AARP GROWTH TRUST, 485BPOS, 1996-01-26

AARP GROWTH TRUST
485BPOS, 1996-01-26

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Filed with the Securities and Exchange Commission on January 26, 1996.

File No. 2-91578
File No. 811-4048

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 18

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 20

AARP Growth Trust
-----------------
(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 295-2567

Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective

_____ immediately upon filing pursuant to paragraph (b)

X on February 1, 1996 pursuant to paragraph (b)
-----

_____ 60 days after filing pursuant to paragraph (a)(i)

_____ on _______________ pursuant to paragraph (a)(i)

_____ 75 days after filing pursuant to paragraph (a)(ii)

_____ on _______________ pursuant to paragraph (a)(ii) of Rule 485

The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant has filed the notice required by Rule 24f-2 for its most
recent fiscal year on November 16, 1995.
<PAGE>
AARP GROWTH TRUST
CROSS-REFERENCE SHEET

Items Required by Form N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
- ------

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE

2. Synopsis FUND EXPENSES
EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information UNDERSTANDING FUND PERFORMANCE

4. General Description AN OVERVIEW OF THE AARP INVESTMENT PROGRAM
of Registrant INVESTMENT OBJECTIVES AND POLICIES
OTHER INVESTMENT POLICIES AND RISK FACTORS
FUND ORGANIZATION

5. Management of the FUND EXPENSES
Fund EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000
INVESTMENT IN EACH AARP FUND
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION
AN OVERVIEW OF THE AARP INVESTMENT PROGRAM

5A. Management's NOT APPLICABLE
Discussion of Fund
Performance

6. Capital Stock and ADDITIONAL INFORMATION ABOUT
Other Securities DISTRIBUTIONS AND TAXES
FUND ORGANIZATION
ACCESS TO YOUR INVESTMENT

7. Purchase of Securities OPENING AN ACCOUNT
Being Offered ADDING TO YOUR INVESTMENT
EXCHANGING
INVESTOR SERVICES
WIRE TRANSFER INSTRUCTIONS

8. Redemption or EXCHANGING
Repurchase ACCESS TO YOUR INVESTMENT
SIGNATURE GUARANTEES
INVESTOR SERVICES

9. Pending Legal NOT APPLICABLE
Proceedings
</TABLE>

Cross Reference - Page 1
<PAGE>

<TABLE>
<CAPTION>
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
<S> <C> <C>
10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information TRUST ORGANIZATION
and History

13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES
and Policies AND POLICIES
BROKERAGE AND PORTFOLIO TURNOVER

14. Management of the MANAGEMENT OF THE FUNDS
Fund TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders
of Securities

16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services TRUSTEES AND OFFICERS
OTHER INFORMATION

17. Brokerage Allocation BROKERAGE AND PORTFOLIO TURNOVER

18. Capital Stock and TRUST ORGANIZATION
Other Securities

19. Purchase, Redemption THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
and Pricing of Securities PURCHASES
Being Offered REDEMPTIONS
RETIREMENT PLANS
OTHER PLANS
NET ASSET VALUE

20. Tax Status TAXES

21. Underwriters DISTRIBUTOR

22. Calculations of DIVIDENDS AND YIELD
Performance Data

23. Financial Statements FINANCIAL STATEMENTS
</TABLE>

Cross Reference - Page 2
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER
PROSPECTUS

February 1, 1996

There are nine pure no-load AARP Mutual Funds that have been developed to help
meet the investment needs of AARP members. The Funds are organized into four
Trusts (see page 35 for more information on the Trusts).

Trusts AARP Mutual Funds
------ -----------------
AARP Cash Investment Funds AARP High Quality Money Fund

AARP Income Trust AARP GNMA and U.S. Treasury Fund
AARP High Quality Bond Fund

AARP Tax Free Income Trust AARP High Quality Tax Free Money Fund
AARP Insured Tax Free General Bond Fund

AARP Growth Trust AARP Balanced Stock and Bond Fund
AARP Growth and Income Fund

AARP Global Growth Fund
AARP Capital Growth Fund

This combined Prospectus provides information about the AARP Investment
Program from Scudder that a prospective investor should know before investing.
Please keep it for future reference.

The U.S. Government does not and has never insured or guaranteed shares of
any mutual fund, including the AARP Mutual Funds. For limitations on insurance
relative to the AARP Insured Tax Free General Bond Fund, see page 20. The AARP
High Quality Money Fund and the AARP High Quality Tax Free Money Fund each seek
to maintain a constant net asset value of $1.00 per share. The Fund Manager
cannot assure investors that these funds will be able to maintain a stable $1.00
per share or constant net asset value.

You may get more detailed information in the combined Statement of
Additional Information (SAI) dated February 1, 1996, as amended from time to
time. The SAI is considered part of this Prospectus by reference to it. The SAI
is on file with the Securities and Exchange Commission (SEC).

You may get a copy of the SAI or a LARGER PRINT VERSION OF THIS PROSPECTUS
without charge. Call 1-800-253-2277, or write to Scudder Investor Services,
Inc., P.O. Box 2540, Boston, MA 02208-2540.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus - 1
<PAGE>

FUND EXPENSES

The AARP Mutual Funds do not charge sales fees or commissions. 100% of your
investment goes to work for you.

* No fees to open your account
* No fees to open or maintain an AARP IRA or AARP Keogh Plan account
* No fees to buy shares
* No fees to exchange (move investments from one fund to another)
* No fees to sell (redeem) shares
* No marketing fees or distribution fees (12b-1 fees)
* No fees to reinvest dividends

There are Annual Fund Operating Expenses for each of the AARP Funds. You do not
pay these expenses directly. The AARP Funds pay these expenses before
distributing net investment income to you. These expenses include the management
fee paid to the Fund Manager as well as other expenses for services such as
maintaining shareholder records and furnishing shareholder statements and fund
reports. The expenses are reflected in the AARP Funds' share prices or dividends
and are not directly charged to shareholder accounts.

The following tables present information on the projected costs and expenses of
investing in an AARP Fund. You may use these tables to compare the fees and
expenses of the AARP Funds with other mutual funds.

Annual Fund Operating Expenses are expressed as a percentage of each AARP Fund's
average daily net assets.

The chart shows the expenses for each of the Funds, other than the AARP Global
Growth Fund, for the fiscal year ended September 30, 1995. For the AARP Global
Growth Fund, which was introduced on February 1, 1996, expenses have been
estimated for the coming year.

<TABLE>
<CAPTION>
Effective Total Fund
Management Other Operating
Fund Fee Rate** Expenses Expenses
---- ---------- -------- --------
<S> <C> <C> <C>
AARP High Quality Money Fund .40% .58% .98%
AARP High Quality Tax Free Money Fund .39% .48% .87%
AARP GNMA and U.S. Treasury Fund .42% .25% .67%
AARP High Quality Bond Fund .49% .46% .95%
AARP Insured Tax Free General Bond Fund .49% .20% .69%
AARP Balanced Stock and Bond Fund .49% .52% 1.01%
AARP Growth and Income Fund .49% .23% .72%
AARP Global Growth Fund* .40% 1.35% 1.75%*
AARP Capital Growth Fund .62% .33% .95%
</TABLE>

Prospectus - 2
<PAGE>

EXAMPLES OF WHAT FUND EXPENSES WOULD BE ON A $1,000 INVESTMENT IN EACH AARP FUND

Based on the level of assets as of September 30, 1995 (and projected September
30, 1996 assets for the AARP Global Growth Fund), we have calculated the
forecasted total expenses of a $1,000 investment in each AARP Fund over
specified periods. These examples assume 5% annual return. There are 3 other
assumptions: (1) redemption at the end of each period, (2) reinvestment of all
dividends and distributions, and (3) total fund operating expenses noted on page
2 remain the same each year.

For additional information, including reference to a $5.00 wire service fee that
is charged in some cases, please refer to page 41.

<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>

AARP High Quality Money Fund $10 $31 $54 $120
AARP High Quality Tax Free Money Fund 9 28 48 107
AARP GNMA and U.S. Treasury Fund 7 21 37 83
AARP High Quality Bond Fund 10 30 53 117
AARP Insured Tax Free General Bond Fund 7 22 38 86
AARP Balanced Stock and Bond Fund 10 32 56 124
AARP Growth and Income Fund 7 23 40 89
AARP Global Growth Fund 18 55 N/A N/A
AARP Capital Growth Fund 10 30 53 117
</TABLE>

You should not consider these examples as representations of past or future
expenses or returns. Actual fund expenses may be higher or lower in the future.

* The AARP Global Growth Fund was introduced on February 1, 1996. Fund
expenses are projected given the asset forecast as of September 30, 1996.
Until September 30, 1996, the Fund Manager has agreed to waive a portion
of its management fee for AARP Global Growth Fund to the extent necessary
so that the total annualized expenses of the Fund do not exceed 1.75% of
average daily net assets. If the Fund Manager had not agreed to waive a
portion of its fee, it is estimated that the total annualized expenses of
the Fund would be: investment management fee .85%, other expenses 1.35%
and total operating expenses 2.20% for the initial fiscal year. To the
extent that expenses fall below the current expense limitation, the Fund
Manager reserves the right to recoup, during the fiscal year incurred,
amounts waived during the period, but only to the extent that the Fund's
expenses do not exceed 1.75%.

** The AARP Funds' fee structure is designed to recognize the degree to which
the pooled resources of the Program provide economies in the management of
the AARP Funds. The fee consists of two elements: a "Base Fee" and an
"Individual Fund Fee." The combined Base Fee and Individual Fund Fee is
called the Effective Management Fee Rate. See page 36 for information on
how the Effective Management Fee Rate is calculated.

Prospectus - 3
<PAGE>

FINANCIAL HIGHLIGHTS

On the next six pages you will find a variety of information about the income
and the expenses of each AARP Fund, other than AARP Global Growth Fund which is
newly organized. You will also find the following: (1) the net gain or loss on
the investments, (2) the distributions, if any, of income and gain, and, (3) the
change in net asset value per share from the beginning to the end of the stated
periods. Price Waterhouse LLP, the AARP Funds' independent accountants, have
examined this information. The Annual Report to Shareholders includes their
report.

Net Asset Net Realized Dividends Distributions Distributions
Value at Net & Unrealized Total from from Net from Net from Tax
For the Years Ended Beginning Investment Investment Investment Investment Realized Return of
September 30 of Period Income (a) Gain (Loss) Operations Income Gains Capital
------------ --------- ---------- ----------- ---------- ------ ----- -------
AARP High Quality Money Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 1.00 $ .049 -- $ .049 $(.049) -- --
1994 1.00 .028 -- .028 (.028) -- --
1993 1.00 .021 -- .021 (.021) -- --
1992 1.00 .040 -- .040 (.040) (c) -- --
1991 1.00 .060 -- .060 (.060) -- --
1990 1.00 .073 -- .073 (.073) -- --
1989 1.00 .080 -- .080 (.080) -- --
1988 1.00 .060 -- .060 (.060) -- --
1987 1.00 .050 -- .050 (.050) -- --
1986 1.00 .064 -- .064 (.064) -- --
AARP High Quality Tax Free Money Fund (d)
1995 $1.000 $ .029 -- $ .029 $(.029) -- --
1994 1.000 .017 -- .017 (.017) -- --
1993 1.000 .016 -- .016 (.016) -- --
1992 1.000 .026 -- .026 (.026) -- --
1991 (d) .996 .055 $ .004 .059 (.055) -- --
1990 .998 .061 (.002) .059 (.061) -- --
1989 1.008 .059 (.010) .049 (.059) -- --
1988 .998 .055 .010 .065 (.055) -- --
1987 1.027 .049 (.026) .023 (.049) $(.003) --
1986 .996 .048 .031 .079 (.048) -- --
AARP GNMA and U.S. Treasury Fund
1995 $14.73 $ 1.01 $ .46 $ 1.47 $(.98) -- $(.03)
1994 15.96 .93 (1.23) (.30) (.93) -- --
1993 16.19 1.15 (.23) .92 (1.15) -- --
1992 15.72 1.22 .47 1.69 (1.22) -- --
1991 14.95 1.26 .77 2.03 (1.26) -- --
1990 14.98 1.31 (.03) 1.28 (1.31) -- --
1989 15.11 1.31 (.13) 1.18 (1.31) -- --
1988 14.89 1.37 .22 1.59 (1.37) -- --
1987 15.99 1.35 (1.09) .26 (1.35) $(.01) --
1986 15.52 1.54 .50 2.04 (1.54) (.03) --

<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Reflects fees not imposed by the Fund Manager of $.001 per share.
(c) Includes approximately $.005 per share of net realized short-term capital gains.
</FN>
</TABLE>

Prospectus - 4
<PAGE>

For a copy of the Annual Report to Shareholders, please contact an AARP Mutual
Fund Representative at 1-800-253-2277.

<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets % (a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ------------ -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(.049) $ 1.00 4.99 384 .978 4.887 -- --
(.028) 1.00 2.84 333 1.125 2.889 -- --
(.021) 1.00 2.13 254 1.312 2.123 -- --
(.040) 1.00 4.12 323 1.151 3.613 -- $ .000
(.060) 1.00 6.22 357 1.053 6.050 -- .001
(.073) 1.00 7.58 376 1.058 7.319 -- .001
(.080) 1.00 8.32 324 1.071 8.061 -- .001
(.060) 1.00 6.15 224 1.097 (b) 6.025 -- .001
(.050) 1.00 5.13 178 1.160 5.090 -- .004
(.064) 1.00 6.60 104 .712 6.310 -- .009

$(.029) $1.000 2.99 120 .87 2.94 -- --
(.017) 1.000 1.76 129 .90 1.75 -- $ .000
(.016) 1.000 1.62 134 .93 1.60 -- .002
(.026) 1.000 2.58 127 .95 2.54 -- .002
(.055) 1.000 6.10 119 1.06 5.43 -- .001
(.061) .996 6.02 98 1.12 6.06 39.88 --
(.059) .998 4.98 90 1.17 5.85 21.28 --
(.055) 1.008 6.65 79 1.27 5.47 62.73 .005
(.052) .998 2.25 70 1.31 4.80 22.20 .006
(.048) 1.027 8.07 48 1.48 4.72 23.00 --

$(1.01) $15.19 10.31 5,252 .67 6.77 70.35 --
(.93) 14.73 (1.90) 5,585 .66 6.09 114.54 --
(1.15) 15.96 5.89 6,712 .70 7.15 105.49 --
(1.22) 16.19 11.19 5,232 .72 7.69 74.33 --
(1.26) 15.72 14.12 3,311 .74 8.23 86.64 --
(1.31) 14.95 8.86 2,583 .79 8.71 60.54 --
(1.31) 14.98 8.17 2,518 .79 8.76 48.35 --
(1.37) 15.11 11.07 2,837 .81 9.09 84.72 --
(1.36) 14.89 1.54 2,827 .88 8.76 50.68 --
(1.57) 15.99 13.62 1,963 .90 9.49 61.92 --

<FN>
(d) On August 1, 1991 the Fund implemented a 15.17 to 1.00 stock split and adopted its present name and
investment objectives. Prior to that date, the Fund was known as the AARP Insured Tax Free Short Term
Fund. Financial information prior to August 1, 1991 has been restated to reflect the stock split and
should not be considered representative of the present Fund.
</FN>
</TABLE>

Prospectus - 5
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Distributions Distributions
Value at Net & Unrealized Total from from Net from Net from Tax
For the Years Ended Beginning Investment Investment Investment Investment Realized Return of
September 30 of Period Income (a) Gain (Loss) Operations Income Gains Capital
------------ --------- ---------- ----------- ---------- ------ ----- -------
AARP High Quality Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $15.05 $ .94 $ .95 $ 1.89 $(.93) -- --
1994 17.19 .85 (1.76) (.91) (.85) -- $(.38)
1993 16.44 .93 .93 1.86 (.93) $(.18) --
1992 15.71 1.03 .73 1.76 (1.03) -- --
1991 14.63 1.10 1.08 2.18 (1.10) -- --
1990 15.04 1.17 (.41) .76 (1.17) -- --
1989 14.80 1.23 .24 1.47 (1.23) -- --
1988 14.45 1.27 .46 1.73 (1.27) (.11)(e) --
1987 15.87 1.22 (1.19) .03 (1.22) (.23) --
1986 15.31 1.41 .61 2.02 (1.41) (.05) --
AARP Insured Tax Free General Bond Fund
1995 $16.93 $ .87 $ .81 $ 1.68 $(.87) -- --
1994 19.00 .86 (1.67) (.81) (.86) $(.34) $(.06)
1993 17.88 .90 1.55 2.45 (.90) (.43) --
1992 17.30 .93 .75 1.68 (.93) (.17) --
1991 16.12 1.00 1.18 2.18 (1.00) -- --
1990 16.61 1.04 (.24) .80 (1.04) (.25) --
1989 16.02 1.08 .59 1.67 (1.08) -- --
1988 15.00 1.08 1.02 2.10 (1.08) -- --
1987 16.69 1.07 (1.49) (.42) (1.07) (.20) --
1986 15.12 1.01 1.63 2.64 (1.01) (.06) --
AARP Balanced Stock and Bond Fund
1995 $14.64 $ .61 $ 1.79 $ 2.40 $(.60) $(.04) --
1994 (d) 15.00 .25 (.37) (f) (.12) (.24) -- --
AARP Growth and Income Fund
1995 $34.13 $ 1.11 $ 5.44 $ 6.55 $(1.09) $(1.23) --
1994 32.91 .94 1.62 2.56 (1.13) (.21) --
1993 28.67 .83 4.58 5.41 (.87) (.30) --
1992 26.97 .97 2.11 3.08 (.90) (.48) --
1991 22.30 1.11 4.78 5.89 (1.17) (.05) --
1990 26.11 1.11 (3.69) (2.58) (1.15) (.08) --
1989 20.94 1.01 5.20 6.21 (1.04) -- --
1988 25.54 1.04 (3.93) (2.89) (.94) (.77) --
1987 20.88 .67 5.51 6.18 (.64) (.88) --
1986 16.84 .73 4.10 4.83 (.70) (.09) --

<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Not Annualized.
(c) Annualized.
</FN>
</TABLE>

Prospectus - 6
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets % (a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ------------ -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(.93) $16.01 12.98 533 .95 6.13 201.07 --
(1.23) 15.05 (5.55) 568 .95 5.31 63.75 --
(1.11) 17.19 11.88 604 1.01 5.64 100.98 --
(1.03) 16.44 11.56 384 1.13 6.40 63.00 --
(1.10) 15.71 15.44 201 1.17 7.26 90.43 --
(1.17) 14.63 5.21 151 1.14 7.86 47.39 $ .009
(1.23) 15.04 10.38 129 1.16 8.33 57.69 .007
(1.38) 14.80 12.38 123 1.17 8.55 23.57 .005
(1.45) 14.45 (.09) 108 1.18 7.81 192.80 .034
(1.46) 15.87 13.60 88 1.30 8.86 62.72 .011

$(.87) $17.74 10.21 1,807 .69 5.06 17.45 --
(1.26) 16.93 (4.48) 1,914 .68 4.80 38.39 --
(1.33) 19.00 14.31 2,087 .72 4.90 47.96 --
(1.10) 17.88 10.01 1,487 .74 5.31 62.45 --
(1.00) 17.30 13.85 1,068 .77 5.92 32.18 --
(1.29) 16.12 4.89 771 .80 6.29 48.24 --
(1.08) 16.61 10.66 527 .84 6.52 148.94 --
(1.08) 16.02 14.39 312 .92 6.95 163.51 --
(1.27) 15.00 (2.94) 238 1.00 6.58 135.32 --
(1.07) 16.69 17.96 129 1.13 6.40 35.99 --

$(.64) $16.40 16.80 247 1.01 4.12 63.77 --
(.24) 14.64 (.78)(b) 175 1.31(c) 3.58(c) 49.32(c) --

$(2.32) $38.36 20.43 3,007 .72 3.28 31.26 --
(1.34) 34.13 7.99 2,312 .76 3.00 31.82 --
(1.17) 32.91 19.38 1,560 .84 3.08 17.44 --
(1.38) 28.67 11.59 748 .91 3.84 36.40 --
(1.22) 26.97 27.19 392 .96 4.61 53.68 --
(1.23) 22.30 (10.19) 248 1.03 4.76 58.47 --
(1.04) 26.11 30.58 236 1.04 4.19 55.21 --
(1.71) 20.94 (10.75) 228 1.06 4.52 61.34 --
(1.52) 25.54 30.92 358 1.08 3.81 43.25 $ .007
(.79) 20.88 29.00 99 1.21 4.55 37.44 --

<FN>
(d) Operations for the period of February 1, 1994 (commencement of operations) to September 30, 1994.
(e) Includes $0.06 of distributions from paid-in capital.
(f) The amount shown for a share outstanding throughout the period does not accord with the change in the
aggregate gains and losses in the portfolio securities during the period because of the timing of sales
and repurchases of Fund shares in relation to fluctuating market values during the period.
</FN>
</TABLE>

Prospectus - 7
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Dividends Distributions
Value at Net & Unrealized Total from from Net from Net
For the Years Ended Beginning Investment Investment Investment Investment Realized
September 30 of Period Income (a) Gain (Loss) Operations Income Gains
------------ --------- ---------- ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AARP Capital Growth Fund
1995 $31.74 $ .36 $ 6.91 $ 7.27 $(.01) $(.64)
1994 36.20 .00 (1.51) (1.51) (.05) (2.90)
1993 30.30 .06 7.19 7.25 (.14) (1.21)
1992 30.23 .15 1.09 1.24 (.23) (.94)
1991 23.32 .24 9.05 9.29 (.59) (1.79)
1990 34.17 .54 (b) (9.27) (8.73) (.19) (1.93)
1989 23.88 .21 10.17 10.38 (.09) --
1988 27.55 .10 (1.97) (1.87) (.15) (1.65)
1987 21.13 .11 7.40 7.51 (.19) (.90)
1986 16.95 .18 4.28 4.46 (.09) (.19)

<FN>
(a) Reflects a per share reimbursement of expenses during the period by the Fund Manager. See last column.
(b) Annualized.
</FN>
</TABLE>

AN OVERVIEW OF THE AARP INVESTMENT PROGRAM

AARP is a nonprofit organization dedicated to addressing the needs and interests
of persons aged 50 and older. It seeks through education, advocacy, and service
to enhance the quality of life for all by promoting independence, dignity, and
purpose. In the early 1980s, research conducted by AARP indicated that many
members were not taking steps to invest adequately for their future. To
encourage members to plan for their retirement and beyond, AARP decided to make
available a family of mutual funds. The family of funds would provide members
with a limited number of distinct investment choices that were managed by an
experienced investment adviser. AARP sought an investment management firm to
develop and manage the funds. After interviewing a number of investment
managers, AARP selected Scudder, Stevens & Clark, Inc., who will be referred to
in this prospectus as Scudder or the Fund Manager.

Who is Scudder, Stevens & Clark?

Scudder, Stevens & Clark is America's oldest independent investment counsel
firm. Its founder, Theodore T. Scudder, established the profession of long-term,
fee-based investment counsel in 1919 at a time when investment firms were
focused on short-term, commission-based trading. In the more than 75 years that
have passed since then, Scudder has grown to be one of America's largest
independent investment managers. Today, Scudder manages more than $100 billion
in assets for clients around the world. Scudder manages corporate funds, pension
plans, and endowments for institutions, and provides an array of investment
products and services for individual clients and other investors. These include
the Scudder Funds, a family of no-load mutual funds; a no-load variable annuity;
401(k) Plans; and several closed-end funds.

Scudder brings decades of experience and innovation to mutual fund investing. In
1928, Scudder offered America's first no-load mutual fund. Scudder was the first
company to offer an international mutual fund to U.S. investors. In 1984,
Scudder was selected by AARP to develop and manage the AARP Mutual Funds.

Prospectus - 8
<PAGE>

<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Operating Investment
Value at Net Assets Expenses to Income to Portfolio Per Share
Total End of Total End of Period Average Net Average Net Turnover Reimbursement
Distributions Period Return % ($ millions) Assets % (a) Assets % Rate % of Expenses (a):
------------- ------ -------- ------------ ------------ -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(.65) $38.36 23.47 692 .95 1.00 98.44 --
(2.95) 31.74 (4.70) 683 .97 .02 79.65 --
(1.35) 36.20 24.53 607 1.05 .22 100.63 --
(1.17) 30.30 3.94 424 1.13 .61 89.20 --
(2.38) 30.23 42.81 242 1.17 .90 99.62 --
(2.12) 23.32 (26.94) 160 1.11 2.00 83.28 $ .009
(.09) 34.17 43.62 180 1.16 .89 63.51 --
(1.80) 23.88 (5.44) 91 1.23 .37 45.37 .044
(1.09) 27.55 37.02 116 1.24 .62 53.61 .025
(.28) 21.13 26.65 56 1.44 1.27 46.32 --
</TABLE>

What are the roles of AARP and Scudder?

The AARP Investment Program from Scudder was established in accordance with
criteria set by AARP. Specifically, these criteria include providing members
with competitive investment performance, allowing easy access to investments,
offering easy-to-understand information concerning investing, and delivering
superior service. Fulfilling this mandate is the mission of AARP and Scudder.
Both organizations work closely to ensure these criteria are met. Scudder
provides investment management and administrative services for the AARP Funds
and brings to the Program more than 75 years of investment counseling and
management experience. AARP provides insight into the diversity and changing
character of AARP members. Association staff closely monitor Program services
and review all Program materials to ensure conformity to AARP's high standards.
Members of AARP leadership also serve as Trustees for the AARP Funds.

WHAT DOES THE AARP INVESTMENT PROGRAM OFFER ME?

The Program was created to address the investment concerns of AARP members and
to help you make informed investment decisions. It features several benefits
that may make investing advantageous and give you greater confidence that you've
made decisions appropriate for your needs:

* A Unique Family of Funds: The Program offers a range of mutual funds which
recognize the needs of AARP members. Each of the AARP Funds is
conservatively managed, seeking to moderate share price volatility, while
seeking competitive returns. This makes the AARP Funds distinct from other
mutual funds, which may seek higher returns but do not focus on reducing
share price volatility.

* No Sales Fees or Commissions: Unlike most other mutual funds, the AARP
Funds are pure no-loadt so you don't pay any sales fees or commissions to
purchase, exchange or sell (redeem) shares. In addition, the Funds do not
charge 12b-1 fees, which are a form of a sales charge that covers
marketing and distribution expenses.

* No Fees to open and maintain an AARP IRA or AARP Keogh Plan account:
You'll pay no separate fees to open or maintain your retirement plan
account. All your money goes to work for your retirement.

Prospectus - 9
<PAGE>

* Low initial investment: Open an account for just $500 for each AARP Fund
($2,500 for the AARP High Quality Tax Free Money Fund) or $250 for each
AARP Fund in an AARP IRA or AARP Keogh Plan account. So it's easy to get
started. See page 38 of this prospectus for more information on minimum
investments.

* Professional investment management by Scudder, Stevens & Clark: Scudder
brings over 75 years of investment management experience to the AARP
Funds.

* Responsive Service from AARP Mutual Fund Representatives: Our
knowledgeable representatives are ready to answer your questions, initiate
transactions or help you select the AARP Fund which meets your needs--call
them toll-free. They are available Monday through Friday, from 8 a.m. to 8
p.m. Eastern time.

* Access to your investment when you need it. You'll be able to redeem your
investment at no charge by simply calling toll-free or writing--your
investment is not locked in. See page 41 of this prospectus for more
information.

You'll also benefit from:

* Informative Communications, such as newsletters and free educational
guides;
* Consolidated Monthly Statements or Quarterly AARP IRA or AARP Keogh Plan
Statements;
* Prompt transaction confirmations;
* Special Services designed to make investing simple and convenient; and
* AARP's commitment to represent your interests.

WHAT DO THE AARP MUTUAL FUNDS OFFER?

The nine AARP Mutual Funds offer members a choice of conservatively managed
investments which vary in the potential returns and risk they offer. The Funds
address four major investment needs: stability of principal, income, tax-free
income and growth. Each of the AARP Mutual Funds is managed to offer you
competitive returns. In addition, each AARP Fund follows a conservative
investment approach which seeks to moderate share price volatility, so you can
feel confident when you invest. The AARP Funds are managed with the needs of
AARP investors always in mind. Other mutual funds not designed and managed for
AARP investors may have higher share price volatility and have higher returns.

While the AARP Funds are conservatively managed, it is important to realize that
your principal is never insured or guaranteed, and the value of your investment
and your return will move up and down as market conditions change. The share
price of a mutual fund, other than a money market fund, typically moves up and
down on a day-to-day basis. Share price volatility reflects the level of
fluctuation in the value of a Fund's shares over relatively short time periods.
A mutual fund that experiences large changes in its share price on a daily basis
would be considered to have high share price volatility. The AARP Funds will be
managed to seek to reduce share price volatility as compared to other mutual
funds or securities described in a Fund's investment objective and policies.
This does not mean a Fund's share price will not be affected by market forces.
Market forces may include downward and upward movements of the stock market or
interest rates. The result will be upward or downward movements in the Fund's
share price. For a more detailed discussion of each AARP Fund, please read the
"Investment Objectives and Policies" section.

Information on each AARP Fund is included in this Prospectus, focusing on how
the AARP Funds differ in their potential return and risk. Before investing, you
should determine your investment objectives and personal time horizons. This
will help you decide which Fund or combination of AARP Funds fits your
investment needs.

Prospectus - 10
<PAGE>

The following is a brief summary of the diversity of investment needs the AARP
Funds seek to meet. The differing nature of an investment in each Fund will
affect the length of time for which you should be planning to invest.

If you are investing for stability of principal and income:

Consider the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund. Each provides opportunities to meet short-term needs (1
year or less) while providing a modest level of income. Both seek to
provide investors with stability of principal through a constant $1.00
share price, although this may not always be achieved. Like other money
funds, the AARP Money Funds invest in short-term securities whose yields
tend to follow changes in short-term interest rates. If short-term
interest rates rise or fall dramatically, so could the yields of the AARP
Money Funds in relatively short periods of time. Keep in mind that the two
AARP Money Funds differ in that the income paid by the AARP High Quality
Money Fund is taxable, whereas the income paid by the AARP High Quality
Tax Free Money Fund is normally free from federal income taxes.

If you are investing for the longer term and are interested in monthly
income:

Consider the AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond
Fund or the AARP Insured Tax Free General Bond Fund. When you choose one
of these conservatively managed funds, remember that both the value of
your shares and the yield will change daily, generally in reaction to
shifting interest rates. In most cases, as interest rates rise, the value
of investments in bond funds like these tends to fall. As interest rates
fall, the value of investments in these bond funds tends to rise.
Investing in these Funds offers the opportunity for gain through potential
appreciation in the value of your investment and from the monthly income
that the investment earns. While each of these Funds is managed to attempt
to moderate share price volatility, the value of your investment can
decline. That's why you should be prepared to tolerate some fluctuation in
the value of your investment and in the income you earn and to invest for
the longer term (at least 1 year or more).

If you are investing for the long term and you are interested in growth:

Consider the AARP Balanced Stock and Bond Fund, the AARP Growth and Income
Fund, the AARP Global Growth Fund or the AARP Capital Growth Fund. When
you invest in one of these Funds, remember that any investment in stocks
involves risk and that the value of your shares will fluctuate daily. The
share price of these AARP Funds will tend to rise when the stock market
rises and decline when the stock market declines. Investing in these Funds
offers the opportunity for gain through potential appreciation in the
value of your investment as well as from the income that the investment
earns. While each of these Funds is managed to attempt to moderate share
price volatility, the value of your investment can decline. That's why you
should consider your investment as one that you can afford to let work for
you over time--generally for a period of 3 to 5 years or more.

How is my investment managed?

The AARP Mutual Funds are managed to seek both competitive returns and to
moderate share price volatility. Each of the AARP Mutual Funds is managed by a
team of investment professionals at Scudder. Professional portfolio managers
develop investment strategies and select securities for each AARP Fund's
portfolio. They are supported by Scudder's dedicated staff of economists,
research analysts, traders, and other investment specialists who work in offices
across the United States and abroad. At Scudder, there has always been a strong
partnership between research analysts and portfolio managers. Scudder's large

Prospectus - 11
<PAGE>

staff of independent research analysts helps the portfolio managers assess
economic and industry trends as they make their investment decisions. Because of
this emphasis on "fundamentals," the portfolio managers do not take a short-term
approach to investing. Instead, they seek to add value over the long term,
carefully selecting investments they believe have superior potential for
achieving each Fund's objectives.

INVESTMENT OBJECTIVES AND POLICIES

The following pages provide detail on the investment objectives and policies of
the nine AARP Mutual Funds. Included are each Fund's objectives, whom it is
designed for, what it offers investors, what it can invest in, the risks
involved, when distributions are paid and who at Scudder manages the Fund. As
with any investment, there is no guarantee that the AARP Funds will successfully
meet their investment objectives. Be sure to read the section titled "Other
Investment Policies and Risk Factors" on page 28.

Each Trust's Trustees can modify a Fund's objectives without the approval of a
majority of that Fund's shareholders. Shareholders will be informed in writing
of any changes in objectives. In that event, they should consider whether the
Fund is still an appropriate investment given their then current financial
position and needs.

AARP HIGH QUALITY MONEY FUND

Fund Objective:

From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and
safety of principal while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances
under which this goal cannot be achieved.

For whom is the Fund designed?

The Fund may be appropriate for investors who have short-term needs or who
do not want the risk that accompanies investing in stocks or bonds. These
include:

* Investors creating a diversified portfolio who want a portion of
their assets in a conservative investment designed to offer safety
and stability.
* Investors seeking a short-term investment prior to making
longer-term investment choices.
* Investors seeking money market income to meet regular day-to-day
needs.
* Investors who need immediate access to their money through free
checkwriting services.

The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund is designed to offer current income, while maintaining stability
and safety of principal. In addition, it provides a convenient way to
easily access your money through checkwriting.

What does the Fund invest in?

Prospectus - 12
<PAGE>

obligations of domestic banks and their foreign branches, including
bankers' acceptances, certificates of deposit, deposit notes and time
deposits; obligations of savings and loan institutions; instruments whose
credit has been enhanced by: banks (letters of credit), insurance
companies (surety bonds), or other corporate entities (corporate
guarantees); corporate obligations, including commercial paper, notes,
bonds, loans and loan participations; securities with variable or floating
interest rates; asset-backed securities, including certificates,
participations and notes; municipal securities including notes, bonds and
participation interests, either taxable or tax-free, as described in more
detail for the AARP High Quality Tax Free Money Fund; securities with put
features; and repurchase agreements.

These securities will have remaining maturities of 397 calendar days or
less, except for U.S. Government securities, which may have maturities up
to 762 calendar days. The average dollar-weighted maturity of the Fund's
investments is 90 days or less.

All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. Generally, the
Fund may purchase only securities rated, or issued by an entity with
comparable securities rated, within the two highest quality rating
categories of one or more rating agencies such as: Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), and Fitch Investors
Service, Inc. (Fitch). Securities rated by only one agency may be
purchased if the rating falls within the categories above. Unrated
securities may be purchased if the Fund Manager judges them to be
comparable in quality to securities described above. Generally, the Fund
will invest in securities rated in the highest quality rating by at least
two of these rating agencies.

All of the securities purchased are U.S. dollar-denominated. The
securities must meet credit standards applied by the Fund Manager
following procedures established by the Trustees. If a security ceases to
be rated or is reduced below the Fund's standards, it will be sold unless
the Trustees determine that disposing of the security would not be in the
best interests of the Fund.

The Fund has certain nonfundamental policies designed to maintain
diversification. These policies may be changed without shareholder
approval. With limited exceptions, the Fund may not invest more than 5% of
its assets in the securities of a single issuer, except for U.S.
Government securities. Nor may it invest more than 10% of its total assets
in securities subject to unconditional puts by a single issuer.

What are the risks?

The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began in June 1985, there may be situations under which
this goal cannot be achieved. The level of income you receive will be
affected by movements up and down in short-term interest rates. By
investing generally in highest-quality securities, the Fund may offer less
income than a money market fund investing in other high-quality securities
in which money market funds are allowed to invest. See "Other Investment
Policies and Risk Factors."

When are distributions paid?

Dividends are declared daily and distributed monthly to investors.
Generally, net realized capital gain or loss is included in the daily
declaration of income. See page 33 for additional information on
distributions and taxes.

Who at Scudder manages my investment?

Lead Portfolio Manager Stephen L. Akers assumed responsibility for setting
the Fund's investment strategy and for overseeing the Fund's day-to-day
management in February 1996. Mr. Akers has been a member of the AARP High

Prospectus - 13
<PAGE>

Quality Money Fund team since 1995 and has managed several other
fixed-income portfolios since joining Scudder in 1984. Robert T. Neff,
Portfolio Manager, focuses on securities selection and assists with the
creation and implementation of investment strategy for the Fund. Mr. Neff
joined Scudder in 1972 and has more than 20 years of experience managing
short-term fixed-income assets. Debra A. Hanson, Portfolio Manager,
assists with the development and execution of investment strategy and has
been with Scudder since 1983. K. Sue Cote, Portfolio Manager, joined
Scudder in 1983 and has over 10 years of experience in the investment
industry.

AARP HIGH QUALITY TAX FREE MONEY FUND

Fund Objective:

From investments in high quality municipal securities, the Fund is
designed to provide current income free from federal income taxes. The
Fund also seeks to maintain stability and safety of principal, while
offering liquidity. The Fund seeks to maintain a constant net asset value
of $1.00 per share. There may be circumstances under which this goal
cannot be achieved.

For whom is the Fund designed?

The Fund may be appropriate for investors in high tax brackets who have
short-term investment needs or who do not want the risk that accompanies
investing in stocks or bonds. These include:

* Investors creating a diversified portfolio who want a portion of
their assets in a conservative investment designed to offer safety
and stability.
* Investors seeking a short-term investment prior to making
longer-term investment choices.
* Investors seeking tax free money market income to meet regular
day-to-day expenses.
* Investors who need immediate access to their money through free
checkwriting services.

This Fund is not available for AARP IRA, AARP SEP-IRA or AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund is designed to offer current income free from federal income tax,
while providing you with stability and safety of principal. Depending on
your tax bracket, the after-tax income from the Fund may be higher than
from a taxable investment of comparable quality and risk. In addition, it
provides a convenient way to easily access your money through
checkwriting.

What does the Fund invest in?

The Fund invests in high-quality, short-term municipal securities. These
securities will have remaining maturities of 397 calendar days or less.
The average dollar-weighted maturity of its investments is 90 days or
less. These municipal securities may include obligations issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia. Interest from these securities is, in the opinion of
the issuer's bond counsel, exempt from federal income taxes. The Fund has
no current intention to invest in securities whose income is subject to
federal income tax, including the individual alternative minimum tax
(AMT).

Municipal securities may include municipal notes such as tax anticipation
notes, revenue anticipation notes, bond anticipation notes and
construction loan notes; municipal bonds, which include general obligation
bonds secured by the issuer's pledge of its faith, credit and taxing power

Prospectus - 14
<PAGE>

for payment of principal and interest; and revenue bonds (including
private activity bonds), which are generally paid from the revenues of a
particular facility, a specific excise tax, or other source. The Fund's
municipal investments may also include participation interests in bank
holdings of municipal securities, municipal lease obligations, securities
with variable or floating interest rates, demand obligations, and
tax-exempt commercial paper. The Fund may also purchase securities on a
"when-issued" or "forward delivery" basis, and may enter into stand-by
commitments, which are securities that may be sold back to the seller at
the Fund's option.

All of the securities that the Fund purchases, or that underlie its
repurchase agreements, are considered to be high quality. These securities
are generally rated or issued by an issuer rated within the two highest
quality ratings of two or more rating agencies such as: Moody's (Aaa and
Aa, M1G1 and M1G2, and P1), S&P (AAA and AA, SP1+ and SP1, A1+ and A1) and
Fitch (AAA and AA, F1 and F2). The Fund may purchase a security rated by
only one rating agency if it meets the above rating standards. An unrated
security may be purchased if the Fund Manager judges it to be of
comparable quality to securities described above. Generally, the Fund will
invest in securities rated in the highest quality rating by at least two
of these rating agencies.

Ordinarily, the Fund expects that 100% of its portfolio securities will be
in federally tax-exempt securities.

As a fundamental policy, under normal circumstances, at least 80% of the
Fund's net assets will be invested in tax-exempt securities. Up to 20% of
the Fund's net assets may be invested in taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in taxable securities may exceed 20% when the Fund
Manager deems such a position advisable in light of economic or market
conditions.

All of the securities purchased are U.S. dollar-denominated. The
securities must meet credit standards applied by the Fund Manager,
following procedures established by the Trustees. If a security ceases to
be rated, or its rating is reduced below the Fund's standard, it will be
sold unless the Trustees determine that disposing of the security would
not be in the best interests of the Fund. As a matter of nonfundamental
policy, which may be changed without a shareholder vote, the Fund, with
respect to 75% of its total assets, may not invest more than 5% of its
total assets in securities subject to puts from any one issuer.

What are the risks?

The risk to your principal is low, since the Fund seeks to maintain a
stable share price of $1.00. While the Fund has maintained a stable share
price since it began operating as a tax-free money fund in August 1991,
there may be situations under which this goal cannot be achieved. The
level of income you receive will be affected by movements up and down in
short-term interest rates. By investing generally in highest-quality
securities, the Fund may offer less income than a money market fund
investing in other high-quality securities in which money market funds are
allowed to invest. See "Other Investment Policies and Risk Factors."

Will I be subject to taxes on this fund?

All income distributed by the Fund is expected to be exempt from federal
income taxes. However, income may be subject to state and local income
taxes. Each year you will be provided with a breakdown of the Fund's
investments on a state by state basis so that you can determine your state

Prospectus - 15
<PAGE>

and local income tax liability. Your state or local Department of Revenue
or tax advisor can answer questions regarding taxability of distributions.
Should there be any income from taxable securities, it would not be exempt
from federal income taxes.

When are distributions paid?

Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30 and is usually taxable. See page 33 for additional
information on distributions and taxes.

Who at Scudder manages my investment?

Lead Portfolio Manager K. Sue Cote has been responsible for setting the
Fund's investment strategy and has overseen the Fund's day-to-day
management since 1991. Ms. Cote joined Scudder in 1983 and has over 10
years of experience in the investment industry. Donald C. Carleton,
Portfolio Manager, focuses on securities selection and assists with the
creation and implementation of investment strategy for the Fund. Mr.
Carleton has more than 20 years' experience in tax-free investing and has
been at Scudder since 1983.

AARP GNMA AND U.S. TREASURY FUND

Fund Objective:

To produce a high level of current income and to keep the price of its
shares more stable than that of a long-term bond. The Fund pursues this
objective by investing principally in U.S. Government-guaranteed GNMA
securities and U.S. Treasury obligations.

For whom is the Fund designed?

The Fund is suitable for conservative investors who want high current
income but want a degree of protection from bond market price risk.
Investors should be seeking to invest for the longer term and be
comfortable with fluctuation in the value of their principal.

The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund is designed to offer current income from a portfolio of
high-quality securities. The level of income should generally be higher
than available from fixed-price money market mutual funds,
government-insured bank accounts and fixed-rate, government-insured CDs.
By including short-term U.S. Treasury securities in its portfolio, the
Fund seeks to offer less share price volatility than long-term bonds or
many GNMA mutual funds, although its yield may be lower.

What does the Fund invest in?

The Fund invests principally in U.S. Treasury bills, notes, and bonds, and
other securities issued or backed by the full faith and credit of the U.S.
Government. These include Government National Mortgage Association (GNMA)
securities. GNMA securities represent part ownership of a pool of U.S.
Government-guaranteed mortgage loans each of which is insured by the
Federal Housing Administration or guaranteed by the Veterans
Administration. Each pool of mortgages is also guaranteed by GNMA as to
the timely payment of principal and interest (regardless of whether the
mortgagors actually make their payments). This guarantee by GNMA

Prospectus - 16
<PAGE>

represents the full faith and credit of the U.S. Government. However, this
guarantee is not related to the Fund's yield or the value of shareholders'
investments, which will fluctuate daily.

The maturities and types of securities held by the Fund may vary with
current market conditions. At any time, the Fund may invest a substantial
portion of its assets in securities of a particular maturity. With GNMA
securities, principal is paid back to the Fund over the life of the bond,
rather than at maturity. The Fund will receive monthly scheduled payments
of principal and interest and may receive unscheduled principal payments
resulting from prepayments of the underlying mortgages. The Fund may
realize a gain or loss upon receiving principal payments. The Fund
typically reinvests all payments and prepayments of principal in
additional GNMA securities or other U.S. Government-guaranteed securities.

What are the risks?

The Fund is not a fixed price money market fund, so the value of its
shares will fluctuate up and down with changes in interest rates and other
market conditions. The level of income you receive will be affected by
movements up or down in interest rates. Like bonds, the value of
mortgage-backed securities decreases when interest rates rise. However,
when interest rates fall their value may not rise as much as does the
value of bonds because of the anticipation of prepayment of the underlying
mortgages. This prepayment may expose the Fund to a lower rate of return
upon reinvestment. Thus, the prepayment rate may also tend to limit any
increase in net asset value. See "Other Investment Policies and Risk
Factors."

How does the Fund seek to manage risk?

The Fund actively seeks to reduce fluctuation, or price volatility to your
principal, by investing in a combination of short-, intermediate-, and
long-term securities. The Fund may also, on occasion, use portfolio
management techniques to seek to reduce volatility. These techniques,
which are subject to applicable regulatory guidelines, may include limited
transactions in financial futures contracts and related option
transactions which are unrated (see "Other Investment Policies and Risk
Factors"). The Fund may purchase "when issued" securities and repurchase
agreements, and may write (sell) covered call options to enhance
investment returns. These techniques will be entered into to reduce risk,
but such techniques involve risks themselves and under certain conditions
may reduce current income.

When are distributions paid?

Dividends are declared daily and distributed monthly to investors. Any net
realized capital gain typically will be distributed annually after
September 30. See page 33 for additional information on distributions and
taxes.

Who at Scudder manages my investment?

Lead Portfolio Manager David H. Glen has been responsible for setting the
Fund's investment strategy and overseeing security selection for the
Fund's portfolio since its inception in 1985. Mr. Glen has 15 years'
experience in finance and investing. Mark S. Boyadjian, Portfolio Manager,
focuses on securities selection and assists with the creation and
implementation of investment strategy for the Fund. Mr. Boyadjian joined
the Fund's team in 1995 and has been involved in investment management
since joining Scudder in 1989.

Prospectus - 17
<PAGE>

AARP HIGH QUALITY BOND FUND

Fund Objective:

Consistent with investments primarily in high quality securities, the Fund
seeks to provide a high level of income and to keep the value of its
shares more stable than that of a long-term bond.

For whom is the Fund designed?

The Fund is suitable for investors who want high current income with
moderate risk from a high quality portfolio. Investors should be seeking
to invest for the longer term (at least 1 year or more) and be comfortable
with fluctuation in the value of their principal.

The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund is designed to offer a high level of current income from a
portfolio of high-quality securities. Normally the level of return should
be higher than that available from the AARP GNMA and U.S. Treasury Fund,
with greater fluctuation in the value of your principal.

By including short- and medium-term bonds in its portfolio, the Fund seeks
to offer less share price volatility than long-term bonds or many
long-term bond funds, although its yield may be lower.

What does the Fund invest in?

Under normal circumstances, at least 65% of the assets of the Fund are
invested in U.S. Government, corporate and other fixed-income securities.
All the Fund's securities will be rated or judged by the Fund Manager to
be the equivalent of those rated in the three highest rating categories of
Moody's (Aaa, Aa, and A) or S&P (AAA, AA, and A) and at least 65% of the
Fund's assets must be in securities rated in the two highest rating
categories by Moody's or S&P.

The Fund may invest in any investment eligible for the AARP GNMA and U.S.
Treasury Fund. It may also purchase corporate notes and bonds, including
convertible issues, and obligations of federal agencies that are not
backed by the full faith and credit of the U.S. Government. Additionally,
the Fund may also purchase obligations of international agencies, U.S.
dollar-denominated foreign debt securities, mortgage-backed and other
asset-backed securities, and money market instruments such as commercial
paper, banker's acceptances, and certificates of deposit issued by
domestic and foreign branches of U.S. banks.

The Fund will invest in a broad range of short-, intermediate- and
long-term securities. The maturities and types of securities held by the
Fund will vary with current market conditions. The Fund may have a
substantial portion of its assets in securities of a particular maturity.
The non-governmental investments of the Fund will be spread among a
variety of companies and will not be concentrated in any one industry.

What are the risks?

The Fund is not a fixed price money market fund, so the value of its
shares will fluctuate up and down with changes in interest rates and other
market conditions. Due to the greater market price risk of the securities
in which it invests, the Fund may have a more variable share price than
the AARP GNMA and U.S. Treasury Fund. See "Other Investment Policies and
Risk Factors."

The level of income provided will be affected by movements up and down in
interest rates. Also, income from high-quality securities the Fund
purchases may be lower than income from lower-quality securities.

How does the Fund seek to manage risk?

The Fund actively seeks to reduce fluctuation, or the price volatility of
your investment, by investing in securities with varying maturities. Also,
the Fund may use approved portfolio management techniques, if appropriate,

Prospectus - 18
<PAGE>

such as limited transactions in financial futures contracts and related
option transactions which are unrated (see "Other Investment Policies and
Risk Factors"). The Fund may purchase "when issued" securities and
repurchase agreements, and may write (sell) covered call options to
enhance investment returns. These techniques will be entered into to
reduce risk, but such techniques involve risks themselves and under
certain conditions may reduce current income.

When are distributions paid?

Who at Scudder manages my investment?

Lead Portfolio Manager David H. Glen has set the Fund's overall investment
strategy and has overseen its day-to-day operations since 1995. Mr. Glen,
who started at Scudder in 1982 and has been a portfolio manager since
1985, has 15 years' experience in finance and investing. William M.
Hutchinson, Portfolio Manager, who is also responsible for implementing
the Fund's strategy, has been involved with the Fund since 1987. Mr.
Hutchinson joined Scudder in 1986 as a portfolio manager and has over 20
years of investment experience. Stephen A. Wohler, Portfolio Manager,
focuses on securities selection for the Fund. Mr. Wohler joined Scudder in
1979 as a portfolio manager and has over 15 years' experience managing
fixed-income investments.

AARP INSURED TAX FREE GENERAL BOND FUND

Fund Objective:

From a portfolio consisting primarily of municipal securities covered by
insurance, the Fund seeks to provide high income free from federal income
taxes and to keep the value of its shares more stable than that of a
long-term municipal bond.

For whom is the Fund designed?

The Fund is suitable for investors in higher tax brackets who want high
income free from federal income taxes. Investors should invest for the
longer term (at least 1 year or more) and be comfortable with fluctuation
in the value of their principal.

The Fund is not available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund is designed to offer high income free from federal tax. Depending
on an investor's tax bracket, the after-tax income from the Fund may be
higher than from a taxable investment of comparable quality and risk. The
Fund will typically pay higher income than the AARP High Quality Tax Free
Money Fund, although yield and principal value will fluctuate up and down
with market conditions. By including short- and medium-term bonds in its
portfolio, the Fund seeks to offer less share price volatility than
long-term municipal bonds or many long-term municipal bond funds, although
its yield may be lower.

The Fund is one of a distinct group of tax-free mutual funds with
insurance on the majority of its investments. Insurance on its securities
protects the Fund against loss from default by the municipal issuer.
However, it does not protect the investor from fluctuation in the yield or
share price.

Prospectus - 19
<PAGE>

What does the Fund invest in?

The Fund invests primarily in a mix of short, intermediate and long-term
municipal securities that are insured against default by private insurers.

The municipal securities purchased by the Fund will be only high-grade
securities or repurchase agreements on such securities. These may include
obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia to raise money for
public purposes. Interest from these securities is, in the opinion of the
issuer's bond counsel, exempt from federal income taxes. The Fund has no
current intention of investing in securities whose income is subject to
federal income tax, including the individual alternative minimum tax
(AMT). However, under unusual circumstances, the Fund may invest in
taxable securities for defensive purposes or to benefit from disparities
in the financial markets.

Municipal securities may include municipal notes, municipal bonds,
municipal lease obligations, participation interests in bank holdings of
municipal securities, securities with variable or floating interest rates,
demand obligations, and tax-exempt commercial paper. The Fund may purchase
securities on a "when issued" or "forward delivery" basis, and may enter
into stand-by commitments in which securities may be sold back to the
seller at the Fund's option. Also, the Fund may use approved portfolio
techniques, if appropriate, such as limited use of financial futures
contracts and related options transactions (see "Other Investment Policies
and Risk Factors").

What portion of the securities is insured?

At least 65% of the Fund's assets are fully insured by private insurers as
to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed
by the U.S. Government are purchased and expected to be held for 60 days
or more, insurance will be obtained within 30 days to ensure that 65% of
the Fund's assets are insured by the issuer or arranged for by the Fund.
If at least 65% of its assets are not insured securities, the Fund will
obtain insurance for a portion of its U.S. Government guaranteed or backed
securities so that the 65% standard is achieved.

What are the risks?

The Fund is not a fixed price money market fund, so the value of its
shares will move up and down as interest rates and other market conditions
change. The level of income you receive will be affected by movements up
and down in interest rates. Income from the high quality securities which
the Fund purchases may be lower than the income from lower quality
securities. See "Other Investment Policies and Risk Factors."

How does the Fund seek to manage risk?

The Fund actively seeks to manage fluctuation, or the price volatility of
your investment, by investing in securities of varying maturities. The
Fund may also use approved portfolio management techniques.

Insurance on the securities held by the Fund protects the Fund as to
default by the municipal issuer. It does not protect an investor from
fluctuation in the Fund's yield or value per share, which change daily.
Insurance also involves a cost to the Fund which will reduce yield.

Prospectus - 20
<PAGE>

Historically, the yields on insured securities have been attractive in
comparison to the yields on uninsured securities of comparable quality.
There can be no assurance, however, that this relationship will continue.
Moreover, to the extent the Fund must purchase insurance on U.S.
Government securities, this will involve a cost to the Fund while not
increasing the quality rating since U.S. Government-guaranteed or backed
securities are already high quality. Although the financial condition of
each insurer of its securities is periodically reviewed by the Fund, there
can be no guarantee that insurers can honor their obligations under all
circumstances. See "Other Investment Policies and Risk Factors."

Will I be subject to taxes on this fund?

All income distributed by the Fund is expected to be exempt from federal
income taxes. However, income may be subject to state and local income
taxes. Ordinarily, the Fund expects that 100% of its portfolio securities
will be in federally tax-exempt securities. As a fundamental policy, under
normal circumstances, at least 80% of the Fund's net assets will be
invested in federally tax exempt securities. Up to 20% of the Fund's net
assets may be invested in federally taxable securities. For defensive
purposes, or if unusual circumstances make it advisable, the Fund may
purchase U.S. Government securities and repurchase agreements
collateralized by such securities. For temporary defensive purposes, the
Fund's investment in federally taxable securities may exceed 20%. Each
year you will be provided with a breakdown of the Fund's investments on a
state by state basis so that you can determine your state and local income
tax liability. Your state or local Department of Revenue or tax advisor
can answer questions regarding the taxability of distributions.

In the event there is income from taxable securities, it would not be
exempt from federal income taxes. In addition, any capital gains earned by
the Fund are usually taxable.

When are distributions paid?

Who at Scudder manages my investment?

Lead Portfolio Manager Donald C. Carleton has been responsible for setting
the Fund's investment strategy and has overseen the Fund's day-to-day
management since 1990. Mr. Carleton has over 20 years' experience in
tax-free investing. Philip G. Condon, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. Mr. Condon has been with Scudder since
1983 and has more than 17 years of investment experience.

AARP BALANCED STOCK AND BOND FUND

Fund Objective:

To seek to provide long-term growth of capital and income while attempting
to keep the value of its shares more stable than other balanced mutual
funds. The Fund pursues these objectives by investing in a combination of
stocks, bonds, and cash reserves.

For whom is the Fund designed?

This Fund is suitable for conservative investors who are seeking long-term
growth of their assets, but want less risk than an investment solely in
stocks. Investors should invest for the longer term (at least 3 years or
more) and be comfortable with the value of their principal fluctuating up
and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP
Keogh Plan accounts.

Prospectus - 21
<PAGE>

What does the Fund offer to investors?

The Fund offers the opportunity for long-term growth of principal through
a single investment combining stocks, bonds, and cash reserves. Growth
will come from possible appreciation in the value of common stocks and
other equity investments. Bonds and other fixed-income investments provide
current income and may, over time, help reduce fluctuation in the Fund's
share price. Through a broadly diversified portfolio consisting primarily
of stocks with above average dividend yields and investment-grade bonds,
the Fund seeks to offer less share price volatility than many balanced
mutual funds. The Fund should typically have less risk and a lower return
than the AARP Growth and Income Fund, the AARP Global Growth Fund and the
AARP Capital Growth Fund.

The Fund does not take extreme investment positions as part of an effort
to "time the market." Shifts between stocks and fixed-income investments
are expected to occur in generally small increments. On occasion, the Fund
will adjust its investment mix. The Fund Manager will do so after
analyzing factors such as the level and direction of interest rates,
capital flows, inflationary expectations, anticipated growth of corporate
profits, and the financial climate worldwide.

What does the Fund invest in?

The Fund seeks to manage fluctuation by investing in a broadly diversified
mix of equity securities, bonds, and cash reserves. The Fund may invest up
to 70% of its assets in equity securities (stocks). At least 30% of the
Fund will be in investment-grade fixed-income securities and cash reserves.
For temporary defensive purposes, the Fund may invest without limit in
money market and short-term instruments when the Fund Manager deems such a
position advisable in light of economic or market conditions. These include
commercial paper, bankers' acceptances, certificates of deposit issued by
domestic and foreign branches of U.S. banks, and repurchase agreements.

Equity securities consist of common stocks, securities convertible into
common stocks, and preferred stocks. A research-oriented approach to
investing is used by the Fund, taking advantage of Scudder's large
research department. The Fund emphasizes securities of companies that
offer the opportunity for capital growth and growth of earnings while
providing dividends. The Fund will generally invest in companies domiciled
in the U.S.; it may invest, however, in foreign securities without limit.

All of the Fund's debt securities will be investment-grade, i.e., rated at
the time of purchase Baa or higher by Moody's or BBB or higher by S&P, or
deemed of comparable quality by the Fund's Manager. At least 75% of these
will be securities rated within the three highest quality ratings of
Moody's (Aaa, Aa and A) or S&P (AAA, AA, and A) or those the Fund Manager
judges are of equivalent quality (high-grade). Securities rated BBB by S&P
or Baa by Moody's are neither highly protected nor poorly secured. These
securities normally pay higher yields but involve potentially greater
price variability than higher-quality securities and are regarded as
having adequate capacity to repay principal and pay interest. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. If the rating agencies downgrade a
security, the Fund Manager will determine whether to keep it or eliminate
it based on the best interests of the Fund. The Fund does not purchase
securities rated below investment-grade, commonly known as junk bonds.

The Fund can invest in a broad range of corporate bonds and notes,
convertible bonds, and preferred and convertible preferred securities. The
Fund may also invest in U.S. Government securities, obligations of federal
agencies, and instruments not backed by the full faith and credit of the
U.S. Government. The latter include obligations of the Federal Home Loan
Banks, Farm Credit Banks, and the Federal Home Loan Mortgage Corporation.

Prospectus - 22
<PAGE>

The Fund may also invest in obligations of international agencies, U.S.
and non-U.S. dollar denominated foreign debt securities, mortgage-backed
and other asset-backed securities, municipal obligations, zero-coupon
securities, and restricted securities issued in private placements.

The Fund may make limited use of financial futures contracts and related
options and may also invest in forward foreign currency exchange
contracts. The Fund may write (sell) covered call options and may purchase
and sell options on stock indices for hedging purposes. It may also invest
in securities on a "when-issued" or forward delivery basis.

What are the risks?

The risk to principal is consistent with an investment primarily in stocks
and bonds. The value of shares will fluctuate up and down with changes in
interest rates and other market conditions. Investors should focus on the
longer-term and be comfortable with fluctuation in the value of their
principal.

The level of income will be affected by movements up and down in interest
rates and by dividends paid on the stocks held by the Fund. See "Other
Investment Policies and Risk Factors."

When are distributions paid?

Dividends from the Fund's net ordinary income are distributed quarterly in
March, June, September and December. Any net realized capital gain
typically will be distributed annually after September 30. See page 33 for
additional information on distributions and taxes.

Who at Scudder manages my investment?

Lead Portfolio Manager Robert T. Hoffman is responsible for managing the
stock portion of the Fund. Mr. Hoffman, who joined Scudder in 1990, has 10
years of experience in the investment industry. William M. Hutchinson,
Portfolio Manager, is responsible for the bond portion of the Fund.
Messrs. Hutchinson and Hoffman have been Portfolio Managers for the Fund
since it commenced operations on February 1, 1994. Benjamin W. Thorndike,
Portfolio Manager, focuses on asset allocation strategy and stock
selection. Mr. Thorndike, who has more than 15 years of investment
experience, joined Scudder in 1986.

