
9/99 12009 11967

The fund trailed the performance of its benchmark during its most recent
fiscal year for two related reasons: first, because of the fund's continued
emphasis on stocks with stronger value characteristics, e.g., lower
price/earnings (P/E) or price/book (P/B) ratios. The fund's typical holding has
a P/E of 12x compared with 21x for the Index. Though small-cap value stocks
recovered some ground during the second quarter, this sector had lower overall
returns than small-cap growth stocks in this environment. Second, technology and
communications stocks drove the performance of the Russell 2000 Index during the
period, and the fund's portfolio was underweighted in these sectors because of
our valuation discipline. Under this discipline, which we believe will lead to
strong performance over the long term, the fund is precluded from owning many
technology and communications stocks that are posting negative earnings despite
recent strong performance.

Beyond technology and communications, the fund benefitted from a
significant underweighting in the financial sector. Here our valuation analysis
correctly anticipated the weak performance of finance stocks overall. In
addition, our holdings in the energy and consumer discretionary sectors
outperformed those in the index, contributing positively to the fund's return.
Nevertheless, these positive contributions were insufficient to offset the
shortfall in technology and communications.

- --------------------------------------------------------------------------------
+ The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks. Index returns are calculated monthly
and assume reinvestment of dividends. Unlike fund returns, index returns do
not reflect any fees or expenses.

* The fund commenced operations on February 1, 1997.

44
<PAGE>

THE FUND'S INVESTMENT STRATEGY

The fund is managed using a set of investment disciplines designed to add
value over the long term. We recognize that this approach will at times be out
of favor with current market trends. However, we resist the temptation to react
to short-term events when we believe the trends are not supported by underlying
company fundamentals. We believe that a consistent and disciplined approach
balancing valuation and future growth prospects will result in better returns
over the long term. Furthermore, our strategy does not focus on picking a few
big winners or sectors, but on building a portfolio with attractive overall
characteristics, including diversification among more than 150 stocks.

OUTLOOK

During the first six months of the period, the fund's valuation discipline
and broad diversification detracted from short-term returns because the largest
market gains were heavily concentrated in just a few high-priced stocks. But
over the long term, as has been demonstrated in the past, we expect the fund's
diversified portfolio of attractively valued stocks to enhance performance and
reduce risk. We consider the recent outperformance of large-cap growth stocks to
be an aberration, and expect that in the future the fund will benefit from
broader market participation in the growing U.S. economy. We believe small-cap
stocks remain an important component of a properly diversified investment
portfolio, offering attractive return potential over the long term.

LARGEST EQUITY HOLDINGS BY SECTOR
(EXCLUDES CASH EQUIVALENTS)
-------------------------------------------------------------------------
1. Manufacturing (22%) 6. Financial (7%)
Lawson Products, Inc. Hilb, Rogal & Hamilton Co.
2. Consumer Discretionary (17%) 7. Service Industries (7%)
CPI Corp. ABM Industries, Inc.
3. Utilities (12%) 8. Technology (7%)
TNP Enterprises, Inc. Technitrol, Inc.
4. Durables (10%) 9. Consumer Staples (3%)
The Manitowoc Company, Inc. Michael Foods, Inc.
5. Construction (7%) 10. Transportation (3%)
Granite Construction, Inc. USFreightways Corp.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Want long-term growth of principal

o Are not looking for a source of regular income

o Can invest for at least five years

o Can handle potentially large ups and downs in investment performance

o Are looking for a fund to invest in for the growth portion of one's portfolio

Asset Allocation
As of September 30, 1999

Stock Holdings 96%

Cash Equivalents 4%
----
100%
====

45
<PAGE>

AARP GLOBAL GROWTH FUND
- -----------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other global growth funds. The fund
pursues its goal by investing primarily in stocks issued by established
companies in countries around the world including the United States.

PORTFOLIO
MANAGEMENT TEAM

William E. Holzer
Lead Portfolio Manager

Diego Espinosa
Nicholas Bratt
Portfolio Managers

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 18.36% 29.49%

Life of
Fund* 49.05% 71.55%

AVERAGE ANNUAL

FUND INDEX+
--------------------------

1 yr. 18.36% 29.49%

Life of
Fund* 11.51% 15.86%

- --------------------------------------------------------------------------------

Over the past year, stock prices have been buoyed by stronger-than-expected
global growth and the acceleration of consolidation activity in Europe and
Japan. However, we believe that the increase in volatility over the summer is
indicative of the fact that in an environment of rising interest rates, the
markets are increasingly susceptible to negative surprises.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Semiannual Periods from February 1, 1996*
to September 30, 1999

CHART DATA:

AARP GLOBAL MSCI WORLD
GROWTH FUND INDEX+
---------------------------------------------------
2/1/96* 10000 10000
3/96 10180 10224
9/96 10327 10661
3/97 11141 11181
9/97 12874 13231
3/98 14010 14754
9/98 12592 13248
3/99 13910 16619
9/99 14905 17155

FUND PERFORMANCE

For the 12 months ended September 30, 1999, AARP Global Growth Fund
returned 18.36%, which trailed the 29.49% total return of its unmanaged
benchmark, the MSCI World Index. The primary cause for the fund's short-term
underperformance is our tendency to avoid the narrow group of expensive,
high-risk stocks that have led the market for the better part of the past year.
Over the long term, we feel that our approach will add value for shareholders,
particularly if the U.S. bull market begins to cool off. Longer term, the fund
has performed well as evidenced by its overall four-star Morningstar Rating(TM)
for its risk-adjusted performance (among 1,025 international funds as of
September 30, 1999).^1

THE PRINTED DOCUMENT CONTAINS A MATRIX CHART HERE,
SHOWING A THREE-YEAR RISK/RETURN PEFORMANCE OF THE FUND

LINE CHART TITLE: AARP Global Growth Fund
Three-Year Risk/Return Performance

CHART DATA: (AARP Fund noted by XXXX)

<TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------
Morningstar Over the three years,
Return Global Risk this fund is among the best
Peer Group 75% of similar funds for total
----------------------------------- return and in the first
Highest Lowest quartile of similar funds for
Return Best 25% XXXX Risk monthly downside risk.
------------ -----------
The monthly averages for
Next 25% risk and return are for 73
------------ ----------- similar funds for the period
October 1, 1996 through
XXXX Next 25% September 30, 1999.
------------ -----------
Lowest Highest
Return Worst 25% Risk
------------ -----------
Morningstar is the source for the peer group information of similar funds.

</TABLE>

- --------------------------------------------------------------------------------
+ The MSCI (Morgan Stanley Capital International) World Index is an unmanaged
capitalization-weighted measure of global stock markets, including the U.S.,
Canada, Europe, Australia, and the Far East. Index returns assume dividends
reinvested net of withholding tax and, unlike fund returns, do not reflect
any fees or expenses.

All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained
expenses, the total return for the life of fund period would have been lower.

* The fund commenced operations on February 1, 1996.

^1 Morningstar proprietary ratings reflect historical risk-adjusted performance
through 9/30/99. The ratings are subject to change every month. Morningstar
ratings are calculated from the fund's three-, five-, and ten-year returns
(with fee adjustments) in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day T-bill returns. In its
broad asset class, the fund received four stars for the three-year period
among 1025 international funds. The top 10% of funds in its broad asset class
receive five stars and the next 22.5% receive four stars. Past performance is
no guarantee of future results.

46
<PAGE>

THE FUND'S INVESTMENT STRATEGY

We continue to focus on investment themes that we believe will transcend
the short-term fluctuations of the markets. To that end, we have constructed a
portfolio of companies positioned to capitalize on long-term trends in the
global economy. Most important, we are focused on the role of technology in
society. The Internet enables both businesses and consumers to develop new
markets and leap geographic boundaries. Over time, the Internet has been, and
will continue to be, a powerful driver of falling prices as competition
increases and corporations become more efficient. Our investment themes seek to
achieve balanced exposure to the companies that we believe will successfully
adapt to the shifting global business environment. Accordingly, we have
developed a new theme that we call "Virtuality," in which we look for companies
that are taking advantage of outsourcing opportunities to cut costs. We also are
continuing to build on "The Empowered Consumer" theme, which focuses on
companies that provide consumer-enabling technologies related to the Internet.
We believe that the companies that are building the Internet's infrastructure
and/or creating the content for the new medium, such as AT&T and America Online,
are poised for significant growth in the years ahead.

In keeping with our emphasis on diversification, we are maintaining
significant exposure to stocks that we believe will do well even if the
investment backdrop becomes less favorable. In particular, we are continuing to
develop the theme known as "The Ultimate Subcontractor," which focuses on the
winners of the rationalization process in cyclical industries, and "Secure
Streams of Income," which provides defensive qualities through its exposure to
the leading companies in the rapidly deregulating utility sector.

OUTLOOK

Consistent with our cautious outlook, the themes we have emphasized
recently reflect our goal of constructing a portfolio that will deliver strong
risk-adjusted performance in any environment. Going forward, we intend to keep
the portfolio balanced thematically and positioned for further changes in the
global economy.

10 LARGEST EQUITY HOLDINGS
(16% OF PORTFOLIO AS OF 9/30/99)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C>
1. Sony Corp. (Japan) 6. BOC Group PLC (U.K.)
2. Sharp Corp. (Japan) 7. International Business Machines Corp. (U.S.)
3. Enron Corp. (U.S.) 8. Bayer AG (Germany)
4. Yamanouchi Pharmaceutical Co., Ltd. (Japan) 9. Sun Microsystems, Inc. (U.S.)
5. Rio Tinto PLC (U.K.) 10. Hoechst AG (Germany)

</TABLE>

- --------------------------------------------------------------------------------
SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Have a well-balanced portfolio of domestic
investments and would like to gain some
exposure to foreign markets

o Do not need a source of regular income

o Can invest for at least five years

o Can handle potentially large ups and
downs in investment performance

SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of September 30, 1999

Manufacturing 18%
Financial 15%
Energy 11%
Metals and Minerals 10%
Technology 9%
Health 6%
Consumer Staples 6%
Transportation 5%
Utilities 5%
Other 15%
----
100%
====

GEOGRAPHICAL
DIVERSIFICATION --
EXCLUDES 3%
CASH EQUIVALENTS
As of September 30, 1999

U.S. & Canada 40%
Europe 32%
Japan 21%
Pacific Basin 5%
Latin America 1%
Africa 1%
----
100%
====

47
<PAGE>

AARP INTERNATIONAL STOCK FUND
- -----------------------------

SIDEBAR TEXT:

GOAL

The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other international mutual funds. The fund
pursues its goal by investing primarily in common stocks of companies from
developed countries outside the United States. The fund changed its name from
the AARP International Growth and Income Fund on June 30, 1999.

PORTFOLIO
MANAGEMENT TEAM

Irene T. Cheng
Lead Portfolio Manager

Sheridan Reilly
Lauren Lambert
Marc J. Slendebroek
Portfolio Managers

-------------------------

TOTAL RETURN
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 16.52% 30.94%

Life of
Fund* 30.59% 37.31%

AVERAGE ANNUAL

FUND INDEX+
-------------------------

1 yr. 16.52% 30.94%

Life of
Fund* 10.55% 12.64%

- --------------------------------------------------------------------------------

Foreign stocks have generally performed well over the past year, but a
focus on higher interest rates in the United States has dampened returns in
recent months. In the overseas markets, restructuring and consolidation activity
are powerful long-term themes that have been, and should continue to be, key
drivers of stock market performance. This continuing trend, supported further by
the nascent economic recoveries in Europe and Japan, remains quite bullish for
the international markets despite the day-to-day turbulence.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE: GROWTH OF A $10,000 INVESTMENT

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999

CHART DATA:

AARP INTERNATIONAL MSCI EAFE
STOCK FUND INDEX+
--------------------------------------------------
2/1/97* 10000 10000
3/97 10086 10201
9/97 11512 11443
3/98 12872 12097
9/98 11148 10487
3/99 11852 12827
9/99 12989 13731

Effective July 15, 1999, the investment strategy of the fund was redefined,
resulting in a portfolio repositioning by its new management team. The fund
(which was formerly known as AARP International Growth and Income Fund) now
focuses on stock selection through bottom-up fundamental research, supplemented
by a framework of thematic and country analysis. Through this combination of
bottom-up and top-down disciplines, the fund seeks to invest in companies that
are poised to benefit from the long-term secular changes that are transforming
the global economy. We believe that this approach will allow the fund to
outperform its benchmark in both favorable and unfavorable market conditions,
and maintain lower than average risk characteristics.

FUND PERFORMANCE

For the 12-month period ended September 30, 1999, the fund returned 16.52%,
compared to a return of 30.94% for its unmanaged benchmark, the MSCI EAFE Index,
over the same period. While the fund's performance improved following the
adoption of the revised investment strategy, a focus on value stocks over the
first half of the period proved detrimental at a time when a select group of
large-cap growth stocks dominated the market.

- --------------------------------------------------------------------------------

+ All indices are unmanaged, capitalization-weighted, and in U.S. dollar
terms. The MSCI (Morgan Stanley Capital International) EAFE Index is a
measure of global stock markets, including Europe, Australia, and the Far
East. The MSCI Europe Index represents the European market return; the MSCI
Japan Index represents the Japanese market return. Index returns assume
dividends are reinvested net of withholding tax and, unlike fund returns,
do not reflect any fees or expenses.

All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return
and principal value will fluctuate so an investor's shares, when redeemed,
may be worth more or less than when purchased. The adviser has agreed to
maintain expenses until 1/31/00. If the adviser had not maintained
expenses, total returns would have been lower.

* The fund commenced operations on February 1, 1997.

48
<PAGE>

THE FUND'S INVESTMENT STRATEGY

Our positioning in Japan concentrates on three types of companies --
potential restructuring candidates, financial stocks that will benefit from the
deregulation now underway in the sector, and companies poised to take advantage
of renewed domestic growth. Currently, some of our favorite names in the
financial sector are Sakura Bank, Fuji Bank, and Daiwa Securities. Domestic
growth star performers included NTT Mobile Communications Network and Fujitsu,
two key Internet players in Japan. We have also found NEC, Hitachi, and Nissan
Motors to be particularly attractive among the restructuring candidates that we
believe will also be beneficiaries of renewed economic activity. In Europe, the
core positioning remains focused on corporate and industrial restructuring. Key
holdings in that area include Siemens, the German industrial conglomerate, and
Elf Aquitaine, the French oil company soon to be merged into its French
competitor Total Fina. We have also built up a position in selected European
cyclicals that we feel are well positioned to take advantage of the rebound in
that region's economy. Two of our larger holdings in this group are BASF, a
German chemicals producer, and Lafarge, a French construction materials company.

OUTLOOK

We remain optimistic that the themes of restructuring and consolidation
will continue to provide a strong underpinning for the foreign markets as the
economic recovery picks up steam. That said, the global stock markets have come
a long way in the 12 months, and may be vulnerable to disappointing earnings or
higher interest rates. Regardless of the short-term fluctuations of the markets,
we will remain focused on adding value for shareholders by investing in
companies that are on the cusp of significant positive changes and expect
foreign markets to offer significant upside potential in the longer term.

10 LARGEST EQUITY HOLDINGS
(19% OF PORTFOLIO AS OF 9/30/99)
-------------------------------------------------------------------------------
1. Elf Aquitaine SA (France) 6. Orange PLC (U.K.)
2. NTT Mobile Communications Network 7. Nokia OYJ (Finland)
(Japan) 8. Sony Corp. (Japan)
3. Rio Tinto PLC (Registered) (U.K.) 9. Mannesmann AG (Registered) (Germany)
4. Fujitsu Ltd. (Japan) 10. Tokyo Electron Ltd. (Japan)
5. NEC Corp. (Japan)

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
FUND IS DESIGNED

The fund is designed for investors who:

o Have a well-balanced portfolio of domestic investments and would
like to gain some exposure to foreign markets

o Are not looking for a source of regular income

o Can invest for at least five years

o Can handle potentially large ups and downs in investment performance

SECTOR DIVERSIFICATION --
EXCLUDES CASH EQUIVALENTS
As of September 30, 1999

Financial 18%
Manufacturing 18%
Technology 13%
Communications 10%
Consumer Staples 7%
Energy 6%
Service Industries 5%
Metals & Minerals 5%
Consumer Discretionary 4%
Other 14%
----
100%
====

ASSET ALLOCATION
As of September 30, 1999

Stock Holdings 100%
----
100%
====

49
<PAGE>

AARP MANAGED INVESTMENT PORTFOLIOS:
- -----------------------------------
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
AARP DIVERSIFIED GROWTH PORTFOLIO

SIDEBAR TEXT:

GOAL

The AARP Diversified Income with Growth Portfolio seeks current income with
modest long-term appreciation. The portfolio pursues its goal by investing in at
least five underlying AARP mutual funds, with an emphasis on income funds.

The AARP Diversified Growth Portfolio seeks to provide long-term growth of
capital. The portfolio pursues its goal by investing in at least five underlying
AARP mutual funds, with an emphasis on the growth funds.

In managing allocations among the underlying funds, each portfolio will
generally make incremental adjustments.

PORTFOLIO
MANAGEMENT TEAM

Philip S. Fortuna
Lead Portfolio Manager

Salvatore J. Bruno
Shahram Tajbakhsh
Portfolio Managers

-------------------------
TOTAL RETURN
DIVERSIFIED INCOME WITH
GROWTH PORTFOLIO
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 4.21% 7.60%

Life of
Fund* 20.08% 32.74%

---------------------------
TOTAL RETURN
DIVERSIFIED GROWTH
PORTFOLIO
As of September 30, 1999

CUMULATIVE

FUND INDEX+
-------------------------

1 yr. 11.08% 18.88%

Life of
Fund* 30.43% 53.67%

- --------------------------------------------------------------------------------

PORTFOLIO PERFORMANCE

For the 12-month period ended September 30, 1999, the AARP Diversified
Income with Growth Portfolio returned 4.21%, representing 4.98% in distributions
of income and -0.77% in capital change. The Portfolio's blended benchmark index,
which is comprised of the unmanaged Lehman Brothers Aggregate Bond Index (70%)
and the S&P 500 Index (30%), returned 7.60% for the same period.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE:
GROWTH OF A $10,000 INVESTMENT
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999

CHART DATA:

AARP DIVERSIFIED LEHMAN BROTHERS
INCOME WITH STANDARD & POOR'S AGGREGATE BOND BLENDED
GROWTH PORTFOLIO 500 INDEX INDEX INDEX+
- ---------------------------------------------------------------------------
2/97* 10000 10000 10000 10000
3/97 9987 9664 9914 9839
9/97 10935 12202 10621 11087
3/98 11574 14304 11102 12009
9/98 11522 13306 11842 12336
3/99 12002 16945 11821 13269
9/99 12007 17008 11796 13274

For the 12-month period ended September 30, 1999, the AARP Diversified
Growth Portfolio returned 11.08%. The Portfolio's blended benchmark index, which
is comprised of the unmanaged S&P 500 Index (70%) and the Lehman Brothers
Aggregate Bond Index (30%), returned 18.88% for the same period.

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE

LINE CHART TITLE:

GROWTH OF A $10,000 INVESTMENT
AARP DIVERSIFIED GROWTH PORTFOLIO

CHART PERIOD: Semiannual Periods from February 1, 1997*
to September 30, 1999

CHART DATA:

AARP
DIVERSIFIED LEHMAN BROTHERS
GROWTH STANDARD & POOR'S AGGREGATE BOND BLENDED
PORTFOLIO 500 INDEX INDEX INDEX+
- ---------------------------------------------------------------------------

2/97* 10000 10000 10000 10000
3/97 9973 9664 9914 9739
9/97 11600 12202 10621 11720
3/98 12691 14304 11102 13290
9/98 11741 13306 11842 12926
3/99 12772 16945 11821 15326
9/99 13043 17008 11796 15367

THE PORTFOLIOS' INVESTMENT STRATEGIES

The Portfolios' conservatively managed asset allocation approaches
faced a challenging environment due to their broad diversification at a time
when only a few issues and industry sectors were driving market returns.

- --------------------------------------------------------------------------------

+ The performance of the blended benchmark is a weighting comprised of the
Standard & Poor's 500 Index (S&P), and the Lehman Brothers Aggregate Bond
Index. The 30/70 measure of the Diversified Income with Growth Portfolio
and 70/30 measure of the Diversified Growth Portfolio is meant to reflect
the anticipated long-range asset mix of each portfolio, which may change
over time. The Standard & Poor's 500 Index is a capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the
broad domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. The unmanaged Lehman Brothers
Aggregate Bond Index is a market-value-weighted measure of Treasury issues,
agency issues, corporate bond issues, and mortgage securities. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
fund returns, index returns do not reflect any fees or expenses.

All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return
and principal value will fluctuate so an investor's shares, when redeemed,
may be worth more or less than when purchased. For certain underlying funds
the adviser has agreed to maintain expenses until 1/31/00. If the adviser
had not maintained expenses, total returns would have been lower.

* These portfolios commenced operations on February 1, 1997.

50
<PAGE>

In the AARP Diversified Income with Growth Portfolio, we increased our
exposure to fixed income funds from 61% to 68% over the period primarily through
the addition of a 7% position in High Quality Short Term Bond Fund. In the
balance of the portfolio, we significantly decreased holdings of High Quality
Money Market Fund in favor of U.S. Stock Index Fund, which rose from 4% to 23%
of assets. This move made a significant contribution to performance during a
period when rising interest rates resulted in declines for most fixed income
securities.

In the AARP Diversified Growth Portfolio, we increased our exposure to
stock funds from 62% to 71% of assets over the period primarily by reducing our
fixed income fund and money market fund holdings. Within the stock fund area, we
significantly increased the Portfolio's exposure to U.S. Stock Index Fund (from
13% to 35% of assets) and Capital Growth Fund (from 4% to 10% of assets) by
reducing holdings in other equity funds. While the Portfolio's holdings of U.S.
Stock Index and Capital Growth funds exceeded the 27.82% return of the S&P 500,
a limited exposure to these funds early in the period and a significant weight
in Growth and Income Fund, which underperformed, held back performance.

DIVERSIFIED INCOME WITH GROWTH
PORTFOLIO ALLOCATION
As of September 30, 1999

AARP GNMA and U.S. Treasury Fund 31%
AARP Bond Fund for Income 30%
AARP U.S. Stock Index Fund 23%
AARP High Quality Short Term
Bond Fund 7%
AARP Growth and Income Fund 6%
AARP Capital Growth Fund 2%
AARP High Quality Money Fund 1%
AARP Small Company Stock Fund 0%
----
100%
====

DIVERSIFIED GROWTH
PORTFOLIO ALLOCATION
As of September 30, 1999

AARP U.S. Stock Index Fund 35%
AARP Bond Fund for Income 19%
AARP Growth and Income Fund 11%
AARP Capital Growth Fund 10%
AARP GNMA and U.S. Treasury Fund 9%
AARP Global Growth Fund 5%
AARP Small Company Stock Fund 5%
AARP International Stock Fund 5%
AARP High Quality Money Fund 1%
----
100%
====

OUTLOOK

With economic growth accelerating abroad and interest rates rising in the
United States, we believe the market environment is changing significantly.
While we still believe the U.S. market is healthy, volatility is increasing. It
has been our experience that asset allocation strategies tend to perform well in
this type of environment. Since the investment markets are often characterized
by increased volatility during periods of change, we believe the Portfolio's
diversified approach will provide exposure to opportunities, but with less risk
than a direct investment in a single asset class.

- --------------------------------------------------------------------------------

SIDEBAR TEXT:

FOR WHOM THE
PORTFOLIOS ARE DESIGNED

The Managed Investment Portfolios are designed for investors who:

o Would like to build an overall portfolio with only one or a few investments

o Can invest for at least three years in the AARP Diversified Income with
Growth Portfolio, or for at least five years in the AARP Diversified Growth
Portfolio

o Can handle some ups and downs in investment performance

ASSET ALLOCATION
AARP DIVERSIFIED
INCOME WITH GROWTH
PORTFOLIO
As of September 30, 1999

Stock Fund Holdings 31%
Bond Fund Holdings 68%
Money Fund 1%
----
100%
====

ASSET ALLOCATION
AARP DIVERSIFIED
GROWTH PORTFOLIO
As of September 30, 1999

Stock Fund Holdings 71%
Bond Fund Holdings 28%
Money Fund 1%
----
100%
====

51
<PAGE>

This page
intentionally
left blank.

52
<PAGE>

/4/
- -------------------------------------------------------------------------------

A A R P F U N D S'
I N V E S T M E N T P O R T F O L I O S

List of investments as of September 30: A detailed
breakdown of the investments in each fund
portfolio at the close of the reporting period.

Principal amount/shares: The face value of a bond
or the shares held by the fund.

Cost: The amount the fund actually paid for the
listed securities.

In addition, the tax-free funds include the credit
ratings (unaudited) for each bond holding. Moody's
Investors Service, Inc., Fitch Investors Service,
Inc., and Standard & Poor's Corporation -- three
independent rating services -- have developed
credit rating systems that are designed to
indicate a bond issuer's ability to meet its
obligations. For example, bonds with the lowest
risk of default receive a rating of "AAA," while
bonds involving greater risk receive progressively
lower ratings. Bonds rated "BBB" or better are
considered investment grade ("AAA" ratings are
assigned only to bonds with the highest credit
quality).

The Portfolios also show the coupon rates and
maturity dates of the funds' bond holdings. The
coupon rate is the interest rate on a debt
security the bond issuer promises to pay to the
bond holder until maturity. The maturity date is
the date on which a bond issuer is scheduled to
repay the principal to the bond holder.

Market value: The current value of the securities
held in a fund's portfolio.

53
<PAGE>

This page
intentionally
left blank.

54
<PAGE>

AARP HIGH QUALITY MONEY FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $234,034 on 10/01/1999, collateralized by a
$230,000 U.S. Treasury Note Inflationary Index, 3.625%, 7/15/2002
(Cost $234,000) ....................................................................... 234,000 234,000
-----------

COMMERCIAL PAPER 63.6%
- ------------------------------------------------------------------------------------------------------------------------------

Alpine Securitization Corp., 5.35%, 10/18/1999 ........................................... 20,000,000 19,949,472
Amsterdam Funding Corp., 5.35%, 10/19/1999 ............................................... 20,000,000 19,946,500
Baxter International Inc., 5.86%, 2/8/2000 ............................................... 9,780,000 9,573,044
Falcon Asset Securitization Corp., 5.38%, 10/18/1999 ..................................... 15,000,000 14,961,892
Forrestal Funding Master Trust, 5.35%, 10/15/1999 ........................................ 20,000,000 19,958,389
GMAC Mortgage Corp., 5.43%, 10/1/1999 .................................................... 10,000,000 10,000,000
GMAC Mortgage Corp., 5.45%, 11/1/1999 .................................................... 10,000,000 9,953,033
International Securitization Corp., 5.4%, 10/27/1999 ..................................... 20,000,000 19,922,000
Intrepid Funding Master Trust, 5.37%, 10/19/1999 ......................................... 20,000,000 19,946,300
Lexington Parker Capital Corp., 5.75%, 1/27/2000 ......................................... 16,000,000 15,698,444
Monte Rosa Capital Corp., 5.35%, 10/7/1999 ............................................... 20,000,000 19,982,167
Quincy Capital Corp., 5.36%, 11/9/1999 ................................................... 20,506,000 20,386,928
Receivables Capital Corp., 5.63%, 10/1/1999 .............................................. 18,000,000 18,000,000
Sheffield Receivables Corp., 5.35%, 10/14/1999 ........................................... 20,000,000 19,961,361
Thunder Bay Funding Corp., 5.9%, 1/31/2000 ............................................... 20,000,000 19,600,111
Windmill Funding Corp., 5.37%, 11/18/1999 ................................................ 20,000,000 19,856,800
-----------
Total Commercial Paper (Cost $277,696,441) ............................................... 277,696,441
-----------

CERTIFICATES OF DEPOSIT 19.5%
- ------------------------------------------------------------------------------------------------------------------------------

Allfirst Bank, 5.59%, 9/7/2000* .......................................................... 20,000,000 19,992,685
American Express Centurion Bank, 5.44%, 1/20/2000* ....................................... 10,000,000 9,996,545
First Union National Bank, 5.4%, 7/26/2000* .............................................. 20,000,000 20,000,000
Fleet National Bank, 5.28%, 8/14/2000* ................................................... 15,000,000 14,989,687
Harris Trust & Savings Bank, 5.6%, 8/10/2000* ............................................ 20,000,000 20,000,000
-----------
Total Certificates Of Deposit (Cost $84,978,917) ......................................... 84,978,917
-----------

SHORT-TERM AND MEDIUM TERM NOTES 16.8%
- ------------------------------------------------------------------------------------------------------------------------------

Countrywide Home Loan, 5.44%, 10/14/1999* ................................................ 28,000,000 28,000,000
IBM Corp., 5.07%, 3/22/2000 .............................................................. 10,000,000 9,997,617
Merrill Lynch & Co., 5.36%, 10/21/1999* .................................................. 20,500,000 20,500,000
Transamerica Finance Corp., 5.56%, 10/22/1999* ........................................... 15,000,000 15,000,000
-----------

Total Short-Term and Medium-Term Notes (Cost $73,497,617) ................................ 73,497,617
-----------
- ------------------------------------------------------------------------------------------------------------------------------

Total Investment Portfolio -- 100% (Cost $436,406,975) (a) ............................... 436,406,975
===========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP HIGH QUALITY MONEY FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

* Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of
the U.S. Treasury bill rate. These securities are shown at their rate as of
September 30, 1999.

(a) At September 30, 1999, the cost for federal income tax purposes was
$436,406,975.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $120,500, which may be applied against any
net taxable capital gains of each succeeding year until fully utilized or
until September 30, 2004 ($63,000) and September 30, 2005 ($57,500), the
respective expiration dates.

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP HIGH QUALITY TAX FREE MONEY FUND

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

Municipal Investments 100.0%
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Arizona

Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.,
Series 1982, Weekly Demand Note, 3.85%, 10/1/2022* ............................. 3,900,000 3,900,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Weekly Demand
Note, 3.75%, 12/1/2011* ........................................................ 1,900,000 1,900,000

Colorado

Colorado Health Facilities Authority, Frasier Meadows Manor Project, Weekly
Demand Note, 3.83%, 6/1/2021* .................................................. 1,000,000 1,000,000
Smith Creek, CO, Water Utility Revenue Bond, Weekly Demand Note, 3.85%,
10/1/2035* ..................................................................... 1,500,000 1,500,000
Platte River, CO, Platte River Power Authority, Tax Exempt Commercial Paper,
3.4%, 10/26/1999 ............................................................... 2,100,000 2,100,000

District of Columbia

District of Columbia, General Obligation, Refunding Bonds, Series A3, Daily
Demand Note, 3.99%, 10/1/2007* ................................................. 300,000 300,000

Florida

Dade County, FL, Industrial Development Authority Revenue, Dolphins
Stadium Project:
Series B, Weekly Demand Note, 3.75%, 1/1/2016* .............................. 1,000,000 1,000,000
Series D, Weekly Demand Note, 3.75%, 1/1/2016* .............................. 1,300,000 1,300,000
Jacksonville, FL, Electric System, Series C-1, Tax Exempt Commercial Paper, 3.5%,
11/10/1999 ..................................................................... 1,500,000 1,500,000
Orange County, FL, Health Facilities Authority, Tax Exempt Commercial Paper,
3.65%, 2/10/2000 (b) ........................................................... 2,000,000 2,000,000
Orange County, FL, Health Facilities Authority Revenue, Presbyterian Retirement,
Weekly Demand Note, 3.85%, 11/1/2028* .......................................... 1,000,000 1,000,000
Orlando, FL, Capital Improvements Project, Series 1994-A, Tax Exempt Commercial
Paper, 3.5%, 11/12/1999 ........................................................ 1,300,000 1,300,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric Cooperative
Finance Corp., 1984 Series H-1, Weekly Demand Note, 3.85%, 3/15/2014* .......... 3,950,000 3,950,000
Sunshine State Governmental Financing Commission, FL, Tax Exempt Commercial
Paper, 3.4%, 10/14/1999 (b) .................................................... 2,000,000 2,000,000

Georgia

Fayette County, GA, Educational Facilities Revenue, Catholic School Properties Inc.
Project, Weekly Demand Note, 3.8%, 4/1/2024* ................................... 2,000,000 2,000,000
Gainsville, GA, Redevelopment Authority, Riverside Military Project, Weekly
Demand Note, 3.8%, 7/1/2024* ................................................... 1,000,000 1,000,000
Municipal Electric Authority of Georgia:
Series 85-A, Tax Exempt Commercial Paper, 3.6%, 11/10/1999 ..................... 1,000,000 1,000,000
Series 85-B, Tax Exempt Commercial Paper, 3.35%, 10/12/1999 .................... 1,000,000 1,000,000

Illinois

Illinois Development Finance Authority, Pollution Control Revenue, Illinois
Power Co. Project, Series A, Weekly Demand Note, 3.8%, 11/1/2028* .............. 1,500,000 1,500,000
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP HIGH QUALITY TAX FREE MONEY FUND
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Illinois Educational Facilities Authority, Tax Exempt Commercial Paper:
3.45%, 11/8/1999 ............................................................ 2,000,000 2,000,000
3.7%, 2/9/2000 .............................................................. 1,000,000 1,000,000
Illinois Health Facilities Authority, Tax Exempt Commercial Paper, 3.65%,
10/26/1999 .................................................................. 2,000,000 2,000,000

Iowa

West Des Moines, IA, Commercial Development Revenue, Greyhound Lines,
Weekly Demand Note, 3.75%, 12/1/2014* ....................................... 3,400,000 3,400,000

Kentucky

Danville, KY, Multi-City Lease Revenue, Tax Exempt Commercial Paper, 3.55%,
11/5/1999 ................................................................... 1,000,000 1,000,000
Kentucky Economic Development Finance Authority, Hospital Facilities Revenue
Health Alliance, Series C, Weekly Demand Note, 3.77%, 1/1/2022* (b) ......... 2,000,000 2,000,000
Mayfield, KY, Multi-City Lease Revenue, Kentucky League of Cities Funding Trust,
Weekly Demand Note, Series 1996, 3.9%, 7/1/2026* ............................ 755,000 755,000
Pendelton County, KY, County Lease Revenue, Tax Exempt Commercial Paper:
3.5%, 11/9/1999 ............................................................. 1,000,000 1,000,000
3.65%, 2/11/2000 ............................................................ 2,000,000 2,000,000

Louisiana

Louisiana Public Finance Authority, Tax Exempt Commercial Paper:
3.35%, 10/19/1999 (b) ....................................................... 1,035,000 1,035,000
3.45%, 10/19/1999 (b) ....................................................... 500,000 500,000

Maryland

Anne Arundel County, MD, Baltimore Gas and Electric, Tax Exempt Commercial
Paper, 3.35%, 10/12/1999 .................................................... 1,000,000 1,000,000
Baltimore County, MD, Oak Crest Village Inc. Project, Series A, Weekly Demand
Note, 3.8%, 1/1/2029* ....................................................... 1,500,000 1,500,000

Michigan

Michigan State Housing Development Authority, Laurel Valley Apartments, Weekly
Demand Note, 3.8%, 12/1/2007* ............................................... 1,000,000 1,000,000
Michigan State Job Development Authority, Gordon Food Services Project, Weekly
Demand Note, 3.75%, 8/1/2015* ............................................... 1,100,000 1,100,000

Minnesota

Cottage Grove, MN, Environmental Control Revenue, Minnesota Mining and
Manufacturing, Series 1982, Weekly Demand Note, 4.05%, 8/1/2012* ............ 300,000 300,000
Minnesota Hospital Facilities Revenue, New Ulm Hospital Center, Weekly Demand
Note, 3.9%, 8/1/2014* ....................................................... 1,000,000 1,000,000

Nevada

Las Vegas, NV, Valley Water Authority District, Tax Exempt Commercial Paper,
3.65%, 11/5/1999 ............................................................ 1,000,000 1,000,000

New Hampshire

New Hampshire Business Finance Authority, Pollution Control Revenue, Tax
Exempt Commercial Paper, 3.6%, 2/16/2000 .................................... 1,000,000 1,000,000

New York

Long Island Power Authority, Series 4, Tax Exempt Commercial Paper, 3.4%,
10/21/1999 .................................................................. 1,000,000 1,000,000
Nassau County, NY, Tax Anticipation Note, Series C, 3.5%, 12/22/1999 ........... 400,000 400,348
</TABLE>

The accompanying notes are an integral part of the financial statements

58
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Pennsylvania

Allegheny County, PA, Health Care Department, Tax Exempt Commercial Paper,
Series 85-B, 3.6%, 11/9/1999 .................................................. 1,000,000 1,000,000
Delaware County, PA, Philadelphia Electric Company, Tax Exempt Commercial
Paper, 3.45%, 11/9/1999 (b) ................................................... 1,000,000 1,000,000
Philadelphia, PA, Tax and Revenue Anticipation Note, Series A, 4.25%, 6/30/2000 .. 700,000 703,791
Schuylkill County, PA, Industrial Development Authority, Gilberton Power Project,
Weekly Demand Note, 3.7%, 12/1/2002* .......................................... 2,800,000 2,800,000

Tennessee

Clarksville, TN, Public Building Authority, Pooled Financings, Series 1994, Weekly
Demand Note, 3.8%, 6/1/2024* .................................................. 1,900,000 1,900,000

Texas

Austin, TX, Utility System Revenue, Tax Exempt Commercial Paper, 3.35%,
10/21/1999 .................................................................... 2,000,000 2,000,000
Houston, TX, Water and Sewer Revenue, Tax Exempt Commercial Paper, 3.4%,
10/20/1999 .................................................................... 1,450,000 1,450,000
State of Texas, Tax and Revenue Anticipation Note, 4.5%, 8/31/2000 ............... 2,800,000 2,819,467
Texas Municipal Power Agency, Tax Exempt Commercial Paper, 3.45%,
11/10/1999 .................................................................... 2,100,000 2,100,000
Texas Small Business Industrial Development Corp., Industrial Development
Revenue, Weekly Demand Note, 3.85%, 7/1/2026* ................................. 1,400,000 1,400,000
University of Texas, Higher Education Authority, Series A, Tax Exempt
Commercial Paper:
3.4%, 10/19/1999 ........................................................... 2,000,000 2,000,000
3.4%, 10/20/1999 ........................................................... 1,600,000 1,600,000

Vermont

Vermont Educational & Health Buildings Financing Agency Revenue, Capital Asset
Financing, Series 2005-A, Weekly Demand Note, 3.85%, 8/1/2005* ................ 1,886,000 1,886,000

Virginia

Louisa, VA, Electric Power Co., Tax Exempt Commercial Paper, 3.6%,
11/10/1999 .................................................................... 1,600,000 1,600,000

Washington

Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand Note, 3.77%,
11/1/2018* .................................................................... 1,900,000 1,900,000

Wisconsin

Wisconsin State Health Care Facilities Authority, Franciscan Memorial Hospital,
Series-1, Weekly Demand Note, 3.77%, 1/1/2016* ................................ 1,000,000 1,000,000

Wyoming

Converse County, WY, General Obligation, Tax Exempt Commercial Paper:
3.45%, 11/8/1999 .............................................................. 1,400,000 1,400,000
3.5%, 11/8/1999 ............................................................... 1,150,000 1,150,000
----------
- ------------------------------------------------------------------------------------------------------------------------------
Total Municipal Investments (Cost $86,949,606) ................................... 86,949,606
----------
- ------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $86,949,606) (a) ........................ 86,949,606
==========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

59
<PAGE>

AARP HIGH QUALITY TAX FREE MONEY FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

* Floating rate and monthly, weekly, or daily demand notes are securities
whose interest rates vary with a designated market index or market rate,
such as the coupon-equivalent of the U.S. Treasury bill rate. Variable rate
demand notes are securities whose interest rates are reset periodically at
levels that are generally comparable to tax exempt commercial paper. These
securities are payable on demand within seven calendar days and normally
incorporate an irrevocable letter of credit or line of credit from a major
bank. These notes are carried, for purposes of calculating average weighted
maturity, at the longer of the period remaining until the next rate change
or to the extent of the demand period. These securities are shown at their
current rate as of September 30, 1999.

(a) At September 30, 1999, the cost for federal income tax purposes was
$86,949,606.

(b) (Unaudited) Bond is insured by one of these companies: AMBAC, FGIC, FSA,
BIG, or MBIA.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $739,600, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
utilized or until September 30, 2000 ($324,000), September 30, 2001 ($400),
September 30, 2003 ($89,000), September 30, 2004 ($5,000), September 30,
2005 ($218,000), September 30, 2006 ($103,000), and September 30, 2007
($200), the respective expiration dates.