AARP GROWTH AND INCOME FUND

Fund Objective:

From investments primarily in common stocks and securities convertible
into common stocks, the Fund seeks to provide long-term capital growth and
income, and to keep the value of its shares more stable than other growth
and income mutual funds.

For whom is the Fund designed?

The Fund is suitable for investors who are seeking long-term growth of
their assets to keep ahead of inflation. Investors should invest for the
longer-term (at least 3 years or more) and be comfortable with fluctuation
to their principal that is associated with investing in stocks.

The Fund is also available for AARP IRA, AARP SEP-IRA, and AARP Keogh Plan
accounts.

What does the Fund offer to investors?

The Fund offers the opportunity for long-term growth of principal with
some income. This growth will come from possible appreciation in the value
of shares, as well as quarterly dividend distributions if they are

Prospectus - 23
<PAGE>

reinvested in additional shares of the Fund. Dividends can also produce
current income for investors. Through a broadly diversified portfolio
consisting primarily of stocks with above average dividend yields, the
Fund seeks to offer less share price volatility than many growth and
income funds. The Fund should offer a greater opportunity for share price
appreciation, over time, with less income and with greater share price
fluctuation than the AARP Balanced Stock and Bond Fund.

What does the Fund invest in?

The Fund invests primarily in common stocks and securities convertible
into common stocks. The Fund may also invest in preferred stock. The Fund
emphasizes securities of companies that offer the opportunity for capital
growth and growth of earnings while providing dividends. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department.

The Fund will invest in a variety of industries and companies. Generally,
the Fund will invest in companies domiciled in the United States. It may
invest, however, in foreign securities without limit. Also, the Fund may
write (sell) covered call options to enhance investment return, and may
purchase and sell options on stock indices for hedging purposes. See
"Other Investment Policies and Risk Factors."

The Fund's policy is to remain substantially invested in stocks and
securities convertible into stocks. However, for temporary defensive
purposes, the Fund may invest without limit in high quality money market
securities when the Fund Manager deems such a position advisable in light
of economic or market conditions. These include U.S. Treasury bills,
commercial paper, certificates of deposit issued by domestic and foreign
branches of U.S. banks, bankers' acceptances, and repurchase agreements.

What are the risks?

The risk to principal is consistent with an investment in stocks. The
stock market doesn't go up every year, and can rise and fall--sometimes
quite dramatically over a short period of time. Investors should focus on
the longer term (at least 3 years or more) and be comfortable with
fluctuation in the value of their principal. See "Other Investment
Policies and Risk Factors."

The level of income you receive will be affected by dividends paid on the
securities held by the Fund.

When are distributions paid?

Who at Scudder manages my investment?

Lead Portfolio Manager Robert T. Hoffman has had responsibility for
setting the Fund's stock investment strategy and has overseen the Fund's
day-to-day management since 1991. Mr. Hoffman, who joined Scudder in 1990,
has 10 years of experience in the investment industry. Benjamin W.
Thorndike, Portfolio Manager, is the Fund's chief analyst and strategist
for convertible securities. Mr. Thorndike, who has more than 15 years of
investment experience, joined Scudder and the Fund in 1986. Kathleen T.
Millard, Portfolio Manager, focuses on stock investing strategy and stock
selection. Ms. Millard has worked in the investment industry since 1983
and at Scudder since 1991. Lori Ensinger, Portfolio Manager, joined the
Fund in 1996 and focuses on stock selection and investment strategy. Ms.
Ensinger has worked in the investment industry since 1983 and at Scudder
since 1993. G. Todd Silva, Portfolio Manager, has focused on stock
selection and investment strategy since joining the Fund in 1996. Mr.
Silva, who joined Scudder in 1993, has over 6 years of investment
experience.

Prospectus - 24
<PAGE>

AARP GLOBAL GROWTH FUND

Fund Objective:

From investments primarily in equity securities of corporations worldwide,
the Fund seeks to offer long-term capital growth in a globally and
industrially diversified portfolio, and to keep the value of its shares
more stable than other global equity funds.

For whom is the Fund designed?

This new Fund, which commenced operations on February 1, 1996, is suitable
for investors who want to add worldwide equity opportunities to their
portfolio. The Fund is designed for investors seeking long-term growth of
their principal. Investors should invest for the longer term (at least 5
years or more) and be comfortable with the value of their principal
fluctuating up and down. The Fund is also available for AARP IRA, AARP
SEP-IRA, and AARP Keogh Plan accounts.

What does the Fund offer to investors?

The Fund offers the opportunity for long-term growth of principal from a
professionally managed portfolio of securities selected from the U.S. and
foreign equity markets. It also offers the opportunity for investors to
further diversify their portfolios which could help to lower their overall
risk.

Global investing takes advantage of the investment opportunities created
by the growing integration of economies around the world. The world has
become highly integrated in economic, industrial and financial terms.
Companies increasingly operate globally as they purchase raw materials,
produce and sell their products and raise capital. The Fund affords
investors access to opportunities wherever they arise, without being
constrained by the location of a company's headquarters or the trading
market for its shares.

Because the Fund's portfolio invests globally, it provides the potential
to augment returns available from the U.S. stock market. In addition,
since U.S. and foreign markets do not always move in step with each other,
a global portfolio will be more diversified than one invested solely in
U.S. securities.

Investing directly in foreign securities is usually impractical for most
investors because it presents complications and extra costs. Investors
often find it difficult to arrange purchases and sales, to obtain current
information, to hold securities in safekeeping and to convert the value of
their investments from foreign currencies into dollars. The Fund manages
these problems for the investor. With a single investment, the investor
has a diversified worldwide investment portfolio which is managed actively
by experienced professionals. Scudder has had many years of experience
investing globally and dealing with trading, custody and currency
transactions around the world. Scudder has the benefit of information it
receives from worldwide research and believes the Fund affords investors
an efficient and cost-effective method of investing worldwide.

Through a broadly diversified portfolio consisting primarily of stocks of
established companies which are incorporated in the U.S. or in foreign
countries, and applying a strategy of relatively low portfolio turnover,
the Fund seeks to offer less share price volatility than many global growth
funds. However, in pursuing long-term growth, the Fund generally will have
greater share price fluctuation than other AARP Funds, except the AARP
Capital Growth Fund. See "What are the risks?" below. Growth will come

Prospectus - 25
<PAGE>

primarily from possible appreciation in the value of shares. The Fund is
not expected to provide regular income.

What does the Fund invest in?

The Fund will invest in securities of companies that the Fund Manager
believes will benefit from global economic trends, promising technologies
or products and changing geopolitical, currency or economic relationships.
The Fund will normally invest at least 65% of its total assets in
securities of at least three different countries. Typically it is expected
that the Fund will invest in a wide variety of regions and countries,
including both foreign and U.S. issues. Under normal circumstances it is
expected that both foreign and U.S. investments will be represented in the
Fund's portfolio. However, the Fund may be invested 100% in non-U.S.
issues, and for temporary defensive purposes may be invested 100% in U.S.
issues. For temporary defensive purposes, the Fund may invest without
limit in high quality money market securities, including U.S. Treasury
bills, repurchase agreements, commercial paper, certificates of deposit
issued by domestic and foreign branches of U.S. banks, and bankers'
acceptances and other debt securities, such as U.S. Government obligations
and corporate debt instruments when the Fund Manager deems such a position
advisable in light of economic or market conditions.

The Fund generally invests in equity securities of established companies
listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible
preferred stock. Also, fixed-income securities of governments, government
agencies, supranational agencies and companies may be used when Scudder
believes the potential for appreciation for these investments will equal
or exceed that available from investments in equity securities. These debt
and fixed-income securities will be exclusively investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's or AAA, AA,
A or BBB by S&P or those of equivalent quality as determined by Scudder.
Securities rated BBB by S&P or Baa by Moody's are neither highly protected
nor poorly secured. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics.

The Fund may invest in zero coupon securities and closed-end investment
companies holding foreign securities. The Fund may make limited use of
financial futures contracts and related options and may also invest in
forward foreign currency exchange contracts. The Fund may write (sell)
covered call options to enhance investment return, and may purchase and
sell options on stock indices for hedging purposes. See "Other Investment
Policies and Risk Factors."

What is Scudder's international investing experience?

Scudder has been a leader in international investment management for over
40 years. In 1953, Scudder introduced Scudder International Fund, the
first mutual fund available in the U.S., investing internationally in
securities of issuers in several foreign countries. Today, Scudder manages
over $22 billion in assets invested in foreign markets.

What are the risks?

The risk to principal is consistent with the Fund's objective of seeking
long-term growth through global investing. Global investing involves
economic and political considerations not typically found in U.S. markets.

The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will be invested in both U.S. and
foreign securities markets, changes in the Fund's share price may have a

Prospectus - 26
<PAGE>

low correlation with movements in the U.S. markets. The Fund's share price
will reflect the movements of both the different stock and bond markets in
which it is invested and the currencies in which the investments are
denominated: The strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance.
Investors should focus on the longer term (at least 5 years or more) and
be comfortable with fluctuation to the value of their principal. Because
of the Fund's global investment policies and the investment considerations
discussed above, investment in shares of the Fund should be considered as
part of a broadly diversified portfolio. See "Other Investment Policies
and Risk Factors."

When are distributions paid?

Any dividends typically will be distributed in December. Any net realized
capital gain typically will be distributed annually after September 30.
See page 33 for additional information on distributions and taxes.

Who at Scudder manages my investment?

William E. Holzer is the Lead Portfolio Manager for the Fund. Mr. Holzer
has day-to-day responsibility for setting the Fund's worldwide strategy
and investment themes. Mr. Holzer has over 20 years' experience in global
investing and joined Scudder in 1980. Nicholas Bratt, Portfolio Manager,
directs Scudder's overall global equity investment strategies. Mr. Bratt
joined Scudder in 1976. Alice Ho, Portfolio Manager, is also responsible
for implementing the Fund's strategy. Ms. Ho, who joined Scudder in 1986
as a member of the institutional and private investment counsel area, has
worked as a portfolio manager since 1989.

AARP CAPITAL GROWTH FUND

Fund Objective:

From investments primarily in common stocks and securities convertible
into common stocks, the Fund seeks to provide long-term capital growth,
and to keep the value of its shares more stable than other capital growth
mutual funds.

For whom is the Fund designed?

The Fund is suitable for investors seeking high long-term growth of their
principal. Investors should invest for the longer term (at least 5 years
or more) and be comfortable with the value of their principal fluctuating
up and down. The Fund is also available for AARP IRA, AARP SEP-IRA, and
AARP Keogh Plan accounts.

What does the Fund offer to investors?

The Fund offers the opportunity for long-term growth of principal. This
growth will come primarily from possible appreciation in the value of
shares. The Fund is not expected to provide regular income.

In pursuing long-term growth, the Fund will typically have more share
price fluctuation than the AARP Balanced Stock and Bond Fund, AARP Growth
and Income Fund and AARP Global Growth Fund.

Through a broadly diversified portfolio consisting primarily of high
quality, medium- to large-sized companies with strong competitive
positions in their industries, the Fund seeks to offer less share price
volatility than many growth funds.

Prospectus - 27
<PAGE>

What does the Fund invest in?

The Fund invests primarily in common stocks and securities convertible
into common stocks. The Fund may also invest in preferred stocks. The
Fund's policy is to remain substantially invested in these securities.

In seeking capital growth, the Fund will invest in stocks which will offer
above-average potential for long-term growth of market value as
represented by the Standard & Poor's 500 Composite Stock Price Index. A
research-oriented approach to investing is used by the Fund, taking
advantage of Scudder's large research department. The Fund will invest in
a variety of industries and companies. Generally, the Fund will invest in
companies domiciled in the U.S. It may invest, however, in foreign
securities without limit. Also, the Fund may write (sell) covered call
options to enhance investment return, and may purchase and sell options on
stock indices for hedging purposes. See "Other Investment Policies and
Risk Factors."

For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills,
repurchase agreements, commercial paper, certificates of deposit issued by
domestic and foreign branches of U.S. banks, and bankers' acceptances, and
other debt securities, such as U.S. Government obligations and corporate
debt instruments when the Fund Manager deems such a position advisable in
light of economic or market conditions.

What are the risks?

The risk to principal is consistent with the Fund's objective of seeking
long-term growth. The Fund generally has greater share price fluctuation
than most other AARP Funds. The stock market doesn't go up every year, and
can rise and fall--sometimes quite dramatically over a short period of
time. Some of the securities selected may have above-average stock market
risk. Investors should focus on the longer term (at least 5 years or more)
and be comfortable with fluctuation to the value of their principal. See
"Other Investment Policies and Risk Factors."

When are distributions paid?

Who at Scudder manages my investment?

Lead Portfolio Manager William F. Gadsden has set the Fund's overall
investment strategy since 1994 and has been part of the Fund's day-to-day
management since 1989. He has 14 years of investment industry experience
and joined Scudder in 1983. Bruce F. Beaty, Portfolio Manager, focuses on
securities selection and assists with the creation and implementation of
investment strategy for the Fund. He has 15 years of investment industry
experience and joined Scudder in 1991.

OTHER INVESTMENT POLICIES AND RISK FACTORS

Below are some detailed descriptions of several types of securities and
investment techniques referred to in this prospectus.

Maintaining $1.00 Constant Share Price in Money Funds

The AARP High Quality Money Fund and the AARP High Quality Tax Free Money Fund
attempt to maintain a constant net asset value per share. To do so, they operate
in accordance with a rule of the Securities and Exchange Commission (SEC) that

Prospectus - 28
<PAGE>

requires all assets to be cash, cash items, and high-quality U.S.
dollar-denominated investments having a remaining maturity of generally not more
than 397 calendar days from the date of purchase. The AARP High Quality Money
Fund, however, may invest in U.S. Government securities having maturities of up
to 762 calendar days. The SEC also requires that the average dollar-weighted
maturity of these Funds not exceed 90 days.

When-Issued Securities

All AARP Funds, except the AARP Growth and Income Fund and the AARP Capital
Growth Fund, may purchase securities on a when-issued or forward delivery basis.
That means payment and delivery of the security will be at a later date. The
price and yield are generally fixed on the date of commitment to purchase. The
Fund does not earn interest before delivery of the security. At the time of
settlement, the market value of the security may be more or less than the
purchase price.

Repurchase Agreements

This is an agreement under which a Fund may buy one or more U.S. Government
obligations which the seller simultaneously agrees to repurchase at a specified
time and price. The Fund can earn income for periods as short as overnight. Such
an agreement may enhance liquidity since it is normally a short-term commitment.
If the seller under a repurchase agreement becomes insolvent, the Fund's right
to sell the securities may be restricted. Also, the value of such securities may
decline before the Fund can sell them. The Fund might also incur transaction
costs by selling the securities.

Each of the AARP Funds may enter into repurchase agreements only with Federal
Reserve member banks or broker-dealers recognized as reporting government
securities dealers.

Mortgage and other asset-backed securities

The AARP GNMA and U.S. Treasury Fund, the AARP High Quality Bond Fund, and the
AARP Balanced Stock and Bond Fund may invest in mortgage-backed securities,
which are securities representing interests in pools of mortgage loans. These
securities provide shareholders with payments consisting of both interest and
principal as the mortgages in the underlying mortgage pools are paid off.

The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of a Fund's shares. Also, GNMA and
other mortgage-backed securities may be purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs. In addition, the AARP High Quality Bond Fund and the
AARP Balanced Stock and Bond Fund may invest in mortgage-backed securities
issued by other issuers, such as the Federal National Mortgage Association
(FNMA), which are not guaranteed by the U.S. Government. Moreover, the Funds may
invest in debt securities which are secured with collateral consisting of
mortgage-backed securities and in other types of mortgage-related securities.

The AARP High Quality Bond Fund and the AARP Balanced Stock and Bond Fund may
also invest in securities representing interests in pools of certain other
consumer loans, such as automobile loans or credit card receivables. In some
cases, principal and interest payments are partially guaranteed by a letter of
credit from a financial institution.

Prospectus - 29
<PAGE>

Zero Coupon Securities

The AARP Balanced Stock and Bond Fund and the AARP Global Growth Fund may invest
in zero coupon securities which pay no cash income and are issued at substantial
discounts from their value at maturity. Zero coupon securities are subject to
greater market value fluctuations from changing interest rates than debt
obligations of comparable maturities which make current cash distributions of
interest.

Foreign Securities

Each of the Funds in the AARP Growth Trust and the AARP High Quality Bond Fund
may invest without limit in foreign securities.

Investments in foreign securities may benefit a Fund by providing access to
different markets and opportunities. It may also help to reduce risk by
increasing diversification. However, foreign securities involve special
considerations. Brokerage costs are higher. Information about foreign securities
is more limited. Foreign companies or securities often have different and less
stringent government regulations, different accounting standards, slower
settlement of transactions, and more limited and volatile trading markets.

Investments in foreign securities may also involve other risks. These include
possible imposition of withholding, confiscatory and other taxes; possible
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; and the difficulty of
enforcing obligations in other countries. A Fund may incur currency conversion
costs of purchases made in foreign currencies. There may also be favorable or
unfavorable consequences from the changes in the value of foreign currencies
against the U.S. dollar.

Derivatives

The following descriptions of Forward Foreign Currency Exchange Contracts,
Options Transactions, Futures Contracts and Related Options discuss the types of
derivatives in which certain of the AARP Funds may invest.

Forward Foreign Currency Exchange Contracts

Each of the Funds in the AARP Growth Trust may enter into forward foreign
currency exchange contracts. These contracts, which involve costs, permit the
funds to purchase or sell a specific amount of a particular currency at a
specified price on a specified future date. They may be used by a Fund only to
hedge against possible variations in exchange rates of currencies in countries
in which it may invest.

A Fund will realize a benefit only to the extent that the relevant currencies
move as anticipated. If the currencies do not move as anticipated, the use of
these contracts may result in losses greater than if they had not been used.

Options Transactions

In an attempt to enhance investment returns, Funds in the AARP Growth Trust and
the AARP Income Trust may each write covered call options. These are agreements
to sell a particular security in the Fund's portfolio at a specified price on or
before the expiration date of the option. Covered call options may be written on
portfolio securities worth up to 25% of the Fund's net assets.

There are risks associated with writing covered options. These include the
possible inability to make closing transactions at favorable prices or because
an exercise notice has been received. The Funds also risk giving up appreciation
on the underlying security in excess of the exercise price.

Prospectus - 30
<PAGE>

Each of the Funds in the AARP Growth Trust may purchase and sell exchange-traded
options on stock indices. In addition, these Funds may engage in
over-the-counter options transactions with broker-dealers who make markets in
these options. Over-the-counter options may be more difficult to terminate than
exchange-traded options. They are frequently illiquid, and involve counterparty
credit risk. The Fund Manager will engage in such transactions to hedge against
unfavorable price movements which can adversely affect the value of the Fund's
securities or securities the Fund intends to buy. These transactions involve
risk, including the risk that market prices may move in unanticipated directions
or will not correlate well with a Fund's portfolio, causing a Fund to lose the
value of the option premium and to fail to realize any benefit from the
transaction. Further, a closing transaction may not be available when a Fund
wishes to close out a transaction.

Futures Contracts and Related Options

To a limited extent, the Funds in the AARP Income Trusts and the AARP Insured
Tax Free General Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP
Global Growth Fund may enter into financial futures contracts including futures
contracts on securities indices, may purchase and write related put and call
options, and may engage in related closing transactions. These techniques are
used to attempt to protect against adverse effects of interest rates changes. A
particular index-based futures contract may be used when the Fund Manager
believes that correlation exists between price movements in an index-based
futures contract and securities in a Fund's portfolio. Such correlation is not
likely to be perfect. That is because a Fund's portfolio is not likely to
contain the same securities used in the index.

The margin deposits for futures contracts and premiums paid for related options
may not be more than 5% of a Fund's total assets. These transactions require a
Fund to segregate assets (such as liquid securities and cash) to cover contracts
that would require it to purchase securities. These transactions also result in
brokerage costs.

These techniques involve some risk. A Fund may be precluded from realizing a
benefit from favorable price movements and could lose the expected benefit of
the transactions if interest rates move in an unanticipated manner. To the
extent that the Fund Manager's view of market movements is incorrect, the use of
such instruments may result in losses greater than if they had not been used. In
addition, if the AARP Insured Tax Free General Bond Fund purchases futures
contracts on taxable securities or indices of such securities, their value may
not fluctuate in proportion to the value of the Fund's securities. This would
limit that Fund's ability to hedge effectively against interest rate risk.
Further, while a Fund buys a futures contract only if there appears to be a
liquid secondary market for such contracts, there can be no assurance that a
Fund will be able to close out any particular futures contract.

Segregated Accounts

Each Fund may be required to segregate assets (such as cash, U.S. Government
securities and other high grade debt obligations) or otherwise provide coverage
consistent with applicable regulatory policies. This would be in respect to the
Fund's permissible obligations under the call and put options it writes, the
forward foreign currency exchange contracts it enters into and the futures
contracts it enters into.

Convertible Securities

Convertible securities include convertible bonds, notes and debentures,
convertible preferred stocks, and other securities that give the holder the
right to exchange the security for a specific number of shares of common stock.
Convertible securities entail less credit risk than the issuer's common stock
because they are considered to be "senior" to common stock. Convertible

Prospectus - 31
<PAGE>

securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.

Demand Obligations

Each of the AARP Funds may purchase demand obligations. Demand obligations
permit the holder to demand payment of a specified amount prior to maturity. The
holder's right to payment depends upon the issuer's ability to pay principal and
interest on demand. A Fund will purchase demand notes only to enhance liquidity.
The Fund Manager will continuously monitor the creditworthiness of issuers of
such obligations.

Stand-by Commitments

The AARP Tax Free Funds may enter into stand-by commitments (also known as puts)
to facilitate liquidity. Stand-by commitments permit a Fund to resell municipal
securities to the original seller at a specified price and generally involve no
cost. Costs, in any event, are limited to .5% of a Fund's total assets. To
minimize the risk that the seller may not be able to repurchase the security,
the Fund Manager will monitor the creditworthiness of the seller.

"Put" Bonds

The AARP Tax Free Funds may also purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution. This
allows the Funds to tender (or "put") bonds to the institution at specified
intervals and receive the face value of them. For the AARP High Quality Tax Free
Money Fund, an interval can not exceed 397 calendar days. These third party puts
are available in several different forms. They may be custodial receipts or
trust certificates, and may be combined with other features such as interest
rate swaps.

Tax-exempt Participation Interests

The AARP Tax Free Funds may purchase tax-exempt participation interests from a
bank representing a fully-insured portion of the bank's holdings of municipal
securities. The Fund will obtain an irrevocable letter of credit or guarantee
from the bank and will have, under certain circumstances, the right to resell
the participation to the bank on 7 days' notice. To the extent any participation
interest is illiquid, it is subject to the Fund's limit on restricted and not
readily marketable securities.

Municipal Lease Obligations

The AARP Tax Free Funds may also invest in municipal lease obligations generally
as a participation interest in a municipal obligation from a bank or other
financial intermediary. Municipal lease obligations are issued by state and
local governments to acquire land, equipment or facilities. Unlike general
obligation or revenue bonds, these contracts are not secured by the issuer's
credit, and if the issuing state or local government does not appropriate
payments, the lease may terminate, leaving the funds with property that may
prove costly to dispose of. In deciding which contracts to invest in, the Fund
Manager evaluates the likelihood of the governmental issuer discontinuing
appropriation for the leased property.

Portfolio Turnover

Each of the AARP Funds may buy and sell securities to take advantage of
investment opportunities. The Fund Manager will do so to improve overall
investment return consistent with that Fund's objectives. These transactions

Prospectus - 32
<PAGE>

involve transaction costs in the form of spreads or brokerage commissions.
Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the AARP High Quality Bond
Fund. A higher rate involves greater transaction costs to the Fund and may
result in the realization of net capital gains, which would be taxable to
shareholders when distributed.

In the case of AARP Global Growth Fund, it is anticipated, under normal
investment conditions, that the Fund's portfolio turnover rate will not exceed
75% for the initial fiscal year. However, economic and market conditions may
necessitate more active trading, resulting in a higher portfolio turnover rate.

INVESTMENT RESTRICTIONS

To help reduce investment risk, each of the AARP Funds has adopted certain
investment policies. Only the shareholders can approve changes to the following
policies:

* A Fund may not make loans. (A purchase of a debt security is not a
loan for this purpose.) However, the Fund may lend its portfolio
securities and enter into repurchase agreements.

* A Fund may borrow money only for temporary or emergency purposes.

The following policies may be changed without shareholder approval if applicable
legal requirements change.

* Each AARP Fund may not invest more than 10% of its net assets in
restricted or not readily marketable securities. These "illiquid
securities" include repurchase agreements maturing in more than 7
days. Funds in the AARP Growth Trust may not invest more than 5% of
their net assets in restricted securities.

A complete description of these and other policies and restrictions is contained
in the Statement of Additional Information.

ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES

Are taxes withheld?

Generally, taxes are not withheld on purchases, redemptions, or distributions.
However, federal tax law requires the AARP Funds to withhold 31% of taxable
dividends, capital gain distributions and redemption or exchange proceeds for
accounts without a certified social security or tax identification number, or
other certified information. To avoid this withholding, make sure you complete
and sign the Signature and Investor Information Section of your Enrollment Form.
AARP IRA, AARP SEP-IRA and AARP Keogh Plan accounts are exempt from withholding
regulations.

The AARP Funds reserve the right to reject Enrollment Forms or close accounts
without a certified Social Security or tax identification number. In such cases,
Enrollment Forms received without this information will be returned to the
investor with a check for the amount invested.

What else should I know about distributions and taxes?

* You can receive your dividend and capital gain distributions in one
of three ways:
1. You can have a check sent to your address;
2. You can reinvest them in additional shares of an AARP Fund; or
3. You can invest them in shares of another AARP Fund.

Prospectus - 33
<PAGE>

* If your investment is in the form of an AARP IRA, AARP SEP-IRA or
AARP Keogh Plan account, all distributions are automatically
reinvested.

* If you reinvest your dividends and capital gains, you will be
purchasing shares at the current share price.

* All taxable dividends from net investment income are taxable to you
as ordinary income. This is so whether you receive dividends as cash
or additional shares.

* Capital gains distributions are also currently taxable, whether
received in cash or reinvested.

* Distributions of short-term capital gains by all the AARP Funds are
taxable as ordinary income.

* Distributions of long-term capital gains are taxable for federal
income tax purposes as long-term capital gains regardless of the
length of time you have owned shares. Any capital gain distributed
by the AARP Tax Free Funds are generally taxable in the same manner
as distributions by other Funds.

* The AARP Tax Free Funds are managed to pay you dividends free from
federal income taxes, including the Alternative Minimum Tax (AMT).
However, these dividends may be subject to state and local income
taxes. Also, these dividends are taken into account in determining
whether your income is large enough to subject a portion of your
Social Security benefits and certain Railroad Retirement benefits,
if any, to federal income taxes.

* If you are a shareholder in the AARP Global Growth Fund, you may be
able to claim a credit or deduction on your income tax return for
your pro rata portion of qualified taxes paid by the Fund to
foreign countries.

* Each AARP Fund annually sends you detailed tax information about the
amount and type of its distributions.

* A redemption involves a sale of shares and may result in a capital
gain or loss for federal income tax purposes. Exchanges are treated
as redemptions for federal income tax purposes. Exchanges occur when
you sell shares in one AARP Fund and purchase shares in another AARP
Fund.

* The AARP Funds reserve the right to make extra distributions for tax
purposes.

FUND ORGANIZATION

The AARP Investment Program Trusts

The nine mutual funds described in this prospectus are organized as four
Massachusetts business trusts--AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and AARP Growth Trust. Each trust is a diversified,
open-end management investment company registered under the Investment Company
Act of 1940. The AARP Cash Investment Funds was organized in January 1983, and
the other trusts were organized in June 1984. The AARP Tax Free Income Trust
(formerly the AARP Insured Tax Free Income Trust) was renamed effective August
1, 1991.

Prospectus - 34
<PAGE>

General Management

The Trustees have overall responsibility for the management of their respective
Trusts under Massachusetts law. Under their direction, the Fund
Manager--Scudder, Stevens & Clark, Inc.--provides general investment management
of the AARP Funds. The Trustees supervise each Trust's activities. The
shareholders elect the Trustees and may remove them. Shareholders have one vote
per share held on matters on which they are entitled to vote.

The Trusts are not required to hold annual shareholder meetings and have no
current intention to do so. There may be special meetings for purposes such as
electing or removing Trustees, changing fundamental policies or approving an
investment advisory contract. The Fund Manager will help shareholders to
communicate with other shareholders in connection with removing a Trustee as if
Section 16(c) of the Investment Company Act of 1940 applied.

Since the Trusts use a combined prospectus, it is possible that one Trust or
AARP Fund might become liable for a misstatement in this prospectus regarding
another Trust or AARP Fund. The Trustees of each Trust considered this risk when
approving the use of a combined prospectus.

The right of the Trusts and AARP Funds to use the AARP name will end upon
termination of the member services agreement with the Fund Manager unless AARP
otherwise agrees to let the AARP Funds continue to use the AARP name.

Management Fees

Each AARP Fund pays the Fund Manager a fee for management and administrative
services. Commencing February 1, 1994, the following fee arrangement was
instituted. 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. Each AARP Fund pays, as its portion of the
Base Fee, an amount equal to the ratio of its daily net assets to the daily net
assets of all of the AARP Funds. The table below shows the annual Base Fee Rate
at specified levels of Program assets:

Annual Base Fee Rate Program Assets
---------------------------------------------------------
.350% First $2 billion
.330% Next $2 billion
.300% Next $2 billion
.280% Next $2 billion
.260% Next $3 billion
.250% Next $3 billion
.240% Thereafter

In addition to the Base Fee Rate, each AARP Fund pays a flat Individual Fund Fee
based on the net assets of that Fund. This fee rate is not linked to the total
assets of the Program. The Individual Fee Rate recognizes the different
characteristics of each AARP Fund, the varying levels of complexity of
investment research and securities trading required to manage each Fund, as well
as the relative value that can be, and has been, added by the Fund Manager.

Prospectus - 35
<PAGE>

The following table shows the Individual Fund Fee Rate for each of the AARP
Funds:

Fund Individual Fee Rate
-----------------------------------------------------------------

AARP High Quality Money Fund .10%
AARP High Quality Tax Free Money Fund .10%
AARP GNMA and U.S. Treasury Fund .12%
AARP High Quality Bond Fund .19%
AARP Insured Tax Free General Bond Fund .19%
AARP Balanced Stock and Bond Fund .19%
AARP Growth and Income Fund .19%
AARP Global Growth Fund .55%
AARP Capital Growth Fund .32%

Under this fee structure, the combined Base Fee and the Individual Fund Fee,
called the "Effective Management Fee Rate," would be reduced if total Program
assets increase to certain levels, regardless of whether an individual AARP
Fund's assets increase or decrease. The converse is also true--if assets
decrease to certain levels, the Effective Management Fee Rate increases,
regardless of any increase or decrease in assets of an individual AARP Fund. For
the fiscal year ended September 30, 1995, fees paid to the Fund Manager totaled
.40 of 1% of the average daily net assets of the AARP High Quality Money Fund,
.39 of 1% of the AARP High Quality Tax Free Money Fund, .42 of 1% of the AARP
GNMA and U.S. Treasury Fund, .62 of 1% of the AARP Capital Growth Fund, and .49
of 1% for each of the AARP High Quality Bond Fund, AARP Insured Tax Free General
Bond Fund, AARP Growth and Income Fund, and AARP Balanced Stock and Bond Fund.

The Fund Manager pays a portion of the management fee to AARP Financial Services
Corporation (AFSC). AFSC provides the Fund Manager with advice and other
services relating to AARP Fund investment by AARP members.

The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.

UNDERSTANDING FUND PERFORMANCE

Performance of an AARP Fund may be included in advertisements, sales literature
or shareholder reports. Important components of performance are yield, total
return and cumulative total return. These components vary based on changes in
market conditions, the level of interest rates and the level of the Fund's
expenses. Yield, total return, and cumulative total return are based on
historical earnings and are not intended to indicate future performance.

What is Yield?

For the AARP High Quality Money Fund, the AARP Income Funds and the AARP Tax
Free Funds, yield is a measure of income. Yield refers to the net investment
income generated over a specific period of time. It is always calculated using a
standard industry formula so it is a useful way to compare the income produced
by different mutual funds. For non-money market funds, the "SEC yield" is an
annualized expression of net investment income generated by the investments in
the fund over a specified 30-day period. This income is then annualized and then
expressed as a percentage. This yield is calculated according to methods

Prospectus - 36
<PAGE>

required by the SEC, and may not equate to the level of income paid to
shareholders. For money market funds, yield refers to the net investment income
generated by the fund over a specified 7-day period. This income is then
annualized and expressed as a percentage. For the money market funds, effective
yield is expressed similarly but, when annualized, the income earned by an
investment in the fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.

For GNMA securities, net investment income includes realized gains or losses
based on historic cost for principal repayments received. For other securities,
net investment income includes the amortization of market premium or market
discount.

What is Total Return?

The total return of a mutual fund refers to the average annual percentage change
in value of an investment in the fund assuming that the investment has been held
for the stated period. Total return quotations are expressed in terms of average
annual compound rates of return for all periods quoted and assume that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.

What is Cumulative Total Return?

Cumulative total return of a mutual fund represents the cumulative change in
value of an investment in a fund for various periods. It assumes that all
dividends and capital gain distributions during the period were reinvested in
shares of the fund.

What is meant by Tax-Equivalent Yield and how is it calculated?

To determine if tax-free investing is right for you, it is helpful to convert a
yield from a tax-free mutual fund to its equivalent taxable yield. The
tax-equivalent yields of the AARP Tax Free Funds, which may be quoted from time
to time, let you determine the yield you would have to receive from a fully
taxable investment to produce an after-tax yield equivalent to a tax-free fund.
The calculation is as follows:

Tax-Free Yield = Tax-Equivalent Yield
--------------------
100% - your tax rate

Example: If a tax-free mutual fund has a 30-day average annualized yield of
5.30% and you are in the 31% tax bracket, the calculation would be:

5.30% = 7.68%
--------------------
100% - 31%

You would need to earn 7.68% with a taxable investment to equal the 5.30% yield
of a tax-free fund. The tax-equivalent yield will vary depending upon your
income tax bracket.

UNDERSTANDING SHARE PRICE

How is a Fund's share price determined?

Share price is based on a Fund's net assets. It is calculated by dividing the
current market value (amortized cost in the case of the AARP High Quality Tax
Free Money Fund) of total fund assets, less all liabilities, by the total number

Prospectus - 37
<PAGE>

of shares outstanding. Scudder Fund Accounting Corporation, a subsidiary of the
Fund Manager, determines net asset value per share of each Fund as of the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern
time on each day the Exchange is open for trading. The Trusts reserve the right
to suspend the sale of Fund shares after appropriate notice to shareholders if
the Trustees determine that it is in the best interest of shareholders.

OPENING AN ACCOUNT

How do I get started?

Decide on the AARP Fund or Funds which meets your needs. Then fill out, sign and
return your Enrollment Form with your check in the postage paid envelope
provided. Once your Enrollment Form is received, an account number will be
assigned to you. Your check should only be drawn on a U.S. bank and be payable
to the AARP Investment Program.

If you don't want to send your check through the mail, you can send a bank wire.
Simply fill out and return your Enrollment Form in the mail. Then, before you
send the wire, call an AARP Mutual Fund Representative. The Representative will
set up the account and contact you to provide you with your account number and
further wiring instructions. To complete the wire transfer, follow the special
wire transfer instructions below. Please note you cannot open AARP IRA or AARP
Keogh Plan accounts by wire.

What is the minimum investment?

The minimum is $500 for each AARP Fund, except for the AARP High Quality Tax
Free Money Fund, which has a minimum investment of $2,500. You can open an AARP
IRA with as little as $250 for each applicable AARP Fund.

What happens if my investment falls below its minimum balance?

The Funds reserve the right to redeem accounts below the minimum balance and
return the proceeds to you if you do not increase an account above the minimum
within 60 days after notice. However, if your account falls below the minimum
solely as a result of market activity, your account will not be closed.

What is the normal processing time of checks when purchasing shares?

If checks are drawn on a Federal Reserve System member bank, the Program will
normally execute checks (and wire transfers) received in good order on the same
business day that they are received.

When do I start earning income on this purchase?

For AARP Funds paying daily dividends (AARP Money Funds, AARP Income Funds and
the AARP Insured Tax Free General Bond Fund), income begins to accrue on the
business day following actual execution of the order.

Third party transactions

If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.

Prospectus - 38
<PAGE>

- --------------------------------------------------------------------------------
WIRE TRANSFER INSTRUCTIONS

* To open an account (mail Enrollment Form first and make sure to call
a Representative to obtain an account number--AARP IRA and AARP
Keogh Plan accounts cannot be opened by wire)
* To add to your account

Contact your bank with the following information:

1) the names(s) on your account;
2) your AARP Fund account number;
3) the name of the Fund(s) you want to invest in;
4) the name and address of the Fund's custodian bank: State Street Bank
and Trust Company, Boston MA 02101;
5) the routing numbers ABA Number 011000028 and AC-99035420.
- --------------------------------------------------------------------------------

Can I add another AARP Fund to my account?

You can open another AARP Fund at any time. The new investment must meet the
minimum initial investment described above. Your new AARP Fund will have the
same account number and registration as your existing one(s). You can open a new
AARP Fund in a number of ways:

- --------------------------------------------------------------------------------
Mail your request Send a letter stating your request and naming the new
AARP Fund. Include a check made payable to the AARP
Investment Program.
- --------------------------------------------------------------------------------
Wire the money Have your account number ready and follow the wire
instructions above.
- --------------------------------------------------------------------------------
Exchange from See instructions on how to exchange--page 40.
an AARP Fund
- --------------------------------------------------------------------------------

Telephone Transactions

When you open an account you automatically become eligible to exchange shares by
telephone and to redeem by telephone up to $50,000 to your registered address.
You may also request by telephone that redemption proceeds be wired to a bank
account you select. When exchange or redemption requests are made over the
telephone, procedures are in place to give reasonable assurance that telephone
instructions are genuine, including recording telephone calls, testing a
caller's identity and sending written confirmation of such transactions. If an
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Trusts and their agents
each reserve the right to modify, interrupt, suspend, or terminate any of the
telephone services at any time, without notice.

Prospectus - 39
<PAGE>

ADDING TO YOUR INVESTMENT

How do I add to my investment?

After your account is opened, you can add to your AARP Fund investment in any
amount in the following ways:

- --------------------------------------------------------------------------------
Mail your request Send your check with a personalized investment slip or
with a letter naming your account number and AARP Fund.
- --------------------------------------------------------------------------------
Call Toll-Free If you selected the Transact By Phone service, you'll be
able to call and have money transferred from your
checking account to cover the purchase. See page 43.
- --------------------------------------------------------------------------------

Wire the purchase Have your account number ready and follow the wire
instructions on page 39.
- --------------------------------------------------------------------------------
Exchange from an See Exchanging below.
AARP Fund

- --------------------------------------------------------------------------------
Invest See page 44 for information on the Automatic Investment
Automatically Plan.
- --------------------------------------------------------------------------------

EXCHANGING

What is an exchange?

You make an exchange when you sell shares in one AARP Fund to purchase shares in
another. This is technically two transactions, a sale and a purchase of shares.
If the value of the shares sold in the exchange was higher or lower than your
original purchase price, you may have a capital gain or loss. This is important
to note for tax planning purposes. You may exchange all or part of your shares
in one AARP Fund for shares in another AARP Fund. Exchanges between existing
AARP Funds can be for any amount. Exchanges that open a new AARP Fund must meet
the minimum balance.

How can I exchange shares?

There are several ways to exchange, including:

- --------------------------------------------------------------------------------
Mail or fax your Tell us the AARP Fund from which to take the money and
request the AARP Fund to exchange to. Include your account
number, registered name(s) and address, and either the
dollar amount or number of shares you want to exchange.
Be sure to sign your name(s) exactly as it appears on
the account statement.
- --------------------------------------------------------------------------------
Call Toll-Free Call us before 4:00 p.m. Eastern time to exchange by
close of business the same day. If you purchased shares
by check or by phone, you may not use this option until
7 business days after the purchase date to allow the
check to clear. During this period, you must send your
exchange request by mail or fax.
- --------------------------------------------------------------------------------
Call the You can exchange shares through this automated toll-free
Easy-Access Line line. It is available 24 hours a day, 7 days a week.
Simply call toll-free and follow the recorded voice
instructions.
- --------------------------------------------------------------------------------

Prospectus - 40
<PAGE>

ACCESS TO YOUR INVESTMENT

How do I redeem?

You can sell (redeem) fund shares in a number of ways. The share price may be
more or less than your original purchase price. Therefore, you may have either a
taxable capital gain or loss. Keep in mind that you can redeem shares of your
AARP IRA or AARP Keogh Plan account only by sending your request in writing.

<TABLE>
<S> <C>
-------------------------------------------------------------------------------------------------------------------

Mail or Fax your request Tell us the name of the AARP Fund and the number of shares or dollar amount
you wish to sell. Make sure to give us your account number, registered name(s)
and where you want the proceeds sent. If you want the proceeds to go to an
address other than your registered address, to your bank, or to someone else,
please provide complete details. Under certain circumstances, this may require
a special type of authorization called a Signature Guarantee (see page 42).
Sign the letter exactly as it appears on your account statement. If your
request requires a Signature Guarantee, you must mail the request instead of
faxing it.
-------------------------------------------------------------------------------------------------------------------

Call Toll-Free Call before 4:00 p.m. Eastern time business days and redeem up to $100,000 per
AARP Fund. The proceeds will be mailed to your registered address or to your
bank (unless you declined the Telephone Redemption to your Bank feature on
your Enrollment Form). The proceeds can also be wired to your bank if it is a
member of the Federal Reserve System. A $5.00 fee will be charged for each
wire to your bank. Your bank may also charge you for receiving a wire. In the
event that you are unable to reach us by telephone, you should write to the
AARP Investment Program; see "Service Information" for the address. If you
elected the Transact by Phone option on your Enrollment Form, you can have the
proceeds sent electronically to your checking account. See page 43 for
more information on Transact By Phone.

-------------------------------------------------------------------------------------------------------------------
Call the You can redeem shares through this automated toll-free line. Initiate
Easy-Access Line redemptions any time--24 hours a day. Simply call toll-free and follow the
recorded voice instructions.
-------------------------------------------------------------------------------------------------------------------
Sell See page 44 for information on the Automatic Withdrawal Plan or Systematic
Automatically Withdrawal Plan for AARP IRA or AARP Keogh Plan accounts.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

When are redemptions processed?

Any redemption request received in good order prior to 4:00 p.m. Eastern time
during normal business operations will be processed on that day. The request
will be processed at that night's closing share price. Normally, requests
received in good order after 4:00 p.m. Eastern time will be processed on the
next business day.

Prospectus - 41
<PAGE>

Shares redeemed from Funds in the AARP Income Trust, AARP Tax Free Income Trust
or the AARP High Quality Money Fund will earn a dividend on the day of
redemption.

Normally, proceeds of your redemption will be sent on the business day following
a redemption request in good order. In any event, the AARP Funds may take no
more than 7 calendar days to send your redemption proceeds.

When can I expect to receive my money?

We will mail your redemption proceeds promptly. If you purchase shares by check
or by telephone and then redeem them by letter within 7 business days of the
purchase, the redemption proceeds may be held until the purchase check has
cleared the banking system. When the check has cleared, we will mail your
redemption proceeds promptly.

We will not accept redemption requests by telephone or by checkwriting prior to
the expiration of the 7 business day period. You may avoid this delay by
purchasing shares by wire.

----------------------------------------------------------------------
Short-Term Trading

You should make purchases and sales for long-term investment purposes
only. The AARP Funds do not permit a pattern of frequent purchases and
sales in response to short-term changes in share price.

When such a pattern occurs, the AARP Funds and Scudder Investor
Services, Inc. reserve the right to restrict purchases or exchanges.
This restriction does not apply to the AARP money funds. This right
extends to individual purchasers or groups of related purchasers.
----------------------------------------------------------------------

SIGNATURE GUARANTEES

What is a "Signature Guarantee"?

A "Signature Guarantee" is a certification of your signature. We require this
for your protection and to prevent fraudulent redemptions. In effect, the
appropriate institution (see below) guarantees that you are authorized to make
certain requests.

When do I need one?

A "Signature Guarantee" from each person on the account registration is needed
for the following redemption requests:

1) Redemptions of more than $100,000;

2) When redemption proceeds are payable to someone other than the
registered shareholder(s);
3) When redemption proceeds are to be sent to an address other than the
registered address; or

4) If the account's registered address has changed during the last 15
days.

Transactions requiring signature guarantees cannot be faxed.

Where can I get one?

You can get your signature guaranteed through most banks, credit unions or
savings associations, or from broker-dealers, government securities
broker-dealers, national securities exchanges, registered securities
associations, or clearing agencies deemed eligible by the Securities and
Exchange Commission. Signature Guarantees by notary publics are not acceptable.

Prospectus - 42
<PAGE>

INVESTOR SERVICES

To make investing simpler and more convenient there are many free investor
services available to you.

Easy-Access Line

- --------------------------------------------------------------------------------
* Exchange between AARP Funds CALL TOLL-FREE
* Exchange to open a new AARP Fund 1-800-631-4636
* Redeem money to your registered address 24 HOURS A DAY
* Get current performance information 7 DAYS A WEEK
* Get current account balance information
* Confirm your last transaction
- --------------------------------------------------------------------------------

With the Easy-Access Line you can get performance, and account information. If
you have a touch-tone phone, you can also exchange or redeem shares worth up to
$50,000. Simply call toll-free 1-800-631-4636 using a touch-tone phone and
follow the easy pre-recorded voice instructions.

Transact By Phone

- --------------------------------------------------------------------------------
* Add to an AARP Fund by transfer from CALL TOLL-FREE
your bank checking or NOW account 1-800-253-2277
* Redeem and send the proceeds to your
checking or NOW account
- --------------------------------------------------------------------------------

Transact By Phone allows you to call toll-free to purchase and redeem shares.
The money will be automatically transferred to or from your bank checking
account. Your bank must be a member of the Automated Clearing House for you to
take advantage of this service.

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

Buying Shares through Call us before 4:00 p.m. Eastern time,
Transact By Phone: business days, when you want to buy
additional shares, and money will be
transferred from your bank account to your
AARP Fund account to cover the purchase.
Purchases must be for at least $250 but not
more than $250,000. Your purchase will
generally be completed in 2 business days at
the closing share price on the day of your
call. Requests received after 4:00 p.m. will
be purchased at the next business day's
closing price. Shares purchased in this
manner will not be redeemable for a period
of up to 7 business days.

- --------------------------------------------------------------------------------
Selling Shares through Call us before 4:00 p.m. Eastern time,
Transact By Phone: business days, when you want to sell shares.
We'll sell your shares and transfer the
proceeds to your bank account--generally
within 2 business days from the day of your
request. You can redeem any amount greater
than $250. Shares will be sold at that
night's closing price on the day of your
request. Requests received after 4:00 p.m.
will be sold at the next business day's
closing price.
- --------------------------------------------------------------------------------

Prospectus - 43
<PAGE>

Free Checkwriting

Shareholders in the AARP High Quality Money Fund or the AARP High Quality Tax
Free Money Fund have free checkwriting privileges. There is no charge to
shareholders for this service, but the AARP Funds reserve the right to impose a
charge in the future. To enroll, you must fill out a signature card on the
Enrollment Form. If shares were purchase by your personal check, you may only
write checks against your purchase 7 business days from the day that the
purchase took place. Keep in mind that you cannot close your account by writing
a check. This service may be suspended or terminated at any time upon notice to
shareholders.

Distributions Direct

You may choose to have dividend and capital gain distributions automatically
deposited into your bank checking or NOW account. To enroll in this service,
your bank must be a member of the Automated Clearing House (ACH) network. Once
you enroll, your dividends and capital gains will be automatically deposited
into your personal bank account within 3 business days of the distribution date.
You'll receive a statement confirming the amount. There is no charge to
shareholders for the service.

Systematic Plans

Several other investor services are available. These include:

* Automatic Investment Plan: Arrange for regular investments into your
AARP Fund through automatic deductions from your bank checking
account. The Automatic Investment Plan may be discontinued at any
time without prior notice to a shareholder if any debit from their
bank is not paid, or by written notice to the shareholder at least
thirty days prior to the next scheduled payment to the Automatic
Investment Plan.
* Direct Deposit: At your direction, your Social Security, U.S.
Government or any regular income checks (pension, dividend, interest
or payroll) will be automatically deposited into your AARP Fund.
* Automatic Withdrawal Plan: At your direction, we will automatically
send a monthly redemption of $50 or more directly to you when you
have at least $10,000 or more in an AARP Fund.
* Direct Payment of Fixed Bills: With $10,000 or more in an AARP Fund,
you can arrange for us to automatically pay regular bills of a fixed
amount. Pay your rent, mortgage or other payments of $50 or more.
* Systematic Retirement Withdrawal Plan: You can receive periodic
distributions from an AARP IRA or AARP Keogh Plan account.

STATEMENTS AND REPORTS

What kinds of statements do I receive?

You will receive a prompt confirmation statement for your transactions. You will
also receive a monthly Consolidated Statement. AARP IRA or AARP Keogh Plan
accounts will receive a quarterly Consolidated Statement.

The Consolidated Statement details the market value of all the AARP Funds in
your account. It also includes a listing of recent transactions. You should keep
these statements for your records.

Prospectus - 44
<PAGE>

What other reports do I get?

Each year, you will receive a current prospectus, mid year report and annual
report. To reduce the volume of mail, we will only send one copy of most reports
to a household (same surname, same address). Please contact us if you wish to
receive additional reports.

SERVICE PROVIDERS OF THE AARP FUNDS

Legal Counsel
Dechert Price & Rhoads,
Washington, DC

Independent Accountants
Price Waterhouse LLP, Boston, MA

Underwriter
Scudder Investor Services, Inc., Two International Place, Boston, MA (a
subsidiary of Scudder) is principal underwriter of the AARP Funds.

Scudder Investor Services, Inc. offers for sale and confirms as agent all
purchases of shares of the AARP Funds.

Custodians
Brown Brothers Harriman & Co., Boston, MA
State Street Bank and Trust Company, Boston, MA

Fund Accounting Agent
Scudder Fund Accounting Corporation, Two International Place, Boston, MA (a
subsidiary of Scudder) is responsible for determining the daily net asset value
per share and maintaining the general accounting records of the AARP Funds.

Transfer and Dividend-Disbursing Agent
Scudder Service Corporation, P.O. Box 2540, Boston, MA 02208-2540 (a subsidiary
of Scudder)

Investment Adviser
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York is
investment adviser for the AARP Funds.

TRUSTEES AND OFFICERS

CAROLE LEWIS ANDERSON, Trustee (1,2), Principal, Suburban Capital Markets, Inc.
(1995); President, MASDUN Capital Advisors; Director, VICORP Restaurants, Inc.;
Member of the Board, Association for Corporate Growth of Washington, D.C.;
Trustee, Hasbro Children's Foundation and Mary Baldwin College.

ADELAIDE ATTARD, Trustee (2,4), Consultant, Gerontology; Commissioner, County of
Nassau, New York, Department of Senior Citizen Affairs (1971-1991); Chairperson,
Federal Council on Aging (1981-1986).

CYRIL F. BRICKFIELD, Trustee (2,3,4), Honorary Trustee (1); Honorary President
and Special Counsel, American Association of Retired Persons.

ROBERT N. BUTLER, M.D., Trustee (2,4) Brookdale Professor of Geriatrics and
Adult Development, Mount Sinai School of Medicine; formerly Director, National
Institute on Aging, National Institute of Health.

LINDA C. COUGHLIN, President and Trustee (5), Managing Director, Scudder,
Stevens & Clark, Inc., Director, Scudder Investor Services, Inc.*

Prospectus - 45
<PAGE>

HORACE B. DEETS, Vice Chairman and Trustee (5), Executive Director, American
Association of Retired Persons; Member, Board of Councilors, Andrus Gerontology
Center; Member of the Board, HelpAge International.

MARY JOHNSTON EVANS, Trustee (1,3,4), Corporate Director; Senior Member, The
Conference Board, Inc.

EDGAR R. FIEDLER, Trustee (1,2,3), Vice President and Economic Counsellor, The
Conference Board, Inc.

CUYLER W. FINDLAY, Chairman and Trustee (5), Managing Director, Scudder, Stevens
& Clark, Inc., Senior Vice President and Director, Scudder Investor Services,
Inc.*

EUGENE P. FORRESTER, Trustee (2,3), Lt. General (Retired) U.S. Army;
International Trade Consultant; Corporate Director.

WAYNE F. HAEFER, Trustee (2,3,4), Director, Membership Division of AARP;
Formerly Secretary, Employee's Pension and Welfare Trusts of AARP and Retired
Persons Services, Inc.; Formerly Director, Administration and Data Management
Division of AARP.

WILLIAM B. MACOMBER, Trustee (3,4), formerly Teacher, History and Government,
Nantucket H.S., Nantucket, MA; formerly President, The Metropolitan Museum of
Art and U.S. Ambassador to Turkey and Jordan.

GEORGE L. MADDOX, JR., Trustee (2,3), Chairman, Duke University Council on Aging
and Human Development; Professor of Sociology, Departments of Sociology and
Psychiatry, Duke University.

ROBERT J. MYERS, Trustee (1,2,4), Actuarial Consultant; formerly Executive
Director, National Commission on Social Security Reform; formerly Chairman,
Commission on Railroad Retirement Reform.

JOSEPH S. PERKINS, Trustee (5), Director, American Association of Retired
Persons; Formerly Corporate Retirement Manager, Polaroid Corporation.

JAMES H. SCHULZ, Trustee (3,4), Professor of Economics and Kirstein Professor of
Aging Policy, Policy Center on Aging, Florence Heller School, Brandeis
University.

GORDON SHILLINGLAW, Trustee (1,3,4), Professor Emeritus of Accounting, Columbia
University Graduate School of Business.

EDWARD V. CREED*, Vice President (5)

THOMAS W. JOSEPH*, Vice President (5)

DAVID S. LEE*, Vice President and Assistant Treasurer (5)

DOUGLAS M. LOUDON*, Vice President (5)

THOMAS F. McDONOUGH*, Vice President and Assistant Secretary (5)

PAMELA A. McGRATH*, Vice President and Treasurer (5)

EDWARD J. O'CONNELL*, Vice President and Assistant Treasurer (5)

KATHRYN L. QUIRK*, Vice President and Secretary (5)

HOWARD SCHNEIDER*, Vice President (5)

CORNELIA M. SMALL*, Vice President (5)

*Scudder, Stevens & Clark, Inc.

(1) AARP Cash Investment Funds
(2) AARP Income Trust
(3) AARP Tax Free Income Trust
(4) AARP Growth Trust
(5) All Funds
<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER

AARP Cash Investment Funds:
AARP HIGH QUALITY MONEY FUND

AARP Income Trust:
AARP GNMA and U.S. TREASURY FUND
AARP HIGH QUALITY BOND FUND

AARP Tax Free Income Trust:
AARP HIGH QUALITY TAX FREE MONEY FUND
AARP INSURED TAX FREE GENERAL BOND FUND

AARP Growth Trust:
AARP BALANCED STOCK AND BOND FUND
AARP GROWTH AND INCOME FUND

AARP GLOBAL GROWTH FUND
AARP CAPITAL GROWTH FUND

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

STATEMENT OF ADDITIONAL INFORMATION

February 1, 1996

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the combined Prospectus for all nine of the above
Funds, dated February 1, 1996, as amended from time to time, copies of which may
be obtained without charge by writing to the AARP INVESTMENT PROGRAM FROM
SCUDDER, P.O. Box 2540, Boston, Massachusetts 02208-2540 or by calling
1-800-253-2277.
<PAGE>
<TABLE>
<CAPTION>

TABLE OF CONTENTS
Page
----
<S> <C>
AARP INVESTMENT PROGRAM FROM SCUDDER..................................................................................1
Summary of Advantages and Benefits...........................................................................1

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................3
AARP Money Funds.............................................................................................3
AARP Income Funds............................................................................................6
AARP Insured Tax Free Income Fund............................................................................8
AARP Growth Funds...........................................................................................11
Special Investment Policies of the AARP Funds...............................................................13
General Investment Policies of the AARP Funds...............................................................27
Investment Restrictions.....................................................................................27

PURCHASES............................................................................................................32
General Information.........................................................................................32
Checks......................................................................................................32
Share Price.................................................................................................32
Share Certificates..........................................................................................33
Direct Deposit Program......................................................................................33
Wire Transfers..............................................................................................33
Holidays....................................................................................................33
Other Information...........................................................................................33

REDEMPTIONS..........................................................................................................34
General Information.........................................................................................34
Redemption by Telephone.....................................................................................34
Redemption by Mail or Fax...................................................................................35
Redemption by Checkwriting..................................................................................36
Redemption-in-Kind..........................................................................................36
Other Information...........................................................................................36

EXCHANGES............................................................................................................36

TRANSACT BY PHONE....................................................................................................37
Purchasing Shares by Transact by Phone......................................................................38
Redeeming Shares by Transact by Phone.......................................................................38

FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................38
Automatic Dividend Reinvestment.............................................................................38
Distributions Direct........................................................................................38
Reports to Shareholders.....................................................................................38
Consolidated Statements.....................................................................................39

RETIREMENT PLANS.....................................................................................................39
AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")...............................................39
AARP Keogh Plan.............................................................................................40

OTHER PLANS..........................................................................................................41
Automatic Investment........................................................................................41
Automatic Withdrawal Plan...................................................................................41
Direct Payment of Regular Fixed Bills.......................................................................41

DIVIDENDS AND YIELD..................................................................................................42
Performance Information: Computation of Yields and Total Return.............................................42

TRUST ORGANIZATION...................................................................................................49

i
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
MANAGEMENT OF THE FUNDS..............................................................................................50

TRUSTEES AND OFFICERS................................................................................................54

REMUNERATION.........................................................................................................58

DISTRIBUTOR..........................................................................................................59

TAXES................................................................................................................60

BROKERAGE AND PORTFOLIO TURNOVER.....................................................................................64
Brokerage Commissions.......................................................................................64
Portfolio Turnover..........................................................................................66

NET ASSET VALUE......................................................................................................66
AARP Money Funds............................................................................................66
AARP Non-Money Market Funds.................................................................................66

ADDITIONAL INFORMATION...............................................................................................67
Experts.....................................................................................................67
Shareholder Indemnification.................................................................................67
Ratings of Corporate Bonds..................................................................................68
Ratings of Commercial Paper.................................................................................68
Ratings of Municipal Bonds..................................................................................68
Other Information...........................................................................................69
Tax-Exempt Income vs. Taxable Income........................................................................70

FINANCIAL STATEMENTS.................................................................................................71

ii
</TABLE>

<PAGE>
AARP INVESTMENT PROGRAM FROM SCUDDER

The AARP Investment Program from Scudder (the "Program") was developed
by the American Association of Retired Persons ("AARP") to provide an array of
conservatively managed investment options for its members. Today's financial
markets present an enormous, ever-changing selection of investments suited for
investors with varying needs. AARP, a non-profit organization dedicated to
improving the quality of life, independence and dignity of older people, has
undertaken to help its members by designing an investment program which attempts
to satisfy the investment and retirement planning needs of most of its members,
whether they be experienced investors or savers who have never invested at all.
As with any program with the "AARP" name, the Program includes special benefits
as described in the combined prospectus for the four Trusts, dated February 1,
1996 (the "Prospectus"). AARP endorses this program which was developed with the
assistance of Scudder, Stevens & Clark, Inc. ("the Fund Manager"), a firm with
over 75 years of investment counseling and management experience. Scudder,
Stevens & Clark, Inc. was selected after an extensive search among qualified
candidates, and provides the Program with continuous and conservative
professional investment management. (See "MANAGEMENT OF THE FUNDS.")

The Program consists of four Trusts - AARP Cash Investment Funds, AARP
Income Trust, AARP Tax Free Income Trust, and AARP Growth Trust (the "Trusts").
Each of the Trusts is an open-end, management investment company authorized to
issue its shares of beneficial interest in separate series ("the AARP Funds"). A
total of nine diversified Funds are currently offered by the four Trusts. The
differing investment objectives of the nine Funds in the Program provide AARP
members with a variety of sensible investment alternatives, and by matching
their own objectives with those of the different AARP Funds, AARP members may
design an investment program to meet their personal needs. Not all your money is
the same. There is short-term money, for example money needed for your regular
budgeting and for emergencies, and there is money which can be invested for the
longer term. It is generally thought that three months of income/expenses should
be set aside in a savings account or money market fund to cover short-term
needs. The Program is designed to offer alternatives to keeping all of your
money in short-term fixed price investments like money market funds, insured
short-term savings accounts and insured six-month certificates of deposit. The
AARP Money Funds provide a taxable and a tax free alternative for short-term
monies and the AARP Income Funds, the AARP Insured Tax Free General Bond Fund
and the AARP Growth Funds provide a range of choices for longer term investment
dollars.

The Program includes functions performed by AARP Member Services; the
AARP Funds; Scudder Investor Services, Inc., the AARP Funds' "underwriter";
Scudder Service Corporation ("SSC"), the AARP Funds' "transfer agent"; and Brown
Brothers Harriman & Co. and State Street Bank and Trust Company, the AARP Funds'
"custodians."

Summary of Advantages and Benefits

o Experienced Professional Management: Scudder, Stevens & Clark, Inc.,
investment counsel since 1919 and mutual Fund managers since 1928,
provides investment advice to the Funds.

o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong ongoing representation of the members'
interests and to help ensure a high level of service.

o Wide Selection of Investment Objectives: you can emphasize money market
returns and liquidity, income, tax-free income, growth, or any
combination.

o Diversification: you benefit from investing in one or more large
portfolios of carefully selected securities.

o $500 Minimum Starting Investment for Eight of the Funds ($2,500 Minimum
Starting Investment in AARP High Quality Tax Free Money Fund, $250
Minimum Starting Investment for AARP IRA and Keogh Plan Accounts): you
may make additional investments in any amount at any time.

o No Sales Commissions: the AARP Funds are pure no-load(TM), so you pay
no sales charges to purchase, transfer or redeem shares nor do you pay
Rule 12b-1 fees.

o Investment Flexibility and Exchange: you may exchange among the nine
AARP Funds in the Program at any time without charge.
<PAGE>

o Dividends: the AARP Money Funds, the AARP Income Funds, and the AARP
Insured Tax Free Income Fund all pay dividends monthly, the AARP
Balanced Stock and Bond Fund and the AARP Growth and Income Fund are
expected to pay dividends quarterly and the AARP Global Growth Fund and
the AARP Capital Growth Fund pay dividends, if any, annually.

o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.

o Readily Available Account, Price, Yield and Total Return Information:
the yield for the AARP Money Funds is quoted weekly and the net asset
value of each other Fund is quoted daily in the financial pages of
leading newspapers. You may also dial our automated Easy-Access Line,
toll-free, 1-800-631-4636 for recorded account information, share
price, yield and total return information, 7 days a week.

o Convenience and Efficiency: simplified investment procedures save you
time and help your money work harder for you.

o Liquidity: on any business day (subject to a 7 day waiting period for
investment checks to clear), you may request redemption of your shares
at the next determined net asset value, and, in the case of the AARP
Money Funds, you may elect free Checkwriting and write checks for $100
or more on your account to make payments to any person or business.

o Direct Deposit Program: you may have your Social Security or other
checks from the U.S. Government or any other regular income checks,
such as pension, dividend, interest, and even payroll checks
automatically deposited directly to your account.

o Automatic Withdrawal Plan: with a minimum qualifying balance of $10,000
in one AARP Fund, you may arrange to receive monthly, quarterly or
periodic checks from your account for any designated amount of $50 or
more.

o Direct Payment of Regular Fixed Bills: with a minimum qualifying
balance of $10,000 in one AARP Fund, you may arrange to have your
regular fixed bills that are of fixed amounts, such as rent, mortgage,
or other payments of $50 or more sent directly from your account at the
end of the month.

o Personal Service and Information: professionally trained service
representatives help you whenever you have questions through our
toll-free number, 1-800-253-2277.

o Consolidated Statements: in addition to receiving a confirmation
statement of each transaction in your account, you receive, without
extra charge, a convenient monthly consolidated statement. (Retirement
Plan statements are mailed quarterly.) This statement contains the
market value of all your holdings and a complete listing of your
transactions for the statement period.

o Shareholder Handbook: the Shareholder Handbook was created to help
answer many of the questions you may have about investing in the
Program.

o IRA Shareholder Handbook: The IRA Shareholder Handbook was created to
help answer many of the questions you may have about investing in the
no-fee AARP IRA.

o A Glossary of Investment Terms: the Glossary defines commonly used
financial and investment terms.

o Newsletter: every month, shareholders receive our newsletter, Financial
Focus (retirement plan shareholders receive a special edition of
Financial Focus on a quarterly basis) which is designed to help keep
you up to date on economic and investment developments, and any new
financial services and features of the Program.

This Statement of Additional Information supplements the Prospectus,
and provides more detailed information about the Trusts and the Funds.

2
<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

AARP Money Funds

(See "AARP High Quality Money Fund," "AARP High Quality Tax Free Money
Fund," "INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND
RISK FACTORS" in the Prospectus.)

The AARP Funds offer a choice of a taxable and a tax free money fund
for small savers, big savers and people looking for a way to invest. People who
earn a relatively low interest rate in an insured bank savings account, who have
to make withdrawals or deposits in person or whose money isn't easily accessible
may find that the AARP Money Funds can help.

AARP High Quality Money Fund. The AARP High Quality Money Fund is a
separate series of AARP Cash Investment Funds and is the only Fund currently
offered by that Trust. Additional series of the Trust may be offered in the
future. From investments in high quality securities, the Fund is designed to
provide current income. The Fund also seeks to maintain stability and safety of
principal while offering liquidity. The Fund seeks to maintain a constant net
asset value of $1.00 per share. There may be circumstances under which this goal
cannot be achieved. The Fund invests in securities with remaining maturities of
397 calendar days or less, except in the case of U.S. Government securities
which may have maturities of up to 762 calendar days. The average
dollar-weighted maturity of its investments is 90 days or less. The investment
policies and restrictions of the Fund are described as follows:

To provide safety and liquidity, the investments of the AARP High
Quality Money Fund are limited to those that at the time of purchase are rated,
or judged by the Fund Manager to be the equivalent of those rated, within the
two highest credit ratings ("high quality instruments") by one or more rating
agencies such as: Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
("S&P") or Fitch Investors Service ("Fitch"). In addition, the Fund Manager
seeks through its own credit analysis to limit investments to high-quality
instruments presenting minimal credit risks. If a security ceases to be rated or
is downgraded below the second highest quality rating indicated above, the Fund
will promptly dispose of the security, unless the Trustees determine that
continuing to hold such security is in the best interests of the Fund.
Generally, the Fund will invest in securities rated in the highest quality
rating by at least two of these rating agencies.

Securities eligible for investment by the Fund include "first tier
securities" and "second tier securities." "First tier securities" are those
securities which are generally rated (or issued by an issuer with comparable
securities rated) in the highest category by at least two rating services (or by
one rating service, if no other rating service has issued a rating with respect
to that security). Securities generally rated (or issued by an issuer with
comparable securities rated) in the top two categories by at least two rating
agencies (or one, if only one rating agency has rated the security) which do not
qualify as first tier securities are known as "second tier securities." To
ensure diversity of the Fund's investments, as a matter of non-fundamental
policy the Fund will not invest more than 5% of its total assets in the
securities of a single issuer, other than the U.S. Government. The Fund may,
however, invest more than 5% of its total assets in the first tier securities of
a single issuer for a period of up to three business days after purchase,
although the Fund may not make more than one such investment at any time. The
Fund may not invest more than 5% of its total assets in securities which were
second tier securities when acquired by the Fund. Further, the Fund may not
invest more than the greater of (1) 1% of its total assets, or (2) one million
dollars, in the securities of a single issuer which were second tier securities
when acquired by the Fund.

The Fund purchases high quality short-term securities consisting of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations such as the
International Bank for Reconstruction and Development (the World Bank);
obligations of domestic banks and their foreign branches, including bankers'
acceptances, certificates of deposit, deposit notes and time deposits;
obligations of savings and loan institutions; instruments whose credit has been
enhanced by: banks (letters of credit), insurance companies (surety bonds), or
other corporate entities (corporate guarantees); corporate obligations,
including commercial paper, notes, bonds, loans and loan participations;
securities with variable or floating interest rates; asset-backed securities,
including certificates, participations and notes; municipal securities including
notes, bonds and participation interests, either taxable or tax-free, as
described in more detail for the AARP High Quality Tax Free Money Fund;

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securities with put features; and repurchase agreements. The Fund may hold cash,
which does not earn interest, to facilitate stabilizing its net asset value per
share and for liquidity purposes.

Commercial paper at the time of purchase will be rated, or judged by
the Fund Manager under the supervision of the Trustees, to be the equivalent of
securities rated, A-1 or higher by S&P, Prime-1 or higher by Moody's or F-1 or
higher by Fitch. Investments in other corporate obligations, such as bonds or
notes, will be limited to securities rated, or judged by the Fund Manager to be
the equivalent of securities rated, AA or higher by S&P or Fitch or Aa or higher
by Moody's. Obligations which are the subject of repurchase agreements will be
limited to those of the type described above. Shares of this Fund are not
insured or guaranteed by the U.S. Government.

The Fund may invest in certificates of deposit and bankers' acceptances
of large domestic banks (i.e., banks which at the time of their most recent
annual financial statements show total assets in excess of $1 billion) and their
foreign branches and of smaller banks as described below. These as well as all
other investments of the Fund must be U.S. dollar denominated. The Fund will not
invest in certificates of deposit or bankers' acceptances of foreign banks
without additional consideration by and the approval of the Trustees of the
Trust. Although the Fund recognizes that the size of a bank is important, this
fact alone is not necessarily indicative of its creditworthiness.

Investment in certificates of deposit and bankers' acceptances issued
by foreign branches of domestic banks involves investment risks that are
different in some respects from those associated with investment in obligations
issued by domestic banks. Such investment risks include the possible imposition
of withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations, or other adverse political or economic
developments. In addition, it might be more difficult to obtain and enforce a
judgment against a foreign branch of a domestic bank.

The Fund may also invest in certificates of deposit issued by banks
which had, at the time of their most recent annual financial statements, total
assets of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's net assets (taken at current value) are invested in
certificates of deposit and bankers' acceptances of banks having total assets
not in excess of $1 billion.

The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System whose creditworthiness has been determined by the Fund
Manager to be equal to that of issuers of commercial paper rated within the two
highest grades. See "Repurchase Agreements" under "Special Investment Policies
of the AARP Funds."

AARP High Quality Tax Free Money Fund. The AARP High Quality Tax Free
Money Fund is a separate series of AARP Tax Free Income Trust. From investments
in high quality municipal securities, the Fund is designed to provide current
income free from federal income taxes. The Fund also seeks to maintain stability
and safety of principal, while offering liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share. There may be circumstances under
which this goal cannot be achieved. Such securities may mature no more than 397
calendar days or less from the date the purchase is expected to be settled by
the Fund, with a weighted average maturity of 90 days or less.

The Fund will invest in municipal securities which are rated at the
time of purchase within the two highest quality ratings of rating agencies such
as: Fitch--AAA and AA, F1 and F2, or Moody's--Aaa and Aa, or within Moody's
short-term municipal obligations top ratings of MIG 1 and MIG 2 and P1, or
S&P--AAA/AA and SP1+/SP1, A1+ and A1--all in such proportions as management will
determine. Securities must be so rated by at least two agencies or by at least
one, if only one has rated the security. Generally, the Fund will invest in
securities rated in the highest quality rating by at least two of these rating
agencies. In some cases, short-term municipal obligations are rated using the
same categories as are used for corporate obligations. In addition, unrated
municipal securities will be considered as being within the foregoing quality
ratings if other equal or junior municipal securities of the same issuer are
rated and their ratings are within the foregoing ratings of Fitch, Moody's or
S&P. The Fund may also invest in municipal securities which are unrated if, in
the opinion of the Fund Manager, such securities possess creditworthiness
comparable to those rated securities in which the Fund may invest. For a
description of ratings, please see "Additional Information." Shares of this Fund
are not insured or guaranteed by the U.S. Government.

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Subsequent to its purchase by the AARP High Quality Tax Free Money
Fund, an issue of municipal securities may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. The Fund will
dispose of any such security unless the Board of Trustees of the Fund determines
that such disposal would not be in the best interests of the Fund.

As a fundamental policy, under normal circumstances, at least 80% of
the net assets of AARP High Quality Tax Free Money Fund will be invested in
tax-exempt securities. Although the Fund normally intends to ensure that all
income to shareholders will be exempt from federal income tax, there can be no
assurance that this goal will be achieved or that income to shareholders which
is federally tax exempt will be exempt from state and local taxes.

From time to time on a temporary basis or for defensive purposes, the
Fund may, subject to its investment restrictions, hold cash and invest in
taxable investments consisting of: (1) other obligations issued by or on behalf
of municipal or corporate issuers; (2) U.S. Treasury notes, bills and bonds; (3)
obligations of agencies and instrumentalities of the U.S. Government; (4) money
market instruments, such as domestic bank certificates of deposit, finance
company and corporate commercial paper, and banker's acceptances; and (5)
repurchase agreements (agreements under which the seller agrees at the time of
sale to repurchase the security at an agreed time and price) with respect to any
of the obligations which the Fund is permitted to purchase. The Fund will not
invest in instruments issued by banks or savings and loan associations unless at
the time of investment such issuers have total assets in excess of $1 billion
(as of the date of their most recently published financial statements).
Commercial paper investments will be limited to commercial paper rated A1+ and
A1 by S&P, Prime 1 by Moody's or F-1 by Fitch. The Fund may hold cash or invest
temporarily in taxable investments due, for example, to market conditions or
pending investment of proceeds of subscriptions for shares of the Fund or
proceeds from the sale of portfolio securities or in anticipation of
redemptions. However, the Fund expects to invest such proceeds in municipal
securities as soon as practicable. Interest income from temporary investments
may be taxable to shareholders as ordinary income.

Maintenance of Constant Net Asset Value Per Share. The Trustees of AARP
High Quality Money Fund and AARP High Quality Tax Free Money Fund have
determined that it is in the best interests of the Funds and their shareholders
to maintain the net asset value of the Funds' shares at a constant $1.00 per
share. In order to facilitate the maintenance of a constant $1.00 net asset
value per share, the AARP High Quality Money Fund and the AARP High Quality Tax
Free Money Fund operate in accordance with a rule of the Securities and Exchange
Commission (the "SEC"). In accordance with that rule, the assets of the Funds
consist entirely of cash, cash items, and high quality U.S. dollar-denominated
investments which have minimal credit risks and which have a remaining maturity
date of not more than 397 days from date of purchase (except that the AARP High
Quality Money Fund may invest in U.S. Government securities having maturities of
up to 762 days). The average dollar-weighted maturity of each Fund is varied
according to money market conditions, but may not exceed 90 days. The maturity
of a portfolio security shall be the period remaining until the date stated in
the security for payment of principal or such earlier date as it is called for
redemption, except that a shorter period shall be used for Variable and Floating
Rate Instruments in accordance with and subject to the conditions contained in
the Rule.

The Trustees have established procedures reasonably designed to
stabilize the price per share of the Funds at $1.00, as computed for the
purposes of sales, repurchases and redemptions, taking into account current
market conditions and each Fund's investment objectives. Such procedures, which
the Trustees review annually, include specific requirements designed to assure
that issuers of the Funds' securities continue to meet high standards of
creditworthiness. The procedures also establish certain requirements concerning
the quality and maturity of the Fund's investments. Finally, the procedures
require the determination, at such intervals as the Trustees deem appropriate
and reasonable, of the extent, if any, to which a Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share.
Market quotations and market equivalents used in making such determinations may
be obtained from an independent pricing service approved by the Trustees. Such
determinations will be reviewed periodically by the Trustees.

If at any time it is determined that a deviation exists which may
result in material dilution or other unfair results to investors or existing
shareholders of a Fund, certain corrective actions may be taken, including
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding part or all of
dividends or payment of distributions from capital or capital gains; redeeming
shares in kind; or establishing a net asset value per share by using available
market quotations or equivalents. In addition, in order to stabilize the net
asset value per share at $1.00 the Trustees have the authority (1) to reduce the

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number of outstanding shares of a Fund on a pro rata basis, and (2) to offset
each shareholder's pro rata portion of the deviation between the net asset value
per share and $1.00 from the shareholder's accrued dividend account or from
future dividends. The Funds may hold cash for the purpose of stabilizing their
net asset value per share. Holdings of cash, on which no return is earned, would
tend to lower the yield on the shares of the Funds.

The net income of the Funds is declared as dividends to shareholders
daily and distributed monthly in shares of the Funds unless payment is requested
in cash.

AARP Income Funds

(See "AARP GNMA and U.S. Treasury Fund," "AARP High Quality Bond Fund,"
"INVESTMENT OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK
FACTORS" in the Prospectus.) Each of the Funds seeks to earn a high level of
income consistent with its investment policies.

AARP GNMA and U.S. Treasury Fund. AARP GNMA and U.S. Treasury Fund is
designed for investors who are seeking high current income from high quality
securities and who wish to receive a degree of protection from bond market price
risk. The Fund's investment objective is to produce a high level of current
income and to keep the price of its shares more stable than that of a long-term
bond. The Fund pursues this objective by investing principally in U.S.
Government-guaranteed GNMA securities and U.S. Treasury obligations. The Fund
has been designed with the conservative, safety-conscious investor in mind. Of
the two funds in the AARP Income Trust, the AARP GNMA and U.S. Treasury Fund is
the more conservative choice. Although past performance is no guarantee of
future performance, historically, this Fund offers higher yields than such
short-term investments as insured savings accounts, insured six month
certificates of deposit and fixed-price money market funds.

The Fund invests in U.S. Treasury bills, notes and bonds; other
securities issued or backed by the full faith and credit of the U.S. Government,
including, but not limited to, Government National Mortgage Association ("GNMA")
mortgage-backed securities, Merchant Marine Bonds guaranteed by the Maritime
Administration and obligations of the Export-Import Bank; financial futures
contracts with respect to such securities; options on either such securities or
such financial futures contracts; and bank repurchase agreements. At least 65%
of the Fund's net assets will be directly invested in U.S. Treasury obligations,
including GNMA's. The Fund will make long-term investments but will also attempt
to dampen its price variability in comparison to that of a long-term bond by
including short-term U.S. Treasury securities in its portfolio. The Fund may
also utilize hedging techniques involving limited use of financial futures
contracts and the purchase and writing (selling) of put and call options on such
contracts. Under certain market conditions, these strategies may reduce current
income. At any time the Fund may have a substantial portion of its assets in
securities of a particular type or maturity. The Fund may also write covered
call options on portfolio securities and purchase "when-issued" securities.

GNMA Mortgage-Backed Securities ("GNMAs"). GNMAs are mortgage-backed
securities representing part ownership of a pool of mortgage loans. These loans,
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, are either insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA). A "pool" or group of
such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, a Government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal is guaranteed by the full faith and
credit of the United States Government. This is not, however, a guarantee
related to the Fund's yield or the value of your investment principal.

As mortgage-backed securities, GNMAs differ from bonds in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. GNMAs are called "pass-through" securities
because both interest and principal payments including prepayments are passed
through to the holder of the security (in this case, the Fund).

The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances and may involve capital losses if the
mortgages were purchased at a premium. For example, mortgagors may speed up the
rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of

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<PAGE>

interest. The Fund Manager, in determining the attractiveness of GNMAs relative
to alternative fixed-income securities, and in choosing specific GNMA issues,
will have made assumptions as to the likely speed of prepayment. Actual
experience may vary from this assumption resulting in a higher or lower
investment return than anticipated.

Some investors may view the Fund as an alternative to a bank
certificate of deposit (CD). While an investment in the Fund is not federally
insured, and there is no guarantee of price stability, an investment in the
Fund--unlike a CD--is not locked away for any period, may be redeemed at any
time without incurring early withdrawal penalties, and may provide a higher
yield.

AARP High Quality Bond Fund. Consistent with investments primarily in
high quality securities, the Fund seeks to provide a high level of income and to
keep the value of its shares more stable than that of a long-term bond. By
including short- and medium-term bonds in its portfolio, the Fund seeks to offer
less share price volatility than long-term bonds or many long-term bond funds,
although its yield may be lower. Due to the greater market price risk of its
securities, the Fund may have a more variable share price than the AARP GNMA and
U.S. Treasury Fund. It is also possible that the Fund may provide a higher level
of income than the AARP GNMA and U.S.
Treasury Fund.

This Fund intends under normal circumstances to have at least 65% of
its total assets invested in bonds which include corporate notes and bonds
including high-yield issues convertible into common stock. It may also purchase
any investments eligible for the AARP GNMA and U.S. Treasury Fund as well as
obligations of federal agencies that are not backed by the full faith and credit
of the U.S. Government, such as obligations of Federal Home Loan Bank, Farm
Credit Banks and the Federal Home Loan Mortgage Corporation. In addition, it may
purchase obligations of international agencies such as the International Bank
for Reconstruction and Development, the Inter-American Development Bank and the
Asian Development Bank. Other eligible investments include U.S.
dollar-denominated foreign debt securities (such as U.S. dollar denominated debt
securities issued by the Dominion of Canada and its provinces), mortgage-backed
and other asset-backed securities, and money market instruments such as
commercial paper and bankers' acceptances and certificates of deposit issued by
domestic and foreign branches of U.S. banks. The Fund invests in a broad range
of short, intermediate, and long-term securities. Proportions among maturities
and types of securities may vary depending upon the prospects for income related
to the outlook for the economy and the securities markets, the quality of
available investments, the level of interest rates, and other factors.

Except for limitations in the Fund's investment restrictions, there is
no limit as to the proportions of the Fund which may be invested in any of the
eligible investments. However, it is a policy of the Fund that its
non-governmental investments will be spread among a variety of companies and
will not be concentrated in any industry.
(See "Investment Restrictions," herein.)

High Quality Portfolio. The policies of AARP High Quality Bond Fund are
designed to provide a portfolio that combines high quality securities with
investments that attempt to reduce its market price risk.

The portfolio of the AARP High Quality Bond Fund is high grade. In
fact, according to information provided by Morningstar, Inc., the Fund has one
of the highest quality standards of any general bond Fund currently available.
No purchase will be made if, as a result thereof, less than 65% of the Fund's
net assets would be invested in debt obligations, including money market
instruments, that (a) are issued or guaranteed by the U.S. Government, (b) are
rated at the time of purchase within the two highest grades assigned by any of
the nationally-recognized rating services including Moody's or S&P, or (c) if
not rated, are judged at the time of purchase by the Fund Manager, subject to
the Trustees' review, to be of a quality comparable to those in the two highest
ratings described in (b) above. All of the debt obligations in which the Fund
invests will, at the time of purchase, be rated within the three highest credit
ratings or, if not rated, will be judged to be of comparable quality by the Fund
Manager. (See "ADDITIONAL INFORMATION - Ratings of Corporate Bonds.")

Variations of Maturity. In an attempt to capitalize on the differences
in total return from securities of differing maturities, maturities may be
varied according to the structure and level of interest rates, and the Fund
Manager's expectations of changes therein.

Foreign Securities. The AARP High Quality Bond Fund may invest, without
limit, in U.S. dollar-denominated foreign debt securities (including U.S. dollar
denominated debt securities issued by the Dominion of Canada and its provinces

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<PAGE>

and other debt securities which meet the Fund's criteria applicable to its
domestic investments), and in certificates of deposit issued by foreign branches
of United States banks, to any extent deemed appropriate by the Fund Manager.

AARP Insured Tax Free Income Fund

(See "AARP Insured Tax Free General Bond Fund," "INVESTMENT OBJECTIVES
AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the
Prospectus.)

AARP Insured Tax Free General Bond Fund. The AARP Insured Tax Free
General Bond Fund is a separate series of AARP Tax Free Income Trust. From a
portfolio consisting primarily of municipal securities covered by insurance, the
Fund seeks to provide high income free from federal income taxes and to keep the
value of its shares more stable than that of a long-term municipal bond. The
Fund seeks to provide investors with the higher tax-free income that is often
available from municipal securities by investing, under normal circumstances, in
a high grade portfolio of bonds consisting primarily of municipal securities,
with no restrictions as to maturity. Securities comprising at least 65% of the
total assets held by the Fund are fully insured as to face value and interest by
private insurers. While longer-term securities such as those in which the Fund
may invest have in recent years had higher yields, they also experience greater
price fluctuation than shorter-term securities. By including short- and
medium-term bonds in its portfolio, the Fund seeks to offer less share price
volatility than long-term municipal bonds or many long-term municipal bond
funds, although its yield may be lower. Because the Fund may trade its
securities, it is also free to attempt to take advantage of opportunities in the
market to achieve higher current income. This opportunity is not available to
unit investment trusts, which hold fixed portfolios of municipal securities.

Under normal circumstances, at least 80% of the Fund's net assets are
invested in tax-exempt securities. For this purpose, private activity bonds, the
interest on which is treated as a preference item for purposes of calculating
alternative minimum tax liability, will not be treated as tax exempt securities.
The Fund does not intend to purchase any such private activity bonds. (See
"TAXES" herein.)

There can be no assurance that the objectives of the Fund will be
achieved or that all income to shareholders which is exempt from federal income
taxes will be exempt from state or local taxes. Shareholders may also be subject
to tax on long-term and short-term capital gains (see "TAXES" herein).

In addition, the market prices of municipal securities, like those of
taxable debt securities, go up and down when interest rates change. Thus, the
net asset value per share can be expected to fluctuate and shareholders may
receive more or less than their purchase price for shares they redeem. In
addition to investments in municipal obligations, as described below, the Fund
may invest in short-term taxable U.S. Government securities and repurchase
agreements backed by U.S. Government securities. The Fund also may invest in
demand notes and tax-exempt commercial paper, financial futures contracts, and
may invest in and write (sell) options related to such futures contracts. These
investments are not insured or guaranteed or backed by the U.S. Government.
Except for futures and options, which are not rated, the AARP Insured Tax Free
General Bond Fund will only purchase securities rated within the top three
ratings by Moody's and S&P, or the equivalent as determined by the Fund Manager,
or repurchase agreements on such securities. To qualify as "within the top three
ratings," a security must have such a rating due to the credit of the issuer or
due to specific insurance on the security, whether acquired at issuance or by
the Fund at the time of purchase. A security would not so qualify if its rating
was solely the result of coverage under the Fund's portfolio insurance.

Securities in which the Fund may invest may include: (a) a security
that carries at the time of issuance, whether because of the credit of the
issuer or because it is insured at issuance by an insurance company, a rating
within the top three ratings; and (b) a security not rated within the top three
ratings at the time of issuance but insured to maturity by the Fund at the time
of purchase if, upon issuance of such insurance, the Fund Manager is able to
determine that the security is now the equivalent of a security rated within the
top three ratings by a nationally recognized rating agent.

When, in the opinion of the Fund Manager, defensive considerations or
an unusual disparity between the after-tax income on taxable investments and
comparable municipal obligations make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term investments such

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<PAGE>

as U.S. Treasury notes, bills and bonds and repurchase agreements collateralized
by U.S. Government securities, the interest income from which may be subject to
federal income tax. Notwithstanding the foregoing, the Fund may invest more than
20% of its net assets in such taxable U.S. Treasury securities and repurchase
agreements for temporary defensive purposes.

Insurance. Insurance on at least 65% of the AARP Insured Tax Free
General Bond Fund's total assets will be obtained from nationally recognized
private insurers, including the following: Financial Guaranty Insurance Company
("FGIC") is owned by FGIC Corporation, which in turn is owned by General
Electric Credit Corporation; AMBAC Indemnity Corporation; and Municipal Bond
Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated,
the principal shareholders of which are: The Aetna Life & Casualty Company,
Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and
affiliates of the Continental Insurance Company.

The Fund currently has portfolio insurance provided by FGIC pursuant to
which it may insure securities mutually agreed to between the Fund and FGIC so
long as the security remains in the Fund's portfolio. Pursuant to an irrevocable
commitment, FGIC also provides the Fund with the option to obtain insurance for
any security covered by the FGIC portfolio insurance, which insurance can
continue if the security were to be sold by the Fund. The Fund may procure
portfolio insurance from other insurers.

At least 65% of the Fund's assets are fully insured by private insurers
as to payment of face value and interest to the Fund, when due. If uninsured
securities or securities not directly or indirectly backed or guaranteed by the
U.S. Government are purchased and expected to be held for 60 days or more,
insurance will be obtained within 30 days to ensure that 65% of the Fund's
assets are insured by the issuer or arranged for by the Fund. If at least 65% of
its assets are not insured securities, the Fund will obtain insurance for a
portion of its U.S. Government guaranteed or backed securities so that the 65%
standard is achieved.

The Fund requires that insurance with respect to its securities provide
for the unconditional payment of scheduled principal and interest when due. In
the event of a default by the issuer, the insurer will, within 30 days of notice
of such default, provide to its agent or Trustee funds needed to make any such
payments. Such agent or Trustee will bear the responsibility of seeing that such
funds are used to make such payments to the appropriate parties. Such insurance
will not guarantee the market value of a security. Insurance on the Fund's
securities will in some cases continue in the event the securities are sold by
the Fund, while in other cases it may not.

To the extent the Fund's insured municipal securities do not equal 65%
of its total assets, the Fund will obtain insurance on such amount of its U.S.
Government guaranteed or backed securities as is necessary to have 65% of the
Fund's total assets insured at all times. This type of insurance will terminate
when the security is sold and will involve an added cost to the Fund while not
increasing the quality rating of the security.

Insurance on individual securities, whether obtained by the issuer or
the Fund, is non-cancelable and runs for the life of the security. Securities
covered under the Fund's portfolio insurance are insured only so long as they
are held by the Fund, though the Fund has the option to procure individual
secondary market insurance which would continue to cover any such security after
its sale by the Fund. Such guaranteed renewable insurance continues so long as
premiums are paid by the Fund and, in the judgment of the Fund Manager, coverage
should be continued. Non-payment of premiums on the portfolio insurance will,
under certain circumstances result in the cancellation of such insurance and
will also permit FGIC to take action against the Fund to recover premiums due
it. In the case of securities which are individually insured, default by the
issuer is not expected to affect the market value of the security relative to
other insured securities of the same maturity value and coupon and covered by
the same insurer. In the case of a security covered by the Fund's portfolio
insurance, the market value of such a security in the event of such default
might be less unless the Fund elected to purchase secondary market insurance for
it. It is the intention of the Fund Manager either to procure individual
secondary market insurance for, or retain in the Fund's portfolio, securities
which are insured by the Fund under portfolio insurance and which are in default
or significant risk of default in the payment of principal or interest. Any such
securities retained by the Fund would be held until the default has been cured
or the principal and interest have been paid by the issuer or the insurer.

Premiums for individual insurance may be payable in advance or may be
paid periodically over the term of the security by the party then owning the
security, and the costs will be reflected in the price of the security. The cost
of insurance for longer-term securities, expressed in terms of income on the
security, is likely to reduce such income by from 10 to 60 basis points. Thus, a
security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact

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of the cost of the Fund's portfolio insurance on the Fund's net yield is
somewhat less. The cost of insurance for shorter-term securities, which are
generally lower-yielding, is expected to be less. It should be noted that
insurance raises the rating of a municipal security. Lower rated securities
generally pay a higher rate of interest than higher rated securities. Thus,
while there is no assurance that this will always be the case, the Fund may
purchase lower rated securities which, when insured, will bear a higher rating,
and may pay a higher net rate of interest than other equivalently rated
securities which are not insured.

Insurers have certain eligibility standards as to municipal securities
they will insure. Such standards may be more or less strict than standards which
would be applied for purchase of a security for the Fund. To the extent the
insurers apply stricter standards, the Fund will be restricted by such standards
in the purchase and retention of municipal securities.

The Internal Revenue Service has issued revenue rulings indicating that
(a) the fact that municipal obligations are insured will not affect their
tax-exempt status and (b) insurance proceeds representing maturing interest on
defaulted municipal obligations paid to certain municipal bond funds will be
excludable from federal gross income under Section 103(a) of the Internal
Revenue Code. While operation of the Fund and the terms of the insurance
policies on the Fund's securities may differ somewhat from those addressed by
the revenue rulings, the Fund does not anticipate that any differences will be
material or change the result with respect to the Fund.

Insurers of the Fund's municipal securities are subject to regulation
by the department of insurance in each state in which they are qualified to do
business. Such regulation, however, is no guarantee that an insurer will be able
to perform on its contract of insurance in the event a claim should be made
thereunder at some time in the future. The Fund Manager reviews the financial
condition of each insurer of their securities at least annually, and in the
event of any material development, with respect to its continuing ability to
meet its commitments to any contract of bond or portfolio insurance.

Management Strategies. In pursuit of its investment objectives the Fund
purchases securities that it believes are attractive and competitive values in
terms of quality, and relationship of current price to market value. However,
recognizing the dynamics of municipal bond prices in response to changes in
general economic conditions, fiscal and monetary policies, interest levels and
market forces such as supply and demand for various bond issues, the Fund
Manager manages the Fund continuously, attempting to achieve a high level of
tax-free income.
The primary strategies employed in the management of the Fund are:

Variations of Maturity. In an attempt to capitalize on the differences
in total return from municipal securities of differing maturities, maturities
may be varied according to the structure and level of interest rates, and the
Fund Manager's expectations of changes therein.

Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal securities of the same
or generally similar maturity tend to change constantly in reaction to broad
swings in interest rates and factors affecting relative supply and demand. These
temporary disparities in normal yield relationships may afford opportunities to
invest in more attractive market sectors or specific issues by trading
securities currently held by the Fund.

Market Trading Opportunities. In addition to the above, the Fund may
engage in short-term trading (selling securities held for brief periods of time,
usually less than 3 months) if the Fund believes that such transactions, net of
costs, would further the attainment of that Fund's objectives. The needs of
different classes of lenders and borrowers and their changing preferences and
circumstances have in the past caused market dislocations unrelated to
Fundamental creditworthiness and trends in interest rates which have presented
market trading opportunities. There can be no assurance that such dislocations
will occur in the future or that the Funds will be able to take advantage of
them. The Fund will limit its voluntary short-term trading to the extent
necessary to qualify as a "regulated investment company" under the Internal
Revenue Code.

Special Considerations: Income Level and Credit Risk. To the extent
that AARP Insured Tax Free General Bond Fund holds insured municipal
obligations, the income earned on its shares will tend to be less than for an
uninsured portfolio of the same securities. The fund will amortize as income,
over the life of the respective security issues, any original issue discount on
debt obligations (even where these are acquired in the after-market), and market

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discount on short-term U.S. Government securities. The Fund will elect to
amortize the premium paid on acquisition of any premium coupon obligations.
Since such discounts and premiums will be recognized in the Fund's accounts over
the life of the respective security issues and included in the regular monthly
income distributions to shareholders, they will not give rise to taxable capital
gains or losses. However, a capital gain may be realized upon the sale or
maturity and payment of certain obligations purchased at a market discount.

AARP Growth Funds

(See "AARP Balanced Stock and Bond Fund," "AARP Growth and Income
Fund," "AARP Global Growth Fund," "AARP Capital Growth Fund," "INVESTMENT
OBJECTIVES AND POLICIES," and "OTHER INVESTMENT POLICIES AND RISK FACTORS" in
the Prospectus.)

AARP Balanced Stock and Bond Fund. The AARP Balanced Stock and Bond
Fund's investment objective is to seek to provide long-term growth of capital
and income while attempting to keep the value of its shares more stable than
other balanced mutual funds. The Fund pursues these objectives by investing in a
combination of stocks, bonds, and cash reserves.

The Fund is intended to provide--through a single investment--access to
a wide variety of income-oriented stocks and investment-grade bond investments.
Common stocks and other equity investments provide long-term growth potential to
help offset the effect of inflation on an investor's purchasing power. Bonds and
other fixed-income investments provide current income and may, over time, help
reduce fluctuations in the Fund's share price.

In seeking a balance of growth and income, as well as long-term
preservation of capital, the Fund invests in a diversified portfolio of equity
and fixed-income securities. At least 30% of the Fund's assets will be in
fixed-income securities, with the remainder of its net assets in common stocks
and securities convertible into common stocks. For temporary defensive purposes,
the Fund may invest without limit in cash and in other money market and
short-term instruments when the Fund Manager deems such a position advisable in
light of economic or market conditions.

The Fund will, on occasion, adjust its mix of investments among equity
securities, bonds, and cash reserves. In reallocating investments, the Fund
Manager weighs the relative values of different asset classes and expectations
for future returns. In doing so, the Fund Manager analyzes, on a global basis,
the level and direction of interest rates, capital flows, inflation
expectations, anticipated growth of corporate profits, monetary and fiscal
policies around the world, and other related factors.

The Fund does not take extreme investment positions as part of an
effort to "time the market." Shifts between stocks and fixed-income investments
are expected to occur in generally small increments within the guidelines
adopted in the prospectus and this Statement of Additional Information. The Fund
is designed as a conservative long-term investment.

While the Fund emphasizes U.S. equity and debt securities, it may
invest without limit in foreign securities, including depositary receipts. The
Fund's foreign holdings will meet the criteria applicable to its domestic
investments. Foreign securities are intended to increase diversification, thus
reducing risk, while providing the opportunity for higher returns.

In addition, the Fund may invest in securities on a when-issued or
forward delivery basis and may write (sell) covered call options on the equity
securities it holds to enhance investment return and may purchase and sell
options on stock indices for hedging purposes. Subject to applicable regulatory
guidelines and solely to protect against adverse effects of changes in interest
rates, the Fund may make limited use of financial futures contracts.

Equity investments. The Fund can invest up to 70% of its net assets in
equity securities. The Fund's equity investments consist of common stocks,
preferred stocks and securities convertible into common stocks, of companies
that, in the Fund Manager's judgment, will offer the opportunity for capital
growth and growth of earnings while providing dividends. The Fund pursues these
objectives by investing primarily in common stocks and securities convertible
into common stocks. Over time, a stock which produces continued earnings growth
tends to produce higher dividends and stock values.

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<PAGE>

The Fund invests in a variety of industries and companies. Changes in
the Fund's portfolio securities are made on the basis of investment
considerations and not for trading purposes.

Fixed-income investments. To enhance income and stability, the Fund
will have at least 30% of its net assets invested in fixed-income securities.
The Fund can invest in a broad range of corporate bonds and notes, convertible
bonds, and preferred and convertible preferred securities. It may also purchase
U.S. Government securities and obligations of federal agencies and
instrumentalities that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Banks, Farm Credit
Banks, and the Federal Home Loan Mortgage Corporation. The Fund may also invest
in obligations of international agencies, foreign debt securities (both U.S. and
non-U.S. dollar denominated), mortgage-backed and other asset-backed securities,
municipal obligations, zero coupon securities, and restricted securities issued
in private placements.

For liquidity and defensive purposes, the Fund may invest in money
market securities such as commercial paper, bankers' acceptances, and
certificates of deposit issued by domestic and foreign branches of U.S. banks.
The Fund may also enter into repurchase agreements with respect to U.S.
Government securities.

All of the Fund's debt securities will be investment grade, that is,
rated Baa or above by Moody's or BBB by S&P. Moreover, at least 75% of these
securities will be high grade, that is, rated within the three highest quality
ratings of Moody's (Aaa, Aa and A) or S&P (AAA, AA and A), or, if unrated,
judged to be of equivalent quality as determined by the Fund Manager at the time
of purchase. Securities must also meet credit standards applied by the Fund
Manager. Moreover, the Fund does not purchase debt securities rated below Baa by
Moody's or BBB by S&P. Should the rating of a portfolio security be downgraded
the Fund Manager will determine whether it is in the best interest of the Fund
to retain or dispose of the security.

AARP Growth and Income Fund. From investments primarily in common
stocks and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth and income, and to keep the value of its shares more
stable than other growth and income mutual funds.

The Fund invests primarily in common stocks and securities convertible
into common stocks. It also may invest in rights to purchase common stocks of
companies offering the prospect for capital growth and growth of earnings while
paying current dividends. The Fund may also invest in preferred stocks
consistent with the Fund's objective. Over time, continued growth of earnings
tends to produce higher dividends and to enhance capital value. In addition,
since 1945, the overall performance of common stocks has exceeded the rate of
inflation. For temporary defensive purposes, the Fund may also purchase
high-quality money market securities (such as U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances) and repurchase
agreements when the Fund Manager deems such a position advisable in light of
economic or market conditions.

AARP Global Growth Fund. From investments primarily in equity
securities of corporations worldwide, the Fund seeks to offer long-term capital
growth in a globally and industrially diversified portfolio, and to keep the
value of its shares more stable than other global equity funds. The Fund invests
on a worldwide basis in equity securities of companies which are incorporated in
the U.S. or in foreign countries. It may also invest in the debt securities of
U.S. and foreign issuers. Income is an incidental consideration.

The management of the Fund believes that there is substantial
opportunity for long-term capital growth from a professionally managed portfolio
of securities selected from the U.S. and foreign equity markets. Global
investing takes advantage of the investment opportunities created by the growing
integration of economies around the world. The world has become highly
integrated in economic, industrial and financial terms. Companies increasingly
operate globally as they purchase raw materials, produce and sell their
products, and raise capital. As a result, international trends such as movements
in currency and trading relationships are becoming more important to many
industries than purely domestic influences. To understand a company's business,
it is frequently more important to understand how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global perspective in deciding where to operate, so
too may an investor benefit from looking globally in deciding which industries
are growing, which producers are efficient and which companies' shares are
undervalued. The Fund affords the investor access to opportunities wherever they
arise, without being constrained by the location of a company's headquarters or
the trading market for its shares.

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<PAGE>

The Fund invests in companies that the Fund Manager believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency,
or economic relationships. The Fund will normally invest at least 65% of its
total assets in securities of at least three different countries. Typically, it
is expected that the Fund will invest in a wide variety of regions and
countries, including both foreign and U.S. issues. The Fund may be invested 100%
in non-U.S. issues, and for temporary defensive purposes may be invested 100% in
U.S. issues, although under normal circumstances it is expected that both
foreign and U.S. investments will be represented in the Fund's portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.

The Fund may invest in high-quality money market instruments (including
U.S. Treasury bills, commercial paper, certificates of deposit, and bankers'
acceptances), repurchase agreements and other debt securities for temporary
defensive purposes when the Fund Manager deems such a position advisable in
light of economic or market conditions.

AARP Capital Growth Fund. From investments primarily in common stocks
and securities convertible into common stocks, the Fund seeks to provide
long-term capital growth, and to keep the value of its shares more stable than
other capital growth mutual funds. Through a broadly diversified portfolio
consisting primarily of high quality, medium- to large-sized companies with
strong competitive positions in their industries the Fund seeks to offer less
share price volatility than many growth funds. It may also invest in rights to
purchase common stocks, the growth prospects of which are greater than most
stocks but which may also have above-average market risk. The Fund may also
invest in preferred stocks consistent with the Fund's objective. The securities
in which the Fund may invest are described under "AARP Capital Growth Fund" in
the Prospectus.

Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly-traded equity securities.
Thus, the search for equity investments for the Fund may encompass any sector of
the market and companies of all sizes. In addition, since 1945, the overall
performance of common stocks has exceeded the rate of inflation. It is a
fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares (see "Investment Restrictions",
herein, for majority voting requirements), that the Fund will not concentrate
its investments in any particular industry. However, the Fund reserves the right
to invest up to 25% of its total assets (taken at market value) in any one
industry.

Special Investment Policies of the AARP Funds

(See "OTHER INVESTMENT POLICIES AND RISK FACTORS" in the Prospectus.)

U.S. Government Securities. U.S. Treasury securities, backed by the
full faith and credit of the U.S. Government, include a variety of securities
which differ in their interest rates, maturities and times of issuance. Treasury
bills have original maturities of one year or less. Treasury notes have original
maturities of one to ten years and Treasury bonds generally have original
maturities of greater than ten years.

U.S. Government agencies and instrumentalities which issue or guarantee
securities include, for example, the Export-Import Bank of the United States,
the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Small Business Administration and the
Federal Farm Credit Bank. Obligations of some of these agencies and
instrumentalities, such as the Export-Import Bank, are supported by the full
faith and credit of the United States; others, such as the securities of the
Federal Home Loan Bank, by the ability of the issuer to borrow from the
Treasury; while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. No assurance can be given
that the U.S. Government would provide financial support to the latter group of
U.S. Government instrumentalities, as it is not obligated to do so.

Interest rates on U.S. Government obligations which the AARP Funds may
purchase may be fixed or variable. Interest rates on variable rate obligations
are adjusted at regular intervals, at least annually, according to a formula

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reflecting then current specified standard rates, such as 91-day U.S. Treasury
bill rates. These adjustments tend to reduce fluctuations in the market value of
the securities.

Municipal Obligations. Municipal obligations held by AARP High Quality
Tax Free Money Fund and AARP Insured Tax Free General Bond Fund are issued by or
on behalf of states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on these
obligations is generally exempt from federal income tax in the hands of most
investors. The two principal classifications of municipal obligations are
"notes" and "bonds". Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.

Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the FHA under "Fannie Mae" (the Federal National Mortgage Association)
or GNMA. There are, of course, a number of other types of notes issued for
different purposes and secured differently than those described above.

Municipal bonds, which meet longer-term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.

Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.

The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully-insured, rent-subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt reserve fund.
Lease rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.

Some issues of municipal bonds are payable from United States Treasury
bonds and notes held in escrow by a Trustee, frequently a commercial bank. The
interest and principal on these U.S. Government securities are sufficient to pay
all interest and principal requirements of the municipal securities when due.
Some escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.

Private activity bonds, although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by an
industrial or other non-governmental user.

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Securities purchased for either Fund may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for the
AARP Funds' purposes to mature at the demand date.

There are, in addition, a variety of hybrid and special types of
municipal obligations as well as numerous differences in the security of
municipal obligations both within and between the two principal classifications
(i.e., notes and bonds) discussed above.

An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as the AARP Funds. Thus, such an
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale unless an
exemption from such registration is available, municipal obligations which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for municipal obligations which have not been publicly offered initially.
Obligations purchased for a Fund are subject to the limitations on holdings of
securities which are not readily marketable based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its recorded
value. The AARP Funds believe that the quality standards applicable to their
investments enhance marketability. In addition, stand-by commitments,
participation interests and demand obligations also enhance marketability.

For the purpose of the AARP Funds' investment restrictions, the
identification of the "issuer" of municipal obligations which are not general
obligation bonds is made by the Fund Manager on the basis of the characteristics
of the obligation as described above, the most significant of which is the
source of funds for the payment of principal and interest on such obligations.

Municipal Lease Obligations and Participation Interests. Participation
interests represent undivided interests in municipal leases, installment
purchase contracts, conditional sales contracts or other instruments. These are
typically issued by a Trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or contracts.

Each AARP Tax Free Fund may purchase from banks participation interests
in all or part of specific holdings of municipal obligations, provided the
participation interest is fully insured. Each participation is backed by an
irrevocable letter of credit or guarantee of the selling bank that the AARP
Funds' investment adviser has determined meets the prescribed quality standards
of the Fund. Thus either the credit of the issuer of the municipal obligation or
the selling bank, or both, will meet the quality standards of the particular
Fund. Each Fund has the right to sell the participation back to the bank after
seven days' notice for the full principal amount of the Fund's interest in the
municipal obligation plus accrued interest, but only (1) as required to provide
liquidity to the Fund, (2) to maintain a high quality investment portfolio or
(3) upon a default under the terms of the municipal obligation. The selling bank
will receive a fee from the Fund in connection with the arrangement. Neither
Fund will purchase participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service satisfactory to the Trustees
that interest earned by that Fund on municipal obligations on which it holds
participation interests is exempt from Federal income tax.

A municipal lease obligation may take the form of a lease, installment
purchase contract or conditional sales contract which is issued by a state or
local government and authorities to acquire land, equipment and facilities.
Income from such obligations is generally exempt from state and local taxes in
the state of issuance. Municipal lease obligations frequently involve special
risks not normally associated with general obligations or revenue bonds. Leases
and installment purchase or conditional sale contracts (which normally provide
for title in the leased asset to pass eventually to the governmental issuer)
have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis.
In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the

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<PAGE>

property in the event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in a delay in recovery or the failure to
fully recover a Fund's original investment.

Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of a Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by a Fund may be determined by the Fund Manager to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Fund Manager will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace trades. In
addition, the Fund Manager will consider factors unique to particular lease
obligations and participation interests affecting the marketability thereof.
These include the general creditworthiness of the issuer, the importance to the
issuer of the property covered by the lease and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by a Fund.

A Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide a Fund with the right to a pro rata undivided interest in
the underlying municipal lease obligations. In addition, such participations
generally provide a Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of such Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. Each Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Fund Manager,
the interest from such participations is exempt from regular federal income tax
and state income tax for each state specific fund.

Stand-by Commitments. Pursuant to an exemptive order from the SEC, each
AARP Tax Free Fund may acquire "stand-by commitments," which will enable the
Fund to improve its portfolio liquidity by making available same-day settlements
on sales of its securities. A stand-by commitment is a right acquired by a Fund,
when it purchases a municipal obligation from a broker, dealer or other
financial institution ("seller"), to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a specified price.
Stand-by commitments are also known as "puts". Each Fund's investment policies
permit the acquisition of stand-by commitments solely to facilitate portfolio
liquidity and not to protect against changes in the market price of the Fund's
portfolio securities. The exercise by a Fund of a stand-by commitment is subject
to the ability of the other party to fulfill its contractual commitment.

Stand-by commitments acquired by a Fund will have the following
features: (1) they will be in writing and will be physically held by the Fund's
custodian; (2) a Fund's right to exercise them will be unconditional and
unqualified; (3) they will be entered into only with sellers which in the Fund
Manager's opinion present a minimal risk of default; (4) although stand-by
commitments will not be transferable, municipal obligations purchased subject to
such commitments may be sold to a third party at any time, even though the
commitment is outstanding; and (5) their exercise price will be (i) the Fund's
acquisition cost (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized original
issue discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date.

Each Fund expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund will pay for stand-by commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by a Fund in either manner for outstanding stand-by commitments will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
any stand-by commitment is acquired.

It is difficult to evaluate the likelihood of use or the potential
benefit of a stand-by commitment. Therefore, it is expected that the Trustees
will determine that stand-by commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the stand-by commitment is less than
the exercise price of the stand-by commitment, such security will ordinarily be
valued at such exercise price. Where a Fund has paid for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held.

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<PAGE>

There is no assurance that stand-by commitments will be available to a
Fund nor does either Fund assume that such commitments would continue to be
available under all market conditions.

Third Party Puts. The AARP Tax Free Funds may also purchase long-term
fixed rate bonds that have been coupled with an option granted by a third party
financial institution allowing a Fund at specified intervals (not exceeding 397
calendar days in the case of AARP High Quality Tax Free Money Fund) to tender
(or "put") the bonds to the institution and receive the face value thereof (plus
accrued interest). These third party puts are available in several different
forms, may be represented by custodial receipts or Trust certificates and may be
combined with other features such as interest rate swaps. The Fund receives a
short-term rate of interest (which is periodically reset), and the interest rate
differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the weighted average maturity of the Fund's portfolio would be
adversely affected.

These bonds coupled with puts may present the same tax issues as are
associated with Stand-By Commitments discussed above. As with any Stand-By
Commitments acquired by the Funds, each Fund intends to take the position that
it is the owner of any municipal obligation acquired subject to a third-party
put, and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the
Internal Revenue Service will agree with such position in any particular case.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the treatment of tender fees and swap payments, in
relation to various regulated investment company tax provisions is unclear.
However, the Fund Manager intends to manage the Funds' portfolios in a manner
designed to minimize any adverse impact from these investments.

Repurchase Agreements. Each of the AARP Funds may enter into repurchase
agreements with any member bank of the Federal Reserve System and any
broker-dealers which are recognized as a reporting government securities dealer,
whose creditworthiness has been determined by the Fund Manager to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by any of the nationally-recognized rating services including Moody's
and S&P, two of the most widely recognized rating services for the types of
securities in which a Fund invests. A repurchase agreement, which provides a
means for a Fund to earn income on monies for periods as short as overnight, is
an arrangement under which the purchaser (i.e., the Fund) acquires a security
("Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. The repurchase price may be higher
than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Fund at the time of repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. For purposes of
the Investment Company Act of 1940, as amended, ("1940 Act") a repurchase
agreement is deemed to be a loan to the seller of the Obligation and is
therefore covered by each Fund's investment restriction applicable to loans.
Each repurchase agreement entered into by a Fund requires that if the market
value of the Obligation becomes less than the repurchase price (including
interest), a Fund will direct the seller of the Obligation, on a daily basis to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. In the
event that a Fund is unsuccessful in seeking to enforce the contractual
obligation to deliver additional securities, and the seller defaults on its
obligation to repurchase, the Fund bears the risk of any drop in market value of
the Obligation(s). In the event that bankruptcy or insolvency proceedings were
commenced with respect to a bank or broker-dealer before its repurchase of the
Obligation, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. In the case of repurchase agreements, it is not clear whether a
court would consider a repurchase agreement as being owned by the particular
Fund or as being collateral for a loan by the Fund. If a court were to
characterize the transaction as a loan and the Fund had not perfected a security
interest in the Obligation, the Fund could be required to return the Obligation
to the bank's estate and be treated as an unsecured creditor. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in that transaction. The Fund Manager seeks to minimize the
risk of loss through repurchase agreements by analyzing the creditworthiness of
the obligor, in this case the seller of the Obligations.

Securities subject to a repurchase agreement are held in a segregated
account, and the amount of such securities is adjusted so as to provide a market
value at least equal to the repurchase price on a daily basis.

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Each of the AARP Income Funds has adopted a policy, which may be
changed without the vote of the shareholders of those funds, not to invest more
than 50% of its total assets in repurchase agreements. In addition, none of the
AARP Funds may invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days. (See "Investment Restrictions", herein,
regarding requirements for a majority vote.)

Mortgage-Backed Securities and Mortgage Pass-Through Securities. The AARP High
Quality Bond Fund and the AARP Balanced Stock and Bond Fund may invest in
mortgage-backed securities, which are interests in pools of mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. The AARP GNMA and U.S. Treasury Fund
invests in mortgage-backed securities guaranteed primarily by the Government
National Mortgage Association. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations as further described below. The AARP High Quality Bond
Fund and the AARP Balanced Stock and Bond Fund may also invest in debt
securities which are secured with collateral consisting of mortgage-backed
securities (see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.

A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.

Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.

The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages. These guarantees, however, do not apply to the market
value or yield of mortgage-backed securities or to the value of Fund shares.
Also, GNMA securities often are purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.

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Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Fund Manager determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.

Collateralized Mortgage Obligations ("CMO"s). The AARP High Quality Bond Fund
and the AARP Balanced Stock and Bond Fund may invest in CMOs which are hybrids
between mortgage-backed bonds and mortgage pass-through securities. Similar to a
bond, interest and prepaid principal are paid, in most cases, semiannually. CMOs
may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the AARP High Quality Bond Fund's and the AARP
Balanced Stock and Bond Fund's investment objectives and policies, the Funds may
invest in these and other types of asset-backed securities that may be developed
in the future. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.

Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile ReceivablesSM ("CARS(sm)").
CARS(sm) represent undivided fractional interests in a trust ("Trust") whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(sm) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARS(sm) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the Trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and

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restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The Fund will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.

The Funds may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 (the "1933 Act") may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.

The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require the Funds to dispose of any then existing holdings of such
securities.

Zero Coupon Securities. The AARP Balanced Stock and Bond Fund and the
AARP Global Growth Fund may invest in zero coupon securities which pay no cash
income and are sold at substantial discounts from their value at maturity. When
held to maturity, their entire income, which consists of accretion of discount,
comes from the difference between the issue price and their value at maturity.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon securities which are
convertible into common stock offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.

Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in

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book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the SEC no longer considers
such privately stripped obligations to be U.S. Government securities, as defined
in the Investment Company Act of 1940; therefore, the Fund intends to adhere to
this staff position and will not treat such privately stripped obligations to be
U.S. Government securities for the purpose of determining if the Fund is
"diversified" under the 1940 Act.

The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.

When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES" herein).

Loans of Portfolio Securities. Each Fund may lend its portfolio
securities provided: (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or cash equivalents adjusted
daily to have a market value at least equal to the current market value of the
securities loaned; (2) the Fund may at any time call the loan and regain the
securities loaned; (3) the Fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Fund. In
addition, it is anticipated that the Fund may share with the borrower some of
the income received on the collateral for the loan or that it will be paid a
premium for the loan. In determining whether to lend securities, the Fund's
investment adviser considers all relevant factors and circumstances including
the creditworthiness of the borrower. The AARP Funds have no current intention
of lending their portfolio securities.

Securities Purchased on a "Forward Delivery" or "When-Issued" Basis.
Debt securities, including municipal obligations when originally issued, are
frequently offered on a "forward delivery" or "when-issued" basis and may be
purchased on this basis by the AARP Money, Income and Tax Free Funds, the AARP
Balanced Stock and Bond Fund and the AARP Global Growth Fund. When so offered,
the price, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase of U.S. Government obligations. During the
period between purchase and settlement, no payment is made on behalf of the Fund
and no interest accrues to the Fund. To the extent that assets of the Fund are
not invested prior to the settlement of a purchase of securities, the Fund will
earn no income; however, it is the intention of each Fund to be fully invested
to the extent practicable, subject to the policies stated above. While
securities purchased on a forward delivery or when-issued basis may be sold
prior to the settlement date, each of the above Funds intends to purchase such
securities with the purpose of actually acquiring them for its portfolio unless
a sale appears desirable for investment reasons. At the time the commitment to
purchase a debt security on a forward delivery or when-issued basis is made, the
transaction will be recorded and the value of the security will be reflected in
determining its net asset value. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price payable at
settlement date. The Funds do not believe that their net asset value or income
will be adversely affected by their purchase of debt securities on a when-issued
or forward delivery basis. Each Fund will establish with its custodian a
segregated account in which it will maintain cash, U.S. Government securities
and other high-quality debt obligations equal in value to commitments for
when-issued or forward delivery securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date.

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Futures Contracts. The AARP Income Funds, the AARP Insured Tax Free
General Bond Fund, the AARP Balanced Stock and Bond Fund and the AARP Global
Growth Fund may each enter into financial futures contracts. Such contracts may
be either based on indices of particular groups or varieties of securities
("Index Futures Contracts") or be for the purchase or sale of debt obligations
("Debt Futures Contracts"). Such futures contracts are traded on exchanges
licensed and regulated by the Commodity Futures Trading Commission. Each Fund
enters into futures contracts to gain a degree of protection against anticipated
changes in interest rates that would otherwise have an adverse effect upon the
economic interests of the Fund. However, the costs of and possible losses from
futures transactions reduce the Funds' yield from interest on its holdings of
debt securities. Income from futures transactions constitutes taxable gain.

For each Fund, the custodian places cash, U.S. government securities
and other high grade debt obligations into a segregated account in an amount
equal to the value of the total assets committed to the consummation of futures
positions. If the value of the securities placed in the segregated account
declines, additional cash or securities are required to be placed in the account
on a daily basis so that the value of the account equals the amount of a Fund's
commitments with respect to such contracts. Alternatively, a Fund may cover such
positions by purchasing offsetting positions, or covering such positions partly
with cash, U.S. government securities and other high grade debt obligations, and
partly with offsetting positions.

An Index Futures Contract is a contract to buy or sell units of a
particular index of securities at a specified future date at a price agreed upon
when the contract is made. Index Futures Contracts typically specify that no
delivery of the actual securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based on the
difference between the contract price and the actual price on the termination
date of the units of the index.

A Debt Futures Contract is a binding contractual commitment which, if
held to maturity, requires a Fund to make or accept delivery, during a
particular month, of obligations having a standardized face value and rate of
return. By purchasing a Debt Futures Contract, a Fund legally obligates itself
to accept delivery of the underlying security and to pay the agreed price; by
selling a Debt Futures Contract it legally obligates itself to make delivery of
the security against payment of the agreed price. However, positions taken in
the futures markets are not normally held to maturity. Instead they are
liquidated through offsetting transactions which may result in a profit or loss.
While Debt Futures Contract positions taken by a Fund are usually liquidated in
this manner, a Fund may instead make or take delivery of the underlying
securities whenever it appears economically advantageous.

A clearing corporation, associated with the exchange on which futures
contracts are traded, assumes responsibility for close-outs of such contracts
and guarantees that the sale or purchase, if still open, is performed on the
settlement date.

By entering into futures contracts, a Fund seeks to establish more
certainly than would otherwise be possible the effective rate of return on its
portfolio securities. A Fund may, for example, take a "short" position in the
futures markets by selling a Debt Futures Contract for the future delivery of
securities held by the Fund in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of such securities. Or it
might sell an Index Futures Contract based on a group of securities whose price
trends show a significant correlation with those of securities held by the Fund.
When hedging of this character is successful, any depreciation in the value of
portfolio securities is substantially offset by appreciation in the value of the
futures position. On other occasions a Fund may take a "long" position by
purchasing futures contracts. This is done when the Fund is not fully invested
or expects to receive substantial proceeds from the sale of portfolio securities
or of Fund shares, and anticipates the future purchase of particular securities
but expects the rate of return then available in the securities markets to be
less favorable than rates that are currently available in the futures markets.
The Funds expect that, in the normal course, securities will be purchased upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.