The accompanying notes are an integral part of the financial statements

<PAGE>
AARP Premium Money Fund

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------

Repurchase Agreements 4.4%
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $7,234,057 on 10/1/1999, collateralized by a
$7,090,000 U.S. Treasury Note Inflationary Index, 3.625%,
7/15/2002 (Cost $7,233,000) .............................................. 7,233,000 7,233,000
-----------

Commercial Paper 64.7%
- -----------------------------------------------------------------------------------------------------------

Amsterdam Funding Corp., 5.35%, 10/19/1999 .................................. 7,500,000 7,479,938
Baxter International Inc., 5.86%, 2/8/2000 .................................. 6,220,000 6,088,378
Duke Capital Corp., 5.88%, 1/25/2000 ........................................ 7,407,000 7,266,662
Fortis Finance Inc., 5.38%, 11/22/1999 ...................................... 7,500,000 7,441,717
GIRO Funding Corp., 5.37%, 10/13/1999 ....................................... 7,500,000 7,486,575
GMAC Mortgage Corp., 5.43%, 10/1/1999 ....................................... 1,000,000 1,000,000
GMAC Mortgage Corp., 5.45%, 11/1/1999 ....................................... 1,000,000 995,303
Halifax PLC, 4.93%, 10/1/1999 ............................................... 3,700,000 3,700,000
International Securitization Corp., 5.37%, 10/4/1999 ........................ 7,500,000 7,496,644
Intrepid Funding Master Trust, 5.37%, 10/19/1999 ............................ 7,318,000 7,298,351
Moat Funding LLC, 5.25%, 10/4/1999 .......................................... 6,000,000 5,997,375
Monte Rosa Capital Corp., 5.88%, 2/11/2000 .................................. 8,000,000 7,826,213
Old Line Funding Corp., 5.37%, 10/19/1999 ................................... 7,500,000 7,479,863
Omnicom Finance Inc., 5.30%, 10/6/1999 ...................................... 3,000,000 2,997,792
Royal Bank of Canada, 4.92%, 11/17/1999 ..................................... 3,750,000 3,725,913
Sheffield Receivables Co., 5.35%, 10/18/1999 ................................ 7,500,000 7,481,052
Sweetwater Capital Corp., 5.41%, 12/20/1999 ................................. 8,000,000 7,903,822
Windmill Funding Corp., 5.38%, 12/9/1999 .................................... 8,000,000 7,917,507
-----------

Total Commercial Paper (Cost $107,583,105) .................................. 107,583,105
-----------
CERTIFICATES OF DEPOSIT 17.7%
- -----------------------------------------------------------------------------------------------------------

American Express Centurion Bank, 5.48%, 6/19/2000* .......................... 3,500,000 3,495,631
Credit Suisse First Boston Corp., 5.47%, 6/9/2000* .......................... 5,000,000 5,000,000
Deutsche Bank AG, 5.39%, 4/17/2000* ......................................... 2,000,000 1,999,361
Finova Capital Corp., 5.56%, 6/12/2000* ..................................... 5,000,000 5,000,000
First National Bank of Maryland, 5.36%, 8/7/2000* ........................... 5,000,000 4,997,668
First Union National Bank, 5.40%, 7/26/2000* ................................ 5,000,000 5,000,000
Old Kent Bank, 5.44%, 6/16/2000* ............................................ 4,000,000 3,998,884
-----------
Total Certificates Of Deposit (Cost $29,491,544) ............................ 29,491,544
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>
AARP Premium Money Fund
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------

Short-Term and Medium-Term Notes 13.2%
- ---------------------------------------------------------------------------------------

<S> <C> <C>
Beneficial Corp., 5.63%, 9/5/2000* ...................... 1,000,000 1,000,196
CIT Group Inc., 5.44%, 2/24/2000* ....................... 1,000,000 999,754
GTE Corp., 5.55%, 6/12/2000* ............................ 6,000,000 5,996,771
Heller Financial Inc., 5.72%, 6/1/2000* ................. 3,000,000 3,002,592
Heller Financial Inc., 5.85%, 9/25/2000* ................ 1,000,000 1,000,693
MBNA American Bank, 5.56%, 10/18/1999* .................. 4,000,000 3,999,873
Sears Roebuck Acceptance Corp., 6.65%, 1/20/2000* ....... 6,000,000 6,015,201
-----------
Total Short-Term and Medium-Term Notes (Cost $22,015,080) 22,015,080
-----------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $166,322,729) (a) 166,322,729
===========
- ---------------------------------------------------------------------------------------
</TABLE>

* Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of
the U.S. Treasury bill rate. The securities are shown at their rate as of
September 30, 1999.

(a) At September 30, 1999, the cost for federal income tax purposes was
$166,322,729.

The accompanying notes are an integral part of the financial statements

<PAGE>
AARP High Quality Short Term Bond Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------

Repurchase Agreements 0.9%
- ------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $3,879,567 on 10/1/1999, collateralized by a
$3,925,000 U.S. Treasury Note Inflationary Index, 3.875%, 1/15/2009
(Cost $3,879,000) ........................................................... 3,879,000 3,879,000
----------

Short-Term Investment 3.6%
- ------------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Corp., 5.20%, 10/1/1999 (Cost $15,000,000) .......... 15,000,000 15,000,000
----------

U.S. Treasury Obligations 2.2%
- ------------------------------------------------------------------------------------------------------------

U.S. Treasury Note, 5.0%, 2/28/2001 ............................................ 2,000,000 1,984,380
U.S. Treasury Note, 5.5%, 8/31/2001 ............................................ 7,325,000 7,306,688
----------

Total U.S. Treasury Obligations (Cost $9,293,193) .............................. 9,291,068
----------

Government National Mortgage Association* 2.2%
- ------------------------------------------------------------------------------------------------------------

Government National Mortgage Association Remic, 5.68%, 9/20/2024 (b) ........... 5,600,000 5,600,000
Government National Mortgage Association, 8.0%, 8/15/2012 ...................... 3,565,154 3,663,196
----------

Total Government National Mortgage Association (Cost $9,298,847) ............... 9,263,196
----------

U.S. Government Agency Pass-thrus* 4.8%
- ------------------------------------------------------------------------------------------------------------

Federal Home Loan Bank, 5.53%, 2/3/2000 (Cost $20,012,600) ..................... 20,000,000 19,981,200
----------

U.S. Government Backed Mortgages* 12.7%
- ------------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Association, 6.0%, 2/15/2017 ........................ 9,000,000 8,853,750
Federal Home Loan Mortgage Corp., 6.0%, 11/15/2017 ............................. 7,000,000 6,881,840
Federal National Mortgage Association, 8.5%, 2/1/2005 .......................... 9,000,000 9,082,969
Federal National Mortgage Association, 8.0% with various maturities to 12/1/2009 5,685,928 5,824,494
Federal National Mortgage Association, 6.0%, 1/18/2014 ......................... 3,100,000 3,060,258
Federal National Mortgage Association, 6.5%, 3/25/2014 ......................... 5,300,000 5,300,000
Federal National Mortgage Association, 7.5% 10/1/2014 (b) ...................... 7,000,000 7,102,813
Federal National Mortgage Association, 6.0% with various maturities to 10/1/2018 7,700,000 7,620,594
----------
Total U.S. Government Backed Mortgages (Cost $53,809,851) ...................... 53,726,718
----------

Asset Backed* 19.1%
- ------------------------------------------------------------------------------------------------------------

Automobile Receivables 6.6%
BMW Vehicle Owner Trust, Series 1999-A A4, 6.54%, 4/25/2004 .................... 3,500,000 3,506,563
Capital Automobile Receivable Asset Trust, Series 1999-1 A2, 5.58%, 6/15/2002 .. 4,758,000 4,717,108
First Security Auto Owner Trust, Series 1999-2 A3, 6.0%, 10/15/2003 ............ 5,000,000 4,973,438
Ford Credit Auto Owner Trust, Series 1999-D A5, 6.52%, 9/15/2003 ............... 4,500,000 4,502,813

</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP High Quality Short Term Bond Fund
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------

<S> <C> <C>
Honda Auto Lease Trust, Series 1999-A A4, 6.45%, 9/16/2002 ................. 4,500,000 4,497,539
Premier Auto Trust, Series 1999-2 A4, 5.59%, 2/9/2004 ...................... 5,400,000 5,280,188
-----------

27,477,649
-----------
Credit Card Receivables 5.8%

Citibank Credit Card Master Trust I, Series 1999-1 A, 5.5%, 2/15/2006 ...... 5,000,000 4,778,100
Discover Card Master Trust I, Series 1994-2 A, 5.62%, 10/16/2004 ........... 4,500,000 4,509,810
First Chicago Master Trust II, Series 1995-M A, 5.62%, 12/15/2003 .......... 4,500,000 4,507,020
MBNA Master Credit Card Trust, Series 1995-E A, 5.6%, 1/15/2005 ............ 4,500,000 4,502,790
Mellon Bank Credit Card Master Trust, 5.57%, 4/15/2003 ..................... 6,000,000 5,998,080
-----------
24,295,800
-----------
Home Equity Loans 1.2%

Equity Credit Corp. Home Equity Loan Trust, Series 1999-2, Class A2F, 6.22%,
6/25/2011 ............................................................... 5,000,000 4,941,406
-----------
Manufactured Housing Receivables 5.5%

Associated Manufactured Housing Corp., Series 1997-1 B1, 7.6%, 6/15/2028 ... 3,750,000 2,700,000
GE Capital Mortgage Services, Inc., Series 1999-HE3 A2, 7.0%, 8/25/2013 .... 4,500,000 4,500,000
Green Tree Financial Corp., Series 1997-1 B1, 7.23%, 3/15/2028 ............. 4,000,000 3,128,750
Green Tree Financial Corp., Series 1997-1 B2, 7.76%, 3/15/2028 ............. 2,600,000 1,902,063
Green Tree Financial Corp., Series 1997-2 B2, 8.05%, 6/15/2028 ............. 1,500,000 1,117,500
Green Tree Financial Corp., Series 1996, 7.74%, 11/15/2028 ................. 8,000,000 6,075,000
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D, 9.85%, 7/15/2011 3,823,196 3,824,381
-----------
23,247,694
-----------
Total Asset Backed (Cost $85,285,649) ..................................... 79,962,549
-----------

Corporate Bonds 54.5%
- --------------------------------------------------------------------------------------------------------

Consumer Discretionary 1.9%

Wal-Mart Stores Inc., 5.85%, 6/1/2000 ...................................... 8,000,000 7,998,320
-----------
Consumer Staples 9.6%

Bass America Inc., 6.625%, 3/1/2003 ........................................ 10,000,000 9,911,400
Gillette Company, 5.75%, 8/3/2001 .......................................... 7,500,000 7,403,700
Pepsi Bottling Holdings, Inc., 5.375%, 2/17/2004 ........................... 5,000,000 4,743,500
Racers-Kellogg, 5.75%, 2/2/2001 ............................................ 5,000,000 4,968,750
Safeway Inc., 5.875%, 11/15/2001 ........................................... 3,000,000 2,947,380
Sony Corp., 6.125%, 3/4/2003 ............................................... 10,500,000 10,383,765
-----------
40,358,495
-----------
Health 0.9%

Columbia/HCA Healthcare Corp., 6.41%, 6/15/2000 ............................ 4,000,000 3,961,720
-----------
Financial 29.3%

American Express Credit Corp. Senior Note, 6.125%, 11/15/2001 .............. 5,000,000 4,973,950
Associates Corp. of North America, 5.85%, 1/15/2001 ........................ 5,000,000 4,973,400
Associates Corp. of North America, 6.625%, 5/15/2001 ....................... 15,000,000 15,062,550
AT&T Capital Corp., 6.75%, 2/4/2002 (c) .................................... 4,000,000 3,960,000
Bank One Milwaukee N.A., 6.625%, 4/15/2003 ................................. 5,000,000 4,946,250
BankAmerica Corp., 5.75%, 3/1/2004 ......................................... 5,000,000 4,788,650
CIT Group Holdings Inc., 6.375%, 8/1/2002 .................................. 5,940,000 5,880,184
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------

<S> <C> <C>
Capital One Bank, 6.57%, 1/27/2003 ...................... 4,000,000 3,884,000
Citicorp, 8.03%, 2/15/2000 (c) .......................... 10,000,000 10,063,400
Continental Bank N.A., 7.875%, 2/1/2003 ................. 12,000,000 12,367,800
EOP Operating L.P., 6.375%, 2/15/2003 ................... 6,000,000 5,813,280
First USA Bank, 5.85%, 2/22/2001 ........................ 10,000,000 9,909,500
Ford Motor Credit Co., 6.125%, 4/28/2003 ................ 5,000,000 4,887,500
General Electric Capital Corp., 6.02%, 5/4/2001 ......... 6,000,000 5,974,680
Home Savings of America, 6.0%, 11/1/2000 ................ 4,000,000 3,971,080
NBD Bank NA Michigan, 6.25%, 8/15/2003 .................. 3,000,000 2,937,210
Norwest Financial Inc., 6.375%, 9/15/2002 ............... 10,000,000 9,920,900
Pitney Bowes Credit Corp., 5.65%, 1/15/2003 ............. 9,000,000 8,767,530
-----------
123,081,864
-----------
Media 1.2%

Cox Communications, Inc., 6.375%, 6/15/2000 ............. 5,000,000 4,999,900
-----------
Service Industries 1.1%

USA Waste Services, Inc., 6.125%, 7/15/2001 ............. 5,000,000 4,787,500
-----------
Manufacturing 2.1%

Champion International Corp., 9.875%, 6/1/2000 .......... 5,000,000 5,120,450
Xerox Corp., 5.5%, 11/15/2003 ........................... 4,000,000 3,792,400
-----------
8,912,850
-----------
Technology 2.1%

Raytheon Co., 6.45%, 8/15/2002 .......................... 9,000,000 8,914,230
-----------
Energy 5.3%

Amoco Canada Petroleum Co., 7.25%, 12/1/2002 (c) ........ 6,000,000 6,127,560
Anadarko Petroleum Corp., 6.75%, 3/15/2003 .............. 1,500,000 1,478,400
Atlantic Richfield Co., 5.55%, 4/15/2003 ................ 5,000,000 4,825,000
Enron Corp., 6.45%, 11/15/2001 .......................... 10,000,000 9,938,900
-----------
22,369,860
-----------
Utilities 1.0%

Detroit Edison Co., 5.93%, 2/1/2001 ..................... 4,000,000 3,978,240
-----------

Total Corporate Bonds (Cost $234,122,293) ............... 229,362,979
-----------
- ---------------------------------------------------------------------------------------
Total Investment Portfolio --100% (Cost $430,701,433) (a) 420,466,710
===========
- ---------------------------------------------------------------------------------------

* Effective maturities may be shorter due to prepayments.

(a) At September 30, 1999, the net unrealized depreciation on investments based on
cost for federal income tax purposes of $430,701,746 was as follows:

Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ......... $ 528,206

Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ......... (10,763,242)
---------------
Net unrealized depreciation ............................. $ (10,235,036)
===============
(b) When issued or forward delivery pools included.
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP High Quality Short Term Bond Fund

- --------------------------------------------------------------------------------

(c) At September 30, 1999, this security, in part or in whole, has been
segregated to cover when issued or forward delivery securities.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
period ended September 30, 1999 was $92,791,094.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the year
ended September 30, 1999 aggregated $202,220,019 and $189,914,499,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $118,064,932 and 132,793,963, respectively.
- --------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $1,293,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
realized, or until September 30, 2005 ($1,182,000) and September 30, 2007
($111,000), the respective expiration dates. In addition, from November 1,
1998 through September 30, 1999, the Fund incurred approximately $2,650,000
of net realized capital losses. As permitted by tax regulations, the Fund
intends to elect to defer these losses and treat them as arising in the
fiscal year ended September 30, 2000.

The accompanying notes are an integral part of the financial statements

66
<PAGE>

AARP GNMA and U.S. Treasury Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------

Repurchase Agreements 6.6%
- --------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/1999
at 5.3% to be repurchased at $150,022,083 on 10/1/1999, collateralized by a
$47,933,000 U.S. Treasury Bond Inflationary Index, 3.625%, 4/15/2028
and a $102,067,000 U.S. Treasury Note Inflationary Index, 3.625%, 7/15/2002 150,000,000 150,000,000

Repurchase Agreement with State Street Bank and Trust Company dated
9/30/1999 at 5.26% to be repurchased at $143,493,963 on 10/1/1999,
collateralized by a $43,960,000 U.S. Treasury Note Inflationary Index,
3.625%, 1/15/2009 and a $97,960,000 U.S. Treasury Note
Inflationary Index, 3.625%, 7/15/2002 ..................................... 143,473,000 143,473,000
-------------
Total Repurchase Agreements (Cost $293,473,000) .............................. 293,473,000
-------------

U.S. Government & Agencies 6.0%
- --------------------------------------------------------------------------------------------------------------

U.S. Treasury Bond, 9.25%, 2/15/2016 (d) ..................................... 101,900,000 130,304,625
U.S. Treasury Bond, 8.0%, 11/15/2021 ......................................... 34,000,000 40,162,500
U.S. Treasury Bond, 10.375%, 11/15/2012 ...................................... 35,000,000 43,897,700
U.S. Treasury Note, 7%, 7/15/2006 ............................................ 50,000,000 52,515,500
-------------
Total U.S. Government & Agencies (Cost $270,078,272) ......................... 266,880,325
-------------

Government National Mortgage Association* 87.4%
- --------------------------------------------------------------------------------------------------------------

6.0% with various maturities to 3/1/2029 (b) (c) ............................. 91,905,213 85,397,410
6.5% with various maturities to 10/1/2029 (b) (c) ............................ 1,120,123,334 1,077,450,233
7.0% with various maturities to 10/15/2029 (b) (c) ........................... 1,372,369,407 1,351,319,697
7.5% with various maturities to 11/1/2029 (b) (c) ............................ 664,149,856 665,203,020
8.0% with various maturities to 10/1/2029 (b) (c) ............................ 526,342,790 538,326,376
8.5% with various maturities to 10/1/2029 (b) (c) ............................ 142,720,188 148,519,954
9.0%, 4/20/2025 (c) .......................................................... 4,045,373 4,227,375
9.5% with various maturities to 11/15/2021 (c) ............................... 59,922 63,960
10.5% with various maturities to 1/20/2021 (c) ............................... 6,633,322 7,231,243
11.5% with various maturities to 2/15/2016 (c) ............................... 1,599,745 1,793,877
12.0% with various maturities to 7/15/2015 (c) ............................... 3,301,192 3,742,179
12.5% with various maturities to 8/15/2015 (c) ............................... 2,593,697 2,949,038
13.0% with various maturities to 7/15/2015 (c) ............................... 251,031 288,141
13.5% with various maturities to 10/15/2014 (c) .............................. 388,257 451,654
14.0% with various maturities to 12/15/2014 (c) .............................. 217,867 254,441
14.5% with various maturities to 10/15/2014 (c) .............................. 65,412 76,941
15.0% with various maturities to 10/15/2012 (c) .............................. 172,545 203,013
16.0% with various maturities to 2/15/2012 (c) ............................... 52,101 61,194
-------------
Total Government National Mortgage Association (Cost $3,948,852,853) ......... 3,887,559,746
-------------

- --------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,512,404,125) (a) ................. 4,447,913,071
=============
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP GNMA and U.S. Treasury Fund
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------------

<S> <C>
* Effective maturities may be shorter due to prepayments.

(a) At September 30, 1999, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $4,512,408,374 was as
follows:

Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ..................................................... $102,782,804

Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value .................................................... (167,278,107)
--------------

Net unrealized depreciation ....................................................... $(64,495,303)
=============
</TABLE>
(b) When issued or forward delivery pools included.

(c) At September 30, 1999, these securities, in part or in whole, has been
segregated to cover when issued or forward delivery pools.

(d) At September 30, 1999, these securities has been pledged to cover, in
whole or in part, initial margin requirements for open future
contracts.

At September 30, 1999, open futures contracts sold short were as follows:
<TABLE>
<CAPTION>

Unrealized
Number of Aggregate Market Appreciation/
Futures Expiration Date Contracts Face Value ($) Value ($) Depreciation
------- --------------- --------- -------------- --------- ------------

<S> <C> <C> <C> <C>
U.S. Treasury Note December, 1999 231 25,412,223 25,438,875 $ (26,652)
U.S. Treasury Note December, 1999 962 104,052,603 104,346,937 (294,334)
-----------
Total net unrealized depreciation on open futures contracts sold short ............................. $ (320,986)
===========

- -------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and direct obligations of the U.S.
Government) for the year ended September 30, 1999 aggregated $7,132,018,138 and $7,264,950,267, respectively.
Purchases and sales of direct obligations of the U.S. Government aggregated $3,545,764,033 and $3,567,624,002,
respectively. Purchases and sales of mortgage dollar roll transactions aggregated $549,373,691 and $550,862,106,
respectively.
- -------------------------------------------------------------------------------------------------------------------------------
At September 30, 1999, the Fund had a net tax basis capital loss carryforward of approximately $243,324,000 which may
be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until
September 30, 2003, the expiration date. In addition, from November 1, 1998 through September 30, 1999, the Fund
incurred approximately $88,000,000 of net realized capital losses. As permitted by tax regulations, the Fund intends
to elect to defer these losses and treat them as arising in the fiscal year ended September 30, 2000.
- -------------------------------------------------------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the year ended September 30, 1999 was
$6,106,714,930 and $5,977,250,104, respectively.
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP Insured Tax Free General Bond Fund

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------

Short-Term Municipal Investments 0.4%
- --------------------------------------------------------------------------------------------------------------

Arizona

<S> <C> <C>
Maricopa County, AZ, Pollution Control Revenue, Series A, Daily Demand Note,
3.75%, 5/1/2029* ............................................................... 2,000,000 2,000,000

New York

New York City Municipal Water Finance Authority, Daily Demand Note, 4.20%,
6/15/2025* ..................................................................... 1,000,000 1,000,000
New York City, NY, General Obligation, Series B, Daily Demand Note, 3.95%,
10/1/2020 (c)* ................................................................. 1,500,000 1,500,000
New York, NY, General Obligation, Daily Demand Note, 3.95%, 8/1/2016* ............. 1,000,000 1,000,000
---------
Total Short-Term Municipal Investments (Cost $5,500,000) .......................... 5,500,000
---------

Long-Term Municipal Investments 99.6%
- --------------------------------------------------------------------------------------------------------------

Alaska

Anchorage, AK, Electric Utility Revenue, 6.5%, 12/1/2007 (c) ...................... 2,620,000 2,889,925
North Slope Borough, AK, General Obligation:
Series 1997A, Zero Coupon, 6/30/2008 (c) ....................................... 7,000,000 4,467,050
Series B, Zero Coupon, 1/1/2003 (c) ............................................ 11,000,000 9,472,320
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series A, Zero Coupon, 6/30/2006 (c) ........................................... 4,000,000 2,866,080
Series A, Zero Coupon, 6/30/2007 (c) ........................................... 5,000,000 3,384,300
Series B, Zero Coupon, 6/30/2004 (c) ........................................... 15,500,000 12,401,860
Series B, Zero Coupon, 6/30/2005 (c) ........................................... 25,600,000 19,390,720

Arizona

Arizona Municipal Finance Program, Certificate of Participation, Series 25, 7.875%,
8/1/2014 (c) ................................................................... 3,500,000 4,280,815
Maricopa County, AZ:
School District #6, Washington Elementary, Series B, 4.1%, 7/1/2013 (c) ........ 2,950,000 2,507,530
School District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/2004 (c) .... 4,000,000 3,285,640
Unified School District #41, Gilbert School, Zero Coupon, 1/1/2005 (c) ......... 5,280,000 4,111,325

California

Alameda County, CA, Certificate of Participation, Santa Rita Jail Project, 5.375%,
6/1/2009 (c) ................................................................... 8,995,000 9,369,552
Banning, CA, Wastewater, Certificate of Participation:
8%, 1/1/2019 (c) ............................................................... 960,000 1,199,885
8%, 1/1/2019 (c) ............................................................... 1,080,000 1,328,886
Big Bear Lake, CA, Series 1996, 6.0%, 4/1/2011 (c) ................................ 3,800,000 4,132,842
California Housing Finance Agency, 5.3%, 8/1/2014 (c) ............................. 2,015,000 2,042,525
California State Public Works Board, Lease Revenue, Series A, 6.3%, 12/1/2006 (c) . 8,095,000 8,963,189
Los Angeles County, CA, Capital Asset Leasing, 6.0%, 12/1/2006 (c) ................ 9,000,000 9,755,730
Los Angeles County, CA, Public Works Authority, Series 1996B, 5.25%,
9/1/2011 (c) ................................................................... 3,000,000 3,040,380
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue, Multiple
Projects IV, 4.75%, 12/1/2010 (c) .............................................. 11,140,000 10,921,767

</TABLE>

The accompanying notes are an integral part of the financial statements

69
<PAGE>

AARP Insured Tax Free General Bond Fund

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C>
Madera County, CA, Certificate of Participation, Valley Childrens Hospital, 6.5%,
3/15/2010 (c) ................................................................ 2,840,000 3,205,849
Oakland, CA, Redevelopment Agency, Tax Allocation, 6.0%, 2/1/2007 (c) ........... 2,000,000 2,171,240
San Diego County, CA, Water Authority Revenue, Certificate of Participation:
5.63%, 4/25/2007 (c) ......................................................... 6,300,000 6,644,232
5.68%, 4/22/2009 (c) ......................................................... 4,500,000 4,744,260
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue Refunding,
6.75%, 7/1/2010 (c) .......................................................... 2,000,000 2,302,600
San Joaquin County, CA, Certificate of Participation, County Public Facilities
Project, 5.5%, 11/15/2013 (c) ................................................ 2,000,000 2,055,340
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road Revenue, Capital
Appreciation, Refunding Revenue, Series 1997A, Zero Coupon, 1/15/2012 (c) .... 3,000,000 1,560,270
Sweetwater Authority, CA, Water Revenue, 5.25%, 4/1/2010 (c) .................... 10,000,000 10,276,400

Colorado

Mesa County, CO, Residual Revenue, Single Family Housing, Series 1992, Zero
Coupon, ETM, 12/1/2011 (c)** ................................................. 6,435,000 3,348,710

Connecticut

Connecticut Resource Recovery Authority:
Series 1996, 6.25%, 11/15/2005 (c) ........................................... 2,000,000 2,168,740
Series 1996A, 6.25%, 11/15/2006 (c) .......................................... 4,525,000 4,930,938
Connecticut State Health Facility Authority, Series 1992B, 6.15%, 11/15/2004 .... 5,000,000 5,162,650

District of Columbia

District of Columbia, General Obligation:
Prerefunded 8/1/1999 at 100, 6.5%, 6/1/2010 (c)*** ........................... 110,000 122,734
Prerefunded 6/1/2002 at 102, Series B, 6.125%, 6/1/2003 (c)*** ............... 95,000 100,919
Series A, 5.875%, ETM, 6/1/2005 (c)** ........................................ 350,000 370,591
Series B, 5.4%, 6/1/2006 (c) ................................................. 18,905,000 19,414,301
Series B, 5.5%, 6/1/2007 (c) ................................................. 25,000,000 25,754,250
Series B, 5.5%, 6/1/2008 (c) ................................................. 21,300,000 21,859,338
Series B, 5.5%, 6/1/2009 (c) ................................................. 16,150,000 16,488,666
Series B, 5.5%, 6/1/2009 (c) ................................................. 2,840,000 2,899,555
Series B, 5.5%, 6/1/2010 (c) ................................................. 9,000,000 9,173,970
Series B, 5.5%, 6/1/2012 (c) ................................................. 1,050,000 1,055,628
Series B, Zero Coupon, 6/1/2000 (c) .......................................... 3,500,000 3,410,225
Series B3, 5.4%, 6/1/2006 (c) ................................................ 10,000,000 10,269,400
District of Columbia, General Obligation, Unrefunded Balance:
Series A, 5.875%, 6/1/2005 (c) ............................................... 4,400,000 4,627,568
Series B, 6.125%, 6/1/2003 (c) ............................................... 3,905,000 4,105,014
District of Columbia, Unrefunded Balance, 6.25%, 6/1/2010 (c) ................... 2,160,000 2,374,531
Washington D.C. Convention Center Authority, Dedicated Tax Revenue, 5.25%,
10/1/2012 (c) ................................................................ 4,000,000 3,918,880

Georgia

Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%, 4/1/2011 (c) .. 2,305,000 2,384,960
Georgia, General Obligation, Series B, 5.75%, 8/1/2012 .......................... 4,000,000 4,188,560
Georgia Municipal Electric Authority, Power Revenue, Series Y, 6.4%,
1/1/2013 (c) ................................................................. 3,500,000 3,824,415
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central Georgia,
Series C, 5.25%, 8/1/2011 (c) ................................................ 3,000,000 3,012,900

</TABLE>

The accompanying notes are an integral part of the financial statements

70
<PAGE>

- -----------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C>
Hawaii

State of Hawaii, General Obligation:
Series BZ, 6.0%, 10/1/2009 (c) ............................................ 2,000,000 2,138,060
Series CT, 5.7%, 9/1/2013 (c) ............................................. 18,095,000 18,455,091

Illinois

Central Lake County, IL, Joint Action Water Agency, Refunding Revenue, Zero
Coupon, 5/1/2002 (c) ...................................................... 2,245,000 1,998,409
Chicago, IL, General Obligation:
6.25%, 1/1/2011 (c) ....................................................... 3,000,000 3,246,870
Series A, 5.375%, 1/1/2013 (c) ............................................ 15,410,000 15,314,920
Series B, 5.0%, 1/1/2010 (c) .............................................. 5,200,000 5,121,792
Series B, 5.0%, 1/1/2011 (c) .............................................. 1,620,000 1,583,096
Series B, 5.125%, 1/1/2015 (c) ............................................ 9,550,000 9,098,285
Chicago, IL, General Obligation Lease, Board of Education:
Certificate of Participation, Series A, 6.0%, 1/1/2020 (b)(c) ............. 36,625,000 37,931,048
Series 1996, 6.25%, 12/1/2011 (c) ......................................... 1,600,000 1,739,408
Series A, 6.25%, 1/1/2010 (c) ............................................. 11,550,000 12,512,808
Series A, 6.25%, 1/1/2015 (c) ............................................. 26,000,000 27,937,260
Series A, 6.0%, 1/1/2016 (c) .............................................. 11,025,000 11,526,527
Chicago, IL, O'Hare International Airport, Refunding Revenue:
Series 1996A, 6.0%, 1/1/2006 .............................................. 2,255,000 2,390,751
Series C, 5.0%, 1/1/2011 (c) .............................................. 6,500,000 6,351,930
Chicago, IL, Public Building Commission, Building Revenue:
Board of Education, Series A, Zero Coupon, ETM, 1/1/2006 (c)** ............ 2,430,000 1,788,796
Series A, 5.25%, 12/1/2007 (c) ............................................ 3,500,000 3,579,030
Series A, 5.25%, 12/1/2009 (c) ............................................ 10,420,000 10,533,786
Series A, 5.25%, 12/1/2011 (c) ............................................ 9,705,000 9,721,596
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/2009 (c) ........................................................ 11,990,000 12,374,999
5.5%, 1/1/2010 (c) ........................................................ 7,220,000 7,395,590
Cook & Dupage Counties, IL, Housing Development Authority:
Zero Coupon, 12/1/2007 (c) ................................................ 2,550,000 1,685,882
Zero Coupon, 12/1/2008 (c) ................................................ 2,625,000 1,635,060
Zero Coupon, 12/1/2009 (c) ................................................ 2,860,000 1,680,107
Cook County, IL, Community High School District #233, Capital Appreciation
Series 1993B, Zero Coupon, 12/1/2008 (c) .................................. 1,700,000 1,057,009
Cook County, IL, General Obligation:
Series C, 6.0%, 11/15/2007 (c) ............................................ 5,000,000 5,361,200
Zero Coupon, ETM, 11/1/2004 (c)** ......................................... 3,205,000 2,526,758
Decatur, IL, General Obligation:
Series 1991, Zero Coupon, 10/1/2003 (c) ................................... 1,455,000 1,209,047
Series 1991, Zero Coupon, 10/1/2004 (c) ................................... 1,415,000 1,117,185
Decatur, IL, Public Building Commission, General Obligation, Certificate
of Participation:
6.5%, 1/1/2003 (c) ..................................................... 1,725,000 1,827,620
6.5%, 1/1/2006 (c) ..................................................... 1,500,000 1,631,985
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation, Junior Lien,
Series 1991, Zero Coupon, 5/15/2007 ....................................... 17,460,000 11,725,787

</TABLE>

The accompanying notes are an integral part of the financial statements

71
<PAGE>

AARP Insured Tax Free General Bond Fund

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Illinois Dedicated Tax Revenue, Civic Center Project:
6.25%, 12/15/2011 (c) ........................................................... 3,000,000 3,261,960
6.25%, 12/15/2020 (c) ........................................................... 6,975,000 7,416,239
Series A, 6.5%, 12/15/2007 (c) .................................................. 4,765,000 5,278,143
Series A, 6.5%, 12/15/2008 (c) .................................................. 5,255,000 5,838,725
Illinois Educational Facilities Authority, Loyola University:
Series A, Zero Coupon, ETM, 7/1/2004 (c)** ...................................... 2,860,000 2,290,174
Zero Coupon, ETM, 7/1/2005** .................................................... 4,000,000 3,034,520
Illinois Health Facilities Authority:
Brokaw-Mennonite Healthcare:
6.0%, 8/15/2006 (c) .......................................................... 1,380,000 1,467,602
6.0%, 8/15/2007 (c) .......................................................... 1,460,000 1,554,958
6.0%, 8/15/2008 (c) .......................................................... 1,550,000 1,649,619
6.0%, 8/15/2009 (c) .......................................................... 1,640,000 1,741,516
Children's Memorial Hospital, 6.25%, 8/15/2013 (c) .............................. 3,400,000 3,648,404
Felician Healthcare Inc., Series A, 6.25%, 12/1/2015 (c) ........................ 17,000,000 18,362,550
Memorial Medical Center, Prerefunded 10/1/2000 at 102, 6.75%, 10/1/2011*** ...... 2,135,000 2,237,074
Sherman Hospital, Prerefunded 8/1/2001 at 102, 6.75%, 8/1/2011 (c)*** ........... 2,700,000 2,871,504
SSM Healthcare System, 6.4%, 6/1/2008 (c) ....................................... 1,350,000 1,472,013
Illinois State Toll Highway Authority, Toll Highway Priority Revenue Bond, Series A,
5.5%, 1/1/2013 (c) .............................................................. 3,665,000 3,685,231
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus Extension
Center, 6.7%, 9/1/2012 (c) ...................................................... 2,500,000 2,797,550
Kane County, IL, Series 1996A, 6.5%, 2/1/2010 (c) .................................. 1,775,000 1,959,050
Kane, Cook and Dupage Counties, IL, School District #46 Elgin:
Series 1996B, Zero Coupon, 1/1/2011 (c) ......................................... 1,040,000 564,772
Series 1996B, Zero Coupon, 1/1/2012 (c) ......................................... 1,300,000 659,971
Series 1996B, Zero Coupon, 1/1/2013 (c) ......................................... 2,095,000 993,449
Kendall, Kane and Will Counties, IL, Community Unit School District #308, Oswego:
Zero Coupon, 3/1/2002 (c) ....................................................... 1,055,000 946,187
Zero Coupon, 3/1/2005 (c) ....................................................... 1,540,000 1,183,382
Zero Coupon, 3/1/2006 (c) ....................................................... 1,595,000 1,159,485
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project:
Series 1994, Zero Coupon, 6/15/2013 (c) ......................................... 5,625,000 2,599,819
Zero Coupon, 12/15/2003 (c) ..................................................... 3,200,000 2,633,920
Zero Coupon, 6/15/2004 (c) ...................................................... 10,300,000 8,246,077
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply System
Revenue, 6.45%, 5/1/2007 (c) .................................................... 2,575,000 2,817,024
Rosemont, IL, Tax Increment:
Series C, Zero Coupon, 12/1/2005 (c) ............................................ 4,455,000 3,300,799
Series C, Zero Coupon, 12/1/2007 (c) ............................................ 2,655,000 1,755,300
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/2011 (c) ................ 3,000,000 1,550,130
State University Retirement System, IL, Special Revenue, Zero Coupon,
10/1/2003 (c) ................................................................... 2,750,000 2,285,140
University of Illinois, Board of Trustees:
Series 1991, Zero Coupon, 4/1/2003 (c) .......................................... 3,890,000 3,311,479
Series 1991, Zero Coupon, 4/1/2005 (c) .......................................... 3,830,000 2,935,887

</TABLE>

The accompanying notes are an integral part of the financial statements

72
<PAGE>

- --------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>

Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation:
Zero Coupon, 12/15/2000 (c) ............................................ 1,325,000 1,262,129
Zero Coupon, 12/15/2001 (c) ............................................ 1,730,000 1,570,823

Indiana

Fort Wayne, IN, Parkview Memorial Hospital, Series A, Prerefunded 11/15/1999
at 102, 6.5%, 11/15/2012 (c)*** ........................................... 1,400,000 1,432,676
Indiana Health Facilities Financing Authority:
Series 1990A, 6.0%, 7/1/2003 (c) .......................................... 1,570,000 1,647,589
Series 1990A, 6.0%, 7/1/2004 (c) .......................................... 1,665,000 1,759,722
Series 1990A, 6.0%, 7/1/2005 (c) .......................................... 1,765,000 1,870,212
Series 1990A, 6.0%, 7/1/2006 (c) .......................................... 1,875,000 1,992,206
Series 1990A, 6.0%, 7/1/2007 (c) .......................................... 1,985,000 2,111,107
Series 1990A, 6.0%, 7/1/2008 (c) .......................................... 1,085,000 1,153,149
Series 1990A, 6.0%, 7/1/2009 (c) .......................................... 1,125,000 1,193,063
Series 1990A, 6.0%, 7/1/2010 (c) .......................................... 1,185,000 1,257,202
Series 1990A, 6.0%, 7/1/2011 (c) .......................................... 1,260,000 1,332,904
Series 1990A, 6.0%, 7/1/2012 (c) .......................................... 1,345,000 1,416,029
Series 1990A, 6.0%, 7/1/2013 (c) .......................................... 1,420,000 1,487,734
Series 1990A, 6.0%, 7/1/2014 (c) .......................................... 1,505,000 1,570,919
Series 1990A, 6.0%, 7/1/2015 (c) .......................................... 1,600,000 1,664,544
Series 1990A, 6.0%, 7/1/2016 (c) .......................................... 1,700,000 1,761,846
Series 1990A, 6.0%, 7/1/2017 (c) .......................................... 1,800,000 1,859,616
Series 1990A, 6.0%, 7/1/2018 (c) .......................................... 1,910,000 1,970,834
Tax Exempt Custodian Receipts Refund:
Series 1997A, 6.0%, 7/1/2001 (c) ....................................... 1,395,000 1,435,232
Series 1997A, 6.0%, 7/1/2002 (c) ....................................... 1,480,000 1,539,481
Indiana Health Facilities Financing Authority, Hospital Revenue:
Charity Obligation Group, Series D, 5.75%, 11/15/2012 ..................... 4,660,000 4,732,882
Community Hospitals Project, 6.4%, 5/1/2012 (c) ........................... 5,000,000 5,270,950
Indiana University, Revenue Refunding:
Series H, Zero Coupon, 8/1/2006 (c) ....................................... 8,500,000 6,052,425
Student Fee Revenue, Series H, Zero Coupon, 8/1/2008 (c) .................. 10,000,000 6,336,900
Merrillville, IN, Multiple School Building Corp., First Mortgage, Zero Coupon,
1/15/2011 (c) ............................................................. 4,000,000 2,167,640

Iowa

Polk County, IA, Mercy Hospital, Prerefunded 11/1/2001 at 101, 6.75%,
11/1/2005 (c)*** .......................................................... 5,000,000 5,302,900

Kansas

Kansas City, KS, Utility System Revenue:
Capital Appreciation, Zero Coupon, ETM, 3/1/2001 (c)** .................... 4,095,000 3,853,436
Zero Coupon, 9/1/2004 (c) ................................................. 2,640,000 2,100,648
Zero Coupon, 9/1/2005 (c) ................................................. 3,950,000 2,976,128
Zero Coupon, 9/1/2006 (c) ................................................. 1,375,000 980,306
Zero Coupon, ETM, 9/1/2004 (c)** .......................................... 3,575,000 2,843,233
Zero Coupon, ETM, 9/1/2005 (c)** .......................................... 5,300,000 3,993,285
Zero Coupon, ETM, 9/1/2006 (c)** .......................................... 1,875,000 1,337,681

</TABLE>

The accompanying notes are an integral part of the financial statements

73
<PAGE>

AARP Insured Tax Free General Bond Fund

- ----------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------

<S> <C> <C>
Louisiana

Louisiana Public Facilities Authority, Prerefunded 2/15/2008 at 100, 4.75%,
5/1/2016*** ................................................................ 5,765,000 5,721,474
New Orleans, LA, General Obligation:
Zero Coupon, ETM, 7/15/2006** .............................................. 4,850,000 3,261,237
Zero Coupon, 9/1/2007 (c) .................................................. 10,000,000 6,731,800
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986, 5.95%,
11/1/2014 (c) .............................................................. 1,830,000 1,883,473

Maryland

Baltimore, MD, Revenue Exchanged, Auto Parking Revenue, Series 1996A, 5.9%,
7/1/2012 (c) ............................................................... 3,100,000 3,288,294

Massachusetts

Commonwealth of Massachusetts, General Obligation, Series D, Prerefunded
10/1/1999 at 102, 7%, 10/1/2003 (c)*** ..................................... 7,000,000 7,140,630
Massachusetts General Obligation, Series C, 5.25%, 8/1/2012 ................... 5,750,000 5,717,743
Massachusetts Health & Educational Facilities Authority, Boston Medical Center,
Series A, 5.25%, 7/1/2012 (c) .............................................. 2,920,000 2,882,390

Michigan

Detroit, MI, General Obligation, City School District, Series 1998C, 5.25%,
5/1/2014 ................................................................... 1,000,000 979,020
Michigan Municipal Bond Authority Revenue, Clean Water Revolving Funding:
5.625%, 10/1/2011 .......................................................... 4,000,000 4,120,800
5.625%, 10/1/2012 .......................................................... 5,000,000 5,109,050
Wayne Charter County, MI, Airport Revenue:
Detroit Metro Wayne County Airport, Series 1998B, 5.25%, 12/1/2011 (c) ..... 4,340,000 4,335,790
Series 1998B, 5.25%, 12/1/2012 (c) ......................................... 3,165,000 3,135,122

Missouri

Missouri Health & Educational Facilities Authority, SSM Healthcare:
1992 Series AA, 6.35%, 6/1/2008 (c) ........................................ 8,125,000 8,879,975
1992 Series AA, 6.4%, 6/1/2009 (c) ......................................... 8,640,000 9,481,363

Nevada

Clark County, NV, School District:
General Obligation, Series B, Zero Coupon, 3/1/2005 (c) .................... 8,070,000 6,211,076
Series 1991B, Zero Coupon, 3/1/2009 (c) .................................... 4,350,000 2,664,984

New Jersey

New Jersey Highway Authority, 6.5%, ETM, 1/1/2011** ........................... 4,371,000 4,707,042
New Jersey Turnpike Authority, Series 1991A, 6.3%, 1/1/2001 (c) ............... 1,250,000 1,282,475

New York

Long Island, NY, Power Authority Revenue, New York Electricity, Series A, 5.5%,
12/1/2013 (c) .............................................................. 4,000,000 4,054,760
New York City, NY, General Obligation:
5.9%, 2/1/2005 (c) ......................................................... 5,500,000 5,810,035
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2004 (c)*** ............ 275,000 294,344
Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2005 (c)*** ............ 10,235,000 10,954,930
Series A, 3%, 8/15/2002 (c) ................................................ 9,000,000 8,672,310
Series A, 5.2%, 8/1/2010 (c) ............................................... 10,000,000 9,996,000
Series A, 5.25%, 8/1/2011 (c) .............................................. 14,460,000 14,395,942
Series A, 8.0%, ETM, 11/1/2001 (c)** ....................................... 740,000 742,457

</TABLE>

The accompanying notes are an integral part of the financial statements

74
<PAGE>

<S> <C> <C>
Series C, 6.4%, 8/1/2004 (c) ............................................. 225,000 238,714
Series C, 6.4%, 8/1/2005 (c) ............................................. 195,000 206,170
Series D, 8.0%, 8/1/2005 (c) ............................................. 5,000 5,117
Series E, 7.0%, ETM, 12/1/2007 (c)** ..................................... 1,385,000 1,392,451
Unrefunded Balance, Series D, 1997, 6.0%, 8/1/2006 (c) ................... 20,000 20,134
Unrefunded Balance, Series D, 1998, 6.0%, 8/1/2008 (c) ................... 55,000 55,384
New York State Dormitory Authority:
State University of New York, 6%, 7/1/2009 (c) ........................... 2,000,000 2,149,520
College and University Pooled Capital Program, 7.8%, 12/1/2005 (c) ....... 1,845,000 1,883,524
New York State Dormitory Authority Revenue, City University:
Series C, 7.5%, 7/1/2010 (c) ............................................. 5,750,000 6,706,110
Series D, 7.0%, 7/1/2009 (c) ............................................. 4,000,000 4,480,080
New York State Energy Research and Development Authority, Pollution Control
Revenue, Electric and Gas, 5.9%, 12/1/2006 (c) ........................... 5,300,000 5,672,961
New York State Urban Development Authority, Correctional Facilities, 6.5%,
1/1/2011 (c) ............................................................. 4,500,000 4,989,105
Suffolk County, NY, Industrial Development Agency, Southwest Sewer System,
6.0%, 2/1/2007 (c) ....................................................... 8,000,000 8,541,280

North Carolina

North Carolina Eastern Municipal Power Agency:
5.5%, 1/1/2007 (c) ....................................................... 2,000,000 2,063,720
Power System Revenue, Series B, 6.0%, 1/1/2018 (c) ....................... 8,775,000 9,121,086
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue:
5.25%, 1/1/2008 (c) ...................................................... 2,500,000 2,529,825
6.0%, 1/1/2011 (c) ....................................................... 8,235,000 8,710,901
Series 1992, 7.25%, 1/1/2007 (c) ......................................... 5,000,000 5,667,700
Series 1997, 6.0%, 1/1/2008 (c) .......................................... 2,585,000 2,743,461

North Dakota

Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991, Zero
Coupon, ETM, 5/1/2002 (c)** .............................................. 2,850,000 2,538,239

Ohio

Cleveland, OH, Water Works Revenue, Series 1993G, 5.5%, 1/1/2013 (c) ........ 10,000,000 10,168,700

Oklahoma

Tulsa, OK, Industrial Development Authority, Hospital Revenue, St. John's
Medical Center:
Zero Coupon, 12/1/2002 (c) ............................................ 3,930,000 3,413,009
Zero Coupon, 12/1/2004 (c) ............................................ 5,430,000 4,266,405
Zero Coupon, 12/1/2006 (c) ............................................ 6,430,000 4,522,219

Pennsylvania

Blair County, PA, Hospital Authority, Altoona Hospital, Project A, 5.5%,
7/1/2010 (c) ............................................................. 3,590,000 3,650,886
Commonwealth of Pennsylvania, Industrial Development Authority, Economic
Development Revenue:
5.8%, 1/1/2008 (c) .................................................... 4,250,000 4,471,383
5.8%, 7/1/2008 (c) .................................................... 4,875,000 5,141,224
Commonwealth of Philadelphia, PA, Water & Wastewater Refunding Revenue:
5.625%, 6/15/2009 (c) .................................................... 20,000,000 20,763,400
5.5%, 6/15/2007 (c) ...................................................... 5,000,000 5,183,800
Philadelphia, PA, Water and Wastewater Revenue, 5.25%, 12/15/2012 (c) ....... 5,500,000 5,483,995

</TABLE>

The accompanying notes are an integral part of the financial statements

75
<PAGE>

AARP Insured Tax Free General Bond Fund

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Westmoreland County, PA, Industrial Development Revenue, Westmoreland Health
System, 5.375%, 7/1/2011 (c) .................................................. 7,300,000 7,417,092

Rhode Island

Rhode Island Clean Water Protection Agency, Pollution Control Revenue, Revolving
Fund, Series A, 5.4%, 10/1/2015 (c) ........................................... 2,000,000 1,967,620
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993B, 5.0%, 5/15/2010 (c) ............................................. 5,000,000 4,942,950
Series 1993B, 5.25%, 5/15/2015 (c) ............................................ 22,000,000 21,359,580
Rhode Island Depositors Economic Protection Corp., Special Obligation:
Series B, 5.8%, ETM, 8/1/2010 (c)** ........................................... 6,200,000 6,594,568
Series B, 5.8%, ETM, 8/1/2011 (c)** ........................................... 4,525,000 4,791,115
Series B, 5.8%, ETM, 8/1/2012 (c)** ........................................... 2,500,000 2,631,825
Series B, 5.8%, ETM, 8/1/2013 (c)** ........................................... 7,340,000 7,681,383

South Carolina

Piedmont, SC, Municipal Power Agency, Electric Revenue:
Series 1991A, 6.5%, ETM, 1/1/2016 (c)** ....................................... 430,000 476,255
Series 1993, 5.5%, 1/1/2012 (c) ............................................... 2,810,000 2,839,730
Series 1993, 5.5%, ETM, 1/1/2008 (c)** ........................................ 840,000 877,867
Series 1993, 5.5%, ETM, 1/1/2012 (c)** ........................................ 2,190,000 2,246,787

Tennessee

Knox County, TN, Health, Education & Housing Facilities Board, Hospital Facilities
Revenue, Fort Sanders Alliance:
7.25%, 1/1/2009 (c) ........................................................ 3,750,000 4,339,913
5.75%, 1/1/2011 (c) ........................................................ 15,405,000 15,959,118
5.75%, 1/1/2012 (c) ........................................................ 17,880,000 18,417,830
6.25%, 1/1/2013 (c) ........................................................ 4,000,000 4,287,080
5.75%, 1/1/2014 (c) ........................................................ 2,000,000 2,040,820

Texas

Austin, TX, Utility Systems Revenue Refunding, Series A, Zero Coupon,
11/15/2008 (c) ................................................................ 3,460,000 2,165,891
Austin, TX, Combined Utility System Revenue, Zero Coupon, 11/15/2009 (c) ......... 5,020,000 2,964,611
Bexar County, TX, Health Facilities Development Corp., Baptist Health System:
Series 1997, 6.0%, 11/15/2012 (c) ............................................. 3,000,000 3,161,700
Series 1997A, 6.0%, 11/15/2011 (c) ............................................ 2,000,000 2,118,400
Brownsville, TX, Utility System Revenue, 6.25%, 9/1/2010 (c) ..................... 4,085,000 4,452,977
Cedar Hill, TX, Zero Coupon:
Series 1996, 8/15/2009 ........................................................ 1,500,000 897,435
Series 1996, 8/15/2010 ........................................................ 3,130,000 1,758,997
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue, Zero
Coupon, 10/1/2016 (c) ......................................................... 6,535,000 1,149,964
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/2003 (c) .......................................................... 1,000,000 1,118,320
7.8%, 11/1/2005 (c) ........................................................... 2,000,000 2,283,180
7.8%, 11/1/2006 (c) ........................................................... 2,025,000 2,319,314
7.375%, 11/1/2008 (c) ......................................................... 4,500,000 5,065,920
7.375%, 11/1/2010 (c) ......................................................... 3,500,000 3,924,690
Harris County, TX, General Obligation:
Capital Appreciation Bond, Zero Coupon, 10/1/2006 (c) ......................... 9,035,000 6,393,437
Flood Control District, Zero Coupon, 10/1/2000 (c) ............................ 1,000,000 960,990

</TABLE>

The accompanying notes are an integral part of the financial statements

76
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------

<S> <C> <C>
Toll Road Authority, Subordinate Lien:
Series A, Zero Coupon, 8/15/2005 (c) .................................... 4,025,000 3,030,382
Toll Road Revenue, Series A, Zero Coupon, 8/15/2006 (c) ................. 4,010,000 2,855,561
Unlimited Tax, Series A, Zero Coupon, 8/15/2004 (c) ..................... 2,050,000 1,630,652
Harris County, TX, Health Facilities, Texas Medical Center Project:
6.25%, 5/15/2008 (c) ....................................................... 2,785,000 3,018,188
6.25%, 5/15/2009 (c) ....................................................... 2,965,000 3,193,542
Houston, TX, Water & Sewer System Authority:
Series C, Zero Coupon, 12/1/2006 (c) ....................................... 14,575,000 10,229,172
Series C, Zero Coupon, 12/1/2008 (c) ....................................... 19,000,000 11,866,450
Series C, Zero Coupon, 12/1/2009 (c) ....................................... 14,750,000 8,690,700
Zero Coupon, 12/1/2010 (c) ................................................. 5,000,000 2,766,400
Zero Coupon, Series 1991C, 12/1/2012 (c) ................................... 3,350,000 1,624,918
Hurst Euless Bedford, TX, Independent School District, Capital Appreciation
Refunding, Series 1994, Zero Coupon, 8/15/2009 ............................. 4,925,000 2,946,578
Laredo TX, Independent School District, 6.0%, 8/1/2011 ........................ 2,465,000 2,605,406
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital:
Series B, 5.5%, ETM, 12/1/2006 (c)** ....................................... 3,945,000 4,115,424
Series B, 5.6%, ETM, 12/1/2007 (c)** ....................................... 2,415,000 2,539,131
Series B, 5.625%, ETM, 12/1/2008 (c)** ..................................... 4,400,000 4,633,024
Series B, 5.625%, ETM, 12/1/2009 (c)** ..................................... 4,640,000 4,876,176
Montgomery County, TX, Capital Appreciation:
Zero Coupon, ETM, 9/1/2003 (c)** ........................................ 800,000 669,128
Zero Coupon, ETM, 9/1/2004** ............................................ 795,000 631,969
Zero Coupon, ETM, 9/1/2005** ............................................ 685,000 515,819
Unrefunded Balance:
Zero Coupon, 9/1/2003 (c) ............................................... 2,675,000 2,233,973
Zero Coupon, 9/1/2004 (c) ............................................... 2,680,000 2,127,357
Zero Coupon, 9/1/2005 (c) ............................................... 2,790,000 2,096,071
Northeast, TX, Hospital Authority, Revenue Refunding, Northeast Medical Center,
Series 1997, 6.0%, 5/15/2010 (c) ........................................... 2,180,000 2,311,694
Northwest Texas Independent School District, Capital Appreciation Bonds,
Series 1991, Zero Coupon, 8/15/2010 (c) .................................... 3,690,000 2,073,706
San Antonio, TX, Electric and Gas, Revenue Refunding:
Series A, 5.25%, 2/1/2012 .................................................. 3,000,000 2,972,940
Series A, Zero Coupon, 2/1/2005 (c) ........................................ 2,500,000 1,931,875
Series A, Zero Coupon, 2/1/2006 (c) ........................................ 17,900,000 13,131,082
Series B, Zero Coupon, ETM, 2/1/2005 (c)** ................................. 8,000,000 6,182,000
Series B, Zero Coupon, ETM, 2/1/2009 (c)** ................................. 4,400,000 2,714,712
San Antonio, TX, Hotel Revenue, Series 1996, 6.0%, 8/15/2006 (c) .............. 2,000,000 2,137,800
State of Texas, General Obligation, Capital Appreciation Bond, Super Collider,
Series C, Zero Coupon, 4/1/2006 (c) ........................................ 7,385,000 5,373,548
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding
Revenue, Fort Worth Osteopathic Hospital:
6.0%, 5/15/2011 (c) ..................................................... 4,615,000 4,887,516
6.0%, 5/15/2021 (c) ..................................................... 6,235,000 6,387,072
Texas General Obligation, Superconductor Revenue, Series C, Zero Coupon,
4/1/2005 (c) ............................................................... 8,390,000 6,443,796
</TABLE>

The accompanying notes are an integral part of the financial statements

77
<PAGE>

AARP Insured Tax Free General Bond Fund

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Texas Municipal Power Agency:
6.1%, 9/1/2007 (c) ........................................................... 9,250,000 9,975,940
6.1%, ETM, 9/1/2009 (c)** .................................................... 4,435,000 4,838,053
Texas Public Finance Authority, Building Authority:
Zero Coupon, 2/1/2006 (c) .................................................... 13,915,000 10,176,318
Series B, 6.25%, 2/1/2008 (c) ................................................ 5,190,000 5,627,413
Trinity River, Texas, Wastewater Systems Revenue, Series B, 5.25%, 8/1/2012 ..... 6,040,000 5,989,506

Utah

Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:
Zero Coupon, 7/1/2000 (c) .................................................... 2,755,000 2,674,582
Zero Coupon, 7/1/2002 (c) .................................................... 5,200,000 4,597,996
Zero Coupon, 7/1/2004 (c) .................................................... 5,895,000 4,716,118
Zero Coupon, 7/1/2005 (c) .................................................... 5,900,000 4,468,365
Zero Coupon, 7/1/2006 (c) .................................................... 5,895,000 4,223,296
Zero Coupon, 7/1/2007 (c) .................................................... 3,750,000 2,537,850
Intermountain Power Agency, UT, Power Supply Revenue:
5%, 7/1/2012 (c) ............................................................. 1,000,000 964,280
Series 1993, 5.55%, 7/1/2011 ................................................. 7,000,000 7,067,760
Series A, Zero Coupon, 7/1/2002 (c) .......................................... 1,655,000 1,463,401
Series A, Zero Coupon, 7/1/2003 (c) .......................................... 1,000,000 841,550
Series A, Zero Coupon, 7/1/2004 (c) .......................................... 1,730,000 1,384,035
Series A, 6.5%, 7/1/2008 (c) ................................................. 4,000,000 4,411,800
Series B, Zero Coupon, 7/1/2002 (c) .......................................... 8,230,000 7,277,213
Provo, UT, Electric System Revenue, 10.375%, ETM, 9/15/2015 (c)** ............... 1,800,000 2,503,818
Salt Lake City, UT, Municipal Building Authority Lease, Revenue Bond, 5.5%,
10/1/2012 .................................................................... 4,460,000 4,504,422

Virginia

Roanoke, VA, Industrial Development Authority, Roanoke Memorial Hospital,
Series B, 6.125%, 7/1/2017 (c) ............................................... 5,500,000 5,821,640
Southeastern Public Service Authority, VA, Refunding Revenue, Series A, 5.25%,
7/1/2010 (c) ................................................................. 7,380,000 7,427,601
Virginia Beach, VA, Development Authority, Virginia Beach General Hospital
Project, 6.0%, 2/15/2011 (c) ................................................. 1,595,000 1,709,090
Winchester County, VA, Industrial Development Authority, Hospital Revenue,
6.0%, 1/1/2015 (c) ........................................................... 5,700,000 5,681,988

Washington

Clark County, WA, Public Utility District #1, 6.0%, 1/1/2006 (c) ................ 7,500,000 7,968,075
Clark County, WA, Public Utility District, Series 1995, 6.0%, 1/1/2008 (c) ...... 2,200,000 2,342,494
King & Snohomish Counties, WA, General Obligation, School District #417, 5.6%,
12/1/2010 (c) ................................................................ 1,650,000 1,719,465
King County, WA, Public Hospital District #1, Valley Medical Center, Series 1992,
5.5%, 9/1/2017 (c) ........................................................... 3,500,000 3,361,190
Seattle, WA, Port Revenue, Series 1998, 5.375%, 8/1/2013 (c) .................... 1,460,000 1,442,363
Snohomish County, WA, School District #6, 6.5%, 12/1/2007 (c) ................... 3,325,000 3,662,887
State of Washington, General Obligation, Series AT-5, Zero Coupon, 8/1/2010 (c) . 2,625,000 1,478,243
Washington Health Care Facilities Authority, Empire Health Services -- Spokane:
5.65%, 11/1/2005 (c) ......................................................... 2,155,000 2,251,738
5.7%, 11/1/2006 (c) .......................................................... 3,440,000 3,605,017
5.75%, 11/1/2007 (c) ......................................................... 7,350,000 7,717,574

</TABLE>

The accompanying notes are an integral part of the financial statements

78
<PAGE>

<S> <C> <C>
5.8%, 11/1/2009 (c) ......................................................... 4,595,000 4,809,035
5.8%, 11/1/2010 (c) ......................................................... 2,100,000 2,206,848
Washington Public Power Supply System:
Nuclear Power Project #1, 6.0%, 7/1/2008 (c) ................................ 5,000,000 5,343,200
Nuclear Power Project #2, Series 1992A, Zero Coupon, 7/1/2011 (c) ........... 4,200,000 2,258,214
Nuclear Power Project #3, Series 1989A, 7/1/2010 (c) ........................ 5,860,000 3,304,220
Revenue Refunding:
Nuclear Project #1:
Series A, Prerefunded 7/1/2000 at 102, 7.0%, 7/1/2011 (c)*** .......... 3,830,000 3,995,418
Series B, Prerefunded 1/1/2000 at 102, 7.25%, 7/1/2012 (c)*** ......... 10,895,000 11,385,602
Nuclear Project #2:
Series A, 5.7%, 7/1/2008 (c) .......................................... 5,000,000 5,241,600
Series A, Prerefunded 7/1/2000 at 102, 7.25%, 7/1/2003 (c)*** ......... 2,000,000 2,090,060
Series C, 7%, 7/1/2001 (c) ............................................ 10,000,000 10,462,300
Series C, Prerefunded 1/1/2001 at 102, 7.375%, 7/1/2011 (c)*** ........ 1,370,000 1,449,118
Nuclear Project #3:
Series A, Zero Coupon, 7/1/2004 (c) ................................... 3,625,000 2,896,049
Series A, Zero Coupon, 7/1/2005 (c) ................................... 4,125,000 3,118,830
Series C, 7.5%, 7/1/2008 (c) .......................................... 2,000,000 2,337,580

West Virginia

West Virginia, School Building Authority Revenue, Series B, Prerefunded 7/1/2000
at 102, 6.75%, 7/1/2010 (c)*** .............................................. 4,000,000 4,167,280

Wisconsin

Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/2004 (c) ........... 3,475,000 2,790,981
Wisconsin Health & Educational Facilities Authority:
6.1%, 8/15/2009 (c) ......................................................... 2,000,000 2,132,740
Aurora Medical:
5.75%, 11/15/2006 (c) .................................................... 2,000,000 2,098,620
5.75%, 11/15/2007 (c) .................................................... 1,500,000 1,572,225
6.0%, 11/15/2008 (c) ..................................................... 4,085,000 4,341,130
6.0%, 11/15/2009 (c) ..................................................... 4,330,000 4,589,194
Felician Healthcare Inc., Series B, 6.25%, 1/1/2022 (c) ..................... 5,285,000 5,664,304
Hospital Sisters Services Inc.-- Obligated Group, 5.375%, 6/1/2018 (c) ...... 4,800,000 4,516,704
SSM Healthcare:
Series 1992 AA, 6.4%, 6/1/2008 (c) ....................................... 2,335,000 2,539,219
Series 1992 AA, 6.45%, 6/1/2009 (c) ...................................... 2,485,000 2,712,576
Series 1992 AA, 6.45%, 6/1/2010 (c) ...................................... 2,650,000 2,939,036
Series 1992 AA, 6.5%, 6/1/2011 (c) ....................................... 2,820,000 3,103,692
Series 1992 AA, 6.5%, 6/1/2012 (c) ....................................... 3,000,000 3,334,710
St. Luke's Medical Center, Prerefunded 8/15/2001 at 102, 7.1%,
8/15/2011 (c)*** ......................................................... 2,000,000 2,141,640
Villa St. Francis Inc., Series C, 6.25%, 1/1/2022 (c) ....................... 9,230,000 9,892,437
Wheaton Franciscan Services, 6.1%, 8/15/2008 (c) ............................ 4,580,000 4,893,226
-------------
Total Long-Term Municipal Investments (Cost $1,481,886,894) .................... 1,565,731,740
-------------
- ----------------------------------------------------------------------------------------------------------

Total Investment Portfolio -- 100% (Cost $1,487,386,894) (a) ................... 1,571,231,740
=============
- ----------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of the financial statements

79
<PAGE>

AARP Insured Tax Free General Bond Fund

- --------------------------------------------------------------------------------

* Floating rate demand notes are securities whose interest rates vary
with a designated market index or market rate, such as the
coupon-equivalent of the U.S. Treasury bill rate. Variable rate demand
notes are securities whose interest rates are reset periodically at
levels that are generally comparable to tax-exempt commercial paper.
These securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit or line of credit
from a major bank. These notes are carried, for purposes of
calculating average weighted maturity, at the longer of the period
remaining until the next rate change or to the extent of the demand
period. These securities are shown at their current rate as of
September 30, 1999.

** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by
a trustee and used to pay principal and interest on bonds so
designated.

*** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest on tax-exempt issues and to retire the bonds in
full at the earliest refunding date.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $1,487,683,553 was as
follows:
<TABLE>
<S> <C>

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................ $ 86,596,421

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................ (3,048,234)
-------------

Net unrealized appreciation ............................................. $ 83,548,187
=============
</TABLE>

(b) At September 30, 1999, this security, in whole or in part, has been
pledged to cover initial margin requirements for open futures
contracts.

At September 30, 1999, open futures contracts sold short were as
follows:
<TABLE>
<CAPTION>

Unrealized
Number of Aggregate Market Appreciation/
Futures Expiration Date Contracts Face Value ($) Value ($) Depreciation
------- --------------- --------- -------------- --------- ------------

<S> <C> <C> <C> <C>
U.S. Treasury Bond December, 1999 170 19,443,973 19,369,375 $ 74,598
Municipal Bond December, 1999 400 45,354,237 44,912,500 441,737
------------
Total net unrealized appreciation on open futures contracts sold short ............................. $ 516,335
===========
</TABLE>

- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during
the year ended September 30, 1999 was $429,960,134 and $524,988,855,
respectively.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999 aggregated
$131,641,071 and $181,641,677, respectively.
- --------------------------------------------------------------------------------
From November 1, 1998 through September 30, 1999, the Fund incurred
approximately $700,000 of net realized capital losses. As permitted by
tax regulations, the Fund intends to elect to defer these losses and
treat them as arising in the fiscal year ended September 30, 2000.

The accompanying notes are an integral part of the financial statements

80
<PAGE>

AARP Bond Fund for Income
<TABLE>
<CAPTION>

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 2.2%
- -------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $4,577,669 on 10/1/1999, collateralized by a
$4,630,000 U.S. Treasury Note Inflationary Index, 3.875%,
1/15/2009 (Cost $4,577,000) .............................................. 4,577,000 4,577,000
----------

U.S. Government & Agencies 19.6%
- -------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 .......................... 3,000,000 2,945,610
U.S. Treasury Note, 5.625%, 9/30/2001 ....................................... 7,100,000 7,101,664
U.S. Treasury Note, 5.625%, 12/31/2002 ...................................... 3,000,000 2,987,820
U.S. Treasury Note, 10.75%, 8/15/2005 ....................................... 9,000,000 11,051,730
U.S. Treasury Note Inflationary Index, 3.875%, 1/15/2009 .................... 4,000,000 4,000,647
U.S. Treasury Note, 6.0%, 8/15/2009 ......................................... 1,500,000 1,512,180
U.S. Treasury Bond, 7.25%, 5/15/2016 ........................................ 4,250,000 4,591,998
U.S. Treasury Bond, 6.25%, 8/15/2023 ........................................ 3,000,000 2,949,840
U.S. Treasury Bond Inflationary Index, 3.625%, 4/15/2028 .................... 3,500,000 3,338,692
----------
Total U.S. Government & Agencies (Cost $42,684,363) ......................... 40,480,181
----------

Government National Mortgage AssocIATION* 4.2%
- -------------------------------------------------------------------------------------------------------

Government National Mortgage Association, 9.5%, 11/15/2017 .................. 923,698 982,870
Government National Mortgage Association, 7.5%, with various maturities
to 4/15/2027 ............................................................. 1,935,019 1,942,439
Government National Mortgage Association, 7.0%, 4/15/2029 ................... 5,881,283 5,773,766
----------
Total Government National Mortgage Association (Cost $8,923,740) ............ 8,699,075
----------

U.S. Government Backed Mortgages* 5.8%
- -------------------------------------------------------------------------------------------------------

Federal National Mortgage Association, 8.0% with various maturities to
12/1/2012 ................................................................ 2,806,994 2,876,086
Federal National Mortgage Association, 6.5%, 3/1/2028 ....................... 9,491,679 9,107,563
----------
Total U.S. Government Backed Mortgages (Cost $12,450,122) ................... 11,983,649
----------

Collateralized Mortgage Obligations* 1.9%
- -------------------------------------------------------------------------------------------------------

Residential Accredit Loans, Inc., Series 1997-QS12 A7, 7.25%, 11/25/2027 .... 2,948,170 2,875,847
----------
Total Collateralized Mortgage Obligations (Cost $4,012,917) ................. 3,845,339
----------

Foreign Bonds -- U.S.$ Denominated 2.7%
- -------------------------------------------------------------------------------------------------------

PacifiCorp Australia LLC, 6.15%, 1/15/2008 .................................. 2,000,000 1,848,040
Petroleum Geo-Services, 6.625%, 3/30/2008 ................................... 2,000,000 1,868,720

</TABLE>

The accompanying notes are an integral part of the financial statements

81
<PAGE>

AARP Bond Fund for Income
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------

<S> <C> <C>
Saga Petroleum ASA, 7.25%, 9/23/2027 .................................. 1,000,000 918,390
Tembec Industries, Inc., 8.625%, 6/30/2009 ............................ 965,000 948,113
----------
Total Foreign Bonds -- U.S.$ Denominated (Cost $5,902,561) ............ 5,583,263
----------

Asset Backed 3.6%
- --------------------------------------------------------------------------------------------------

Automobile Receivables 0.9%

First Security Auto Owner Trust, Series 1999-2 A3, 6.0%, 10/15/2003 ... 2,000,000 1,989,375
----------
Credit Card Receivables 1.7%

Citibank Credit Card Master Trust I, 6.0%, 4/10/2003 .................. 1,500,000 1,489,680
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ....................... 2,000,000 1,950,620
----------
3,440,300
----------
Home Equity Loans 0.5%

First Plus Residential Trust, Series 1998A, 8.5%, 5/15/2023 ........... 1,387,193 1,040,395
----------
Manufactured Housing Receivables 0.5%

Associated Manufactured Housing Corp. Series 1997-1 B1, 7.6%, 6/15/2028 375,000 270,000
Green Tree Financial Corp. Series 1997-1 B2, 7.76%, 3/15/2028 ......... 500,000 365,781
Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 6/15/2028 ......... 500,000 372,500
----------
1,008,281
----------
Total Asset Backed (Cost $8,236,527) .................................. 7,478,351
----------

Corporate Bonds 60.0%
- --------------------------------------------------------------------------------------------------

Consumer Discretionary 2.1%

Harrah's Operating Co., Inc., 7.875%, 12/15/2005 ...................... 2,000,000 1,910,000
Imax Corp., 7.875%, 12/1/2005 ......................................... 1,000,000 930,000
Tricon Global Restaurants Inc., 7.65%, 5/15/2008 ...................... 1,500,000 1,429,500
----------
4,269,500
----------
Consumer Staples 5.6%

Aurora Foods, Inc., 8.75%, 7/1/2008 ................................... 1,000,000 942,500
Bass America Inc., 6.625%, 3/1/2003 ................................... 1,500,000 1,486,710
Fleming Companies, Inc., 10.625%, 7/31/2007 ........................... 1,250,000 1,159,375
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ...................... 2,500,000 2,248,800
Safeway Inc., 6.05%, 11/15/2003 ....................................... 2,000,000 1,931,360
The Great Atlantic & Pacific Tea Co., Inc., 7.7%, 1/15/2004 ........... 3,000,000 2,933,280
Westpoint Stevens, Inc., 7.875%, 6/15/2005 ............................ 1,000,000 935,000
----------
11,637,025
----------
Health 0.8%

Columbia/HCA Healthcare Corp., 6.41%, 6/15/2000 ....................... 1,000,000 990,430
NBTY Inc., 8.625%, 9/15/2007 .......................................... 325,000 272,188
Tenet Healthcare Corp., 8.625%, 1/15/2007 ............................. 500,000 475,000
----------
1,737,618
----------
Communications 9.3%

AT&T Corp., 6.0%, 3/15/2009 ........................................... 2,000,000 1,857,440
Call-Net Enterprises Inc., 8.0%, 8/15/2008 ............................ 1,800,000 1,521,000
Intermedia Communications, Inc., 8.875%, 11/1/2007 .................... 2,000,000 1,755,000

</TABLE>

The accompanying notes are an integral part of the financial statements

82
<PAGE>
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------

<S> <C> <C>
Level 3 Communications, 9.125%, 5/1/2008 ............. 2,000,000 1,805,000
McLeodUSA, Inc., 8.375%, 3/15/2008 ................... 500,000 470,000
McLeodUSA Inc., 8.125%, 2/15/2009 .................... 1,500,000 1,391,250
Qwest Communications International, 7.5%, 11/1/2008 .. 3,000,000 2,915,280
Sprint Capital Corp., 6.125%, 11/15/2008 ............. 2,500,000 2,324,475
Sprint Capital Corp., 6.375%, 5/1/2009 ............... 2,500,000 2,360,500
WorldCom, Inc., 6.4%, 8/15/2005 ...................... 3,000,000 2,898,690
-----------
19,298,635
-----------
Financial 9.3%

Bank United Corp., 8.0%, 3/15/2009 ................... 2,500,000 2,332,850
Boeing Capital Corp., 6.75%, 12/23/2003 .............. 1,500,000 1,512,450
Capital One Bank, 6.57%, 1/27/2003 ................... 2,500,000 2,427,500
First USA Bank, 5.85%, 2/22/2001 ..................... 1,500,000 1,486,425
First Union Institutional Capital II, 7.85%, 1/1/2027 1,000,000 952,830
GS Escrow Corp., 7.0%, 8/1/2003 ...................... 2,000,000 1,903,000
General Electric Capital Corp., "A", 6.02%, 5/4/2001 . 2,000,000 1,991,560
Home Savings of America, 6.0%, 11/1/2000 ............. 2,500,000 2,481,925
Merrill Lynch & Co., Inc., 6.0%, 2/17/2009 ........... 2,500,000 2,282,350
Prudential Insurance Co., 6.375%, 7/23/2006 .......... 2,000,000 1,871,480
-----------
19,242,370
-----------
Media 7.1%

AMFM Inc., 10.5%, 1/15/2007 .......................... 1,000,000 1,065,000
AMFM Inc., 8.0%, 11/1/2008 ........................... 2,500,000 2,393,750
CSC Holdings Inc., 7.875%, 2/15/2018 ................. 1,500,000 1,436,550
Charter Communication Holdings LLC, 8.25%, 4/1/2007 .. 2,500,000 2,337,500
News America Holdings Inc., 9.25%, 2/1/2013 .......... 2,500,000 2,754,625
Outdoor Systems, Inc., 8.875%, 6/15/2007 ............. 1,000,000 1,027,500
TCI-Communications, Inc., 8.0%, 8/1/2005 ............. 2,500,000 2,616,400
Time Warner Inc., 9.125%, 1/15/2013 .................. 1,000,000 1,122,600
-----------
14,753,925
-----------
Service Industries 4.1%

Allied Waste North America, 7.375%, 1/1/2004 ......... 1,250,000 1,125,000
Cendant Corp., 7.75%, 12/1/2003 ...................... 3,000,000 2,997,090
Integrated Electrical Services, Inc., 9.375%, 2/1/2009 2,000,000 1,945,000
Prime Hospitality Corp., 9.25%, 1/15/2006 ............ 1,000,000 990,000
Primedia, Inc., 7.625%, 4/1/2008 ..................... 1,500,000 1,402,500
-----------
8,459,590
-----------
Durables 2.8%

BE Aerospace, Inc., 8.0%, 3/1/2008 ................... 2,000,000 1,805,000
Lear Corp., 7.96%, 5/15/2005 ......................... 2,500,000 2,450,750
Martin Marietta Corp., 6.5%, 4/15/2003 ............... 1,500,000 1,459,905
-----------
5,715,655
-----------
Manufacturing 4.1%

Columbus McKinnon Corp., 8.5%, 4/1/2008 .............. 1,000,000 900,000
Fort James Corp., 6.625%, 9/15/2004 .................. 2,000,000 1,955,700
Graham Packaging Co., 8.75%, 1/15/2008 ............... 750,000 701,250
</TABLE>

The accompanying notes are an integral part of the financial statements

83
<PAGE>

AARP Bond Fund for Income
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------

<S> <C> <C>
Lyondell Chemical Co., 9.875%, 5/1/2007 ................. 1,000,000 990,000
TRW, Inc., 6.625%, 6/1/2004 ............................. 2,000,000 1,953,000
Xerox Corp., 5.5%, 11/15/2003 ........................... 2,000,000 1,896,200
---------------
8,396,150
---------------
Technology 0.9%

Raytheon Co., 6.0%, 12/15/2010 .......................... 2,000,000 1,777,720
---------------

Energy 6.9%

Anadarko Petroleum Corp., 7.0%, 11/15/2027 .............. 3,000,000 2,659,980
Barrett Resources Corp., 7.55%, 2/1/2007 ................ 1,500,000 1,425,000
Conoco, Inc., 6.35%, 4/15/2009 .......................... 2,000,000 1,901,160
Duke Energy Corp., 10.0%, 8/15/2001 ..................... 2,000,000 2,119,220
Louis Dreyfus Natural Gas Corp., 6.875%, 12/1/2007 ...... 2,500,000 2,278,950
Louisiana Land and Exploration, 7.65%, 12/1/2023 ........ 2,500,000 2,410,975
Pioneer Natural Resources Co., 7.2%, 1/15/2028 .......... 2,000,000 1,512,500
---------------
14,307,785
---------------
Construction 1.7%

American Standard Companies Inc., 7.625%, 2/15/2010 ..... 1,500,000 1,350,000
NVR Inc., 8.0%, 6/1/2005 ................................ 2,000,000 1,860,000
Nortek, Inc., 9.25%, 3/15/2007 .......................... 250,000 243,125
---------------
3,453,125
---------------
Transportation 1.6%

Allied Holdings Inc., 8.625%, 10/1/2007 ................. 500,000 450,000
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ........ 1,500,000 1,492,500
Northwest Airlines Corp., 7.875%, 3/15/2008 ............. 1,500,000 1,302,390
---------------
3,244,890
---------------
Utilities 3.7%

CalEnergy Co., Inc., 7.23%, 9/15/2005 ................... 2,500,000 2,445,974
Cleveland Electric Illumination Co., 6.86%, 10/1/2008 ... 1,500,000 1,415,490
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ............ 2,268,293 2,279,567
Niagara Mohawk Power Corp., 7.625%, 10/1/2005 ........... 1,512,196 1,521,601
---------------
7,662,632
---------------
Total Corporate Bonds (Cost $131,677,755) ............... 123,956,620
---------------
- -------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $218,464,985) (a) 206,603,478
==============
- -------------------------------------------------------------------------------------

* Effective maturities may be shorter due to prepayments.

(a) At September 30, 1999, the net unrealized depreciation on
investments based on cost for federal income tax purposes of
$218,558,774 was as follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........ $ 67,262

Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (12,022,558)
---------------
Net unrealized depreciation ............................... $ (11,955,296)
===============
</TABLE>

The accompanying notes are an integral part of the financial statements

84
<PAGE>

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the
year ended September 30, 1999 aggregated $112,540,813 and $54,393,353,
respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $67,796,008, and $72,704,188, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during
the year ended September 30, 1999 was $28,549,824.

At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $39,000, which may be applied against
any realized net taxable capital gains of each succeeding year until
fully utilized or until September 30, 2007, the expiration date. In
addition, from November 1, 1998 through September 30, 1999 the Fund
incurred approximately $2,634,000 of net realized capital losses. As
permitted by tax regulations, the Fund intends to elect to defer these
losses and treat them as arising in the fiscal year ended September
30, 2000.

The accompanying notes are an integral part of the financial statements

85
<PAGE>

AARP Balanced Stock and Bond Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------

Repurchase Agreements 0.8%
- ---------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $5,481,801 on 10/1/1999, collateralized by a
$5,545,000 U.S. Treasury Note Inflationary Index, 3.875%,
1/15/2009 (Cost $5,481,000) ................................................ 5,481,000 5,481,000
------------

U.S. Government & Agencies 7.2%
- ---------------------------------------------------------------------------------------------------------

U.S. Treasury Note, 5.625%, 9/30/2001 ......................................... 9,800,000 9,802,297
U.S. Treasury Note, 6.5%, 10/15/2006 .......................................... 4,000,000 4,090,000
U.S. Treasury Note Inflationary Index, 3.875%, 1/15/2009 ...................... 4,000,000 4,000,647
U.S. Treasury Bond, 7.25%, 5/15/2016 .......................................... 20,000,000 21,609,400
U.S. Treasury Bond, 6.25%, 8/15/2023 .......................................... 3,750,000 3,687,300
U.S. Treasury Bond Inflationary Index, 3.625%, 4/15/2028 ...................... 5,750,000 5,484,995
------------
Total U.S. Government & Agencies (Cost $50,894,948) ........................... 48,674,639
------------

Government National Mortgage Association** 1.1%
- ---------------------------------------------------------------------------------------------------------

Government National Mortgage Association, 7.0% with various maturities to
5/1/2029 (Cost $7,536,590) ................................................. 7,437,807 7,301,448
------------

U.S. Government Backed Mortgages** 4.1%
- ---------------------------------------------------------------------------------------------------------

Federal National Mortgage Association, 8.0%, 2/1/2013 ......................... 3,990,876 4,089,371
Federal National Mortgage Association, 6.5% with various maturities to 3/1/2028 24,611,188 23,661,470
------------
Total U.S. Government Backed Mortgages (Cost $28,352,684) ..................... 27,750,841
------------

Collateralized Mortgage Obligations** 1.2%
- ---------------------------------------------------------------------------------------------------------

Residential Accredit Loans, Inc., Series 1997-QS12, A7, 7.25%, 11/25/2027 ..... 3,930,893 3,834,463
Residential Funding Mortgage Securities Series 1993-A2, 6.85%, 9/25/2023 ...... 2,453,275 2,444,075
Ryland Mortgage Securities Corp., 8.0%, 8/25/2025 ............................. 2,195,207 2,232,251
------------
Total Collateralized Mortgage Obligations (Cost $8,697,114) ................... 8,510,789
------------

Foreign Bonds -- U.S.$ Denominated 2.8%
- ---------------------------------------------------------------------------------------------------------

Norsk Hydro AS, 7.75%, 6/15/2023 .............................................. 5,000,000 4,907,200
PacifiCorp Australia LLC, 6.15%, 1/15/2008 .................................... 6,000,000 5,544,120
Petroleum Geo-Services, 6.625%, 3/30/2008 ..................................... 4,000,000 3,737,440
Saga Petroleum ASA, 7.25%, 9/23/2027 .......................................... 5,000,000 4,591,950
------------
Total Foreign Bonds-- U.S.$ Denominated (Cost $20,422,280) .................... 18,780,710
------------

Asset Backed** 2.8%
- ---------------------------------------------------------------------------------------------------------

Automobile Receivables 0.5%

First Security Auto Owner Trust, Series 1999-2 A3, 6.0%, 10/15/2003 ........... 3,000,000 2,984,063
------------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

- ---------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------

Credit Card Receivables 1.2%

<S> <C> <C>
Citibank Credit Card Master Trust I, 6.0%, 4/10/2003 ............ 3,500,000 3,475,920
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ................. 5,000,000 4,876,550
----------
8,352,470
----------
Home Equity Loans 0.7%

First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/2016 ...... 5,000,000 4,912,500
----------
Manufactured Housing Receivables 0.4%

Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/2028 .. 3,000,000 2,389,688
----------
Total Asset Backed (Cost $19,515,614) ........................... 18,638,721
----------

Corporate Bonds 16.4%
- ---------------------------------------------------------------------------------------------

Consumer Staples 1.8%

Bass America Inc., 6.625%, 3/1/2003 ............................. 5,000,000 4,955,700
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ................ 3,500,000 3,148,320
Racers-Kellogg, 5.75%, 2/2/2001 ................................. 4,000,000 3,975,000
----------
12,079,020
----------
Communications 1.1%

Sprint Capital Corp., 6.125%, 11/15/2008 ........................ 3,000,000 2,789,370
WorldCom, Inc., 6.4%, 8/15/2005 ................................. 5,000,000 4,831,150
----------
7,620,520
----------
Financial 6.7%

Associates Corp. of North America, 6.625%, 5/15/2001 ............ 5,850,000 5,874,395
BB&T Corp., 7.05%, 5/23/2003 .................................... 4,000,000 3,977,720
Boeing Capital Corp., Medium Term Note, 6.75%, 12/23/2003 ....... 3,000,000 3,024,900
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 ............ 4,000,000 3,946,640
First USA Bank, 5.85%, 2/22/2001 ................................ 3,000,000 2,972,850
First Union Corp., 8.125%, 6/24/2002 ............................ 2,500,000 2,587,225
Fleet Financial Group, 6.875%, 1/15/2028 ........................ 4,000,000 3,530,000
Ford Motor Credit Co., 6.125%, 4/28/2003 ........................ 5,000,000 4,887,500
General Electric Capital Corp., Medium Term Note, 6.02%, 5/4/2001 4,000,000 3,983,120
Home Savings of America, 6.0%, 11/1/2000 ........................ 3,000,000 2,978,310
Merrill Lynch & Co., 6.0%, 2/17/2009 ............................ 3,000,000 2,738,820
Prudential Insurance Co., 6.375%, 7/23/2006 ..................... 3,000,000 2,807,220
Wells Fargo & Co., 6.875%, 4/1/2006 ............................. 2,000,000 1,986,200
----------
45,294,900
----------
Media 1.9%

News America Holdings Inc., 9.25%, 2/1/2013 ..................... 3,000,000 3,305,550
TCI-Communications, Inc., 8.0%, 8/1/2005 ........................ 4,000,000 4,186,240
Time Warner Inc., 9.125%, 1/15/2013 ............................. 4,500,000 5,051,700
----------
12,543,490
----------
Durables 0.4%

Martin Marietta Corp., 6.5%, 4/15/2003 .......................... 3,000,000 2,919,810
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP Balanced Stock and Bond Fund

- ----------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------

Manufacturing 1.0%

<S> <C> <C>
Fort James Corp., 6.625%, 9/15/2004 ................................................ 3,000,000 2,933,550
Xerox Corp., 5.5%, 11/15/2003 ...................................................... 4,000,000 3,792,400
-----------
6,725,950
-----------
Technology 1.2%

IBM Corp., Medium Term Note, 5.1%, 11/10/2003 ...................................... 5,500,000 5,197,500
Raytheon Co., 6.0%, 12/15/2010 ..................................................... 3,000,000 2,666,580
-----------
7,864,080
-----------
Energy 1.4%