Debt Futures Contracts, however, currently involve only taxable
obligations and do not encompass municipal securities. The value of Debt Futures
Contracts on taxable securities, as well as Index Futures Contracts, may not
vary in direct proportion with the value of a Fund's securities, limiting the
ability of the Fund to hedge effectively against interest rate risk.

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<PAGE>

Presently the only available index futures contract in which the AARP
Insured Tax Free General Bond Fund might invest is the Bond Buyer Municipal Bond
Index. The Fund might sell a contract based on this index in anticipation of an
increase in interest rates, to attempt to offset the decrease in market value of
its portfolio securities which could result. Or the Fund might purchase such a
contract in the anticipation of a significant decrease in interest rates to
offset the increased cost of securities it hopes to purchase in the future. No
index futures contracts have yet been developed which are suitable for
investment by the Funds in the AARP Income Trust.

The investment restriction concerning futures contracts does not
specify the types of index-based futures contracts into which the Funds may
enter because it is impossible to foresee what particular indices may be
developed and traded or may prove useful to the Funds in implementing their
overall risk management strategies. For example, price trends for a particular
index-based futures contract may show a significant correlation with price
trends in the securities held by the Funds, or either of them, even though the
securities comprising the index are not necessarily identical to those held by
such Fund or Funds. In any event, the Funds would not enter into a particular
index-based futures contract unless the Adviser determined that such a
correlation existed.

Index Futures Contracts and Debt Futures Contracts currently are
actively traded on the Chicago Board of Trade and the International Monetary
Market at the Chicago Mercantile Exchange.

Options on Futures Contracts. To attempt to gain additional protection
against the effects of interest rate fluctuations, each of the AARP Income
Funds, the AARP Insured Tax Free General Bond Fund, the AARP Balanced Stock and
Bond Fund and the AARP Global Growth Fund may purchase and write (sell) put and
call options on futures contracts that are traded on a U.S. exchange or board of
trade and enter into related closing transactions. There can be no assurance
that such closing transactions will be available at all times. In return for the
premium paid, such an option gives the purchaser the right to assume a position
in a futures contract at any time during the option period for a specified
exercise price.

A Fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.

The purchase of call options on futures contracts is intended to serve
the same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.

A Fund may write (sell) a call option on a futures contract in order to
hedge against a decline in the prices of the index or debt securities underlying
the futures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.

The writing (selling) of a put option on a futures contract is similar
to the purchase of the futures contracts, except that, if market price declines,
a Fund would pay more than the market price for the underlying securities or
index units. The net cost to that Fund would be reduced, however, by the premium
received on the sale of the put, less any transactions costs.

Limitations on Futures Contracts and Options on Futures Contracts. A
Fund will not engage in transactions in futures contracts or related options for
speculation but only as a hedge against changes resulting from market conditions
in the values of debt securities held in its portfolio or which it intends to
purchase and where the transactions are appropriate to the reduction of the
Fund's risks. The Trustees have adopted policies (which are not Fundamental and
may be modified by the Trustees without a shareholder vote) that, immediately
after the purchase for a Fund of a futures contract or a related option, the
value of the aggregate initial margin deposits with respect to all futures
contracts (both for receipt and delivery), and premiums paid on related options,
entered into on behalf of the Fund will not exceed 5% of the fair market value
of the Fund's total assets. Additionally, the value of the aggregate premiums
paid for all put and call options held by a Fund will not exceed 20% of its net
assets. Futures contracts and put options written (sold) by a Fund will be
offset by assets of the Fund held in a segregated account in an amount
sufficient to satisfy obligations under such contracts and options.

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Each Fund has received from the CFTC an interpretative letter
confirming its opinion that it is not a "commodity pool" as defined under the
Commodity Exchange Act. To ensure that its futures transactions meet this
definition, each Fund will enter into them for the purposes and with the hedging
intent specified in CFTC regulations. It will further determine that the price
fluctuations in the futures contracts used for hedging are substantially related
to price fluctuations in securities held by the Fund or which it expects to
purchase, though there can be no assurance this result will be achieved. The
Funds' futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold (or related put options
purchased) to protect against a decline in the price of securities that a Fund
owns, or futures contracts (or related call options) will be purchased to
protect the Fund against an increase in the price of securities it intends to
purchase. As evidence of this hedging intent, each Fund expects that
approximately 75% of its long futures positions (purchases of futures contracts
or call options on futures contracts) will be "completed"; that is, upon sale
(or other termination) of these long contracts, the Fund will have purchased, or
will be in the process of, purchasing, equivalent amounts of related securities
in the cash market. However, under unusual market conditions, a long futures
position may be terminated without the corresponding purchase of securities.

Covered Call Options. Each of the AARP Growth Funds and each of the
AARP Income Funds may write (sell) covered call options on their portfolio
securities in an attempt to enhance investment performance, although no more
than 5% of each Fund's assets will be committed to such transactions entered
into for non-hedging purposes. The writing of covered call options by each Fund
is subject to limitations imposed by certain state securities authorities. The
Funds have been advised that, under the most restrictive of such limitations
currently in effect, no more than 25% of a Fund's net assets may be subject to
covered options. Further, such states advise that, unless an exception is
granted with respect to certain transactions in debt securities and related
options, such options and the securities underlying the call must both be listed
on national securities exchanges.

When a Fund writes (sells) a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") at any time during the option
period, generally ranging up to nine months. If the option expires unexercised,
the Fund will realize gain to the extent of the amount received for the option
(the "premium") less any commission paid. If the option is exercised, a decision
over which the Fund has no control, the Fund must sell the underlying security
to the option holder at the exercise price. By writing a covered option, the
Fund forgoes, in exchange for the premium less the commission ("net premium"),
the opportunity to profit during the option period from an increase in the
market value of the underlying security above the exercise price.

When a Fund sells an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked-to-market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction (i.e., the Fund
terminates its obligation as the writer of the option by purchasing a call
option on the same security with the same exercise price and expiration date as
the option previously written), the Fund will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the net premium received when the
option was sold) and the deferred credit related to such option will be
eliminated. If an option is exercised, the Fund will realize a long-term or
short-term gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received.
The writing of covered options may be deemed to involve the pledge of the
securities against which the option is being written. Securities against which
options are written will be segregated on the books of the Fund's custodian.

Purchasing Options on Stock Indices. To protect the value of their
portfolios against declining stock prices, each of the AARP Growth Funds may
purchase put options on stock indices. To protect against an increase in the
value of securities that it wants to purchase, a Fund may purchase call options
on stock indices. A stock index (such as the Standard & Poor's 500) assigns
relative values to the common stocks included in the index and the index
fluctuates with the changes in the market values of the common stocks so
included. Options on stock indices are similar to options on stock except that,
rather than giving the purchaser the right to take delivery of stock at a
specified price, an option on a stock index gives the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.

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<PAGE>

Gain or loss with respect to options on stock indices depends on price movements
in the stock market generally rather than price movements in individual stocks.

The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.

Because the value of a stock index option depends upon movements in the
level of the stock index rather than the price of a particular stock, whether a
Fund will realize a gain or loss on the purchase of a put or call option on a
stock index depends upon movements in the level of stock prices in the stock
market generally or in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of both
put and call options on stock indices will be subject to the Fund Manager's
ability to accurately predict movements in the direction of the stock market
generally or of a particular industry. In cases where the Fund Manager's
prediction proves to be inaccurate, a Fund will lose the premium paid to
purchase the option and it will have failed to realize any gain.

In addition, a Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on stock indices (and therefore
the extent of its gain or loss on such transactions) depends on the degree to
which price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the securities being
hedged will not move in the same amount as the option. This risk will increase
as the composition of a Fund's portfolio diverges from the composition of the
index.

Over-the-counter options ("OTC options") are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and performance
mechanics, all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set by
negotiation of the parties. A Fund will only sell OTC options (other than OTC
currency options) that are subject to a buy-back provision permitting a Fund to
require the Counterparty to sell the option back to the Fund at a formula price
within seven days. A Fund expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Fund Manager must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with United States government securities dealers recognized by the Federal
Reserve Bank of New York as "primary dealers", or broker dealers, domestic or
foreign banks or other financial institutions which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of A-1 from S&P or P-1 from Moody's or an equivalent rating from any other
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing no
more than 10% of its assets in illiquid securities.

OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such

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<PAGE>

excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.

Risks of Futures and Options Investments. A Fund will incur brokerage
fees in connection with its futures and options transactions, and it will be
required to segregate Funds for the benefit of brokers as margin to guarantee
performance of its futures and options contracts. In addition, while such
contracts will be entered into to reduce certain risks, trading in these
contracts entails certain other risks. Thus, while a Fund may benefit from the
use of futures contracts and related options, unanticipated changes in interest
rates may result in a poorer overall performance for that Fund than if it had
not entered into any such contracts. Additionally, the skills required to invest
successfully in futures and options may differ from skills required for managing
other assets in the Fund's portfolio.

The AARP Growth Funds may engage in over-the-counter options
transactions with broker-dealers who make markets in these options. The Fund
Manager will consider risk factors such as their creditworthiness when
determining a broker-dealer with which to engage in options transactions. The
ability to terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The Fund Manager will monitor the creditworthiness of
dealers with whom the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.

Convertible Securities. Convertible securities include convertible
bonds, notes and debentures, convertible preferred stocks, and other securities
that give the holder the right to exchange the security for a specific number of
shares of common stock. Convertible securities entail less credit risk than the
issuer's common stock because they are considered to be "senior" to common
stock. Convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.

Foreign Securities. All the Funds in the AARP Growth Trust may invest
without limit in foreign securities. The AARP High Quality Bond Fund may invest
without limit in U.S. dollar denominated foreign securities. The AARP Money
Funds may currently invest in U.S. dollar-denominated certificates of deposit
and bankers' acceptances of foreign branches of large U.S. banks.

Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in United States securities and
which may favorably or unfavorably affect the Funds' performance. As foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity, have
substantially less volume than the U.S. market, and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than in the
United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on some foreign securities exchanges and bid to
asked spreads in foreign bond markets are generally higher than commissions on
bid to asked spreads on U.S. markets, although the Funds will endeavor to
achieve the most favorable net results on their portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S. It may be more difficult for the
Funds' agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks such as possible
currency blockages or transfer restrictions, and the difficulty of enforcing
rights in other countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, to the

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<PAGE>

extent investments in foreign securities involve currencies of foreign
countries, the Funds may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversion between currencies.

Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
The possibility of revolution and the dependence on foreign economic assistance
may be greater in these countries than in developed countries. The management of
each Fund seeks to mitigate the risks associated with these considerations
through diversification and active professional management.

Forward Foreign Currency Exchange Contracts. Each of the AARP Growth
Funds may enter into forward foreign currency exchange contracts in connection
with its investments in foreign securities. A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any amount
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between banks or currency dealers so that no
intermediary is required. A forward contract generally requires no margin or
other deposit. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract.

The Funds may enter into foreign currency futures contracts in several
circumstances. First, when the Funds enter into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Funds
anticipates the receipt in a foreign currency of interest and dividend payments
on such a security which it holds, the Funds may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such interest and
dividend payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying transactions, the Funds will attempt
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend payment is declared, and the date on which such
payments are made or received.

The Funds' activities involving forward contracts may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.

General Investment Policies of the AARP Funds

Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.

The AARP Funds have no present intention of acquiring restricted
securities, though they have limited authority to do so (see "Investment
Restrictions").

The AARP Funds cannot guarantee a gain or eliminate the risk of loss.
The net asset value of a non-money market Fund's shares will increase or
decrease with changes in the market prices of the Fund's investments and there
is no assurance that a Fund's objective(s) will be achieved.

Except where otherwise indicated, the objectives and policies stated
above may be changed by the Trustees without a vote of the shareholders.

Investment Restrictions

The following restrictions may not be changed with respect to a Fund
without the approval of a majority of the outstanding voting securities of such
Fund which, under the 1940 Act and the rules thereunder and as used in this

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<PAGE>

Statement of Additional Information, means the lesser of (1) 67% of the shares
of such Fund present at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (2) more
than 50% of the outstanding shares of such Fund.

(A) None of the Funds may:

(1) borrow money, except for temporary or emergency purposes and
not for investment purposes or except in connection with
reverse repurchase agreements; provided that a Fund maintains
asset coverage of 300% for all borrowings;

(2) underwrite any securities issued by other persons, except that
it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;

(3) purchase or sell real estate, but this shall not prevent a
Fund from investing in (i) securities of companies which deal
in real estate or mortgages, and (ii) securities secured by
real estate or interests therein, and that the Fund reserves
freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;

(4) purchase or sell physical commodities, or contracts relating
to physical commodities;

(5) make loans to other persons, except (i) loans of portfolio
securities, and (ii) except to the extent that the entry into
repurchase agreements and the purchase of debt securities in
accordance with its investment objective and investment
policies may be deemed to be loans;

(6) issue senior securities except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Trust,
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, option or other
permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction;

(7) with respect to 75% of each Fund's total net assets, purchase
more than 10% of the voting securities of any one issuer or
invest more than 5% of the value of the total assets of the
Fund in the securities of any one issuer (except for
investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and except
securities of other investment companies);

(B) Neither the AARP High Quality Money Fund, the AARP GNMA and U.S.
Treasury Fund, the AARP High Quality Bond Fund, the AARP Growth and
Income Fund, the AARP Global Growth Fund, nor the AARP Capital Growth
Fund may:

(1) purchase any securities which would cause more than 25% of the
market value of the total assets of the Fund at the time of
such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry (for this purpose, telephone companies are considered
to be a separate industry from gas and electric public
utilities, and wholly-owned finance companies are considered
to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents),
provided that there is no limitation in respect to investments
in the U.S. Government or its agencies or instrumentalities
or, in the case of AARP High Quality Money Fund, in
certificates of deposit or bankers' acceptances or, in the
case of the AARP Growth and Income Funds, to municipal
securities other than pollution control and industrial
development bonds.

(1) purchase (i) private activity bonds or (ii) securities which
are neither municipal bonds nor securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be

28
<PAGE>

invested in the securities of one or more issuers having their
principal business activities in the same industry. For this
purpose, telephone companies are considered to be a separate
industry from gas and electric public utilities and
wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily
related to financing the activities of their parents provided
that, in the case of the AARP High Quality Tax Free Money
Fund, there is no limitation in respect to investments in the
U.S. Government or its agencies or instrumentalities, or in
certificates of deposit or bankers' acceptances.

(D) AARP High Quality Tax Free Money Fund may not:

(1) purchase securities which are not municipal obligations if
such purchase would cause more than 20% of the Fund's total
assets to be invested in such securities, except, for
temporary defensive purposes, that the Fund may invest more
than 20% of its total assets in such securities prior to the
time normal operating conditions have been achieved and during
other than normal market conditions.

The following restrictions are not fundamental and may be changed by a Fund
without shareholder approval, in compliance with applicable law, regulation or
regulatory policy. None of the Funds may:

(a) make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary
for the clearance of transactions; and, in the case of the
AARP Income Funds and AARP Insured Tax Free General Bond Fund
in connection with entering into futures contracts and related
options;

(b) purchase or retain for a Fund the securities of any issuer if
those officers and Trustees of a Trust, or partners and
officers of its investment adviser, who individually own more
than 1/2 of 1% of the outstanding securities of such issuer,
together own more than 5% of such outstanding securities;

(c) purchase from or sell to any of the officers and Trustees of a
Trust, its investment adviser, its principal underwriter or
the officers, directors, and partners of its investment
adviser or principal underwriter, portfolio securities of a
Fund;

(d) purchase restricted securities (for these purposes restricted
security means a security with a legal or contractual
restriction on resale in the principal market in which the
security is traded), including repurchase agreements maturing
in more than seven days and securities which are not readily
marketable if as a result more than 10% of the net assets
(valued at market at purchase) would be invested in such
securities;

(e) purchase securities of any issuer with a record of less than
three years continuous operation, including predecessors, and
equity securities of issuers that are not readily marketable,
except obligations issued or guaranteed by the U.S. Government
or its agencies (or, in the case of the AARP Tax-Free Income
Funds, municipal securities rated by a recognized municipal
bond rating service), if such purchase would cause the
investments of that Fund in all such issuers to exceed 5% of
the value of the total assets of that Fund;

(f) invest its assets in securities of other open-end investment
companies, but may invest in closed-end investment companies
when such purchases are made in the open market where no
commission or profit to a sponsor or dealer result from such
purchase other than the customary broker's commission, if
after such purchase (a) a Fund would own no more than 3% of
the total outstanding voting stock of such investment company,
(b) no more than 5% of a Fund's total assets would be invested
in the securities of any single investment company, (c) no
more than 10% of a Fund's total assets would be invested in
the securities of investment companies in the aggregate, or
(d) all the investment companies advised by the Fund Manager
would own no more than 10% of the total outstanding voting
stock of any closed-end company; provided that this
restriction shall not preclude acquisition of investment
company securities by dividend, exchange offer or
reorganization. To the extent that a Fund invests in shares of
other investment companies, additional fees and expenses may
be deducted from such investments in addition to those
incurred by a Fund. Except in the case of the AARP Insured Tax

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<PAGE>

Free Income Funds, for purposes of this limitation, foreign
banks or their agencies or subsidiaries are not considered
investment companies;

(g) invest in other companies for the purpose of exercising
control or management;

(h) purchase or sell real estate and real estate limited
partnership interests, but this shall not prevent a Fund from
investing in securities secured by real estate or interest
therein; and

(i) purchase or sell commodities, commodities contracts (except,
in the case of the AARP Income Funds, the AARP Insured Tax
Free General Bond Fund and the AARP Global Growth Fund,
contracts for the future delivery of debt obligations and
contracts based on debt indices) or oil, gas or other mineral
exploration or development programs or leases (although it may
invest in issuers which own or invest in such interests);

AARP High Quality Money Fund may not:

(j) purchase or sell any put or call options or any combination
thereof; or

(k) purchase warrants, unless attached to other securities in
which the Fund is permitted to invest.

Neither the AARP High Quality Money Fund nor the AARP High Quality Tax Free
Money Fund may:

(l) pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph (A) (1) above, it
may pledge securities having a value at the time of pledge not
exceeding 15% of the cost of the Fund's total assets.

Neither of the AARP Income Funds may:

(m) purchase warrants of any issuer, except that AARP High Quality
Bond Fund can purchase warrants on a limited basis. As a
result of such purchases by the Fund, no more than 2% of the
value of the total assets of the Fund may be invested in
warrants which are not listed on the New York Stock Exchange
or the American Stock Exchange, and no more than 5% of the
value of the total assets of the Fund may be invested in
warrants whether or not so listed, such warrants in each case
to be valued at the lesser of cost or market, but assigning no
value to warrants acquired by the Fund in units with or
attached to debt securities;

(n) purchase or sell any put or call options or any combination
thereof, except that the Fund may write and sell national
exchange-listed covered call option contracts on national
exchange-listed securities and, to the extent permitted by
applicable state regulatory limits, on other debt securities
owned by the Fund up to, but not in excess of, 25% of the
value of the Fund's net assets at the time such option
contracts are written. The Fund may also purchase call options
for the purpose of terminating its outstanding obligations
with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase
transaction"). In connection with ---- the writing of covered
call options, the Fund may pledge assets to an extent not
greater than 25% of the value of its net assets at the time
such options are written. The Fund also may purchase and write
options on futures contracts in the manner described under
"The Funds' Investment Objectives and Policies";

(o) pledge, mortgage or hypothecate its assets, (a) except to the
extent that the writing of covered call options may be deemed
to involve the pledge of securities against which the option
is being written, (b) except to the extent that margin
deposits on futures contracts and related options may be
deemed to involve a pledge of assets to guarantee the
performance of the futures obligations, and (c) except to
secure borrowings permitted by subparagraph (A) (1) above, it
may pledge securities having a value at the time of pledge not
exceeding 15% of the cost of the Fund's total assets.

AARP High Quality Bond Fund has adopted a non-fundamental policy that
it will not underwrite securities issued by entities regulated under Part II of
the Federal Power Act.

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<PAGE>

Neither AARP Insured Tax Free General Bond Fund nor AARP High Quality Tax Free
Money Fund may:

(p) purchase or sell any put or call options or combinations
thereof, except to the extent that the acquisition of Stand-by
Commitments or Participation Interests may be considered the
purchase or sale of a put option and except that the AARP
Insured Tax Free General Bond Fund may purchase and write
options on futures contracts in the manner and to the extent
described herein;

(q) underwrite securities issued by entities regulated under Part
II of the Federal Power Act, provided that, for this purpose
private activity bonds the interest on which is exempt from
tax under Section 103 of the Internal Revenue Code of 1986
will be treated as obligations of the municipal authority or
other governmental unit issuing the bonds.

AARP Insured Tax Free General Bond Fund may not:

(r) hold for a period of more than 30 days any municipal
securities maturing in 60 or more days from purchase by a Fund
which are not fully insured or guaranteed directly or
indirectly by the U.S.
Treasury.

(s) pledge, mortgage or hypothecate its assets, except to the
extent that margin deposits on futures contracts and related
options may be deemed to be a pledge of assets to guarantee
performance of such obligations, and except that, to secure
borrowings permitted by subparagraph (A) (1) above, it may
pledge securities having a value at the time of the pledge not
exceeding 15% of the cost of the Fund's total assets;

None of the AARP Growth Funds may:

(t) purchase or sell any put or call options or any combination
thereof, except that the Funds may each purchase and sell
options on stock indices in accordance with the requirements
of applicable regulations. The Funds may write (sell) covered
call option contracts on securities owned by the Fund up to,
but not in excess of, 25% of the value of the Fund's net
assets at the time such option contracts are written. The
Funds may also purchase call options for the purpose of
terminating their outstanding obligations with respect to
securities upon which covered call option contracts have been
written (i.e., "closing purchase transactions"). In connection
with the writing of ---- covered call options, the Funds may
pledge assets to an extent not greater than 25% of the value
of its net assets at the time such options are written;

(u) purchase securities if, as a result thereof, more than 5% of
the value of the net assets would be invested in restricted
securities (for these purposes restricted security means a
security with a legal or contractual restriction on resale in
the principal market in which the security is traded).

(v) purchase warrants of any issuer if, as a result more than 2%
of the value of the total assets of the Fund would be invested
in warrants which are not listed on the New York Stock
Exchange or the American Stock Exchange, or more than 5% of
the value of the total assets of the Fund would be invested in
warrants acquired by the Fund in units with or attached to
debt securities.

Neither the AARP Growth and Income Fund nor the AARP Capital Growth Fund may:

(w) pledge, mortgage or hypothecate its assets, except as provided
in subparagraph (t), above, and except that, to secure
borrowings permitted by subparagraph (A) (1) above, it may
pledge an amount not exceeding 15% of the Fund's total assets
taken at cost;

AARP Global Growth Fund may not:

(x) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

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<PAGE>

(y) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of
the obligations underlying such put options would exceed 50%
of the Fund's net assets;

(z) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the Fund's
total assets, provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5% limit;

(aa) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets; or

(bb) borrow money, including reverse repurchase agreements, in
excess of 5% of its total assets (taken at market value)
except for temporary or emergency purposes, or borrow other
than from banks.

"Value" for the purposes of the above fundamental and non-fundamental
investment policies shall mean the value used in determining a Fund's net asset
value.

Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, the restricted
activity or, in the case of AARP High Quality Money Fund and the AARP Income
Funds, an acquisition or encumbrance of securities or assets of, or borrowings
by, the Fund.

PURCHASES

(See "OPENING AN ACCOUNT" and "ADDING TO YOUR INVESTMENT" in the Prospectus.)

General Information

Confirmations of each transaction will be sent following the
transaction by Scudder Investor Services, Inc., as the AARP Funds' agent. By
retaining year-to-date confirmations, an investor will have an historical record
of the account activity.

Checks

A certified check is not necessary, but checks are accepted subject to
collection at full face value in United States Funds and must be drawn on a
United States financial institution.

If shares are purchased by a check which proves to be uncollectible,
the Trusts reserve the right to cancel the purchase immediately and the
purchaser will be responsible for any loss incurred by the Fund or the principal
underwriter by reason of such cancellation. Each Trust has the authority, as
agent of the shareholder, to redeem shares in the account to reimburse the Fund
or the principal underwriter for any loss incurred. Investors whose orders have
been canceled may be prohibited from or restricted in placing future orders in
any of the Funds in the Program or in other Funds advised by the AARP Funds'
investment adviser or an affiliate.

Share Price

Accepted purchases for shares in all the AARP Funds will be filled at
the net asset value next computed after receipt of payment by check or other
means. Each Fund's net asset value per share is currently determined once daily,
as of the close of regular trading on the New York Stock Exchange (the
"Exchange") (usually 4:00 p.m. Eastern time), on each day the Exchange is open
for trading. (See "NET ASSET VALUE," herein for additional information on how

32
<PAGE>

the Fund's net asset value is calculated.) Orders received after the close of
regular trading will be filled at the next day's net asset value per share for
the relevant Fund.

There is no sales charge in connection with purchase of shares of any
of the AARP Funds.

Share Certificates

In order to afford ease of redemption, ownership in the AARP Funds is
on a non-certified basis. Share certificates now in a shareholder's possession
may be sent to the AARP Funds' transfer agent for cancellation and credit to
such shareholder's account. Shareholders who prefer may hold the certificates
now in their possession until they wish to exchange or redeem such shares. See
"EXCHANGING" and "ACCESS TO YOUR INVESTMENT" in the Funds' Prospectus.

Direct Deposit Program

Investors can have Social Security or other checks from the U.S.
Government or any other regular income checks such as pension, dividends, and
even payroll checks automatically deposited directly to their accounts.
Investors may allocate a minimum of 25% of their income checks into any AARP
Fund. Information may be obtained by contacting the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, Massachusetts 02208-2540, or by calling toll
free, 1-800-253-2277.

Wire Transfers

In the case of wire purchases, failure to receive timely and complete
account information will delay investment and subsequent accrual of dividends
and will result in the federal funds being returned to the sender on the day
following receipt by State Street Bank and Trust Company (the "custodian").
Unlike shareholders subscribing by check, purchasers who wire funds will be able
to redeem shares so purchased by any method without any limitation as to the
period of time such shares have been on a Fund's books.

The bank sending federal funds by bank wire may charge for the service.
Presently, Scudder Investor Services, Inc. or the AARP Funds pay a fee for
receipt by the custodian of "wired funds," but the right to charge investors for
this service is reserved.

Holidays

Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the custodian is not open to receive such federal funds on
behalf of a Fund.

Other Information

All purchase payments will be invested in full and fractional shares.

The Trusts and Scudder Investor Services, Inc., the AARP Funds'
principal underwriter, each have the right to limit the amount of shares
purchased of a Fund, to reject any purchase and to refuse to sell shares to any
person.

It should be noted that if purchases are made through a member of the
National Association of Securities Dealers other than Scudder Investor Services,
Inc., that member may, in its discretion, charge a fee for this service. It is
the responsibility of the broker, not the AARP Funds, to place the purchase
order by the time as of which the net asset value of the Funds is next
determined.

The Trusts may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of, the assets of any investment
company or personal holding company, subject to the requirements of the 1940
Act.

33
<PAGE>

REDEMPTIONS

(See "ACCESS TO YOUR INVESTMENT" in the Prospectus.)

General Information

If a shareholder redeems all shares in an account, the shareholder will
receive, in addition to the net asset value thereof, all declared but unpaid
dividends thereon. The AARP Funds do not impose a redemption charge.

The proceeds of redemption transactions are normally available to be
mailed or wired to the designated bank account within one business day, and in
any event will be available within seven calendar days, following receipt of a
redemption request in good order.

A shareholder's right to redeem shares of a Fund and to receive payment
therefore may be suspended at times (a) when the Exchange is closed, other than
customary weekend and holiday closings, (b) when trading on the Exchange is
restricted for any reason, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (d) when the SEC permits a suspension of the right of
redemption; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.

The Trustees may suspend or terminate the offering of shares of a Fund
at any time.

Redemption by Telephone

Redemption by telephone is not available for shares for which share
certificates have been issued. Redemptions of such shares must be requested by
mail as explained in the section entitled "Redemption by Mail" below.

For other investors, the following procedures are available.

TO ADDRESS OF RECORD: New investors automatically receive the option,
without having to elect it, to redeem by telephone to their address of record
for any amount up to $100,000 per Fund. Telephone Redemption to Address of
Record may be used as long as the account registration address has not changed
within the last 15 days. In order to decline this feature, the shareholder must
notify the Program in writing. Any shareholder who refuses Telephone Redemption
to Address of Record can later establish the feature with a signature guaranteed
written request. This request must be done prior to utilizing this service for
the first time.

TO YOUR BANK--BY MAIL OR BY WIRE: In order to request redemptions by
telephone to their bank, shareholders must have completed the telephone
redemption authorization included in the enrollment form and have sent the
authorization to the Program. This authorization requires designation of a bank
account to which the redemption payment is to be sent. The proceeds will be
mailed or wired only to the designated bank account.

(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the enrollment form, and send it to the Program.

(b) EXISTING SHAREHOLDERS who wish to establish telephone
redemption to a predesignated bank account or who want to
change the bank account previously designated to receive
redemption payments should either enter the new information on
the "Telephone Option Form" which may be obtained by calling
the Program, or send a signature guaranteed letter identifying
the account and specifying the exact information to be
changed. In each case, the letter must be signed exactly as
the shareholder's name(s) appears on the account. All requests
for telephone redemption should be accompanied by a voided
check from the designated bank account. All signatures will
require a guarantee, which can be obtained from most banks,
credit unions or savings associations, or from broker/dealers,
government securities broker/dealers, national securities
exchanges, registered securities associations, or clearing
agencies deemed eligible by the SEC. An original signature and

34
<PAGE>

an original signature guarantee are required for each person
in whose name the account is registered. Signature guarantees
by notaries public are not acceptable.

In addition, if shares to be redeemed were purchased by check, mailing
of the redemption proceeds may be delayed long enough to assure that the
purchase check has cleared.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve wire to the bank account
designated on the application form unless a request is made that the redemption
be mailed to the designated bank account. For each wire redemption, the program
charges a $5.00 fee which is deducted from the proceeds of the redemption.

Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.

The Trusts and their agents each reserve the right to modify,
interrupt, suspend or terminate the telephone redemption privilege at any time,
without notice. A shareholder may cancel the telephone redemption authorization
upon written notice. Each Trust employs procedures including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Corporation does not follow such procedures, it may be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.

Redemption by Mail or Fax

Any shareholder may redeem his or her shares by writing to the Program.
All written requests must be signed by at least one person on the account's
registration exactly as registered. In addition, for the protection of the
shareholder and to prevent fraudulent redemptions, a signature guarantee is
required on all written redemption requests for over $100,000. A signature
guarantee is also required on written redemption requests for any amount if the
check is made payable to someone other than the registered shareholder, if the
proceeds are to be forwarded to an address other than the address of record, or
if the address of record has changed in the last 15 days. In order to ensure
proper authorization before redeeming shares, the Program may request additional
documents such as, but not restricted to, stock powers, Trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority and waivers of tax required in some states when settling estates.

Redemption to Address of Record for up to $100,000 without a signature
guarantee is an automatic feature of any AARP Fund account unless it has been
declined by the shareholder in writing. Any shareholder who refuses this feature
can later establish it with a written request containing a signature guarantee.
This request must be made prior to utilizing the feature for the first time.

Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with the signature(s) guaranteed as explained
above. It is suggested that the shareholders holding certificated shares or
shares registered in other than individual names contact the Program prior to
requesting a redemption to ensure that all necessary documents accompany the
request. When shares are held in the name of a corporation, trust, fiduciary or
partnership, the transfer agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to help ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within seven (7) days after receipt of a request
for redemption that complies with the above requirements. Delays of more than
seven (7) days for payment for shares tendered for repurchase or redemption may
result but only until the purchase check has cleared.

35
<PAGE>

Redemption by Checkwriting

All new investors in the AARP Money Funds and existing shareholders of
these Funds who apply to State Street Bank and Trust Company for checks may use
them to pay any person, provided that each check is for at least $100 and not
more than $1,000,000. By using one of these checks, the shareholder will receive
daily dividend credit on his or her shares in either Fund until the check has
cleared the banking system. Investors who purchased shares by check may write
checks against those shares only after they have been on the Fund's books for 7
days. Shareholders who use this service may also use other redemption
procedures. Both Funds pay the bank charges for this service. However, each Fund
will review the cost of operation periodically and it reserves the right to
determine if direct charges to the persons who avail themselves of this service
would be appropriate. An account cannot be closed using the "free Checkwriting"
privilege. The Trusts, the transfer agent and the custodian each reserve the
right at any time to suspend or terminate the "free Checkwriting" procedure.

Redemption-in-Kind

The AARP Growth Trust reserves the right to permit the AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, the AARP Global Growth Fund
and the AARP Capital Growth Fund, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The AARP Growth
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which each Fund of the Trust is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of such Fund at the
beginning of the period.

Other Information

The value of shares redeemed or repurchased may be more or less than
the shareholder's cost depending on the net asset value at the time of
redemption or repurchase. The Funds do not impose a redemption or repurchase
charge. Redemptions of shares, including redemptions undertaken to effect an
exchange for shares of another Fund in the Program, may result in tax
consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding (see "TAXES").

Shareholders who wish to redeem shares from Retirement Plans (see
"RETIREMENT PLANS," below) should contact the Trustee or custodian of the Plan
for information on proper procedures.

The Trustees have established certain amount size requirements. For an
account established prior to September 1, 1989 in a particular Fund, the minimum
investment is $250. For accounts established on or after September 1, 1989 in a
particular Fund, the minimum investment is $500, except that in the case of the
AARP High Quality Tax Free Money Fund accounts opened on or after August 1, 1991
the minimum is $2,500. Each Trust reserves the right to adopt a policy that if
transactions at any time reduce a shareholder's account in a Fund to below the
applicable minimum, the shareholder will be notified that, unless the account is
brought up to at least the applicable minimum the Fund will redeem all shares
and close the account by making payment to the shareholder. The shareholder has
sixty days to bring the account up to the applicable minimum before any action
will be taken by the Fund. Reductions in value that result solely from market
activity will not trigger an involuntary redemption. No transfer from an
existing to a new account may be for less than $500 ($2,500 for AARP High
Quality Tax Free Money Fund); otherwise the new account may be redeemed as
described above. (This policy applies to accounts of new shareholders in a
particular Fund, but does not apply to Retirement Plan Accounts.) The Trustees
have the authority to increase the minimum account size.

EXCHANGES

The procedure for exchanging shares from one AARP Fund to another AARP
Fund in the Program, when the account in the new AARP Fund is established with
the same registration, telephone option, dividend option and address as the
present account, is set forth under "EXCHANGING" in the Prospectus. If the
registration data for the account receiving the proceeds of the exchange is to
be different in any respect from the account from which shares are to be

36
<PAGE>

exchanged, the exchange request must be in writing and must contain a signature
guarantee as described under "SIGNATURE GUARANTEES" in the Prospectus. If an
exchange involves an initial investment in the Fund being acquired, the amount
to be exchanged must be at least $500 ($2,500 for AARP High Quality Tax Free
Money Fund) for non-retirement plan accounts. For IRA and Keogh Plan accounts
the amount must be $250. If the exchange is made into an existing account, there
is no minimum requirement.

Only exchange orders received between 8:00 a.m. and 4:00 p.m. Eastern
time on any business day will ordinarily be accomplished at respective net asset
values determined on that day. Exchange orders received after 4:00 p.m. are
processed on the next business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one AARP Fund to an
existing account in another AARP Fund through the AARP Funds' Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trusts and the Transfer Agent
each reserve the right to modify, interrupt, suspend or terminate the privilege
of the Automatic Exchange Program at any time, without notice.

There is no charge to the shareholder for any exchange described above.
An exchange from any AARP Fund other than the AARP Money Funds is likely to
result in recognition of gain or loss to the shareholder.

Investors currently receive the exchange privilege automatically
without having to elect it. The Trusts and the AARP Funds' distributor, Scudder
Investor Services, Inc., reserve the right to suspend or terminate the exchange
privilege at any time. Telephone exchange may be initiated by anyone able to
identify the registration of an account, but the proceeds will only be invested
in another AARP Fund with the same registration. The AARP Funds employ
procedures to give reasonable assurance that telephone instructions are genuine,
including recording telephone calls, testing a caller's identity and sending
written confirmation of such transactions. If an AARP Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.

All the AARP Funds in the Program into which investors may make an
exchange are described in the combined Prospectus and in this Statement of
Additional Information. Before making an exchange, shareholders should read the
information in the Prospectus regarding the Fund into which the exchange is
being contemplated.

TRANSACT BY PHONE

(See "INVESTOR SERVICES--TRANSACT BY PHONE" in the Prospectus.)

Shareholders, whose bank of record is a member of the Automated
Clearing House Network (ACH) and who have enrolled in the "Transact by Phone"
option, may purchase or redeem shares by telephone. Shareholders may purchase
shares valued at up to $2950,000 but not less than $250. Shareholders may redeem
shares in an amount not less than $250.

In order to utilize the Transact by Phone service, shareholders must
have completed the Transact by Phone authorization. This authorization requires
designation of a bank account from which the purchase payment will be debited or
to which the redemption payment will be credited. New investors wishing to
establish the Transact by Phone service can do so by completing the appropriate
section on the enrollment form. Existing shareholders who wish to establish
Transact by Phone will need to complete a Transact by Phone Enrollment Form. If
a shareholder has previously elected the "Telephone Redemption to Bank of
Record" and/or the "Automatic Investment Plan" services, the banking information
must be identical for all of these services for each of the shareholder's Funds.
After sending in their enrollment forms, shareholders should allow 15 days for
the service to be activated. The Trusts and their agents each reserve the right
to modify, interrupt, suspend or terminate the Transact by Phone service at any
time, without notice.

37
<PAGE>

Purchasing Shares by Transact by Phone

To purchase shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time. Shares will be purchased at that
night's closing share price. The shareholder's bank account will be debited on
the first business day following the purchase request. Requests received after
4:00 p.m. will be purchased at the next business day's closing price.

Redeeming Shares by Transact by Phone

To redeem shares by Transact by Phone, a shareholder should call our
service people before 4:00 p.m. Eastern time to receive that night's closing
share price. Requests received after 4:00 p.m. will be sold at the next business
day's closing price. The shareholder's bank account will be credited with
redemption proceeds on the second or third business day following the redemption
request.

The AARP Funds employ procedures to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of such transactions. If an
AARP Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.

FEATURES AND SERVICES OFFERED BY THE FUNDS

(See "STATEMENTS AND REPORTS," "EXCHANGING"
and "INVESTOR SERVICES" in the Prospectus.)

Automatic Dividend Reinvestment

Investors may elect on their enrollment form whether they wish to
receive any dividends from net investment income or any distributions from
realized capital gains in cash or to reinvest such dividends and distributions
in additional shares of the Fund paying the dividend or distribution. They may
also elect to have these payments invested in shares of any other AARP Fund in
the Program in which they have an account. If no election is made, dividends and
distributions will be reinvested in additional shares. A change of instructions
for the method of payment may be given to the Program at any time prior to a
record date.

Each distribution, whether by check or reinvested in a Fund, will
include a brief explanation of the source of the distribution.

Distributions Direct

Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through the AARP Funds'
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-253-2277. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.

Reports to Shareholders

The AARP Funds send to shareholders at least semiannually financial
statements, which are examined at least annually by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets, and financial highlights.

Investors receive a brochure entitled Your Guide to Simplified
Investment Decisions when they order an investment kit for the nine AARP Funds
which also contains a prospectus. The Shareholder's Handbook is sent to all new
shareholders to help answer any questions they may have about investing. An IRA
Handbook is sent to all new IRA shareholders. Every month, shareholders will be
sent the newsletter, Financial Focus. Retirement plan shareholders will be sent

38
<PAGE>

a special edition of Financial Focus on a quarterly basis. The newsletters are
designed to help you keep up to date on economic and investment developments,
and any new financial services and features of the Program.

Consolidated Statements

Shareholders with investments in two or more AARP Funds will receive,
without charge, a convenient monthly Consolidated Statement. IRA and Keogh Plan
accounts receive Consolidated Statements quarterly. This statement contains the
market value of all holdings, a complete listing of transactions for the
statement period and a summary of the shareholder's investment program for the
statement period and for the year to date. Information may be obtained by
contacting the AARP Investment Program from Scudder, P.O. Box 2540, Boston,
Massachusetts 02208-2540, or by calling toll free, 1-800-253-2277.

RETIREMENT PLANS

Shares of AARP High Quality Money Fund, AARP GNMA and U.S. Treasury
Fund, AARP High Quality Bond Fund, AARP Balanced Stock and Bond Fund, AARP
Growth and Income Fund, AARP Global Growth Fund and AARP Capital Growth Fund
("Eligible Funds") may be purchased in connection with several types of
tax-deferred retirement plans. These plans were created for members of AARP.
Each plan is briefly described below. The plans provide convenient ways for AARP
members to make investments which may be tax-deductible for their retirement and
have taxes on any income from their investment deferred until their retirement,
when they may be in a lower tax bracket. Additional information on each plan may
be obtained by contacting the AARP Investment Program from Scudder, P.O. Box
2540, Boston, Massachusetts, 02208-2540, or by calling toll free,
1-800-253-2277. Investment professionals and retirement-benefits experts
estimate that prospective retirees will need 70% to 80% of their current
salaries during each year of their retirement, with adjustment for changes in
prices during retirement, to maintain their current life-style. Investment
professionals recommend diversifying investments among stock, bonds and
cash-equivalents when building retirement reserves. It is advisable for an
investor considering any of the plans described below to consult with an
attorney or tax advisor with respect to the terms, suitability requirements and
tax aspects of the plan.

AARP No-Fee Individual Retirement Account ("AARP No-Fee IRA")

Shares of the Eligible Funds may be purchased as the underlying
investment for an AARP No-Fee IRA which meets the requirements of Section 408(a)
of the Internal Revenue Code. Any AARP member with earned income or wages is
eligible to make annual contributions to the AARP No-Fee IRA before the year the
member attains age 70 1/2. An individual may establish an AARP No-Fee IRA
whether or not he or she is an active participant in another tax-qualified
retirement plan, including a tax-sheltered annuity or government plan.

AARP No-Fee IRA participants may generally contribute to an AARP No-Fee
IRA up to the lesser of $2,000 or 100% of their compensation or earned income.
If both a husband and wife work, each may set up an AARP No-Fee IRA before the
year they attain age 70 1/2, permitting a potential maximum contribution of
$4,000 per year for both persons. If one spouse has no earnings, each spouse may
have an AARP No-Fee IRA and the total maximum contributions will be $2,250 with
no more than $2,000 going to either AARP No-Fee IRA.

An individual will be allowed a full deduction for contributions to an
AARP No-Fee IRA only if (1) neither the individual, nor his or her spouse, if
they file a joint return, is an active participant in an employer-maintained
retirement plan, or (2) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a certain level ($25,050 for a single
individual, with a phase-out of the deduction for adjusted gross income between
$25,050 and $35,000; $40,050 for married individuals filing a joint return, with
a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000). However, an individual not permitted to make a deductible contribution
may nonetheless make a nondeductible contribution to an AARP No-Fee IRA.

Any AARP member who is entitled to receive a qualifying distribution
from a qualified retirement plan (including a tax-sheltered annuity plan) or
another IRA may make a rollover contribution of all or any portion of the
distribution to the AARP No-Fee IRA, either in a direct rollover or within 60
days after receipt of the distribution, whether or not the member has attained
age 70 1/2. If a qualified rollover contribution is made, the distribution will

39
<PAGE>

not be subject to Federal income tax until distributed from the AARP No-Fee IRA;
however, distributions not directly rolled over might be subject to automatic
20% federal tax withholding.

AARP Mutual Fund Representatives are available to help you transfer
your IRA to the AARP No-Fee IRA. You pay no transfer fees for this service. An
AARP Mutual Fund Representative can help you with the paperwork, contact your
present IRA custodian, help to transfer your funds to the AARP No-Fee IRA, and
send you a confirmation when your transfer is complete.

Earnings on the AARP No-Fee IRA are not subject to current Federal
income tax until distributed; distributions are taxed as ordinary income.
Withdrawals attributable to nondeductible contributions are not taxable
(however, early withdrawals of such amounts are subject to penalty). The assets
in an AARP No-Fee IRA may be withdrawn without penalty after the participant
reaches age 59 1/2 or becomes disabled, and must begin to be withdrawn by April
1st following the taxable year in which the participant reaches age 70 1/2.

The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)

<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>

AARP Keogh Plan

Shares of the Eligible Funds may be purchased for the AARP Keogh Plan.
The AARP Keogh Plan (the "Plan") is designed as a tax-qualified retirement plan
consisting of a profit sharing plan and a money purchase pension plan which can
be adopted by self-employed persons who are members of AARP and by corporations
whose principal shareholders are members of AARP. Self-employed persons may make
annual tax-deductible contributions to the Plan equal to the lesser of $30,000
or 20% of their earned income. An adopting corporation may contribute for each
employee the lesser of $30,000 or 25% of the employee's taxable compensation. No
more than $150,000 (as adjusted) of earned income or taxable compensation may be
taken into account, however. If the Plan is "top heavy," a minimum contribution
may be required for certain employees. Additional information on contributions
to the Plan is found in Your Guide to the AARP Keogh Plan.

The Plan provides that contributions may continue to be made on behalf
of participants after they have reached the age of 70 1/2 if they are still
working.

Lump sum distributions from the Plan may be eligible to be taxed for
Federal income tax purposes according to a favorable 5-year averaging (or
10-year averaging for individuals who reached age 50 before 1986) method not
available to IRA distributions. If members eligible to join this Plan choose to
roll over pension and profit-sharing distributions from other tax-qualified
retirement plans, they will retain the right to use the averaging method for
such distributions.

The Plans are prototype plans approved by the Internal Revenue Service.

In general, distributions from all tax-qualified retirement programs,
including IRAs and tax-sheltered annuity programs, must begin by April 1st in
the year following the year in which the participant reaches age 70 1/2, whether

40
<PAGE>

or not he or she continues to be employed. Excise taxes will apply to premature
distributions, and to taxpayers who are required, but fail, to receive a
distribution after reaching age 70 1/2. An additional excise tax may apply to
certain excess retirement accumulations. Special favorable tax treatment for
certain distributions is reduced or phased out, except where grandfathering
provisions apply.

Shares of the Eligible Funds may be purchased also as an investment for
an IRA or tax-qualified retirement plan (including a tax-sheltered annuity plan)
other than those described above, if permitted by the provisions of the relevant
plan.

OTHER PLANS

(See "INVESTOR SERVICES" in the Prospectus.)

Automatic Investment

Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts. The minimum pre-authorized investment amount
is $50. New shareholders who open a Gift to Minors Account pursuant to the
Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA)
and who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 10 month period. This feature is only available to Gifts to Minors
Account investors. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is not paid,
or by written notice to the shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.

Automatic Withdrawal Plan

Shareholders who own or purchase $10,000 or more of shares of a AARP
Fund may establish an Automatic Withdrawal Plan with that Fund. The investor can
then receive monthly, quarterly or periodic redemptions from his or her account
for any designated amount of $50 or more. Payments are mailed at the end of each
month. The check amounts may be based on the redemption of a fixed dollar
amount, fixed share amount or percent of account value or declining balance. The
Automatic Withdrawal Plan provides for income dividends and capital gains
distributions, if any, to be reinvested in additional shares. Shares are then
liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "SIGNATURE GUARANTEES" in
the Prospectus. Any such request must be received by the AARP Fund's transfer
agent by the 15th of the month in which such change is to take effect. An
Automatic Withdrawal Plan may be terminated at any time by the shareholder, the
AARP Funds or their agents on written notice, and will be terminated when all
shares of the Funds under the Plan have been liquidated or upon receipt by the
Funds of notice of death of the shareholder. For more information concerning
this plan, write to the AARP Investment Program from Scudder, P.O. Box 2540,
Boston, MA 02208-2540 or call, toll-free, 1-800-253-2277.

Direct Payment of Regular Fixed Bills

Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.

41
<PAGE>

DIVIDENDS AND YIELD

(See "UNDERSTANDING FUND PERFORMANCE" in the Prospectus.)

Each AARP Fund intends to follow the practice of distributing
substantially all of its investment company taxable income (which includes, for
example, interest, dividends and any excess of net realized short-term capital
gains over net realized long-term capital losses, less deductible expenses), and
its net tax-exempt interest income, if any. Each AARP Fund also intends to
follow the practice of distributing any excess of net realized long-term capital
gains over net realized short-term capital losses after reduction for any
capital loss carryforwards. However, if it appears to be in the best interests
of a Fund and its shareholders, the Fund may retain all or part of such gain for
reinvestment.

AARP Balanced Stock and Bond Fund and AARP Growth and Income Fund
intend to pay dividends in March, June, September and December of each year and
any net realized capital gains after the September 30 fiscal year end. AARP
Global Growth Fund and AARP Capital Growth Fund intend to pay dividends and any
realized capital gains over net realized short-term capital losses after
reduction for any capital loss carryforwards in December after the September 30
fiscal year end. See "TAXES."

Both types of distributions will be made in shares of the respective
AARP Fund and confirmations will be mailed to each shareholder unless a
shareholder has elected to receive cash, in which case a check will be sent.

The net income of each AARP Money Fund, each of the AARP Income Funds
and the AARP Insured Tax Free General Bond Fund, is determined as of the close
of trading on the Exchange (usually 4:00 p.m. Eastern time) on each day on which
the Exchange is open for business. All of the net income so determined normally
will be declared as a dividend daily to shareholders of record as of 4:00 p.m.
on the preceding day, and distributed monthly. Dividends commence on the next
business day after purchase. Dividends which are not paid by check will be
reinvested in additional shares of the particular Fund at the net asset value
per share determined as of a day selected within five days of the last business
day of the month. Checks will be mailed to shareholders no later than the fourth
business day of the following month, and consolidated statements confirming the
month's dividends will be mailed to shareholders electing to invest dividends in
additional shares. Dividends will ordinarily be invested on the last business
day of each month at the net asset value per share determined as of the close of
regular trading on the Exchange.

Should the AARP Money Funds incur or anticipate any unusual or
unexpected significant expense, depreciation or loss which would affect
disproportionately the Fund's income for a particular period, the Trustees of
such Fund or the Executive Committee of the Trustees may at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances in order to ameliorate to the extent
possible the disproportionate effect of such expense or loss on then existing
shareholders. Such expenses may nevertheless result in a shareholder's receiving
no dividends for the period during which the shares are held and in receiving
upon redemption a price per share lower than that which was paid.

Similarly, should the AARP High Quality Money Fund incur or anticipate
any unusual or unexpected significant income, appreciation or gain which would
affect disproportionately the Fund's income for a particular period, the
Trustees or the Executive Committee of the Trustees may consider whether to
adhere to the dividend policy described above or to revise it in the light of
the then prevailing circumstances in order to ameliorate to the extent possible
the disproportionate effect of such income, appreciation or gain on the dividend
received by existing shareholders. Such actions may reduce the amount of the
daily dividend received by existing shareholders.

Performance Information: Computation of Yields and Total Return

a) The AARP Money Funds

From time to time, quotations of an AARP Money Fund's yield may be
included in advertisements, sales literature or shareholder reports. These yield
figures are calculated in the following manner:

The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning

42
<PAGE>

of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent. The current yield of the AARP High Quality
Money Fund and the AARP High Quality Tax Free Money Fund for the seven-day
period ended September 30, 1995 respectively, were 4.97% and 3.37%.

The effective yield is the net annualized yield for a specified 7
calendar-days assuming a reinvestment in Fund shares of all dividends during the
period, i.e., compounding. Effective yield is calculated by using the same
base-period return used in the calculation of current yield except that the
base-period return is compounded by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:

Effective Yield = [(Base Period Return + 1)^(365/7)] - 1.

The effective yield of the AARP High Quality Money Fund and the AARP
High Quality Tax Free Money Fund for the seven-day period ended September 30,
1995 respectively, were 5.10% and 3.43%.

As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.

In connection with communicating its current yield and effective yield
to current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual Funds tracked by mutual Fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.

b) The AARP Money Funds, AARP Income Funds, AARP Growth Funds and AARP
Insured Tax Free General Bond Fund

From time to time, quotations of a Fund's total return may be included
in advertisements, sales literature or shareholder reports. This total return
figure is calculated in the following manner:

The total return is the average annualized compound rate of return for,
where applicable, the periods of one year, five years and ten years, all ended
on the last day of a recent calendar quarter. Total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Total return is calculated by finding the average annualized
compound rates of return of a hypothetical investment over such periods,
according to the following formula (total return is then expressed as a
percentage):

T = (ERV/P)^(1/n) - 1
Where:

T = average annualized compound total rate of return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

43
<PAGE>

Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/95 9/30/95 9/30/95(1)
------- ------- ----------
<S> <C> <C> <C>
AARP High Quality Money Fund 4.99% 4.05% 5.39%
AARP High Quality Tax Free Money Fund 2.99 3.00* 4.28*
AARP GNMA and U.S. Treasury 10.31 7.77 8.17
AARP High Quality Bond 12.98 8.98 8.58
AARP Insured Tax Free General Bond 10.21 8.55 8.64
AARP Balanced Stock and Bond Fund 16.80 n.a. 9.28
AARP Growth and Income 20.43 17.12 14.55
AARP Global Growth Fund n.a. n.a. n.a.
AARP Capital Growth 23.47 16.81 14.10

<FN>
(1) For the ten fiscal years ended September 30, 1995 for each of the above listed Funds except for the
period February 1, 1994 (commencement of operations) to September 30, 1995 for the AARP Balanced Stock
and Bond Fund.
* Prior to August 1, 1991, the AARP High Quality Tax Free Money Fund operated as the AARP Insured Tax
Free Short Term Fund. The total return figures for the five and ten years ended September 30, 1995 for
the AARP High Quality Tax Free Money Fund are representative of the Fund prior to its conversion date
except that the figures have been adjusted to reflect its conversion to a money market fund.
</FN>
</TABLE>

In addition to total return described above, the Funds may quote
nonstandard "cumulative total return."

The cumulative total return is the rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the rates of
return of a hypothetical investment over such periods, according to the
following formula. (Cumulative total return is then expressed as a percentage):

C = (ERV/P)-1

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

Cumulative Total Return
-----------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
9/30/95 9/30/95 9/30/95(1)
------- ------- ----------
<S> <C> <C> <C>
AARP Balanced Stock and Bond Fund 16.80% n.a. 15.89%
AARP Growth and Income 20.43 120.33% 289.03
AARP Global Growth Fund n.a. n.a. n.a.
AARP Capital Growth 23.47 117.50 273.88

<FN>
(1) For the period February 1, 1994 (commencement of operations) to September 30, 1995 for the AARP
Balanced Stock and Bond Fund.

c) The AARP Income Funds and AARP Insured Tax Free General Bond Fund
</FN>
</TABLE>

From time to time, quotations of an AARP Fund's yield may be included
in advertisements, sales literature or shareholder reports. This yield is
calculated in the following manner.

44
<PAGE>

The yield is the net annualized yield based on a specified 30-day (or
one month) period assuming semiannual compounding of income. Yield is calculated
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:

a = dividends and interest earned during the period,
including (except for mortgage or receivable-backed
obligations) the amortization of market premium or
accretion of market discount. For mortgage or
receivables-backed obligations, this amount includes
realized gains or losses based on historic cost for
principal repayments received.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.

Yield for the 30-day period
Fund ended September 30, 1995
---- ------------------------
AARP GNMA and U.S. Treasury 6.61%
AARP High Quality Bond 5.94
AARP Insured Tax Free General Bond 4.76

d) AARP Insured Tax Free General Bond and AARP High Quality Tax Free Money
Fund

The tax equivalent yield is the net annualized after-tax yield based on
a specified seven day period for money market funds or on a specified 30-day
(one month) period for non-money market funds assuming a reinvestment of all
dividends paid during the period, i.e., compounding. Tax equivalent yield is
calculated by dividing that portion of the Fund's yield (as computed in the
yield description above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.

Equivalent Taxable Yields
period ended September 30, 1995
-------------------------------

Fund Tax Bracket: 28% 31%

<S> <C> <C>
AARP High Quality Tax Free Money 4.68% 4.88%
AARP Insured Tax Free General Bond 6.61% 6.90%
</TABLE>

(e) General Performance Information

Quotations of an AARP Fund's performance are based on historical
earnings and are not intended to indicate future performance of the Fund. An
investor's shares when redeemed may be worth more or less than their original
cost. Performance of a Fund will vary based on changes in market conditions and
the level of the Fund's expenses. In periods of declining interest rates a
Fund's quoted yield and 30-day current yield will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates a Fund's
quoted yield and 30-day current yield will tend to be somewhat lower.

Comparison of non-standard performance data of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.

From time to time, in marketing and other AARP Fund literature, these
AARP Funds' performances may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent

45
<PAGE>

organizations, such as Lipper Analytical Services, Inc. ("Lipper"), Investment
Company Data, Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA"), Value
Line Mutual Fund Survey, Morningstar, Inc. and other independent organizations.
For instance, AARP Growth Funds will be compared to funds in the growth fund
category; and so on. In similar fashion, the performance of the AARP GNMA and
U.S. Treasury Fund will be compared to that of certificates of deposit.
Evaluations of AARP Fund performance made by independent sources or independent
experts may also be used in advertisements concerning the AARP Funds, including
reprints of, or selections from, editorials or articles about these Funds.

In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to unmanaged
indices which may assume reinvestment of dividends or interest but generally do
not reflect deductions for administrative and management costs. Indices with
which the Fund may be compared include but are not limited to, the following:
Standard & Poor's 500 Stock Index (S&P 500), The Europe/Australia/Far East
(EAFE) Index, Morgan Stanley Capital International World Index, J.P. Morgan
Global Traded Bond Index, and Salomon Brothers World Government Bond Index.

The following graph illustrates the historical risks and returns of
selected unmanaged indices which track the performance of various combinations
of United States and international securities for the ten year period ended
September 30, 1995; results for other periods may vary. The graph uses ten year
annualized international returns represented by the Morgan Stanley Capital
International Europe, Australia and Far East (EAFE) Index and ten year
annualized United States returns represented by the S&P 500 Index. Risk is
measured by the standard deviation in overall portfolio performance within each
index. Performance of an index is historical, and does not represent the
performance of a Fund, and is not a guarantee of future results.

X-Y SCATTER CHART (GRAPHIC OMITTED)

-----------------------------------------------------
CHART TITLE: EFFICIENT FRONTIER
MSCI EAFE vs. S&P 500 (9/30/85-9/30/95)
-----------------------------------------------------

CHART DATA:
Total Return Standard Deviation
- ------------ ------------------
14.92 19.43 100% Int'l MSCI EAFE
15.2 18.21 10 US/90 Int'l
15.45 17.11 20/80
15.66 16.14 30 U.S./70 Int'l
15.83 15.34 40/60
15.97 14.72 50 U.S./50Int'l
16.06 14.33 60/40
16.11 14.16 70 U.S./30 Int'l
16.13 14.24 80/20
16.1 14.56 90 U.S./10 Int'l
16.04 15.1 100% U.S. S&P 500

Source: Lipper Analytical Services, Inc. (Data as of 9/30/95)

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

46
<PAGE>

Evaluation of Fund performance made by independent sources may also be
used in advertisements concerning the Funds, including reprints of, or
selections from, editorials or articles about these Funds. Sources for AARP Fund
performance information and articles about the AARP Funds may include, but are
not limited to, the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by MasterFund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Federal Reserve Bulletin, a monthly publication that reports domestic and
international financial statistics, including short-term certificate of deposit
interest rates.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Daily, a daily newspaper that features financial, economic, and
business news.

47
<PAGE>

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter published by Sheldon Jacobs that
includes mutual fund performance data and recommendations for the mutual Fund
investor.

No-Load Fund X, a monthly newsletter published by DAL Investment Company, Inc.
that reports on mutual fund performance, rates funds, and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.

Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

48
<PAGE>

TRUST ORGANIZATION

(See "FUND ORGANIZATION" in the Prospectus.)

Each of the AARP Funds is a separate series of a Massachusetts business
trust. AARP GNMA and U.S. Treasury Fund and AARP High Quality Bond Fund are
series of AARP Income Trust. AARP High Quality Tax Free Money Fund and AARP
Insured Tax Free General Bond Fund are series of AARP Tax Free Income Trust
which changed its name from AARP Insured Tax Free Income Trust on August 1,
1991. AARP Balanced Stock and Bond Fund, AARP Growth and Income Fund, AARP
Global Growth Fund and AARP Capital Growth Fund are series of AARP Growth Trust.
Each of the above Trusts was established under a separate Declaration of Trust
dated June 8, 1984. AARP High Quality Money Fund is a separate series of the
AARP Cash Investment Funds, which was established under a Declaration of Trust
dated January 20, 1983. The original name of AARP Cash Investment Funds was
Master Investment Services Fund. That name was changed to AARP Money Fund Trust
on February 6, 1985, and to its present name on May 24, 1985. Each Trust's
shares of beneficial interest of $.01 (AARP High Quality Tax Free Money Fund
$.001) par value per share are issued in separate series. AARP Cash Investment
Funds has three series in addition to AARP High Quality Money Fund that are not
currently offered. None of the other Trusts has an existing series which is not
currently being offered. Other series may be established and/or offered by the
Trusts in the future. Each share of a series represents an interest in that
series which is equal to each other share of that series.