Anadarko Petroleum Corp., 5.875%, 10/15/2003 ....................................... 5,000,000 4,767,100
Louisiana Land and Exploration Co., 7.65%, 12/1/2023 ............................... 5,000,000 4,821,950
-----------
9,589,050
-----------
Transportation 0.4%

Continental Airlines Inc., 6.795%, 2/2/2020 ........................................ 3,000,000 2,776,800
-----------
Utilities 0.5%

Public Service Co. of Colorado, 6.0%, 4/15/2003 .................................... 3,500,000 3,411,100
-----------
Total Corporate Bonds (Cost $115,243,475) .......................................... 110,824,720
-----------

Convertible Bonds 1.2%
- ----------------------------------------------------------------------------------------------------------------

Media

Advertising
Interpublic Group of Companies Inc., 1.8%, 9/16/2004 (Cost $5,957,605) ............. 7,000,000 8,172,500
-----------

Convertible Preferred Stocks 0.4%
- ----------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------

Health 0.3%

Biotechnology
Monsanto Co., 6.5% ................................................................. 65,900 2,372,400
-----------
Financial 0.1%

Real Estate
ProLogis Trust "B" (REIT), 7.0% .................................................... 18,900 460,688
-----------
Total Convertible Preferred Stocks (Cost $3,204,118) ............................... 2,833,088
-----------

Common Stocks 62.0%
- ----------------------------------------------------------------------------------------------------------------

Consumer Discretionary 0.5%

Department & Chain Stores
Rite Aid Corp. ..................................................................... 149,300 2,062,206
Sears, Roebuck & Co. ............................................................... 44,700 1,402,463
-----------
3,464,669
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements

88
<PAGE>

- ----------------------------------------------------------------------------------------
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------

<S> <C> <C>
Consumer Staples 2.6%
Food & Beverage 1.2%
Albertson's Inc. ........................................... 97,945 3,874,949
H.J. Heinz Co. ............................................. 104,050 4,474,150
----------
8,349,099
----------
Package Goods/Cosmetics 1.4%

Avon Products, Inc. ........................................ 252,900 6,275,081
Gillette Co. ............................................... 82,900 2,813,419
----------
9,088,500
----------
Health 3.2%

Pharmaceuticals
American Home Products Corp. ............................... 214,300 8,893,450
Bristol-Myers Squibb Co. ................................... 85,000 5,737,500
Glaxo Wellcome PLC (ADR) ................................... 67,100 3,489,200
SmithKline Beecham PLC (ADR) ............................... 56,100 3,232,763
----------
21,352,913
----------
Communications 11.2%

Telephone/Communications
Alltel Corp. ............................................... 99,000 6,967,125
Ameritech Corp. ............................................ 71,600 4,810,625
Bell Atlantic Corp. ........................................ 237,964 16,017,952
BellSouth Corp. ............................................ 211,200 9,504,000
GTE Corp. .................................................. 160,200 12,315,375
Global Crossing Holdings Ltd.* ............................. 169,330 4,487,245
SBC Communicatons, Inc. .................................... 170,200 8,690,838
Sprint Corp. ............................................... 193,400 10,491,950
Telesp Participacoes S.A. (ADR) ............................ 148,000 2,331,000
----------
75,616,110
----------
Financial 11.1%

Banks 5.3%
Bank of America Corp. ...................................... 156,300 8,703,956
Bank One Corp. ............................................. 88,550 3,082,647
Chase Manhattan Corp. ...................................... 97,600 7,356,600
First Union Corp. .......................................... 109,866 3,907,110
Fleet Financial Group Inc. ................................. 116,900 4,281,463
J.P. Morgan & Co., Inc. .................................... 14,900 1,702,325
KeyCorp .................................................... 87,800 2,266,338
US Bancorp ................................................. 148,900 4,494,919
----------
35,795,358
----------
Insurance 2.2%

Allstate Corp. ............................................. 81,500 2,032,406
Lincoln National Corp. ..................................... 59,800 2,246,238
Marsh & McLennan Companies, Inc. ........................... 30,700 2,102,950
Safeco Corp. ............................................... 69,000 1,932,000
XL Capital Ltd. "A" ........................................ 136,505 6,142,725
----------
14,456,319
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

89
<PAGE>

AARP Balanced Stock and Bond Fund
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------

Consumer Finance 0.3%
<S> <C> <C>
SLM Holding Corp. ............................................. 49,400 2,124,200
----------
Other Financial Companies 1.1%

Advanta Corp. "B" ............................................. 17,654 207,435
Federal National Mortgage Association ......................... 116,700 7,315,631
----------
7,523,066
----------
Real Estate 2.2%
Arden Realty Group, Inc. (REIT) ............................... 85,900 1,868,325
Boston Properties, Inc. (REIT) ................................ 63,800 1,957,863
Equity Office Properties Trust (REIT) ......................... 172,900 4,019,925
General Growth Properties, Inc. (REIT) ........................ 116,100 3,657,150
ProLogis Trust (REIT) ......................................... 187,954 3,547,632
----------
15,050,895
----------
Service Industries 0.7%

Printing/Publishing
McGraw-Hill Companies, Inc. ................................... 98,400 4,760,100
----------
Durables 5.0%

Aerospace 2.7%
Lockheed Martin Corp. ......................................... 211,718 6,920,532
Northrop Grumman Corp. ........................................ 70,200 4,462,088
Rockwell International Corp. (New) ............................ 125,500 6,588,750
----------
17,971,370
----------
Automobiles 1.8%
Ford Motor Co. ................................................ 194,300 9,751,431
Meritor Automotive, Inc. ...................................... 129,266 2,698,428
----------
12,449,859
----------
Construction/Agricultural Equipment 0.5%
PACCAR, Inc. .................................................. 71,000 3,612,125
----------
Manufacturing 9.6%

Chemicals 0.7%
Akzo Nobel N.V. (ADR) ......................................... 39,600 1,692,900
Lyondell Petrochemical Co. .................................... 218,800 2,926,450
----------
4,619,350
----------
Containers & Paper 0.4%
Temple-Inland Inc. ............................................ 45,900 2,776,950
----------
Diversified Manufacturing 0.7%
Koninklijke (Royal) Philips Electronics N.V ................... 44,400 4,484,400
----------
Electrical Products 1.2%
Emerson Electric Co. .......................................... 69,900 4,416,806
Thomas & Betts Corp. .......................................... 74,400 3,794,400
----------
8,211,206
----------
Industrial Specialty 3.5%
Corning Inc. .................................................. 337,800 23,160,413
----------
Machinery/Components/Controls 0.9%
Parker-Hannifin Corp. ......................................... 138,400 6,202,050
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

90
<PAGE>

- -----------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------

Office Equipment/Supplies 1.9%
<S> <C> <C>
Xerox Corp. .................................................. 313,700 13,155,794
-----------
Specialty Chemicals 0.3%
Air Products and Chemicals, Inc. ............................. 73,300 2,130,274
-----------
Technology 2.0%

Computer Software 1.3%
Computer Associates International, Inc. ...................... 57,100 3,497,375
Oracle Corp.* ................................................ 112,400 5,114,200
-----------
8,611,575
-----------
Electronic Data Processing 0.7%
Hewlett-Packard Co. .......................................... 50,100 4,609,200
-----------
Energy 7.3%

Oil & Gas Production 2.2%
Burlington Resources, Inc. ................................... 51,600 1,896,300
Conoco Inc. "A" .............................................. 162,700 4,514,925
Conoco Inc. "B" .............................................. 134,758 3,689,000
Royal Dutch Petroleum Co. (New York shares) .................. 87,500 5,167,969
-----------
15,268,194
-----------
Oil Companies 4.2%
Elf Aquitaine (ADR) .......................................... 108,781 9,967,059
Mobil Corp. .................................................. 48,800 4,916,600
Texaco Inc. .................................................. 124,000 7,827,500
Total Fina SA (ADR) .......................................... 88,701 5,626,970
-----------
28,338,129
-----------
Oil/Gas Transmission 0.9%
Williams Cos., Inc. .......................................... 159,100 5,956,306
-----------
Metals & Minerals 0.8%
Steel & Metals
Allegheny Teledyne Inc. ...................................... 296,035 4,995,591
Oregon Steel Mills, Inc. ..................................... 68,300 764,106
-----------
5,759,697
-----------
Construction 1.7%

Building Products 0.6%
Georgia Pacific Group ........................................ 103,400 4,187,700
-----------
Forest Products 1.1%
Weyerhaeuser Co. ............................................. 126,400 7,283,800
-----------
Transportation 3.9%

Airlines 1.2%
AMR Corp.* ................................................... 41,800 2,278,100
Air New Zealand Ltd. "B" ..................................... 3,200,000 5,136,080
US Airways Group, Inc.* ...................................... 33,900 889,875
-----------
8,304,055
-----------
Marine Transportation 0.3%
Knightsbridge Tankers Ltd. ................................... 137,500 2,200,000
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements

91
<PAGE>

AARP Balanced Stock and Bond Fund

- -------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------
Railroads 2.4%
<S> <C> <C>
CSX Corp. ............................................... 211,500 8,962,313
Canadian National Railway Co. ........................... 130,200 3,957,285
Norfolk Southern Corp. .................................. 120,100 2,942,450
-----------
15,862,048
-----------
Utilities 2.4%

Electric Utilities
CINergy Corp. ........................................... 160,400 4,541,325
PacifiCorp .............................................. 285,400 5,743,675
Unicom Corp. ............................................ 166,300 6,142,706
-----------
16,427,706
-----------
Total Common Stocks (Cost $348,887,521) ................. 419,163,430
-----------
- -------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $614,192,949) (a) 676,131,886
===========
- -------------------------------------------------------------------------------------

* Non income producing security.

** Effective maturities may be shorter due to prepayments.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $615,417,766 was as
follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ...... $ 99,884,262

Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (39,170,142)
--------------
Net unrealized appreciation ............................. $ 60,714,120
==============
- -------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments and direct obligations of the U.S. Government) for the
year ended September 30, 1999 aggregated $243,104,701 and
$313,829,705, respectively. Purchases and sales of direct obligations
of the U.S. Government aggregated $100,871,734 and $78,232,828,
respectively.

The accompanying notes are an integral part of the financial statements

92
<PAGE>

AARP Growth and Income Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/1999
at 5.26% to be repurchased at $67,442,853 on 10/1/1999, collateralized by a
$65,615,000 U.S. Treasury Note Inflationary Index, 3.625%,
7/15/2002 (Cost $67,433,000) ........................................................................ 67,433,000 67,433,000
-----------

Commercial Paper 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------

Countrywide Home Loans Inc., 5.32%, 10/28/1999 (Cost $49,792,457) ...................................... 50,000,000 49,792,457
-----------

U.S. GOVERNMENT AGENCY OBLIGATIONS 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Corp., 10/4/1999 (Cost $11,993,961) ......................................... 12,000,000 11,993,961
-----------

Convertible Bonds 0.6%
- ----------------------------------------------------------------------------------------------------------------------------------

Financial 0.2%

Real Estate
Security Capital Corp., 6.5%, 3/29/2016 (b) (c) ........................................................ 18,250,000 14,044,908
-----------
Media 0.4%

Advertising
Omnicom Group Inc., 2.25%, 1/6/2013 .................................................................... 12,500,000 20,859,375
-----------
Total Convertible Bonds (Cost $31,417,224) ............................................................. 34,904,283
-----------

Convertible Preferred Stocks 1.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------------

Consumer Staples 0.6%

Food & Beverage
Suiza Foods Corp. 2.7% ................................................................................. 959,900 33,836,475
-----------
Health 0.6%

Biotechnology
Monsanto Co., 6.5%, .................................................................................... 914,800 32,932,800
-----------
Financial 0.1%

Real Estate
ProLogis Trust "B" (REIT), 7.0% ........................................................................ 321,500 7,836,563
-----------
Metals & Minerals 0.1%

Precious Metals
Freeport McMoRan Copper & Gold, Inc., 7.0% ............................................................. 424,700 7,485,338
-----------
Total Convertible Preferred Stocks (Cost $104,044,755) ................................................. 82,091,176
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP Growth and Income Fund
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------

<S> <C> <C>
Common Stocks 95.9%
- ------------------------------------------------------------------------------------------------

Consumer Discretionary 0.7%

Department & Chain Stores
Federated Department Stores, Inc.* ........................... 1 44
Rite Aid Corp. ............................................... 1,889,200 26,094,575
Sears, Roebuck & Co. ......................................... 646,300 20,277,663
-------------
46,372,282
-------------
Consumer Staples 4.0%

Food & Beverage 1.9%
Albertson's Inc. ............................................. 1,365,196 54,010,567
H.J. Heinz Co. ............................................... 1,452,400 62,453,200
-------------
116,463,767
-------------
Package Goods/Cosmetics 2.1%
Avon Products, Inc. .......................................... 3,534,900 87,709,706
Gillette Co. ................................................. 1,159,200 39,340,350
-------------
127,050,056
-------------
Health 4.5%

Pharmaceuticals
American Home Products Corp. ................................. 2,989,000 124,043,500
Bristol-Myers Squibb Co. ..................................... 1,239,900 83,693,250
Glaxo Wellcome PLC ........................................... 810,239 21,007,580
SmithKline Beecham PLC (ADR) ................................. 783,800 45,166,475
-------------
273,910,805
-------------
Communications 16.7%

Telephone/Communications
Alltel Corp. ................................................. 1,381,200 97,201,950
Ameritech Corp. .............................................. 994,200 66,797,813
Bell Atlantic Corp. .......................................... 3,404,480 229,164,060
BellSouth Corp. .............................................. 2,960,400 133,218,000
Compania de Telefonos de Chile, S.A. (ADR) (New) ............. 52,192 942,718
GTE Corp. .................................................... 2,180,100 167,595,188
Global Crossing Holdings Ltd.* ............................... 2,367,750 62,745,375
SBC Communications, Inc. ..................................... 1,888,600 96,436,638
Sprint Corp. ................................................. 2,698,100 146,371,925
Telesp Participacoes S.A. (pfd.) ............................. 895,758,000 13,967,121
-------------
1,014,440,788
-------------
Financial 17.5%

Banks 7.7%
Bank of America Corp. ........................................ 2,417,831 134,642,964
Bank One Corp. ............................................... 1,284,978 44,733,297
Chase Manhattan Corp. ........................................ 1,359,700 102,487,388
First Union Corp. ............................................ 1,518,074 53,986,507
Fleet Financial Group Inc. ................................... 1,390,600 50,930,725

</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------

<S> <C> <C>
KeyCorp ...................................................... 1,230,800 31,770,025
US Bancorp ................................................... 1,601,000 48,330,188
-----------
466,881,094
-----------
Insurance 3.3%
Allstate Corp. ............................................... 1,141,500 28,466,156
Lincoln National Corp. ....................................... 757,000 28,434,813
Marsh & McLennan Companies, Inc. ............................. 442,800 30,331,800
Safeco Corp. ................................................. 1,087,000 30,436,000
XL Capital Ltd. "A" .......................................... 1,940,017 87,300,765
-----------
204,969,534
-----------
Consumer Finance 0.5%
SLM Holding Corp. ............................................ 691,000 29,713,000
-----------
Other Financial Companies 1.7%
Advanta Corp. "B" ............................................ 68,801 808,412
Federal National Mortgage Association ........................ 1,620,600 101,591,363
-----------
102,399,775
-----------
Real Estate 4.3%
Arden Realty Group, Inc. (REIT) .............................. 1,298,700 28,246,725
Boston Properties, Inc. (REIT) ............................... 988,900 30,346,869
Equity Office Properties Trust (REIT) ........................ 1,679,200 39,041,400
General Growth Properties, Inc. (REIT) ....................... 2,004,900 63,154,350
Prentiss Properties Trust (REIT) ............................. 1,279,100 28,380,031
ProLogis Trust (REIT) ........................................ 2,816,172 53,155,247
Security Capital Group Inc. "A"* ............................. 17,398 12,613,203
Spieker Properties, Inc. (REIT) .............................. 150,000 5,203,125
-----------
260,140,950
-----------
Service Industries 1.1%

Printing/Publishing
McGraw-Hill Companies Inc. ................................... 1,373,700 66,452,738
-----------
Durables 8.1%

Aerospace 4.3%
Lockheed Martin Corp. ........................................ 3,058,246 99,966,416
Northrop Grumman Corp. ....................................... 993,500 63,149,344
Rockwell International Corp. (New) ........................... 1,871,000 98,227,500
-----------
261,343,260
-----------
Automobiles 2.9%
Ford Motor Co. ............................................... 2,681,400 134,572,763
Meritor Automotive, Inc. ..................................... 2,078,466 43,387,978
-----------
177,960,741
-----------
Construction/Agricultural Equipment 0.9%
PACCAR, Inc. ................................................. 1,085,900 55,245,163
-----------
Manufacturing 15.0%

Chemicals 1.1%
Akzo Nobel N.V ............................................... 590,899 25,094,653
Lyondell Petrochemical Co. ................................... 3,192,400 42,698,350
-----------
67,793,003
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP Growth and Income Fund
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------

<S> <C> <C>
Containers & Paper 0.7%

Temple-Inland Inc. ........................................... 640,200 38,732,100
------------
Diversified Manufacturing 1.3%

Canadian Pacific Ltd. (Ord.) ................................. 877,500 20,092,681
Koninklijke (Royal) Philips Electronics N.V .................. 625,000 63,222,726
------------
83,315,407
------------
Electrical Products 2.0%

Emerson Electric Co. ......................................... 975,500 61,639,406
Thomas & Betts Corp. ......................................... 1,146,200 58,456,200
------------
120,095,606
------------
Industrial Specialty 5.2%

Corning Inc. ................................................. 4,635,800 317,842,038
------------
Machinery/Components/Controls 1.2%

Parker-Hannifin Corp. ........................................ 1,578,300 70,727,569
------------
Office Equipment/Supplies 3.0%

Xerox Corp. .................................................. 4,377,000 183,560,438
------------
Specialty Chemicals 0.5%

Air Products & Chemicals, Inc. ............................... 1,023,400 29,742,551
------------
Technology 3.8%

Computer Software 2.0%
Computer Associates International, Inc. ...................... 798,600 48,914,250
Oracle Corp.* ................................................ 1,567,400 71,316,700
------------
120,230,950
------------
Electronic Data Processing 1.1%

Hewlett-Packard Co. .......................................... 700,100 64,409,200
------------
Semiconductors 0.7%

Conexant Systems, Inc.* ...................................... 595,000 43,230,469
------------
Energy 12.7%

Oil & Gas Production 3.6%
Burlington Resources, Inc. ................................... 717,100 26,353,425
Conoco Inc. "A" .............................................. 2,538,800 70,451,700
Conoco, Inc. "B" ............................................. 1,919,042 52,533,775
Royal Dutch Petroleum Co. (New York shares) .................. 1,209,500 71,436,094
------------
220,774,994
------------
Oil Companies 8.0%

Chevron Corp. ................................................ 440,400 39,085,500
Elf Aquitaine S.A ............................................ 759,800 132,962,142
Mobil Corp. .................................................. 847,000 85,335,250
Texaco Inc. .................................................. 1,875,400 118,384,625
Total Fina S.A. "B" .......................................... 558,447 70,315,138
Total Fina S.A. (ADR) ........................................ 569,496 36,127,403
------------
482,210,058
------------
Oil/Gas Transmission 1.1%

Williams Cos., Inc. .......................................... 1,814,700 67,937,831
------------
Metals & Minerals 1.1%

Precious Metals 0.0%
Freeport McMoRan Copper & Gold, Inc. "A" ..................... 175,710 2,437,976
------------

</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

- -----------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------

<S> <C> <C>
Steel & Metals 1.1%

Allegheny Teledyne Inc. ...................................... 3,810,510 64,302,356
-------------
Construction 2.5%

Building Products 1.0%
Georgia Pacific Group ........................................ 1,444,800 58,514,400
-------------
Forest Products 1.5%

Weyerhaeuser Co. ............................................. 1,623,100 93,531,138
-------------
Transportation 4.5%

Airlines 0.7%
AMR Corp.* ................................................... 584,700 31,866,150
US Airways Group, Inc.* ...................................... 474,500 12,455,625
-------------
44,321,775
-------------
Railroads 3.8%

CSX Corp. .................................................... 2,991,300 126,756,338
Canadian National Railway Co. ................................ 1,844,000 56,046,340
Norfolk Southern Corp. ....................................... 1,871,100 45,841,950
-------------
228,644,628
-------------
Utilities 3.7%

Electric Utilities
CINergy Corp. ................................................ 2,326,600 65,871,863
PacifiCorp ................................................... 3,587,600 72,200,450
Unicom Corp. ................................................. 2,316,000 85,547,250
-------------
223,619,563
-------------
Total Common Stocks (Cost $4,524,322,533) .................... 5,829,318,003
-------------
- -----------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,789,003,930) ..... 6,075,532,880
=============
- -----------------------------------------------------------------------------------------------

* Non income producing security.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $4,787,452,881 was as
follows:

Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost .................. $ 1,620,212,676

Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ................. (332,132,677)
----------------
Net unrealized appreciation ...................................... $ 1,288,079,999
================

(b) Securities valued in good faith by the Valuation Committee of the
Board of Trustees amounted to $14,044,908 (0.23% of net assets). Their
values have been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for the securities existed, and the difference could be
material. The cost of these securities at September 30, 1999 was
$18,250,000. These securities may also have certain restrictions as to
resale.

(c) Restricted Securities are securities which have not been registered
with the Securities and Exchange Commission under the Securities Act
of 1933. The aggregate fair value of restricted securities at
September 30, 1999 amounted to $14,044,908, which represents 0.23% of
net assets. Information concerning such restricted securities at
September 30, 1999 is as follows:

Security Acquisition Date Cost ($)
-------- ---------------- --------
Security Capital Corp., 6.5%, 3/29/2016 4/19/1996 18,250,000

- ---------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999, aggregated
$1,988,963,221 and $2,935,495,558, respectively.

</TABLE>

The accompanying notes are an integral part of the financial statements

97
<PAGE>
AARP U.S. Stock Index Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------

Repurchase Agreements 1.2%
- ----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Street Bank & Trust Co., dated 9/30/1999
at 5.26% to be repurchased at $6,964,017 on 10/1/1999, collateralized by a
$6,140,000 U.S. Treasury Bond, 7.5%, 11/15/2024 (Cost $6,963,000) ................................... 6,963,000 6,963,000
----------

U.S. GOVERNMENT & AGENCIES 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------

U.S. Treasury Bill, 12/2/1999 (b) (Cost $917,635) ...................................................... 925,000 917,674
----------

Common Stocks 98.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------------

Consumer Discretionary 6.7%

Apparel & Shoes 0.1%
Fruit of the Loom, Inc.* ............................................................................... 300 994
Liz Claiborne Inc. ..................................................................................... 400 12,400
Nike, Inc. "B" ......................................................................................... 10,900 619,938
Too Inc.* .............................................................................................. 1,459 26,171
----------
659,503
----------
Department & Chain Stores 5.1%
Best Buy Co., Inc.* .................................................................................... 15,300 949,556
CVS Corp. .............................................................................................. 11,700 477,506
Consolidated Stores Corp.* ............................................................................. 300 6,619
Costco Wholesale Corp.* ................................................................................ 12,100 871,200
Dayton Hudson Corp. .................................................................................... 19,600 1,177,225
Dillard's Inc. ......................................................................................... 100 2,031
Dollar General Corp. ................................................................................... 2,968 91,637
Federated Department Stores, Inc.* ..................................................................... 2,400 104,850
Gap Inc. ............................................................................................... 51,125 1,636,000
Home Depot, Inc. ....................................................................................... 91,200 6,258,600
J.C. Penney Co., Inc. .................................................................................. 71,000 2,440,625
Kmart Corp.* ........................................................................................... 2,800 32,725
Kohl's Corp.* .......................................................................................... 7,200 476,100
Longs Drug Stores, Inc. ................................................................................ 600 17,925
Lowe's Companies, Inc. ................................................................................. 17,200 838,500
May Department Stores .................................................................................. 24,150 879,966
Nordstrom, Inc. ........................................................................................ 4,700 126,900
Rite Aid Corp. ......................................................................................... 15,700 216,856
Sears, Roebuck & Co. ................................................................................... 22,800 715,350
TJX Companies, Inc. (New) .............................................................................. 12,200 342,363
The Limited, Inc. ...................................................................................... 10,214 390,686
Wal-Mart Stores Inc. ................................................................................... 207,900 9,888,244
Walgreen Co. ........................................................................................... 47,400 1,202,775
----------
29,144,239
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

Home Furnishings 0.3%

<S> <C> <C>
Newell Rubbermaid Inc. ....................................... 16,000 457,000
Tupperware Corp. ............................................. 47,500 961,875
---------
1,418,875
---------
Hotels & Casinos 0.3%

Carnival Corp. "A" ........................................... 38,600 1,679,100
Hilton Hotels Corp. .......................................... 3,100 30,613
Marriott International, Inc. "A" ............................. 3,600 117,675
---------
1,827,388
---------
Recreational Products 0.1%

Brunswick Corp. .............................................. 11,300 281,088
Hasbro, Inc. ................................................. 1,875 40,195
Mattel Inc. .................................................. 25,600 486,400
---------
807,683
---------
Restaurants 0.6%

Darden Restaurants Inc. ...................................... 100 1,956
McDonald's Corp. ............................................. 69,600 2,992,800
Tricon Global Restaurants* ................................... 7,720 316,038
Wendy's International, Inc. .................................. 100 2,638
---------
3,313,432
---------
Specialty Retail 0.2%

AutoZone, Inc.* .............................................. 100 2,806
Circuit City Stores Inc. ..................................... 10,600 447,188
Office Depot Inc. ............................................ 5,700 58,069
Pep Boys-- Manny, Moe & Jack ................................. 100 1,488
Staples Inc.* ................................................ 24,000 523,500
Tandy Corp. .................................................. 4,500 232,594
Toys "R" Us Inc.* ............................................ 100 1,500
---------
1,267,145
---------
Miscellaneous 0.0%

Fortune Brands, Inc. ......................................... 1,700 54,825
---------
Consumer Staples 6.9%

Alcohol 0.3%
Anheuser-Busch Companies, Inc. ............................... 16,700 1,170,044
Seagram Co., Ltd. ............................................ 10,600 482,300
---------
1,652,344
---------
Consumer Electronic & Photographic 0.4%

Eastman Kodak Co. ............................................ 25,600 1,931,200
Maytag Corp. ................................................. 1,400 46,638
Polaroid Corp. ............................................... 100 2,600
Whirlpool Corp. .............................................. 9,200 600,875
---------
2,581,313
---------
Consumer Specialties 0.3%

American Greeting Corp., "A" ................................. 8,900 229,175
Jostens, Inc. ................................................ 82,700 1,581,638
---------
1,810,813
---------
</TABLE>

The accompanying notes are an integral part of the financial statements

<PAGE>

AARP U.S. Stock Index Fund

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------
Farming 0.0%

<S> <C> <C>
Archer-Daniels-Midland Co. ................................... 115 1,402
Pioneer Hi-Bred International, Inc. .......................... 2,640 105,105
---------
106,507
---------
Food & Beverage 3.0%

Agribrands International, Inc.* .............................. 20 993
Albertson's Inc. ............................................. 7,164 283,426
Bestfoods .................................................... 3,400 164,900
Campbell Soup Co. ............................................ 9,600 375,600
Coca-Cola Co., Inc. .......................................... 109,200 5,248,425
Coca-Cola Enterprises ........................................ 23,800 536,988
ConAgra, Inc. ................................................ 33,300 751,331
General Mills, Inc. .......................................... 5,400 438,075
H.J. Heinz Co. ............................................... 25,900 1,113,700
Hershey Foods Corp. .......................................... 100 4,869
Kellogg Co. .................................................. 24,200 905,988
Kroger Co.* .................................................. 42,800 944,275
PepsiCo Inc. ................................................. 86,700 2,622,675
Quaker Oats Co. .............................................. 6,100 377,438
Ralston Purina Group ......................................... 1,500 41,719
SUPERVALU, Inc. .............................................. 2,000 43,625
Safeway Inc.* ................................................ 27,700 1,054,331
Unilever NV (New York Shares) ................................ 32,603 2,221,079
William Wrigley Jr. Co. ...................................... 100 6,881
Winn-Dixie Stores, Inc. ...................................... 9,900 293,906
---------
17,430,224
---------
Package Goods/Cosmetics 2.4%

Avon Products, Inc. .......................................... 21,700 538,431
Clorox Co. ................................................... 10,000 382,500
Colgate-Palmolive Co. ........................................ 33,400 1,528,050
Gillette Co. ................................................. 72,900 2,474,044
International Flavors & Fragrances, Inc. ..................... 43,000 1,483,500
Kimberly-Clark Corp. ......................................... 27,800 1,459,500
Procter & Gamble Co. ......................................... 63,200 5,925,000
---------
13,791,025
---------
Textiles 0.2%

Springs Industries, Inc. "A" ................................. 23,500 797,531
VF Corp. ..................................................... 3,300 102,300
---------
899,831
---------
Miscellaneous 0.3%

Nabisco Group Holdings ....................................... 103,700 1,555,500
---------
Health 10.5%

Biotechnology 0.5%
Amgen Inc.* .................................................. 36,800 2,999,200
---------
Health Industry Services 0.4%
Cardinal Health, Inc. ........................................ 19,050 1,038,225
HEALTHSOUTH Corp.* ........................................... 6,000 36,375
</TABLE>

The accompanying notes are an integral part of the financial statements

100

<PAGE>

<S> <C> <C>
Humana Inc.* ................................................. 800 5,500
IMS Health Inc. .............................................. 12,700 289,719
McKesson HBOC, Inc. .......................................... 9,900 287,100
Shared Medical Systems Corp. ................................. 1,400 65,450
United Healthcare Corp. ...................................... 9,800 477,138
Wellpoint Health Networks Inc.* .............................. 2,700 153,900
----------
2,353,407
----------
Hospital Management 0.1%

Columbia/HCA Healthcare Corp. ................................ 26,500 561,469
LifePoint Hospitals, Inc.* ................................... 1 9
Tenet Healthcare Corp.* ...................................... 500 8,781
Triad Hospitals, Inc.* ....................................... 1 10
----------
570,269
----------
Medical Supply & Specialty 1.3%

Bausch & Lomb, Inc. .......................................... 5,400 356,063
Baxter International Inc. .................................... 22,600 1,361,650
Becton, Dickinson & Co. ...................................... 8,800 246,950
Biomet Inc. .................................................. 5,600 147,350
Boston Scientific Corp.* ..................................... 20,100 496,219
C.R. Bard, Inc. .............................................. 10,500 494,156
Guidant Corp. ................................................ 22,500 1,206,563
Mallinckrodt, Inc. ........................................... 5,900 178,106
Medtronic Inc. ............................................... 85,000 3,017,500
St. Jude Medical, Inc.* ...................................... 600 18,900
----------
7,523,457
----------
Pharmaceuticals 8.2%

Abbott Laboratories .......................................... 95,100 3,494,925
Allergan Specialty Therapeutics, Inc. ........................ 5 58
Allergan, Inc. ............................................... 6,800 748,000
Alza Corp.* .................................................. 2,000 85,625
American Home Products Corp. ................................. 76,400 3,170,600
Bristol-Myers Squibb Co. ..................................... 92,900 6,270,750
Eli Lilly & Co. .............................................. 67,000 4,288,000
Johnson & Johnson ............................................ 68,500 6,293,438
Merck & Co., Inc. ............................................ 115,300 7,472,881
Pfizer, Inc. ................................................. 172,300 6,192,031
Pharmacia & Upjohn, Inc. ..................................... 30,500 1,513,563
Schering-Plough Corp. ........................................ 87,300 3,808,463
Warner-Lambert Co. ........................................... 52,100 3,458,138
Watson Pharmaceuticals, Inc.* ................................ 4,800 146,700
----------
46,943,172
----------
Communications 8.6%

Cellular Telephone 0.4%
Nextel Communications, Inc. "A" * ............................ 15,200 1,030,750
Sprint Corp. (PCS Group)* .................................... 18,450 1,375,678
----------
2,406,428
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

101

<PAGE>

AARP U.S. Stock Index Fund

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Telephone/Communications 8.2%

ADC Telecommunications, Inc.* .............. 4,400 184,525
AT&T Corp. ................................. 163,056 7,092,892
Alltel Corp. ............................... 13,000 914,875
Ameritech Corp. ............................ 53,400 3,587,813
Bell Atlantic Corp. ........................ 84,906 5,715,235
BellSouth Corp. ............................ 93,600 4,212,000
GTE Corp. .................................. 57,000 4,381,875
Global Crossing Ltd.* ...................... 19,475 516,088
MCI WorldCom, Inc.* ........................ 95,419 6,858,241
Nortel Networks Corp. ...................... 72,980 3,721,980
SBC Communications, Inc. ................... 98,238 5,016,278
Sprint Corp. ............................... 39,200 2,126,600
US West, Inc. .............................. 54,354 3,101,575
----------
47,429,977
----------
Financial 12.9%

Banks 6.0%
BB&T Corp. ................................. 3,800 123,025
Banc One Corp. ............................. 73,680 2,564,985
Bank of America Corp. ...................... 91,093 5,072,741
Bank of New York Co., Inc. ................. 32,600 1,090,063
BankBoston Corp. ........................... 19,600 850,150
Chase Manhattan Corp. ...................... 43,100 3,248,663
Comerica Inc. .............................. 1,350 68,344
Fifth Third Bancorp ........................ 3,025 184,052
First Union Corp. .......................... 86,112 3,062,358
Firstar Corp. .............................. 24,691 632,707
Fleet Financial Group Inc. ................. 30,400 1,113,400
Huntington Bancshares Inc. ................. 5,126 136,159
J.P. Morgan & Co., Inc. .................... 17,800 2,033,650
KeyCorp .................................... 44,100 1,138,331
MBNA Corp. ................................. 61,875 1,411,523
Mellon Bank Corp. .......................... 18,400 621,000
National City Corp. ........................ 51,400 1,371,738
PNC Bank Corp. ............................. 26,000 1,369,875
Regions Financial Corp. .................... 100 3,000
State Street Corp. ......................... 2,400 155,100
Summit Bancorp ............................. 14,400 467,100
SunTrust Banks, Inc. ....................... 6,700 440,525
US Bancorp ................................. 27,106 818,262
Union Planters Corp. ....................... 49,400 2,013,050
Wachovia Corp. ............................. 4,800 377,400
Washington Mutual, Inc. .................... 21,116 617,643
Wells Fargo Co. ............................ 85,400 3,383,975
----------
34,368,819
----------
Insurance 2.7%

AFLAC, Inc. ................................ 13,600 569,500
Aetna Inc. ................................. 2,600 128,050

The accompanying notes are an integral part of the financial statements

102

<PAGE>

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Allstate Corp. ............................. 29,200 728,175
American General Corp. ..................... 10,600 669,788
American International Group, Inc. ......... 77,941 6,775,996
Aon Corp. .................................. 5,475 161,855
Chubb Corp. ................................ 300 14,944
Cigna Corp. ................................ 8,800 684,200
Cincinnati Financial Corp. ................. 900 33,778
Conseco, Inc. .............................. 8,783 169,624
Hartford Financial Services Group Inc. ..... 1,800 73,575
Jefferson Pilot Corp. ...................... 2,800 176,925
Lincoln National Corp. ..................... 12,000 450,750
MGIC Investment Corp. ...................... 700 33,425
Marsh & McLennan Companies, Inc. ........... 27,750 1,900,875
Progressive Corp. .......................... 3,200 261,400
Providian Financial Corp. .................. 11,850 938,372
Safeco Corp. ............................... 26,800 750,400
St. Paul Companies, Inc. ................... 23,656 650,540
Torchmark Corp. ............................ 400 10,350
UnumProvident Corp. ........................ 8,400 247,275
----------
15,429,797
----------
Consumer Finance 2.8%

American Express Credit Corp. .............. 31,500 4,240,688
Associates First Capital Corp. ............. 46,246 1,664,856
Capital One Finance Corp. .................. 15,200 592,800
Citigroup Inc. ............................. 165,603 7,286,532
Household International, Inc. .............. 30,759 1,234,205
SLM Holding Corp. .......................... 20,300 872,900
----------
15,891,981
----------
Other Financial Companies 1.4%

Bear Stearns Companies, Inc. ............... 1,995 76,683
Federal Home Loan Mortgage Corp. ........... 36,700 1,908,400
Federal National Mortgage Association ...... 54,100 3,391,394
Morgan Stanley Dean Witter & Co. ........... 35,895 3,201,385
----------
8,577,862
----------
Media 3.2%

Advertising 0.3%
Interpublic Group of Companies Inc. ........ 16,600 682,675
Omnicom Group, Inc. ........................ 12,200 966,088
----------
1,648,763
----------
Broadcasting & Entertainment 2.1%

CBS Corp.* ................................. 43,900 2,030,375
Clear Channel Communications, Inc.* ........ 17,800 1,421,775
Time Warner Inc. ........................... 79,400 4,823,550
Viacom Inc. "B" ............................ 38,000 1,605,500
Walt Disney Co. ............................ 96,000 2,484,000
----------
12,365,200
----------

The accompanying notes are an integral part of the financial statements

103

<PAGE>

AARP U.S. Stock Index Fund

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Cable Television 0.7%

Comcast Corp. "A" .......................... 43,600 1,738,550
Media One Group, Inc.* ..................... 29,400 2,008,388
----------
3,746,938
----------
Print Media 0.1%

Gannett Co., Inc. .......................... 3,400 235,238
Harcourt General, Inc. ..................... 100 4,163
Knight-Ridder, Inc. ........................ 200 10,975
New York Times Co. "A" ..................... 200 7,500
Times Mirror Co. "A" ....................... 100 6,581
Tribune Co. ................................ 1,000 49,750
----------
314,207
----------
Service Industries 2.5%

EDP Services 0.8%
Automatic Data Processing, Inc. ............ 34,000 1,517,250
Electronic Data Systems Corp. .............. 29,600 1,566,950
First Data Corp. ........................... 34,900 1,531,238
----------
4,615,438
----------
Environmental Services 0.1%

Waste Management, Inc. ..................... 20,100 386,925
----------
Investment 0.7%

Charles Schwab Corp. ....................... 60,950 2,053,253
Franklin Resources, Inc. ................... 8,000 246,000
Lehman Brothers Holdings, Inc. ............. 3,000 174,938
Merrill Lynch & Co., Inc. .................. 24,100 1,619,219
Paine Webber Group, Inc. ................... 5,500 199,375
Waddel & Reed Financial, Inc. "A" .......... 22 488
----------
4,293,273
----------
Miscellaneous Commercial Services 0.1%

Ecolab, Inc. ............................... 3,600 122,850
Paychex, Inc. .............................. 11,150 380,494
Sodexho Marriott Services, Inc.* ........... 25 425
Sysco Corp. ................................ 800 28,050
Tektronix Inc. ............................. 3,000 100,500
----------
632,319
----------
Miscellaneous Consumer Services 0.1%

Cendant Corp.* ............................. 18,771 333,185
H & R Block Inc. ........................... 7,300 317,094
Service Corp. International ................ 18,900 199,631
----------
849,910
----------
Printing/Publishing 0.7%

Deluxe Corp. ............................... 73,000 2,482,000
Dow Jones & Co., Inc. ...................... 1,200 64,050
Dun & Bradstreet Corp. (New) ............... 19,300 576,588
Equifax Inc. ............................... 700 19,688

The accompanying notes are an integral part of the financial statements

104

<PAGE>

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------
McGraw-Hill Inc. ........................... 10,100 488,588
R.R. Donnelley & Sons Co. .................. 5,200 150,150
----------
3,781,064
----------
Durables 4.8%

Aerospace 1.2%
AlliedSignal Inc. .......................... 27,400 1,642,288
Boeing Co. ................................. 46,950 2,001,244
Lockheed Martin Corp. ...................... 25,700 840,069
Northrop Grumman Corp. ..................... 5,800 368,663
Rockwell International Corp. ............... 13,000 682,500
United Technologies Corp. .................. 26,500 1,571,781
----------
7,106,545
----------
Automobiles 1.4%

Cummins Engine Co., Inc. ................... 1,500 74,719
Dana Corp. ................................. 16,092 597,416
Delphi Automotive Systems Corp. ............ 22,365 359,238
Eaton Corp. ................................ 4,300 371,144
Ford Motor Co. ............................. 69,900 3,508,106
General Motors Corp. ....................... 42,600 2,681,138
Genuine Parts Co. .......................... 24,400 648,125
Midas Inc. ................................. 16 330
----------
8,240,216
----------
Construction/Agricultural Equipment 0.2%

Case Corp. ................................. 100 4,981
Caterpillar Inc. ........................... 17,600 964,700
Deere & Co. ................................ 7,800 301,763
----------
1,271,444
----------
Leasing Companies 0.0%

IKON Office Solutions, Inc. ................ 2,900 30,994
Ryder System, Inc. ......................... 1,800 36,675
----------
67,669
----------
Telecommunications Equipment 1.9%

Andrew Corp.* .............................. 250 4,344
General Instrument Corp.* .................. 8,900 428,313
Lucent Technologies Inc. ................... 134,050 8,696,494
Scientific-Atlanta, Inc. ................... 500 24,781
Tellabs, Inc. * ............................ 24,800 1,412,050
----------
10,565,982
----------
Tires 0.1%

Cooper Tire & Rubber Co. ................... 100 1,763
Goodyear Tire & Rubber Co. ................. 5,300 255,063
----------
256,826
----------
Manufacturing 9.0%

Chemicals 1.5%
B.F. Goodrich Co. .......................... 12,700 368,300
Dow Chemical Co. ........................... 22,900 2,602,013

The accompanying notes are an integral part of the financial statements

105

<PAGE>

AARP U.S. Stock Index Fund

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

E.I. du Pont de Nemours & Co. .............. 44,996 2,739,132
Eastman Chemical Co. ....................... 19,000 760,000
Engelhard Corp. ............................ 100 1,819
Great Lakes Chemicals Corp. ................ 100 3,806
Hercules, Inc. ............................. 27,200 778,600
Monsanto Co. ............................... 22,400 799,400
Octel Corp.* ............................... 25 281
Praxair, Inc. .............................. 100 4,600
Rohm & Haas Co. ............................ 2,347 84,785
Sigma-Aldrich Corp. ........................ 100 3,175
Union Carbide Corp. ........................ 1,100 62,494
W.R. Grace & Co.* .......................... 8,500 136,531
----------
8,344,936
----------
Containers & Paper 0.2%