The assets received for the issue or sale of the shares of each series
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are specifically allocated to that series and constitute
the underlying assets of that series. The underlying assets of each series are
segregated on the books of account of the Trust, and are to be charged with the
liabilities of that series. The Trustees have determined that expenses with
respect to all series in a Trust are to be allocated in proportion to the net
asset value, or such other reasonable basis, of the respective series in that
Trust except where allocations of direct expenses can otherwise be more fairly
made. The officers of each Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to all the
series in a Trust. Each Trust's Declaration of Trust provides that allocations
so made to each series shall be binding on all persons. While each Declaration
of Trust provides that liabilities of a series may be satisfied only out of the
assets of that series, it is possible that if a series were unable to meet its
obligations, a court might find that the assets of other series in the Trust
should satisfy such obligations. In the event of the dissolution or liquidation
of a Trust, the holders of the shares of each series are entitled to receive as
a class the underlying assets of that series available for distribution to
shareholders.

Shareholders are entitled to one vote per share. Separate votes are
taken by each series on all matters except where the 1940 Act requires that a
matter be decided by the vote of shareholders of all series of a Trust voting
together or where a matter affects only one of the series, in which case only
shareholders of that series shall vote thereon. For example, a change in
investment policy for a series would be voted upon only by shareholders of the
series involved. Additionally, approval of each Trust's investment advisory
agreement is a matter to be determined separately by each series in that Trust.
Approval of the agreement by the shareholders of one series in a Trust is
effective as to that series whether or not enough votes are received from the
shareholders of other series in the Trust to approve such agreement as to the
other series.

The Trustees of each Trust have the authority to establish additional
series and to designate the relative rights and preferences as between the
series. All shares issued and outstanding of each series that is offered by a
Trust will be fully paid and non-assessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.

Each Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against litigation in which they may be involved because of their
offices with the Trust except if it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in any of the Declarations of Trust protects or indemnifies a Trustee or
officer against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

49
<PAGE>

MANAGEMENT OF THE FUNDS

(See "FUND ORGANIZATION" in the Prospectus.)

Each Trust has retained Scudder, Stevens & Clark, Inc., a Delaware
corporation (the "Fund Manager"), to perform management and investment advisory
services for the Funds pursuant to Investment Management and Advisory Agreements
with each Trust ("Management Agreement") dated February 1, 1994.

Each Management Agreement provides that the Fund Manager will regularly
provide, or cause to be provided, to the AARP Funds investment research, advice
and supervision and furnish continuously an investment program for the AARP
Funds consistent with each Fund's investment objective and policies.

The Fund Manager assumes responsibility for the compensation and
expenses of all officers and executive employees of each Trust and makes
available or causes to be made available, without expense to the Trusts, the
services of such of its partners, directors, officers and employees as may duly
be elected officers or Trustees of a Trust, subject to their individual consent
to serve and to any limitations imposed by law, and pays the Trusts' office rent
and provides, or causes to be provided, investment advisory, research and
statistical facilities and related clerical services. For these services the
AARP Funds pay the Fund Manager a monthly fee consisting of a base fee and an
individual Fund fee. The base fee is based on average daily net assets of all
Funds in the AARP Investment Program, as follows:

Program Assets Annual Rate at Each
(Billions) Asset Level
---------- -----------
First $2 0.35%
Next $2 0.33
Next $2 0.30
Next $2 0.28
Next $3 0.26
Next $3 0.25
Over $14 0.24

Total program assets as of September 30, 1995 were over $12 billion.

All AARP Funds pay a flat individual Fund fee based on the net assets
of that Fund.

The individual Fund fees are as follows:

AARP High Quality Money Fund, 10/1200 of 1% (or approximately .10 of 1%
on an annual basis);
AARP GNMA and U.S. Treasury Fund, 12/1200 of 1% (or approximately .12
of 1% on an annual basis);
AARP High Quality Bond Fund, 19/1200 of 1% (or approximately .19 of 1%
on an annual basis);
AARP High Quality Tax Free Money Fund, 10/1200 of 1% (or approximately
.10 of 1% on an annual basis);
AARP Insured Tax Free General Bond Fund, 19/1200 of 1% (or
approximately .19 of 1% on an annual basis);
AARP Balanced Stock and Bond Fund, 19/1200 of 1% (or approximately .19
of 1% on an annual basis);
AARP Growth and Income Fund, 19/1200 of 1% (or approximately .19 of 1%
on an annual basis);

AARP Global Growth Fund, 55/1200 of 1% (or approximately .55 of 1% on
an annual basis);
AARP Capital Growth Fund, 32/1200 of 1% (or approximately .32 of 1% on
an annual basis).

The advisory fees for the fiscal years ended September 30, 1993 and up
to January 31, 1994 under the previous Investment Management and Advisory
Agreements and under the present Investment Management Agreement from February
1, 1994 to September 30, 1994 and for the fiscal year ended September 30, 1995
were as follows:

50
<PAGE>

1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund $ 1,358,702 $ 1,244,322 $ 1,492,545
AARP GNMA and U.S. Treasury Fund 26,404,563 26,198,841 22,095,173
AARP High Quality Bond Fund 2,344,628 2,952,999 2,600,629
AARP High Quality Tax Free Money Fund 637,451 568,107 493,693
AARP Insured Tax Free General Bond Fund 8,631,469 9,944,429 8,813,051
AARP Balanced Stock and Bond Fund* n.a. 365,435 960,412
AARP Growth and Income Fund 5,405,394 9,533,476 12,406,325
AARP Global Growth Fund** n.a. n.a. n.a.
AARP Capital Growth Fund 3,176,921 4,184,437 3,988,023

</TABLE>

Each Management Agreement provides that the Fund Manager will reimburse
the AARP Funds or the Trust for annual expenses in excess of the lowest expense
limitation imposed by the states in which the Funds of the particular Trust are
at the time offering their shares for sale, although no payments are required to
be made by the Fund Manager pursuant to this reimbursement provision in excess
of the annual fee paid by the funds of a Trust to the Fund Manager. Management
has been advised that the lowest such limitation is currently 2 1/2% of the
first $30,000,000 of such net assets, 2% of the next $70,000,000 of such net
assets and 1 1/2% of such net assets in excess of $100,000,000. Certain expenses
such as brokerage commissions, taxes, extraordinary expenses and interest are
excluded from such limitation. The Fund Manager has agreed that its obligation
to reimburse the Funds will not be restricted to the amounts of the management
fees. Such agreement may be modified or withdrawn without shareholder approval.

The expense ratios, net of voluntary and statutory fee waivers and
reimbursements of expenses, for the periods ended September 30, 1993, 1994 and
1995 were as follows:

1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund 1.31% 1.13% .98%
AARP GNMA and U.S. Treasury Fund .70 .66 .67
AARP High Quality Bond Fund 1.01 .95 .95
AARP High Quality Tax Free Money Fund .93 .90 .87
AARP Insured Tax Free General Bond Fund .72 .68 .69
AARP Balanced Stock and Bond Fund* n.a. 1.31 1.01
AARP Growth and Income Fund .84 .76 .72
AARP Global Growth Fund n.a. n.a. n.a.
AARP Capital Growth Fund 1.05 .97 .95
</TABLE>

For the fiscal years ended September 30, 1993, 1994 and 1995, the
reimbursements by the Fund Manager based on the expense limitation then in
effect were as follows:

1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
AARP High Quality Money Fund -- -- --
AARP GNMA and U.S. Treasury Fund -- -- --
AARP High Quality Bond Fund -- -- --
AARP High Quality Tax Free Money Fund $278,471 $8,083 --
AARP Insured Tax Free General Bond Fund -- -- --
AARP Balanced Stock and Bond Fund* n.a. -- --
AARP Growth and Income Fund -- -- --
AARP Global Growth Fund** n.a. n.a. n.a.
AARP Capital Growth Fund -- -- --
</TABLE>

* AARP Balanced Stock and Bond Fund commenced operations on February 1, 1994.
** AARP Global Growth Fund commenced operations on February 1, 1996.

If reimbursement is required, it will be made as promptly as
practicable after the end of each Trust's fiscal year. However, no fee payment
will be made to the Fund Manager during any fiscal year which will cause
year-to-date expenses to exceed the cumulative pro rata expense limitation at
the time of such payment. The amortization of organizational costs is described
herein under "ADDITIONAL INFORMATION - Other Information."

51
<PAGE>

Under the Management Agreements, each Trust is responsible for all of
its other expenses including organizational expenses; clerical salaries; fees
and expenses incurred in connection with membership in investment company
organizations; brokers' commissions; any fees for portfolio pricing paid to a
pricing agent; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates, if any, and any other expenses including clerical expenses of
issue, redemption or repurchase of shares; the expenses and fees for registering
or qualifying securities for sale; the fees and expenses of the Trustees of the
Trust who are not affiliated with the Fund Manager, Scudder, Stevens & Clark,
Inc., AARP Financial Services Corporation or AARP; the cost of preparing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. Each Trust may arrange to have third parties assume all or part
of the expenses of sale, underwriting and distribution of shares of the Trust.
Each Trust is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto. The custodian
agreement for each Trust provides that the custodian shall compute the net asset
value for that Trust.

The Fund Manager has voluntarily agreed to waive a portion of its
management fees for AARP Global Growth Fund to the extent necessary so that the
total annualized expenses of the Fund do not exceed 1.75% of the average daily
net assets until September 30, 1996. The Fund Manager retains the ability to be
repaid by the Fund if expenses fall below the specified limit prior to the end
of the fiscal year. These expense limitation arrangements can decrease the
Fund's expenses and improve its performance.

Each Management Agreement provides that the Fund Manager shall not be
required to pay expenses of distribution of the Funds' shares to the extent that
(i) such distribution expenses are, pursuant to a written contract, to be borne
by a principal underwriter of the Trust ("Scudder Investor Services, Inc." is
principal underwriter for the AARP Trusts), (ii) the Trust shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act ("Rule 12b-1 plan")
providing for the Trust (or the Funds or some other party) to assume some or all
of such expenses, or (iii) such expenses are required to be paid by Scudder,
Stevens & Clark, Inc. To the extent such expenses of distribution are not to be
borne by a principal underwriter, or are not permitted to be paid by the Trust
(or a Fund or such other party) pursuant to a Rule 12b-1 plan, they are to be
assumed by the Fund Manager. (The adoption of a Rule 12b-1 plan by a Trust would
require the approval of the Trustees, including a majority of those Trustees who
are not interested persons of the Trust, and of a majority of the outstanding
voting securities of each Fund.)

The Management Agreements for all Funds except AARP Global Growth Fund
will remain in effect until August 31, 1996 and from year to year thereafter
only if their continuance is specifically approved at least annually by the vote
of a majority of those Trustees who are not parties to such Agreements or
"interested persons" of the Fund Manager, Scudder, Stevens & Clark, Inc. or the
particular Trust cast in person at a meeting called for the purpose of voting on
such approval and either by vote of a majority of the Trustees or, with respect
to each Fund, by a majority of the outstanding voting securities of that Fund.
The Supplement to Investment Management Agreement for the AARP Global Growth
Fund will remain in effect until August 31, 1997 and from year to year
thereafter only if its continuance is specifically approved at least annually by
the vote of a majority of those Trustees who are not parties to such Agreement
or "interested persons" of the Fund Manager, Scudder, Stevens & Clark, Inc. or
the particular Trust cast in person at a meeting called for the purpose of
voting on such approval and either by vote of a majority of the Trustees or, by
a majority of the outstanding voting securities of the AARP Global Growth Fund.
In the event a Management Agreement is approved by the shareholders of one of
the Funds but not by the shareholders of the other Fund, the Management
Agreement will continue in effect as to the former Fund but not the latter. The
Management Agreements for all Funds except AARP Global Growth Fund were last
approved by the Trustees (including a majority of the Trustees who are not
"interested persons") on June 28, 1995 and by the shareholders on January 13,
1994. The Supplement to Investment Management Agreement for AARP Global Growth
Fund dated February 1, 1996 was approved by the Trustees on December 13, 1995
and by the initial shareholder on January 24, 1996. Each Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminates in the event of its assignment.

Scudder, Stevens & Clark, Inc. is one of the most experienced
investment management firms in the United States. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual Fund to the public. In 1953, Scudder introduced Scudder International
Fund, the first Fund available in the U.S., investing internationally in

52
<PAGE>

securities of issuers in several foreign countries. The principal source of the
Fund Manager's income is professional fees received from providing continuous
investment advice, and the firm derives no income from banking, brokerage or
underwriting of securities. Today, it provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., Scudder Portfolio Trust, Scudder
Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free Money Fund,
Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life
Investment Fund, Scudder World Income Opportunities Fund, Inc., The Argentina
Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund,
Inc., The Japan Fund, Inc., and The Latin America Dollar Income Fund, Inc. Some
of the foregoing companies or trusts have two or more series.

The Fund Manager maintains a large research department, which conducts
continuous studies of the factors that affect the condition of various
industries, companies and individual securities. In this work, the Fund Manager
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and for clients of the Fund Manager, but conclusions are based primarily on
investigations and critical analyses by its own research specialists.

Certain investments may be appropriate for more than one Fund and also
for other clients advised by the Fund Manager. Investment decisions for each
Fund and for other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
Fund or client or in different amounts and at different times for more than one
but less than all Funds or other clients. Likewise, a particular security may be
bought for one or more Funds or clients when one or more other Funds or clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more Funds or clients on the same date. In such event
such transactions will be allocated among the Funds and/or clients in a manner
believed by the Fund Manager to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined
with those of other Funds or clients of the Fund Manager in the interest of most
favorable net results to the particular Fund.

Each Management Agreement provides that the Fund Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with matters to which the respective agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund Manager in the performance of its duties or from
reckless disregard by the Fund Manager of its obligations and duties under the
respective agreement.

In reviewing the terms of each Management Agreement and in discussions
with the Fund Manager concerning such agreements, the Trustees of each Trust who
are not "interested persons" of that Trust have been represented by independent
counsel at the Trust's expense. Dechert Price & Rhoads acts as general counsel
for the Trusts.

Pursuant to a Member Services Agreement with the Fund Manager, dated
February 1, 1994, AARP Financial Services Corp. ("AFSC") provides the Fund
Manager with nondistribution related service and advice primarily concerning
designing and tailoring the AARP Investment Program from Scudder and its Funds
to meet the needs of AARP's members on an ongoing basis. AARP Financial Services
Corp. receives, as compensation for its services, a Monthly Member Services fee.
The fee paid to AFSC is calculated on a daily basis and depends on the level of
total assets of the AARP Investment Program. The fee rate decreases as the level
of total assets increases. The fee rate for each level of assets is .07 of 1%
for the first $6 billion, .06 of 1% for the next $10 billion and .05 of 1%
thereafter.

The Member Services Agreement will remain in effect until August 31,
1996 and from year to year thereafter only if its continuance is specifically
approved at least annually by the vote of a majority of those Trustees who are
not "interested persons" of the Fund Manager, AFSC, or the Funds cast in person
at a meeting called for the purpose of voting on such approval and either by
vote of a majority of the Trustees or, with respect to each Fund, by a majority
of the outstanding voting securities of that Fund. The continuance of the Member
Services Agreement was last approved by the Trustees (including a majority of

53
<PAGE>

the Trustees who are not such "interested persons") on June 28, 1995 and by
shareholders on January 13, 1994. The Member Services Agreement may be
terminated at any time without payment of penalty by the Funds on sixty days'
written notice, or by AFSC upon six months' notice to the Funds and to the Fund
Manager, and automatically terminates in the event of its assignment or the
assignment of the Management Agreement.

Pursuant to a Service Mark License Agreement, dated November 30, 1984
(February 18, 1985 in the case of AARP Cash Investment Funds), among the Trusts,
the Fund Manager and AARP, use of the AARP service marks by a Trust and its
Funds will be terminated, unless otherwise agreed to by AARP, upon termination
of that Trust's Management Agreement.

Officers and employees of the Fund Manager from time to time may have
transactions with various banks, including the AARP Funds' custodian bank. It is
the Fund Manager's opinion that the terms and conditions of those transactions
which have occurred were not influenced by existing or potential custodial or
other Fund relationships.

None of the officers or Trustees of a Trust may have dealings with that
Trust as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
Cuyler W. Findlay#* Chairman of the Managing Director of Scudder, Senior Vice President
Board and Trustee Stevens & Clark, Inc. and Director

Horace B. Deets+* Vice Chairman and Executive Director, American -
Trustee Association of Retired Persons

Linda Coughlin#* President and Managing Director of Scudder, Director
Trustee Stevens & Clark, Inc.

Carole Lewis Anderson Trustee (1,2) Principal, Suburban Capital -
3616 Reservoir Road, N.W. Markets, Inc. (1995); President,
Washington, DC MASDUN Capital Advisors;
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
</TABLE>

54
<PAGE>

Adelaide Attard Trustee (2,4) Gerontology Consultant; Member, -
270-28N Grand Central Parkway New York City Department of
Floral Park, NY Aging Advisory Council -
Appointed by Mayor (1995); Board
Member, American Association on
International Aging (1981 to
present); Commissioner, County
of Nassau, New York, Dept. of
Senior Citizen Affairs
(1971-1991); Chairperson,
Federal Council on Aging
(1981-1986)

Cyril F. Brickfield+* Trustee (2,3,4), Honorary President and Special -
Honorary Trustee (1) Counsel, American Association of
Retired Persons

Robert N. Butler, M.D. Trustee (2,4) Brookdale Professor of -
211 Central Park West Geriatrics and Adult
Apt. 7F Development, Mount Sinai School
New York, NY of Medicine (1982 to present);
Director, National Institute on
Aging, National Institute of
Health (1976-1982)

Mary Johnston Evans Trustee (1,3,4) Corporate Director, Senior -
920 Fifth Ave. Member of The Conference Board,
New York, NY Inc.

Edgar R. Fiedler Trustee (1,2,3) Vice President and Economic -
845 Third Ave. Counsellor, The Conference
New York, NY Board, Inc.

Lt. Gen. Eugene P. Forrester Trustee (2,3) International Trade Consultant -
1101 S. Arlington Ridge Rd. (1983 to present); Lt. General
Arlington, VA (Retired), U.S. Army; Corporate
Director

Wayne F. Haefer* Trustee (2,3,4) Director, Membership Division of -
AARP; Formerly Secretary,
Employee's Pension and Welfare
Trusts of AARP and Retired
Persons Services, Inc.

</TABLE>

55
<PAGE>

<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trusts Occupation** Services, Inc.
- ----------- ----------- ------------ --------------
<S> <C> <C> <C>
William B. Macomber Trustee (3,4) Formerly Teacher, History and -
27 Monomoy Rd. Government, Nantucket H.S.,
Nantucket, MA Nantucket, MA; formerly
President, The Metropolitan
Museum of Art and U.S.
Ambassador to Turkey and Jordan

George L. Maddox, Jr. Trustee (2,3) Chairman, Duke University -
P.O. Box 2920 Council on Aging and Human
Duke Univ. Medical Center Development; Professor of
Durham, NC Sociology, Departments of
Sociology and Psychiatry, Duke
University

Robert J. Myers Trustee (1,2,4) Actuarial Consultant (1983 - -
9610 Wire Ave. present); formerly Chairman,
Silver Spring, MD Commission on Railroad
Retirement Reform (1988-90);
Deputy Commissioner, U.S. Social
Security Administration
(1981-1982); Member, National
Commission on Social Security
(1978-1981); formerly Executive
Director, National Commission on
Social Security Reform
(1982-1983); Director, NASL
Series Fund, Inc.; Director:
NASL Series Trust, Inc. and
North American Funds, Inc.;
Member, U.S. Office of
Technology Assessment,
Prospective Payment Assessment
Commission.

Joseph S. Perkins+ Trustee Director, American Association -
of Retired Persons; Formerly
Corporate Retirement Manager,
Polaroid Company
James H. Schulz Trustee (3,4) Professor of Economics and -
158 Scruton Pond Road Kirstein Professor of Aging
Barrington, NH 03825 Policy, Policy Center on Aging,
Florence Heller School, Brandeis
University

Gordon Shillinglaw Trustee (1,3,4) Professor Emeritus of -
196 Villard Ave. Accounting, Columbia University
Hastings-on-Hudson, NY Graduate School of Business
</TABLE>

56
<PAGE>

Thomas W. Joseph## Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer and
Assistant Clerk

David S. Lee## Vice President and Managing Director of Scudder, President, Assistant
Assistant Treasurer Stevens & Clark, Inc. Treasurer and Director

Douglas M. Loudon# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.

Thomas F. McDonough## Vice President and Principal of Scudder, Stevens & Clerk
Assistant Secretary Clark, Inc.

Pamela A. McGrath## Vice President and Managing Director of Scudder, -
Treasurer Stevens & Clark, Inc.

Edward J. O'Connell# Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.

Kathryn L. Quirk# Vice President and Managing Director of Scudder, Vice President
Secretary Stevens & Clark, Inc.

Howard Schneider# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.

Cornelia M. Small# Vice President Managing Director of Scudder, -
Stevens & Clark, Inc.

<FN>
1) AARP Cash Investment Funds 3) AARP Tax Free Income Trust
2) AARP Income Trust 4) AARP Growth Trust

* Messrs. Brickfield, Deets, Findlay, Haefer, Perkins and Ms. Coughlin are Trustees of each of the Trusts and
are considered by the Trusts and their counsel to be persons who are "interested persons" of the Trusts
(within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Address: 345 Park Avenue, New York, New York
## Address: Two International Place, Boston, Massachusetts
+ Address: 601 E Street, N.W., Washington, D.C.
</FN>
</TABLE>

As of December 31, 1995, all Trustees and officers of the Funds as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the outstanding shares of each Fund. To
the best of the Trusts' knowledge as of December 31, 1995 no other person owned
beneficially more than 5% of the outstanding shares of any of the Trusts except
that the American Association of Retired Persons held _________ shares in the
AARP High Quality Money Fund, ___% of the outstanding shares.

57
<PAGE>

REMUNERATION

Several of the officers and Trustees of the Trusts may be officers or
employees of Scudder, Stevens & Clark, Inc., Scudder Service Corporation,
Scudder Investor Services, Inc., or Scudder Trust Company and will participate
in the fees received by such entities. No individual affiliated with AARP will
participate directly in any such fees. The Trusts pay no direct remuneration to
any officer of the Trusts. However, each of the Trustees who is not affiliated
with Scudder, Stevens & Clark, Inc. or AARP will be paid by the Trust(s) for
which he or she serves as Trustee. Each of these unaffiliated Trustees will
receive an annual fee of $2000 from each Fund for which he or she serves plus
$270 for each Trustees' meeting and $200 for each audit committee meeting or
meeting held for the purpose of considering arrangements between the Fund and
the Fund Manager or any of its affiliates attended. Each unaffiliated Trustee
also receives $100 per committee meeting, other than an audit committee meeting,
attended. If any such meetings are held jointly with meetings of one or more
mutual funds advised by the Fund Manager, a maximum fee of $800 for meetings of
the Board, meetings of the unaffiliated members of the Board for the purpose of
considering arrangements between the Fund and the Fund Manager or any of its
affiliates or the audit committees of such Funds, and $400 for all other
committee meetings or meetings of the unaffiliated members of the Board is paid,
to be divided equally among the Funds. For the year ended September 30, 1995,
the Trustees' fees and expenses for eight of the Funds were as follows:

AARP High Quality Money Fund $ 19,837
AARP GNMA and U.S. Treasury Fund 29,332
AARP High Quality Bond Fund 31,055
AARP High Quality Tax Free Money Fund 30,610
AARP Insured Tax Free General Bond Fund 30,826
AARP Balanced Stock and Bond Fund 23,992
AARP Growth and Income Fund 28,774
AARP Capital Growth Fund 28,697

58
<PAGE>

The following Compensation Table provides, in tabular form, the following data:

Column (1): all Trustees who receive compensation from the Trusts.
Column (2): aggregate compensation received by a Trustee from all the series of
a Trust.
Columns (3) and (4): pension or retirement benefits accrued or proposed be paid
by the Trusts. The AARP Trusts do not pay their Trustees such benefits.
Column (5): total compensation received by a Trustee from the Trusts, plus
compensation received from all Funds that are advised by the Fund Manager (the
"Fund Complex") for which a Trustee serves. The total number of Funds from which
a Trustee receives such compensation is also provided.

<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1995
=================================================================================================================================
(1) (2) (3) (4) (5)
Aggregate Compensation from
(d)

AARP Growth
Trust
consisting of
four Funds:
(b) (c) AARP Balanced
(a) AARP Income AARP Tax Free Stock and Bond
AARP Cash Trust Income Trust Fund, AARP Pension or Total
Investment consisting of consisting of Growth and Retirement Compensation
Fund two Funds: two Funds: AARP Income Fund, Benefits from the
consisting of AARP GNMA and High Quality Tax AARP Global Accrued Estimated AARP Trusts
one Fund: U.S. Treasury Free Money Fund Growth Fund*, as Part Annual and Fund
AARP High Fund and AARP and AARP Insured and AARP of Fund Benefits Complex
Name of Person, Quality Money High Quality Tax Free General Capital Growth Complex Upon Paid to
Position Fund Bond Fund Bond Fund Fund Expenses Retirement Trustee

=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Adelaide Attard, - - N/A N/A
Trustee (5 funds)

Robert N. Butler, - - N/A N/A
Trustee (5 funds)

Mary Johnston - N/A N/A
Evans, Trustee (7 funds)

Edgar R. Fiedler, - N/A N/A
Trustee (6 funds)

Eugene P. - - N/A N/A
Forrester, Trustee (4 funds)

William B. - - N/A N/A
Macomber, Trustee (5 funds)

George L. Maddox, - - N/A N/A
Jr., Trustee (4 funds)

Robert J. Myers, - N/A N/A
Trustee (6 funds)

James H. Schulz, - - N/A N/A
Trustee (5 funds)

Gordon Shillinglaw, - N/A N/A
Trustee (14 funds)

<FN>
* AARP Global Growth Fund commenced operations on February 1, 1996.
</FN>
</TABLE>

DISTRIBUTOR

Each of the Trusts has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is
wholly-owned by Scudder, Stevens & Clark, Inc., a Delaware corporation. The
underwriting agreements dated September 4, 1985 will remain in effect until
August 31, 1996 and from year to year thereafter only if their continuance is
approved annually by a majority of the members of the Board of Trustees of each

59
<PAGE>

Trust who are not parties to such agreement or interested persons of any such
party and either by vote of a majority of the Board of Trustees of each Trust or
a majority of the outstanding voting securities of each Trust.

Under each Trust's principal underwriting agreement, the Trust is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of its registration statement and prospectus
and any amendments and supplements thereto; the registration and qualification
of shares for sale in the various states, including registering the Trust as a
broker or dealer; the fees and expenses of preparing, printing and mailing
prospectuses (see below for expenses relating to prospectuses paid by the
Distributor), notices, proxy statements, reports or other communications
(including newsletters) to shareholders of the Trust; the cost of printing and
mailing confirmations of purchases of shares and the prospectuses accompanying
such confirmations; any issue taxes or any initial transfer taxes; a portion of
shareholder toll-free telephone charges; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); and the cost of printing and postage of business reply envelopes.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of shares of the
Funds to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Trust.

Note: Although each Trust does not currently have a Rule 12b-1 Plan and
shareholder approval would be required in order to adopt one, the underwriting
agreements provide that the Trust will also pay those fees and expenses
permitted to be paid or assumed by that Trust pursuant to a Rule 12b-1 Plan, if
any, adopted by each Trust, notwithstanding any other provision to the contrary
in the underwriting agreement and each Trust or a third party will pay those
fees and expenses not specifically allocated to the Distributor in the
underwriting agreement.

As agent, the Distributor currently offers shares of the Funds to
investors in all states. Each underwriting agreement provides that the
Distributor accepts orders for shares at net asset value because no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of any of the Funds.

TAXES

(See "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" in the Prospectus.)

Each AARP Fund has qualified and elected to be taxed as a regulated
investment company under Subchapter M of the United States Internal Revenue Code
(the "Code"), as amended, since its inception and intends to continue to so
qualify. (Such qualification does not involve supervision of management or
investment practices or policies by a government agency.) In any year in which a
Fund so qualifies and distributes at least 90% of its investment company taxable
income, and at least 90% of its net tax-exempt income, if any, the Fund
generally is not subject to Federal income tax to the extent that it distributes
to shareholders its investment company taxable income and net realized capital
gains in the manner required under the Code.

Each AARP Fund must distribute its taxable income according to a
prescribed formula and will be subject to a 4% nondeductible excise tax on
amounts not so distributed. The formula requires a Fund to distribute each
calendar year at least 98% of its ordinary income (excluding tax-exempt income)
for the calendar year, at least 98% of the excess of its capital gains over
capital losses (adjusted for certain ordinary losses) realized during the
one-year period ending October 31 of such year, and any ordinary income and
capital gains for prior years that was not previously distributed.

To qualify under Subchapter M, gains from the sale of stock, securities
and certain options, futures and forward contracts held for less than three
months must be limited to less than 30% of each Fund's annual gross income.
Moreover, short-term gains (i.e., gains from the sale of securities held for one
year or less) are taxed as ordinary income when distributed to shareholders.
Options, futures and forward activities of the AARP Funds may increase the
amount of the short-term gains and gains that are subject to the 30% limitation.

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The determination of the nature and amount of investment company
taxable income of a Fund will be based solely on the transactions in, and on the
income received and expenses incurred by or allocated to, the Fund. Each AARP
Fund intends to offset any realized net capital gains against any capital loss
carryforward before making capital gains distributions to shareholders.

Distributions of any investment company taxable income (which includes
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss, less expenses) are taxable to shareholders as ordinary
income.

Generally, each Fund will distribute any net capital gains (the excess
of its net realized long-term capital gain over its net realized short-term
capital loss). If a Fund retains its net capital gains for investment, requiring
Federal income tax to be paid thereon by the Fund, the Fund intends to elect to
treat such capital gains as having been distributed to its shareholders. As a
result, shareholders (a) will be required to include in income for Federal
income tax purposes, as long-term capital gains, their proportionate share of
such undistributed amounts and (b) will be entitled to credit their
proportionate share of the Federal income tax paid thereon by the Fund against
their Federal income tax liability. In the case of shareholders whose long-term
capital gains would be taxed at a lower rate, the amount of the credit for tax
paid by a Fund in excess of the shareholder's actual tax on capital gains may be
applied to reduce the net amount of tax otherwise payable by such shareholders
in respect of their other income or, if no tax is payable, the excess may be
refunded. For Federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal to the difference
between its pro rata share of such gains and its tax credit. If a Fund retains
net capital gains, it may not be treated as having met the excise tax
distribution requirement.

Distributions of net capital gains are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon the redemption of
shares held at the time of redemption for six months or less will be treated as
a long-term capital loss to the extent of any amounts treated as distributions
of long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized
capital gains by a Fund will be taxable as described above, whether made in
shares or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of the Fund on the
reinvestment date.

Distributions by a Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution nevertheless would be taxable to the shareholder
as ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a return of capital upon
distribution which will nevertheless be taxable to them.

Shareholders who redeem, sell or exchange shares of a Fund may realize
gain or loss if the proceeds are more or less than the shareholder's purchase
price. Such gain or loss generally will be a capital gain or loss if the Fund
shares were capital assets in the hands of the shareholder, and generally will
be long- or short-term, depending on the length of time the Fund shares were
held. However, if a shareholder realizes a loss on the sale of a share held at
the time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. A gain realized on a redemption, sale
or exchange will not be affected by a reacquisition of shares. A loss realized
on a redemption, sale or exchange, however, will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.

Equity options (including options on stock and options on narrow-based
stock indexes) and over-the-counter options on debt securities written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend in the case of
a lapse or sale of the option on the Fund's holding period for the option and in

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the case of an exercise of a put option on the Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security of the Fund. If a
Fund writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option written by a Fund is
exercised, the character of the gain or loss depends on the holding period of
the underlying security. The exercise of a put option written by a Fund is not a
taxable transaction for the Fund.

Many futures contracts, certain foreign currency forward contracts and
all listed nonequity options (including options on debt securities, options on
futures contracts, options on securities indices and options on broad-based
stock indices) will constitute "section 1256 contracts." Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term capital gain or losses. Also, section 1256 contracts held by the
Funds at the end of each taxable year (and, for purposes of the 4% excise tax,
on October 31) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60% long-term and 40% short-term capital gain or loss. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options, and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income.

Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Fund.

Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures contract, foreign currency forward
contract or nonequity option governed by Section 1256 which substantially
diminishes the Fund's risk of loss with respect to such other position will be
treated as a "mixed straddle." Although mixed straddles are subject to the
straddle rules of Section 1092 of the Code, certain tax elections exist for them
which reduce or eliminate the operation of these rules. Each Fund will monitor
its transactions in options and futures and may make certain tax elections in
connection with these investments.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.

If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

Proposed regulations have been issued which may allow the Fund to make
an election to mark to market its shares of these foreign investment companies
in lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, the Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions

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and gain on dispositions as ordinary income which is not subject to a Fund level
tax when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by those countries.

Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount represents interest for Federal income tax purposes and can generally
be defined as the difference between the price at which a security was issued
and its stated redemption price at maturity. Although no cash income is actually
received by the Funds, original issue discount earned in a given year generally
is treated for Federal income tax purposes as income earned by the Funds, and
therefore is subject to the distribution requirements of the Code. The amount of
income earned by the Funds is determined on the basis of a constant yield to
maturity which takes into account at least semi-annual or annual compounding
(depending on the date of the security) of accrued interest.

In addition, some of the debt securities may be purchased by the Funds
at a discount which exceeds the original issue discount on such debt securities,
if any. This additional discount represents market discount for Federal income
tax purposes. The gain realized on the disposition of many debt securities,
including tax-exempt securities having market discount will be treated as
ordinary income to the extent it does not exceed the accrued market discount on
such debt security. Generally, market discount accrues on a daily basis for each
day the debt security is held by the Funds at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Funds, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest.

The Funds will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. All such distributions and proceeds may be subject to
withholding of Federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Funds with their taxpayer identification
numbers and with required certifications regarding their status under Federal
income tax laws. Withholding may also be required if a Fund is notified by the
IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions or proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Investors may wish to consult their tax advisers about the applicability of the
backup withholding provisions.

In addition to Federal taxes, shareholders of the Funds may be subject
to state and local taxes on distributions from the Funds. Under the laws of
certain states, distributions of investment company taxable income are taxable
to shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by the resident of such state, would be exempt from such
state's income tax. Shareholders should consult their own tax advisers with
respect to the tax status of distributions from the Funds in their own state and
localities.

The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, Trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax adviser regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
31% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her.

Special Information Regarding AARP High Quality Tax Free Money Fund and
AARP Insured Tax Free General Bond Fund: Each of the AARP Tax Free Income Funds
intends to qualify to pay "exempt-interest dividends" to its shareholders. Each
Fund will be so qualified if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of securities of states,
U.S. possessions, their political subdivisions, and the District of Columbia,
the interest on which is exempt from Federal tax. To the extent that the Funds'
dividends distributed to shareholders are derived from earnings on interest
income exempt from Federal tax and are designated as "exempt-interest dividends"
by the Funds, they will be excludable from a shareholder's gross income for
Federal income tax purposes. "Exempt-interest dividends," however, must be taken
into account by shareholders in determining whether their total incomes are

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large enough to result in taxation of up to 85% of their Social Security
benefits. In addition, interest on certain municipal obligations (private
activity bonds) will be treated as a preference item for purposes of calculating
the alternative minimum tax for individuals and for corporations. Similarly,
income distributed by the Funds, including exempt-interest dividends, may
constitute an adjustment to alternative minimum taxable income of corporate
shareholders. The Funds do not intend to purchase any private activity bonds.
The Funds will inform shareholders annually as to the portion of the
distributions from the Funds which constituted "exempt-interest dividends."

To the extent that the Funds' dividends are derived from interest on
their temporary taxable investments or from an excess of net short-term capital
gain over net long-term capital loss, they are considered ordinary taxable
income for Federal income tax purposes. Distributions, if any, of net long-term
capital gains from the sale of securities are taxable at long-term capital gain
rates regardless of the length of time the shareholder has owned Fund shares.
However, if a shareholder realizes a loss on the sale of a share held at the
time of sale for six months or less, such loss will be treated as long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. Furthermore, a loss realized by a
shareholder on the sale of shares of the Funds with respect to which
exempt-interest dividends have been paid will be disallowed if such shares have
been held by the shareholder for six months or less (to the extent of
exempt-interest dividends paid).

Under the Code, a shareholder's interest expense deductions with
respect to indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as either of the AARP
Tax-Free Funds, may be limited. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed Funds are considered used for the
purposes of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed Funds even though the borrowed
Funds are not directly traceable to the purchase of shares.

Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuer. Neither AARP, the Fund Manager, nor Counsel to the Funds
makes any review of proceedings relating to the issuer of municipal securities
or the bases of such opinions.

The foregoing description regarding the AARP Tax-Free Funds relates
only to Federal income tax law. Investors should consult with their tax advisers
as to exemption from other state or local law. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
industrial development bonds should consult their tax advisers before purchasing
shares of the Funds.

BROKERAGE AND PORTFOLIO TURNOVER

Brokerage Commissions

To the maximum extent feasible the AARP Funds' investment adviser will
place orders for portfolio transactions through the Distributor, which in turn
will place orders on behalf of the AARP Funds with other brokers and dealers.
The Distributor receives no commission, fees or other remuneration from the
Funds for this service.
Allocation of brokerage is supervised by the Fund Manager.

Purchases and sales of fixed-income securities for the AARP Funds are
generally placed by the Fund Manager with primary market makers for these
securities on a net basis, without any brokerage commission being paid by a
Fund. Trading does, however, involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.

The primary objective of the Fund Manager in placing orders for the
purchase and sale of assets for the AARP Funds' portfolios is to obtain the most
favorable net results, taking into account such factors as price, commission
(which is negotiable in the case of national securities exchange transactions),
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Fund Manager seeks to evaluate the overall reasonableness of
brokerage commissions paid through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the AARP Funds to reported commissions paid by others. The

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Fund Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Fund Manager's practice to place such orders
with brokers and dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Funds or the Fund Manager. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and concerning the performance
of accounts. The Fund Manager is not authorized, when placing portfolio
transactions for the AARP Funds, to pay a brokerage commission in excess of that
which another broker might have charged for executing the same transaction
solely on account of the receipt of research, market or statistical information.
The Fund Manager will not place orders with brokers or dealers on the basis that
the broker or dealer has or has not sold shares of the Funds. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with particular brokers or dealers or groups thereof. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.

Subject to obtaining the most favorable results, the Fund Manager may
place particular transactions through the Distributor, with the net commission
or fee being credited against the fee payable to the Fund Manager. The
Distributor, however, does not intend to engage in a general brokerage business.
Also subject to obtaining the most favorable net results, the Fund Manager may
place brokerage transactions with Bear, Stearns & Co. A credit against the
custodian fee due to State Street Bank and Trust Company equal to one-half of
the commission on any such transaction will be given on any such transaction.
The Fund did not enter into any such transactions during its fiscal year.

Although certain research, market and statistical information from
brokers and dealers can be useful to the AARP Funds and to the Fund Manager, it
is the opinion of the Fund Manager that such information is only supplementary
to its own research effort since the information must still be analyzed,
weighed, and reviewed by the Fund Manager's staff. Such information may be
useful to the Fund Manager in providing services to clients other than the AARP
Funds, and not all such information is used by the Fund Manager in connection
with the AARP Funds. Conversely, such information provided to the Fund Manager
by brokers and dealers through whom other clients of the Fund Manager effect
securities transactions may be useful to the Fund Manager in providing services
to the AARP Funds.

For the fiscal years ended September 30, 1993, 1994 and 1995 the AARP
Growth and Income Fund paid brokerage commissions of $1,369,243, $2,319,113 and
$_______ and the AARP Capital Growth Fund paid brokerage commissions of
$1,154,049, $1,156,320 and $_________, both respectively. For the fiscal year
ending September 30, 1995 and the period ending September 30, 1994, the AARP
Balanced Stock and Bond Fund paid brokerage commissions of $_______ and
$152,376, respectively. In the fiscal year ended September 30, 1995, $_______
(___%) of the total brokerage commissions paid by AARP Growth and Income Fund
and $_____ (___%) by AARP Capital Growth Fund resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research information to the Funds
or the Fund Manager. The amount of such transactions aggregated $________ for
the AARP Capital Growth Fund, (___% of all brokerage transactions) and
$_________ (___%) of all brokerage transactions) for the AARP Growth and Income
Fund. The balance of such brokerage was not allocated to any particular broker
or dealer or with regard to the above-mentioned or other special factors. For
the fiscal year ended September 30, 1995, $_____ (___%) of the total brokerage
commissions paid by AARP Balanced Stock and Bond Fund resulted from orders
placed, consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided supplementary research information to the
Funds or the Fund Manager. The amount of such transactions aggregated $_________
for AARP Balanced Stock and Bond Fund, (___% of all brokerage transactions). The
balance of such brokerage was not allocated to any particular broker or dealer
or with regard to the above-mentioned or other special factors.

The Trustees review from time to time whether the recapture for the
benefit of the Funds of some portion of the brokerage commissions or similar
fees paid by the Funds on portfolio transactions is legally permissible and
advisable. To date, no recapture has been effected.

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Portfolio Turnover

Fund securities may be sold to take advantage of investment
opportunities arising from changing market levels or yield relationships.
Although such transactions involve additional costs in the form of spreads or
commissions, they will be undertaken in an effort to improve the overall
investment return of a Fund, consistent with that Fund's objectives. The
portfolio turnover rate of a Fund is defined in a Rule of the SEC as the lesser
of the value of securities purchased or securities sold during the year,
excluding all securities whose maturities at the time of acquisition were one
year or less, divided by the average monthly value of such securities owned
during the year. The average annual portfolio turnover rates for the fiscal
years ended September 30, 1993, 1994, and 1995 for five of the non-money market
Funds were: AARP GNMA and U.S. Treasury Fund, 105.49%, 114.54% and 70.35%; AARP
High Quality Bond Fund, 100.98%, 63.75% and 201.07%; AARP Insured Tax Free
General Bond Fund, 47.96%, 38.39% and 17.45%; AARP Growth and Income Fund,
17.44%, 31.82% and 31.26%; AARP Capital Growth Fund, 100.63%, 79.65% and 98.44%,
all respectively. The average annual portfolio turnover rate for fiscal year
ending September 30, 1995 and the period ending September 30, 1994 for the AARP
Balanced Stock and Bond Fund was 63.77%, and 49.32%, respectively. Under normal
investment conditions, it is anticipated that the AARP Global Growth Fund's
annual portfolio turnover rate will not exceed 75% for the initial fiscal year.

NET ASSET VALUE

AARP Money Funds

The net asset value per share of the Fund is computed twice daily as of
twelve o'clock noon and the close of regular trading on the Exchange, normally 4
p.m. eastern time, on each day when the Exchange is open for trading. The
Exchange is normally closed on the following national holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. Net asset value is determined by dividing the total
assets of the Fund, less all of its liabilities, by the total number of shares
of the Fund outstanding. The Fund uses the penny-rounding method of security
valuation as permitted under Rule 2a-7 under the 1940 Act. Under this method,
portfolio securities for which market quotations are readily available and which
have remaining maturities of more than 60 days from the date of valuation are
valued at the mean between the over-the-counter bid and asked prices. Securities
which have remaining maturities of 60 days or less are valued by the amortized
cost method; if acquired with remaining maturities of 61 days or more, the cost
thereof for purposes of valuation is deemed to be the value on the 61st day
prior to maturity. Other securities are appraised at fair value as determined in
good faith by or on behalf of the Trustees of the Fund. For example, securities
with remaining maturities of more than 60 days for which market quotations are
not readily available are valued on the basis of market quotations for
securities of comparable maturity, quality and type. Determinations of net asset
value per share for the Fund made other than as of the close of the Exchange may
employ adjustments for changes in interest rates and other market factors.

AARP Non-Money Market Funds

The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.

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Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

Trading in securities on foreign securities exchanges is normally
completed before the close of regular trading on the Exchange. Trading on these
foreign exchanges may not take place on all days on which there is regular
trading on the Exchange, or may take place on days on which there is no regular
trading on the Exchange. If events materially affecting the value of a Fund's
portfolio securities occur between the time when these foreign exchanges close
and the time when the Fund's net asset value is calculated, such securities will
be valued at fair value as determined by each Trust's Board of Directors.

If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The financial statements of the AARP Funds included in the Annual
Report to shareholders dated September 30, 1995, have been examined by Price
Waterhouse LLP, independent accountants, and are incorporated by reference into
this Statement of Additional Information in reliance upon the accompanying
report of said firm, which report is given upon their authority as experts in
accounting and auditing.

Shareholder Indemnification

Each of the Trusts is an organization of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. Each Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. Each Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Trust itself would be unable to meet its

67
<PAGE>

obligations. No series of one Trust is liable for the obligations of another
series in the AARP Complex.

Ratings of Corporate Bonds

The three highest ratings of Moody's for corporate bonds are Aaa, Aa
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa securities. Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Although factors
giving security to principal and interest on bonds rated A are adequate, other
elements may be present which suggest a susceptibility to impairment sometime in
the future.

The three highest ratings of S&P for corporate bonds are AAA (Prime),
AA (High-grade) and A. Bonds rated AAA have the highest rating assigned by S&P
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rating issues only in small degree. Bonds
rated A have a strong capacity to pay principal and interest, although they are
more susceptible to the adverse effects of changes in circumstances and economic
conditions.

Ratings of Commercial Paper

The ratings Prime-1 and Prime-2 are the highest commercial paper
ratings assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; 6) trend of
earnings over a period of ten years; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.

Prime-2 ratings are assigned by Moody's to commercial paper issuers
which have a strong capacity for meeting their obligations in a timely fashion.
However, their financial, economic and managerial capacities will be less than
that of Prime-1 borrowers. Financial characteristics such as earnings, coverage
ratios and capitalization will be more affected by external economic factors
than Prime-1 borrowers. Liquidity is still believed to be ample.

The two highest ratings of S&P for commercial paper are A-1 and A-2.
Commercial paper rated A-1 or better by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; the reliability and quality of
management are unquestioned.

S&P will assign an A-2 rating to the commercial paper of companies
which have the capacity for timely payment on issues. However, the relative
degree of safety is less than for issuers rated A-1.

Ratings of Municipal Bonds

The three highest ratings of Moody's for municipal bonds are Aaa, Aa,
and A. Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.

68
<PAGE>

The three highest ratings of S&P for municipal bonds are AAA (Prime),
AA (High-grade), and A (Good grade). Bonds rated AAA have the highest rating
assigned by S&P to a municipal obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions.

Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of Funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.

S&P's top ratings for municipal notes are SP-1 and SP-2. The
designation SP-1 indicates a very strong capacity to pay principal and interest.
A "+" is added for those issues determined to possess overwhelming safety
characteristics. An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.

The ratings F-1+ and F-1 are the two highest ratings assigned by Fitch.
Among the factors considered by Fitch in assigning these rating are: (1) the
issuer's liquidity; (2) its standing in the industry; (3) the size of its debt;
(4) its ability to service its debt; (5) its profitability; (6) its return on
equity; (7) its alternative sources of financing; and (8) its ability to access
the capital markets. Analysis of the relative strength or weakness of these
factors and others determines whether an issuer's commercial paper is within
these two ratings.

Other Information

Each AARP Fund has a fiscal year ending on September 30.

Portfolio securities of the AARP Funds are held separately, pursuant to
a custodian agreements with each Trust, by State Street Bank and Trust Company
of Boston as Custodian.

Each Trust has shareholder servicing agreements with Scudder Service
Corporation ("SSC"), a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc.
SSC is the transfer agent, dividend disbursing and shareholder service agent for
each Fund. Shareholder service expenses charged by SSC were for AARP High
Quality Money Fund, $1,533,555; AARP GNMA and U.S. Treasury Fund, $8,104,169;
AARP High Quality Bond Fund, $1,720,303; AARP High Quality Tax Free Money Fund,
$347,016; AARP Insured Tax Free General Bond Fund, $2,148,893; AARP Balanced
Fund, $513,031; AARP Growth and Income Fund, $3,249,295; and AARP Capital Growth
Fund, $1,171,702, for the fiscal year ended September 30, 1995.
Not all of these fees were paid in full at the fiscal year end.

The firm of Dechert Price & Rhoads of Washington, D.C. is counsel for
the Trusts.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of Scudder, Stevens &
Clark, Inc., computes net asset value for each Fund. AARP High Quality Money
Fund and AARP High Quality Tax Free Money Fund each pay Scudder Fund Accounting
an annual fee equal to 0.020% on the first $150 million of average daily net
assets, 0.0060% of such assets in excess of $150 million, up to and including $1
billion and 0.0035% of such assets in excess of $1 billion, plus holding and
transaction charges for this service. AARP Insured Tax Free General Bond Fund
pays Scudder Fund Accounting an annual fee equal to 0.024% on the first $150
million of average daily net assets, 0.0070% on such assets in excess of $150
million up to and including $1 billion, and 0.0040% of such assets in excess of
$1 billion, plus holding and transaction charges for this service. AARP GNMA and
U.S. Treasury Fund and AARP High Quality Bond Fund each pay Scudder Fund
Accounting an annual fee equal to 0.025% of the first $150 million of average
daily net assets, 0.0075% of such assets in excess of $150 million up to and
including $1 billion, and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. AARP Balanced Stock and Bond
Fund, AARP Growth and Income Fund and AARP Capital Growth Fund each pay Scudder
Fund Accounting an annual fee equal to 0.025% on the first $150 million of
average daily net assets, 0.0075% of such assets in excess of $150 million up to
and including $1 billion, and 0.0045% of such assets in excess of $1 billion,
plus holding and transaction charges. AARP Global Growth Fund pays Scudder Fund

69
<PAGE>

Accounting Corporation an annual fee equal to 0.065% on the first $150 million
of average daily net assets, 0.0400% of such assets in excess of $150 million up
to and including $1 billion, and 0.0200% of such assets in excess of $1 billion,
plus holding and transaction charges for this service.

Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders. These transactions will reflect investment decisions
made by the Fund Manager in light of the objectives and policies of the Funds,
and such factors as its other portfolio holdings and tax considerations, and
should not be construed as recommendations for similar action by other
investors.

Costs incurred in connection with subsequent registrations of shares
are being amortized on a pro-rata basis as the related shares are issued. If
other Funds are added to a Trust, the Trustees will determine whether such Funds
should bear any of such costs.

Each Trust is located at Two International Place, Boston, Massachusetts
02110-4103 (telephone: 1-800-253-2277). Each has filed with the Securities and
Exchange Commission, Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933, as amended, with respect to the shares of the Funds
offered by the Prospectus. The Prospectus and this Statement of Additional
Information do not contain all of the information set forth in the Registration
Statements, certain parts of which are omitted in accordance with Rules and
Regulations of the SEC. The Registration Statements may be inspected at the
principal office of the SEC at 450 Fifth Street, N.W., Washington, D.C. and
copies thereof may be obtained from the SEC at prescribed rates.

The following chart demonstrates that tax-free yields are equivalent to
higher taxable yields due to their tax-exempt status. For example, tax-free
interest of 5% is the equivalent of 6.94% taxable in a 28% tax bracket.
Please refer to the chart for more examples.

Tax-Exempt Income vs. Taxable Income

The following table illustrates comparative yields from taxable and
tax-exempt obligations under federal income tax rates in effect for the 1995
calendar year.

<TABLE>
<CAPTION>
1995 Taxable Income To Equal Hypothetical Tax-Free Yields of 5%,
Brackets 7% and 9%, a Taxable Investment Would
Have To Earn**
Individual Federal
Return Tax Rates 5% 7% 9%
------ --------- -- -- --
<S> <C> <C> <C> <C>
$0 - $23,350 15.0% 5.88% 8.24% 10.59%
$23,351 - $56,550 28.0% 6.94% 9.72% 12.50%
$56,551 - $117,950 31.0% 7.25% 10.14% 13.04%
$117,951 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%

Joint
Return
------

$0 - $39,000 15.0% 5.88% 8.24% 10.59%
$39,001 - $94,250 28.0% 6.94% 9.72% 12.50%
$94,251 - $143,600 31.0% 7.25% 10.14% 13.04%
$143,601 - $256,500 36.0% 7.81% 10.94% 14.06%
Over $256,500 39.6% 8.28% 11.59% 14.90%
</TABLE>

** These illustrations assume the Federal alternative minimum tax is not
applicable, that an individual is not a "head of household" and claims
one exemption and that taxpayers filing a joint return claim two
exemptions. Note also that these federal income tax brackets and rates
do not take into account the effects of (i) a reduction in the
deductibility of itemized deductions for taxpayers whose federal

70
<PAGE>

adjusted gross income exceeds $114,700 ($57,350 in the case of a
married individual filing a separate return), or of (ii) the gradual
phaseout of the personal exemption amount for taxpayers whose federal
adjusted gross income exceeds $114,700 (for single individuals) or
$172,050 (for married individuals filing jointly). The effective
federal tax rates and equivalent yields for such taxpayers would be
higher than those shown above.

Example:*

Based on 1995 federal tax rates, a married couple filing a joint return
with two exemptions and taxable income of $40,000 would have to earn a
tax-equivalent yield of 6.94% in order to match a tax-free yield of 5%.

There is no guarantee that a Fund will achieve a specific yield. While
most of the income distributed to the shareholders of each Fund will be exempt
from federal income taxes, portions of such distributions may be subject to
federal income taxes. Distributions may also be subject to state and local
taxes.

* Net amount subject to federal income tax after deductions and
exemptions, exclusive of the alternative minimum tax.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolio, of each
AARP Fund, together with the Report of Independent Accountants and Supplementary
Information are incorporated by reference and attached hereto on pages 34
through 91 inclusive in the Annual Report to the Shareholders of the AARP Funds
dated September 30, 1995, and are hereby deemed to be a part of this Statement
of Additional Information.

<PAGE>
ANNUAL REPORT
TO SHAREHOLDERS

AARP Investment Program
from SCUDDER

SEPTEMBER 30, 1995

LETTER TO
SHAREHOLDERS

UNDERSTANDING
THE VOLATILITY
OF YOUR
MUTUAL FUNDS

AARP FUND
REPORTS

INVESTMENT
PORTFOLIOS AND
FINANCIAL
STATEMENTS
<PAGE>

Table of Contents

Letter to Shareholders ........................................... 2
Special Section:
Understanding the Volatility of
Your Mutual Funds ........................................... 7
AARP Fund Reports ........................................... 12
AARP High Quality
Money Fund ........................................... 13
AARP High Quality
Tax Free Money Fund ........................................... 15
AARP GNMA and
U.S. Treasury Fund ........................................... 17
AARP High Quality
Bond Fund ........................................... 19
AARP Insured Tax Free
General Bond Fund ........................................... 21
AARP Balanced Stock
and Bond Fund ........................................... 23
AARP Growth and
Income Fund ........................................... 26
AARP Capital
Growth Fund ........................................... 29
AARP Funds'
Investment Portfolios ........................................... 34
Financial Statements ........................................... 76
Financial Highlights ........................................... 82
Notes to Financial
Statements ........................................... 86
Report of Independent
Accountants ........................................... 91
Officers and Trustees ........................................... 93
Service and Tax Information ........................................... 96

<PAGE>

Letter to Shareholders

Dear Shareholders,

Over the period covered by this Annual Report--October 1, 1994 through September
30, 1995--the benefit of staying committed to your investments became evident.
The fiscal period began in late 1994, one of the worst years in history for the
bond market and a challenging year for the stock market. Those of you who
maintained a long-term investment perspective and remained patient should be
pleased. The stock and bond markets have performed exceptionally well since the
beginning of 1995. In this environment, the AARP income and growth-oriented
Funds provided solid returns while continuing to follow their conservative
investment strategies. Descriptions elaborating on the performance of the AARP
Funds begin on page 12.

We would first like to spend a few paragraphs discussing the stock and bond
markets and then review some matters specific to the AARP Investment Program. We
have also added a Special Section to the Report this year that provides you with
some tools with which to evaluate your mutual fund investments--specifically how
to assess the risk of share price volatility. The section begins on page 7 with
a brief discussion of mutual fund risk, followed by questions that you might ask
a mutual fund company when considering a particular fund. A detailed grid then
provides the answers to those questions as they relate to the AARP Funds. We
hope this will allow you to compare the AARP Funds to one another and to other
funds you may want to consider for your investment portfolio.

The Stock and Bond Markets

As economic growth slowed in the beginning of 1995, concerns about inflation
abated and expectations that the Federal Reserve Board (the Fed) would lower
interest rates heightened. As a result, short- and long-term interest rates
began to decline. On July 6, 1995, the Fed cut the Federal Funds rate (the rate
banks charge each other for overnight loans) by .25% to 5.75%. In making this
cut, the first in nearly three years, the Fed cited waning inflationary
pressures, with inflation hovering at less than 3%. The economy overall showed
strong corporate profits, low inflation, and declining interest rates.

This good news for the stock market propelled it to new heights. The unmanaged
Dow Jones Industrial Average--the price-weighted average of 30 actively traded
blue chip stocks--hit one record after another, ending September 1995 at 4789, a

2
<PAGE>

number that only a few years ago would have seemed impossible. The unmanaged
Standard and Poor's 500 Stock Price Index returned 29.75% from October 1, 1994
to September 30, 1995.

The bond market also posted significant gains in this environment because as
interest rates decline, bond prices rise. Long-term interest rates, as measured
by the 30-year U.S. Treasury bond, declined from 7.81% on September 30, 1994 to
6.57% on September 30, 1995. Short-term interest rates, as measured by the
three-month Treasury bill, declined to 5.40% on September 30, 1995 from a high
of 5.93% in February of this year.

Looking Ahead

Our outlook for the bond market remains positive due to our expectations that
inflation should remain stable for the next year or so, and that interest rates
should also remain stable or slightly decline.

Our outlook for the stock market also remains positive. Stocks generally perform
well in an environment of low interest rates and low inflation. However, while
earnings growth continues, we may be nearing the end of the current business
cycle. (A business cycle is a pattern of fluctuating economic output and
growth.) Historically, the latter part of the cycle can be characterized as very
uncertain for stock investors. As the slowdown in economic activity becomes more
pronounced, corporate earnings and stock prices sometimes suffer. While this may
cause some short-term volatility, we continue to believe that stocks will
outperform bonds and cash equivalents over the longer term.

What This Means for Investors

We believe investors need to continue to focus on their long-term investment
goals rather than on short-term uncertainties in the markets. If you have an
investment time horizon of three years or more and can accept that both the bond
and stock markets will have volatility, short-term downturns in the market
should have no impact on your primary investment goal. In fact, these downturns
could provide investment opportunities. However, it is also important to put the
recent strong performance of the markets into perspective and not expect these
unusually high returns to continue indefinitely. Remember that diversification,
or allocating your assets in a mix of different investments such as stocks,
bonds, and money market investments, can be a sensible strategy to provide you
with a degree of protection from market volatility.

The AARP Investment Program from Scudder

As we have mentioned often over this past year, 1995 marks the 10th anniversary
of the AARP Investment Program. Over the past ten years we have learned more and
more about the needs of our shareholders. Recognizing these needs, all of the
AARP Mutual Funds are managed conservatively as the portfolio management teams

3
<PAGE>

try to moderate the share price volatility of your investment. This makes the
AARP Funds distinct from many other mutual funds which may seek long-term higher
returns, but do not focus on reducing short-term share price fluctuation. At the
same time, the AARP Funds will provide the opportunity for competitive returns.
Of course, while the AARP Funds are conservatively managed, it is important that
you realize that your principal is never insured or guaranteed, and the value of
your investment and your return will move up and down as market conditions
change.

It is this commitment to conservative investing that has continued to appeal to
AARP members. As of September 30, 1995, there were more than 670,000 investors
participating in the Program and nearly $12 billion in assets under management.
With each new shareholder comes different needs. That is why the Program prides
itself on the introduction of new services and features that will help you meet
those needs. In addition to those outlined on the back of this Report, we are
pleased to note the following services and enhancements.

Enhanced Easy-Access Line

Since its initial introduction in 1990, we have continued to improve the
Easy-Access Line as the needs of our shareholders have changed. Based upon the
most recent input from you, we have enhanced the service. Originally scheduled
for an October 5th implementation, the new service was instead made available on
October 26th. If you attempted to use the service but could not access it, we
encourage you to try again by calling toll-free 1-800-631-4636. It is now easier
to use and more informative than ever before.

For detailed information on the enhanced Easy-Access Line, please refer to the
October issue of Financial Focus, or call us toll-free at 1-800-253-2277.

New Funds Centers

We were happy to announce that AARP shareholders can now be assisted in
Scudder's Funds Centers in San Francisco and New York. As with Funds Centers in
Boston, Boca Raton, San Diego, and Scottsdale, you can obtain face-to-face
assistance from knowledgeable Mutual Fund Representatives who are specially
trained to understand the investment objectives of AARP members. So if you live
in these areas and need help in allocating your assets, have questions about
planning for retirement, or want to learn more about the AARP Mutual Funds, stop
in and see us. For directions, please call us at 1-800-253-2277.

4
<PAGE>

New Office in Norwell

We were pleased to open our new Shareholder Servicing Operations Center in
Norwell, Massachusetts in September. While our toll-free phone number has
remained the same, our AARP Mutual Funds Representatives will now receive
certified or registered mail at the following address:

AARP Investment Program from Scudder
42 Longwater Drive
Norwell, MA 02061-1612

Regular mail should continue to be sent to:

AARP Investment Program from Scudder
P.O. Box 2540
Boston, MA 02208-2540

In Closing

In addition to reading the Special Section about risk that follows, we encourage
you to read the individual Fund Reports. Since the AARP Investment Program has
now been in existence for ten years, you will see ten-year performance data for
most of the Funds included for the first time in our Annual Report. We encourage
you to give significant attention to these long-term returns because they
provide perspective on how each of the AARP Mutual Funds has performed through
different types of markets.

If you have questions about your Funds or the information provided in this
Report, please call our knowledgeable AARP Mutual Fund Representatives between
the hours of 8:00 A.M. to 8:00 P.M. Monday through Friday, eastern time at
1-800-253-2277.

Sincerely,

/s/Cuyler W. Findlay
Cuyler W. Findlay
Chairman

/s/Linda C. Coughlin
Linda C. Coughlin
President

/s/Douglas M. Loudon
Douglas M. Loudon
Investment Director

5
<PAGE>

BLANK PAGE

6
<PAGE>

Understanding the Volatility of Your Mutual Funds

As shareholders, many of you received the November 1995 issue of Financial
Focus, the Program's monthly newsletter. In it, we presented information about
how to assess some of the risks associated with your mutual funds. Because of
its importance, we have repeated much of the information in this Special
Section. In addition, we have provided you with statistics about the AARP Income
and AARP Growth Funds so you can begin to understand how to evaluate such
measurements as standard deviation and duration. We hope to continue to provide
you with similar information on a periodic basis. As you read through this
section, please remember that our AARP Mutual Fund representatives are able to
help you with many of your questions. Please call toll-free 1-800-253-2277.

Defining Risk

Currently, the Securities and Exchange Commission (SEC) is determining if it is
possible to define a universal method of measuring the risks of a particular
fund. Having risk benchmarks to accompany performance benchmarks would greatly
enhance an investor's ability to evaluate a mutual fund. Until then, however,
determining a fund's risk requires some homework. But what do we mean by risk?
Risk, as you know, is a multifaceted concept that means different things to
different people. What may seem risky to you may be conservative to someone
else. That is, in fact, why it is so difficult to create a risk benchmark that
is appropriate for every type of mutual fund.

We can define risk broadly as the possibility that you will lose part of your
investment. At one end of the risk spectrum are money funds, which pose little
risk to your principal (though they do pose risk to your purchasing power if
your investment does not increase in value to ward off inflation and taxes). At
the other end are growth funds, which are characterized as having a high degree
of risk because their value can decline notably over the short term. Related to
this is the fundamental relationship between risk and return. Generally, if you
choose a less risky investment, you must expect a lower return. Conversely, if
you expect potentially higher returns, there is usually more short-term risk
involved.

What is Your Tolerance for Risk?

Ultimately, evaluating the risk of an investment involves understanding your own
tolerance for risk as well as your investment time horizon. If you have a short
investment time horizon, you would be concerned about whether the income you
receive will keep up with taxes and inflation. If you have a long investment

7
<PAGE>

time horizon, you need to think about how far down an investment value could
go--and how long it could stay down--before you start feeling very
uncomfortable.

While you think about this, remember that no real loss or gain is realized until
you sell your investment. That is why time is such an important factor. A way
for you to help manage risk is to commit for the long term and understand the
importance of diversifying your investments among several types of mutual funds
and dollar cost averaging, or investing a fixed amount of money at regular
intervals.

Managing the Risk of Share Price Volatility

Because there are so many types of investment risk, and because there are no
universal methods of measurement, it may be helpful to focus on a risk over
which portfolio managers of a mutual fund can exert some control--share price
volatility. A year and a half ago we at the AARP Investment Program looked at
the question of volatility and started to better define our volatility
objectives and refine the investment strategies of three Funds: The AARP High
Quality Bond Fund, the AARP Insured Tax Free General Bond Fund, and the AARP
Capital Growth Fund. Today, all the Funds are managed to moderate the risk of
share price volatility, or the frequency and magnitude of declines in each
Fund's net asset value. The tradeoff will be returns that while competitive, may
not offer returns of similar funds that are not managed to reduce share price
volatility.

The following questions may help you determine the potential volatility of a
mutual fund.

Is the Fund Managed to Moderate Volatility?

A stock fund is managed to moderate volatility if it has a more diversified
portfolio, which usually lowers the risk to the fund because the poor
performance of a few securities will be cushioned by the positive performance of
the majority. Therefore, a stock fund that is highly concentrated in one
particular sector poses more risk than one that is diversified among many
different sectors of the market. For a bond fund, moderating volatility relates
to the degree of interest rate exposure. (Please refer to the next page for the
section on duration.)

What is the Fund's Standard Deviation?

Standard deviation measures how much a fund's return fluctuates from month to
month. Funds with high standard deviations have generally performed more
erratically in the past. However, consistency can be misleading because a fund
that declines steadily month after month may have a low standard deviation.
Therefore, when you look at a fund's standard deviation, also look at its
performance to determine whether the returns the fund produced were acceptable
to you given its volatility. Be aware too that standard deviation does not
reflect market performance, nor does it predict future performance.

8
<PAGE>

As you look at the grid on pages 10 and 11, you will note that we have quoted
three-year standard deviations for the AARP Income and AARP Growth Funds, which
provide a more complete picture than one-year figures. We have also provided
three-year average annualized returns as well. As you review these figures,
please remember that the refined investment strategies of the AARP Funds
mentioned previously might decrease the Funds' standard deviations in the
future.

What is the Fund's Duration?

Duration indicates a bond fund's sensitivity to changes in interest rates. It
measures how a bond fund may react to a one percentage point change in interest
rates. For example, if a bond fund has a duration of four years, it should lose
about 4% of its value if interest rates rise by one percentage point and gain
approximately 4% if rates decline by one percentage point. Since duration
changes as interest rates change, you should check your fund's duration
periodically, remembering that the lower the duration the less volatility the
fund endures. Duration is a more accurate measure of interest rate risk than
average maturity because it takes into account interest payments as well as
amount paid at maturity.

Does the Fund Use Derivatives?

Derivatives are securities whose value is derived from or based on an underlying
security, asset, or index. They are subject to the same fundamental relationship
between risk and potential return as are all investments. The higher the risk of
a derivative, the greater its potential return. When used by a mutual fund,
derivatives can reduce or increase risk in the same way that any security in the
portfolio can. Derivatives are often used to help manage risk and to protect
against the potential of large losses, or to increase your potential returns.
Investment professionals can use one of a variety of techniques to hedge (that
is, to offset investment risk) utilizing such derivatives as options, futures,
and forwards. If a fund uses derivatives, find out if they are used for
defensive purposes (which may not add significant risk to a portfolio, and may
in fact reduce risk), or to increase return (which often adds significantly
greater risk to the fund).

Assessing the Volatility of the AARP Mutual Funds

The following grid summarizes how the AARP Mutual Funds (with the exception of
the AARP money funds) are managed to reduce share price volatility, and gives
standard deviation, duration, credit quality, and derivative information. Though
the grid does not compare the AARP Funds to other funds or benchmarks, it does
allow you to compare the AARP Funds to each other. If you would like to discuss
any of this information with our AARP Mutual Fund Representatives, please call
toll-free at 1-800-253-2277.

9
<PAGE>

<TABLE>
<CAPTION>
STANDARD
HOW THE FUND IS MANAGED DEVIATION
FUND TO MODERATE VOLATILITY (9/30/92-9/30/95)
---- ---------------------- -----------------
<S> <C> <C>
AARP INCOME FUNDS

AARP GNMA and The Fund actively seeks to reduce price volatility by investing in 3.06
U.S. Treasury Fund a combination of short-, intermediate-, and long-term securities,
and by adjusting the mix of GNMA and U.S. Treasury securities. It
generally keeps a significant portion of the portfolio in
short-term assets, which helps reduce share price fluctuation.

AARP High Quality Bond Fund* The Fund invests in securities with varying maturities. At least 4.87
65% of the assets of the Fund are invested in U.S. Government,
corporate, and other fixed income securities. The non-governmental
investments of the Fund will be spread among a variety of
companies and will not be concentrated in any one industry.

AARP Insured The Fund invests primarily in a mix of high-grade short-, 6.80
Tax Free General Bond Fund* intermediate-, and long-term municipal securities that are insured
against default by private insurers. We expect the standard
deviation to decline in the future.

AARP GROWTH FUNDS

AARP Balanced Stock The Fund invests in a broadly diversified mix of equity securities, 3-year figure not
and Bond Fund bonds, and cash reserves. The Fund invests only in dividend-paying available since
stocks, which tend to have less volatility than other types of Fund is less
stocks. than 3 years old.

AARP Growth and The Fund consists of a broadly diversified portfolio consisting 7.78
Income Fund primarily of dividend-paying stocks, which tend to have less
volatility than other types of stocks. It invests in common stocks
and securities convertible into common stocks, as well as
preferred stocks.

AARP Capital This Fund underwent the most dramatic strategy change. It now 11.34
Growth Fund* consists of a broadly diversified portfolio consisting primarily of
high-quality, medium- to large-sized companies with strong
competitive positions in their industries. It invests in common
stocks and securities convertible into common stocks, as well as
preferred stocks. We expect the standard deviation to decline in
the future.

* This Fund's investment strategy was modified in February 1995.
</TABLE>

10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED EFFECTIVE DERIVATIVES
TOTAL RETURN DURATION IN PORTFOLIO
(9/30/92-9/30/95) (AS OF 9/30/95) CREDIT QUALITY OF BONDS (AS OF 9/30/95)
----------------- --------------- ----------------------- ---------------
<S> <C> <C> <C>
4.64% 2.80 All securities in the portfolio are No derivatives at this time.
backed by the full faith and credit of
the U.S. Government.

6.09% 4.70 100% of the Fund's securities are No derivatives at this time.
high-quality-- AAA-, AA-, or A-rated. At
least 65% of the Fund's assets must be in
securities that are AAA- or AA-rated, the
top two ratings.

6.37% 7.50 100% of the Fund's securities are Approximately 10% of net
high-quality-- AAA-, AA-, or A-rated. At assets were exposed to
least 65% of these securities are insured derivatives for defensive
against default. purposes.

Not applicable. 4.80 of bond portion All bonds are investment grade -- at least Approximately 3% of net
of portfolio. 75% of the Fund's bonds are AAA-, AA-, or assets were exposed to
A-rated. The remainder can be Baa derivatives primarily for
(Moody's) or BBB (Standard & Poor's) or defensive purposes.
higher.

15.79% Not applicable. Not applicable. No derivatives at this time.

13.58% Not applicable. Not applicable. No derivatives at this time.

</TABLE>

11
<PAGE>

AARP Fund Reports

The following pages contain a summary of each Fund in the AARP Investment
Program from Scudder. Each AARP Mutual Fund report contains the one-year total
return, five-year total return, and ten-year total return or Life of Fund total
return. Because a one-year total return could be high or low depending on market
conditions over a 12-month period, it is useful to have the perspective of the
five-year and ten-year total return figures. Within each Fund description
(except for the AARP money funds), one-year total return is broken down into two
components: distribution of income and capital change. Distribution of income is
defined as reinvested dividends. Capital change is defined as the change in the
price per share including any reinvested capital gains distributions.

You will also note that all of the AARP Funds, except the AARP money funds, have
been compared to market indices. We are providing these comparisons to comply
with the Securities and Exchange Commission's (SEC) disclosure requirements.
Under these requirements, all mutual funds (except money funds) are required to
compare their performance over the past ten years (or Life of Fund) to that of a
broad-based securities market index. It is important to note, however, that
these indices have limited relevance to the performance of mutual funds. They do
not reflect the deduction of any servicing, investment management, or
administration expenses.

Also, the AARP Mutual Funds are unique in the high quality of their investment
portfolios and the emphasis on seeking to reduce share price fluctuation. This,
in turn, can have significant impact on performance. Therefore, when comparing
an AARP Mutual Fund's performance with that of a major market index, remember
that any comparison may be of limited value.

12
<PAGE>

AARP High Quality Money Fund

At a Glance

Fund Overview

This Fund is designed to preserve your principal while you earn money market
returns. The AARP High Quality Money Fund has quality standards high enough to
have secured a AAAm rating from Standard & Poor's*, a leading national
independent rating firm. The Fund seeks to maintain a $1.00 share price,
although there may be circumstances under which this goal cannot be achieved. It
is important to note that unlike bank savings accounts, the Fund is not insured
or guaranteed by the U.S. Government and the yield of the Fund will fluctuate.

* The rating for the Fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.

For Whom the Fund is Designed

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

Q How has the Fund performed?

A As with all money funds, the performance of the AARP High Quality Money
Fund mirrored what happened to short-term interest rates. Short-term
interest rates, as measured by the three-month U.S. Treasury Bill, declined
over recent months. By September 30, 1995, short-term interest rates
declined to 5.40% from as high as 5.93% earlier this year. While this trend
has caused a gradual decline in the Fund's yield since February, the Fund's
7-day net annualized yield of 4.97% as of September 30, 1995 was still
higher than its 3.94% yield on September 30, 1994. The Fund has been able
to maintain a competitive yield by lengthening its average maturity (see
investment strategy on the next page).

The Fund's one-year total return was 4.99%, which was made up entirely of
income. The five-year cumulative total return was 21.95%; the five-year
average annualized total return was 4.05%; the 10-year cumulative total
return was 69.05%; and the 10-year average annualized total return was
5.39%. Of course past performance is not a guarantee of future results, and
yield will fluctuate.

13
<PAGE>

Q What has been the Fund's investment strategy?

A In the latter part of 1994 and into the first several months of 1995, we
maintained a short average maturity to take advantage of rising interest
rates. The Fund's average maturity was as short as 21 days back in February
when short-term interest rates peaked at 5.93%. As short-term interest
rates began to decline, the portfolio management team purchased securities
with longer maturities. By gradually lengthening the average maturity of
the Fund to approximately 55 days as of September 30, 1995, we were able to
provide shareholders with a higher yield.

We also decreased our investment in floating rate notes from 57% to 34%
over this period. Floating rate instruments "float" with the market as
interest rates rise or fall. Therefore, in a declining interest rate
environment, we decreased our exposure to such securities.

Q What can I expect from the Fund in the upcoming year?

A The Fund should remain a good alternative for your short-term assets or if
you are seeking stability of principal. However, we expect short-term
interest rates to remain relatively stable or decline slightly over the
next few months and into 1996. Consequently, the yield of the AARP High
Quality Money Fund may decline slightly as well.

14
<PAGE>

AARP High Quality Tax Free Money Fund

At a Glance

Fund Overview

The AARP High Quality Tax Free Money Fund is designed to offer you stability of
principal, along with income free from federal taxes.1 The quality of the Fund
is high enough to have secured a AAAm rating from Standard & Poor's (S&P).2 The
AARP High Quality Tax Free Money Fund is designed to maintain a $1.00 share
price, although there may be circumstances under which this goal cannot be
achieved. It is important to note that, unlike bank savings accounts, the Fund
is not insured or guaranteed by the U.S. Government, and yield will fluctuate.

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

2 The rating for the Fund is historical and is based on an analysis of the
portfolio's credit quality, market price exposure, and management.

For Whom the Fund is Designed

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

Q How has the Fund performed?

A Over the past 12 months, the AARP High Quality Tax Free Money Fund provided
shareholders with modest returns and a rising yield. The Fund's 7-day net
annualized yield as of September 30, 1995 was 3.37% (which is a tax
equivalent yield of 5.58% for shareholders in the 39.6% tax bracket). This
was up from its 2.64% yield on September 30, 1994. The Fund's one-year
total return was 2.99%, which was made up entirely of income. The five-year
cumulative total return was 15.91%; the five-year average annualized total
return was 3.00%, the 10-year cumulative total return was 52.03%; and the
10-year average annualized total return was 4.28%.

Please note that the five- and ten-year figures include the performance of
the AARP Insured Tax Free Short Term Fund, which changed its name and
objective to the AARP High Quality Tax Free Money Fund on August 1, 1991.
Of course, past performance is not a guarantee of future results and yield
will fluctuate.

15
<PAGE>

Q What has been the Fund's investment strategy?

A Over the past 12 months, we lengthened the average maturity of the Fund to
approximately 55 days as of September 30, 1995. We decreased our holdings
of securities with maturities of three to six months, and increased our
investment in securities with maturities of six to 12 months. The longer
average maturity provided shareholders with higher yields as short-term
interest rates declined. We will not move longer than 55 days because the
average maturity of the Fund cannot exceed 60 days if we are to maintain
the S&P's AAAm rating. This is the highest rating S&P issues a Fund of this
type.

As always, all securities we bought over the past six months are rated
within the two highest quality ratings of at least one of the three leading
national independent rating firms: Fitch Investors Service Inc., Moody's
Investors Service Inc., or S&P. For those funds rated by S&P, there are
particular guidelines with which each fund must comply in order to maintain
its AAAm rating. In addition, within the universe of securities that fit
within the S&P criteria, Scudder credit analysts approve only a small
percentage of that universe. Therefore, the number of securities that we
have to choose from is much smaller and in most cases of better quality
than other tax-free money funds.

Q What can I expect from the Fund in the upcoming year?

A We believe the Fund should continue to provide investors in high tax
brackets with an alternative for their short-term investment needs.
However, we expect short-term interest rates to remain stable or decrease
slightly. The short-term municipal market should follow that trend.
Consequently, the yield of the AARP High Quality Tax Free Money Fund may
decline slightly.

16
<PAGE>

AARP GNMA and U.S. Treasury Fund

At a Glance

Fund Overview

The AARP GNMA and U.S. Treasury Fund seeks to produce monthly income from a
conservatively managed high-quality portfolio. Although your principal is not
guaranteed as it is with an insured fixed-rate Certificate of Deposit (CD) or
savings account, the Fund is managed to help reduce share price fluctuation.
While the securities in the Fund are guaranteed as to the timely payment of
principal and interest, the guarantee is not related to the Fund's yield or
share price, both of which will fluctuate daily.

For Whom the Fund is Designed

The Fund is designed for conservative investors who want relatively high current
income and who seek a degree of protection from day-to-day share price
volatility. Investors should be seeking to invest for the longer term (at least
one to three years) and be comfortable with fluctuation in the value of their
principal and yield.

GROWTH OF A $10,000 INVESTMENT

Yearly AARP GNMA Lehman
Periods and U.S. Brothers
Ended Treasury Mortgage
Sept. 30 Fund++ GNMA Index+
---------------------------------------------------------------
1 Year $11,031 $11,407
5 Year $14,540 $15,606
10 Year $21,938 $26,277

LINE CHART:
Yearly Periods ended September 30++

CHART DATA:
AARP GNMA Lehman
and U.S. Brothers
Treasury Mortgage
Fund GNMA Index
-----------------------------------------------------------
85 10000 10000
86 11362 11784
87 11537 12013
88 12813 13820
89 13861 15384
90 15088 16837
91 17219 19635
92 19145 21878
93 20273 23320
94 19887 23035
95 21938 26277

TOTAL RETURN

Cumulative

---------------------------------------------------------------
Yearly AARP GNMA Lehman
Periods and U.S. Brothers
Ended Treasury Mortgage
Sept. 30 Fund++ GNMA Index+
---------------------------------------------------------------
1 Year 10.31% 14.07%
5 Year 45.40% 56.06%
10 Year 119.38% 162.77%

Average Annual

---------------------------------------------------------------
1 Year 10.31% 14.07%
5 Year 7.77% 9.30%
10 Year 8.17% 10.14%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

LINE CHART:
Yearly Periods ended September 30++

CHART DATA:

AARP GNMA Lehman
and U.S. Brothers
Treasury Mortgage
Fund GNMA Index
-----------------------------------------------------------
1991 14.12 16.61
1992 11.19 11.43
1993 5.89 6.59
1994 -1.9 -1.22
1995 10.31 14.07

1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value $ 15.72 $ 16.19 $ 15.96 $ 14.73 $ 15.19
Income Dividends $ 1.26 $ 1.22 $ 1.15 $ 0.93 $ 1.01
Capital Gains $ -- $ -- $ -- $ -- $ --
Distributions
Fund Return (%) 14.12% 11.19% 5.89% -1.90% 10.31%
Index Return (%)+ 16.61% 11.43% 6.59% -1.22% 14.07%

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

++ All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return
and principal value will fluctuate so an investor's shares, when redeemed,
may be worth more or less than when purchased.

17
<PAGE>

Q How has the Fund performed?

A We believe the AARP GNMA and U.S. Treasury Fund performed well. The Fund's
share price on September 30, 1994 was $14.73; it increased to $15.19 on
September 30, 1995. Because of the Fund's conservative investment
philosophy (see investment strategy below), it usually outperforms similar
funds in a down bond market (when interest rates are rising) and
underperforms when the bond market rallies as it did over the past several
months. Therefore, the Fund's one-year total return of 10.31% (representing
7.19% in distributions of income and 3.12% in capital change)
underperformed the unmanaged Lehman Brothers Mortgage GNMA Index total
return of 14.07%. It is also important to note that an index return does
not reflect investment in cash or the deduction of any servicing,
investment management, or administration expenses as a mutual fund does.

The Fund's yield continued to provide higher yields than insured fixed-rate
12-month CDs. According to Banxquote, a weekly financial rate reporter, the
nationally averaged yield on the 12-month CD as of September 30, 1995 was
5.23% -- significantly lower than the 6.59% yield on the AARP GNMA and U.S.
Treasury Fund. (Keep in mind that yield does not take into consideration
the share price fluctuation of the Fund. Unlike the share price of the
Fund, the principal value of a CD remains constant. Past performance is not
a guarantee of future results.)

Q What has been the Fund's investment strategy?

A In order to provide more income to shareholders, we shifted assets from
shorter-term instruments into GNMA securities, which were selling at
attractive price levels. As of September 30, 1995, 77% of the portfolio was
invested in GNMA securities. We have emphasized lower-rate mortgages
because they provide a combination of high income with some protection from
prepayments (paying off a mortgage before it comes due). As of the end of
September, almost a third of total assets were in 7% to 7.50% coupon
mortgages.

The remainder of the portfolio (approximately 23%) was in short-term U.S.
Treasury obligations and cash equivalents with maturities of two years or
less. As you know, it has been an ongoing strategy to keep some of the
Fund's assets in shorter maturity bonds to help dampen share price
volatility.

Q What should I expect from the Fund in the upcoming year?

A We believe the Fund will continue to be a sound choice for conservative
investors, offering higher current income than many other comparable
alternatives, with a certain degree of protection from market volatility,
particularly compared to longer-term alternatives. As stated in the Letter
to Shareholders, we expect both short- and long-term interest rates to
remain relatively stable over the next year or perhaps decline a bit.
Combined with an attractive mortgage market, this should continue to
provide the high current income shareholders have come to expect.

18
<PAGE>

AARP High Quality Bond Fund

At a Glance

Fund Overview

The AARP High Quality Bond Fund offers you monthly income and the opportunity
for higher returns than you can expect from the AARP GNMA and U.S. Treasury
Fund. In pursuing higher returns, fluctuation in the value of your principal may
also be greater. The Fund has quality standards that are among the highest of
any general bond fund currently available, with at least 65% of the portfolio
invested in AAA-rated and AA-rated issues, and the other 35% in nothing less
than A-rated bonds.

For Whom the Fund is Designed

The Fund is designed for investors who want competitive returns from a portfolio
of high credit quality. Investors should be seeking to invest for the longer
term (at least one to three years) and be comfortable with fluctuation in the
value of their principal and yield. The AARP High Quality Bond Fund has the
potential to offer shareholders a greater total return than the AARP GNMA and
U.S. Treasury Fund. It will also be subject to greater price fluctuation.

GROWTH OF A $10,000 INVESTMENT

Yearly AARP High Lehman
Periods Quality Brothers
Ended Bond Fund++ Aggregate
Sept. 30 Bond Index+
-----------------------------------------------------------------------
1 Year $11,298 $11,406
5 Year $15,375 $15,848
10 Year $22,775 $25,917

LINE CHART
Yearly Periods ended September 30++

CHART DATA
AARP HIGH QUALITY LEHMAN BROTHERS
BOND FUND AGGREGATE BOND INDEX
----------------------------------------------------------------
85 10000 10000
86 11360 12028
87 11350 12060
88 12755 13664
89 14079 15203
90 14813 16353
91 17100 18969
92 19077 21349
93 21343 23479
94 20159 22722
95 22774 25917

TOTAL RETURN

Cumulative

-----------------------------------------------------------------------
Yearly AARP High Lehman
Periods Quality Brothers
Ended Bond Fund++ Aggregate
Sept. 30 Bond Index+
-----------------------------------------------------------------------
1 Year 12.98% 14.06%
5 Year 53.75% 58.48%
10 Year 127.75% 159.17%

Average Annual

-----------------------------------------------------------------------
1 Year 12.98% 14.06%
5 Year 8.98% 9.64%
10 Year 8.58% 9.99%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

BAR CHART
Yearly Periods ended September 30++

CHART DATA

AARP HIGH QUALITY LEHMAN BROTHERS
BOND FUND AGGREGATE BOND
INDEX
------------------------------------------------------------------
1991 15.44 15.99
1992 11.56 12.55
1993 11.88 9.98
1994 -5.55 -3.22
1995 12.98 14.06

1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value $ 15.71 $ 16.44 $ 17.19 $ 15.05 $ 16.01
Income Dividends $ 1.10 $ 1.03 $ 0.93 $ 0.85 $ 0.93
Capital Gains Distributions $ -- $ -- $ 0.18 $ 0.38 $ --
Fund Return (%) 15.44% 11.56% 11.88% -5.55% 12.98%
Index Return (%)+ 15.99% 12.55% 9.98% -3.22% 14.06%

+ 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.

19
<PAGE>

Q How has the Fund performed?

A We believe the AARP High Quality Bond Fund performed well over the past 12
months as long-term interest rates declined. Long-term interest rates, as
measured by the 30-year U.S. Treasury Bond, declined from 7.81% on
September 30, 1994 to 6.57% on September 30, 1995. As a result, the value
of the securities held by the Fund increased. The Fund's share price
increased from $15.05 to $16.01 over this period. The Fund's one-year total
return was 12.98%, with 6.60% representing distributions of income and
6.38% capital change. Its one-year total return underperformed the
unmanaged Lehman Brothers Aggregate Bond Index return of 14.06%. The Fund's
underperformance was due to its conservative investment strategy designed
to moderate share price fluctuation. It is also important to note that an
index return does not reflect investment in cash or the deduction of any
servicing, investment management, or administration expenses, as a mutual
fund does.

Q What has been the Fund's investment strategy?

A In the last quarter of 1994, the Fund focused on bonds at the shorter and
longer ends of the maturity spectrum. This strategy was designed to provide
a sound mix of competitive yields and limited price fluctuation in an
environment of unstable but generally rising interest rates. Since the
beginning of 1995, however, our strategy began to shift toward
intermediate-term bonds. This revised strategy is in keeping with our
outlook for a steeper yield curve, which is when short-term yields decline
faster than long-term yields. Intermediate-term bonds usually perform well
in this environment.

We also increased the Fund's investment in mortgage-backed securities to
42% of the portfolio to boost the Fund's total return. As previously
discussed on page 18, we believe that lower-rate mortgage-backed securities
offer an attractive combination of high income and good quality at current
market levels. A majority of the mortgage securities we held in the
portfolio had coupons ranging from 7% to 7.50%. We also increased the
Fund's investment in corporate bonds to 23% of the portfolio. The corporate
sector included issues from some of the country's leading consumer staples,
durable goods manufacturing, financial, and transportation companies.

As of September 30, 1995, 66% of the portfolio was invested in government,
AAA-rated or AA-rated securities; 23% of the Fund was invested in A-rated
bonds; and 11% was in cash equivalents.

Q What should I expect from the Fund in the upcoming year?

A As stated in the Letter to Shareholders, we expect both short- and
long-term interest rates to remain relatively stable over the next year or
perhaps decline a bit. We believe that the AARP High Quality Bond Fund is
positioned for possible lower interest rates with increased exposure to
intermediate-term issues. This Fund should continue to provide shareholders
with high income and less share price fluctuation than a long-term bond.

20
<PAGE>

AARP Insured Tax Free General Bond Fund

At a Glance

Fund Overview

The AARP Insured Tax Free General Bond Fund seeks to pay high monthly income
that is free from federal taxes.* The Fund invests in a portfolio consisting
primarily of high-grade municipal securities that are insured against default.
This insurance does not apply to the value of your shares or the yield of the
Fund, both of which will fluctuate daily. The Fund also aims to keep the value
of its shares more stable than that of a long-term municipal bond.

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

For Whom the Fund is Designed

The Fund is designed for investors in higher tax brackets who want income that
is free from federal income taxes. Investors should be seeking to invest for the
longer term (at least one to three years) and be comfortable with fluctuation in
the value of their principal and yield.

GROWTH OF A $10,000 INVESTMENT

---------------------------------------------------
Yearly AARP
Periods Insured Lehman
Ended Tax Free Brothers
Sept. 30 General Municipal
Bond Fund++ Bond Index+
---------------------------------------------------
1 Year $11,021 $11,118
5 Year $15,074 $15,289
10 Year $22,913 $25,121

LINE CHART
Yearly Periods ended September 30++

CHART DATA
AARP INSURED TAX FREE LEHMAN BROTHERS
GENERAL BOND FUND MUNICIPAL BOND
INDEX
-------------------------------------------------------------------------
85 10000 10000
86 11796 12465
87 11449 12530
88 13096 14156
89 14492 15385
90 15200 16431
91 17305 18598
92 19038 20542
93 21764 23160
94 20790 22594
95 22913 25121

TOTAL RETURN

Cumulative
---------------------------------------------------
Yearly AARP
Periods Insured Lehman
Ended Tax Free Brothers
Sept. 30 General Municipal
Bond Fund++ Bond Index+
---------------------------------------------------
1 Year 10.21% 11.18%
5 Year 50.74% 52.89%
10 Year 129.13% 151.21%

Average Annual

---------------------------------------------------
1 Year 10.21% 11.18%
5 Year 8.55% 8.86%
10 Year 8.64% 9.64%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

LINE CHART
Yearly Periods ended September 30++

CHART DATA

AARP
INSURED LEHMAN BROTHERS
TAX FREE MUNICIPAL BOND
GENERAL BOND FUND INDEX
-------------------------------------------------------------------------
1991 13.85 13.19
1992 10.01 10.45
1993 14.31 12.74
1994 -4.48 -2.44
1995 10.21 11.18

1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value $ 17.30 $ 17.88 $ 19.00 $ 16.93 $ 17.74
Income Dividends $ 1.00 $ 0.93 $ 0.90 $ 0.86 $ 0.87
Capital Gains Distributions $ -- $ 0.17 $ 0.43 $ 0.40 $ --
Fund Return (%) 13.85% 10.01% 14.31% -4.48% 10.21%
Index Return (%)+ 13.19% 10.45% 12.74% -2.44% 11.18%

+ 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.

21
<PAGE>

Q How has the Fund performed?

A We believe the AARP Insured Tax Free General Bond Fund performed well over
the past 12 months as long-term interest rates declined. Long-term interest
rates, as measured by the 30-year U.S. Treasury Bond, declined from 7.81%
on September 30, 1994 to 6.57% on September 30, 1995. As a result, the
value of the securities held by the Fund increased. The Fund's share price
increased from $16.93 to $17.74 over this period.

The Funds one-year total return was 10.21%, with 5.43% representing
distributions of income and 4.78% in capital change. The one-year total
return underperformed the unmanaged Lehman Brothers Municipal Bond Index's
return of 11.18%, due in large part to the Fund's conservative investment
approach to moderate share price volatility.

Q What has been the Fund's investment strategy?

A Over the past 12 months, the portfolio management team gradually shifted a
portion of the portfolio from long-term bonds with maturities of over 20
years to bonds with maturities under 15 years. As of September 30, 1995,
42% of the portfolio was invested in intermediate-term bonds maturing in 10
to 15 years. The reallocation added to the Fund's favorable performance
over the past few months, because bonds with maturities in the 15-year
range that were noncallable performed better than longer-term bonds that
were priced close to par.

In addition, as of September 30, 1995, 90% of the portfolio was invested in
insured securities (or securities escrowed in U.S. Treasurys which provide
the backing of the U.S. Government). Remember that this insurance protects
the bond from default but does not apply to the value of your shares or to
the yield of the Fund, both of which will fluctuate daily. Within the
portfolio, the largest sector of the Fund (22%) was in insured hospital
bonds, which we believe were undervalued bonds. As always, we invested in
securities rated within the top three ratings by Moody's Investors Services
Inc. and Standard & Poor's -- two independent rating services.

Q What should I expect from the Fund in the upcoming year?

A Over the longer term, we expect interest rates to remain relatively stable
or decline a bit. The revised positions of the portfolio will continue to
take advantage of this environment. Therefore, the Fund should provide
shareholders with high income free from federal taxes and will seek to keep
its share price more stable than that of a long-term municipal bond. We
believe that the municipal bond market will follow the trend of the taxable
bond market, with a positive long-term outlook.

22
<PAGE>

AARP Balanced Stock and Bond Fund

At a Glance

Fund Overview

Through a combination of stocks, bonds, and cash reserves, the AARP Balanced
Stock and Bond Fund seeks to offer you long-term growth of capital and quarterly
income. The Fund attempts to keep the value of its shares more stable than other
potentially higher returning, higher risk balanced mutual funds.

For Whom the Fund is Designed

This Fund is designed for investors who are seeking long-term growth of their
assets, but who want less risk than an investment solely in stocks. Investors
should be able to invest for the longer term (three to five years or more) and
be comfortable with the value of their principal fluctuating up and down.

GROWTH OF A $10,000 INVESTMENT

Blended
Index:
Yearly AARP S&P (50%);
Periods Balanced LBAB (40%);
Ended Stock and 3-Month
Sept. 30 Bond Fund++ T Bill (10%)
-----------------------------------------------------------------------
1 Year $11,680 $12,043
Life of Fund* $11,589 $11,826

LINE CHART
Quarterly Periods from February 1, 1994 to September 30, 1995++

CHART DATA

AARP BALANCED STANDARD & POOR'S LEHMAN BROTHERS
STOCK AND 500 STOCK PRICE AGGREGATE BOND
BOND FUND INDEX INDEX BLENDED INDEX
- --------------------------------------------------------------------------------
10000 10000 10000 10000
9520 9304 9584 9492
9623 9344 9485 9481
9922 9800 9543 9744
9837 9799 9579 9772
10335 10753 10062 10457
11077 11779 10675 11230
11589 12716 10885 11797

TOTAL RETURN

Cumulative

Average Annual

-----------------------------------------------------------------------
1 Year 16.80% 20.43%
Life of Fund* 9.28% 10.65%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

BAR CHART
Yearly Periods ended September 30++

CHART DATA

Blended
Index:
AARP S&P (50%);
Balanced LBAB (40%);
Stock and 3-Month
Bond Fund++ T Bill (10%)
------------------------------------------------------
1994* -0.78 -3.83
1995 16.80 21.06

1994* 1995
-----------------------------------------------------------
Net Asset Value $ 14.64 $ 16.40
Income Dividends $ 0.24 $ 0.60
Capital Gains Distributions $ -- $ 0.04
Fund Return (%) -0.78% 16.80%
Blended Index Return (%)+ -3.83% 20.43%

+ The performance of the blended benchmark is a weighting comprised of 50%
Standard & Poor's 500 Stock Price Index (S&P), 40% Lehman Brothers
Aggregate Bond Index (LBAB), and the 3-Month Treasury Bill Index (10%). The
50/40/10 measure is meant to reflect the anticipated long range asset mix
of the Fund, which may change over time. The unmanaged Standard & Poor's
500 Stock Price Index is a market value-weighted measure of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-the-Counter market. The unmanaged Lehman Brothers
Aggregate Bond Index is a market value-weighted measure of treasury issues,
agency issues, corporate bond issues and mortgage securities. Index returns
are calculated monthly and assume reinvestment of dividends. Unlike Fund
returns, Index returns do not reflect any fees or expenses.

* The Fund commenced operations on February 1, 1994.

23
<PAGE>

Q How has the Fund performed?

A We believe the AARP Balanced Stock and Bond Fund performed well over the
past 12 months. The Fund's share price was $14.64 on September 30, 1994; it
increased to $16.40 on September 30, 1995. Its one-year total return was
16.80%, with 4.47% representing distributions of income and 12.33%
representing capital change. By comparison, the unmanaged Standard & Poor's
500 Stock Price Index and the unmanaged Lehman Brothers Aggregate Index
posted returns of 29.75% and 14.06%, respectively. (Please note that the
Fund was introduced on February 1, 1994. Therefore, five-year and ten-year
data are not available.) The Fund's performance, while strong, did not
match that of the blended index primarily because of the Fund's lack of
exposure to technology stocks (refer to the investment strategy of the AARP
Growth and Income Fund on page 27 for details on the outperformance of
technology stocks) and its underweighting in intermediate-term bonds -- the
best performing fixed-income group for most of 1995.

Q What has been the Fund's investment strategy?

A In general, the stock portion of the Fund (representing 55% of the
portfolio as of September 30, 1995) uses an approach similar to the AARP
Growth and Income Fund. The Fund will usually invest in stocks that are
believed to have favorable long-term capital appreciation outlooks and have
above-average dividend yields. Since the stock portion of the Fund is
managed by the same individuals and with the same strategy as the AARP
Growth and Income Fund, refer to the AARP Growth and Income Fund Report on
page 27 for details on specific stock selection. (The Fund may invest up to
70% of its assets in stocks.)

The portion of the Fund invested in bonds (representing 30% of the
portfolio as of September 30, 1995) can include corporate issues, U.S.
Government securities, mortgage-backed obligations, and other fixed-income
securities. At least 75% of these securities will be securities rated
within the three highest quality ratings (AAA, AA, A) by Moody's or
Standard & Poor's, independent rating organizations. (At all times, at
least 30% of the Fund's assets will be invested in a combination of bonds
and cash equivalents.) At the beginning of the fiscal period, the Fund
focused on bonds at the shorter and longer ends of the maturity spectrum.
Our strategy began to shift mid-year toward intermediate-term bonds.
Reallocating the portfolio to focus on intermediate-term bonds was in
anticipation of a steeper yield curve (short-term yields declining faster
than long-term yields) as the Federal Reserve Board moved to a more
accommodative policy of lower rates. The Fed demonstrated this intent by
lowering short-term interest rates in July.

24
<PAGE>

The remaining portion of the Fund's assets was invested in cash
equivalents.

Q What can I expect from the Fund in the upcoming year?

A For the remainder of 1995, we believe that our disciplined investment
approach should continue to provide exposure to the long-term benefits of a
diversified portfolio of stocks and bonds. The current asset allocation for
the Fund is 55% stocks, 30% bonds, and 15% cash equivalents. However, this
allocation may be gradually changed depending upon our expectations for the
financial markets. Since the AARP Balanced Stock and Bond Fund is invested
more heavily in stocks, we will concentrate on trends in the stock market
and how they may affect the Fund.

25
<PAGE>

AARP Growth and Income Fund

At a Glance

Fund Overview

The AARP Growth and Income Fund is a conservatively managed stock fund that
provides the potential for long-term growth and quarterly income, while still
seeking to moderate risk. It invests in above-average dividend-yielding stocks
that may offer the opportunity for long-term growth of capital.

For Whom the Fund is Designed

The Fund is suitable for investors who are seeking long-term growth of their
assets and the opportunity to keep ahead of inflation. Investors should be able
to invest for the longer term (three to five years or more) and be comfortable
with fluctuation in the value of their principal that is associated with
investing in stocks.

GROWTH OF A $10,000 INVESTMENT

Yearly AARP Standard
Periods Growth and & Poor's
Ended Income 500 Stock
Sept. 30 Fund++ Price Index+
---------------------------------------------------------
1 Year $12,043 $12,975
5 Year $22,033 $22,143
10 Year $38,903 $44,259

LINE CHART
Yearly Periods ended September 30++

CHART DATA
AARP GROWTH STANDARD &
AND INCOME POOR'S 500
FUND STOCK PRICE
INDEX
-----------------------------------------------------------
85 10000 10000
86 12900 13174
87 16884 18894
88 15064 16558
89 19661 22023
90 17657 19988
91 22457 26217
92 25058 29114
93 29914 32900
94 32303 34112
95 38903 44259

TOTAL RETURN

Cumulative

Yearly AARP Standard
Periods Growth and & Poor's
Ended Income 500 Stock
Sept. 30 Fund++ Price Index+
---------------------------------------------------------

1 Year 20.43% 29.75%
5 Year 120.33% 121.43%
10 Year 289.03% 342.59%

Average Annual

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

1 Year 20.43% 29.75%
5 Year 17.12% 17.22%
10 Year 14.55% 16.03%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

BAR CHART
Yearly Periods ended September 30++

CHART DATA

AARP GROWTH STANDARD & POOR'S
AND INCOME 500 STOCK PRICE
FUND INDEX
------------------------------------------------------------------
1991 27.19 31.09
1992 11.59 11.04
1993 19.38 12.97
1994 7.99 3.68
1996 20.43 29.75

1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value $ 26.97 $ 28.67 $ 32.91 $ 34.13 $ 38.36
Income Dividends $ 1.17 $ 0.90 $ 0.87 $ 1.13 $ 1.09
Capital Gains $ 0.05 $ 0.48 $ 0.30 $ 0.21 $ 1.23
Distributions
Fund Return (%) 27.19% 11.59% 19.38% 7.99% 20.43%
Index Return (%)+ 31.09% 11.04% 12.97% 3.68% 29.75%

+ The unmanaged Standard & Poor's 500 Stock Price Index is a market value
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market. Index
returns are calculated monthly and assume reinvestment of dividends. Unlike
Fund returns, Index returns do not reflect any fees or expenses.

26
<PAGE>

Q How has the Fund performed?

A We believe the AARP Growth and Income Fund performed well. The Fund's share
price was $34.13 on September 30, 1994; it increased to $38.36 on September
30, 1995. The Fund's one year total return was 20.43%, with 3.69%
representing distributions of income and 16.74% in capital change. Its
one-year total return underperformed the unmanaged Standard & Poor's 500
Stock Price Index return of 29.75%. This underperformance was due primarily
to our lack of exposure to the technology sector. (See investment strategy
section below.)

Q What has been the Fund's investment strategy?

A The AARP Growth and Income Fund has had a consistent investment strategy
since its inception. We continue to target stocks that have dividend yields
that are at least 20% above the average market yield at the time of
purchase. Our strict valuation discipline focuses our attention on those
companies whose fundamental outlooks may have been misperceived by
investors, as reflected by such stocks' higher than average relative
dividend yields. This strict discipline, which has contributed to the
Fund's long-term success, sometimes precludes us from investing in certain
sectors of the market.

Technology stocks -- the best performing sector of the market in 1995 (up
over 60% for the year ended September 30, 1995) -- are characterized by a
high degree of price volatility and minimal or nonexistent dividends. As
such, they do not fit into our investment universe. This sector represents
over 10% of the S&P 500 and has been the market leader for close to a year
and a half. History continually shows us that enthusiasm for a particular
group (such as technology) can last for a period of time, but eventually
all positive expectations get priced into the stocks and cause them to
underperform. This was the case for oil stocks in the 1970s, defense stocks
in the mid-1980s, and pharmaceutical stocks in the early 1990s. Our
discipline may cause us to miss some of the upswings, but it protects us
from the downturns. We often reevaluate these groups when the rest of the
market has given up on them and their prices are low.

During the last year, we continued to shift the portfolio from stocks that
are economically sensitive to those with more long-term consistent growth.
We favored the health, finance, manufacturing, and energy sectors. The
portfolio has benefited significantly from the dramatic outperformance of
its manufacturing and durable goods holdings as well as superior
performance from many of the financial holdings in the Fund. The
manufacturing and durable good sectors are overweighted in the portfolio
relative to the unmanaged S&P 500 Index. Aerospace stocks such as United

27
<PAGE>

Technologies and Lockheed Martin posted strong returns during the period,
as fears of recession subsided and earnings growth continued to rise.
United Technologies (now the Fund's top holding) also benefited from the
strengthening commercial aerospace recovery, which aided revenues and
operating income even more than expected.

The financial sector was the second best performing U.S stock market group
in the first half of this year, led by stocks such as Student Loan
Marketing Association (Sallie Mae) which is the Fund's second largest
holding. Sallie Mae posted superior returns during the period as support
waned for the controversial plan enabling direct student lending by the
federal government. In addition, Chemical Bank and First Bank have
benefited from continued cost cutting and consolidation in the banking
industry.

Convertibles were also used to enhance the total return of the Fund.
Convertibles are bonds or preferred stocks that can be exchanged at the
option of the investor into a specified number of shares of the issuing
company's common stock. As such, their prices are directly influenced by
the performance of the common stock. Because convertibles typically provide
higher income and have less fluctuation than their underlying stocks,
finding attractively priced convertibles is often difficult. We purchased a
convertible issued by Mitsubishi Bank toward the end of the fiscal period
which we believe offers much upside potential with a very attractive
downside protection feature.

The Fund's portfolio management team employs a disciplined process for
sales as well as purchases. If a stock's yield drops below 75% of the S&P
500's yield or if the fundamental outlook for the company has changed or if
the valuation is full (i.e., positive expectations are reflected into its
price) the holding is sold. This approach led to the elimination of Parker
Hannifin because of its yield and the reduction of Eli Lilly and Warner
Lambert as their prices are fairly valued. Proceeds from these sales were
used to purchase stocks that have, in our opinion, more attractive total
return prospects.

(Please note that portfolio changes should not be considered
recommendations for action by individual investors.)

Q What should I expect from the Fund in the upcoming year?

A For the remainder of 1995 and beyond, we believe that our disciplined
investment approach is an attractive way for investors to have exposure to
the long-term benefits of stocks. Our aim in managing the Fund is to
provide a positive total return when the stock market is rising, while
attempting to shield the portfolio when the stock market is declining. (In
1994, shielding the portfolio proved to be beneficial, and we were pleased
to have helped investors avoid many of the stock market's downturns.)
Though there may be some short-term volatility, we continue to believe that
stocks will outperform bonds and cash equivalents over the longer term.

28
<PAGE>

AARP Capital Growth Fund

At a Glance

Fund Overview

The AARP Capital Growth Fund is designed to help investors take advantage of the
high growth potential of stocks while attempting to keep the value of its shares
more stable than other potentially higher-returning, higher-risk capital growth
mutual funds.

For Whom the Fund is Designed

The Fund is designed for investors seeking long-term growth of their principal.
Investors should be able to invest for the longer term (five years or more) and
be comfortable with the short-term fluctuation of their principal that is
associated with investing in stocks.

GROWTH OF A $10,000 INVESTMENT

Yearly AARP Standard
Periods Capital & Poor's
Ended Growth 500 Stock
Sept. 30 Fund++ Price Index+
-----------------------------------------------------
1 Year $ 12,347 $ 12,975
5 Year $ 21,750 $ 22,143
10 Year $ 37,388 $ 44,259

LINE CHART

Yearly Periods ended September 30++

CHART DATA

STANDARD & POOR'S
AARP CAPITAL 500 STOCK
GROWTH FUND PRICE INDEX
-----------------------------------------------------
85 10000 10000
86 12658 13174
87 17337 18894
88 16387 16558
89 23535 22023
90 17189 19988
91 24547 26217
92 25515 29114
93 31773 32900
94 30281 34112
95 37388 44259

TOTAL RETURN

Cumulative

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

Yearly AARP Standard
Periods Capital & Poor's
Ended Growth 500 Stock
Sept. 30 Fund++ Price Index+
-----------------------------------------------------
1 Year 23.47% 29.75%
5 Year 117.50% 121.43%
10 Year 273.88% 342.59%

Average Annual

---------------------------------------------------
1 Year 23.47% 29.75%
5 Year 16.81% 17.22%
10 Year 14.10% 16.03%

ANNUAL INVESTMENT RETURNS AND PER SHARE INFORMATION

BAR CHART

Yearly Periods ended September 30++

CHART DATA

STANDARD & POOR'S
AARP CAPITAL 500 STOCK
GROWTH FUND PRICE INDEX
------------------------------------------------
1991 42.81 31.09
1992 3.94 11.04
1993 24.53 12.97
1994 -4.70 3.68
1995 23.47 29.75

1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------
Net Asset Value $ 30.23 $ 30.30 $ 36.20 $ 31.74 $ 38.36
Income Dividends $ 0.59 $ 0.23 $ 0.14 $ 0.05 $ 0.01
Capital Gains
Distributions $ 1.79 $ 0.94 $ 1.21 $ 2.90 $ 0.64
Fund Return (%) 42.81% 3.94% 24.53% -4.70% 23.47%
Index Return (%)+ 31.09% 11.04% 12.97% 3.68% 29.75%

29
<PAGE>

Q How has the Fund performed?

A We believe the AARP Capital Growth Fund performed well over the past 12
months. The Fund's share price increased from $31.74 on September 30, 1994
to $38.36 on September 30, 1995. The Fund's one-year total return was
23.47% with .04% representing distributions of income and 23.43% in capital
change. Its one-year return underperformed the unmanaged Standard & Poor's
500 Stock Price Index return of 29.75% because, unlike most other growth
funds, the AARP Capital Growth Fund seeks to moderate share price
fluctuation and therefore may underperform the index when the stock market
strongly advances.

Q What has been the Fund's investment strategy?

A Over the past year, we began to shift to a more diversified, higher-quality
portfolio by increasing our position in the health, financial, and energy
sectors and reducing many of our holdings in the communications, gaming,
and media sectors. Specifically, we reduced our position in Time Warner,
Tele-Communications, and Viacom and eliminated our positions in Comcast,
LIN Broadcasting, and Rogers Communications.

We used the proceeds from the sale of such securities to purchase stocks
within the health, financial, and energy sectors. We anticipate attractive
earnings growth in stocks such as Franklin Resources, Merck, and American
International Group. We also purchased Capital Cities, Philips Electronics,
and Hewlett-Packard. Many of these purchases were made early in the year,
and we have already seen considerable appreciation. Capital Cities, for
example, has benefited from the announcement of the proposed Capital Cities
and Disney merger. (We also owned Disney, which appreciated as a result of
the proposed merger.)

In addition, the portfolio has benefited significantly from the dramatic
outperformance of most of its technology stocks such as Compaq Computer,
Hewlett-Packard (the Fund's second largest holding), Intel, and Texas
Instruments. Technology stocks were up over 60% for the year ended
September 30, 1995. As of September 30, 1995, approximately 15% of the
portfolio was invested in technology stocks. It is important to note that
this 15% allocation is significantly lower than the average for most other
growth stock funds. Since technology stocks are characterized by a high
degree of share price volatility, large investments in this sector would
not meet our investment criteria.

(Please note that portfolio changes should not be considered
recommendations for action by individual investors.)

30
<PAGE>

Q What can I expect from the Fund in the upcoming year?

A Despite some inevitable short-term volatility, we believe that the AARP
Capital Growth Fund's strategy of high-quality and diversification may
provide investors with the opportunity for long-term growth with less risk
-- in terms of share price fluctuation -- than other more aggressive growth
funds.

31
<PAGE>

BLANK PAGE

32
<PAGE>

Investment Portfolios,

Financial Statements

and Additional

Information

33
<PAGE>

AARP HIGH QUALITY MONEY
FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
<S> <C>
REPURCHASE AGREEMENTS 9.0%

4,445,000 Repurchase Agreement with State Street Bank and Trust Company
dated 9/29/95 at 6.1% to be repurchased at $4,447,260 on 10/2/95,
collateralized by a $4,730,000 U.S. Treasury Bill, 6/27/96 .................. 4,445,000

30,000,000 Repurchase Agreement with Union Bank of Switzerland dated 9/29/95 at
6.05% to be repurchased at $30,015,125 on 10/2/95, collateralized
by a $28,500,000 U.S. Treasury Note, 7.25%, 8/15/22 ......................... 30,000,000
-----------

Total Repurchase Agreements (Cost $34,445,000) ................................ 34,445,000
-----------
COMMERCIAL PAPER 38.3%

Health 3.0%
Pharmaceuticals
11,500,000 Warner Lambert Co., 5.58%, 12/18/95 ........................................... 11,355,483
-----------

Communications 4.4%
Telephone/Communications
10,000,000 American Telephone & Telegraph Co., 6.03%, 10/3/95 ............................ 9,996,650
7,000,000 American Telephone & Telegraph Co., 5.58%, 1/5/96 ............................. 6,893,040
-----------
16,889,690
-----------

Financial 27.1%
Banks 9.0%
10,000,000 Barclays U.S. Funding Corp., 5.74%, 10/31/95 .................................. 9,951,250
10,000,000 Deutsche Bank Financial Inc., 5.52%, 3/11/96 .................................. 9,742,150
15,000,000 Norwest Corp., 5.63%, 1/3/96 .................................................. 14,775,575
-----------
34,468,975
-----------

Insurance 3.9%
15,000,000 Prudential Funding Corp., 5.71%, 10/26/95 ..................................... 14,940,521
-----------
Other Financial Companies 12.9%
10,000,000 Associates Corp. of North America, 5.73%, 10/6/95 ............................. 9,992,042
15,000,000 Ciesco L.P., 5.71%, 11/1/95 ................................................... 14,924,437
15,000,000 Dresdner U.S. Finance, 5.6%, 12/19/95 ......................................... 14,809,083
10,000,000 Transamerica Finance Corp., 5.62%, 1/12/96 .................................... 9,836,058
-----------
49,561,620
-----------

Miscellaneous 1.3%
5,000,000 CIT Group Holdings Inc., 5.73%, 10/4/95 ....................................... 4,999,988
-----------

Durables 3.8%
Automobiles
15,000,000 Ford Motor Credit Corp., 5.65%, 12/29/95 ...................................... 14,787,513
-----------

Total Commercial Paper (Cost $147,040,874) .................................... 147,003,790
-----------

U.S. GOVERNMENT AGENCIES 34.0%
17,000,000 Federal National Mortgage Association, 5.149%, 7/14/99* ....................... 16,762,000
25,000,000 Student Loan Marketing Association, 3.17%, 4/16/96* ........................... 25,045,750

</TABLE>

The accompanying notes are an integral part of the financial statements.

34
<PAGE>
<TABLE>
<CAPTION>

Principal
Amount ($) Value ($)

<S> <C>
20,000,000 Student Loan Marketing Association, 4.675%, 11/27/96* ......................... 20,018,000
23,690,000 Student Loan Marketing Association, 4.14%, 1/23/97* ........................... 23,697,403
15,000,000 Student Loan Marketing Association, 4.28%, 1/23/97* ........................... 15,004,688
10,000,000 Student Loan Marketing Association, 3.39%, 10/30/97* .......................... 10,007,800
20,500,000 Student Loan Marketing Association, 5.14%, 7/12/99* ........................... 20,233,500
-----------
Total U.S. Government Agencies (Cost $131,232,329)............................. 130,769,141
-----------
MEDIUM-TERM AND SHORT-TERM NOTES 18.0%

Financial 12.3%
Banks 11.0%
5,000,000 Comerica Bank, Note, 6.2%, 5/28/96 ............................................ 5,007,388
17,000,000 Harris Trust and Savings Bank, Note, 5.74%, 11/28/95 .......................... 16,999,219
10,000,000 J.P. Morgan & Co., Inc., 6.2%, 5/13/96 ........................................ 10,037,498
10,000,000 NBD Bank, NA, Medium Term Note, 6.15%, 6/3/96 ................................. 10,022,487
-----------
42,066,592
-----------
Other Financial Companies 1.3%
5,000,000 General Electric Capital Corp. Medium Term Note, 4.73%, 3/18/96 .............. 4,949,456
-----------
Manufacturing 2.0%
Electrical Products
7,765,000 General Electric Co. Global debenture, 7.875%, 5/1/96 ........................ 7,853,735
-----------
Energy 3.7%
Oil & Gas Production 2.6%
10,000,000 Shell Oil Co., 5.88%, 10/3/95 ................................................. 9,996,733
Oilfield Services/Equipment 1.1% -----------
4,160,000 California Petroleum Transportation Corp. 1st Mortgage, 6.71%, 4/1/96 ......... 4,177,924
-----------
Total Medium-Term and Short-Term Notes (Cost $69,034,883) ...................... 69,044,440
-----------

SUMMARY % OF NET ASSETS

Total Investment Portfolio (Cost $381,753,086) (a).................. 99.3 381,262,371
Other Assets and Liabilities, Net 0.7 .............................. 0.7 2,633,681
---- -----------
Net Assets.......................................................... 100.0 383,896,052
===== ===========
* 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, 1995.

(a) At September 30, 1995, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $381,753,086 was as follows:

Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost....................................................... $ 111,758

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value....................................................... (602,473)
-----------
Net unrealized depreciation............................................................... $ (490,715)
===========
</TABLE>
- --------------------------------------------------------------------------------
From November 1, 1994 through September 30, 1995, the Fund incurred
approximately $66,921 of net realized capital losses which the Fund intends
to elect to defer and treat as arising in the fiscal year ended September
30, 1996.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.

The accompanying notes are an integral part of the financial statements.