Boise Cascade Corp. ........................ 800 29,150
Crown Cork & Seal Co., Inc. ................ 8,100 196,425
Fort James Corp. ........................... 4,000 106,750
International Paper Co. .................... 17,208 827,060
Sealed Air Corp.* .......................... 353 18,113
Temple-Inland Inc. ......................... 500 30,250
----------
1,207,748
----------
Diversified Manufacturing 5.5%

Briggs & Stratton Corp. .................... 1,600 93,400
Cooper Industries, Inc. .................... 16,100 752,675
Dover Corp. ................................ 1,100 44,963
General Electric Co. ....................... 156,500 18,555,031
Honeywell, Inc. ............................ 6,000 667,875
ITT Industries Inc. ........................ 700 22,269
Minnesota Mining & Manufacturing Co. ....... 29,500 2,833,844
National Service Industries, Inc. .......... 30,200 951,300
TRW, Inc. .................................. 9,800 487,550
Tenneco, Inc. .............................. 80,400 1,366,800
Textron, Inc. .............................. 4,100 317,238
Tyco International Ltd. (New) .............. 52,137 5,383,145
----------
31,476,090
----------
Electrical Products 0.3%

Emerson Electric Co. ....................... 24,300 1,535,456
Thomas & Betts Corp. ....................... 8,100 413,100
----------
1,948,556
----------
Hand Tools 0.1%

Black & Decker Corp. ....................... 100 4,569
Danaher Corp. .............................. 1,700 89,569
Snap-On, Inc. .............................. 2,500 81,250
Stanley Works .............................. 15,800 397,963
----------
573,351
----------

The accompanying notes are an integral part of the financial statements

106

<PAGE>

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Industrial Specialty 0.7%

Avery Dennison Corp. ....................... 2,000 105,500
Corning Inc. ............................... 11,600 795,325
Milacron Inc. .............................. 1,200 21,300
PPG Industries, Inc. ....................... 8,700 522,000
Pall Corp. ................................. 32,500 753,594
QUALCOMM Inc.* ............................. 10,500 1,986,469
Sherwin-Williams Co. ....................... 200 4,188
----------
4,188,376
----------
Machinery/Components/Controls 0.3%

Illinois Tool Works Inc. ................... 4,700 350,444
Ingersoll-Rand Co. ......................... 1,450 79,659
Parker-Hannifin Corp. ...................... 1,100 49,294
Pitney Bowes, Inc. ......................... 11,000 670,313
Timken Co. ................................. 33,900 546,638
----------
1,696,348
----------
Office Equipment/Supplies 0.3%

Lexmark International Group Inc. "A"* ...... 5,600 450,800
Xerox Corp. ................................ 24,600 1,031,663
----------
1,482,463
----------
Specialty Chemicals 0.1%

Air Products & Chemicals, Inc. ............. 1,500 43,594
Nalco Chemical Co. ......................... 15,400 777,700
----------
821,294
----------
Miscellaneous 0.0%

PE Corp-PE Biosystems Group ................ 3,000 216,750
----------
Technology 19.8%

Computer Software 7.1%
Adobe Systems Inc. ......................... 5,000 567,500
America Online Inc.* ....................... 62,400 6,489,600
Autodesk, Inc. ............................. 1,500 32,813
BMC Software Inc.* ......................... 16,000 1,145,000
Computer Associates International, Inc. .... 31,100 1,904,875
Compuware Corp.* ........................... 21,500 560,344
Microsoft Corp.* ........................... 284,700 25,783,144
Oracle Corp.* .............................. 91,950 4,183,725
Parametric Technology Corp.* ............... 11,000 148,500
PeopleSoft Inc. * .......................... 4,600 77,913
----------
40,893,414
----------
Diverse Electronic Products 2.3%

Applied Materials, Inc.* ................... 22,800 1,775,550
Dell Computer Corp. ........................ 135,800 5,678,138
Harris Corp. ............................... 15,900 439,238
KLA Tencor Corp.* .......................... 6,500 422,500
Motorola Inc. .............................. 37,600 3,308,800
Solectron Corp.* ........................... 19,500 1,400,344
----------
13,024,570
----------

The accompanying notes are an integral part of the financial statements

107

<PAGE>

AARP U.S. Stock Index Fund

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

EDP Peripherals 0.9%

EMC Corp.* ................................. 64,400 4,600,575
Network Appliance, Inc. .................... 4,600 329,475
Seagate Technology, Inc.* .................. 8,600 264,988
----------
5,195,038
----------
Electronic Components/Distributors 2.1%

Cisco Systems, Inc.* ....................... 167,050 11,453,366
Gateway Inc. * ............................. 17,800 790,988
----------
12,244,354
----------
Electronic Data Processing 4.1%

Apple Computer, Inc.* ...................... 6,400 405,200
Ceridian Corp.* ............................ 3,000 74,625
Compaq Computer Corp. ...................... 85,858 1,969,368
Data General Corp.* ........................ 200 4,213
Hewlett-Packard Co. ........................ 54,200 4,986,400
International Business Machines Corp. ...... 86,000 10,438,250
Silicon Graphics Inc.* ..................... 700 7,656
Sun Microsystems, Inc.* .................... 50,300 4,677,900
Unisys Corp.* .............................. 18,500 834,813
----------
23,398,425
----------
Military Electronics 0.2%

Computer Sciences Corp.* ................... 9,700 682,031
EG&G, Inc. ................................. 4,400 175,175
General Dynamics Corp. ..................... 300 18,731
Raytheon Co. "B" ........................... 8,000 397,000
----------
1,272,937
----------
Office/Plant Automation 0.1%

3Com Corp.* ................................ 15,800 454,250
Cabletron Systems Inc.* .................... 500 7,844
Novell Inc.* ............................... 21,900 453,056
----------
915,150
----------
Semiconductors 3.0%

Advanced Micro Devices Inc.* ............... 2,100 36,094
Intel Corp. ................................ 154,900 11,511,006
LSI Logic Corp.* ........................... 9,300 478,950
Micron Technology Inc.* .................... 14,300 951,844
National Semiconductor Corp.* .............. 5,900 179,950
Texas Instruments Inc. ..................... 50,000 4,112,500
----------
17,270,344
----------
Energy 7.4%

Engineering 0.3%
Fluor Corp. ................................ 5,200 209,300
Foster Wheeler Corp. ....................... 136,500 1,646,531
McDermott International Inc. ............... 400 8,100
----------
1,863,931
----------

The accompanying notes are an integral part of the financial statements

108

<PAGE>

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Oil & Gas Production 2.0%
Burlington Resources, Inc. ................. 100 3,675
Conoco, Inc. "B" ........................... 31,942 874,412
Kerr-McGee Corp. ........................... 33,000 1,817,063
Occidental Petroleum Corp. ................. 101,200 2,340,250
Royal Dutch Petroleum Co. (New York shares) 106,600 6,296,063
----------
11,331,463
----------
Oil Companies 3.5%

Amerada Hess Corp. ......................... 100 6,125
Ashland Inc. ............................... 100 3,363
Atlantic Richfield Co. ..................... 30,600 2,711,925
Chevron Corp. .............................. 27,100 2,405,125
Exxon Corp. ................................ 121,100 9,196,031
Mobil Corp. ................................ 34,800 3,506,100
Phillips Petroleum Co. ..................... 7,800 380,250
Texaco Inc. ................................ 23,700 1,496,063
USX Marathon Group ......................... 14,200 415,350
Unocal Corp. ............................... 100 3,706
----------
20,124,038
----------
Oil/Gas Transmission 0.6%

Enron Corp. ................................ 29,600 1,221,000
Sempra Energy .............................. 89,271 1,857,953
Sonat, Inc. ................................ 5,500 218,281
Sunoco Inc. ................................ 400 10,950
Williams Cos., Inc. ........................ 10,100 378,119
----------
3,686,303
----------
Oilfield Services/Equipment 0.7%

Baker Hughes, Inc. ......................... 14,800 429,200
Halliburton Co. ............................ 28,100 1,152,100
Rowan Companies, Inc.* ..................... 3,400 55,250
Schlumberger Ltd. .......................... 34,300 2,137,319
----------
3,773,869
----------
Miscellaneous 0.3%

Reliant Energy, Inc. ....................... 74,911 2,027,279
----------
Metals & Minerals 0.8%
Precious Metals 0.0%
Barrick Gold Corp. ......................... 5,100 110,925
Freeport McMoRan Copper & Gold, Inc. "B" ... 5,600 87,150
Homestake Mining Co. ....................... 100 919
Newmont Mining Corp. ....................... 143 3,700
Placer Dome Inc. ........................... 100 1,496
----------
204,190
----------
Steel & Metals 0.8%

Alcan Aluminium Ltd. ....................... 800 25,133
Alcoa Inc. ................................. 12,700 788,194
Allegheny Teledyne Inc. .................... 28,100 474,188
Asarco, Inc. ............................... 100 2,681

The accompanying notes are an integral part of the financial statements

109

<PAGE>

AARP U.S. Stock Index Fund

- --------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------

Bethlehem Steel Corp.* ..................... 100 738
Cyprus Amax Minerals Co. ................... 47,700 936,113
Inco Ltd. .................................. 100 2,138
Nucor Corp. ................................ 100 4,763
Phelps Dodge Corp. ......................... 8,500 468,031
Reynolds Metals Co. ........................ 3,000 181,125
USX-US Steel Group, Inc. ................... 38,200 983,650
Worthington Industries, Inc. ............... 53,100 902,700
----------
4,769,454
----------
Construction 0.7%

Building Products 0.2%
Armstrong World Industries, Inc. ........... 15,600 701,025
Georgia Pacific Group ...................... 800 32,400
Masco Corp. ................................ 9,800 303,800
Owens Corning .............................. 2,800 60,725
----------
1,097,950
----------
Forest Products 0.5%

Louisiana-Pacific Corp. .................... 4,900 76,563
Potlatch Corp. ............................. 41,900 1,725,756
Westvaco Corp. ............................. 9,900 253,688
Weyerhaeuser Co. ........................... 9,900 570,488
----------
2,626,495
----------
Homebuilding 0.0%

Kaufman & Broad Home Corp. ................. 600 12,375
----------
Transportation 0.6%

Air Freight 0.2%
FDX Corp. * ................................ 25,220 977,275
----------
Airlines 0.1%

AMR Corp.* ................................. 400 21,800
Southwest Airlines Co. ..................... 25,025 380,067
US Airways Group, Inc.* .................... 2,400 63,000
----------
464,867
----------
Railroads 0.3%

Burlington Northern Santa Fe Corp. ......... 4,300 118,250
CSX Corp. .................................. 18,300 775,463
Kansas City Southern Industries, Inc. ...... 3,300 153,244
Norfolk Southern Corp. ..................... 27,200 666,400
Union Pacific Corp. ........................ 2,700 129,769
----------
1,843,126
----------
Miscellaneous 0.0%

Laidlaw, Inc. .............................. 4,700 32,190
----------
Utilities 4.2%

Electric Utilities 3.0%
Ameren Corp. ............................... 48,600 1,837,688
American Electric Power Co. ................ 56,000 1,911,000
CINergy Corp. .............................. 19,400 549,263
Carolina Power & Light Co. ................. 100 3,538

The accompanying notes are an integral part of the financial statements

110

<PAGE>

<S> <C> <C>
Central & South West Corp. ................................... 87,600 1,850,550
Consolidated Edison Inc. ..................................... 4,500 186,750
Constellation Energy Group ................................... 25,000 703,125
DTE Energy Co. ............................................... 3,900 140,888
Dominion Resources Inc. ...................................... 46,800 2,111,850
Duke Energy Corp. ............................................ 5,604 308,921
Edison International ......................................... 100 2,431
Entergy Corp. ................................................ 14,800 428,275
FPL Group, Inc. .............................................. 100 5,038
FirstEnergy Corp. ............................................ 3,400 86,700
GPU, Inc. .................................................... 700 22,838
New Century Energies Inc. .................................... 25,100 839,281
Northern States Power Co. .................................... 36,500 787,031
P G & E Corp. ................................................ 100 2,588
PP&L Resources, Inc. ......................................... 27,828 753,095
PacifiCorp ................................................... 101,800 2,048,725
Peco Energy Co. .............................................. 11,300 423,750
Public Service Enterprise Group .............................. 31,300 1,208,963
Southern Co. ................................................. 18,200 468,650
Texas Utilities Co., Inc. .................................... 13,622 508,271
Unicom Corp. ................................................. 1,600 59,100
-----------
17,248,309
-----------
Natural Gas Distribution 1.2%
Consolidated Natural Gas Corp. ............................... 4,900 305,638
Eastern Enterprises .......................................... 43,200 2,006,100
NICOR, Inc. .................................................. 44,700 1,662,281
ONEOK, Inc. .................................................. 49,100 1,488,344
Peoples Energy Corp. ......................................... 46,300 1,629,181
-----------
7,091,544
-----------
Total Common Stocks (Cost $532,344,724)....................... 568,302,537
-----------
- -------------------------------------------------------------------------------------------
Total Investment Portfolio - 100% (Cost $540,225,359) ........ 576,183,211
===========
- -------------------------------------------------------------------------------------------

* Non income producing security.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $540,456,806 was as
follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ............ $ 68,347,526

Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ............ (32,621,121)
------------
Net unrealized appreciation .................................... $ 35,726,405
============

(b) At September 30, 1999, this security, in whole or in part, has been
pledged to cover initial margin requirements for open futures
contracts.
</TABLE>

The accompanying notes are an integral part of the financial statements

111

<PAGE>

AARP U.S. Stock Index Fund

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------

At September 30, 1999, open futures contracts purchased were as follows:

Number Aggregate Market
Futures Expiration of Contracts Face Value ($) Value ($)
------- ---------- ------------ -------------- ---------

<S> <C> <C> <C> <C> <C>
S&P 500 Index December, 1999 22 7,237,057 7,111,500
-----------
Total net unrealized depreciation on open futures contracts purchased (125,557)
===========
</TABLE>

The aggregate face value of futures contracts opened and closed during
the year ended September 30, 1999 was $365,172,441 and $360,036,932,
respectively.
- --------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999 aggregated
$423,618,612 and $12,832,120, respectively.
- --------------------------------------------------------------------------------

From November 1, 1998 through September 30, 1999, the Fund incurred
approximately $233,000 of net realized capital losses. As permitted by
tax regulations, the Fund intends to elect to defer these losses and
treat them as arising in the fiscal year ended September 30, 2000.

The accompanying notes are an integral part of the financial statements

112

<PAGE>

AARP Capital Growth Fund

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------

Repurchase Agreements 2.6%
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/1999 at
5.30% to be repurchased at $45,563,707 on 10/1/1999, collateralized by a
$44,329,000 U. S. Treasury Note Inflationary Index, 3.625%, 7/15/2002
(Cost $45,557,000) .................................................................................. 45,557,000 45,557,000
------------

Common Stocks 97.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------

Consumer Discretionary 11.8%

Department & Chain Stores 8.3%
Dayton Hudson Corp. .................................................................................... 544,100 32,680,006
Gap Inc. ............................................................................................... 518,150 16,580,800
Home Depot, Inc. ....................................................................................... 665,800 45,690,525
Wal-Mart Stores Inc. ................................................................................... 739,900 35,191,494
Walgreen Co. ........................................................................................... 561,100 14,237,913
------------
144,380,738
------------
Recreational Products 1.3%
Electronic Arts Inc.* .................................................................................. 135,000 9,770,625
Premier Parks, Inc.* ................................................................................... 412,900 11,974,100
------------
21,744,725
------------
Restaurants 1.6%
McDonald's Corp. ....................................................................................... 643,100 27,653,300
------------
Specialty Retail 0.6%
Circuit City Stores Inc. ............................................................................... 245,700 10,365,469
------------
Consumer Staples 6.5%

Alcohol & Tobacco 1.1%
Anheuser-Busch Companies, Inc. ......................................................................... 268,800 18,832,800
------------
Food & Beverage 2.3%
Bestfoods .............................................................................................. 361,900 17,552,150
PepsiCo Inc. ........................................................................................... 721,000 21,810,250
------------
39,362,400
------------
Package Goods/Cosmetics 3.1%
Gillette Co. ........................................................................................... 404,800 13,737,900
Procter & Gamble Co. ................................................................................... 433,950 40,682,813
------------
54,420,713
------------
Health 14.8%

Biotechnology 1.7%
Amgen Inc.* ............................................................................................ 130,300 10,619,450
Immunex Corp* ......................................................................................... 224,800 9,750,700
MedImmune, Inc.* ....................................................................................... 98,600 9,826,106
------------
30,196,256
------------
</TABLE>

The accompanying notes are an integral part of the financial statements

113

<PAGE>

AARP Capital Growth Fund

Health Industry Services 0.8%
<S> <C> <C>
IMS Health Inc. .............................................. 614,900 14,027,406
------------
Medical Supply & Specialty 2.4%
Baxter International Inc. .................................... 471,700 28,419,925
VISX Inc.* ................................................... 171,700 13,580,397
------------
42,000,322
------------
Pharmaceuticals 9.9%
Allergan, Inc. ............................................... 197,600 21,736,000
American Home Products Corp. ................................. 459,900 19,085,850
Bristol-Myers Squibb Co. ..................................... 553,000 37,327,500
Johnson & Johnson ............................................ 168,200 15,453,375
Pfizer, Inc. ................................................. 584,700 21,012,656
Schering-Plough Corp. ........................................ 575,900 25,123,638
Warner-Lambert Co. ........................................... 469,900 31,189,613
------------
170,928,632
------------
Communications 4.0%

Telephone/Communications
Bell Atlantic Corp. .......................................... 420,550 28,308,272
MCI WorldCom, Inc.* .......................................... 573,250 41,202,344
------------
69,510,616
------------
Financial 9.3%

Insurance 2.7%
AFLAC, Inc. .................................................. 379,200 15,879,000
American International Group, Inc. ........................... 359,237 31,231,167
------------
47,110,167
------------
Consumer Finance 4.4%
American Express Credit Corp. ................................ 267,500 36,012,188
Associates First Capital Corp. ............................... 452,600 16,293,600
Citigroup Inc. ............................................... 533,950 23,493,800
------------
75,799,588
------------
Other Financial Companies 2.2%
Federal National Mortgage Association ........................ 595,300 37,317,869
------------
Media 6.8%

Advertising 1.6%
Omnicom Group, Inc. .......................................... 348,600 27,604,763
------------
Broadcasting & Entertainment 1.8%
Infinity Broadcasting Corp.* ................................. 473,900 13,891,194
Viacom Inc. "B"* ............................................. 388,900 16,431,025
------------
30,322,219
------------
Cable Television 3.4%
AT&T Corp-- Liberty Media Group* ............................. 943,700 35,034,863
Comcast Corp. "A" ............................................ 598,700 23,873,163
------------
58,908,026
------------
</TABLE>

The accompanying notes are an integral part of the financial statements

114

<PAGE>

Service Industries 5.9%

EDP Services 4.6%
<S> <C> <C>
America Online Inc.* ......................................... 306,200 31,844,800
Automatic Data Processing, Inc. .............................. 515,500 23,004,188
Electronic Data Systems Corp. ................................ 455,600 24,118,325
------------
78,967,313
------------
Printing/Publishing 1.3%
Tribune Co. .................................................. 440,500 21,914,875
------------
Durables 4.5%

Aerospace 1.0%
United Technologies Corp. .................................... 292,000 17,319,250
------------
Telecommunications Equipment 3.5%
Lucent Technologies Inc. ..................................... 503,000 32,632,125
Nokia AB Oy "A" (ADR) ........................................ 315,900 28,371,761
------------
61,003,886
------------
Manufacturing 8.5%

Diversified Manufacturing 5.5%
General Electric Co. ......................................... 407,800 48,349,788
Textron, Inc. ................................................ 213,100 16,488,613
Tyco International Ltd. (New) ................................ 291,500 30,097,375
------------
94,935,776
------------
Electrical Products 1.0%
Emerson Electric Co. ......................................... 283,600 17,919,975
------------
Industrial Specialty 2.0%
Corning Inc. ................................................. 492,900 33,794,456
------------
Technology 20.4%

Computer Software 5.1%
Microsoft Corp.* ............................................. 693,800 62,832,263
Oracle Corp.* ................................................ 578,600 26,326,300
------------
89,158,563
------------
Diverse Electronic Products 2.7%
Applied Materials, Inc.* ..................................... 367,400 28,611,275
Motorola Inc. ................................................ 202,100 17,784,800
------------
46,396,075
------------
EDP Peripherals 1.7%
EMC Corp.* ................................................... 418,000 29,860,875
------------
Electronic Components/Distributors 2.2%
Broadcom Corp.* .............................................. 80,600 8,785,400
Cisco Systems, Inc.* ......................................... 416,300 28,542,569
------------
37,327,969
------------
EDP 5.3%
Hewlett-Packard Co. .......................................... 171,900 15,814,800
International Business Machines Corp. ........................ 314,300 38,148,163
Sun Microsystems, Inc.* ...................................... 404,100 37,581,300
------------
91,544,263
------------
</TABLE>

The accompanying notes are an integral part of the financial statements

115

<PAGE>

AARP Capital Growth Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------

Semiconductors 3.4%
<S> <C> <C>
Intel Corp. .................................................. 797,400 59,256,788
-------------
Energy 4.9%

Oil & Gas Production 2.1%
Royal Dutch Petroleum Co. (New York shares) .................. 617,500 36,471,094
-------------
Oil Companies 1.2%
Mobil Corp. .................................................. 213,800 21,540,350
-------------
Oilfield Services/Equipment 1.6%
Schlumberger Ltd. ............................................ 433,700 27,024,931
-------------
Total Common Stocks (Cost $1,147,755,339) .................... 1,684,922,448
-------------
- ------------------------------------------------------------------------------------------

Total Investment Portfolio (Cost $1,193,312,339) (a) ......... 1,730,479,448
=============
- ------------------------------------------------------------------------------------------

* Non income producing security.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $1,195,534,352 was as
follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ................... $ 580,868,812
--------------

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ................... (45,923,716)
--------------

Net unrealized appreciation ................................. $ 534,945,096
==============

- --------------------------------------------------------------------------------------------
</TABLE>

Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999, aggregated
$1,117,353,727 and $1,044,136,484, respectively.

The accompanying notes are an integral part of the financial statements

116

<PAGE>

AARP Small Company Stock Fund

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with State Sreet Bank & Trust Co., dated 9/30/1999 at
5.26% to be repurchased at $2,527,369 on 10/1/1999, collateralized by a
$2,560,000 U. S. Treasury Note Inflationary Index, 3.875%,1/15/2009
(Cost $2,527,000) ................................................................................... 2,527,000 2,527,000
----------

Common Stocks 96.2%
- ---------------------------------------------------------------------------------------------------------------------------------

Shares
- ---------------------------------------------------------------------------------------------------------------------------------

Consumer Discretionary 16.4%

Apparel & Shoes 3.4%
Brown Shoe Company, Inc. ............................................................................... 20,000 366,250
Genesco Inc.* .......................................................................................... 70,300 878,750
Kellwood Co. ........................................................................................... 18,300 402,600
Oxford Industries, Inc. ................................................................................ 17,400 375,188
Stage Stores, Inc.* .................................................................................... 12,600 77,963
The Children's Place Retail Stores, Inc.* .............................................................. 4,000 106,500
Timberland Co. "A"* .................................................................................... 2,000 78,125
----------
2,285,376
----------
Department & Chain Stores 1.2%
Ames Department Stores, Inc.* .......................................................................... 22,300 710,813
Goody's Family Clothing, Inc.* ......................................................................... 7,300 58,856
----------
769,669
----------
Home Furnishings 1.6%
Bush Industries, Inc. "A" .............................................................................. 9,400 122,788
La-Z-Boy Inc. .......................................................................................... 35,400 674,813
Mikasa, Inc. ........................................................................................... 21,400 251,450
----------
1,049,051
----------
Hotels & Casinos 0.3%
Hollywood Park, Inc.* .................................................................................. 1,300 19,988
Prime Hospitality Corp.* ............................................................................... 24,700 197,600
----------
217,588
----------
Recreational Products 3.5%
CPI Corp. .............................................................................................. 30,400 1,039,300
Coachmen Industries, Inc. .............................................................................. 7,100 109,163
THQ, Inc.* ............................................................................................. 10,200 439,875
Thor Industries, Inc. .................................................................................. 29,250 745,875
----------
2,334,213
----------
Restaurants 3.7%
Applebee's International Inc. .......................................................................... 10,500 353,719
Avado Brands, Inc. ..................................................................................... 26,200 147,375
CEC Entertainment Inc.* ................................................................................ 17,700 634,988
IHOP Corp.* ............................................................................................ 23,600 477,900
</TABLE>

The accompanying notes are an integral part of the financial statements

117

<PAGE>

AARP Small Company Stock Fund
<TABLE>
<CAPTION>

<S> <C> <C>
Rainforest Cafe Inc.* ........................................ 4,800 25,500
Ruby Tuesday, Inc. ........................................... 42,400 826,800
----------
2,466,282
----------
Specialty Retail 2.7%
Friedman's, Inc., "A" ........................................ 33,300 293,456
Just For Feet, Inc.* ......................................... 18,500 38,156
Pier 1 Imports, Inc. ......................................... 7,500 50,625
The Finish Line, Inc. "A"* ................................... 65,100 569,625
Trans World Entertainment Corp.* ............................. 10,400 131,950
United Auto Group, Inc.* ..................................... 4,000 50,750
Wet Seal, Inc. "A"* .......................................... 22,400 371,000
Zale Corp.* .................................................. 7,400 283,513
----------
1,789,075
----------
Consumer Staples 2.7%

Food & Beverage 2.4%
Michael Foods, Inc. .......................................... 26,000 683,313
Riviana Foods, Inc. .......................................... 33,300 641,025
Ruddick Corp. ................................................ 18,000 285,750
----------
1,610,088
----------
Package Goods/Cosmetics 0.3%
Chattem, Inc.* ............................................... 9,100 200,769
----------
Health 1.1%

Health Industry Services 0.7%
Magellan Health Services, Inc.* .............................. 19,800 144,788
Prime Medical Services, Inc.* ................................ 30,200 286,900
----------
431,688
----------
Hospital Management 0.2%
Coventry Health Care, Inc.* .................................. 13,100 124,450
----------
Medical Supply & Specialty 0.2%
Summit Technology, Inc.* ..................................... 6,800 124,525
----------
Communications 0.7%

Telephone/Communications
Pacific Gateway Exchange, Inc.* .............................. 2,200 36,025
Xircom, Inc.* ................................................ 10,200 435,413
----------
471,438
----------
Financial 6.6%

Banks 0.4%
NBT Bancorp Inc. ............................................. 16,611 287,578
----------
Insurance 5.1%
American Annuity Group, Inc. ................................. 9,200 198,950
Fidelity National Financial, Inc. ............................ 24,770 376,194
Harleysville Group, Inc. ..................................... 33,800 475,313
Hilb, Rogal & Hamilton Co. ................................... 43,000 1,077,688
Kansas City Life Insurance Co. ............................... 6,400 233,600

</TABLE>

The accompanying notes are an integral part of the financial statements

118

<PAGE>

<S> <C> <C>
RLI Corp. .................................................... 19,375 639,375
Selective Insurance Group, Inc. .............................. 18,800 354,850
----------
3,355,970
----------
Other Financial Companies 1.1%
Advanta Corp. "A" ............................................ 3,500 51,188
Bay View Capital Corp. ....................................... 36,200 479,650
Resource America, Inc. "A" ................................... 28,900 214,944
----------
745,782
----------
Media 1.1%

Advertising
Grey Advertising, Inc. ....................................... 1,910 702,880
----------
Service Industries 6.5%

Edp Services 0.6%
Computer Horizons Corp.* ..................................... 3,300 38,363
Cotelligent, Inc.* ........................................... 12,500 44,531
Pomeroy Computer Resources, Inc.* ............................ 31,700 350,681
----------
433,575
----------
Investment 1.5%
Advest Group, Inc. ........................................... 26,600 485,450
Southwest Securities Group, Inc. ............................. 18,420 497,340
----------
982,790
----------
Miscellaneous Commercial Services 2.9%
ABM Industries, Inc. ......................................... 32,200 817,075
Dycom Industries, Inc.* ...................................... 2,000 84,375
IMCO Recycling Inc. .......................................... 24,300 364,500
IT Group, Inc.* .............................................. 12,000 114,750
Labor Ready, Inc.* ........................................... 21,100 212,319
Personnel Group of America, Inc.* ............................ 21,100 131,875
SITEL Corp.* ................................................. 9,100 38,675
Source Information Management Co.* ........................... 100 1,419
Volt Information Sciences, Inc.* ............................. 7,000 169,750
----------
1,934,738
----------
Printing/Publishing 1.5%
Applied Graphics Technologies, Inc.* ......................... 19,700 169,913
Merrill Corp. ................................................ 40,000 797,500
----------
967,413
----------
Durables 10.1%

Aerospace 2.7%
AAR Corp. .................................................... 11,100 199,800
Aeroflex, Inc.* .............................................. 20,400 248,625
Curtiss-Wright Corp. ......................................... 16,900 545,025
Kaman Corp. "A" .............................................. 60,200 767,550
----------
1,761,000
----------
Automobiles 3.3%
Borg-Warner Automotive Inc. .................................. 13,858 595,894
Dura Automotive Systems, Inc.* ............................... 14,588 351,024

</TABLE>

The accompanying notes are an integral part of the financial statements

119

<PAGE>

AARP Small Company Stock Fund

<S> <C> <C>
Simpson Industries, Inc. ..................................... 65,500 724,594
Wynn's International, Inc. ................................... 31,500 502,031
----------
2,173,543
----------
Construction/Agricultural Equipment 1.9%
Cascade Corp. ................................................ 36,800 386,400
Terex Corp.* ................................................. 3,700 116,550
The Manitowoc Company, Inc. .................................. 22,950 783,169
----------
1,286,119
----------
Leasing Companies 2.2%
Aaron Rents, Inc. ............................................ 42,800 738,300
McGrath Rentcorp ............................................. 36,700 660,600
National Equipment Services, Inc.* ........................... 3,200 32,600
----------
1,431,500
----------
Manufacturing 21.4%

Chemicals 1.2%
Stepan Co. ................................................... 35,800 816,688
----------
Containers & Paper 0.2%
Chesapeake Corp. ............................................. 2,000 60,500
Wausau-Mosinee Paper Corp. ................................... 4,970 60,261
----------
120,761
----------
Diversified Manufacturing 3.8%
Barnes Group, Inc. ........................................... 37,400 750,338
Clarcor, Inc. ................................................ 23,250 390,891
NCH Corp. .................................................... 11,400 515,138
Robbins & Myers, Inc. ........................................ 11,300 175,150
Salton, Inc.* ................................................ 11,200 338,100
Tredegar Industries, Inc. .................................... 13,200 282,150
Valmont Industries ........................................... 3,500 59,063
----------
2,510,830
----------
Electrical Products 0.9%
C&D Technologies, Inc. ....................................... 2,500 90,781
The Alpine Group, Inc.* ...................................... 28,000 362,250
Windmere-Durable Holdings, Inc.* ............................. 12,800 154,400
----------
607,431
----------
Hand Tools 0.7%
L.S. Starrett Corp. .......................................... 17,900 445,263
----------
Industrial Specialty 6.3%
Albany International Corp. "A"* .............................. 12,333 186,537
Commercial Intertech Corp. ................................... 46,700 563,319
Commercial Metals Co. ........................................ 13,000 373,750
General Cable Corp. .......................................... 10,700 128,400
Lawson Products, Inc. ........................................ 41,800 903,925
NBTY Inc.* ................................................... 32,600 248,575
Pillowtex Corp. .............................................. 16,800 126,000
Regal-Beloit Corp. ........................................... 36,500 757,375

</TABLE>

The accompanying notes are an integral part of the financial statements

120
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------

<S> <C> <C>
Spartech Corp. ............................................... 25,300 741,606
Twinlab Corp.* ............................................... 18,900 167,738
----------
4,197,225
----------
Machinery/Components/Controls 4.6%
Amcast Industrial Corp. ...................................... 22,600 300,863
Columbus McKinnon Corp. ...................................... 30,800 531,300
Intermet Corp. ............................................... 38,800 328,588
MotivePower Industries, Inc.* ................................ 18,150 199,650
Reliance Steel & Aluminum Co. ................................ 22,950 481,950
Shaw Group, Inc.* ............................................ 32,000 718,000
Thomas Industries, Inc. ...................................... 11,500 214,906
Woodward Governor Co. ........................................ 11,100 276,806
----------
3,052,063
----------
Wholesale Distributors 3.7%
Applied Industrial Technology, Inc. .......................... 27,800 500,400
Barnett, Inc.* ............................................... 2,600 23,888
Bindley Western Industries, Inc. ............................. 49,288 705,435
Daisytek International Corp.* ................................ 10,200 143,438
Hughes Supply, Inc. .......................................... 24,750 538,313
Insight Enterprises, Inc.* ................................... 17,575 571,188
----------
2,482,662
----------
Technology 6.4%

Computer Software 2.7%
Activision, Inc.* ............................................ 23,100 407,138
MTI Technology Corp.* ........................................ 10,000 230,625
MTS Systems Corp. ............................................ 49,000 508,375
Structural Dynamics Research Corp.* .......................... 43,600 655,363
----------
1,801,501
----------
EDP Peripherals 0.1%
NeoMagic Corp.* .............................................. 11,300 87,575
----------
Electronic Components/Distributors 3.2%
Park Electrochemical Corp. ................................... 18,200 598,325
Pioneer-Standard Electronics, Inc. ........................... 43,100 622,256
Technitrol, Inc. ............................................. 25,500 898,875
----------
2,119,456
----------
Office/Plant Automation 0.1%
CACI International, Inc.* .................................... 1,700 36,231
----------
Semiconductors 0.3%
Alliance Semiconductor Corp. ................................. 20,000 212,500
----------
Energy 2.0%

Oil & Gas Production 0.9%
Marine Drilling Companies, Inc.* ............................. 16,700 264,069
UTI Energy Corp.* ............................................ 17,600 342,100
----------
606,169
----------
Oilfield Services/Equipment 1.1%
Veritas DGC Inc.* ............................................ 36,300 698,775
----------

</TABLE>

The accompanying notes are an integral part of the financial statements

121

<PAGE>

AARP Small Company Stock Fund
<TABLE>
<CAPTION>

<S> <C> <C>
Construction 6.9%

Building Materials 3.4%
Ameron International Corp. ................................... 20,300 952,831
Florida Rock Industries, Inc. ................................ 26,100 906,975
Texas Industries, Inc. ....................................... 11,100 410,700
----------
2,270,506
----------
Homebuilding 2.0%
Skyline Corp. ................................................ 36,600 940,163
Standard Pacific Corp. ....................................... 35,500 363,875
----------
1,304,038
----------
Miscellaneous 1.5%
Granite Construction, Inc. ................................... 38,100 992,981
----------
Transportation 2.4%

Airlines 0.7%
Alaska Air Group Inc.* ....................................... 9,600 390,600
Frontier Airlines, Inc.* ..................................... 7,600 72,200
----------
462,800
----------
Trucking 1.7%
Roadway Express, Inc. ........................................ 24,200 488,538
USFreightways Corp. .......................................... 13,600 644,300
----------
1,132,838
----------
Utilities 11.9%

Electric Utilities 6.2%
Black Hills Corp. ............................................ 41,700 972,131
Northwestern Corp. ........................................... 36,500 830,375
Public Service Co. of New Mexico ............................. 19,700 359,525
SIGCORP, Inc. ................................................ 33,200 846,600
TNP Enterprises, Inc. ........................................ 27,700 1,078,569
----------
4,087,200
----------
Natural Gas Distribution 4.3%
CTG Resources Inc. ........................................... 14,000 495,250
Connecticut Energy Corp. ..................................... 4,400 170,225
Energen Corp. ................................................ 30,800 623,700
Laclede Gas Co. .............................................. 21,900 498,225
NUI Corp. .................................................... 39,300 972,658
ONEOK, Inc. .................................................. 2,400 72,750
----------
2,832,808
----------
Water Supply 1.4%
California Water Service Group ............................... 33,700 922,538
----------
Total Common Stocks (Cost $66,240,335) ....................... 63,737,939
----------

- -------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $68,767,335) (a) ..... 66,264,939
==========
- -------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of the financial statements

122
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------

<S> <C>
* Non income producing security.

(a) At September 30, 1999, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $68,767,335 was as
follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ..................... $ 8,189,648

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ..................... (10,692,044)
-------------
Net unrealized depreciation ................................... $ (2,502,396)
=============
- -------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999 aggregated
$14,957,146 and $53,436,254, respectively.

- -------------------------------------------------------------------------------------------
</TABLE>

At September 30, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $665,000 which may be applied against
any realized net taxable capital gains of each succeeding year until
fully realized, or until September 30, 2006 ($2,000) and September 30,
2007 ($663,000), the respective expiration dates. In addition, from
November 1, 1998 through September 30, 1999 the Fund incurred
approximately $3,397,000 of net realized capital losses. As permitted
by tax regulations, the Fund intends to elect to defer these losses
and treat them as arising in the fiscal year ended September 30, 2000.

The accompanying notes are an integral part of the financial statements

123
<PAGE>

AARP Global Growth Fund

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Repurchase Agreements 2.4%
- --------------------------------------------------------------------------------------------------------------------------------

Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/1999
at 5.30% to be repurchased at $3,373,497 on 10/1/1999, collateralized by a
$3,564,000 U.S. Treasury Bond, 6.0%, 2/15/2026 (Cost $3,373,000) .................................... 3,373,000 3,373,000
----------

PARTICIPATION LOAN NOTES 0.3%
- --------------------------------------------------------------------------------------------------------------------------------

Luxembourg

Eurotunnel Finance Ltd., Step-up Coupon, 1.0% to 12/31/2005, 1%
plus 26.45% of net available cash flow to 4/30/2040 (Cost $404,411) .................................... 300(b) 451,362
----------

Common Stocks 97.3%
- --------------------------------------------------------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------------------------------------------------------

Australia 3.3%

Broken Hill Proprietary Co., Ltd. (Petroleum and mineral exploration and steel
production) ......................................................................................... 68,900 793,556
Foster's Brewing Group, Ltd. (Leading brewery) ......................................................... 356,858 1,005,988
WMC Ltd. (Mineral exploration and production) .......................................................... 195,800 996,600
Woodside Petroleum Ltd. (Major oil and gas producer) ................................................... 259,800 1,803,317
----------
4,599,461
----------
Austria 0.4%

Flughafen Wien AG (Operator of terminals and facilities at Vienna International
Airport) ............................................................................................ 14,100 563,751
----------
Brazil 1.4%

Aracruz Celulose S.A. (ADR) (Producer of eucalyptus kraft pulp) ........................................ 38,650 806,819
Companhia Vale do Rio Doce (Diverse mining and industrial complex) ..................................... 55,200 1,156,216
----------
1,963,035
----------
Canada 4.6%

BCE, Inc. (Telecommunication services) ................................................................. 21,600 1,074,554
Barrick Gold Corp. (Gold exploration and production in North and South
America) ............................................................................................ 84,600 1,840,050
Canadian National Railway Co. (Railroad operator) ...................................................... 48,000 1,458,907
Canadian Pacific Ltd. (Ord.) (Transportation and natural resource conglomerate) ........................ 46,050 1,054,436
Molson Cos., Ltd. "A" (Brewery) ........................................................................ 44,900 775,668
Noranda, Inc. (Operator in mining and metals) .......................................................... 26,100 356,621
----------
6,560,236
----------
France 2.2%

Canal Plus (Provider of television programs) ........................................................... 21,280 1,273,853
Compagnie de Saint-Gobain (Glass manufacturer) ......................................................... 9,568 1,786,669
----------
3,060,522
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

124

<PAGE>

- ----------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------

Germany 9.9%

<S> <C> <C>
BASF AG (International chemical producer) .............................................................. 37,640 1,606,551
Bayer AG (Leading chemical producer) ................................................................... 51,505 2,058,193
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing presses) ........................... 6,915 430,175
Hoechst AG (Chemical producer) ......................................................................... 47,033 2,052,631
HypoVereinsbank AG (Bank) .............................................................................. 21,256 1,242,931
Muenchener Rueckversicherungs-Gesellschaft AG (Registered) (Insurance
company) ............................................................................................ 3,924 794,294
RWE AG (pfd.) (Producer of petroleum and chemical products) ............................................ 37,337 1,551,786
Schering AG (Pharmaceutical and chemical producer) ..................................................... 13,845 1,514,264
Siemens AG (Electrical engineering and electronics company) ............................................ 4,300 355,824
VEBA AG (Electric utility, distributor of oil and chemicals) ........................................... 27,031 1,483,995
Viag AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) ............................................................ 49,192 934,328
----------
14,024,972
----------
Hong Kong 1.6%

Citic Pacific Ltd. (Diversified holding company) ....................................................... 247,000 683,638
Hutchison Whampoa, Ltd. (Container terminal and real estate) ........................................... 164,000 1,520,082
----------
2,203,720
----------
Japan 20.3%

Asahi Chemical Industry Co., Ltd. (Producer of synthetic fibers, industrial
chemicals, petrochemicals, plastics, rubber, and food products) ..................................... 134,000 746,964
Bank of Tokyo-Mitsubishi, Ltd. (Provider of financial services) ........................................ 63,000 968,274
Chugai Pharmaceutical Co., Ltd. (Pharmaceutical company) ............................................... 33,000 398,618
Daiwa Securities Co., Ltd. (Brokerage and other financial services) .................................... 180,000 1,641,286
East Japan Railway Co. (Railroad operator) ............................................................. 273 1,739,932
Fuji Bank, Ltd. (Commercial bank) ...................................................................... 103,000 1,252,886
Fujitsu Ltd. (Manufacturer of computers) ............................................................... 23,000 717,804
Mitsubishi Estate Co., Ltd. (Real estate company) ...................................................... 159,000 1,615,708
Mitsui Fudosan Co., Ltd. (Real estate company) ......................................................... 96,000 770,671
NEC Corp. (Manufacturer of telecommunication and computer equipment) ................................... 43,000 867,033
Nissan Motor Co., Ltd. (Manufacturer of motor vehicles) ................................................ 153,000 927,665
Sakura Bank, Ltd. (Bank) ............................................................................... 236,000 1,774,770
Sanwa Bank, Ltd. (Bank) ................................................................................ 76,000 1,018,049
Sharp Corp. (Manufacturer of consumer and industrial electronics) ...................................... 152,000 2,437,601
Shohkoh Fund & Co., Ltd. (Finance company for small and medium-sized firms) ............................ 2,300 1,718,838
Sony Corp. (Manufacturer of consumer electronic products) .............................................. 20,500 3,065,943
Sumitomo Metal Mining Co., Ltd. (Gold, nickel and copper mining company) ............................... 102,000 505,302
TDK Corp. (Manufacturer of magnetic tapes and floppy discs) ............................................ 9,000 1,043,147
Teijin Ltd. (Manufacturer of polyester products) ....................................................... 152,000 732,995
Toray Industries, Inc. (Manufacturer of synthetic fibers, leather and polyester) ....................... 155,000 801,372
Toshiba Corp. (General electronics manufacturer) ....................................................... 234,000 1,744,332
Yamanouchi Pharmaceutical Co., Ltd. (Manufacturer of ethical drugs) .................................... 49,000 2,298,458
----------
28,787,648
----------
Netherlands 0.3%

STMicroelectronics (Manufacturer of semiconductor integrated circuits) ................................. 5,219 407,646
----------

</TABLE>

The accompanying notes are an integral part of the financial statements

125
<PAGE>

AARP Global Growth Fund

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------

South Africa 0.9%

<S> <C> <C>
Anglo American Platinum Corp., Ltd. (ADR) (Platinum producer) ............... 48,765 1,304,464
----------
Switzerland 4.5%

Clariant AG (Registered) (Manufacturer of color chemicals) .................. 2,889 1,311,866
Nestle SA (Registered) (Food manufacturer) .................................. 666 1,254,170
Roche Holdings AG (PC) (Producer of drugs and medicines) .................... 143 1,658,227
Swisscom AG (Registered) (Operator of telecommunication networks
and network application services) ........................................ 3,598 1,124,450
UBS AG (Registered) (Provider of banking and asset management services) ..... 3,557 1,004,749
----------
6,353,462
----------
United Kingdom 13.5%

BOC Group PLC (Producer of industrial gases) ................................ 107,723 2,248,589
Carlton Communications PLC (Television post production products and services) 178,742 1,353,526
Enterprise Oil PLC (Oil and gas exploration and production) ................. 113,267 771,944
General Electric Co., PLC (Manufacturer of power, communications and defense
equipment) ............................................................... 147,024 1,411,039
Great Universal Stores PLC "A" (Catalog home shopping, retailing, finance and
property investment) ..................................................... 40,327 305,709
J Sainsbury PLC (Retail distributor of food through supermarkets) ........... 254,983 1,590,863
LASMO PLC (Oil production and exploration) .................................. 110,354 260,689
National Grid Group PLC (Owner and operator of electric transmission systems) 198,114 1,382,813
Prudential Corporation PLC (Provider of broad range of financial services) .. 92,732 1,427,327
Railtrack Group PLC (Operator of railway infrastructure) .................... 76,840 1,621,652
Reuters Group PLC (International news and information agency) ............... 137,517 1,552,969
Rio Tinto PLC (Mining and finance company) .................................. 131,709 2,287,443
Shell Transport & Trading PLC (Petroleum company) ........................... 192,000 1,428,637
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare
products) ................................................................ 128,267 1,471,209
Standard Chartered PLC (International banking group operating globally) ..... 2,670 38,459
----------
19,152,868
----------
United States 34.4%

AT&T Corp -- Liberty Media Group* (Holding company of entertainment
networks) ................................................................ 52,576 1,951,881
AT&T Corp. (Telecommunication services) ..................................... 28,043 1,219,871
Amerada Hess Corp. (Exploration, production and transmission of crude oil and
natural gas) ............................................................. 18,700 1,145,375
America Online Inc.* (Provider of online computer services) ................. 6,400 665,600
Azurix Corp.* (Provider of wastewater related services) ..................... 40,200 690,938
Biogen Inc.* (Biotechnology research and development) ....................... 10,900 859,056
CSX Corp. (Railroad, integrated transportation systems and shipping container
company) ................................................................. 29,600 1,254,300
Conoco Inc. "A" (Explorer of crude oil, natural gas, and natural gas liquids) 43,100 1,196,025
Electronic Data Systems Corp. (Provider of information technology systems) .. 38,500 2,038,094
Enron Corp. (Producer of natural gas and electricty) ........................ 58,820 2,426,325
Equity Residential Properties Trust (REIT) (Owner of apartment properties) .. 34,000 1,440,750
Freeport McMoRan Copper & Gold, Inc. "B" (U.S. company mining copper, gold
and silver in Indonesia) ................................................. 6,700 104,269

</TABLE>

The accompanying notes are an integral part of the financial statements

126
<PAGE>

- -----------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------

<S> <C> <C>
Homestake Mining Co. (International gold producer) ............................ 133,600 1,227,450
Immunex Corp.* (Biopharmaceutical company) .................................... 41,600 1,804,400
International Business Machines Corp. (Principal manufacturer of computers and
servicer of information processing units) .................................. 18,000 2,184,750
Lockheed Martin Corp. (Manufacturer of aircraft, missiles and space equipment) 47,700 1,559,194
Manulife Financial Corp.* (Provider of financial services) .................... 136,800 1,626,796
Motorola Inc. (Manufacturer of telecommunication products and
semiconductors) ............................................................ 16,600 1,460,800
Newmont Mining Corp. (International gold exploration and mining company) ...... 76,800 1,987,200
Northrop Grumman Corp. (Manufacturer of aircraft, aircraft assemblies and
electronic systems for military and commercial use) ........................ 24,900 1,582,706
Oracle Corp.* (Database management software) .................................. 41,050 1,867,775
PacifiCorp (Electric utility) ................................................. 82,000 1,650,250
Parametric Technology Corp.* (Mechanical design software producer) ............ 40,400 545,400
Peco Energy Co. (Electric and gas utility) .................................... 48,300 1,811,250
Phillips Petroleum Co. (Petroleum exploration, production and refining) ....... 24,000 1,170,000
ProLogis Trust (REIT) (Global owner of corporate distribution facilities) ..... 20,100 379,388
Progressive Corp. (Property and casualty insurance company) ................... 4,400 359,425
Sabre Group Holdings Inc. "A"* (Travel reservation system provider) ........... 24,100 1,036,300
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) .................................................................. 43,600 809,325
Stillwater Mining Co.* (Exploration and development of mines in Montana
producing platinum, palladium and associated metals) ....................... 59,100 1,588,313
Sun Microsystems, Inc.* (Producer of high-performance workstations, servers and
networking software) ....................................................... 22,100 2,055,300
US Airways Group, Inc. (Airline company) ...................................... 25,800 677,250
USEC Inc. (Provider of enriched uranium products and services) ................ 189,600 1,943,400
Unocal Corp. (Explorer and producer of oil and gas) ........................... 28,600 1,059,988
UnumProvident Corp. (Provider of group disability and special risk insurance) . 34,000 1,000,875
Williams Cos., Inc. (Gas pipeline operator and petroleum producer) ............ 47,800 1,789,513
XL Capital Ltd. "A" (Provider of insurance) ................................... 13,092 589,140
-----------
48,758,672
-----------
Total Common Stocks (Cost $116,824,857) ....................................... 137,740,457
-----------

- -----------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $120,602,268) (a) .................... 141,564,819
===========
- -----------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of the financial statements

127
<PAGE>

AARP Global Growth Fund

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------

<S> <C>
* Non income producing security.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $121,755,382 was as
follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost .......................... $ 26,797,588

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value .......................... (6,988,151)
---------------
Net unrealized appreciation ........................................ $ 19,809,437
===============

(b) Represents number of contracts. Each contract equals a nominal value
of EUR 2,931.

Currency Abbreviation
------------------------------------------
EUR EURO
- ------------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term
investments) for the year ended September 30, 1999 aggregated
$78,922,771 and $103,823,540, respectively.

</TABLE>

The accompanying notes are an integral part of the financial statements

128
<PAGE>

AARP International Stock Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 0.3%
- --------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/1999
at 5.30% to be repurchased at $110,016 on 10/1/1999, collateralized by a
$114,000 U.S. Treasury Note Inflationary Index, 3.375%, 1/15/2007
(Cost $110,000) ..................................................................................... 110,000 110,000
----------

Common Stocks 99.7%
- --------------------------------------------------------------------------------------------------------------------------------

Shares
- --------------------------------------------------------------------------------------------------------------------------------

Australia 2.4%

Broken Hill Proprietary Co., Ltd. (Petroleum, mineral and steel exploration
production) ......................................................................................... 31,700 365,105
WMC Ltd. (Mineral exploration and production) .......................................................... 62,200 316,591
Woodside Petroleum Ltd. (Oil and gas producer) ......................................................... 20,700 143,682
----------
825,378
----------
Canada 1.2%

Canadian National Railway Co. (Railroad operator) ...................................................... 13,800 419,436
----------
Finland 1.7%

Nokia OYJ (Manufacturer of telecommunication networks and equipment) ................................... 6,440 577,919
----------
France 17.9%

Alcatel (Manufacturer of transportation, telecommunication and energy
equipment) .......................................................................................... 1,133 156,440
Alstom (Designer and manufacturer of infrastructure systems and components) ............................ 2,735 91,579
AXA SA (Insurance group providing insurance, finance and real estate services) ......................... 1,074 136,146
Carrefour SA (Hypermarket operator and food retailer) .................................................. 1,714 274,887
Christian Dior (Fashion house) ......................................................................... 1,794 292,886
Club Mediterranee SA* (Operator of vacation resorts) ................................................... 760 77,041
Elf Aquitaine SA (Petroleum company) ................................................................... 5,882 1,029,328
Etablissements Economiques du Casino Guichard-Perrachon SA
(Operator of supermarkets and convenience stores) ................................................... 4,350 329,558
Eurotunnel SA* (Designer and financier of railway tunnel) .............................................. 308,765 477,728
France Telecom SA (Telecommunication services) ......................................................... 2,124 186,753
LVMH (Louis Vuitton Moet Hennessy) (Producer of wines, spirits and
luxury products) .................................................................................... 640 192,240
Lafarge SA (Producer of cement, concrete and aggregates) ............................................... 3,515 389,321
Pinault-Printemps-Redoute SA (Operator of department stores) ........................................... 1,503 285,472
Renault SA (Manufacturer of automobiles, buses, industrial and agricultural vehicles) .................. 4,180 231,488
Rhone-Poulenc SA "A" (Pharmaceutical company) .......................................................... 9,339 483,311
STMicroelectronics (Manufacturer of semiconductor integrated circuits) ................................. 5,705 445,607
Schneider SA (Manufacturer of electronic components and automated
manufacturing systems) .............................................................................. 3,254 238,539
Societe BIC SA (Manufacturer of office supplies) ....................................................... 6,220 304,110
Societe Television Francaise 1 (Television broadcasting) ............................................... 223 62,510
Suez Lyonnaise des Eaux (Water and electric utility) ................................................... 2,060 334,115

</TABLE>

The accompanying notes are an integral part of the financial statements

129

<PAGE>

AARP International Stock Fund
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------------------

<S> <C> <C>
Union des Assurances Federales (Insurance group) .............................. 1,500 187,267
----------
6,206,326
----------
Germany 11.0%

BASF AG (International chemical producer) ..................................... 9,096 388,236
Commerzbank AG (Bank) ......................................................... 5,740 220,495
Dresdner Bank AG (Bank) ....................................................... 6,200 292,414
Hoechst AG (Chemical producer) ................................................ 9,851 429,921
HypoVereinsbank AG (Bank) ..................................................... 4,260 249,101
Karstadt AG (Operator of department store chain) .............................. 436 197,259
Mannesmann AG (Registered) (Manufacturer of production machinery and
assembly systems) .......................................................... 3,324 532,031
SAP AG (Computer software manufacturer) ....................................... 1,024 395,543
Siemens AG (Electrical engineering and electronics company) ................... 5,951 492,444
VEBA AG (Electric utility, distributor of oil and chemicals) .................. 6,820 374,416
VIAG AG (Provider of electrical power and natural gas services,
aluminum products, chemicals, ceramics and glass) .......................... 12,220 232,101
----------
3,803,961
----------
Hong Kong 1.3%

Cheung Kong Holdings Ltd. (Real estate company) ............................... 20,000 166,710
Citic Pacific Ltd. (Diversified holding company) .............................. 59,000 163,298
New World Development Co., Ltd. (Property investment and development
company) ................................................................... 61,000 133,496
----------
463,504
----------
Italy 4.0%

Arnoldo Mondadori Editore SpA (Book publisher) ................................ 8,300 145,247
Banca Nazionale del Lavoro* (Bank) ............................................ 79,300 284,313
Class Editori SpA (Publishing house) .......................................... 8,400 72,154
Finmeccanica SpA* (Designer and developer of commercial and
military aircraft, space systems and air defense systems) .................. 231,000 213,213
Gruppo Editoriale L'Espresso (Publisher) ...................................... 8,800 164,326
Mediaset SpA (Broadcasting and television networks) ........................... 19,600 200,567
Seat Pagine Gialle SpA (Publisher of telecommunications directories and
provider of advertising services) .......................................... 304,100 304,047
----------
1,383,867
----------
Japan 32.9%

Advantest Corp. (Producer of measuring instruments and
semiconductor testing devices) ............................................. 2,000 289,528
Asahi Glass Co., Ltd. (Manufacturer of glass products) ........................ 24,000 166,272
Benesse Corp. (Provider of educational services) .............................. 2,000 398,383
Canon Inc. (Producer of visual image and information equipment) ............... 7,000 203,986
Daiwa Securities Co., Ltd. (Provider of brokerage and other financial services) 55,000 501,504
Fanuc Ltd. (Manufacturer of numerically controlled equipment for machine tools) 2,000 136,116
Fuji Bank, Ltd. (Commercial bank) ............................................. 41,000 498,722
Fujitsu Ltd. (Manufacturer of computers) ...................................... 20,000 624,177
Hitachi, Ltd. (Manufacturer of general electronics) ........................... 40,000 443,692
Kawasaki Steel Corp.* (Integrated steelmaker) ................................. 78,000 181,105
Komatsu Ltd. (Manufacturer of construction machinery) ......................... 19,000 126,095

</TABLE>

The accompanying notes are an integral part of the financial statements

130
<PAGE>

- -------------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------

<S> <C> <C>
Matsushita Electric Industrial Co., Ltd. (Manufacturer of consumer
electronic products) .......................................................... 18,000 383,249
Murata Manufacturing Co., Ltd. (Manufacturer of ceramic applied
electronic computers) ......................................................... 5,000 502,914
NEC Corp. (Manufacturer of telecommunication and computer equipment) ............. 30,000 604,907
NSK Ltd. (Manufacturer of bearings and motor vehicle machine parts) .............. 34,000 246,738
NTT Mobile Communications Network, Inc. (Provider of various
telecommunication services and equipment) ..................................... 40 789,622
Nikko Securities Co., Ltd. (Securities broker and dealer) ........................ 42,000 355,330
Nippon Telegraph & Telephone Corp. (Provider of telecommunication services) ...... 36 443,316
Nissan Motor Co., Ltd.* (Manufacturer of motor vehicles) ......................... 51,000 309,222
Nomura Securities Co., Ltd. (Financial adviser, securities broker and underwriter) 21,000 325,719
SMC Corp. (Manufacturer of directional control devices) .......................... 700 98,703
Sakura Bank, Ltd. (Bank) ......................................................... 69,000 518,895
Sanwa Bank, Ltd. (Bank) .......................................................... 21,000 281,303
Shin-Etsu Chemical Co., Ltd. (Producer and distributor of synthetic resins
and chemicals) ................................................................ 6,000 250,423
Sony Corp. (Manufacturer of consumer electronic products) ........................ 3,600 538,409
Sumitomo Trust & Banking Co., Ltd. (Commercial Bank) ............................. 54,000 427,919
TDK Corp. (Manufacturer of magnetic tapes and floppy discs) ...................... 2,000 231,810
THK Co., Ltd. (Manufacturer of linear motion systems for industrial machinery) ... 2,600 76,744
Teijin Ltd. (Manufacturer of polyester products) ................................. 36,000 173,604
Tokyo Electron Ltd. (Manufacturer of semiconductor production equipment) ......... 6,000 521,715
Toshiba Corp. (Manufacturer of electric machinery) ............................... 60,000 447,265
Yamanouchi Pharmaceutical Co., Ltd. (Pharmaceutical company) ..................... 6,000 281,444
----------
11,378,831
----------
Netherlands 5.3%

Akzo Nobel NV (Producer and marketer of healthcare products, coatings,
chemicals and fibers) ......................................................... 5,500 233,577
DSM NV (Chemical manufacturer) ................................................... 3,600 143,091
Elsevier NV (International publisher of scientific, professional, business, and
consumer information books) ................................................... 13,730 139,913
Equant NV* (Provider of international data network services) ..................... 3,600 293,482
Gucci Group NV (New York Shares) (Registered) (Designer and producer of
personal luxury accessories and apparel) ...................................... 5,200 434,200
Heineken Holding NV "A" (Producer and distributor of beers, spirits,
wines and soft drinks) ........................................................ 1,840 67,147
Koninklijke Ahold NV (International food retailer) ............................... 4,900 161,301
Laurus NV (International food retailer) .......................................... 2,370 54,372
United Pan-Europe Communications NV* (Telecommunication services) ................ 2,370 146,677
VNU NV (International publishing company) ........................................ 4,560 158,623
----------
1,832,383
----------
Singapore 0.6%

DBS Group Holdings Ltd. (Provider of banking and other financing services) ....... 10,467 117,053
Overseas-Chinese Banking Corp., Ltd. (Foreign registered) (Commercial bank) ...... 10,000 77,693
----------
194,746
----------
</TABLE>

The accompanying notes are an integral part of the financial statements

131
<PAGE>

AARP International Stock Fund
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------------------------
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------

Spain 0.7%

<S> <C> <C>
Telefonica SA* (Provider of telecommunication services) ...................... 14,470 232,066
----------
Switzerland 2.6%

Clariant AG (Registered) (Manufacturer of dye chemicals) ..................... 290 131,686
Nestle SA (Registered) (Food manufacturer) ................................... 180 338,965
Novartis AG (Registered) (Pharmaceutical company) ............................ 131 194,729
Roche Holdings AG (PC) (Producer of drugs and medicines) ..................... 19 220,324
----------
885,704
----------
United Kingdom 18.1%

BP Amoco PLC (Oil company) ................................................... 21,540 393,596
Billiton PLC (Resource group that explores, produces and markets
aluminum and other metal products) ........................................ 43,038 180,665
General Electric Co., PLC (Manufacturer of power, communications and
defense equipment) ........................................................ 37,241 357,415
Glaxo Wellcome PLC (Pharmaceutical company) .................................. 8,800 228,163
HSBC Holdings PLC (International banking and financial services company) ..... 28,400 324,472
J Sainsbury PLC (Retail distributor of food through supermarkets) ............ 58,930 367,670
Marks & Spencer, PLC (Retailer of consumer goods and foods) .................. 71,898 372,237
Orange PLC* (Operator of digital mobile telephone network) ................... 29,730 586,319
Prudential Corp., PLC (Provider of broad range of financial services) ........ 27,000 415,583
Reed International PLC (Publisher of scientific, professional and business
to business materials) .................................................... 33,000 198,285
Rentokil Initial PLC (Environmental services company) ........................ 40,000 141,573
Reuters Group PLC (International news and information agency) ................ 45,600 514,957
Rio Tinto PLC (Registered) (Mining company) .................................. 37,040 643,288
Royal & Sun Alliance Insurance Group PLC (Insurance company) ................. 31,195 248,036
Shell Transport & Trading PLC (Petroleum company) ............................ 67,700 503,743
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) 18,400 211,046
Standard Chartered PLC (International banking group operating globally) ...... 11,296 162,710
Vodafone Group PLC (Provider of telecommunication services) .................. 17,500 412,970
----------
6,262,728
----------
Total Common Stocks (Cost $33,046,860) ....................................... 34,466,849
----------
- ---------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $33,156,860) (a) .................... 34,576,849
==========
- ---------------------------------------------------------------------------------------------------------

* Non income producing security.

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $33,175,239 was as
follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................ $ 2,892,137

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................ (1,490,527)
-------------
Net unrealized appreciation .......................................... $ 1,401,610
=============

</TABLE>

The accompanying notes are an integral part of the financial statements

132
<PAGE>

- ---------------------------------------------------------------------------------------------------------

Transactions in written options for the year ended September 30, 1999 were:

Options on Securities
-------------------------------------------------
Premiums
Contracts Received ($)
--------- ------------

<S> <C> <C>
Outstanding at September 30, 1998 35,957 148,779
Written ......................... 375 85,912
Closed .......................... (36,332) (234,691)
-------- ---------
Outstanding at September 30, 1999 -- --
======== =========

- ---------------------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding short-term investments) for the year
ended September 30, 1999 aggregated $79,117,400 and $87,802,093, respectively.

</TABLE>

The accompanying notes are an integral part of the financial statements

133
<PAGE>
AARP Diversified Income Fund with Growth Portfolio
<TABLE>
<CAPTION>

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------

MONEY MARKET 0.9%
- --------------------------------------------------------------------------------------------

<S> <C> <C>
AARP High Quality Money Fund (Cost $884,979) ................. 884,979 884,979
-----------

FIXED INCOME 68.3%
- --------------------------------------------------------------------------------------------

AARP Bond Fund for Income .................................... 2,103,938 29,833,846
AARP GNMA and U.S. Treasury Fund ............................. 2,103,612 30,733,775
AARP High Quality Short Term Bond Fund ....................... 440,225 6,924,743
-----------
Total Fixed Income (Cost $70,622,629) ........................ 67,492,364
-----------

EQUITY 30.8%
- --------------------------------------------------------------------------------------------

AARP Capital Growth Fund ..................................... 32,359 2,027,920
AARP Growth and Income Fund .................................. 112,025 5,491,477
AARP Small Company Stock Fund ................................ 525 9,388
AARP U.S. Stock Index Fund ................................... 939,041 22,893,809
-----------
Total Equity (Cost $30,126,756) .............................. 30,422,594
-----------
- --------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $101,634,364) (a) .... 98,799,937
===========
- --------------------------------------------------------------------------------------------

(a) At September 30, 1999, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $101,716,149 was as
follows:

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........... $ 1,038,703

Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........... (3,954,915)
-------------
Net unrealized depreciation .................................. $ (2,916,212)
=============
- --------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding money market
investments) for the year ended September 30, 1999, aggregated
$39,071,626 and $21,362,989, respectively.

</TABLE>

The accompanying notes are an integral part of the financial statements

134
<PAGE>
AARP Diversified Growth Portfolio

<TABLE>
<CAPTION>
LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1999

- --------------------------------------------------------------------------------------------
Market
Shares Value ($)
- --------------------------------------------------------------------------------------------

MONEY MARKET 1.0%
- --------------------------------------------------------------------------------------------

<S> <C> <C>
AARP High Quality Money Fund (Cost $1,346,965) ............... 1,346,965 1,346,965
-----------

FIXED INCOME 28.3%
- --------------------------------------------------------------------------------------------

AARP Bond Fund for Income .................................... 1,794,509 25,446,133
AARP GNMA and U.S. Treasury Fund ............................. 824,826 12,050,714
-----------
Total Fixed Income (Cost $39,720,768) ........................ 37,496,847
-----------

EQUITY 70.7%
- --------------------------------------------------------------------------------------------

AARP Capital Growth Fund ..................................... 211,511 13,255,401
AARP Global Growth Fund ...................................... 331,446 6,708,468
AARP Growth and Income Fund .................................. 294,847 14,453,380
AARP International Stock Fund ................................ 336,288 6,413,012
AARP Small Company Stock Fund ................................ 367,611 6,576,565
AARP U.S. Stock Index Fund ................................... 1,899,840 46,318,106
-----------
Total Equity (Cost $90,524,888) .............................. 93,724,932
-----------
- --------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $131,592,621) (a) ... 132,568,744
===========
- --------------------------------------------------------------------------------------------

(a) At September 30, 1999, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $131,720,307 was as
follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost .................. $ 6,033,459

Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value .................. (5,185,022)
-----------
Net unrealized appreciation ................................ $ 848,437
===========
- --------------------------------------------------------------------------------------------

Purchases and sales of investment securities (excluding money market
investments) for the year ended September 30, 1999, aggregated
$43,617,251 and $45,045,000, respectively.

</TABLE>

The accompanying notes are an integral part of the financial statements

135
<PAGE>

<PAGE>

This page
intentionally
left blank.

136
<PAGE>

/5/
- -------------------------------------------------------------------------------

F I N A N C I A L S T A T E M E N T S

The information contained in this section is
legally required by federal securities law and
monitored by the Securities and Exchange
Commission (SEC) as it concerns the financial
status of each AARP mutual fund. Mutual funds are
required to deliver financial statements audited
by an independent accounting firm on an annual
basis. The independent accountant of the AARP
Investment Program's annual report is
PricewaterhouseCoopers LLP.

Financial Statements are records of the financial
status of an organization and are prepared by
management. Financial statements must conform to
Generally Accepted Accounting Principles (GAAP),
which are standards established by the Financial
Accounting Standards Board (FASB), the SEC, and
various committees of the American Institute of
Certified Public Accountants (AICPA).

This section consists of three different financial
statements for the funds: Statements of Assets and
Liabilities, Statements of Operations, and
Statements of Changes in Net Assets.

The Notes to Financial Statements explain the
significant accounting policies reflected in the
Financial Statements.

137

<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES

The Statements of Assets and Liabilities show the
net assets of the funds in the AARP Investment
Program.

Examples of assets include such items as:

o Investments at value: The current value of the
AARP fund's holdings on the last day of the
reporting period;

o Cash: The actual amount of the uninvested
assets held in each AARP fund;

o Receivables: Money owed to an AARP fund.
Sources of receivables include:

o Investments sold: Proceeds that the fund
will receive from investments sold which
settle at a later date;

o Fund shares sold: Proceeds that the fund
will receive from shares sold to
shareholders;

o Dividends and interest earned on the funds'
securities but not yet paid to the fund;

o Expense reimbursements due from the fund
manager.

o Daily variation margin on open futures
contracts: Payments due to/from the broker
that reflect the change in value from the
previous day of any futures contract held in
an AARP fund's portfolio (this figure could
show up as an asset or a liability).

Examples of liabilities include amounts owed for
such items as:

o Investments purchased for the AARP fund's
portfolio but that are not yet paid for;

o Fund shares redeemed but not yet paid to
shareholders;

o Dividends declared but not yet paid to
shareholders;

o Management fees incurred but unpaid at fiscal
year end;

o Other accrued expenses incurred but unpaid
at fiscal year end.

The section Net Assets Consist Of includes the
following:

o Undistributed (overdistributed) net investment
income: An AARP fund's accumulated investment
income less expenses and less distributions
paid from net investment income;

o Unrealized appreciation (or depreciation) on
investments: Represents the current value of
investments held less their cost;

138
<PAGE>

o Accumulated net realized capital gain (loss):
An AARP fund's accumulated realized gains and
losses from sales of investments, less
distributions paid from net realized gains;

o Paid-in capital: Represents the dollars
invested by shareholders, less the amount of
money redeemed since the applicable AARP fund
began operations.

The Statement of Assets and Liabilities also shows
the net asset value (NAV) for each AARP fund. Net
asset value is calculated by taking a fund's total
assets, deducting liabilities, and then dividing
this amount by the total number of capital shares
outstanding.

STATEMENTS OF OPERATIONS

The Statements of Operations include investment
income from interest and dividends and the various
expenses associated with the operation of the AARP
funds for the fiscal period. The Statements of
Operations also show net gains and losses for
various categories of investments, both realized
and unrealized gains and losses, for securities
sold and held in each fund's portfolio. The bottom
line tells you whether a fund's net assets have
increased or decreased as a result of fund
operations.

STATEMENTS OF CHANGES IN NET ASSETS

The Statements of Changes in Net Assets compare
increases and decreases from each AARP fund's
operations and shareholder transactions with those
of the previous fiscal period. Most of the terms
used in the Statements of Changes in Net Assets
are identical to those that are used in the other
two statements. The categories in the section Fund
Share Transactions include:

o Proceeds from the sale of shares: The amount
received by selling new shares to shareholders;

o Net asset value of shares issued due to
reinvested dividends and distributions;

o Cost of shares redeemed (or sold): The amount
paid to shareholders from the exchange or
redemption of shares.

139

<PAGE>
FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------
AARP High AARP High AARP
Quality Money Quality Tax Free Premium
September 30, 1999 Fund Money Fund Money Fund
- ----------------------------------------------------------------------------------------------------

ASSETS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at value (for cost, see accompanying
lists of investment portfolios) .............. $ 436,406,975 $ 86,949,606 $ 166,322,729
Cash ............................................ 481,821 -- 322
Receivable on investments sold .................. -- 200,000 --
Investment income receivable .................... 1,011,390 303,287 349,115
Receivable on fund shares sold .................. 1,365,816 49,683 1,335,354
Daily variation margin on futures contracts ..... -- -- --
Deferred organization expenses .................. -- -- --
Other assets .................................... 6,227 1,866 --
------------- ------------- -------------
Total assets .................................... 439,272,229 87,504,442 168,007,520

LIABILITIES
- ----------------------------------------------------------------------------------------------------
Due to custodian bank ........................... -- 34,254 --
Investments purchased ........................... 9,953,033 -- 995,303
Payable for when-issued and forward delivery
pools ........................................ -- -- --
Fund shares redeemed ............................ 1,650,341 16,825 606,925
Dividends payable ............................... 110,166 35,566 39,683
Daily variation margin on futures contracts ..... -- -- --
Management fee payable .......................... 111,280 27,729 --
Other payables and accrued expenses ............. 343,739 69,806 202,774
------------- ------------- -------------
Total liabilities .............................. 12,168,559 184,180 1,844,685
-------------
- ----------------------------------------------------------------------------------------------------
Net assets at value ............................. $ 427,103,670 $ 87,320,262 $ 166,162,835
- ----------------------------------------------------------------------------------------------------

NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ............................ $ -- $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments .................................. -- -- --
Futures contracts ............................ -- -- --
Foreign currency related transactions ........ -- -- --
Accumulated net realized capital gain (loss) .... (120,430) (738,883) --
Paid-in capital ................................. 427,224,100 88,059,145 166,162,835
-------------
- ----------------------------------------------------------------------------------------------------
Net assets at value ............................. $ 427,103,670 $ 87,320,262 $ 166,162,835
- ----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ...... 427,104,829 87,325,970 166,162,835
- ----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share .................................... $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
</TABLE>

* Unlimited number of shares authorized, $.01 par value, except the AARP High
Quality Tax Free Money Fund, which has a $.001 par value.

The accompanying notes are an integral part of the financial statements

140
<PAGE>

- --------------------------------------------------------------------------------------------
AARP High AARP GNMA and AARP Insured Tax AARP Bond AARP Balanced
Quality Short Term U.S. Treasury Free General Fund for Stock and Bond
Bond Fund Fund Bond Fund Income Fund
- --------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
$ 420,466,710 $ 4,447,913,071 $ 1,571,231,740 $ 206,603,478 $ 676,131,886
206 48,462 1,448,531 305 6,435
8,997,569 461,363,126 7,603,136 8,627,331 14,157,639
4,157,000 22,129,686 18,085,451 3,191,942 4,585,127
66,958 343,340 128,772 94,531 79,000
-- -- -- -- --
-- -- -- 6,940 --
2,127 296,297 243,285 221,143 4,958
- --------------- --------------- --------------- --------------- ---------------
433,690,570 4,932,093,982 1,598,740,915 218,745,670 694,965,045

- --------------------------------------------------------------------------------------------
-- -- -- -- --
12,970,090 -- 2,595,300 8,611,859 11,991,294

12,705,000 702,581,563 -- -- --
406,901 2,211,080 551,236 158,219 357,707
530,438 8,915,536 2,473,665 376,584 --
-- 404,566 350,625 -- --
158,591 1,398,848 620,216 173,004 267,541
162,256 520,120 170,304 238,686 415,052
- --------------- --------------- --------------- --------------- ---------------
26,933,276 716,031,713 6,761,346 9,558,352 13,031,594
- --------------------------------------------------------------------------------------------
$ 406,757,294 $ 4,216,062,269 $ 1,591,979,569 $ 209,187,318 $ 681,933,451
- --------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------

$ (530,438) $ (8,915,536) $ 399,442 $ (5,373) $ 217,706

(10,234,723) (64,491,054) 83,844,846 (11,861,507) 61,938,937
-- (320,986) 516,335 -- --
-- -- -- -- --
(3,958,912) (330,773,552) (33,279,940) (2,766,042) 10,993,531
421,481,367 4,620,563,397 1,540,498,886 223,820,240 608,783,277
- --------------------------------------------------------------------------------------------
$ 406,757,294 $ 4,216,062,269 $ 1,591,979,569 $ 209,187,318 $ 681,933,451
- --------------------------------------------------------------------------------------------
25,862,023 288,594,032 89,883,411 14,756,547 35,307,946
- --------------------------------------------------------------------------------------------

$ 15.73 $ 14.61 $ 17.71 $ 14.18 $ 19.31
- --------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

141
<PAGE>

Financial Statements

<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------------
AARP Growth AARP U.S. AARP
and Income Stock Index Capital Growth
September 30, 1999 Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at value (for cost, see accompanying
lists of investment portfolios) .............. $ 6,075,532,880 $ 576,183,211 $ 1,730,479,448
Cash and foreign currency holdings .............. 932 983 417
Receivable on investments sold .................. 54,316,323 -- 35,632,155
Investment income receivable .................... 14,324,538 695,828 854,815
Receivable on fund shares sold .................. 892,373 853,367 629,429
Daily variation margin on futures contracts ..... -- 75,299 --
Deferred organization expenses .................. -- 7,700 --
Other assets .................................... 36,216 505 7,434
--------------- --------------- ---------------
Total assets .................................... 6,145,103,262 577,816,893 1,767,603,698

LIABILITIES
- ----------------------------------------------------------------------------------------------------------
Investments purchased ........................... 30,274,153 -- 30,382,682
Fund shares redeemed ............................ 2,712,183 345,731 405,625
Dividends payable ............................... -- -- --
Management fee payable .......................... 2,423,708 13,454 852,374
Other payables and accrued expenses ............. 2,639,989 484,092 643,684
--------------- --------------- ---------------
Total liabilities ............................... 38,050,033 843,277 32,284,365
- ----------------------------------------------------------------------------------------------------------
Net assets at value ............................. $ 6,107,053,229 $ 576,973,616 $ 1,735,319,333
- ----------------------------------------------------------------------------------------------------------

NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net
investment income ............................ $ 1,569,658 $ 237,518 $ 940,626
Net unrealized appreciation (depreciation) on:
Investments .................................. 1,286,528,950 35,957,852 537,167,109
Futures contracts ............................ -- (125,557) --
Foreign currency related transactions ........ (880,384) -- --
Accumulated net realized capital gain (loss) .... 250,409,013 489,954 151,167,409
Paid-in capital ................................. 4,569,425,992 540,413,849 1,046,044,189
- ----------------------------------------------------------------------------------------------------------
Net assets at value ............................. $ 6,107,053,229 $ 576,973,616 $ 1,735,319,333
- ----------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding* ...... 124,572,024 23,658,097 27,686,099
- ----------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share .................................... $ 49.02 $ 24.39 $ 62.68
- ----------------------------------------------------------------------------------------------------------
</TABLE>

* Unlimited number of shares authorized, $.01 par value, except the AARP High
Quality Tax Free Money Fund, which has a $.001 par value.

The accompanying notes are an integral part of the financial statements

142
<PAGE>

- --------------------------------------------------------------------------------
AARP
AARP Small AARP International AARP Diversified AARP
Company Stock Global Growth Stock Income with Diversified
Fund Fund Fund Growth Portfolio Growth Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$ 66,264,939 $ 141,564,819 $ 34,576,849 $ 98,799,937 $ 132,568,744
27 2,985,627 945 -- --
249,867 831,997 423,576 100,000 --
66,165 326,580 120,254 -- --
30,838 83,000 10,675 8,735 28,004
- ------------- ------------- ------------- ------------- -------------
6,094 3,838 6,094 -- --
536 907 8,721 -- --
- ------------- ------------- ------------- ------------- -------------
66,618,466 145,796,768 35,147,114 98,908,672 132,596,748

- --------------------------------------------------------------------------------
383,412 517,174 225,060 100,808 --
67,606 30,959 1,109 60,472 18,331
-- -- -- 205,375 --
166,811 95,934 78,414 -- --
105,270 221,288 164,270 -- --
- ------------- ------------- ------------- ------------- -------------
723,099 865,355 468,853 366,655 18,331
- --------------------------------------------------------------------------------
$ 65,895,367 $ 144,931,413 $ 34,678,261 $ 98,542,017 $ 132,578,417
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

$ 48,570 $ (820,113) $ 224,102 $ 98,224 $ 2,600,431

(2,502,396) 20,962,551 1,419,989 (2,834,427) 976,123
-- -- -- -- --
-- (17,927) 637 -- --
(4,061,631) 12,854,729 1,115,158 1,356,559 4,985,604
72,410,824 111,952,173 31,918,375 99,921,661 124,016,259
- --------------------------------------------------------------------------------
$ 65,895,367 $ 144,931,413 $ 34,678,261 $ 98,542,017 $ 132,578,417
- --------------------------------------------------------------------------------
3,682,510 7,162,400 1,818,198 6,299,112 7,257,853
- --------------------------------------------------------------------------------

$ 17.89 $ 20.24 $ 19.07 $ 15.64 $ 18.27
- --------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements

143

<PAGE>

Financial Statements

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
AARP High AARP High AARP
Quality Money Quality Tax Free Premium
Year Ended September 30, 1999 Fund Money Fund Money Fund (a)
- -------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Income:
Interest ........................................... $27,189,830 $ 3,027,619 $ 2,922,886
Dividends .......................................... -- -- --
----------- ----------- -----------
27,189,830 3,027,619 2,922,886
Less foreign taxes withheld ........................ -- -- --
----------- ----------- -----------
27,189,830 3,027,619 2,922,886
-----------
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee ..................................... 2,002,782 360,800 211,923
Services to shareholders ........................... 2,140,642 280,427 108,304
Trustees' fees and expenses ........................ 25,038 27,123 15,978
Shareholder communications ......................... 181,798 19,287 20,550
Legal .............................................. 8,708 8,977 2,500
Audit and tax services ............................. 24,930 24,492 16,000
Custodian and accounting fees ...................... 68,260 46,220 24,671
Registration expenses .............................. 111,611 20,765 100,546
Amortization of organization expenses .............. -- -- --
Other .............................................. 29,488 20,992 1,933
----------- ----------- -----------
Total expenses before reductions ...................... 4,593,257 809,083 502,405
Expense reductions .................................... -- -- (224,814)
----------- ----------- -----------
Expenses, net ......................................... 4,593,257 809,083 277,591
- -------------------------------------------------------------------------------------------------------
Net investment income ................................. 22,596,573 2,218,536 2,645,295
- -------------------------------------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------

Net realized gain (loss) from:
Investments ...................................... 8,916 -- --
Futures contracts ................................ -- -- --
Written options .................................. -- -- --
Foreign currency related transactions ............ -- -- --
Net unrealized appreciation (depreciation) on:
Investments ...................................... 122,643 -- --
Futures contracts ................................ -- -- --
Written options .................................. -- -- --
Foreign currency related transactions ............ -- -- --
----------- ----------- -----------
Net gain (loss) on investments ........................ 131,559 -- --
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................... $22,728,132 $ 2,218,536 $ 2,645,295
- -------------------------------------------------------------------------------------------------------
</TABLE>

(a) The fund commenced operations on February 1, 1999.