<PAGE>

AARP HIGH QUALITY TAX FREE
MONEY FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

Principal Credit
Amount($) Rating (b) Value($)
<S> <C> <C> <C>
MUNICIPAL INVESTMENTS 99.2%

ALASKA
Alaska Housing Finance Corp., General Mortgage Revenue, 1991 Series A,
Weekly Demand Note, 4.4%, 6/1/26* ........................................ 3,000,000 A-1+ 3,000,000

ARIZONA
Apache County, AZ, Industrial Development Authority, Tucson Electric
Power Co., 1983 Series C, Weekly Demand Note, 4.45%, 12/15/18* ...... 1,000,000 A-1+ 1,000,000
Maricopa County, AZ, Pollution Control Revenue, Public Service of
New Mexico, Weekly Demand Note, 4.4%, 11/1/22* ...................... 4,000,000 A-1+ 4,000,000
Pima County, AZ, Industrial Development Authority, Tucson Electric
Power Co., Weekly Demand Note, 4.4%, 10/1/22* ....................... 3,900,000 A-1 3,900,000
Pinal County, AZ, Pollution Control Revenue, Magma Copper, Series:
1984, Daily Demand Note, 4.8%, 12/1/09* ............................. 700,000 A-1+ 700,000
Weekly Demand Note, 4.4%, 12/1/11* .................................. 1,900,000 A-1+ 1,900,000
Salt River, AZ, Agricultural Improvement District, Tax Exempt
Commercial Paper, 3.7%, 10/20/95 .................................... 2,000,000 A-1+ 2,000,000

CALIFORNIA
Butte Office of Education, CA, Tax and Revenue Anticipation Notes,
5%, 10/27/95 ........................................................ 1,000,000 SP-1+ 1,000,546
California General Obligation, Revenue Anticipation Warrants,
Series C, 5.75%, 4/25/96 ............................................ 2,500,000 MIG1 2,517,868
California School, Cash Reserve Program Authority, 1995 Series A,
4.75%, 7/3/96 (c) ................................................... 1,000,000 SP-1+ 1,007,264
Contra Costa, CA, Transportation Authority, Sales Tax Revenue,
Series A, Weekly Demand Note, 3.9%, 3/1/09* (c) ..................... 2,700,000 MIG1 2,700,000
Fontana, CA, Unified School District, Tax and Revenue Anticipation
Note, 4.5%, 7/5/96 .................................................. 2,380,000 SP-1+ 2,386,048
Los Angeles County, CA, Local Educational Agencies Pool, Tax
and Revenue Anticipation Note, 4.75%, 7/5/96 ........................ 2,000,000 SP-1+ 2,009,475
Los Angeles County, CA, Tax and Revenue Anticipation Note, 4.5%, 7/1/96 ..... 1,500,000 MIG1 1,507,565
Orange County, CA, Water District, Public Facilities Corporation,
Tax Exempt Commercial Paper:
3.8%, 11/20/95 .............................................. 1,500,000 P-1 1,500,000
3.8%, 12/7/95 ............................................... 1,000,000 P-1 1,000,000
South Coast, CA, Local Education Agency Pools, Tax and Revenue
Anticipation Note, 5%, 8/14/96 ...................................... 1,000,000 SP-1+ 1,004,156

COLORADO
Clear Creek County, CO, Colorado Counties Financing Program,
Series 1988, Weekly Demand Note, 4.4%, 6/1/98* ...................... 305,000 A-1+ 305,000

DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Refunding Bonds, Series A-1,
Daily Demand Note, 3.7%, 10/1/07* ................................... 1,900,000 MIG1 1,900,000

FLORIDA
Dade County, FL, Industrial Development Authority Revenue, Dolphins
Stadium Project, Weekly Demand Note:
Series C, 4.35%, 1/1/16* .................................... 1,000,000 A-1 1,000,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
<CAPTION>
Principal Credit
Amount($) Rating (b) Value($)
<S> <C> <C> <C>

Series D, 4.35%, 1/1/16* .................................... 1,300,000 A-1 1,300,000
Dade County, FL, Water and Sewer System Revenue, Series 1994, Weekly
Demand Note, 4.35%, 10/5/22* (c) .................................... 3,200,000 A-1+ 3,200,000
Orlando, FL, Waste Water System Revenues, 1990 Series A, Tax Exempt
Commercial Paper, 3.85%, 12/14/95 ................................... 2,000,000 A-1+ 2,000,000
Putnam County, FL, Pollution Control Revenue, Seminole Electric
Cooperative Finance Corp., 1984 Series H-1, Weekly Demand Note,
3.6%, 3/15/14* ...................................................... 4,350,000 A-1+ 4,350,000

GEORGIA
Gordon County, GA, Development Authority Revenue, Sara Lee Corp.,
Series 1989, Weekly Demand Note, 4.3%, 3/1/02* ...................... 1,400,000 A-1+ 1,400,000

ILLINOIS
Illinois Development Finance Authority, Deerfield Marriott, Series 1984,
Weekly Demand Note, 4.4%, 11/1/14* .................................. 1,600,000 P-1 1,600,000
Illinois Health Facilities Authority, Rush Presbyterian, St. Luke's Hospital,
1989 Series A, Tax Exempt Commercial Paper, 3.85%, 11/10/95 ......... 1,100,000 A-1+ 1,100,000

INDIANA
City of Sullivan, IN, National Rural Utilities Cooperative Finance Corp.,
Hoosier Energy Rural Electric, Commercial Paper, 3.8%, 11/2/95 ...... 3,000,000 A-1+ 3,000,000

IOWA
Iowa School Corporation Warrant Certificates, Iowa School Cash
Anticipation Program, Capital Guaranty Insured, 4.75%, 6/28/96 ...... 1,500,000 SP-1+ 1,509,618
West Des Moines, IA, Commercial Development Revenue, Greyhound
Lines, Weekly Demand Note, 4.4%, 12/1/14* ........................... 6,400,000 A-1+ 6,400,000

KENTUCKY
Kentucky Development Finance Authority, Healthcare System,
Appalachian Regional Health Care, Series 1991, Weekly Demand
Note, 4.45%, 9/1/06* ................................................ 7,300,000 MIG1 7,300,000

LOUISIANA
Louisiana Recovery District, Sales Tax Revenue Bonds, Series 1988,
Daily Demand Notes, 4.75%, 7/1/98* (c) .............................. 300,000 A-1+ 300,000
Louisiana Recovery District, Sales Tax Revenue Bonds, Series 1988, Daily
Demand Notes, 4.75%, 7/1/97* (c) .................................... 400,000 A-1+ 400,000

MAINE
Maine Tax Anticipation Note, Series 1994, 4.5%, 6/28/96 ..................... 1,000,000 SP-1+ 1,005,357

MARYLAND
Anne Arundel County, MD, Maryland Port Facilities, Baltimore
Gas and Electric, Tax Exempt Commercial Paper, 3.8%, 12/8/95 ........ 1,000,000 MIG1 1,000,000

MINNESOTA
Cottage Grove, MN, Minnesota Mining and Manufacturing, Series 1982,
Weekly Demand Note, 4.32%, 8/1/12* .................................. 300,000 A-1+ 300,000

MISSOURI
Missouri State Environmental Improvement and Energy Resource
Authority, Union Electric Company, 1984 Series A, Optional
Put, 4%, 6/1/14 ..................................................... 2,000,000 A-1+ 2,000,000

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

AARP HIGH QUALITY TAX FREE
MONEY FUND

<TABLE>
<CAPTION>
Principal Credit
Amount($) Rating (b) Value($)
<S> <C> <C> <C>
NEW HAMPSHIRE
New Hampshire Business Finance Authority, Connecticut Light & Power,
Weekly Demand Note, 4.4%, 12/1/22* .................................. 1,700,000 A-1+ 1,700,000

NEW YORK
New York City, NY, Revenue Anticipation Note, 4.5%, 4/11/96 ................. 2,000,000 MIG1 2,006,601

OREGON
Port of Portland, OR, Pollution Control Revenue, Daily Demand Note,
3.85%, 12/1/09* ..................................................... 1,400,000 P-1 1,400,000

PENNSYLVANIA
Allegheny County, PA, General Obligation, Tender Option Bond, Weekly
Coupon Reset, Series C38, 3.65%, 9/1/04* (c) ........................ 1,000,000 MIG1 1,000,000
Emmaus, PA, General Authority, Local Government Revenue Bond Pool
Program, Weekly Demand Note:
1989 Series E-8, 4.45%, 3/1/24* ............................. 1,200,000 A-1+ 1,200,000
1989 Series E, 4.45%, 3/1/24* ............................... 1,800,000 A-1 1,800,000
1989 Series G, 4.45%, 3/1/24* ............................... 1,000,000 A-1+ 1,000,000
Series E6, 4.45%, 3/1/24* ................................... 2,000,000 A-1+ 2,000,000
Temple University, PA, Higher Education, University Funding Obligation,
5%, 5/22/96 ......................................................... 2,000,000 SP-1+ 2,008,578

TENNESSEE
Chattanooga-Hamilton County Hospital Authority, TN, Erlander Medical
Center, Daily Demand Note, 4.95%, 10/1/17* .......................... 500,000 A-1 500,000
Franklin, TN, Industrial Development Revenue, Franklin Oaks Apartments,
Weekly Demand Note, 4.1%, 12/1/07* .................................. 5,000,000 MIG1 5,000,000

TEXAS
Angelina & Neches River Authority of Texas, IDC, Solid Waste Disposal,
1984 Series D, Daily Demand Note, 4.85%, 5/1/14* .................... 1,400,000 MIG1 1,400,000
Grapevine, TX, Industrial Development Corporation, American Airlines,
Series B4, Daily Demand Note, 4.75%, 12/1/24* ....................... 500,000 P-1 500,000
Lone Star, TX, Airport Improvement Authority, 1995 Series A-3, Daily
Demand Note, 4.75%, 12/1/14* ........................................ 2,700,000 MIG1 2,700,000
North Central Texas Health Facilities Development Corp., Presbyterian
Medical Center, 1995 Series D, Daily Demand Note,
4.75%, 12/1/15* (c) ................................................. 1,500,000 A-1 1,500,000
North Central Texas Health Facilities Development, Methodist Hospitals
of Dallas, 1991 Series A, Tax Exempt Commercial Paper,
3.8%, 12/12/95 ...................................................... 1,100,000 A-1 1,100,000
Port Development Corp., TX, Marine Terminal Refunding Revenue, Stolt
Terminals, Series 1989, Daily Demand Note, 4.85%, 1/15/14* .......... 2,500,000 A-1+ 2,500,000
State of Texas, Tax and Revenue Anticipation Notes, 4.75%, 8/30/96 .......... 2,800,000 SP-1+ 2,818,364
Texas State Water Development Board, Daily Demand Note,
4.95%, 3/1/15* ...................................................... 500,000 A-1+ 500,000

UTAH
Emery County, UT, Pollution Control Revenue, Pacificorp Project, Series
1994, Daily Demand Note, 4.45%, 11/1/24* (c) ........................ 700,000 A-1+ 700,000

</TABLE>

The accompanying notes are an integral part of the financial statements.

38
<PAGE>

<TABLE>
<CAPTION>
Principal Credit
Amount($) Rating (b) Value($)
<S> <C> <C> <C>
VERMONT
State of Vermont, General Obligation, Series F, Tax Exempt Commercial
Paper, 3.75%, 12/13/95 .............................................. 750,000 A-1+ 750,000

VIRGINIA
Henrico County, VA, Industrial Development Authority Revenue,
Health Facility Hermitage Project, Daily Demand Note,
4.8%, 5/1/24* ....................................................... 2,200,000 MIG1 2,200,000

WASHINGTON
Seattle, WA, Municipal Light & Power, Series 1993, Weekly Demand
Note, 4.25%, 11/1/18* ............................................... 1,900,000 A-1+ 1,900,000
Washington General Obligation, Various Purpose, Series B-2, Topstar
Custodial Receipts, Weekly Demand Note, 4.5%, 8/1/02* ............... 2,100,000 AA 2,100,000
Washington Public Power Supply Authority, Projects #1 & #3, Series 1993,
Weekly Demand Note, 4.3%, 7/1/18* ................................... 1,995,000 A-1+ 1,995,000

WYOMING
Sweetwater County, WY, Pollution Control Revenue Refunding, Pacificorp
Project, 1990 Series A, Weekly Demand Note, 4.35%, 7/1/15* .......... 2,000,000 MIG1 2,000,000
-----------

Total Municipal Investments (Cost $118,781,440) ............................. 118,781,440
-----------

SUMMARY % OF NET ASSETS

Total Investment Portfolio (Cost $118,781,440) (a) ........................... 99.2 118,781,440
Other Assets and Liabilities, Net ............................................ 0.8 964,531
----- -----------
Net Assets ................................................................... 100.0 119,745,971
===== ===========

* Floating rate demand notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of the
U.S. Treasury bill rate. Variable rate demand notes are securities whose
interest rates are reset periodically at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit or line of credit from a major bank. Since these securities
are payable on demand, they are valued at 100% of their principal.

(a) At September 30, 1995, the net unrealized depreciation on investments based
on cost for federal income tax purposes of $118,990,915 was as follows:

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .............................................................. $ (209,475)
===========
(b) (Unaudited) All of the securities held have been determined to be of
appropriate credit quality as required by the Fund's investment objectives.
Credit ratings shown are either Standard & Poor's Ratings Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated securities
(NR) have been determined to be of comparable quality to rated eligible
securities.

</TABLE>
- --------------------------------------------------------------------------------
At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $1,221,584 of which $618,345
expires September 30, 1996, $170,432 expires September 30, 1997, $19,559
expires September 30, 1999, $323,801 expires September 30, 2000, $401
expires September 30, 2001, $89,046 expires September 30, 2003. In addition,
from November 1, 1994 through September 30, 1995, the Fund incurred
approximately $5,140 of net realized capital losses which the Fund intends
to elect to defer and treat as arising in the fiscal year ended September
30, 1996.

- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.

The accompanying notes are an integral part of the financial statements.

39
<PAGE>
AARP GNMA AND U.S.
TREASURY FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

Principal Market
Amount ($) Value ($)
<S> <C>
REPURCHASE AGREEMENTS 2.7%

50,000,000 Repurchase Agreement with First National Bank of Chicago dated 9/29/95
at 6.15% to be repurchased at $50,025,625 on 10/2/95, collateralized
by a $52,190,000 U.S. Treasury Bill, 2/29/96 ................................ 50,000,000

90,947,000 Repurchase Agreement with State Street Bank and Trust Company dated
9/29/95 at 6.1% to be repurchased at $90,994,368 on 10/2/95, collateralized
by a $93,405,000 U.S. Treasury Note, 4.375%, 8/15/96 ........................ 90,947,000
-------------
Total Repurchase Agreements (Cost $140,947,000) ............................. 140,947,000
-------------
U.S. GOVERNMENT AND AGENCIES 19.7%

400,000,000 U.S. Treasury Note, 6.875%, 10/31/96 .......................................... 404,500,000
150,000,000 U.S. Treasury Note, 7.25%, 11/30/96 ........................................... 152,343,000
300,000,000 U.S. Treasury Note, 6.625%, 03/31/97 .......................................... 303,468,000
175,000,000 U.S. Treasury Note, 5.5%, 07/31/97 ............................................ 173,960,500
-------------
Total U.S. Government and Agencies (Cost $1,029,803,232) ...................... 1,034,271,500
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 76.9%

651,569,666 7.00% with various maturities to 4/15/25 ...................................... 644,239,507
794,934,113 7.50% with various maturities to 12/15/99 ..................................... 802,872,359
844,402,076 8.00% with various maturities to 2/15/25 ...................................... 860,520,298
558,231,164 8.50% with various maturities to 11/15/24 ..................................... 581,682,509
330,368,607 9.00% with various maturities to 11/15/21 ..................................... 348,491,976
391,867,716 9.50%,with various maturities to 9/15/24 ...................................... 419,822,174
293,291,996 10.00% with various maturities to 3/15/25 ..................................... 320,803,125
268,591 10.25% with a maturity of 12/15/98 ............................................ 280,927
26,067,132 10.50% with various maturities to 1/20/21 ..................................... 28,579,660
5,532,665 11.50% with various maturities to 2/15/16 ..................................... 6,265,743
10,520,275 12.00% with various maturities to 9/15/15 ..................................... 11,848,109
7,903,944 12.50% with various maturities to 8/15/15 ..................................... 8,935,538
1,997,078 13.00% with various maturities to 11/15/15 .................................... 2,233,603
1,091,591 13.50% with various maturities to 12/15/14 .................................... 1,231,445
342,397 14.00% with various maturities to 11/15/14 .................................... 385,837
96,793 14.50% with a maturity of 10/15/14 ............................................ 109,618
281,272 15.00% with various maturities to 10/15/12 .................................... 320,824
329,724 16.00% with various maturities to 2/15/12 ..................................... 377,327
Total Government National Mortgage Association -------------
(Cost $ 3,928,812,385) ...................................................... 4,039,000,579
-------------
SUMMARY % OF NET ASSETS

Total Investment Portfolio (Cost $5,099,562,617)(a) ................ 99.3 5,214,219,079
Other Assets and Liabilities, Net .................................. 0.7 37,831,395
----- -------------
Net Assets ......................................................... 100.0 5,252,050,474
===== =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

40
<PAGE>

* Effective maturities will be shorter due to amortization and prepayments.

(a) At September 30, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $5,099,562,617 was as follows:

<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ............................................ $115,751,462

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ............................................ (1,095,000)
------------
Net unrealized appreciation..................................................... $114,656,462
============
</TABLE>

- --------------------------------------------------------------------------------
Purchases and sales of investment securities, all of which were U.S.
Government obligations and U.S. Government Agencies (excluding short-term
investments), for the year ended September 30, 1995, aggregated
$4,511,389,063 and $2,955,713,833, respectively.
- --------------------------------------------------------------------------------
At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $348,540,975 all of which
expires September 30, 2003. In addition, from November 1, 1994 through
September 30, 1995, the Fund incurred approximately $10,756,284 of net
realized capital losses which the Fund intends to elect to defer and treat
as arising in the fiscal year ended September 30, 1996.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.

The accompanying notes are an integral part of the financial statements.

41
<PAGE>
AARP HIGH QUALITY BOND
FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

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

COMMERCIAL PAPER 11.0%

26,200,000 Associates Corp. of North America, 6.4%, 10/2/95 ............................. 26,200,000
26,200,000 Household Finance Corp., 6.4%, 10/2/95 ....................................... 26,200,000
6,349,000 Prudential Funding Corp., 6.25%, 10/2/95 ..................................... 6,349,000
-----------

Total Commercial Paper (Cost $58,749,000) .................................... 58,749,000
-----------

U.S. GOVERNMENT & AGENCIES 23.7%

22,000,000 U.S. Treasury Note, 7.5%, 12/31/96 ........................................... 22,440,000
25,000,000 U.S. Treasury Note, 5.5%, 7/31/97 ............................................ 24,851,500
22,500,000 U.S. Treasury Note, 5.5%, 9/30/97 ............................................ 22,362,975
20,000,000 U.S. Treasury Note, 5.125%, 11/30/98 ......................................... 19,528,200
26,500,000 U.S. Treasury Note, 6.375%, 8/15/02 .......................................... 26,893,260
10,500,000 U.S. Treasury Note, 6.25%, 2/15/03 ........................................... 10,559,010
-----------
Total U.S. Government & Agencies (Cost $127,011,250) ......................... 126,634,945
-----------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 4.6%

23,783,024 8.5% with various maturities to 6/15/25 (Cost $24,686,035) ................... 24,778,819
-----------

U.S. GOVERNMENT AGENCY PASS-THRUS* 36.9%

25,490,584 Federal Home Loan Mortgage Corp., 7%, 6/1/25 ................................. 25,155,893
24,424,107 Federal Home Loan Mortgage Corp., 7%, 7/1/24 ................................. 24,103,418
20,588,785 Federal Home Loan Mortgage Corp., 8%, 6/1/25 ................................. 21,064,798
28,912,000 Federal Home Loan Mortgage Corp., 8%, 7/1/25 ................................. 29,580,445
24,446,860 Federal National Mortgage Association, 7%, 1/1/24 ............................ 24,110,716
20,148,296 Federal National Mortgage Association, 6.5%, 2/1/24 .......................... 19,430,412
29,587,134 Federal National Mortgage Association, 7%, 6/1/24 ............................ 29,180,311
11,880,000 Federal National Mortgage Association, 7.5%, 6/1/25 .......................... 11,954,250
11,853,638 Federal National Mortgage Association, 8.5%, 11/1/09 ......................... 12,290,682
-----------
Total U.S. Government Agency Pass-Thrus (Cost $195,471,744) 196,870,925
-----------

FOREIGN BONDS - U.S.$ DENOMINATED 2.3%

13,000,000 ABN-AMRO Bank NV, subordinated note, 7.13%, 10/15/2093
(Cost $13,174,980) ......................................................... 11,991,460
-----------

ASSET BACKED 0.9%

Manufactured Housing
4,500,000 Merrill Lynch Mortgage Investors Inc., Series 1991-D, 9.85%, 7/15/11
(Cost $4,459,219) ......................................................... 4,906,395
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

42
<PAGE>
<TABLE>
<CAPTION>

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

CORPORATE BONDS 19.8%

Consumer Discretionary 2.9%
15,000,000 May Department Stores, 7.6%, 6/1/25 .......................................... 15,325,050
-----------
Consumer Staples 3.2%
15,000,000 Coca Cola Enterprises, Inc., 8.5%, 2/1/22 .................................... 17,090,550
-----------
Financial 3.1%
1,500,000 American Express Credit Corp., 11.625%, 12/12/00 ............................. 1,674,375
15,000,000 Dresdner Bank, subordinate note, 6.625%, 9/15/05 ............................. 14,924,100
-----------
16,598,475
Manufacturing 2.4% -----------
10,000,000 ARCO Chemical Co., 9.8%, 2/1/20 .............................................. 12,761,900
-----------
Energy 6.3%
15,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 ....................................... 18,293,100
15,000,000 Norsk Hydro AS, 7.75%, 6/15/23 ............................................... 15,459,600
-----------
33,752,700
-----------
Utilities 1.9%
10,000,000 Central Power & Light Co., 1st mortgage debenture, 6.625%, 7/1/05 ............ 9,920,700
-----------
Total Corporate Bonds (Cost $102,554,310) .................................... 105,449,375
-----------

SUMMARY % OF NET ASSETS

Total Investment Portfolio (Cost $526,106,538) (a) ............. 99.2 529,380,919
Other Assets and Liabilities, Net............................... 0.8 4,041,378
----- -----------
Net Assets...................................................... 100.0 533,422,297
===== ===========

* Effective maturities will be shorter due to amortization and prepayments.

(a) At September 30, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $526,106,538 was as follows:

Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost...................................................... $ 5,533,774

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value...................................................... (2,259,393)
-----------
Net unrealized appreciation.............................................................. $ 3,274,381
===========

</TABLE>
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
year ended September 30, 1995 was $270,414,934 and $282,116,367,
respectively.
- --------------------------------------------------------------------------------
For the year ended September 30, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $104,667,360 and
$189,520,281, respectively. Purchases and sales of U.S. Government
obligations and U.S. Government Agencies aggregated $823,851,340 and
$789,159,489, respectively.
- --------------------------------------------------------------------------------
At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $8,691,826 which expires
September 30, 2003. In addition, from November 1, 1994 through September
30, 1995, the Fund incurred approximately $1,533,583 of net realized
capital losses which the Fund intends to elect to defer and treat as
arising in the fiscal year ended September 30, 1996.
- --------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.

The accompanying notes are an integral part of the financial statements.

43
<PAGE>
AARP INSURED TAX FREE
GENERAL BOND FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS (UNDER 1 YEAR) - 3.9%

CALIFORNIA
California, Revenue Anticipation Warrants, Series C, 5.75%, 4/25/96........... 15,000,000 MIG-1 15,153,300
California, Revenue Anticipation Warrants, Series D, 6.5%, 4/25/96............ 5,000,000 SP-2 5,055,600

DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Daily Demand Note:
Refunding Bonds, Series A2, 4.65%, 10/1/07*................................ 3,000,000 AA 3,000,000
Refunding Bonds, Series A3, 4.65%, 10/1/07*................................ 2,900,000 AA 2,900,000
Refunding Bonds, Series A5, 4.65%, 10/1/07*................................ 1,500,000 AA 1,500,000

FLORIDA
Halifax Hospital Medical Center, FL, Hospital Revenue, Periodic Auction
Reset, Series A, 3.85%, 10/1/19* (c)....................................... 24,000,000 AAA 24,000,000
INDIANA
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public
Service Project, Series 1994-C, Daily Demand Bond, 4.5%, 4/1/19*........... 1,600,000 MIG-1 1,600,000

LOUISIANA
Louisiana Recovery District, Sales Tax Revenue Bonds, Daily Demand Notes:
Series 1988, 4.75%, 7/1/97*................................................ 4,300,000 MIG-1 4,300,000
Series 1988, 4.75%, 7/1/98* (c)............................................ 500,000 MIG-1 500,000

MICHIGAN
Regents of the University of Michigan Hospital Revenue Bonds,
Series 1995-A, Daily Demand Bond, 4.5%, 12/1/27*........................... 1,400,000 MIG-1 1,400,000
University of Michigan, Hospital Revenue, Series A, Daily Demand Bond,
4.5%, 12/1/19*............................................................. 2,300,000 MIG-1 2,300,000

TEXAS
Harris County, TX, Health Facilities Development Corporation, St. Luke's
Episcopal Hospital, Series 1985-B, Daily Demand Note,
4.85%, 2/15/16*............................................................ 1,300,000 A-1+ 1,300,000
State of Texas, Tax and Revenue Anticipation Notes, 4.75%, 8/30/96............ 8,000,000 SP-1+ 8,058,560
----------
Total Short-Term Municipal Investments (Cost $70,947,025)..................... 71,067,460
----------

LONGER-TERM MUNICIPAL INVESTMENTS (Over 1 year) - 94.8%

ALABAMA
Birmingham, AL, Special Care Facilities, Baptist Medical Center, Series A,
5.5%, 8/15/13 (c).......................................................... 2,800,000 AAA 2,698,024
Montgomery, AL, Special Care Facilities, Baptist Medical Center, Series A,
5.75%, 1/1/12 (c).......................................................... 2,000,000 AAA 1,978,980

ALASKA
Alaska State Housing Finance Corporation, Veterans Mortgage Project,
Series F, 8.1%, 9/1/20..................................................... 6,770,000 AAA 7,224,944
Anchorage, AK, Certificate of Participation, Series A,
7.8%, 2/15/06 (c).......................................................... 10,000,000 AAA 10,359,800

</TABLE>

The accompanying notes are an integral part of the financial statements.

44
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
North Slope Borough, AK, General Obligation:
Series A, Capital Appreciation, Zero Coupon, 6/30/06 (c).................... 4,000,000 AAA 2,236,560
Series B, Capital Appreciation, Zero Coupon, 1/1/03 (c)..................... 16,000,000 AAA 11,055,680
Series B, Capital Appreciation, Zero Coupon, 6/30/04(c)..................... 15,500,000 AAA 9,780,810
Series B, Capital Appreciation, Zero Coupon, 6/30/05 (c).................... 25,600,000 AAA 15,181,312

ARIZONA
Arizona Municipal Finance Program, Certificate of Participation,
Series -25, 7.875%, 8/1/14 (c).............................................. 3,500,000 AAA 4,471,950
Maricopa County, AZ, School District -28, Kyrene Elementary, Series B,
Zero Coupon, 1/1/04 (c)..................................................... 6,000,000 AAA 3,955,800
Maricopa County, AZ, School District -6, Washington Elementary, Series B,
4.1%, 7/1/13 (c)............................................................ 2,950,000 AAA 2,342,595
Maricopa County, AZ, Unified School District -41, Gilbert School,
Capital Appreciation, Zero Coupon, 1/1/05 (c)............................... 5,280,000 AAA 3,280,094
Maricopa County, AZ, Unified School District -68, Alhambra Elementary,
Zero Coupon:
7/1/03 (c)............................................................... 2,860,000 AAA 1,948,461
7/1/04 (c)............................................................... 2,860,000 AAA 1,838,608
7/1/05 (c)............................................................... 2,850,000 AAA 1,725,561
Scottsdale, AZ, Industrial Development Authority, Scottsdale Memorial
Hospital, 8.5%, 9/1/17 (c).................................................. 1,050,000 AAA 1,151,451

CALIFORNIA
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,
5.375%, 6/1/09 (c).......................................................... 10,415,000 AAA 10,250,755
Banning, CA, Wastewater Revenue, Certificate of Participation,
8%, 1/1/19 (c).............................................................. 2,040,000 AAA 2,608,752
California Sate Department of Water Resources, Series M, 4.9%, 12/1/09 (c)..... 4,485,000 AAA 4,167,866
California State Public Works Board, Lease Revenue, Department of
Corrections:
Del Norte/Imperial, Series C, 5%, 12/1/07 (c)............................ 6,000,000 AAA 5,844,840
Series A, 5.25%, 12/1/07 (c)............................................. 9,000,000 AAA 8,983,170
Series A, 5.25%, 12/1/08 (c)............................................. 3,000,000 AAA 2,968,860
California State Public Works Board, Lease Revenue, Secretary of State,
Series A, 6.3%, 12/1/06 (c)................................................. 8,095,000 AAA 8,935,585
California Statewide Communities Development Corporation, Certificate
of Participation, Children's Hospital, 5%, 6/1/06 (c)....................... 2,035,000 AAA 1,995,277
Escondido, CA, Joint Powers Financing Authority, Lease Revenue, Capital
Appreciation, Center for the Arts Projects, Zero Coupon, 9/1/05 (c)......... 3,255,000 AAA 1,879,860
Los Angeles County, CA;
Capital Asset Leasing, 6%, 12/1/06 (c)...................................... 9,000,000 AAA 9,706,500
Convention & Exhibition Center Authority, Certificate of Participation:
Zero Coupon, 8/15/02 (c)................................................. 5,000,000 AAA 3,526,750
Zero Coupon, 8/15/03 (c)................................................. 6,270,000 AAA 4,152,308
Public Works Finance Authority, Lease Revenue, Multiple Projects IV,
4.75%, 12/1/10 (c)....................................................... 11,140,000 AAA 9,907,470
Madera County, CA, Certificates of Participation, Valley Children's Hospital,
Series 1995, 6.5%, 3/15/10.................................................. 2,840,000 AAA 3,058,708
Northern California Transmission Revenue, Ore Transmission Project,
Series A, 5.1%, 5/1/06 (c).................................................. 5,000,000 AAA 5,016,000

</TABLE>

The accompanying notes are an integral part of the financial statements.
45

<PAGE>

AARP INSURED TAX FREE
GENERAL BOND FUND

<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
Norwalk, CA, Redevelopment Agency, 9.1%, 12/1/15............................... 7,000,000 NR 7,203,280
Oakland, CA, Redevelopment Agency, Tax Allocation Central District,
6%, 2/1/07 (c).............................................................. 2,000,000 AAA 2,148,020
Palomar Pomerado, CA, Health Systems, Series B, Zero Coupon 11/1/02 (c)........ 3,080,000 AAA 2,149,316
Riverside, CA, Transportation Commission, Sales Tax Revenue, Series A:
5.7%, 6/1/06 (c)............................................................ 5,400,000 AAA 5,652,342
5.75%, 6/1/07 (c)........................................................... 3,000,000 AAA 3,132,030
San Diego County, CA, Regional Transportation, Community Sales Tax
Revenue, Series A, 5.25%, 4/1/07 (c)........................................ 2,500,000 AAA 2,495,700
San Diego County, CA, Water Authority, Certificate of Participation:
5.632%, 4/25/07 (c)......................................................... 6,300,000 AAA 6,412,266
5.681%, 4/22/09 (c)......................................................... 4,500,000 AAA 4,525,200
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue
Refunding, 6.75%, 7/1/10 (c)................................................ 2,000,000 AAA 2,256,700
San Joaquin, CA, Certificate of Participation, County Public Facilities
Project, 5.5%, 11/15/13 (c)................................................. 2,000,000 AAA 1,905,060
Sweetwater, CA, Water Revenue, 5.25%, 4/1/10 (c)............................... 13,240,000 AAA 12,809,170
Three Valleys, CA, Municipal Water District, Certificates of Participation,
5%, 11/1/14 (c)............................................................. 3,000,000 AAA 2,689,860

DISTRICT OF COLUMBIA
District of Columbia, Georgetown University, Series B, 7.1%, 4/1/12............ 3,000,000 A 3,253,740
District of Columbia, General Obligation:
Refunding Revenue, 5.875%, 6/1/05 (c)....................................... 4,750,000 AAA 4,961,518
Series A, Prerefunded 6/1/99 at 102, 7.5%, 6/1/09 (c)....................... 5,000,000 AAA 5,614,150
Series A1, 6.5%, 6/1/10 (c)................................................. 2,270,000 AAA 2,462,814
Series B, Zero Coupon, 6/1/00 (c)........................................... 3,500,000 AAA 2,785,090
Series B, 6.125%, 6/1/03 (c)................................................ 4,000,000 AAA 4,259,840
Series B, 5.4%, 6/1/06 (c).................................................. 18,905,000 AAA 18,842,803
Series B, 5.5%, 6/1/07 (c).................................................. 25,000,000 AAA 24,870,250
Series B, 5.5%, 6/1/08 (c).................................................. 21,300,000 AAA 20,936,196
Series B, 5.5%, 6/1/09 (c).................................................. 15,150,000 AAA 14,695,652
Series B, 5.5%, 6/1/09 (c).................................................. 2,840,000 AAA 2,754,828
Series B, 5.5%, 6/1/10 (c).................................................. 15,590,000 AAA 14,908,093
Series B, 5.5%, 6/1/12 (c).................................................. 1,050,000 AAA 987,683
Series B-3, 5.4%, 6/1/06 (c)................................................ 10,000,000 AAA 9,967,100

FLORIDA
Florida Department of Natural Resources, Environmental Preservation,
Series A, 4.75%, 7/1/12 (c)................................................. 10,000,000 AAA 8,863,600
Florida Municipal Power Agency, Stanton II Project, Refunding Revenue,
4.5%, 10/1/16 (c)........................................................... 4,400,000 AAA 3,691,644
Orange County, FL, Health Facilities Authority Refunding Program,
Series A, 7.875%, 12/1/25 (c)............................................... 16,925,000 AAA 18,227,717
Orlando, FL, Utility Commission, Water & Electric Refunding Revenue,
5.9%, 10/1/08............................................................... 4,000,000 AA 4,242,800
Sarasota County, FL, School Board Finance Corporation, Lease Revenue:
5%, 7/1/10 (c).............................................................. 3,800,000 AAA 3,563,678
Refunding Revenue, 5%, 7/1/09 (c)........................................... 5,595,000 AAA 5,342,554

</TABLE>

The accompanying notes are an integral part of the financial statements.

46
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
GEORGIA
Cobb County, GA, Kennestone Hospital Authority, Series A,
5.625%, 4/1/11 (c)..................................................... 5,305,000 AAA 5,302,188
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central
Georgia, Series C, 5.25%, 8/1/11 (c)................................... 10,225,000 AAA 9,717,533
Municipal Electric Authority of Georgia:
5th Crossover, Project #1, 6.4%, 1/1/13 (c)............................ 3,500,000 AAA 3,734,535
Power Revenue, Series Z, 5.5%, 1/1/12 (c).............................. 1,600,000 AAA 1,562,880

ILLINOIS
Central Lake County, IL, Joint Action Water Agency Refunding Revenue:
Zero Coupon, 5/1/02 (c)................................................ 2,245,000 AAA 1,614,133
5.3%, 5/1/06 (c)....................................................... 2,120,000 AAA 2,138,698
5.4%, 5/1/07 (c)....................................................... 2,280,000 AAA 2,293,520
Chicago O'Hare International Airport, IL, Revenue Refunding, Series C:
5%, 1/1/10 (c)......................................................... 15,410,000 AAA 14,308,493
5%, 1/1/11 (c)......................................................... 16,500,000 AAA 15,189,405
5%, 1/1/18 (c)......................................................... 4,400,000 AAA 3,862,936
Chicago, IL, School Finance Authority, Series A:
4.8%, 6/1/01 (c)....................................................... 3,255,000 AAA 3,282,928
5%, 6/1/08 (c)......................................................... 5,000,000 AAA 4,751,650
5%, 6/1/09 (c)......................................................... 5,425,000 AAA 5,067,276
Chicago, IL, General Obligation:
Series A, 5.375%, 1/1/13 (c)........................................... 15,410,000 AAA 14,684,035
Series B, 5%, 1/1/08 (c)............................................... 3,485,000 AAA 3,354,870
Series B, 5%, 1/1/10 (c)............................................... 5,200,000 AAA 4,837,924
Series B, 5%, 1/1/11 (c)............................................... 1,620,000 AAA 1,497,528
Series B, 5%, 1/1/12 (c)............................................... 5,000,000 AAA 4,582,150
Series B, 5.125%, 1/1/15 (c)........................................... 9,550,000 AAA 8,673,310
6.25%, 1/1/11 (c)...................................................... 3,000,000 AAA 3,188,370
Chicago, IL, General Obligation Lease, Board of Education, Series A:
6.25%, 1/1/10 (c)...................................................... 6,800,000 AAA 7,249,956
6.25%, 1/1/15 (c)...................................................... 23,000,000 AAA 23,983,710
6%, 1/1/16 (c)......................................................... 11,025,000 AAA 11,185,634
6%, 1/1/20 (c) (d)..................................................... 36,625,000 AAA 36,760,146
Chicago, IL, General Obligation, Emergency Telephone System,
5.55%, 1/1/08 (c)...................................................... 5,820,000 AAA 5,907,358
Chicago, IL, Motor Fuel Tax Revenue, Prerefunded 1/1/01 at 100,
6.5%, 1/1/16 (c)....................................................... 2,000,000 AAA 2,180,280
Chicago, IL, Public Building Commission, Building Revenue, Series A:
5.25%, 12/1/07 (c)..................................................... 3,500,000 AAA 3,493,455
5.25%, 12/1/09 (c)..................................................... 10,420,000 AAA 10,115,111
5.25%, 12/1/11 (c)..................................................... 9,705,000 AAA 9,197,623
Chicago, IL, Public Building Commission, Board of Education, Series A,
Zero Coupon, 1/1/06 (c)................................................ 2,430,000 AAA 1,405,536
Chicago, IL, Wastewater Transmission Revenue:
5.5%, 1/1/09 (c)....................................................... 11,990,000 AAA 11,955,229
5.5%, 1/1/10 (c)....................................................... 7,220,000 AAA 7,100,365
Cook County, IL, General Obligation;
Zero Coupon, 11/1/04 (c)............................................... 3,205,000 AAA 2,001,074

</TABLE>

The accompanying notes are an integral part of the financial statements.

47
<PAGE>

AARP INSURED TAX FREE
GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
Series C, 6%, 11/15/07 (c)............................................. 5,000,000 AAA 5,342,150
Decatur, IL, General Obligation, Series 1991, Zero Coupon:
10/1/03 (c)............................................................ 1,455,000 AAA 967,677
10/1/04 (c)............................................................ 1,415,000 AAA 886,512
Decatur, IL, Public Building Commission, General Obligation,
Certificate of Participation:
6.5%, 1/1/03 (c).................................................... 1,725,000 AAA 1,890,548
6.5%, 1/1/06 (c).................................................... 1,500,000 AAA 1,650,810
Illinois, Dedicated Tax Revenue, Civic Center Project:
Series A, 6.5%, 12/15/07............................................... 3,000,000 AAA 3,337,440
Series A, 6.5%, 12/15/08 (c)........................................... 5,255,000 AAA 5,816,339
6.25%, 12/15/11 (c).................................................... 3,000,000 AAA 3,195,720
6.25%, 12/15/20 (c).................................................... 6,975,000 AAA 7,273,600
Illinois Educational Facilities Authority, Loyola University:
Series 1991-A, Zero Coupon, 7/1/04 (c)................................. 2,860,000 AAA 1,815,242
Zero Coupon, 7/1/05 (c)................................................ 4,000,000 AAA 2,387,520
Illinois Health Facilities Authority, Brokaw-Mennonite Healthcare:
6%, 8/15/06 (c)........................................................ 1,380,000 AAA 1,464,829
6%, 8/15/07 (c)........................................................ 1,460,000 AAA 1,539,234
6%, 8/15/08 (c)........................................................ 1,550,000 AAA 1,620,727
6%, 8/15/09 (c)........................................................ 1,640,000 AAA 1,698,548
Illinois Health Facilities Authority:
Children's Memorial Hospital, 6.25%, 8/15/13 (c)....................... 2,000,000 AAA 2,069,760
Felician Healthcare Inc., Series A, 6.25%, 1/1/15 (c).................. 17,000,000 AAA 17,657,390
Memorial Medical Center, 6.75%, 10/1/11 (c)............................ 2,135,000 AAA 2,277,106
Methodist Health Service, Series 1985-G, 8%, 8/1/15 (c)................ 10,110,000 AAA 11,401,957
Sherman Hospital, 6.75%, 8/1/11 (c).................................... 2,700,000 AAA 2,897,235
SSM Healthcare System, Series AA, 6.4%, 6/1/08 (c)..................... 1,350,000 AAA 1,459,701
Joliet, IL, Junior College Assistance Corporation, Lease Revenue, North...
Campus Extension Center, 6.7%, 9/1/12 (c).............................. 2,500,000 AAA 2,763,225
Kendall, Kane and Will Counties, IL, Community Unit School
District #308, Oswego, Zero Coupon:
3/1/02 (c).......................................................... 1,055,000 AAA 764,886
3/1/05 (c).......................................................... 1,540,000 AAA 935,565
3/1/06 (c).......................................................... 1,595,000 AAA 907,922
Metropolitan Pier & Exposition Authority, IL, McCormick Place
Expansion Project, Zero Coupon:
12/15/03 (c)........................................................ 3,200,000 AAA 2,106,080
6/15/04 (c)........................................................ 10,300,000 AAA 6,552,551
Northern Cook County, IL, Solid Waste Agency Contract Revenue,
6.5%, 5/1/09 (c)....................................................... 6,000,000 AAA 6,372,840
Northwest Suburban Municipal Joint Action Water Agency, IL,
Supply System Revenue, 6.45%, 5/1/07 (c)............................... 2,575,000 AAA 2,819,471
Rosemont, IL, Tax Increment, Series C, Zero Coupon:
12/1/05 (c)............................................................ 4,455,000 AAA 2,601,185
12/1/07 (c)............................................................ 2,655,000 AAA 1,355,484
State University Retirement System, IL, Special Revenue, Zero
Coupon, 10/1/03 (c).................................................... 2,750,000 AAA 1,828,943

</TABLE>

The accompanying notes are an integral part of the financial statements.

48
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
University of Illinois, Board of Trustees, Series 1991, Zero Coupon:
4/1/03 (c)............................................................. 3,890,000 AAA 2,653,875
4/1/05 (c)............................................................. 3,830,000 AAA 2,316,499
Will County, IL, Community Unit School District #201-U, Crete-Monee,
Capital Appreciation, Zero Coupon:
12/15/00 (c)........................................................ 1,325,000 AAA 1,030,598
12/15/01 (c)........................................................ 1,730,000 AAA 1,275,321

INDIANA
Fort Wayne, IN, Parkview Memorial Hospital, Series A, 6.5%,
11/15/12 (c)........................................................... 1,400,000 AAA 1,444,338
Indiana Health Facilities Finance Authority, Hospital Revenue:
Ancilla Systems Inc., Series A, 6%, 7/1/18 (c)......................... 27,635,000 AAA 27,733,933
Community Hospital Project, 6.4%, 5/1/12 (c)........................... 5,000,000 AAA 5,173,000
Indiana Municipal Power Agency, Power Supply System, Series B,
6%, 1/1/12 (c)......................................................... 2,000,000 AAA 2,078,980
Indiana University, Student Fee Revenue:
Series J, 5%, 8/1/18 (c)............................................... 4,200,000 AAA 3,671,598
Series H, Zero Coupon, 8/1/06 (c)...................................... 8,500,000 AAA 4,730,760
Series H, Zero Coupon, 8/1/08 (c)...................................... 10,000,000 AAA 4,841,600
Madison County, IN, Community Hospital of Anderson, Prerefunded
1/1/98 at 102, 8%, 1/1/14 (c).......................................... 7,055,000 AAA 7,750,623
Merrillville, IN, Multiple School Building Corporation, First Mortgage,
Zero Coupon, 1/15/11 (c)............................................... 4,000,000 AAA 1,629,080
Porter County, IN, Hospital Authority, Porter Memorial Hospital, Series
1993, 5.25%, 6/1/14 (c)................................................ 8,750,000 AAA 8,045,713

IOWA
Muscatine, IA, Electric Utility, Revenue Refunding, 7.625%, 1/1/04 (c).... 6,600,000 AAA 6,795,360
Polk County, IA, Mercy Hospital, 6.75%, 11/1/05 (c)....................... 5,000,000 AAA 5,507,700

KANSAS
Kansas City, KS, Utility System Revenue:
ETM, Zero Coupon, 9/1/04 **............................................ 3,575,000 AAA 2,296,973
ETM, Zero Coupon, 9/1/05 **............................................ 5,300,000 AAA 3,212,489
ETM, Zero Coupon, 9/1/06 **............................................ 1,875,000 AAA 1,066,856
Zero Coupon, 9/1/04.................................................... 2,640,000 AAA 1,671,305
Zero Coupon, 9/1/05.................................................... 3,950,000 AAA 2,371,146
Zero Coupon, 9/1/06.................................................... 1,375,000 AAA 774,070

LOUISIANA
Louisiana Public Facilities Authority, Prerefunded 2/15/08 at 100,
4.75%, 5/1/16.......................................................... 5,765,000 AAA 5,479,517
New Orleans, LA, General Obligation, Zero Coupon, 9/1/07 (c).............. 10,000,000 AAA 5,218,600

MARYLAND
University of Maryland, Facilities & Tuition Revenue, 4.75%,
10/1/07 (c)............................................................ 14,605,000 AAA 13,960,481

MASSACHUSETTS
Commonwealth of Massachusetts, General Obligation:
Series A, 7%, 3/1/99 (c)............................................... 4,850,000 AAA 5,239,892
Series A, 6%, 7/1/05 (c)............................................... 4,000,000 AAA 4,305,440
Series C, 5%, 8/1/06 (c)............................................... 20,000,000 AAA 19,767,800

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
AARP INSURED TAX FREE
GENERAL BOND FUND

<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
Series D, Prerefunded 10/1/99 at 102, 7%, 10/1/03 (c).................. 7,000,000 AAA 7,792,960
Massachusetts Bay Transportation Authority, General
Transportation System:
Series A, 5.4%, 3/1/07 (c).......................................... 5,000,000 AAA 5,106,700
5.25%, 3/1/06 (c)................................................... 10,000,000 AAA 10,184,300
Massachusetts Housing Finance Agency, Multi-Family Mortgage Purchase
Revenue, 9.25%, 12/1/14 (c)............................................ 2,500,000 AAA 2,594,675
Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue, Series A:
5.1%, 7/1/06 (c).................................................... 8,795,000 AAA 8,693,857
5.1%, 7/1/07 (c).................................................... 1,640,000 AAA 1,611,415
5.1%, 7/1/08 (c).................................................... 5,715,000 AAA 5,532,234

MICHIGAN
Brighton, MI, Area School District, Series I, Prerefunded 5/1/05 at
34.134, Zero Coupon, 5/1/20 (c)........................................ 22,000,000 AAA 4,521,880
Detroit, MI, General Obligation, Distributable State Aid Refunding:
5.2%, 5/1/07 (c)....................................................... 3,000,000 AAA 2,953,710
5.25%, 5/1/08 (c)...................................................... 1,500,000 AAA 1,464,840
Kalamazoo, MI, Hospital Finance Authority, Hospital Revenue, Borgess
Medical Center, Series A, Prerefunded 7/1/99 at 100, 6%, 7/1/09 (c).... 8,250,000 AAA 8,722,148
Michigan Hospital Finance Authority, Sisters of Mercy, Series P:
5.1%, 8/15/07 (c)...................................................... 3,000,000 AAA 2,952,570
5.25%, 8/15/08 (c)..................................................... 8,655,000 AAA 8,527,079
Michigan Housing Development Authority, Rental Revenue,
Series B, 5.7%, 4/1/12................................................. 6,275,000 A 6,047,594

MISSISSIPPI
Mississippi Hospital Equipment Facilities Authority, North Mississippi
Health Services, 5.5%, 5/15/09 (c)..................................... 4,350,000 AAA 4,292,276

MISSOURI
Missouri Health & Educational Facilities Authority, SSM Healthcare,
Series 1992-AA:
6.35%, 6/1/08 (c)................................................... 8,125,000 AAA 8,865,025
6.4%, 6/1/09 (c).................................................... 8,640,000 AAA 9,405,590

NEVADA
Clark County, NV, General Obligation, School District, Series B, Zero
Coupon, 3/1/05 (c)..................................................... 8,070,000 AAA 4,934,079

NEW JERSEY
New Jersey Housing and Finance Agency, Home Mortgage Purchase
Revenue, Zero Coupon, 10/1/16 (c)...................................... 5,155,000 AAA 582,979
New Jersey State Transportation Authority, Transportation System,
Series A, 5.25%, 6/15/14 (c)........................................... 20,000,000 AAA 19,103,600

NEW YORK
Metropolitan Transportation Authority, NY, Transit Facilities Revenue,
Series N, 4.9%, 7/1/07 (c)............................................. 8,500,000 AAA 8,277,130
New York City, NY, General Obligation:
Series A, Prerefunded 11/1/97 at 101.50, 8%, 11/1/01................... 760,000 AAA 830,634
Series A, ETM, 8%, 11/1/01 ** ......................................... 740,000 AAA 816,879
Series A, 3%, 8/15/02 (c).............................................. 9,000,000 AAA 8,099,460

</TABLE>

The accompanying notes are an integral part of the financial statements.

50
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
Series D, 6%, 8/1/06 (c)............................................... 140,000 AAA 145,118
Series D, 6%, 8/1/08 (c)............................................... 370,000 AAA 381,056
Series D, 8%, 8/1/05 (c)............................................... 170,000 AAA 186,492
Series D, Prerefunded 8/1/97 at 102, 8%, 8/1/05 (c).................... 830,000 AAA 903,505
Series E, ETM, 7%, 12/1/07 (c) ** ..................................... 1,385,000 AAA 1,486,562
Series E, 7%, 12/1/07 (c) ............................................. 115,000 AAA 123,060
Prerefunded 11/1/97 at 101.50, 8.125%, 11/1/05 (c)..................... 1,400,000 AAA 1,533,588
New York City, NY, General Obligation, Series Fiscal 1992-C:
6.4%, 8/1/04 (c)....................................................... 500,000 AAA 548,475
6.4%, 8/1/05 (c)....................................................... 430,000 AAA 469,066
Prerefunded 8/1/02 at 101.50, 6.4%, 8/1/05 (c)......................... 10,000,000 AAA 11,186,300
New York State Dormitory Authority Revenue, City University:
Series D, 7%, 7/1/09 (c)............................................... 4,000,000 AAA 4,625,800
Series C, 7.5%, 7/1/10 (c)............................................. 5,750,000 AAA 6,907,705
New York State Dormitory Authority Revenue, College and University
Pooled Capital Program, 7.8%, 12/1/05 (c).............................. 10,890,000 AAA 11,855,181
New York State Energy Research and Development Authority, Pollution
Control Revenue, NY Electric and Gas Corporation, 5.9%, 12/1/06 (c).... 5,300,000 AAA 5,645,560
New York State Medical Care Facilities Agency, Mental Health Services,
Series F, 4.8%, 8/15/05 (c)............................................ 10,000,000 AAA 9,716,000
New York State Urban Development Authority, Correctional Facilities:
Series A, 5%, 1/1/07 (c)............................................... 4,315,000 AAA 4,252,605
Series A, 6.5%, 1/1/11 (c)............................................. 4,500,000 AAA 4,887,090
Suffolk County, NY, Industrial Development Agency, Southwest Sewer
System, 6%, 2/1/07 (c)................................................. 8,000,000 AAA 8,549,360

NORTH CAROLINA
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Series B, 6%, 1/1/18................................................... 8,775,000 AAA 8,958,661
North Carolina Municipal Power Agency, Catawba Electric Revenue:
5.25%, 1/1/08 (c)...................................................... 2,500,000 AAA 2,475,275
6%, 1/1/11 (c)......................................................... 8,235,000 AAA 8,612,163
7.5%, 1/1/17........................................................... 4,520,000 A 4,836,536

NORTH DAKOTA
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center,
Series 1991, Zero Coupon, 5/1/02 (c)................................... 2,850,000 AAA 2,049,122

OHIO
Hamilton County, OH, Electric System Mortgage Revenue, Series B,
Prerefunded 10/15/98 at 102, 8%, 10/15/22 (c).......................... 3,720,000 AAA 4,183,177
Ohio Air Quality Development Authority, Ohio Power Company,
Series B, 7.4%, 8/1/09 (c)............................................. 5,000,000 AAA 5,535,600
Ohio State Building Authority, Worker's Compensation Building,
Series A, 4.9%, 4/1/07 (c)............................................. 3,375,000 AAA 3,288,094

OKLAHOMA
Tulsa, OK, Industrial Development Authority, St. John's Medical Center:
Zero Coupon, 12/1/02 (c)............................................... 3,930,000 AAA 2,730,878
Zero Coupon, 12/1/04 (c)............................................... 5,430,000 AAA 3,351,668

</TABLE>

The accompanying notes are an integral part of the financial statements.

51
<PAGE>

AARP INSURED TAX FREE
GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
PENNSYLVANIA
Commonwealth of Pennsylvania, Certificates of Participation, Series A:
5.25%, 7/1/11 (c)...................................................... 9,000,000 AAA 8,536,860
5.4%, 7/1/09........................................................... 4,495,000 AAA 4,442,993
Pennsylvania Industrial Development Authority, Economic
Development Revenue:
5.8%, 1/1/08 (c).................................................... 4,250,000 AAA 4,431,560
5.8%, 7/1/08 (c).................................................... 4,875,000 AAA 5,089,159
5.8%, 1/1/09 (c).................................................... 2,500,000 AAA 2,583,950
Philadelphia, PA, General Obligation, Prerefunded 2/15/96,
8.25%, 2/15/09 (c)..................................................... 1,215,000 AAA 1,258,776
Philadelphia, PA, Water & Wastewater Refunding Revenue:
5.5%, 6/15/07 (c)...................................................... 5,000,000 AAA 5,103,500
5.625%, 6/15/08 (c).................................................... 2,100,000 AAA 2,146,725
5.625%, 6/15/09 (c).................................................... 20,000,000 AAA 20,217,400
5.625%, 6/15/09 (c).................................................... 10,855,000 AAA 10,972,994
Philadelphia, PA, Municipal Authority Revenue, Justice Lease,
Series B, Prerefunded 11/15/01 at 102, 6.9%, 11/15/03 (c).............. 2,000,000 AAA 2,277,940
Westmoreland County, PA, Industrial Development Revenue,
Westmoreland Health System, 5.375%, 7/1/11 (c)......................... 6,750,000 AAA 6,516,383

PUERTO RICO
Commonwealth of Puerto Rico, Highway & Transportation Authority
Revenue, 5.5%, 7/1/09 (c).............................................. 10,940,000 AAA 11,097,317

RHODE ISLAND
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,
Revolving Fund, Series A, 5.4%, 10/1/15 (c)............................ 2,000,000 AAA 1,889,060
Rhode Island Convention Center Authority, Refunding Revenue:
Series 1993 B, 5%, 5/15/10 (c)......................................... 5,000,000 AAA 4,636,750
Series 1993 B, 5.25%, 5/15/15 (c)...................................... 22,000,000 AAA 20,408,960
Rhode Island Depositors Economic Protection Corporation, Special
Obligation, Series B:
5.8%, 8/1/10 (c).................................................... 6,200,000 AAA 6,273,284
5.8%, 8/1/11 (c).................................................... 4,525,000 AAA 4,533,824
5.8%, 8/1/12 (c).................................................... 2,500,000 AAA 2,489,125
5.8%, 8/1/13 (c).................................................... 7,340,000 AAA 7,258,893
Rhode Island Public Building Authority, Public Projects, Series A,
Prerefunded 2/1/98 at 102, 8.2%, 2/1/08 (c)............................ 2,200,000 AAA 2,432,760

SOUTH CAROLINA
Charleston County, SC, Hospital Authority, 5.5%, 10/1/19.................. 2,500,000 AAA 2,336,000
Piedmont Municipal Power Agency, SC, Electric Revenue:
Series A, 6.5%, 1/1/16 (c)............................................. 3,000,000 AAA 3,251,730
Series C, 5.5%, 1/1/12 (c)............................................. 5,000,000 AAA 4,915,200
5.5%, 1/1/08 (c)....................................................... 1,915,000 AAA 1,952,477

SOUTH DAKOTA
South Dakota Building Authority, Certificate of Participation,
Series A, 7.5%, 12/1/16................................................ 4,000,000 A 4,205,120

</TABLE>

The accompanying notes are an integral part of the financial statements.

52
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
TENNESSEE
Knox County, TN, Health & Educational Hospital Facilities Board,
Fort Sanders Alliance:
7.25%, 1/1/09 (c)................................................... 3,150,000 AAA 3,704,463
5.75%, 1/1/11 (c)................................................... 15,405,000 AAA 15,685,679
5.75%, 1/1/12 (c)................................................... 17,880,000 AAA 18,104,752
6.25%, 1/1/13 (c)................................................... 4,000,000 AAA 4,248,200

TEXAS
Dallas, TX, Housing Finance Corporation, Single Family Mortgage Revenue,
Zero Coupon, 10/1/16 (c)............................................... 7,450,000 AAA 842,521
Dallas-Fort Worth, TX, Airport Revenue:
7.75%, 11/1/03 (c)..................................................... 1,000,000 AAA 1,186,900
7.8%, 11/1/05 (c)...................................................... 2,000,000 AAA 2,417,860
7.8%, 11/1/06 (c)...................................................... 2,025,000 AAA 2,432,288
7.375%, 11/1/08 (c).................................................... 4,500,000 AAA 5,238,945
7.375%, 11/1/10 (c).................................................... 3,500,000 AAA 4,020,660
Harris County, TX, General Obligation:
Flood Control District, Zero Coupon, 10/1/00 (c)....................... 1,000,000 AAA 788,260
Capital Appreciation Bond, Zero Coupon, 10/1/06 (c).................... 9,035,000 AAA 5,020,930
Harris County, TX, General Obligation, Toll Road Authority, Subordinate
Lien, Unlimited Tax:
Series A, Zero Coupon, 8/15/04 (c).................................. 2,050,000 AAA 1,300,746
Series A, Zero Coupon, 8/15/05 (c).................................. 4,025,000 AAA 2,403,126
Series A, Zero Coupon, 8/15/06 (c).................................. 4,010,000 AAA 2,243,635
5%, 8/15/07 (c)..................................................... 3,500,000 AAA 3,435,285
Houston, TX, Water & Sewer System Authority:
Series C, Zero Coupon, 12/1/06 (c)..................................... 14,575,000 AAA 8,027,619
Series C, Zero Coupon, 12/1/08 (c)..................................... 10,000,000 AAA 4,794,000
Series C, Zero Coupon, 12/1/09 (c)..................................... 14,750,000 AAA 6,577,763
Lubbock, TX, Health Facilities Development Corporation,
Methodist Hospital:
Series B, 5.5%, 12/1/06 (c)......................................... 3,945,000 AAA 4,067,611
Series B, 5.6%, 12/1/07 (c)......................................... 2,415,000 AAA 2,487,885
Series B, 5.625%, 12/1/08 (c)....................................... 4,400,000 AAA 4,500,364
Series B, 5.625%, 12/1/09 (c)....................................... 4,640,000 AAA 4,691,550
Montgomery County, TX, General Obligation, Library Refunding:
Zero Coupon, 9/1/03 (c)................................................ 3,475,000 AAA 2,333,532
Zero Coupon, 9/1/04 (c)................................................ 3,475,000 AAA 2,199,918
Zero Coupon, 9/1/05.................................................... 3,475,000 AAA 2,069,953
North Central Texas Health Facilities Development Corporation,
Presbyterian Hospital, Prerefunded 12/1/97 at 102, 8.75%, 12/1/15 (c).. 5,000,000 AAA 5,583,550
San Antonio, TX, Electric & Gas Revenue Refunding, Series A:
Zero Coupon, 2/1/05 (c)................................................ 2,500,000 AAA 1,535,200
Zero Coupon, 2/1/06 (c)................................................ 17,900,000 AAA 10,307,715
Series B, Zero Coupon, 2/1/05 (c)...................................... 8,000,000 AAA 4,912,640
Tarrant County, TX, Health Facilities Development Corporation, Hospital
Refunding Revenue, Fort Worth Osteopathic Hospital:
6%, 5/15/11 (c)..................................................... 4,615,000 AAA 4,780,817
6%, 5/15/21 (c)..................................................... 6,235,000 AAA 6,337,005

</TABLE>

The accompanying notes are an integral part of the financial statements.

53
<PAGE>

AARP INSURED TAX FREE
GENERAL BOND FUND
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)

<S> <C> <C> <C>
Texas General Obligation, Superconductor Revenue, Series C,
Zero Coupon, 4/1/05 (c)................................................ 8,390,000 AAA 5,107,496
Texas General Obligation, Capital Appreciation Bond, Super Collider,
Series C, Zero Coupon, 4/1/06 (c)...................................... 7,385,000 AAA 4,214,915
Texas Municipal Power Agency Revenue:
5.25%, 9/1/12 (c)...................................................... 2,900,000 AAA 2,735,280
5.25%, 9/1/07 (c)...................................................... 1,500,000 AAA 1,511,835
5.25%, 9/1/09 (c)...................................................... 6,235,000 AAA 6,120,027
6.1%, 9/1/07 (c)....................................................... 9,250,000 AAA 10,042,263
6.1%, 9/1/09 (c)....................................................... 4,435,000 AAA 4,808,383
Texas State Public Finance Authority, Building Authority:
Zero Coupon, 2/1/06 (c)................................................ 13,915,000 AAA 8,012,953
Series B, 6.25%, 2/1/08 (c)............................................ 5,190,000 AAA 5,656,477

UTAH
Utah Associated Municipal Power System, Hunter Project, Refunding
Revenue, Zero Coupon:
7/1/00 (c).......................................................... 2,755,000 AAA 2,190,473
7/1/02 (c).......................................................... 5,200,000 AAA 3,690,596
7/1/04 (c).......................................................... 5,895,000 AAA 3,719,214
7/1/05 (c).......................................................... 5,900,000 AAA 3,498,228
7/1/06 (c).......................................................... 5,895,000 AAA 3,271,607
7/1/07 (c).......................................................... 3,750,000 AAA 1,943,475
Intermountain Power Agency, UT, Power Supply Revenue:
Series A, Zero Coupon, 7/1/02 (c))..................................... 1,655,000 AAA 1,180,048
Series A, Zero Coupon, 7/1/03 (c)...................................... 1,000,000 AAA 673,600
Series A, Zero Coupon, 7/1/04 (c)...................................... 1,730,000 AAA 1,098,031
Series B, Zero Coupon, 7/1/02 (c)...................................... 8,230,000 AAA 5,868,155
5%, 7/1/12 (c)......................................................... 1,000,000 AAA 906,920
Provo, UT, Electric System Revenue, ETM, 10.375%, 9/15/15 (c)**........... 1,800,000 AAA 2,581,506

VIRGINIA
Roanoke, VA, Industrial Development Authority, Roanoke Memorial
Hospital, Series B, 6.125%, 7/1/17 (c)................................. 5,500,000 AAA 5,711,750
Southeastern Public Service Authority, VA, Refunding Revenue,
Series A, 5.25%, 7/1/10 (c)............................................ 7,380,000 AAA 7,158,157
Virginia Beach, VA, Development Authority, Virginia Beach General
Hospital Project:
5%, 2/15/06 (c)..................................................... 1,750,000 AAA 1,738,695
5%, 2/15/07 (c)..................................................... 1,800,000 AAA 1,764,702
5.1%, 2/15/08 (c)................................................... 1,345,000 AAA 1,311,792
5.125%, 2/15/18 (c)................................................. 3,000,000 AAA 2,726,790
6%, 2/15/11 (c)..................................................... 1,595,000 AAA 1,661,735
Winchester County, VA, Industrial Development Authority, Hospital
Revenue, 6%, 1/1/15 (c)................................................ 5,700,000 AAA 5,236,134

WASHINGTON
King County, WA, Public Hospital District -1, Valley Medical Center,
Series 1992, 5.5%, 9/1/17 (c).......................................... 3,500,000 AAA 3,283,840
King & Snohomish Counties, WA, General Obligation, School
District -417, North Shore:
5.45%, 12/1/06 (c)..................................................... 2,825,000 AAA 2,900,880

</TABLE>

The accompanying notes are an integral part of the financial statements.