The accompanying notes are an integral part of the financial statements

144

<PAGE>

- ---------------------------------------------------------------------------------------------------------------------------
AARP High AARP GNMA and AARP Insured Tax AARP Bond AARP Balanced Stock
Quality Short U.S. Treasury Free General Fund for and Bond Income
Term Bond Fund Fund Bond Fund Income Income
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
$ 27,561,273 $ 306,870,601 $ 89,412,530 $ 14,882,823 $ 18,267,007
-- -- -- -- 12,980,888
- ---------------------- --------------------- --------------------- -------------------- ------------------
27,561,273 306,870,601 89,412,530 14,882,823 31,247,895
-- -- -- -- (216,162)
- ---------------------- --------------------- --------------------- -------------------- ------------------
27,561,273 306,870,601 89,412,530 14,882,823 31,031,733
- ---------------------------------------------------------------------------------------------------------------------------

2,018,512 17,789,059 7,913,284 1,159,527 3,507,049
1,340,153 9,128,298 2,638,688 480,349 2,461,180
26,448 25,988 24,673 24,565 26,172
170,600 696,936 157,678 33,498 299,215
9,835 14,069 9,893 11,420 8,792
48,268 74,715 61,046 30,613 38,675
71,020 838,060 282,948 61,942 135,827
28,218 73,622 55,727 47,539 65,780
-- -- -- 2,599 2,996
9,842 336,027 93,813 6,490 25,049
- ---------------------- --------------------- --------------------- -------------------- ------------------
3,722,896 28,976,774 11,237,750 1,858,542 6,570,735
-- -- -- (986,523) --
- ---------------------- --------------------- --------------------- -------------------- ------------------
3,722,896 28,976,774 11,237,750 872,019 6,570,735
- ---------------------------------------------------------------------------------------------------------------------------
23,838,377 277,893,827 78,174,780 14,010,804 24,460,998
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------

(2,349,844) (85,284,330) (1,767,413) (2,655,856) 12,450,849
(56,938) (669,458) 13,265,999 (20,134) (40,299)
-- -- -- -- --
-- -- -- -- 1,883

(16,341,158) (150,029,295) (113,458,798) (12,522,389) 8,253,135
-- (320,986) 4,367,998 -- --
-- -- -- -- --
-- -- -- -- (2,843)
- ---------------------- --------------------- --------------------- -------------------- ------------------
(18,747,940) (236,304,069) (97,592,214) (15,198,379) 20,662,725
- ---------------------------------------------------------------------------------------------------------------------------

$ 5,090,437 $ 41,589,758 $ (19,417,434) $ (1,187,575) $ 45,123,723
- ---------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements

145

<PAGE>
Financial Statements

STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
AARP Growth AARP U.S. AARP
and Income Stock Index Capital Growth
Year Ended September 30, 1999 Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------

Income:
Interest ........................................... $ 6,402,228 $ 554,334 $ 2,839,289
Dividends .......................................... 179,630,130 6,242,944 13,039,369
Income distributions from underlying funds ......... -- -- --
------------- ------------- -------------
186,032,358 6,797,278 15,878,658
Less foreign taxes withheld ........................ (2,569,792) (55,727) (175,736)
------------- ------------- -------------
183,462,566 6,741,551 15,702,922
- -----------------------------------------------------------------------------------------------------------
Expenses:
Management fee ..................................... 31,563,131 1,040,960 9,574,273
Services to shareholders ........................... 16,290,167 1,234,507 4,074,646
Trustees' fees and expenses ........................ 27,611 26,723 27,094
Shareholder communications ......................... 1,553,824 80,951 412,811
Legal .............................................. -- 10,888 9,700
Audit and tax services ............................. 61,607 28,760 46,076
Custodian and accounting fees ...................... 672,804 200,468 168,174
Registration expenses .............................. 190,968 168,365 106,895
Amortization of organization expenses .............. -- 3,845 --
Other .............................................. 405,409 34,447 140,735
------------- ------------- -------------
Total expenses before reductions ...................... 50,765,521 2,829,914 14,560,404
Expense reductions .................................... -- (971,542) --
------------- ------------- -------------
Expenses, net ......................................... 50,765,521 1,858,372 14,560,404
- -----------------------------------------------------------------------------------------------------------
Net investment income ................................. 132,697,045 4,883,179 1,142,518
- -----------------------------------------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ...................................... 251,493,612 807,786 151,447,422
Futures contracts ................................ -- (324,213) --
Written options .................................. -- -- --
Foreign currency related transactions ............ (1,624,371) (31) 182
Capital gain distributions from underlying
funds ........................................... -- -- --
Net unrealized appreciation (depreciation) on:
Investments ...................................... 401,580,638 35,053,531 301,659,589
Futures contracts ................................ -- (75,009) --
Written options .................................. -- -- --
Foreign currency related transactions ............ (1,090,907) (9) 355
------------- ------------- -------------
Net gain (loss) on investments ........................ 650,358,972 35,462,055 453,107,548
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................... $ 783,056,017 $ 40,345,234 $ 454,250,066
- -----------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

146

<PAGE>

- --------------------------------------------------------------------------------------------------------------------------
AARP Small AARP AARP AARP Diverified AARP
Company Stock Global Growth International Stock Income with Diversified
Fund Fund Fund Growth Portfolio Growth Portfolio
- --------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
$ 54,118 $ 610,918 $ 90,347 $ -- $ --
1,540,965 2,716,482 956,532 -- --
-- -- -- 5,186,587 4,166,642
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,595,083 3,327,400 1,046,879 5,186,587 4,166,642
(1,223) (173,693) (86,119) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,593,860 3,153,707 960,760 5,186,587 4,166,642
- --------------------------------------------------------------------------------------------------------------------------

721,832 1,250,584 337,378 -- --
511,266 695,195 228,891 -- --
27,423 25,475 27,728 -- --
65,918 114,846 25,720 -- --
10,821 15,381 8,616 -- --
34,710 33,575 31,905 -- --
56,504 295,802 163,503 -- --
29,905 45,144 29,699 -- --
2,598 2,741 2,599 -- --
16,309 10,514 66,613 -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,477,286 2,489,257 922,652 -- --
-- -- (249,677) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
1,477,286 2,489,257 672,975 -- --
- --------------------------------------------------------------------------------------------------------------------------
116,574 664,450 287,785 5,186,587 4,166,642
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
(3,853,562) 12,591,237 1,198,514 207,221 546,010
-- -- -- -- --
-- -- 168,719 -- --
-- (983,806) (20,523) -- --
-- -- 1,537,738 4,425,313
--

9,318,977 13,134,871 4,216,116 (2,552,929) 5,381,702
-- -- -- -- --
-- -- (11,064) -- --
-- (66,687) (12,925) -- --
- ---------------------- --------------------- --------------------- -------------------- --------------------
5,465,415 24,675,615 5,538,837 (807,970) 10,353,025
- --------------------------------------------------------------------------------------------------------------------------

$ 5,581,989 $ 25,340,065 $ 5,826,622 $ 4,378,617 $ 14,519,667
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements

147

<PAGE>

FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
AARP High AARP High
Quality Quality Tax Free
Money Fund Money Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------

Years Ended September 30, Years Ended September 30,

Operations: 1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net investment income ......................... $ 22,596,573 $ 23,336,500 $ 2,218,536 $ 2,773,354
Net realized gain (loss) on investment
transactions ................................ 8,916 6,791 -- (222)
Net unrealized appreciation (depreciation) on
investment transactions during the period ... 122,643 (2,180) -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................... 22,728,132 23,341,111 2,218,536 2,773,132
----------------------------------------------------------------
Distributions to shareholders:
Net investment income ......................... (22,609,342) (23,339,437) (2,218,536) (2,773,354)
Net realized gains ............................ -- -- -- --
------------- ------------- ------------- -------------
Total distributions .............................. (22,609,342) (23,339,437) (2,218,536) (2,773,354)
----------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares .................. 595,652,685 742,177,737 24,295,424 31,796,782
Net asset value of shares issued to
shareholders in reinvestment of distributions 20,663,500 21,266,236 1,798,994 2,238,469
Cost of shares redeemed ....................... (770,071,551) (654,016,268) (36,370,390) (39,052,688)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from fund
share transactions ............................ (153,755,366) 109,427,705 (10,275,972) (5,017,437)
------------- ------------- ------------- -------------
Increase (decrease) in net assets ................ (153,636,576) 109,429,379 (10,275,972) (5,017,659)
Net assets at beginning of period ................ 580,740,246 471,310,867 97,596,234 102,613,893
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (b) .................. $ 427,103,670 $ 580,740,246 $ 87,320,262 $ 97,596,234
- ------------------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------

Shares outstanding at beginning of period ........ 580,860,195 471,432,488 97,601,942 102,619,379
------------- ------------- ------------- -------------
Shares sold ...................................... 595,652,685 742,177,739 24,295,424 31,796,782
Shares issued to shareholders in reinvestment of
distributions ................................. 20,663,500 21,266,236 1,798,994 2,238,469
Shares redeemed .................................. (770,071,551) (654,016,268) (36,370,390) (39,052,688)
------------- ------------- ------------- -------------
Net increase (decrease) in fund shares ........... (153,755,366) 109,427,707 (10,275,972) (5,017,437)
------------- ------------- ------------- -------------
Shares outstanding at end of period .............. 427,104,829 580,860,195 87,325,970 97,601,942
- ------------------------------------------------------------------------------------------------------------------------------------

(b) Includes undistributed (overdistributed) net
investment income ......................... $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of the financial statements

148
<PAGE>

---------------------------------------------------------------------------------------------------------------------------------
AARP AARP High AARP GNMA
Premium Quality Short Term and U.S.
Money Fund (a) Bond Fund Treasury Fund
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------

Period Ended Years Ended September 30, Years Ended September 30,
September 30,
1999 1999 1998 1999 1998
------------------ ------------------ ------------------ ------------------ ------------------

<S> <C> <C> <C> <C> <C>
$ 2,645,295 $ 23,838,377 $ 25,653,997 $ 277,893,827 $ 295,278,717

-- (2,406,782) 8,312,412 (85,953,788) 68,923,018

-- (16,341,158) (317,792) (150,350,281) 1,993,609
------------------ ------------------ ------------------ ------------------ ------------------

2,645,295 5,090,437 33,648,617 41,589,758 366,195,344
---------------------------------------------------------------------------------------------------------------------------------

(2,645,295) (23,838,377) (25,653,997) (277,954,441) (295,278,717)
-- -- -- -- --
------------------ ------------------ ------------------ ------------------ ------------------
(2,645,295) (23,838,377) (25,653,997) (277,954,441) (295,278,717)
---------------------------------------------------------------------------------------------------------------------------------

228,428,072 39,203,736 52,198,337 402,322,579 454,389,480

2,425,448 16,903,856 17,897,962 163,591,362 170,131,728
(64,690,685) (78,276,992) (85,285,803) (706,543,959) (686,361,325)
------------------ ------------------ ------------------ ------------------ ------------------

166,162,835 (22,169,400) (15,189,504) (140,630,018) (61,840,117)
------------------ ------------------ ------------------ ------------------ ------------------
166,162,835 (40,917,340) (7,194,884) (376,994,701) 9,076,510
-- 447,674,634 454,869,518 4,593,056,970 4,583,980,460
---------------------------------------------------------------------------------------------------------------------------------
$ 166,162,835 $ 406,757,294 $ 447,674,634 $ 4,216,062,269 $ 4,593,056,970
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------

-- 27,254,456 28,196,489 298,216,939 302,304,535
------------------ ------------------ ------------------ ------------------ ------------------
228,428,072 2,431,766 3,213,267 26,723,352 29,865,850

2,425,448 1,055,661 1,102,614 10,939,317 11,174,231
(64,690,685) (4,879,860) (5,257,914) (47,285,576) (45,127,677)
------------------ ------------------ ------------------ ------------------ ------------------
166,162,835 (1,392,433) (942,033) (9,622,907) (4,087,596)
------------------ ------------------ ------------------ ------------------ ------------------
166,162,835 25,862,023 27,254,456 288,594,032 298,216,939
---------------------------------------------------------------------------------------------------------------------------------

(a) The fund commenced operations on February 1, 1999.

$ -- $ (530,438) $ 240,718 $ (8,915,536) $ --
</TABLE>

The accompanying notes are an integral part of the financial statements

149
<PAGE>

Financial Statements

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
AARP Insured AARP Bond
Tax Free General Fund for
Bond Fund Income
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------

Years Ended September 30, Years Ended September 30,
Operations: 1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net investment income ................. $ 78,174,780 $ 80,744,879 $ 14,010,804 $ 7,277,808
Net realized gain (loss) on investment
transactions ........................ 11,498,586 (10,723,118) (2,675,990) 2,082,403
Net unrealized appreciation
(depreciation) on investment
transactions during the period....... (109,090,800) 54,722,106 (12,522,389) (194,239)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations............... (19,417,434) 124,743,867 (1,187,575) 9,165,972

------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ................. (78,174,780) (80,744,879) (14,012,564) (7,273,651)
Net realized gains .................... (6,413,928) (4,608,507) (2,134,810) (105,326)
--------------- --------------- --------------- ---------------
Total distributions ...................... (84,588,708) (85,353,386) (16,147,374) (7,378,977)
------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares .......... 115,568,677 124,316,305 106,594,857 146,283,322
Net asset value of shares issued to
shareholders in reinvestment of
distributions........................ 51,046,126 50,996,040 11,444,471 5,248,778
Cost of shares redeemed ............... (202,409,289) (194,930,797) (71,957,688) (31,202,614)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from
fund share transactions................. (35,794,486) (19,618,452) 46,081,640 120,329,486
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets ........ (139,800,628) 19,772,029 28,746,691 122,116,481
Net assets at beginning of period ........ 1,731,780,197 1,712,008,168 180,440,627 58,324,146
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) .......... $ 1,591,979,569 $ 1,731,780,197 $ 209,187,318 $ 180,440,627
- ---------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN FUND SHARES:
- ---------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 91,878,322 92,944,577 11,708,636 3,836,332
--------------- --------------- --------------- ---------------
Shares sold .............................. 6,255,603 6,709,199 7,160,150 9,571,994
Shares issued to shareholders in
reinvestment of distributions........... 2,778,410 2,748,404 775,779 343,356

Shares redeemed .......................... (11,028,924) (10,523,858) (4,888,018) (2,043,046)
--------------- --------------- --------------- ---------------
Net increase (decrease) in fund shares ... (1,994,911) (1,066,255) 3,047,911 7,872,304
--------------- --------------- --------------- ---------------
Shares outstanding at end of period ...... 89,883,411 91,878,322 14,756,547 11,708,636
- -------------------------------------------------------------------------------------------------------------------------------

(a) Includes undistributed (overdistributed)
net investment income ............... $ 399,442 $ -- $ (5,373) $ --

</TABLE>

The accompanying notes are an integral part of the financial statements

150
<PAGE>
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
AARP Balanced AARP Growth AARP U.S.
Stock and Bond and Income Stock Index
Fund Fund Fund
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------

Years Ended September 30, Years Ended September 30, Years Ended September 30,
1999 1998 1999 1998 1999 1998
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 24,460,998 $ 25,460,284 $ 132,697,045 $ 157,629,671 $ 4,883,179 $ 1,172,870

12,412,433 45,011,122 249,869,241 768,155,112 483,542 128,809

8,250,292 (67,515,206) 400,489,731 (1,245,386,100) 34,978,513 (2,891,885)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------

45,123,723 2,956,200 783,056,017 (319,601,317) 40,345,234 (1,590,206)
---------------------------------------------------------------------------------------------------------------------------------

(25,067,125) (25,262,963) (142,271,372) (150,480,599) (4,702,820) (1,166,480)
(41,272,794) (30,730,876) (702,702,383) (581,929,952) -- (299,527)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(66,339,919) (55,993,839) (844,973,755) (732,410,551) (4,702,820) (1,466,007)
---------------------------------------------------------------------------------------------------------------------------------

83,760,091 230,950,072 563,448,730 1,314,868,507 514,687,937 113,869,347

61,044,041 51,664,577 771,717,116 671,791,394 4,468,459 1,351,979
(181,717,076) (127,870,676) (1,618,062,191) (1,088,793,618) (101,507,475) (26,567,905)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------

(36,912,944) 154,743,973 (282,896,345) 897,866,283 417,648,921 88,653,421
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(58,129,140) 101,706,334 (344,814,083) (154,145,585) 453,291,335 85,597,208
740,062,591 638,356,257 6,451,867,312 6,606,012,897 123,682,281 38,085,073
---------------------------------------------------------------------------------------------------------------------------------
$ 681,933,451 $ 740,062,591 $ 6,107,053,229 $ 6,451,867,312 $ 576,973,616 $ 123,682,281
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------

37,071,341 29,829,626 129,663,295 113,474,683 6,422,055 2,117,187
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
4,108,736 10,797,928 10,875,438 23,135,455 21,238,722 5,583,188

3,079,648 2,505,030 15,722,536 12,743,832 182,135 68,996
(8,951,779) (6,061,243) (31,689,245) (19,690,675) (4,184,815) (1,347,316)
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(1,763,395) 7,241,715 (5,091,271) 16,188,612 17,236,042 4,304,868
------------------- ------------------ ------------------ ------------------ ------------------ ------------------
35,307,946 37,071,341 124,572,024 129,663,295 23,658,097 6,422,055
---------------------------------------------------------------------------------------------------------------------------------

$ 217,706 $ 489,400 $ 1,569,658 $ 5,829,789 $ 237,518 $ 23,173

</TABLE>

The accompanying notes are an integral part of the financial statements

151
<PAGE>

Financial Statements

INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------

Years Ended September 30, Years Ended September 30,
Operations: 1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income ....................... $ 1,142,518 $ 6,608,585 $ 116,574 $ 61,313
Net realized gain (loss) on investment
transactions .............................. 151,447,604 158,605,233 (3,853,562) (208,069)
Net unrealized appreciation (depreciation) on
investment transactions during the period.. 301,659,944 (218,002,482) 9,318,977 (19,455,499)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ............................. 454,250,066 (52,788,664) 5,581,989 (19,602,255)
-------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ....................... (5,808,380) (6,661,535) (84,460) (123,413)
Net realized gains .......................... (158,014,903) (92,509,359) -- (246,828)
----------------- ---------------- ----------------- ----------------
Total distributions ............................ (163,823,283) (99,170,894) (84,460) (370,241)
-------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares ................ 328,380,919 278,559,039 19,840,511 99,397,378
Net asset value of shares issued to shareholders
in reinvestment of distributions .......... 155,712,173 94,606,720 81,440 359,305
Cost of shares redeemed ..................... (286,536,164) (202,250,533) (56,215,601) (33,364,172)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from fund
share transactions .......................... 197,556,928 170,915,226 (36,293,650) 66,392,511
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets .............. 487,983,711 18,955,668 (30,796,121) 46,420,015
Net assets at beginning of period .............. 1,247,335,622 1,228,379,954 96,691,488 50,271,473
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ................ $ 1,735,319,333 $ 1,247,335,622 $ 65,895,367 $ 96,691,488
- ------------------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------

Shares outstanding at beginning of period ...... 24,342,283 21,237,515 5,710,713 2,510,889
----------------- ---------------- ----------------- ----------------
Shares sold .................................... 5,450,539 4,843,341 1,115,726 4,874,857
Shares issued to shareholders in reinvestment of
distributions ............................... 2,723,193 1,855,396 4,548 18,267
Shares redeemed ................................ (4,829,916) (3,593,969) (3,148,477) (1,693,300)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in fund shares ......... 3,343,816 3,104,768 (2,028,203) 3,199,824
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ............ 27,686,099 24,342,283 3,682,510 5,710,713

- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes undistributed (overdistributed) net
investment income ......................... $ 940,626 $ 5,606,304 $ 48,570 $ 14,982

</TABLE>

The accompanying notes are an integral part of the financial statements

152

<PAGE>

--------------------------------------------------------------------------------------------------------------------------------
AARP Global AARP
Growth International Stock
Fund Fund
--------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------

Years Ended September 30, Years Ended September 30,
1999 1998 1999 1998
----------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
$ 664,450 $ 1,522,209 $ 287,785 $ 430,799

11,607,431 8,584,866 1,346,710 (248,301)
(14,167,905) 4,192,127 (4,208,832)
13,068,184
----------------- ---------------- ------------------ ------------------

25,340,065 (4,060,830) 5,826,622 (4,026,334)
--------------------------------------------------------------------------------------------------------------------------------

(1,638,478) (1,240,117) (464,666) (156,766)
(7,168,800) (4,107,884) -- (213,771)
----------------- ---------------- ------------------ ------------------
(8,807,278) (5,348,001) (464,666) (370,537)
--------------------------------------------------------------------------------------------------------------------------------

25,611,559 35,909,431 14,789,667 36,124,571

8,476,595 5,161,710 449,802 359,913

(50,379,438) (35,001,773) (26,694,984) (11,574,855)
----------------- ---------------- ------------------ ------------------

(16,291,284) 6,069,368 (11,455,515) 24,909,629
----------------- ---------------- ------------------ ------------------
241,503 (3,339,463) (6,093,559) 20,512,758
144,689,910 148,029,373 40,771,820 20,259,062
--------------------------------------------------------------------------------------------------------------------------------
$ 144,931,413 $ 144,689,910 $ 34,678,261 $ 40,771,820
--------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------

7,984,664 7,693,438 2,463,545 1,166,775
----------------- ---------------- ------------------ ------------------
1,313,321 1,837,149 838,142 1,912,515

447,550 288,364 25,199 21,853

(2,583,135) (1,834,287) (1,508,688) (637,598)
----------------- ---------------- ------------------ ------------------
(822,264) 291,226 (645,347) 1,296,770
----------------- ---------------- ------------------ ------------------
7,162,400 7,984,664 1,818,198 2,463,545

--------------------------------------------------------------------------------------------------------------------------------

$ (820,113) $ 1,499,016 $ 224,102 $ 420,251

</TABLE>

The accompanying notes are an integral part of the financial statements

153
<PAGE>

Financial Statements

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
AARP AARP
Diversified Income Diversified
with Growth Portfolio Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------

Operations: Years Ended September 30, Years Ended September 30,
1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net investment income ..................... $ 5,186,587 $ 3,490,913 $ 4,166,642 $ 3,258,440
Net realized gain (loss) on investment
transactions ............................ 207,221 605,019 546,010 284,208
Capital gains distributions from Underlying
Funds ................................... 1,537,738 696,009 4,425,313 2,068,563
Net unrealized appreciation (depreciation) on
investment transactions during the period (2,552,929) (2,116,072) 5,381,702 (8,351,965)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets resulting
from operations ............................ 4,378,617 2,675,869 14,519,667 (2,740,754)
-------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income ...................... (5,113,144) (3,476,487) (3,778,884) (1,347,639)
Net realized gains ......................... (1,566,830) (167,236) (2,343,052) (421,138)
----------------- ---------------- ----------------- ----------------
Total distributions ........................... (6,679,974) (3,643,723) (6,121,936) (1,768,777)
-------------------------------------------------------------------------------
Fund share transactions:
Proceeds from sale of shares ............... 33,905,157 74,011,331 40,726,826 104,833,263
Net asset value of shares issued to
shareholders in reinvestment of distributions 5,641,186 2,974,714 5,933,391 1,724,532
Cost of shares redeemed .................... (36,538,516) (21,629,062) (52,812,859) (33,511,754)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in net assets from fund
share transactions ......................... 3,007,827 55,356,983 (6,152,642) 73,046,041
----------------- ---------------- ----------------- ----------------
Increase (decrease) in net assets ............. 706,470 54,389,129 2,245,089 68,536,510
Net assets at beginning of period ............. 97,835,547 43,446,418 130,333,328 61,796,818
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a) ............... $ 98,542,017 $ 97,835,547 $ 132,578,417 $ 130,333,328
- ------------------------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN FUND SHARES:
- ------------------------------------------------------------------------------------------------------------------------------------

Shares outstanding at beginning of period ..... 6,114,823 2,721,909 7,580,420 3,551,018
----------------- ---------------- ----------------- ----------------
Shares sold ................................... 2,095,463 4,539,735 2,253,263 5,804,982
Shares issued to shareholders in reinvestment of
distributions .............................. 351,975 183,854 330,735 100,909
Shares redeemed ............................... (2,263,149) (1,330,675) (2,906,565) (1,876,489)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in fund shares ........ 184,289 3,392,914 (322,567) 4,029,402
----------------- ---------------- ----------------- ----------------
Shares outstanding at end of period ........... 6,299,112 6,114,823 7,257,853 7,580,420
- ------------------------------------------------------------------------------------------------------------------------------------

(a) Includes undistributed (overdistributed) net
investment income ...................... $ 98,224 $ 25,142 $ 2,600,431 $ 2,556,239

</TABLE>

The accompanying notes are an integral part of the financial statements

154
<PAGE>

/5/
- -------------------------------------------------------------------------------

F I N A N C I A L H I G H L I G H T S

The Financial Highlights are part of the Financial
Statements and are provided to shareholders on an
annual basis, as required by federal securities
law and monitored by the Securities and Exchange
Commission (SEC). The independent accountant of
the AARP Investment Program's annual report is
PricewaterhouseCoopers LLP.

The information in this section explains the
statistical per share income and expense ratio(s)
from operations, dividends paid to shareholders,
total returns, and other financial information.

This section is designed to help you understand
how each AARP fund performed and allows you to
compare the period's performance and expenses to
prior fiscal periods.

155

<PAGE>
Financial Highlights

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
AARP HIGH QUALITY MONEY FUND
- -----------------------------------------------------------------------------------------------------------------
Years Ended September 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------
Net investment income .............................. .043 .048 .046 .045 .049
Distributions from net investment income ........... (.043) (.048) (.046) (.045) (.049)
-----------------------------------------------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------
Total Return (%) ...................................... 4.38 4.86 4.72 4.62 4.99
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 427 581 471 412 384
Ratio of operating expenses to average daily net
assets (%) ......................................... .87 .87 .91 .96 .98
Ratio of net investment income to average daily
net assets (%) ..................................... 4.29 4.76 4.63 4.54 4.89

AARP HIGH QUALITY TAX FREE MONEY FUND
- -----------------------------------------------------------------------------------------------------------------
Years Ended September 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
Net asset value, beginning of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------
Net investment income .............................. .023 .028 .028 .028 .029
Distributions from net investment income ........... (.023) (.028) (.028) (.028) (.029)
-----------------------------------------------------
Net asset value, end of period ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------
Total Return (%) ...................................... 2.37 2.82 2.80 2.80 2.99
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 87 98 103 111 120
Ratio of operating expenses, net, to average daily
net assets (%) ..................................... .85 .83 .85 .85 .87
Ratio of net investment income to average daily
net assets (%) ..................................... 2.34 2.78 2.76 2.77 2.94

</TABLE>

156
<PAGE>

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
AARP PREMIUM MONEY FUND
- ---------------------------------------------------------------------------------------------------------
For the Period
February 1, 1999
(d) to September
30, 1999
------------
<S> <C>
Net asset value, beginning of period .................................................. $ 1.000
------------
Net investment income .............................................................. .031
Distributions from net investment income ........................................... (.031)
------------
Net asset value, end of period ........................................................ $ 1.000
------------
Total Return (%) (a) .................................................................. 3.09(b)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................................ 166
Ratio of operating expenses net to average daily net assets (%) ....................... .50(c)
Ratio of operating expenses, before expense reductions, to average daily net assets (%) .90(c)
Ratio of net investment income to average daily net assets (%) ........................ 4.75(c)
</TABLE>

<TABLE>
<CAPTION>
AARP HIGH QUALITY SHORT TERM BOND FUND
- ------------------------------------------------------------------------------------------------------------------
Years Ended September 30,
---------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 16.43 $ 16.13 $ 15.82 $ 16.01 $ 15.05
---------------------------------------------------
Income from investment operations:
Net investment income ................................... .89 .94 .93 .92 .94
Net realized and unrealized gain (loss) on
investments ........................................... (.70) .30 .31 (.19) .95
---------------------------------------------------
Total from investment operations ........................... .19 1.24 1.24 .73 1.89
---------------------------------------------------
Less distributions from:
Net investment income ................................... (.89) (.94) (.93) (.92) (.93)
---------------------------------------------------
Net asset value, end of period ............................. $ 15.73 $ 16.43 $ 16.13 $ 15.82 $ 16.01
---------------------------------------------------
Total Return (%) ........................................... 1.21 7.90 8.15 4.59 12.98
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 407 448 455 512 533
Ratio of operating expenses to average daily net assets (%) .87 .90 .93 .91 .95
Ratio of net investment income to average daily net assets (%) 5.56 5.77 5.84 5.76 6.13
Portfolio turnover rate (%) ................................ 78.97 137.60 83.26 169.96 201.07

(a) Total returns would have been lower had certain expenses not been reduced.
(b) Not annualized
(c) Annualized
(d) Commencment of operations

</TABLE>

157
<PAGE>

Financial Highlights

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>

AARP GNMA AND U.S. TREASURY FUND
- -----------------------------------------------------------------------------------------------------------------------
Years Ended September 30,
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.40 $ 15.16 $ 14.91 $ 15.19 $ 14.73
------------------------------------------------------
Income from investment operations:
Net investment income ................................... .94 .99 .98 .99 1.01
Net realized and unrealized gain (loss) on investments .. (.79) .24 .25 (.28) .46
------------------------------------------------------
Total from investment operations ........................... .15 1.23 1.23 .71 1.47
------------------------------------------------------
Less distributions from:
Net investment income ................................... (.94) (.99) (.98) (.99) (.98)
Tax return of capital ................................... -- -- -- -- (.03)
------------------------------------------------------
Total distributions ........................................ (.94) (.99) (.98) (.99) (1.01)
------------------------------------------------------
Net asset value, end of period ............................. $ 14.61 $ 15.40 $ 15.16 $ 14.91 $ 15.19
------------------------------------------------------
Total Return (%) ........................................... 0.99 8.40 8.49 4.79 10.31
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 4,216 4,593 4,584 4,904 5,252
Ratio of operating expenses to average daily net assets (%) .65 .61 .65 .64 .67
Ratio of net investment income to average daily net assets (%) 6.25 6.52 6.51 6.55 6.77
Portfolio turnover rate (%) ................................ 245.22(a) 160.40 86.76 83.44 70.35

AARP INSURED TAX FREE GENERAL BOND FUND
- -----------------------------------------------------------------------------------------------------------------------
Years Ended September 30,
---------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------
Net asset value, beginning of period ....................... $ 18.85 $ 18.42 $ 17.90 $ 17.74 $ 16.93
---------------------------------------------------
Income from investment operations:
Net investment income ................................... .85 .88 .88 .87 .87
Net realized and unrealized gain (loss) on investments .. (1.07) .48 .61 .16 .81
---------------------------------------------------
Total from investment operations ........................... (.22) 1.36 1.49 1.03 1.68
---------------------------------------------------
Less distributions from:
Net investment income ................................... (.85) (.88) (.88) (.87) (.87)
Net realized gains on investments ....................... (.07) (.05) (.09) -- --
---------------------------------------------------
Total distributions ........................................ (.92) (.93) (.97) (.87) (.87)
---------------------------------------------------
Net asset value, end of period ............................. $ 17.71 $ 18.85 $ 18.42 $ 17.90 $ 17.74
---------------------------------------------------
Total Return (%) ........................................... (1.21) 7.57 8.57 5.88 10.21
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 1,592 1,732 1,712 1,755 1,807
Ratio of operating expenses to average daily net assets (%) .67 .62 .66 .66 .69
Ratio of net investment income to average daily net assets (%) 4.65 4.73 4.87 4.83 5.06
Portfolio turnover rate (%) ................................ 7.89 6.21 7.61 18.69 17.45

(a) The portfolio turnover rate including mortgage dollar roll transactions
was 257.84% for the period ended September 30, 1999.

</TABLE>

158
<PAGE>

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
AARP BOND FUND FOR INCOME
- ------------------------------------------------------------------------------------------------------------------

For the Period
February 1,
1997(c) to
Years Ended September 30, September 30,
---------------------------------- 1997
1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period .......................... $ 15.41 $ 15.20 $ 15.00
--------------------------------------------------
Income from investment operations:
Net investment income ...................................... 1.00 1.02 .69
Net realized and unrealized gain (loss) on investments ..... (1.06) .23 .20
--------------------------------------------------
Total from investment operations .............................. (.06) 1.25 .89
--------------------------------------------------
Less distributions from:
Net investment income ...................................... (1.00) (1.02) (.69)
Net realized gains on investments .......................... (.17) (.02) --
--------------------------------------------------
Total distributions ........................................... (1.17) (1.04) (.69)
--------------------------------------------------
Net asset value, end of period ................................ $ 14.18 $ 15.41 $ 15.20
--------------------------------------------------
Total Return (%) (d) .......................................... (.46) 8.47 6.06(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 209 180 58
Ratio of operating expenses, net, to average daily net assets (%) .42 .19 -- (b)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ............................... .90 1.04 1.53(b)
Ratio of net investment income to average daily net assets (%) 6.77 6.66 7.03(b)
Portfolio turnover rate (%) ................................... 63.90 130.56 13.69(b)

AARP BALANCED STOCK AND BOND FUND
- ------------------------------------------------------------------------------------------------------------------

Years Ended September 30,
---------------------------------------------------
1999(e) 1998(e) 1997(e) 1996 1995
---------------------------------------------------
Net asset value, beginning of period .......................... $ 19.96 $ 21.40 $ 17.63 $ 16.40 $ 14.64
---------------------------------------------------
Income from investment operations:
Net investment income ...................................... .67 .75 .72 .66 .61
Net realized and unrealized gain (loss) on
investments............................................... .51 (.46) 3.98 1.44 1.79
---------------------------------------------------
Total from investment operations .............................. 1.18 .29 4.70 2.10 2.40
---------------------------------------------------
Less distributions from:
Net investment income ...................................... (.70) (.73) (.72) (.66) (.60)
Net realized gains on investments .......................... (1.13) (1.00) (.21) (.21) (.04)
---------------------------------------------------
Total distributions ........................................... (1.83) (1.73) (.93) (.87) (.64)
---------------------------------------------------
Net asset value, end of period ................................ $ 19.31 $ 19.96 $ 21.40 $ 17.63 $ 16.40
---------------------------------------------------
Total Return (%) .............................................. 5.84 1.26 27.34 13.08 16.80
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 682 740 638 403 247
Ratio of operating expenses to average daily net assets (%) ... .88 .84 .91 .88 1.01
Ratio of net investment income to average daily net assets (%) 3.28 3.50 3.71 4.09 4.12
Portfolio turnover rate (%) ................................... 47.64 56.69 26.79 35.22 63.77

(a) Not Annualized
(b) Annualized
(c) Commencement of operations.
(d) Total return would have been lower had certain expenses not been reduced.
(e) Based on monthly average shares outstanding during the period.

</TABLE>

159
<PAGE>

Financial Highlights

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>

AARP GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended September 30,
---------------------------------------------------
1999(a) 1998(a) 1997(a) 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................... $ 49.76 $ 58.22 $ 43.94 $ 38.36 $ 34.13
---------------------------------------------------
Income from investment operations:
Net investment income ............................................... 1.02 1.25 1.19 1.17 1.11
Net realized and unrealized gain (loss) on investments .............. 4.91 (3.45) 16.00 6.40 5.44
---------------------------------------------------
Total from investment operations ....................................... 5.93 (2.20) 17.19 7.57 6.55
---------------------------------------------------
Less distributions from:
Net investment income ............................................... (1.12) (1.19) (1.19) (1.15) (1.09)
Net realized gains on investments ................................... (5.55) (5.07) (1.72) (.84) (1.23)
---------------------------------------------------
Total distributions .................................................... (6.67) (6.26) (2.91) (1.99) (2.32)
---------------------------------------------------
Net asset value, end of period ......................................... $ 49.02 $ 49.76 $ 58.22 $ 43.94 $ 38.36
---------------------------------------------------
Total Return (%) ....................................................... 12.10 (4.22) 40.70 20.20 20.43
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................. 6,107 6,452 6,606 4,219 3,007
Ratio of operating expenses to average daily net assets (%) ............ .76 .67 .71 .69 .72
Ratio of net investment income to average daily net assets (%) ......... 1.98 2.22 2.38 2.94 3.28
Portfolio turnover rate (%) ............................................ 30.41 40.19 33.40 25.02 31.26

AARP U.S. STOCK INDEX FUND
- -------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
(b) to
September 30,
Years Ended September 30, 1997(a)
---------------------------------------------------
1999(a) 1998(a)
---------------------------------------------------
Net asset value, beginning of period ................................... $ 19.26 $ 17.99 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income ............................................... .32 .32 .20
Net realized and unrealized gain (loss) on investments .............. 5.09 1.37 2.97
---------------------------------------------------
Total from investment operations ....................................... 5.41 1.69 3.17
---------------------------------------------------
Less distributions from:
Net investment income ............................................... (.28) (.29) (.18)
Net realized gain on investments .................................... -- (.13) --
---------------------------------------------------
Total distributions .................................................... (.28) (.42) (.18)
---------------------------------------------------
Net asset value, end of period ......................................... $ 24.39 $ 19.26 $ 17.99
---------------------------------------------------
Total Return (%) (c) ................................................... 28.02 9.39 21.22(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................. 577 124 38
Ratio of operating expenses, net, to average daily net assets (%) ...... .50 .50 .50(e)
Ratio of operating expenses, before expense reductions, to average
daily net assets (%) ................................................ .76 1.13 2.38(e)
Ratio of net investment income to average daily net assets (%) ......... 1.31 1.58 1.94(e)
Portfolio turnover rate (%) ............................................ 3.56 1.11 14.52(e)

(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Not Annualized
(e) Annualized

</TABLE>

160

<PAGE>

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
AARP CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------

Years Ended September 30,
---------------------------------------------------
1999(a) 1998(a) 1997(a) 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $ 51.24 $ 57.84 $ 43.47 $ 38.36 $ 31.74
---------------------------------------------------
Income from investment operations:
Net investment income ............................................ .04 .28 .34 .42 .36
Net realized and unrealized gain (loss) on investments ........... 18.19 (2.26) 18.43 5.59 6.91
---------------------------------------------------
Total from investment operations .................................... 18.23 (1.98) 18.77 6.01 7.27
---------------------------------------------------
Less distributions from:
Net investment income ............................................ (.24) (.31) (.41) (.39) (.01)
Net realized gains on investments ................................ (6.55) (4.31) (3.99) (.51) (.64)
---------------------------------------------------
Total distributions ................................................. (6.79) (4.62) (4.40) (.90) (.65)
---------------------------------------------------
Net asset value, end of period ...................................... $ 62.68 $ 51.24 $ 57.84 $ 43.47 $ 38.36
---------------------------------------------------
Total Return (%) .................................................... 36.83 (3.39) 46.72 15.97 23.47
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 1,735 1,247 1,228 826 692
Ratio of operating expenses to average daily net assets (%) ......... .91 .87 .92 .90 .95
Ratio of net investment income to average daily net assets (%) ...... .07 .50 .70 1.05 1.00
Portfolio turnover rate (%) ......................................... 68.10 53.18 39.04 64.84 98.44

AARP SMALL COMPANY STOCK FUND
- -------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
Years Ended September 30, (b) to
----------------------------------- September 30,
1999(a) 1998(a) 1997(a)
------------------------------------------------------
Net asset value, beginning of period ................................ $ 16.93 $ 20.02 $ 15.00
------------------------------------------------------
Income from investment operations:
Net investment income ............................................ .02 .01 .04
Net realized and unrealized gain (loss) on investments ........... .96 (2.98) 4.98
------------------------------------------------------
Total from investment operations .................................... .98 (2.97) 5.02
------------------------------------------------------
Less distributions from:
Net investment income ............................................ (.02) (.04) --
Net realized gains on investments -- (.08) --
------------------------------------------------------
Total distributions ................................................. (.02) (.12) --
------------------------------------------------------
Net asset value, end of period ...................................... $ 17.89 $ 16.93 $ 20.02
------------------------------------------------------
Total Return (%) .................................................... 5.70 (14.91)(c) 33.53(c)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 66 97 50
Ratio of operating expenses, net, to average daily net assets (%) ... 1.70 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ..................................... 1.70 1.80 2.79(e)
Ratio of net investment income to average daily net assets (%) ...... .13 .07 .40(e)
Portfolio turnover rate (%) ......................................... 17.42 12.21 5.01(e)

</TABLE>

161

<PAGE>

Financial Highlights

The following tables include selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
AARP GLOBAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
Years Ended September 30, February 1, 1996
---------------------------------- (b) to September 30,
1999 1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................... $ 18.12 $ 19.24 $ 15.49 $ 15.00
------------------------------------------------------
Income from investment operations:
Net investment income ........................................... .09 .19 .09 .06
Net realized and unrealized gain (loss) on investments .......... 3.16 (.62) 3.72 .43
------------------------------------------------------
Total from investment operations ................................... 3.25 (.43) 3.81 .49
------------------------------------------------------
Less distributions from:
Net investment income ........................................... (.21) (.16) (.06) --
Net realized gain on investments ................................ (.92) (.53) -- --
------------------------------------------------------
Total distributions ................................................ (1.13) (.69) (.06) --
------------------------------------------------------
Net asset value, end of period ..................................... $ 20.24 $ 18.12 $ 19.24 $ 15.49
------------------------------------------------------
Total Return (%) ................................................... 18.36 (2.19) 24.67(c) 3.27(c)(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................. 145 145 148 78
Ratio of operating expenses, net, to average daily net assets (%) .. 1.65 1.65 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) .................................... 1.65 1.65 1.82 2.31(e)
Ratio of net investment income to average daily net assets (%) ..... .44 .99 .55 1.03(e)
Portfolio turnover rate (%) ........................................ 54.76 59.15 31.34 12.56(e)

AARP INTERNATIONAL STOCK FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
(b) to September
Years Ended September 30, 30, 1997
--------------------------------------------------
1999 1998
--------------------------------------------------
Net asset value, beginning of period ...................................... $ 16.55 $ 17.36 $ 15.00
--------------------------------------------------
Income from investment operations:
Net investment income .................................................. .13 .28 .23
Net realized and unrealized gain (loss) on investments ................. 2.59 (.83) 2.13
--------------------------------------------------
Total from investment operations .......................................... 2.72 (.55) 2.36
--------------------------------------------------
Less distributions from:
Net investment income .................................................. (.20) (.11) --
Net realized gains on investments ...................................... -- (.15) --
--------------------------------------------------
Total distributions ....................................................... (.20) (.26) --
--------------------------------------------------
Net asset value, end of period ............................................ $ 19.07 $ 16.55 $ 17.36
--------------------------------------------------
Total Return (%) (c) ...................................................... 16.52 (3.16) 15.73(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) 35 41 20
Ratio of operating expenses, net, to average daily net assets (%) ......... 1.75 1.75 1.75(e)
Ratio of operating expenses, before expense reductions, to average
daily net assets (%) ................................................... 2.40 2.41 4.28(e)
Ratio of net investment income to average daily net assets (%) ............ 0.75 1.30 2.35(e)
Portfolio turnover rate (%) ............................................... 214.14 75.28 50.73(e)

</TABLE>

The accompanying notes are an integral part of the financial statements

162
<PAGE>

The following tables include selected data for a share outstanding throughout
each period (a) and other performance information deried from the financial
statements.

<TABLE>
<CAPTION>
AARP DIVERSIFIED INCOME WITH GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
Years Ended September 30, February 1, 1997
----------------------------- (b) to September
1999 1998 30, 1997
--------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ....................................... $ 16.00 $ 15.96 $ 15.00
--------------------------------------------------
Income from investment operations:
Net investment income ................................................... .80 .82 .43
Net realized and unrealized gain (loss) on investments .................. (.12) .03 .96
--------------------------------------------------
Total from investment operations ........................................... .68 .85 1.39
--------------------------------------------------
Less distribution from:
Net investment income ................................................... (.79) (.76) (.43)
Net realized gains on investments ....................................... (.25) (.05) --
--------------------------------------------------
Total distributions ........................................................ (1.04) (.81) (.43)
--------------------------------------------------
Net asset value, end of period ............................................. $ 15.64 $ 16.00 $ 15.96
--------------------------------------------------
Total Return (%) (e) ....................................................... 4.21 5.38 9.35(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................................... 99 98 43
Ratio of operating expenses to average daily net assets (%) (f) ............ -- -- --
Ratio of net investment income to average daily net assets (%) ............. 4.95 5.05 5.13(d)
Portfolio turnover rate (%) ................................................ 22.53 5.12 5.57(d)

AARP DIVERSIFIED GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
February 1, 1997
(b) to
September 30,
Years Ended September 30, 1997
--------------------------------------------------
1999 1998
--------------------------------------------------
Net asset value, beginning of period ....................................... $ 17.19 $ 17.40 $ 15.00
--------------------------------------------------
Income from investment operations:
Net investment income ................................................... .55 .58 .34
Net realized and unrealized gain (loss) on investments .................. 1.34 (.37) 2.06
--------------------------------------------------
Total from investment operations ........................................... 1.89 .21 2.40
--------------------------------------------------
Less distributions from:
Net investment income ................................................... (.50) (.32) --
Net realized gain on investment ......................................... (.31) (.10) --
--------------------------------------------------
Total distributions ........................................................ (.81) (.42) --
--------------------------------------------------
Net asset value, end of period ............................................. $ 18.27 $ 17.19 $ 17.40
--------------------------------------------------
Total Return (%) (e) ....................................................... 11.08 1.22 16.00(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................................... 133 130 62
Ratio of operating expenses to average daily net assets (%) (f) ............ -- -- --
Ratio of net investment income to average daily net assets (%) ............. 3.00 3.21 3.52(d)
Portfolio turnover rate (%) ................................................ 31.86 5.55 7.67(d)

(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Not Annualized
(d) Annualized
(e) If the Adviser had not maintained some Underlying Funds' expenses, the total return would have been lower.
(f) This Portfolio invests in other AARP Funds, and although the Portfolio did not incur any direct expenses for the periods
presented, thePortfolio did bear its share of the operating, administrative and advisory expenses of the Underlying AARP Funds.

</TABLE>

163
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intentionally
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/5/
- -------------------------------------------------------------------------------

N O T E S T O
F I N A N C I A L S T A T E M E N T S

Additional information about the Financial
Statements is found in the Notes to Financial
Statements. This section includes detailed
information on expenses, organization costs, and
transactions, as well as management fees and
commitments.

165
<PAGE>

NOTES TO FINANCIAL STATEMENTS

Note 1. Organization and Significant Accounting Policies.

The following AARP Mutual Funds (the "AARP Funds" or the "Funds") from
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Fund Manager") are a
series of five entities organized as Massachusetts business trusts and are
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as open-end management investment companies (the "Trusts").

Trust name: Series name:
------------------------------------------------------------------------------

AARP Cash Investment Funds:
AARP High Quality Money Fund
AARP Premium Money Fund
AARP Income Trust:
AARP High Quality Short Term Bond Fund
AARP GNMA and U.S. Treasury Fund
AARP Bond Fund for Income

AARP Tax Free Income Trust:
AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund
AARP Growth Trust:
AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund
AARP U.S. Stock Index Fund
AARP Capital Growth Fund
AARP Small Company Stock Fund
AARP Global Growth Fund
AARP International Stock Fund
(formerly AARP International Growth and
Income Fund)

AARP Managed Investment Portfolios
Trust:

AARP Diversified Income with Growth Portfolio
AARP Diversified Growth Portfolio

All Funds are diversified. The Declaration of Trust of each Trust permits its
Trustees to create an unlimited number of series and to issue an unlimited
number of full and fractional shares of each separate series. The Funds within
the AARP Managed Investment Portfolios Trust (the "AARP Diversified Portfolios")
invest primarily in existing AARP Mutual Funds from Scudder Kemper (the
"Underlying AARP Funds").

The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Funds in
preparation of their financial statements.

A. Security Valuation. The AARP Cash Investment Funds and the AARP High
Quality Tax Free Money Fund use the amortized cost method of security valuation
as permitted under Rule 2a-7 under the 1940 Act. Under this method, the value of
a security is determined by adjusting its original cost to face value through
the amortization of any acquisition discount or premium at a constant rate until
maturity, which approximates market.

Security valuation with respect to each of the remaining Funds is performed
in the following manner:

Common and preferred stocks traded on U.S. or foreign securities exchanges
are valued at the most recent sale price on such exchange where the security is
principally traded. If no sale occurred, the security is valued at the mean
between the most recent bid and asked quotations on such exchanges. If there are
no such bid and asked quotations, the most recent bid quotation is used.
Unlisted securities quoted on the Nasdaq Stock Market, Inc. ("Nasdaq"), for

166
<PAGE>

which there have been sales, are valued at the most recent sale price reported
on Nasdaq. If there are no such sales, the value is the most recent bid
quotation. Unlisted securities which are not quoted on Nasdaq but are traded in
another over-the-counter market are valued at the most recent sale price on such
market. Lacking any sales, the security is valued at the calculated mean
quotation for such security. Lacking a calculated mean, the security is valued
at the most recent bid quotation. If there are no such sales, the value is the
most recent bid quotation.

Portfolio debt securities, other than money market securities, are valued by
pricing agents approved by the Trustees, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques. If the pricing
agents are unable to provide such quotations, the most recent bid quotation
supplied by a bona fide market maker shall be used.

Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost. Variable rate demand notes are carried at
cost which, together with accrued interest, approximates market.

Investments of the AARP Diversified Income with Growth Portfolio and AARP
Diversified Growth Portfolio are valued at the net asset value per share of each
Underlying AARP Fund as of the close of regular trading on the New York Stock
Exchange.

The value of all other securities is determined in good faith under the
direction of the Board of Trustees.

B. Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with selected banks and broker/dealers whereby each Fund, through its
custodian, receives delivery of the securities collateralizing repurchase
agreements, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market value
is at least equal to the repurchase price.

C. Futures Contracts. A futures contract is an agreement between a buyer or
seller and an established futures exchange or its clearinghouse in which the
buyer or seller agrees to take or make a delivery of a specific amount of an
item at a specified price on a specific date (settlement date). During the
period, the AARP High Quality Short Term Bond Fund, the AARP GNMA and U.S.
Treasury Fund, the AARP Insured Tax Free General Bond Fund, the AARP Bond Fund
for Income and the AARP Balanced Stock and Bond Fund sold interest rate futures
to hedge against declines in the value of portfolio securities, and the AARP
GNMA and U.S. Treasury Fund purchased interest rate futures to manage the
duration of the portfolio. Also, during the period, the AARP U.S. Stock Index
Fund purchased index futures as a temporary substitute for purchasing selected
investments.

Upon entering into a futures contract, a fund is required to deposit with a
financial intermediary an amount equal to a certain percentage of the face value
indicated in the futures contract ("initial margin"). Subsequent payments
("variation margin") are made or received by a fund each day, dependent on the
daily fluctuations in the value of the underlying security, and are recorded for
financial reporting purposes as unrealized gains or losses by the fund. When
entering into a closing transaction, a fund will realize a gain or loss equal to
the difference between the value of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at the most recent settlement
price.

Certain risks may arise upon entering into futures contracts, including the
risk that an illiquid secondary market will limit a fund's ability to close out
a futures contract prior to the settlement date, and that a change in the value
of a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, a
fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.

167
<PAGE>

NOTES TO FINANCIAL STATEMENTS

D. Options. In an option contract, the writer of the option grants the buyer
of the option the right to purchase from (call option), or sell to (put option),
the writer a designated instrument at a specified price within a specified
period of time. Certain options, including options on indices, will require cash
settlement by the applicable Fund if the option is exercised.

During the period, the AARP International Stock Fund wrote call options on
securities as a hedge against potential adverse price movements in the value of
portfolio assets.

If the Fund writes an option and the option expires unexercised, the Fund
will realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.

The gain or loss recognized by the Fund upon the exercise of a written call
or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised, the Fund's cost basis of the
acquired security or currency would be the exercise price adjusted for the
amount of the option premium.

The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.

When the Fund writes a covered call option, the Fund foregoes, in exchange
for the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts the risk of a
decline in the market value of the underlying security or currency below the
exercise price. Over-the-counter options have the risk of the potential
inability of counterparties to meet the terms of their contracts. The Fund's
maximum exposure to purchased options is limited to the premium initially paid.
In addition, certain risks may arise upon entering into option contracts,
including the risk that an illiquid secondary market will limit the Fund's
ability to close out an option contract prior to the expiration date, and that a
change in the value of the option contract may not correlate exactly with
changes in the value of the securities or currencies hedged.

E. Securities Purchased on a Forward Delivery or When-Issued Basis.
Municipal, corporate and government securities are frequently offered on a
forward delivery or when-issued basis. At the time a fund makes the commitment
to purchase a security on a forward delivery or when-issued basis, the price of
the underlying security is fixed. The fund will record the transaction at the
time of the commitment and reflect the value of the security in determining its
net asset value. The settlement date of the transaction can occur within one
month or more after the date the commitment was made. During the period between
purchase and settlement date, no payment is made on behalf of the fund and no
interest accrues to the fund. The AARP High Quality Short Term Bond Fund and the
AARP GNMA and U.S. Treasury Fund held when-issued securities during the period.

F. Forward Currency Exchange Contracts. A forward contract is a commitment to
purchase or sell a foreign currency at the settlement date at a negotiated rate.
During the period, the AARP Global Growth Fund utilized forward contracts as a
hedge against changes in exchange rates relating to foreign currency denominated
assets. In addition, the AARP Balanced Stock and Bond Fund, AARP Growth and
Income Fund, AARP Global Growth Fund and AARP International Stock Fund utilized
forward contracts as a hedge in connection with portfolio purchases and sales of
securities denominated in foreign currencies.

168
<PAGE>

Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.

Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge, the Fund gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.

G. Foreign Currency Translations. Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis:

(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and

(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.

The Funds do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex-dividend and payment dates on
dividends, interest, and foreign withholding taxes.

H. Mortgage Dollar Rolls. Mortgage dollar rolls are transactions in which the
Fund sells mortgage securities for delivery in the current month and
simultaneously contracts to repurchase similar, but not identical, securities on
a fixed date. The Fund receives compensation as consideration for entering into
the commitment to repurchase. The compensation is recorded as deferred income
and amortized to income over the roll period. The counterparty receives all
principal and interest payments, including prepayments, made in respect of the
security while it is the holder. Mortgage dollar rolls may be renewed with a new
purchase and repurchase price fixed and a cash settlement made at each renewal
without physical delivery of the securities subject to the contract. During the
period, the AARP GNMA Fund entered into mortgage dollar rolls.

I. Securities Transactions and Related Investment Income. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security. Acquisition discount is
accreted on taxable securities purchased with original maturity dates of one
year or less. In addition, acquisition discount is accreted on securities
purchased with an original maturity of one year or greater for the AARP Bond
Fund for Income. Premiums on securities purchased by the AARP Tax Free Income
Trust are amortized on an effective yield basis over the life of the security.
Distributions of income and capital gains earned by the AARP Diversified Growth
and AARP Diversified Income with Growth Portfolios from the Underlying AARP
Funds are recorded on the ex-dividend date.

Each Fund uses the specific identification method for determining the
realized gain or loss on investments sold for both financial and federal income
tax reporting purposes.

J. Federal Income Taxes. Each of the Funds is treated as a single entity for
federal income tax purposes. It is the policy of each Fund to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies, and to distribute all of its

169
<PAGE>

NOTES TO FINANCIAL STATEMENTS

taxable and tax exempt income to its shareholders. Accordingly, the Funds paid
no U.S. federal income taxes, and no provisions for federal income taxes were
required.

K. Distribution of Income and Gains. Each AARP Fund intends to follow the
practice of distributing all of its net investment income to shareholders.
Dividends from the AARP Cash Investment Funds and the Funds of the AARP Income
Trust and the AARP Tax Free Income Trust are declared daily and distributed
monthly. Dividends from the AARP Diversified Income with Growth Portfolio, the
AARP Balanced Stock and Bond Fund, the AARP U.S. Stock Index Fund, and the AARP
Growth and Income Fund are declared and paid quarterly. Dividends from the AARP
Global Growth Fund, the AARP Small Company Stock Fund, the AARP International
Stock Fund, the AARP Diversified Growth Portfolio, and the AARP Capital Growth
Fund are declared and paid annually. During any particular year, net realized
gains for each Fund which are in excess of any available capital loss
carryforwards, would be taxable to the Fund if not distributed and, therefore,
will be distributed to shareholders in the following fiscal year. The AARP High
Quality Money Fund and AARP Premium Money Fund may take into account realized
gains and losses on the sales of securities in its daily distributions.
Additional distributions may be made by each Fund if necessary.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations, which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments, mortgage backed
securities, Real Estate Investment Trusts (REITs) and certain securities sold at
a loss. As a result, net investment income and net realized gain (loss) on
investment transactions for a reporting period may differ from distributions
during such period. Accordingly, each Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Fund.

L. Expenses. Each Fund (except for the AARP Diversified Income with Growth
and Diversified Growth Portfolios) is charged for those expenses that are
directly attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a Fund,
such as reports to shareholders and portions of Trustees' and legal fees, are
allocated among all the Funds.

The AARP Diversified Income with Growth and AARP Diversified Growth
Portfolios (the "Portfolios") have entered into a Special Servicing Agreement
with Scudder Kemper, the Underlying AARP Funds, Scudder Service Corporation,
Scudder Fund Accounting Corporation and Scudder Investor Services, whereby the
Fund Manager arranges for all services pertaining to the operations of the
Portfolios. If the aggregate expenses of the Portfolios are less than the
estimated savings to the Underlying AARP Funds from the operation of each
Portfolio, each of the Underlying AARP Funds will bear those expenses in
proportion to the average daily value of its shares owned by the respective
Portfolio. Consequently, no Underlying AARP Fund will be expected to carry
expenses that are in excess of the estimate of savings to the respective
Underlying AARP Fund. These estimated savings result from the reduction in
shareholder servicing costs due to the elimination of separate shareholder
accounts which either currently are or have potential to be invested in the
Underlying AARP Funds. In the event that the financial benefits to the
Underlying AARP Funds do not exceed aggregate expenses of any Portfolio, the
Fund Manager will pay certain costs on behalf of the respective Portfolio. In
accordance with the Special Servicing Agreement, as discussed above, no expenses
were charged to the AARP Diversified Income with Growth and AARP Diversified
Growth Portfolios during the period. For the year ended September 30, 1999, the
Fund Manager paid expenses in the approximated amounts of $135,288 and $169,453,
on behalf of the AARP Diversified Income with Growth and AARP Diversified Growth
Portfolios, respectively. Additionally, the Fund Manager has assumed the
organization costs of each Portfolio.

170
<PAGE>

For the year ended September 30, 1999, the amounts charged to the Underlying
AARP Funds under the Special Servicing Agreement, as shown in the Statement of
Operations as part of the Services to shareholders expense, were as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
AARP High Quality Money Fund $ 43,436 AARP U.S. Stock Index Fund $ 38,719
AARP High Quality Short Term Bond Fund $ 16,442 AARP Capital Growth Fund $ 66,552
AARP GNMA and U.S. Treasury Fund $ 127,522 AARP Small Company Stock Fund $ 69,448
AARP Bond Fund for Income $ 38,336 AARP Global Growth Fund $ 37,848
AARP Growth and Income Fund $ 169,255 AARP International Stock Fund $ 57,236
</TABLE>

M. Organization Costs. Costs incurred by the AARP Balanced Stock and Bond
Fund, the AARP Global Growth Fund, the AARP U.S. Stock Index Fund, the AARP Bond
Fund for Income, the AARP International Stock Fund, and the AARP Small Company
Stock Fund in connection with their organization and initial registration of
shares have been deferred and are being amortized on a straight-line basis over
a five-year period. The Fund Manager has assumed the organization costs of the
AARP Premium Money Fund, the AARP Diversified Growth and AARP Diversified Income
with Growth Portfolios.

N. Transactions in Securities of Affiliated Issuers. The AARP Growth and
Income Fund had transactions in securities of affiliated issuers. An affiliated
issuer is a company in which the Fund has ownership of at least 5% of the voting
securities. A summary of the Fund's transactions with companies which are or
were affiliates for the year ended September 30, 1999, is as follows:

<TABLE>
<CAPTION>
Beginning Purchases Sales
Affiliate Cost ($) Cost ($) Cost ($) Ending Cost ($) Market Value ($)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General Growth Properties, Inc. 49,335,005 -- -- 49,335,005 63,154,350
=========================================================================================

Realized Gain/Loss ($) Dividend Income ($)
----------------------------------------------------------------------
Affiliated Issuers .............. -- 3,849,408
Unaffiliated Issuers ............ 251,493,612 173,210,930
----------------------------------------------------------------------
Total .......................... 251,493,612 177,060,338
======================================================================
</TABLE>

The AARP Diversified Portfolios do not invest in the Underlying AARP Funds
for the purpose of exercising management or control; however, investments within
the set limits may represent a significant portion of an Underlying AARP Fund's
net assets. At September 30, 1999, the Diversified Income with Growth Portfolio
held 5% or more of the following Underlying AARP Funds' outstanding shares:
approximately 14% of the AARP Bond Fund for Income. The Diversified Growth
Portfolio held 5% or more of the following Underlying AARP Funds' outstanding
shares at September 30, 1999: approximately 19% of the AARP International Stock
Fund; 12% of the AARP Bond Fund for Income; 10% of the AARP Small Company Stock
Fund; 8% of the U.S. Stock Index Fund; and 5% of the AARP Global Growth Fund.

Note 2. Management Fee and other Related Transactions.

Under the investment management and advisory agreement (the "Management
Agreement") between each Trust (excluding the AARP Managed Investment Portfolios
Trust) and the Fund Manager, the management fee consists of two elements: a Base
Fee and an Individual Fund Fee. The Base Fee is calculated as a percentage of
the combined net assets of all of the AARP Funds ("Program Assets") except the
AARP Diversified Income with Growth and the Diversified Growth Portfolios, and
each AARP Fund pays, as its portion of the Base Fee, an amount equal to the
ratio of its daily net assets to the daily net assets of all of the AARP Funds
(excluding the AARP Diversified Income with Growth and the Diversified Growth
Portfolios).

171
<PAGE>

NOTES TO FINANCIAL STATEMENTS

The Annual Base Fee is calculated as follows:

<TABLE>
<CAPTION>
<S> <C>
.35% of the first $2.0 billion of such .26% of the next $3.0 billion of such assets
assets .25% of the next $3.0 billion of such assets
.33% of the next $2.0 billion of such assets .24% of such assets thereafter
.30% of the next $2.0 billion of such assets
.28% of the next $2.0 billion of such assets
</TABLE>

In addition to the Base Fee, each Fund (excluding the AARP Diversified Income
with Growth and the AARP Diversified Growth Portfolios) agrees to pay the Fund
Manager a flat Individual Fund Fee based on the average daily net assets of that
Fund. The Individual Fund Fee Rate recognizes the different characteristics of
each Fund, and the varying levels of complexity of investment research and
securities trading required to manage each Fund. The Fund Manager has retained
Bankers Trust Company as Subadviser to the AARP U.S. Stock Index Fund; under the
Subadvisory Agreement, the Fund Manager pays a quarterly fee to the Subadviser,
which amounted to $92,000 for the period ended September 30, 1999.

The Individual Fund Fee Rate is calculated at the following percentages of
the average daily net assets of each Fund:

<TABLE>
<CAPTION>
Fund Rate Fund Rate
---------------------------------------------- ----------- ------------------------------------------------- ----------
<S> <C> <C> <C>
AARP High Quality Money Fund ................. .10% AARP Balanced Stock and Bond Fund ............... .19%
AARP High Quality Tax Free Money Fund ........ .10% AARP Growth and Income Fund ..................... .19%
AARP Premium Money Fund ...................... .10% AARP Capital Growth Fund ........................ .32%
AARP High Quality Short Term Bond Fund ....... .19% AARP Small Company Stock Fund ................... .55%
AARP GNMA and U.S. Treasury Fund ............. .12% AARP Global Growth Fund ......................... .55%
AARP Insured Tax Free General Bond Fund ...... .19% AARP International Stock Fund ................... .60%
AARP Bond Fund for Income .................... .28%
</TABLE>

The total amount of management fees for each Fund is shown in the Statement
of Operations as Management Fee.

As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund
Manager, under the Management Agreement, will provide certain administrative
services in accordance with such Agreement. The Fund Manager has also entered
into a Member Services Agreement with AARP Financial Services Corp. ("AFSC"), a
subsidiary of AARP, and pays portions of its investment management and advisory
fee to AFSC.

The Fund Manager has agreed to waive all or a portion of its management fee
and reimburse all or a portion of expenses in order to maintain the following
annualized expense ratios until January 31, 2000: AARP Premium Money Fund, 0.50%
of average daily net assets; AARP Bond Fund for Income, 0.25% of average net
assets until January 31, 1999 and 0.50% of average daily net assets thereafter;
AARP U.S. Stock Index Fund, 0.50% of average daily net assets; AARP Small
Company Stock Fund, 1.75% of average daily net assets; and AARP International
Stock Fund, 1.75% of average daily net assets. The amount of expenses waived
and/or reimbursed by the Fund Manager, if any, for each Fund has been shown in
the Statement of Operations as Expense Reductions.

The Fund Manager did not impose any or a portion of its Management Fee for
certain Funds during the year ended September 30, 1999, as follows: AARP Premium
Money Fund $211,923; AARP Bond Fund for Income $986,523; AARP U.S. Stock Index
Fund $971,542; and AARP International Stock Fund $249,677.

These Trusts also have a shareholder servicing agreement with Scudder Service
Corporation ("SSC"), a subsidiary of the Fund Manager. As shareholder servicing
agent, SSC provides various transfer agent, dividend disbursing, and shareholder
communication functions. The amount for each Fund is shown in the table below
and is included in Services to shareholders in the Statements of Operations.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Fund
Manager, is responsible for determining the daily net asset value per share and

172
<PAGE>

maintaining the portfolio and general accounting records of the Funds. The
amount for each Fund is shown in the table below, and is included in Custodian
and accounting fees in the Statements of Operations.

For the year ended September 30, 1999, the amounts charged by SSC and SFAC to
the Funds were as follows:
<TABLE>
<CAPTION>

Amount Total SSC Amount Total SFAC
Charged To Unpaid at Charged To Unpaid at
Fund by September 30, Fund by September 30,
Fund SSC(a) 1999* SFAC(b) 1999*
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
AARP High Quality Money Fund ..................... $ 1,441,810 $ 82,459 $ 57,539 $ 4,313
AARP High Quality Tax Free Money Fund ............ 195,011 12,068 32,500 5,000
AARP Premium Money Fund .......................... 77,787 77,614 17,516 17,516
AARP High Quality Short Term Bond Fund ........... 1,014,444 57,602 62,354 5,493
AARP GNMA and U.S. Treasury Fund ................. 6,524,199 459,993 628,816 55,381
AARP Insured Tax Free General Bond Fund .......... 1,990,200 157,566 160,181 12,738
AARP Bond Fund for Income ........................ 302,284 202,937 53,828 35,749
AARP Balanced Stock and Bond Fund ................ 1,700,543 100,735 108,991 8,515
AARP Growth and Income Fund ...................... 10,441,357 763,636 383,063 30,065
AARP U.S. Stock Index Fund ....................... 851,528 345,031 150,160 79,160
AARP Capital Growth Fund ......................... 2,823,393 211,407 144,450 12,214
AARP Small Company Stock Fund .................... 327,749 12,364 42,175 2,861
AARP Global Growth Fund .......................... 477,014 25,187 127,248 10,528
AARP International Stock Fund .................... 124,308 80,236 50,317 797
</TABLE>

* Total unpaid amounts are included in Other payables and accrued expenses in
the Statements of Assets and Liabilities.

(a) SSC did not impose any or a portion of its fee for the AARP Premium Money
Fund amounting to $10,442.

(b) SFAC did not impose any or a portion of its fee for the AARP Premium Money
Fund amounting to $2,449.

Scudder Trust Company ("STC"), a subsidiary of the Fund Manager, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Funds. For the year ended September 30,
1999, the amount charged to the AARP GNMA and U.S. Treasury Fund, the AARP
Balanced Stock and Bond Fund and the AARP U.S. Stock Index Fund amounted to
$22,301, $29,534, and $30,317, respectively, of which $4,746, $5,147, and
$15,740 remains unpaid at September 30, 1999, respectively.

The AARP Investment Program pays each Trustee unaffiliated with Scudder
Kemper or AARP an annual retainer, plus specified amounts are paid by each Fund
for board and committee meetings attended. The amounts for each Fund have been
shown in the Statement of Operations as Trustees' fees and expenses.

Note 3. Lines of Credit.

The AARP Funds and several other Scudder Funds (the "Participants") share in
a $850 million revolving credit facility for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. The Participants are charged an annual
commitment fee which is allocated pro rata among each of the Participants.
Interest is calculated based on the market rates at the time of the borrowing.
Each Fund may borrow up to a maximum of 33 percent of its net assets under the
agreement.

173
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust, AARP Growth Trust
and AARP Managed Investment Portfolios Trust:

In our opinion, the accompanying statements of assets and liabilities,
including the lists of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
each of the series constituting AARP Cash Investment Funds, AARP Income
Trust, AARP Tax Free Income Trust, AARP Growth Trust and AARP Managed
Investment Portfolios Trust (hereafter referred to as the "Trusts") at
September 30, 1999, the results of their operations, the changes in
their net assets and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Trusts' management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at September
30, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
November 8, 1999

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TAX INFORMATION (UNAUDITED)

Of the dividends paid from net investment income by the AARP High Quality Tax
Free Money Fund and the AARP Insured Tax Free General Bond Fund for the taxable
year ended September 30, 1999, 100% are designated as exempt-interest dividends
for federal income tax purposes.

The AARP Insured Tax Free General Bond Fund, the AARP Bond Fund for Income, the
AARP Balanced Stock and Bond Fund, the AARP Growth and Income Fund, the AARP
Capital Growth Fund, the AARP Global Growth Fund, the AARP Diversified Income
with Growth Portfolio, and the AARP Diversified Growth Portfolio paid
distributions of $0.065, $0.02, $1.00, $5.55, $6.55, $0.70, $0.19, and $0.26 per
share, respectively, from net long-term capital gains during its year ended
September 30, 1999, of which 100%, 100%, 100%, 100%, 100%, 100%, 81%, and 68%
represents 20% rate gains, respectively.

Pursuant to Section 852 of the Internal Revenue Code, the AARP Insured Tax Free
General Bond Fund, the AARP Balanced Stock and Bond Fund, the AARP Growth and
Income Fund, the AARP Capital Growth Fund, the AARP Global Growth Fund, the AARP
International Stock Fund, AARP Diversified Income with Growth Fund, and the AARP
Diversified Growth Fund designate $1,330,000, $14,500,000, $275,000,000,
$165,000,000, $13,540,000, $1,250,000, $1,600,000, and $5,200,000, respectively,
as capital gain dividends for their fiscal years ended September 30, 1999, of
which 100% represents 20% rate gains.

The AARP Global Growth Fund and the AARP International Stock Fund paid foreign
taxes of $173,692 and $86,119, respectively and earned $380,978 and $320,884,
respectively, of foreign source income during the year ended September 30, 1999.
Pursuant to Section 853 of the Internal Revenue Code, the AARP Global Growth
Fund and the AARP International Stock Fund designate $0.03 and $0.05 per share
as foreign taxes paid, respectively, and $0.06 and $0.18 per share as income
earned from foreign sources for the year ended September 30, 1999, respectively.

For corporate shareholders, 44%, 100%, 100%, 100%, 100%, and 55% of the income
dividends paid during the AARP Balanced Stock and Bond Fund, the AARP Growth and
Income Fund, the AARP U.S. Stock Index Fund, the AARP Capital Growth Fund, the
AARP Small Company Stock Fund, and the AARP Global Growth Fund's fiscal year
ended September 30, 1999 qualified for the dividends received deduction,
respectively.

In January 2000 you will receive federal tax information on all distributions
paid to your account in calendar year 1999.

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O F F I C E R S A N D T R U S T E E S

The Officers and Trustees of the AARP Investment
Program from Scudder act on behalf of all
shareholders of the AARP funds. They are
responsible for ensuring that each AARP fund is
administered in accordance with the terms set
forth in the fund's prospectus and in accordance
with government regulations.

Chosen for their diverse backgrounds -- which
appropriately reflect the diversity of the AARP
membership -- each Trustee brings a wealth of
personal and professional experience to the Program.

177

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OFFICERS AND TRUSTEES

LINDA C. COUGHLIN*
--------------------------------------------------------------------------

Chairperson and Trustee of each AARP Trust; Managing Director and Member,
Board of Directors of Scudder Kemper Investments, Inc.

HORACE B. DEETS
--------------------------------------------------------------------------

Vice Chairman of each AARP Trust and Trustee of AARP Cash Investment
Funds, AARP Growth Trust and AARP Tax Free Income Trust; Executive
Director, American Association of Retired Persons; Member, Board of
Councilors, Andrus Gerontology Center; Member of the Board, HelpAge
International.

CAROLE LEWIS ANDERSON
--------------------------------------------------------------------------

Trustee of each AARP Trust; President, MASDUN Capital Advisors; Principal,
Suburban Capital Markets; Director, VICORP Restaurants, Inc.; Member of
the Board, Association for Corporate Growth of Washington, D.C.; Trustee,
Hasbro Children's Foundation and Mary Baldwin College; Founder and
Director, Forum for Women Corporate Directors, New York City.

ADELAIDE ATTARD
--------------------------------------------------------------------------

Trustee of each AARP Trust; Member, New York City Department of Aging
Advisory Council -- Appointed by Mayor (1995-Present); Consultant,
Gerontology; Commissioner, County of Nassau, NY, Department of Senior
Citizen Affairs (1971-1991); Board Member, American Association of
International Aging (1981-1996); Member, NYS Community Services for the
Elderly Advisory Council -- Appointed by Governor (1987-1991);
Chairperson, Federal Council on Aging (1981-1986); U.S. Delegate to 1982
United Nations World Assembly on Aging.

ROBERT N. BUTLER, M.D.
--------------------------------------------------------------------------

Trustee of each AARP Trust; Director, International Longevity Center and
Professor of Geriatrics and Adult Development; Chairman, Henry L. Schwartz
Department of Geriatrics and Adult Development, Mount Sinai Medical
Center; Formerly Director, National Institute on Aging, National Institute
of Health (1976-1982).

ESTHER CANJA
--------------------------------------------------------------------------

Trustee of AARP Managed Investment Portfolios Trust and AARP Income Trust;
President-Elect, American Association of Retired Persons; Trustee and
Chair, AARP Group Health Insurance Plan; Board Liaison, National Volunteer
Leadership Network Advisory Committee; Board Member, Board Operations
Committee; Board Member, Board Committee on Strategic Planning; AARP State
Director of Florida (1990-1992).

EDGAR R. FIEDLER
--------------------------------------------------------------------------

Trustee of each AARP Trust; Senior Fellow and Economic Counselor, The
Conference Board, Inc.; Director: The Stanley Works, HT Insight Funds, and
Emerging Mexico Fund.

EUGENE P. FORRESTER
--------------------------------------------------------------------------

Trustee of each AARP Trust; Consultant; International Trade Counselor; Lt.
General (Retired), U.S. Army; Command General, U.S. Army Western Command,
Honolulu; Consultant, Digital Equipment Corp., DHI, Philip Morris, PICS
Previews, and Whittle Communications.

GEORGE L. MADDOX, JR.
--------------------------------------------------------------------------

Trustee of each AARP Trust; Professor Emeritus and Director, Long Term
Care Resources Program, Duke University Medical Center; Senior Fellow,
Center for the Study of Aging and Human Development, Duke University;
Professor Emeritus of Sociology, Departments of Sociology and Psychiatry,
Duke University.

178

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ROBERT J. MYERS
--------------------------------------------------------------------------

Trustee of each AARP Trust; Actuarial Consultant; Formerly Executive
Director, National Commission on Social Security Reform; Director:
Manufacturers Investment Trust; Formerly Director, Board of Pensions,
Evangelical Lutheran Church in America; Formerly Chairman, Commission on
Railroad Retirement Reform; Former Member, U.S. Office of Technology
Assessment, Prospective Payment Assessment Commission.

JAMES H. SCHULZ
--------------------------------------------------------------------------

Trustee of each AARP Trust; Professor of Economics and Kirstein Professor
of Aging Policy, Policy Center of Aging, Florence Heller School, Brandeis
University.

GORDON SHILLINGLAW
--------------------------------------------------------------------------

Trustee of each AARP Trust; Professor Emeritus of Accounting, Columbia
University Graduate School of Business; Formerly Director and Treasurer,
FERIS Foundation of America.

JEAN GLEASON STROMBERG
--------------------------------------------------------------------------

Trustee of each AARP Trust; Consultant; Formerly Director, Financial
Institutions Issues, U.S. General Accounting Office; Formerly Partner,
Fulbright & Jaworski Law Firm.

<TABLE>
<CAPTION>
<S> <C>
CORNELIA SMALL* HOWARD SCHNEIDER*
---------------------------------------------------------------------------------------------------
President of each AARP Trust Vice President of each AARP Trust

WILLIAM F. GLAVIN, JR.* KATHRYN L. QUIRK*
---------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Secretary of each AARP Trust

ANN M. MCCREARY* JOHN MILLETTE*
---------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Vice President and Assistant Secretary of
each AARP Trust

JAMES W. PASMAN* JOHN R. HEBBLE*
---------------------------------------------------------------------------------------------------
Vice President of each AARP Trust Treasurer of each AARP Trust
</TABLE>

*Scudder Kemper Investments, Inc.

Effective January 1, 1995, each member of and nominee for each Board of
Trustees must own shares of one or more of the Funds of the Trust for
which he/she serves as Trustee.

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I N V E S T O R S E R V I C E S

Information, services, and important phone numbers
are contained in this section. You are encouraged
to contact us through our Internet Web site at
aarp.scudder.com or by calling Easy-Access, our
automated information line. Of course, you can
also speak with one of our highly skilled Mutual
Fund Representatives regarding your account.

181

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INVESTOR SERVICES

AARP AUTOMATIC Take advantage of dollar cost averaging -- a simple,
INVESTMENT PLAN systematic approach to managing risk. By investing a
specific amount of money in one or more of the AARP
Mutual Funds from Scudder on a regular basis (usually
monthly), you can potentially reduce your average cost
per share. By purchasing shares at different prices
over time, dollar cost averaging can offer the
potential for a lower cost per share. You can begin
your Automatic Investment Plan with as little as $50
per month.

AARP LUMP SUM If you need assistance in determining your options for
SERVICE a lump sum payment from a retirement plan or life
insurance policy, we can help. You can work directly
with a trained AARP Retirement Plan Specialist who can
explain the options, including the tax implications and
investment options. We can also assist you with
expediting your lump sum distribution.

AARP INVESTMENT The AARP Web site -- aarp.scudder.com -- provides
PROGRAM WEB SITE timely information on a variety of issues to help
investors prepare for life's financial eventualities.
The site includes general information on the financial
markets and investing, quarterly market outlooks, AARP
fund updates, and interactive tools to help you plan
for retirement and invest in retirement. The site
features our new Financial Library -- a series of
online guides designed to address specific issues
facing investors over 50. You can also view your
account, make fund exchanges, and submit questions and
comments directly to Program representatives through
the site.

AARP LEGACY The Legacy Service was developed to help shareholders
SERVICE feel confident that their investments will pass to
their spouse or heirs the way they intended. The
Service consists of two parts: the Legacy Planner, an
informational guide which provides suggestions for
organizing your financial affairs, and the Legacy
Transfer Guide, a service available to families who
have recently experienced a death, which is intended to
help family members understand and protect their
inheritance.

FINANCIAL LIBRARY In 1999 we launched a major new investor education
effort-- the AARP Investment Program Financial Library.
The Library is a collection of objective investment
education guides designed to address specific issues
facing investors over 50. The four- to six-page guides
are written in plain English and contain tools and
resources to help shareholders solve specific problems.
Topics for most of these guides came from years of
fielding questions from AARP Investment Program
shareholders. The guides cover such topics as "Seven
Steps Toward Planning for Retirement," "Investing IRA
Distributions to Meet Your Needs and Goals," and
"Planning Ahead for the Asset Transfers When a Death
Occurs." For a list of topics, see the Special Section
devoted to the Financial Library on page 7 or,
since new guides are being added continuously, visit
our Web site at aarp.scudder.com for the most
up-to-date list. If you do not have access to the
Internet, you can call us to request up to three guides
through the mail.

For more information on the AARP Investment Program's Investor Services,
please visit our Web site at aarp.scudder.com or contact our highly trained
Mutual Fund Representatives at 1-800-253-2277.

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HOW TO CONTACT US

INVESTMENT Visit us at our Internet Web site for the latest
PROGRAM WEB SITE updates and information from the AARP Investment
aarp.scudder.com Program from Scudder. Visitors have access to a broad
range of investment information, including performance
of AARP Mutual Funds, which is updated daily, and the
complete prospectus.

EASY-ACCESS LINE Shareholders with a touch-tone telephone may call this
1-800-631-4636 automated line to obtain AARP fund performance and
account information, or to exchange or sell (redeem)
AARP fund shares. This service is available 24 hours a
day, 7 days a week.

TRANSACTIONS You can fax your confidential transaction requests to
BY FAX us. Please note that any exchange or redemption request
1-800-821-6234 received after 4:00 p.m. Eastern time on business days
or on weekends will be processed on the next business
day.

TDD (TELECOMMUNICATIONS AARP members with hearing or speech impairments and
DEVICE FOR THE DEAF AND access to TDD equipment can communicate with the AARP
SPEECH IMPAIRED) Investment Program Monday through Friday, between 8:00
1-800-634-9454 a.m. and 5:00 p.m., Eastern time. Transactions can be
made between 8:00 a.m. and 4:00 p.m., Eastern time on
business days.

SHAREHOLDER Our knowledgeable AARP Mutual Fund Representatives are
SERVICE LINE available to answer your questions regarding the AARP
1-800-253-2277 Investment Program, or your account, Monday through
Friday, between 8:00 a.m. and 8:00 p.m., Eastern time.
Transactions can be made Monday through Friday, between
8:00 a.m. and 4:00 p.m., Eastern time.

If you need to write to us, send correspondence to:
<TABLE>
<CAPTION>

<S> <C>
E-mail: [email protected]
(Please be sure to use exact capitalizations.)

U.S. mail: AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540

For overnight AARP Investment Program from Scudder
and certified mail: 42 Longwater Drive
Norwell, MA 02061-1612

</TABLE>

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GLOSSARY

Terms in bold italics throughout the report are
defined here.

ASSET-BACKED SECURITIES Bonds or notes backed by loan paper or accounts
receivable originated by banks, credit card
companies, or other providers of credit and often
"enhanced" by a bank Letter of Credit or by insurance
coverage provided by an institution other than the
issuer.

COUPON The interest rate on a bond the issuer (in the case
of mortgage-backed securities, the government)
promises to pay to the holder of the bond until
maturity expressed as an annual percentage of face
value. As an example, a bond with a 10% coupon would
pay $100 on $1,000 of the face amount each year.
Traditionally bond certificates were issued with
"coupons" representing the dividend payment that
would be detached and mailed to the custodian bank
for payment.

CREDIT RISK The likelihood of a bond issuer to make timely
principal and interest payments. Treasury notes and
bonds have virtually no credit risk because the
securities are backed by the full faith and credit of
the U.S. government. In contrast, high yield bonds
("junk bonds"), which have low credit ratings, have a
significant amount of credit risk because of a higher
likelihood of default.

CYCLICAL/NON-CYCLICAL A cyclical stock tends to rise quickly when the
economy turns up and to fall quickly when the economy
turns down. Examples include companies in the auto,
cement, housing, machinery, paper, and steel
industries. A non-cyclical stock is less affected by
the economy and includes those companies in the food
and pharmaceutical industries.

DURATION A mathematical calculation of the average life of a
bond (or bonds in a bond fund) that serves as a
useful measure of price risk. Each year of duration
represents an expected 1% change in the price of a
bond for every 1% change in interest rates. For
example, if a bond fund has an average duration of
two years, its price will decline about 2% when
interest rates rise by one percentage point.
Conversely, the bond fund's price will rise about 2%
when interest rates fall by one percentage point.

FUNDAMENTALS/ Analysis of companies based on the projected impact
FUNDAMENTAL RESEARCH of management, products, sales, and earnings on their
balance sheets and income statements. Fundamental
research is distinct from technical analysis, which
evaluates the attractiveness of a stock based on
historical price and trading volume movements.

GROWTH STOCK Stock of a company that has displayed above-average
earnings growth and is expected to continue to
increase profits rapidly going forward. Stocks of
such companies usually trade at higher price earnings
multiples (see price/earnings ratio) and experience
more price volatility than the market as a whole.
Distinct from value stock.

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LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.

MARKET CAPITALIZATION The market value of a company's outstanding shares of
(LARGE-CAP/SMALL-CAP) common stock, determined by multiplying the number of
shares outstanding by the share price (shares x price
= market capitalization). The universe of publicly
traded companies is frequently divided into large-,
mid-, and small-capitalization. Large-cap stocks tend
to be more liquid than small-cap stocks.

MATURITY The date when an issuer must pay the face amount of
the bond to the bondholder. An investor who buys
$10,000 worth of 10-year bonds will receive $10,000
at the end of 10 years, after receiving interest
(coupon) payments over the 10-year period.

PREPAYMENT RISK The possibility that, as interest rates fall,
homeowners will refinance their home mortgages,
resulting in the prepayment of mortgage securities.

PRICE/EARNINGS RATIO The price of a stock divided by its earnings per
share, also known as price/earnings multiple (P/E). A
widely used gauge of a stock's valuation that
indicates what investors are paying for a company's
earning power at the current stock price. A
relatively high price/earnings multiple indicates
higher expected earnings growth, along with greater
risk of earnings disappointment.

TOP-DOWN STRATEGY A method in which the investor first looks at trends
in the general economy or, in the case of
international investing, the economies of several
countries, and next selects companies or industries
that stand to benefit from those trends. The opposite
of bottom-up investing.

VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value, as indicated by its
price/earnings ratio, price/book value ratio,
dividend yield, or some other valuation measure,
relative to its industry or the market overall. Value
stocks tend to display less price volatility and may
carry higher dividend yields than growth stocks.

YIELD SPREAD The difference in yield between two types of bonds. A
mortgage-backed security's yield is often measured
against the yield of a Treasury bond of similar
maturity. If GNMA yield spreads are "narrow," for
example, it typically means that GNMA yields have
been declining (and prices rising), compared with
Treasury bonds of similar maturity.

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<PAGE>
THE EXPENSE OF PUBLISHING THIS REPORT

Some AARP fund shareholders have inquired about the expense of publishing
this report. While the report is legally required by federal securities law
and monitored by the Securities and Exchange Commission (SEC), the AARP
Investment Program from Scudder also seeks to provide shareholders with
meaningful information that is easy to use.

In seeking this objective, we continually incorporate feedback from AARP
members. We go to great lengths to explain the investment markets and fund
performance in a way that is insightful and understandable. We also have
attempted to make this report more readable than other financial reports by
using larger typefaces, effective color contrasts, and "white space"
whenever possible.

To control costs, we have undertaken several initiatives. We produce one
combined report, which we have determined is less expensive than producing
16 individual reports. We obtain a lower price for the paper this report is
printed on by combining our paper needs with that of other Scudder Kemper
Investments divisions for aggregate purchases of over two million pounds
annually. While the number of AARP funds has doubled from two years ago,
the cost of producing this report has dropped from $0.008 per page in 1997
to $0.006 per page in 1999.

We also are mindful of the number of copies we mail to shareholders and
attempt to send only one copy to the same address whenever possible. This
has resulted in a 53% decrease in the total number of reports mailed
compared to mailing one report to each AARP shareholder account.

Through these and other efforts we are able to keep the cost of producing
this report to 98 cents per copy.

Our cost-conscious approach to producing this report reflects our overall
attention to fund expenses and to providing attractive value to
shareholders.

The paper used for the cover and internal pages of this report
incorporates recycled corrugated containers. The "Crystal
Recycling Process" which created this paper saved four and
one-half truckloads of boxes from going to landfills. When you
are finished with this report, please continue the process and
recycle it.

(recycle logo) Printed on recycled paper