54
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (b) Value ($)
<S> <C> <C> <C>
5.6%, 12/1/10 (c)........................................................... 1,650,000 AAA 1,641,503
Snohomish County, WA, Public Utilities, District #1:
5.5%, 1/1/14 (c)............................................................ 6,000,000 AAA 5,675,580
5.5%, 1/1/15 (c)............................................................ 1,350,000 AAA 1,271,916
Snohomish County, WA, School District #6, 6.5%, 12/1/07....................... 3,325,000 A 3,698,165
Washington Health Care Facilities Authority, Empire Health
Services-Spokane:
5.65%, 11/1/05 (c)........................................................ 2,155,000 AAA 2,249,152
5.7%, 11/1/06 (c)......................................................... 3,440,000 AAA 3,577,462
5.75%, 11/1/07 (c)........................................................ 3,675,000 AAA 3,807,704
5.8%, 11/1/09 (c)......................................................... 4,595,000 AAA 4,687,911
5.8%, 11/1/10 (c)......................................................... 2,100,000 AAA 2,116,674
Washington Public Power Supply System, Revenue Refunding:
Nuclear Project #1, Series A, Prerefunded 7/1/99 at 102, 7.5%, 7/1/15 (c)... 2,405,000 AAA 2,705,529
Nuclear Project #1, Series A, 7%, 7/1/11 (c)................................ 3,830,000 AAA 4,207,332
Nuclear Project #1, Series A, 7.5%, 7/1/15 (c).............................. 1,595,000 AAA 1,755,712
Nuclear Project #1, Series B, 7.25%, 7/1/12 (c)............................. 10,895,000 AAA 12,082,446
Nuclear Project #2, Series A, 7.25%, 7/1/03 (c)............................. 2,000,000 AAA 2,255,180
Nuclear Project #2, Series A, 5.7%, 7/1/08 (c).............................. 5,000,000 AAA 5,099,500
Nuclear Project #2, Series C, 7%, 7/1/01 (c)................................ 10,000,000 AAA 11,067,500
Nuclear Project #2, Series C, 7.375%, 7/1/11 (c)............................ 1,370,000 AAA 1,569,897
Nuclear Project #3, Series A, Prerefunded 11/1/01 at 102, 7.25%, 7/1/16 (c). 3,630,000 AAA 4,052,496
Nuclear Project #3, Series A, Zero Coupon, 7/1/04 (c)....................... 3,625,000 AAA 2,287,049
Nuclear Project #3, Series A, Zero Coupon, 7/1/05 (c)....................... 4,125,000 AAA 2,445,795
Washington State Housing Finance, Series A, 7.1%, 12/1/17..................... 12,245,000 AAA 12,845,250
WEST VIRGINIA
West Virginia School Building Authority, Series 1990-B, 6.75%, 7/1/10 (c)..... 4,000,000 AAA 4,362,960
WISCONSIN
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/04 (c)............ 3,475,000 AAA 2,202,073
Wisconsin Health & Educational Facilities Authority:
Wheaton Franciscan Services, 6.1%, 8/15/08 (c).............................. 4,580,000 AAA 4,865,609
Felician Healthcare Inc., Series B, 6.25%, 1/1/22 (c)....................... 5,285,000 AAA 5,486,517
Villa St. Francis Inc., Series C, 6.25%, 1/1/22 (c)......................... 9,230,000 AAA 9,581,940
SSM Healthcare, Series 1992 AA, 6.4%, 6/1/08 (c)............................ 2,335,000 AAA 2,533,638
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/09 (c)........................... 2,485,000 AAA 2,689,590
SSM Healthcare, Series 1992 AA, 6.45%, 6/1/10 (c)........................... 2,650,000 AAA 2,842,761
SSM Healthcare, Series 1992 AA, 6.5%, 6/1/12 (c)............................ 3,000,000 AAA 3,228,840
SM Healthcare, Series 1992 AA, 6.5%, 6/1/22 (c)............................. 2,820,000 AAA 3,030,175
St. Luke's Medical Center, 7.1%, 8/15/11 (c)................................ 2,000,000 AAA 2,217,600
Riverview Hospital Association Project, 9%, 5/1/11 (c)...................... 2,500,000 AAA 2,626,025
Hospital Sisters Services Inc. - Obligated Group, 5.375%, 6/1/18............ 4,800,000 AAA 4,391,605
-------------
Total Longer-Term Municipal Investments (Cost $1,633,171,528)................. 1,713,088,074
-------------
</TABLE>

<TABLE>
<CAPTION>
SUMMARY % OF NET ASSETS
<S> <C> <C>
Total Investment Portfolio (Cost $1,704,118,553) (a)..... 98.7 1,784,155,534
Other Assets and Liabilities, Net........................ 1.3 22,891,788
----- -------------
Net Assets............................................... 100.0 1,807,047,322
===== =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<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. Since these
securities are payable on demand, they are valued at 100% of their
principal.

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

(a) At September 30, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $1,704,514,224 was as follows:

<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost .. $88,536,219
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value .. (8,894,909)
-----------
Net unrealized appreciation ..................................................................................... $79,641,310
===========
</TABLE>

(b) (Unaudited) All of the securities held have been determined to be of
appropriate credit quality as required by the Fund's investment objectives.
Credit ratings shown are either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. Unrated securities (NR) have been determined to be
of comparable quality to rated eligible securities.

(d) At September 30, 1995, these securities, in whole or in part, have been
pledged to cover initial margin requirements for open futures contracts.

At September 30, 1995, open futures contracts sold short were as follows
(Note 1):

<TABLE>
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Bond ............ December 1995 1,500 170,885,736 171,515,625
----------- -----------
Total net unrealized depreciation on open futures contracts sold short .............. (629,889)
===========
</TABLE>

The aggregate face value of futures contracts opened and closed during the
year ended September 30, 1995 was $648,776,784 and $520,647,998,
respectively.

Purchases and sales of investment securities (excluding short-term
investments), for the year ended September 30, 1995, aggregated
$295,103,254 and $399,367,602, respectively.

At September 30, 1995, and to the extent provided in regulations, the Fund
had capital loss carryforwards of approximately $3,587,586 which expires
September 30, 2003. In addition, from November 1, 1994 through September
30, 1995, the Fund incurred approximately $12,265,621 of net realized
capital losses which the Fund intends to elect to defer and treat as
arising in the fiscal year ended September 30, 1996.

Percentage breakdown of investments is based on total net assets of the
Fund. The total net assets of the Fund are comprised of the Fund's
investment portfolio, other assets and liabilities. The percentage of the
investment portfolio may be greater or less than 100% due to the inclusion
of the Fund's assets and liabilities in the calculation. The Fund's other
assets and liabilities are disclosed in the Statement of Assets and
Liabilities.

The accompanying notes are an integral part of the financial statements

56
<PAGE>
AARP Balanced Stock and
Bond Fund

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

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

REPURCHASE AGREEMENTS 7.1%

17,687,000 Repurchase Agreement with Salomon Brothers Inc., dated 9/29/95 at
6.07%, to be repurchased at $17,695,947 on 10/2/95, collateralized by a
$13,939,000 U.S. Treasury Note, 9.25%, 2/15/16 (Cost $17,687,000) .............. 17,687,000
----------

COMMERCIAL PAPER 11.1%

12,000,000 Ciesco L.P., 5.71%, 11/1/95 ...................................................... 11,939,520
12,000,000 Ford Motor Credit Corp., 5.65%, 12/29/95 ......................................... 11,954,320
3,643,000 New Center Asset Trust, 5.73%, 10/20/95 .......................................... 3,631,983
----------
Total Commercial Paper (Cost $27,525,823) ........................................ 27,525,823
----------

U.S. TREASURY OBLIGATIONS 11.5%

4,600,000 U.S. Treasury Bond, 7.25%, 5/15/16 ............................................... 4,916,986
2,750,000 U.S. Treasury Bond, 7.875%, 2/15/21 .............................................. 3,153,480
2,000,000 U.S. Treasury Note, 4.625%, 2/29/96 .............................................. 1,992,180
4,000,000 U.S. Treasury Note, 5.5%, 9/30/97 (b) ............................................ 3,975,640
2,500,000 U.S. Treasury Note, 5.13%, 4/30/98 ............................................... 2,454,300
2,500,000 U.S. Treasury Note, 5.875%, 3/31/99 .............................................. 2,493,350
3,250,000 U.S. Treasury Note, 6.875%, 7/31/99 .............................................. 3,346,493
4,500,000 U.S. Treasury Note, 6%, 10/15/99 ................................................. 4,504,185
3,500,000 U.S. Treasury Separate Trading Registered Interest and Principal,2/15/09
(6.597%**).............................................................. 1,469,055
----------
Total U.S. Treasury Obligations (Cost $27,181,297) ............................... 28,305,669
----------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 3.6%

3,029,997 Government National Mortgage Association, 6.5%, 11/15/09 ......................... 2,999,697
2,940,000 Government National Mortgage Association, 7.5%, 9/15/25 .......................... 2,969,400
2,750,776 Government National Mortgage Association, 10%, 2/15/25 ........................... 3,011,632
----------
Total Government National Mortgage Association (Cost $8,940,812) ................. 8,980,729
----------

U.S. GOVERNMENT AGENCY MORTGAGE PASS-THRUS* 3.8%

3,000,000 Federal National Mortgage Association, 5.5%, 7/1/09 .............................. 2,856,540
3,267,315 Federal National Mortgage Association, 7%, 8/1/25 ................................ 3,222,389
3,250,000 Federal National Mortgage Association, 7%, 9/1/25 ................................ 3,205,313
----------
Total U.S. Government Agency Mortgage Pass-Thrus (Cost $9,308,153) ............... 9,284,242
----------

FOREIGN BONDS--U.S.$ DENOMINATED 0.4%

1,000,000 ABN-AMRO Bank NV, subordinated note, 7.13%, 10/15/2093
(Cost $857,331) ................................................................ 922,420
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
57

<PAGE>

AARP Balanced Stock and
Bond Fund

Principal Market
Amount ($) Value ($)

<S> <C>

FOREIGN BONDS--NON-U.S.$ DENOMINATED 1.6%

DEM 2,800,000 Federal Republic of Germany, 6.5%, 7/15/03 ................................ 1,966,959
FRF 9,700,000 Government of France, 7.5%, 4/25/05 ....................................... 1,980,437
---------
Total Foreign Bonds - Non U.S.$ Denominated (Cost $3,961,935) ............. 3,947,396
---------

ASSET-BACKED 0.8%

Credit Card Receivables
2,000,000 Sears Credit Account Master Trust Series 1995-4, 6.25%, 1/15/03
(Cost $1,997,500) ........................................................... 2,001,860
---------

CORPORATE BONDS 3.6%

Consumer Staples 0.8%
Food & Beverage
2,000,000 Borden Inc., 7.875%, 2/15/23 ................................................... 1,903,240
---------
Financial 0.4%
Other Financial Companies
1,000,000 General Electric Capital Services, 7.5%, 8/21/35 ............................... 1,044,340
---------
Durables 1.7%
Aerospace 0.9%
1,000,000 Boeing Co., 6.875%, 10/15/43 ................................................... 943,940
1,000,000 McDonnell Douglas Corp., 9.75%, 4/1/12 ......................................... 1,212,280
---------
2,156,220
---------
Automobiles 0.8%
1,000,000 Ford Motor Co., 8.875%, 1/15/22 ................................................ 1,170,400
1,000,000 General Motors Acceptance Corp., 5.75%, 4/4/96 ................................. 997,870
---------
2,168,270
---------
Technology 0.7%
Military Electronics
1,500,000 Loral Corp., 8.375%, 6/15/24 ................................................... 1,620,345
---------
Total Corporate Bonds (Cost $8,451,765) ........................................ 8,892,415
---------

CONVERTIBLE BONDS 1.6%

Health 0.1%
Pharmaceuticals
290,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ........................................... 245,050
---------
Financial 0.1%
Other Financial Companies
200,000 First Financial Management Corp., 5%, 12/15/99 ................................. 298,000
---------
Service Industries 0.2%
Miscellaneous Commercial Services
1,000,000 ADT Operations Inc., Zero Coupon Liquid Yield Option Note, 7/6/10 .............. 437,500
---------

</TABLE>

The accompanying notes are an integral part of the financial statements.
58

<PAGE>

Principal Market
Amount ($) Value ($)

<S> <C>
Technology 1.2%
Semiconductors
2,880,000 VLSI Technology, Inc., 8.25%, 10/1/05 .......................................... 2,908,800
---------
Construction 0.0%
Homebuilding
30,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04 ............................ 17,400
---------
Total Convertible Bonds (Cost $3,755,276) ...................................... 3,906,750
---------

CONVERTIBLE PREFERRED STOCKS 1.9%

Shares
------
Health 0.5%
Health Industry Services
57,900 FHP International Corp.,"A", Cum. $1.25 ........................................ 1,375,125
---------
Financial 0.6%
Consumer Finance
33,100 Advanta Corp. 6.75% ............................................................ 1,390,200
---------
Service Industries 0.4%
EDP Services
16,100 General Motors Corp., Series C, Cum. $3.25 (convertible into GM "E") ........... 1,044,488
---------
Manufacturing 0.3%
Containers & Paper 0.2%
3,300 Boise Cascade Corp. "G", Cum $1.58 ............................................. 110,963
4,100 Bowater, Inc. 7% "B" ........................................................... 160,925
2,100 International Paper Co., 5.25% ................................................. 99,225
---------
371,113
---------
Industrial Specialty 0.1%
7,900 Corning Delaware L.P., Cum. $3.00 .............................................. 369,325
---------
Energy 0.1%
Oil & Gas Production
4,200 Parker & Parsley Capital Corp. ................................................. 189,525
---------
Total Convertible Preferred Stocks (Cost $4,480,464) ........................... 4,739,776
---------

COMMON STOCKS 52.5%

Consumer Discretionary 2.1%
Department & Chain Stores 2.0%
39,600 J.C. Penney Co., Inc. .......................................................... 1,965,150
26,100 Melville Corp. ................................................................. 900,450
35,700 Rite Aid Corp. ................................................................. 999,600
27,000 Sears, Roebuck & Co. ........................................................... 995,625
---------
4,860,825
---------
Restaurants 0.1%
28,300 Darden Restaurants Inc. ........................................................ 325,450
---------
</TABLE>

The accompanying notes are an integral part of the financial statements.
59

<PAGE>

AARP Balanced Stock and
Bond Fund

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C>

Consumer Staples 4.9%
Alcohol & Tobacco 0.7%
26,600 Anheuser Busch Companies, Inc. ................................................. 1,659,175
----------
Food & Beverage 2.1%
28,300 General Mills, Inc. ............................................................ 1,577,725
48,900 H.J. Heinz Co. ................................................................. 2,237,175
39,200 Quaker Oats Co. ................................................................ 1,298,500
----------
5,113,400
----------
Package Goods/Cosmetics 2.1%
26,300 Avon Products Inc. ............................................................. 1,887,025
21,000 Clorox Co. ..................................................................... 1,498,875
6,400 Colgate-Palmolive Co. .......................................................... 426,400
33,200 Tambrands Inc. ................................................................. 1,456,650
----------
5,268,950
----------
Health 7.0%
Health Industry Services 0.3%
7,200 McKesson Corp. ................................................................. 324,000
9,300 U.S. HealthCare, Inc. .......................................................... 328,988
----------
652,988
----------
Pharmaceuticals 6.7%
23,300 American Home Products Corp. ................................................... 1,977,588
65,800 Baxter International Inc. ...................................................... 2,706,025
21,200 Bristol-Myers Squibb Co. ....................................................... 1,544,950
31,000 Carter-Wallace Inc. ............................................................ 387,500
31,500 Eli Lilly Co. .................................................................. 2,831,063
42,700 Schering-Plough Corp. .......................................................... 2,199,050
39,200 SmithKline Beecham PLC (ADR) ................................................... 1,984,500
19,300 Warner-Lambert Co. ............................................................. 1,838,325
62,100 Zeneca Group PLC ............................................................... 1,121,807
----------
16,590,808
----------
Communications 2.7%
Telephone/Communications
67,100 Alltel Corp. ................................................................... 2,004,613
42,100 GTE Corp. ...................................................................... 1,652,425
56,700 Hong Kong Telecommunications Ltd. (ADR) ........................................ 1,034,775
33,600 Sprint Corp. ................................................................... 1,176,000
29,900 Tele Danmark A/S (ADR) ......................................................... 773,663
----------
6,641,476
----------
Financial 10.8%
Banks 3.7%
15,700 Bankers Trust New York Corp. ................................................... 1,102,925
28,300 Chemical Banking Corp. ......................................................... 1,722,763
45,500 CoreStates Financial Corp. ..................................................... 1,666,438
59,000 First Bank System Inc. ......................................................... 2,839,375
</TABLE>

The accompanying notes are an integral part of the financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
<S> <C>
23,200 J.P. Morgan & Co., Inc. ........................................................ 1,795,100
----------
9,126,601
----------
Insurance 2.1%
25,029 Allstate Corp. ................................................................. 885,401
22,900 EXEL, Ltd. ..................................................................... 1,331,063
14,400 Hartford Steam Boiler Inspection & Insurance Co. ............................... 696,600
47,300 Lincoln National Corp. ......................................................... 2,229,013
----------
5,142,077
----------
Other Financial Companies 2.1%
14,800 Federal National Mortgage Association .......................................... 1,531,800
69,500 Student Loan Marketing Association ............................................. 3,753,000
----------
5,284,800
----------
Real Estate 2.9%
31,872 HGI Realty, Inc. (REIT) ........................................................ 764,928
51,100 Health Care Property Investment Inc. (REIT) .................................... 1,731,013
55,400 Meditrust SBI (REIT) ........................................................... 1,918,225
50,800 Nationwide Health Properties Inc. (REIT) ....................................... 2,082,800
26,000 Omega Healthcare Investors (REIT) .............................................. 695,500
----------
7,192,466
----------
Media 0.3%
Print Media
14,800 Reader's Digest Association Inc. "A" ........................................... 697,450
----------
Service Industries 2.0%
Miscellaneous Commercial Services 0.1%
260,000 Jardine Strategic Holdings Ltd. ................................................ 263,900
----------
Miscellaneous Consumer Services 1.0%
63,900 H & R Block Inc. ............................................................... 2,428,200
----------
Printing/Publishing 0.9%
53,400 Deluxe Corp. ................................................................... 1,768,875
6,200 Dun & Bradstreet Corp. ......................................................... 358,825
----------
2,127,700
----------
Durables 4.6%
Aerospace 4.3%
25,700 AAR Corp. ...................................................................... 469,025
36,472 Lockheed Martin Corp. .......................................................... 2,448,183
39,800 Rockwell International Corp. ................................................... 1,880,550
47,500 Thiokol Corp. .................................................................. 1,698,125
45,400 United Technologies Corp. ...................................................... 4,012,225
----------
10,508,108
----------
Automobiles 0.3%
28,000 Dana Corp. ..................................................................... 808,500
----------
Manufacturing 8.9%
Chemicals 2.1%
15,600 Dow Chemical Co. ............................................................... 1,162,200
34,100 E.I. du Pont de Nemours & Co. .................................................. 2,344,375
</TABLE>

The accompanying notes are an integral part of the financial statements.
61

<PAGE>

AARP Balanced Stock and
Bond Fund

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C>
7,000 Lubrizol Corp. ................................................................. 228,375
55,400 Lyondell Petrochemical Co. ..................................................... 1,433,475
----------
5,168,425
----------
Containers & Paper 1.0%
4,100 Federal Paper Board Co., Inc. .................................................. 156,464
32,600 Kimberly-Clark Corp. ........................................................... 2,188,275
----------
2,344,739
----------
Diversified Manufacturing 2.1%
75,200 Dresser Industries Inc. ........................................................ 1,795,400
12,700 Olin Corp. ..................................................................... 873,125
35,200 TRW Inc. ....................................................................... 2,618,000
----------
5,286,525
----------
Electrical Products 0.5%
19,400 Thomas & Betts Corp. ........................................................... 1,253,725
----------
Machinery/Components/Controls 0.4%
23,800 Timken Co. ..................................................................... 1,014,475
----------
Office Equipment/Supplies 1.3%
24,100 Xerox Corp. .................................................................... 3,238,438
----------
Specialty Chemicals 1.3%
35,100 Betz Laboratories Inc. ......................................................... 1,434,713
53,400 Witco Corp. .................................................................... 1,875,675
----------
3,310,388
----------
Wholesale Distributors 0.2%
4,700 Alco Standard Corp. ............................................................ 395,975
----------
Energy 5.4%
Engineering 0.4%
48,000 McDermott International Inc. ................................................... 948,000
----------
Oil Companies 4.4%
21,000 Exxon Corp. .................................................................... 1,517,250
30,000 Murphy Oil Corp. ............................................................... 1,200,000
24,500 Pennzoil Co. ................................................................... 1,074,938
25,500 Repsol SA (ADR) ................................................................ 809,625
13,800 Royal Dutch Petroleum Co. (New York shares) .................................... 1,693,950
32,481 Societe Nationale Elf Aquitaine (ADR) .......................................... 1,092,174
17,200 Texaco Inc. .................................................................... 1,111,550
27,980 Total SA (ADR) ................................................................. 842,898
87,200 YPF SA "D" (ADR) ............................................................... 1,569,600
----------
10,911,985
----------
Oilfield Services/Equipment 0.6%
37,900 Halliburton Co. ................................................................ 1,582,325
----------
Metals & Minerals 1.3%
Steel & Metals
65,200 Freeport McMoRan Copper & Gold, Inc. "A" ....................................... 1,670,750
101,500 Oregon Steel Mills Inc. ........................................................ 1,624,000
----------
3,294,750
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
62

<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C>
Utilities 2.5%
Electric Utilities
37,100 CINergy Corp. ................................................................. 1,034,163
20,700 CMS Energy Corp. .............................................................. 543,375
42,500 National Power PLC (ADR) ...................................................... 616,250
26,100 PacifiCorp. ................................................................... 495,900
14,300 Pacific Gas & Electric Co. .................................................... 427,213
31,200 PowerGen PLC (ADR) ............................................................ 487,500
50,500 Southern Company .............................................................. 1,193,063
10,500 Texas Utilities Co., Inc. ..................................................... 366,188
38,700 Unicom Corp. .................................................................. 1,170,664
-----------
6,334,316
-----------
Total Common Stocks (Cost $110,748,570) ....................................... 129,776,940
-----------
</TABLE>

SUMMARY % OF NET ASSETS
<S> <C> <C>
Total Investment Portfolio (Cost $224,895,926) (a) ........... 99.5 245,971,020
Other Assets and Liabilities, Net ............................ 0.5 1,235,935
----- -----------
Net Assets ................................................... 100.0 247,206,955
===== ===========

REIT Real Estate Investment Trust
* Effective maturities will be shorter due to amortization and prepayments.

** Yield (unaudited); bond equivalent yield to maturity; not a coupon rate.

(a) At September 30, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $225,012,253 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ....................................................... $22,507,829

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ....................................................... (1,549,062)
-----------
Net unrealized appreciation ............................................................... 20,958,767
===========

(b) At September 30, 1995, these securities, in whole or in part, were pledged
to cover initial margin requirements for open futures contracts.

At September 30, 1995, open futures contracts purchased were as follows (Note1):
</TABLE>

<TABLE>
<CAPTION>
Aggregate Market
Futures Expiration Contracts Face Value ($) Value ($)
------- ---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Notes ..... December 1995 33 3,641,641 3,638,250
--------- ---------
Total net unrealized depreciation on open futures contracts purchased ...................... (3,391)
=========
The aggregate face value of futures contracts opened and closed during the
year ended September 30, 1995 was $7,225,532 and $3,583,891 respectively.

For the year ended September 30, 1995, purchases and sales of investment securities
(excluding short-term investments) aggregated $107,873,081 and $68,779,401,
respectively. Purchases and sales of U.S. Government obligations and U.S. Government
Agencies aggregated $30,836,551 and $30,995,075, respectively.

Percentage breakdown of investments is based on total net assets of the Fund.
The total net assets of the Fund are comprised of the Fund's investment portfolio,
other assets and liabilities. The percentage of the investment portfolio may
be greater or less than 100% due to the inclusion of the Fund's assets and
liabilities in the calculation. The Fund's other assets and liabilities are
disclosed in the Statement of Assets and Liabilities.
</TABLE>

The accompanying notes are an integral part of the financial statements.

63
<PAGE>
AARP GROWTH AND INCOME FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995

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

<S> <C> <C>
REPURCHASE AGREEMENTS 0.8%

25,079,000 Repurchase Agreement with Salomon Brothers dated 9/29/95
at 6.07% to be repurchased at $25,091,686 on 10/2/95, collateralized
by a $24,668,000 U.S. Treasury Note, 7.25%, 2/15/98 (Cost $25,079,000)..... 25,079,000
----------

COMMERCIAL PAPER 2.6%

20,000,000 Associates Corp. of North America, 5.51%, 10/26/95........................... 19,920,694
20,000,000 CIESCO, 5.51%, 10/27/95...................................................... 19,917,667
30,000,000 Ford Motor Credit Co., 5.50%, 10/24/95....................................... 29,890,367
10,000,000 Prudential Funding Corp., 5.25%, 10/12/95.................................... 9,982,522
----------
TOTAL COMMERCIAL PAPER (COST $79,711,250).................................... 79,711,250
----------

CORPORATE BONDS 0.2%

MANUFACTURING
Electrical Products
4,500,000 Siemens Capital Corp., with warrants, 8%, 6/24/02 (Cost $5,885,818).......... 5,985,000
----------

CONVERTIBLE BONDS 2.8%

CONSUMER DISCRETIONARY 0.1%
Department & Chain Stores
4,000,000 Federated Department Stores, Inc. debenture, 5%, 10/1/03..................... 4,080,000
----------

HEALTH 0.3%
Health Industry Services 0.1%
2,000,000 Hillhaven Corp., 7.75%, 11/1/02.............................................. 3,620,000
----------
Pharmaceuticals 0.2%
6,260,000 Sandoz Capital BVI Ltd., 2%, 10/6/02.......................................... 5,274,050
----------

COMMUNICATIONS 0.0%
Telephone/Communications
1,000,000 Compania de Telefonos de Chile, S.A., 4.5%, 1/15/03.......................... 1,015,000
----------

FINANCIAL 0.9%
Banks 0.6%
17,290,000 MBL International Finance Bermuda, 3%, 11/30/02.............................. 18,068,050
----------
Other Financial Companies 0.3%
5,200,000 First Financial Management Corp., 5%, 12/15/99............................... 7,826,000
----------

MEDIA 0.1%
Broadcasting & Entertainment
8,000,000 Time Warner Inc., Zero Coupon Liquid Yield Option Note, 6/22/13.............. 3,230,000
----------

SERVICE INDUSTRIES 0.4%
Miscellaneous Commercial Services
25,000,000 ADT Operations Inc., Zero Coupon Liquid Yield Option Note, 7/6/10............ 10,937,500
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

64
<PAGE>

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

<S> <C> <C>
TECHNOLOGY 0.2%
Electronic Data Processing 0.1%
8,000,000 Silicon Graphics Inc., 11/5/13............................................... 4,760,000
----------
Precision Instruments 0.1%
1,000,000 Thermo Instruments Systems Inc., 6.625%, 8/15/01............................. 2,360,000
----------

CONSTRUCTION 0.2%
Homebuilding
10,670,000 Empresa ICA Sociedad Controladora S.A., 5%, 3/15/04.......................... 6,188,600
----------

TRANSPORTATION 0.4%
Airlines
13,500,000 Delta Air Lines, Inc., 3.23%, 6/15/03........................................ 12,116,250
----------

UTILITIES 0.2%
Electric Utilities
2,500,000 National Power PLC, 6.25%, 9/23/08........................................... 4,710,229
----------
TOTAL CONVERTIBLE BONDS (COST $79,536,177)................................... 84,185,679
----------

CONVERTIBLE PREFERRED STOCKS 3.3%

<CAPTION>
Shares
------
HEALTH 0.9%
Health Industry Services 0.9%
1,091,200 FHP International Corp.,"A", Cum. $1.25...................................... 25,916,000
----------
Medical Supply & Specialty 0.0%
25,000 US Surgical Corp., "A"....................................................... 750,000
----------

FINANCIAL 0.2%
Consumer Finance
129,000 Advanta Corp., 6.75%......................................................... 5,418,000
----------

MEDIA 0.1%
Print Media
104,400 Times Mirror Co., "B", Cum. $1.38............................................ 2,518,650
----------

SERVICE INDUSTRIES 0.7%
EDP Services
343,400 General Motors Corp., Series C, Cum. $3.25................................... 22,278,075
----------

MANUFACTURING 0.5%
Containers & Paper 0.2%
61,900 Boise Cascade Corp., "G", Cum. $1.58......................................... 2,081,388
50,200 International Paper Co....................................................... 2,371,950
----------
4,453,338
----------
Industrial Specialty 0.3%
211,600 Corning Delaware L.P., Cum. $3.00............................................ 9,892,300
----------

TECHNOLOGY 0.2%
Electronic Data Processing
50,000 Ceridian Corp., Cum. $2.75................................................... 4,937,500
----------

ENERGY 0.3%
Oil & Gas Production
215,300 Parker & Parsley Capital Corp................................................ 9,661,588
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

65
<PAGE>

AARP GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C> <C>
METALS & MINERALS 0.4%
Precious Metals
500,000 Freeport McMoRan Copper & Gold, Inc., Cum. $1.25............................. 12,875,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $93,895,915)........................ 98,700,451
-----------

PREFERRED STOCKS 0.3%

COMMUNICATIONS
Telephone/Communications
140,000 Philippine Long Distance Telephone Co. (Cost $7,000,000)..................... 8,400,000
-----------

COMMON STOCKS 91.1%

CONSUMER DISCRETIONARY 3.6%
Department & Chain Stores 3.4%
845,400 J.C. Penney Co., Inc......................................................... 41,952,975
593,200 Melville Corp................................................................ 20,465,400
778,400 Rite Aid Corp................................................................ 21,795,200
515,400 Sears, Roebuck & Co.......................................................... 19,005,375
-----------
103,218,950
-----------
Restaurants 0.2%
598,000 Darden Restaurants Inc....................................................... 6,877,000
-----------

CONSUMER STAPLES 8.7%
Alcohol & Tobacco 1.3%
631,300 Anheuser Busch Companies, Inc................................................ 39,377,338
900 RJR Nabisco Holdings Corp.................................................... 29,138
-----------
39,406,476
-----------
Consumer Specialties 0.2%
320,900 A.T. Cross Co. "A"........................................................... 5,415,188
-----------
Food & Beverage 3.6%
598,400 General Mills, Inc........................................................... 33,360,800
1,122,600 H.J. Heinz Co................................................................ 51,358,950
733,400 Quaker Oats Co............................................................... 24,293,875
-----------
109,013,625
-----------
Package Goods/Cosmetics 3.6%
561,400 Avon Products Inc............................................................ 40,280,450
402,100 Clorox Co.................................................................... 28,699,888
136,500 Colgate-Palmolive Co......................................................... 9,094,313
643,200 Tambrands Inc................................................................ 28,220,400
-----------
106,295,051
-----------
HEALTH 12.4%
Health Industry Services 0.5%
194,800 McKesson Corp. (New)......................................................... 8,766,000
221,900 U.S. HealthCare, Inc......................................................... 7,849,713
-----------
16,615,713
-----------
Pharmaceuticals 11.9%
558,600 American Home Products Corp.................................................. 47,411,175
1,461,800 Baxter International Inc..................................................... 60,116,525
</TABLE>

The accompanying notes are an integral part of the financial statements.

66
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C> <C>
464,300 Bristol-Myers Squibb Co...................................................... 33,835,863
849,400 Carter-Wallace Inc........................................................... 10,617,500
674,300 Eli Lilly Co................................................................. 60,602,713
1,006,000 Schering-Plough Corp......................................................... 51,809,000
661,300 SmithKline Beecham PLC (ADR)................................................. 33,478,313
463,300 Warner-Lambert Co............................................................ 44,129,325
859,900 Zeneca Group PLC............................................................. 15,507,059
300 Zeneca Group PLC (ADR)....................................................... 16,350
-----------
357,523,823
-----------
COMMUNICATIONS 5.1%
Telephone/Communications
1,465,300 Alltel Corp.................................................................. 43,775,838
892,500 GTE Corp..................................................................... 35,030,625
1,215,300 Hong Kong Telecommunications Ltd. (ADR)...................................... 22,179,225
826,200 Sprint Corp.................................................................. 28,917,000
802,100 Tele Danmark A/S "B" (ADR)................................................... 20,754,338
898,915 Telecom Italia SIP........................................................... 1,485,879
898,915 Telecom Italia SIP........................................................... 1,499,818
-----------
153,642,723
-----------
FINANCIAL 18.0%
Banks 7.5%
286,000 AmSouth Bancorp.............................................................. 10,868,000
417,300 Bankers Trust New York Corp.................................................. 29,315,325
599,900 Chemical Banking Corp........................................................ 36,518,913
983,800 CoreStates Financial Corp.................................................... 36,031,675
1,258,600 First Bank System Inc........................................................ 60,570,125
394,100 J.P. Morgan & Co., Inc....................................................... 30,493,488
393,100 Summit Bancorporation........................................................ 10,957,663
190 Swiss Bank Corp.............................................................. 72,663
295,300 Wilmington Trust Corp........................................................ 8,711,350
-----------
223,539,202
-----------
Insurance 4.1%
213,800 Aetna Life & Casualty Co..................................................... 15,687,575
477,423 Allstate Corp................................................................ 16,888,840
489,550 EXEL, Ltd.................................................................... 28,455,094
306,600 Hartford Steam Boiler Inspection & Insurance Co.............................. 14,831,775
1,010,200 Lincoln National Corp........................................................ 47,605,675
-----------
123,468,959
-----------
Other Financial Companies 3.5%
314,700 Federal National Mortgage Association........................................ 32,571,450
1,350,100 Student Loan Marketing Association........................................... 72,905,400
-----------
105,476,850
-----------
Real Estate 2.9%
245,800 Avalon Properties, Inc. (REIT)............................................... 5,008,175
386,200 Camden Property Trust (REIT)................................................. 8,544,675
88,500 Charles E. Smith Residential Realty, Inc. (REIT)............................. 2,046,563
28,000 Equity Residential Properties Trust (REIT)................................... 843,500
</TABLE>

The accompanying notes are an integral part of the financial statements.

67
<PAGE>

AARP GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
Market
Shares Value ($)

312,700 General Growth Properties, Inc. (REIT)....................................... 6,449,438
103,424 HGI Realty, Inc. (REIT)...................................................... 2,482,176
409,800 Health Care Property Investment Inc. (REIT).................................. 13,881,975
31,100 Mark Centers Trust (REIT).................................................... 380,975
457,900 Meditrust SBI (REIT)......................................................... 15,854,788
340,400 Nationwide Health Properties Inc. (REIT)..................................... 13,956,400
71,200 Post Properties Inc. (REIT).................................................. 2,207,200
398,500 Security Capital Industrial Trust (REIT)..................................... 6,475,625
451,200 Southwestern Properties Trust Inc. (REIT).................................... 5,752,800
102,100 Vornado Realty Trust (REIT).................................................. 3,828,750
-----------
87,713,040
-----------
MEDIA 0.5%
Print Media
336,400 Reader's Digest Association Inc. "A"......................................... 15,852,850
-----------
SERVICE INDUSTRIES 3.8%
Miscellaneous Commercial Services 0.3%
7,036,000 Jardine Strategic Holdings Ltd............................................... 7,141,540
-----------
Miscellaneous Consumer Services 1.9%
1,488,300 H & R Block Inc.............................................................. 56,555,400
-----------
Printing/Publishing 1.6%
1,141,600 Deluxe Corp.................................................................. 37,815,500
192,900 Dun & Bradstreet Corp........................................................ 11,164,088
-----------
48,979,588
-----------
DURABLES 6.6%
Aerospace 5.9%
459,600 AAR Corp..................................................................... 8,387,700
715,800 Lockheed Corp................................................................ 48,048,075
840,100 Rockwell International Corp.................................................. 39,694,725
63,200 Thiokol Corp................................................................. 2,259,400
904,100 United Technologies Corp..................................................... 79,899,838
-----------
178,289,738
-----------
Automobiles 0.7%
706,800 Dana Corp.................................................................... 20,408,850
-----------
MANUFACTURING 17.1%
Chemicals 4.7%
518,300 Dow Chemical Co.............................................................. 38,613,350
730,400 E.I. du Pont de Nemours & Co................................................. 50,215,000
160,000 Lubrizol Corp................................................................ 5,220,000
1,092,800 Lyondell Petrochemical Co.................................................... 28,276,200
518,900 Union Carbide Corp........................................................... 20,626,275
-----------
142,950,825
-----------
Containers & Paper 1.6%
87,000 Federal Paper Board Co., Inc................................................. 3,338,625
647,700 Kimberly-Clark Corp.......................................................... 43,476,863
-----------
46,815,488
-----------
Diversified Manufacturing 4.0%
1,618,700 Dresser Industries Inc....................................................... 38,646,463
109,100 Honeywell, Inc............................................................... 4,677,663
</TABLE>

The accompanying notes are an integral part of the financial statements.

68
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C> <C>
292,900 Olin Corp.................................................................... 20,136,875
784,600 TRW Inc...................................................................... 58,354,625
-----------
121,815,626
-----------
Electrical Products 0.8%
377,100 Thomas & Betts Corp.......................................................... 24,370,088
-----------
Machinery/Components/Controls 0.4%
273,500 Timken Co.................................................................... 11,657,938
-----------
Office Equipment/Supplies 2.4%
531,500 Xerox Corp................................................................... 71,420,313
-----------
Specialty Chemicals 2.9%
204,800 ARCO Chemical Co............................................................. 9,984,000
709,000 Betz Laboratories Inc........................................................ 28,980,375
306,400 Petrolite Corp............................................................... 8,426,000
1,145,300 Witco Corp................................................................... 40,228,663
-----------
87,619,038
-----------
Wholesale Distributors 0.3%
102,800 Alco Standard Corp........................................................... 8,660,900
-----------
ENERGY 8.8%
Engineering 0.7%
1,072,900 McDermott International Inc.................................................. 21,189,775
-----------
Oil Companies 6.9%
433,800 Exxon Corp................................................................... 31,342,050
395,300 Murphy Oil Corp.............................................................. 15,812,000
564,500 Pennzoil Co.................................................................. 24,767,438
545,900 Repsol SA (ADR).............................................................. 17,332,325
168,100 Royal Dutch Petroleum Co. (New York shares).................................. 20,634,275
266,600 Societe Nationale Elf Aquitaine.............................................. 17,995,365
373,500 Texaco Inc................................................................... 24,137,438
129,428 Total SA "B"................................................................. 7,834,561
554,825 Total SA (ADR)............................................................... 16,714,103
1,730,000 YPF SA "D" (ADR)............................................................. 31,140,000
-----------
207,709,555
-----------
Oilfield Services/Equipment 1.2%
820,300 Halliburton Co............................................................... 34,247,525
-----------
METALS & MINERALS 0.9%
Precious Metals 0.4%
405,000 De Beers Consolidated Mines Ltd. (ADR)....................................... 11,036,250
-----------
Steel & Metals 0.5%
579,010 Freeport McMoRan Copper & Gold, Inc. "A"..................................... 14,837,131
-----------
TRANSPORTATION 0.9%
Railroads
84,200 Consolidated Rail Corp. 5,788,750
141,100 Norfolk Southern Corp. 10,547,225
152,500 Union Pacific Corp. 10,103,125
-----------
26,439,100
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

69
<PAGE>

AARP GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
Market
Shares Value ($)

UTILITIES 4.7%
Electric Utilities
801,700 CINergy Corp................................................................. 22,347,388
261,200 CMS Energy Corp.............................................................. 6,856,500
1,468,800 China Light & Power Co., Ltd. (ADR).......................................... 7,564,320
52,000 Midlands Electricity PLC (ADR)............................................... 798,570
26,000 Midlands Electricity PLC..................................................... 802,750
250,000 National Power PLC (ADR)..................................................... 3,625,000
553,600 PacifiCorp................................................................... 10,518,400
338,600 Pacific Gas & Electric Co.................................................... 10,115,675
980,000 PowerGen PLC................................................................. 3,839,913
942,503 PowerGen PLC (ADR)........................................................... 14,726,609
1,118,900 Southern Company............................................................. 26,434,013
224,600 Texas Utilities Co., Inc..................................................... 7,832,925
876,100 Unicom Corp.................................................................. 26,502,010
--------------
141,964,073
--------------
TOTAL COMMON STOCKS (COST $2,168,918,812).................................... 2,738,168,191
--------------

SUMMARY % OF NET ASSETS

TOTAL INVESTMENT PORTFOLIO (COST $2,460,026,972) (a)......... 101.1 3,040,229,571
OTHER ASSETS AND LIABILITIES, NET............................ (1.1) (33,710,994)
----- --------------
NET ASSETS................................................... 100.0 3,006,518,577
===== ==============

REIT Real Estate Investment Trust

(a) At September 30, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $2,458,044,405 was as follows:

Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost............................................ $ 610,759,077

Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value.................................................. (28,573,911)
--------------
Net unrealized appreciation............................................................ $ 582,185,166
==============
- ------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments) for the year ended
September 30, 1995, aggregated $1,192,461,153 and $759,987,675, respectively.
- ------------------------------------------------------------------------------------------------------------
Percentage breakdown of investments is based on total net assets of the Fund. The total net assets of
the Fund are comprised of the Fund's investment portfolio, other assets and liabilities. The
percentage of the investment portfolio may be greater or less than 100% due to the inclusion of the
Fund's assets and liabilities in the calculation. The Fund's other assets and liabilities are
disclosed in the Statement of Assets and Liabilities.
</TABLE>

The accompanying notes are an integral part of the financial statements.

70
<PAGE>
AARP CAPITAL GROWTH FUND

LIST OF INVESTMENTS AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)

<S> <C>
REPURCHASE AGREEMENTS 2.1%

14,365,000 Repurchase Agreement with State Street Bank and
Trust Company dated 9/29/95 at 6.1% to be
repurchased at $14,372,302 on 10/2/95,
collateralized by a $15,565,000 U.S. Treasury
Bill, 6/27/96 (Cost $14,365,000)......................... 14,365,000
------------

PREFERRED STOCKS 1.3%

Shares
------

Technology
Computer Software
57,000 SAP AG (Cost $8,941,914).................................. 9,281,945
------------
COMMON STOCKS 96.6%

CONSUMER DISCRETIONARY 7.4%
Department & Chain Stores 4.4%
200,000 J.C. Penney Co., Inc...................................... 9,925,000
100,000 Limited Inc............................................... 1,900,000
280,000 May Department Stores..................................... 12,250,000
237,900 Walgreen Co............................................... 6,661,200
------------
30,736,200
------------

Hotels & Casinos 0.6%
174,000 Carnival Corp., Class A................................... 4,176,000
------------
Restaurants 1.2%
210,000 McDonald's Corp........................................... 8,032,500
------------
Specialty Retail 1.2%
300,000 Toys "R" Us Inc.*......................................... 8,100,000
------------

CONSUMER STAPLES 7.2%
Alcohol & Tobacco 1.0%
112,000 Anheuser Busch Companies, Inc............................. 6,986,000
------------
Food & Beverage 2.6%
185,000 Albertson's Inc........................................... 6,313,125
230,000 PepsiCo Inc............................................... 11,730,000
------------
18,043,125
------------
Package Goods/Cosmetics 3.6%
150,000 Clorox Co................................................. 10,706,250
100,000 Colgate-Palmolive Co...................................... 6,662,500
100,000 Procter & Gamble Co....................................... 7,700,000
------------
25,068,750
------------

HEALTH 13.5%
Hospital Management 2.9%
420,000 Columbia/HCA Healthcare Corp.............................. 20,422,500
------------
Medical Supply & Specialty 2.1%

110,000 Becton, Dickinson & Co.................................... 6,916,250
144,000 Medtronic Inc............................................. 7,740,000
------------
14,656,250
------------
Pharmaceuticals 8.5%
115,000 American Home Products Corp............................... 9,760,625
315,000 Astra AB "B" (Free)....................................... 11,086,030
</TABLE>

The accompanying notes are an intregral part of the financial statements.

71
<PAGE>

AARP CAPITAL GROWTH FUND

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C>

170,000 Johnson & Johnson......................................... 12,601,250
250,000 Merck & Co. Inc........................................... 14,000,000
220,000 Schering-Plough Corp...................................... 11,330,000
------------
58,777,905
------------
COMMUNICATIONS 2.6%
Cellular Telephone 1.3%
220,000 Vodafone Group PLC (ADR).................................. 9,020,000
------------
Telephone/Communications 1.3%
100,000 Alltel Corp............................................... 2,987,500
225,000 Tele Danmark A/S (ADR).................................... 5,821,875
------------
8,809,375
------------

FINANCIAL 12.7%
Banks 2.9%
80,000 J.P. Morgan & Co., Inc.................................... 6,190,000
217,300 MBNA Corp................................................. 9,045,113
125,000 NBD Bancorp, Inc.......................................... 4,781,250
------------
20,016,363
------------
Insurance 5.6%
54,000 AMBAC Inc................................................. 2,376,000
180,000 American International Group, Inc......................... 15,300,000
140,000 EXEL, Ltd................................................. 8,137,500
141,000 MBIA Inc.................................................. 9,940,500
62,200 PMI Group, Inc............................................ 2,946,725
------------
38,700,725
------------
Other Financial Companies 4.2%
210,000 Federal National Mortgage Association..................... 21,735,000
140,000 Student Loan Marketing Association........................ 7,560,000
------------
29,295,000
------------

MEDIA 5.8%
Broadcasting & Entertainment 4.8%
110,000 Capital Cities/ABC Inc.................................... 12,938,750
370,000 Time Warner Inc........................................... 14,707,500
90,000 Walt Disney Co............................................ 5,163,750
------------
32,810,000
------------
Cable Television 0.6%
251,789 Tele-Communications Inc. "A" (New)*....................... 4,406,308
------------
Print Media 0.4%
56,000 Gannett Co., Inc.......................................... 3,059,000
------------

SERVICE INDUSTRIES 6.3%
Edp Services 2.9%
140,000 Automatic Data Processing, Inc............................ 9,537,500
137,000 General Motors Corp. "E".................................. 6,233,500
157,600 National Data Corp........................................ 4,235,500
------------
20,006,500
------------
Investment 2.8%
75,000 Dean Witter, Discover & Co................................ 4,218,750
265,000 Franklin Resources Inc.................................... 15,270,625
------------
19,489,375
------------
Printing/Publishing 0.6%
80,000 Reuters Holdings PLC "B" (ADR)............................ 4,230,000
------------
</TABLE>

The accompanying notes are an intregral part of the financial statements.

72
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)

<S> <C>

DURABLES 5.7%
Aerospace 2.6%
185,000 Rockwell International Corp............................... 8,741,250
100,000 United Technologies Corp.................................. 8,837,500
------------
17,578,750
------------
Automobiles 0.6%
140,000 Ford Motor Co............................................. 4,357,500
------------
Telecommunications Equipment 1.6%
125,000 General Instrument Corp.*................................. 3,750,000
106,000 Nokia (AB) Oy "A"......................................... 7,436,770
------------
11,186,770
------------
Tires 0.9%
260,000 Cooper Tire & Rubber Co................................... 6,305,000
------------

MANUFACTURING 8.1%
Chemicals 2.1%
140,000 E.I. du Pont de Nemours & Co.............................. 9,625,000
100,000 Sigma-Aldrich Corp........................................ 4,850,000
------------
14,475,000
------------
Diversified Manufacturing 1.9%
190,000 Dover Corp................................................ 7,267,500
95,000 General Electric Co....................................... 6,056,250
------------
13,323,750
------------
Electrical Products 2.8%
83,000 Emerson Electric Co....................................... 5,934,500
275,000 Philips NV (New York shares).............................. 13,406,250
------------
19,340,750
------------
Machinery/Components/Controls 1.3%
225,000 Parker-Hannifin Group..................................... 8,550,000
------------

TECHNOLOGY 13.6%
Computer Software 0.7%
120,000 Oracle Systems Corp.*..................................... 4,605,000
------------
Diverse Electronic Products 1.7%
80,000 General Motors Corp. "H".................................. 3,280,000
110,100 Motorola Inc.............................................. 8,408,887
------------
11,688,887
------------
Electronic Components/Distributors 0.0%
71 Samsung Electronics Co., Ltd. (New)*...................... 17,031
------------
Electronic Data Processing 4.7%
120,000 Compaq Computers Corp.* 5,805,000
250,000 Hewlett-Packard Co........................................ 20,843,750
60,000 International Business Machines Corp...................... 5,662,500
------------
32,311,250
------------
Military Electronics 0.5%
57,700 Loral Corp................................................ 3,288,900
------------
Office/Plant Automation 2.8%
200,000 3Com Corp.*............................................... 9,100,000
100,000 Cabletron Systems Inc.*................................... 6,587,500
60,000 Cisco Systems, Inc.*...................................... 4,140,000
------------
19,827,500
------------
</TABLE>

The accompanying notes are an intregral part of the financial statements.

73
<PAGE>

AARP CAPITAL GROWTH FUND

Market
Shares Value ($)

<S> <C>

Semiconductors 3.2%
190,000 Intel Corp................................................ 11,423,750
136,000 Texas Instruments Inc..................................... 10,863,000
------------
22,286,750
------------

ENERGY 8.2%
Engineering 0.3%
40,000 Fluor Corp................................................ 2,240,000
------------
Oil Companies 7.0%

200,000 Amoco Corp................................................ 12,825,000
155,000 Exxon Corp................................................ 11,198,750
90,000 Mobil Corp................................................ 8,966,250
329,800 Repsol SA (ADR)........................................... 10,471,150
164,620 Total SA (ADR)............................................ 4,959,178
------------
48,420,328
------------
Oil/Gas Transmission 0.9%
185,000 Enron Corp................................................ 6,197,500
------------

METALS & MINERALS 0.4%
Steel & Metals
55,700 Nucor Corp................................................ 2,492,575
------------

TRANSPORTATION 0.7%
Railroads
70,000 Conrail Inc............................................... 4,812,500
------------

UTILITIES 4.4%
Electric Utilities
145,500 Destec Energy Inc.*....................................... 2,182,500
250,000 Eastern Utilities Association............................. 6,062,500
115,000 Houston Industries Inc.................................... 5,074,375
60,000 Illinova Corp............................................. 1,627,500
150,000 NIPSCO Industries Inc..................................... 5,231,250
285,000 PowerGen PLC (ADR)........................................ 4,453,125
250,000 Southern Company.......................................... 5,906,250
------------
30,537,500
-----------
Total Common Stocks (Cost $527,309,541) 668,685,117
------------

SUMMARY % OF NET ASSETS
<S> <C>
Total Investment Portfolio
(Cost $550,616,455) (a).................... 100.0 692,332,062
Other Assets and Liabilities, Net........... 0.0 (323,116)
----- ------------
Net Assets.................................. 100.0 692,008,946
===== ============
</TABLE>

* Nonincome producing security.

(a) At September 30, 1995, the net unrealized appreciation on investments
based on cost for federal income tax purposes of $550,780,726 was
as follows:

<TABLE>

<S> <C>

Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost....................... $146,000,179
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value....................... (4,448,843)
------------
Net unrealized appreciation............................................... $141,551,336
============
</TABLE>
- -------------------------------------------------------------------------------
Purchases and sales of investment securities, (excluding short-term
investments), for the year ended September 30, 1995, aggregated
$624,892,455 and $726,800,851, respectively.
- -------------------------------------------------------------------------------

The accompanying notes are an intregral part of the financial statements.

<PAGE>
F I N A N C I A L S T A T E M E N T S

STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AARP HIGH AARP HIGH AARP GNMA
QUALITY QUALITY TAX FREE AND U.S.
MONEY FUND MONEY FUND TREASURY FUND
SEPTEMBER 30, 1995

<S> <C> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios)..... $381,262,371 $118,781,440 $5,214,219,079
Cash............................................... 381,647 219,378 663,929
Other receivables:
Investments sold................................. -- 300,000 --
Dividends and interest........................... 2,430,709 638,028 53,560,790
Fund shares sold................................. 1,099,254 42,259 1,146,927
Daily variation margin on open futures
contracts (Note 1)............................. -- -- --
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3)............... -- -- --
Deferred organization expenses (Note 1)............ -- -- --
Other assets....................................... 3,624 1,214 52,856
------------ ------------ --------------
Total assets..................................... 385,177,605 119,982,319 5,269,643,581
====================================================================================================
LIABILITIES
Payables:
Due to custodian bank............................ -- -- --
Investments purchased............................ -- -- --
Fund shares redeemed............................. 795,573 67,840 2,067,973
Dividends........................................ 148,656 57,996 12,318,900
Management fee (Note 2).......................... 125,856 38,987 1,793,374
Transfer and dividend disbursing agent (Note 2).. 124,661 26,654 633,351
Daily variation margin on open futures
contracts (Note 1)............................... -- -- --
Other accrued expenses............................. 86,807 44,871 779,509
------------ ------------ -------------
Total liabilities.................................. 1,281,553 236,348 17,593,107
===================================================================================================
Net assets at value.............................. $ 383,896,052 $119,745,971 $5,252,050,474
===================================================================================================
NET ASSETS CONSIST OF:
Accumulated undistributed net investment
income........................................... $ -- $ -- $ --
Net unrealized appreciation (depreciation) on:
Investments...................................... (490,715) -- 114,656,462
Futures contracts................................ -- -- --
Foreign currency related transactions............ -- -- --
Accumulated net realized capital gain (loss)....... (66,921) (1,226,724) (359,297,259)
Shares of beneficial interest, at par.............. 3,843,894 119,753 3,458,291
Additional paid-in capital......................... 380,609,794 120,852,942 5,493,232,980
===================================================================================================
Net assets at value................................ $ 383,896,052 $119,745,971 $5,252,050,474
===================================================================================================
Shares of beneficial interest outstanding,
$.01 par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value............ 384,389,361 119,753,010 345,829,087
===================================================================================================
Net asset value, offering and redemption price
per share (net assets at value, per fund,
divided by the respective shares of beneficial
interest outstanding)............................ $1.00 $1.00 $15.19
===================================================================================================

</TABLE>

The accompanying notes are an integral part of the financial statements.

76
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
AARP HIGH AARP INSURED AARP BALANCED
QUALITY TAX FREE GENERAL STOCK AND BOND
SEPTEMBER 30, 1995 BOND FUND BOND FUND FUND
<S> <C> <C> <C>

ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios)............ $529,380,919 $1,784,155,534 $ 245,971,020
Cash...................................................... 1,577 270,125 2,339
Other receivables:
Investments sold........................................ -- 4,064,000 333,734
Dividends and interest.................................. 5,387,454 23,943,866 1,448,175
Fund shares sold........................................ 60,877 1,232,924 287,668
Daily variation margin on open futures
contracts (Note 1).................................... -- -- 22,688
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3)...................... -- -- 159,340
Deferred organization expenses (Note 1)................... -- -- 29,735
Other assets.............................................. 1,969 9,769 --
------------ -------------- --------------
Total assets............................................ $534,832,796 1,813,676,218 248,254,699
============ ============== ==============
LIABILITIES
Payables:
Due to custodian bank................................... -- -- --
Investments purchased................................... -- -- 522,234
Fund shares redeemed.................................... 212,670 553,182 235,042
Dividends............................................... 745,687 2,864,813 --
Management fee (Note 2)................................. 212,336 725,373 96,579
Transfer and dividend disbursing agent (Note 2)......... 133,141 166,466 46,657
Daily variation margin on open futures
contracts (Note 1)...................................... -- 2,062,500 --
Other accrued expenses 106,665 256,562 147,232
------------ -------------- --------------
Total liabilities......................................... 1,410,499 6,628,896 1,047,744
============ ============== ==============
Net assets at value..................................... $533,422,297 $1,807,047,322 $ 247,206,955
============ ============== ==============
NET ASSETS CONSIST OF:
Accumulated undistributed net investment
income.................................................. $ 304,913 $ -- $ 321,966
Net unrealized appreciation (depreciation) on:
Investments............................................. 3,274,381 80,036,981 21,075,094
Futures contracts....................................... -- (629,889) (3,391)
Foreign currency related transactions................... -- -- 159,949
Accumulated net realized capital gain (loss).............. (10,285,791) (28,924,305) 2,055,572
Shares of beneficial interest, at par..................... 333,124 1,018,727 150,746
Additional paid-in capital................................ 539,795,670 1,755,545,808 223,447,019
============ ============== ==============
Net assets at value....................................... $533,422,297 $1,807,047,322 $ 247,206,955
============ ============== ==============

Shares of beneficial interest outstanding,
$.01 par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value................... 33,312,382 101,872,699 15,074,610
============= ============== ================
Net asset value, offering and redemption price
per share (net assets at value, per fund,
divided by the respective shares of beneficial
interest outstanding)................................... $16.01 $17.74 $16.40
============ ============== ================
</TABLE>
<TABLE>
<CAPTION>

AARP GROWTH AARP CAPITAL
AND INCOME GROWTH
SEPTEMBER 30, 1995 FUND FUND
<S> <C> <C>
ASSETS
Investments, at value (for identified cost, see
accompanying lists of investment portfolios)............ $3,040,229,571 $692,332,062
Cash...................................................... 1,092,801 --
Other receivables:
Investments sold........................................ 6,963,876 1,320,710
Dividends and interest.................................. 9,232,845 699,334
Fund shares sold........................................ 25,725 --
Daily variation margin on open futures
contracts (Note 1).................................... -- --
Unrealized appreciation on forward currency
exchange contracts (Notes 1 and 3)...................... -- --
Deferred organization expenses (Note 1)................... -- --
Other assets.............................................. 4,287 --
-------------- ------------
Total assets............................................ $3,057,549,105 $694,352,106
============== ============
LIABILITIES
Payables:
Due to custodian bank................................... -- 106,750
Investments purchased................................... 49,038,772 1,625,475
Fund shares redeemed.................................... -- --
Dividends............................................... -- --
Management fee (Note 2)................................. 1,179,826 346,582
Transfer and dividend disbursing agent (Note 2)......... 277,544 91,070
Daily variation margin on open futures
contracts (Note 1)...................................... -- --
Other accrued expenses.................................... 534,386 173,283
-------------- ------------
Total liabilities......................................... 51,030,528 2,343,160
============== ============
Net assets at value..................................... $3,006,518,577 $692,008,946
============== ============
NET ASSETS CONSIST OF:
Accumulated undistributed net investment
income.................................................. $ 6,072,468 $ 6,365,346
Net unrealized appreciation (depreciation) on:
Investments............................................. 580,202,599 141,715,607
Futures contracts....................................... -- --
Foreign currency related transactions................... 5,828 (4,789)
Accumulated net realized capital gain (loss).............. 52,570,066 3,733,920
Shares of beneficial interest, at par..................... 783,717 180,420
Additional paid-in capital................................ 2,366,883,899 540,018,442
============== ============
Net assets at value....................................... $3,006,518,577 $692,008,946
============== ============

Shares of beneficial interest outstanding,
$.01 par value, unlimited number of shares
authorized. (Note) AARP High Quality Tax
Free Money Fund has a $.001 par value................... 78,371,684 18,041,977
=============================
Net asset value, offering and redemption price
per share (net assets at value, per fund,
divided by the respective shares of beneficial
interest outstanding)................................... $38.36 $38.36
==============================
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

Financial Statements

STATEMENT OF OPERATIONS

AARP HIGH AARP HIGH AARP GNMA
QUALITY QUALITY TAX FREE AND U.S.
YEAR ENDED SEPTEMBER 30, 1995 MONEY FUND MONEY FUND TREASURY FUND
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Interest...................................................... $21,982,820 $4,785,487 $393,260,749
Dividends..................................................... -- -- --
----------- ---------- ------------
21,982,820 4,785,487 393,260,749
Less foreign taxes withheld................................... -- -- --
----------- ---------- ------------
21,982,820 4,785,487 393,260,749
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2)....................................... 1,492,545 493,693 22,095,173
Services to shareholders:
Transfer and dividend disbursing expense (Note 2)..... 1,533,555 347,016 8,104,169
Other expenses........................................ 210,373 63,566 1,443,896
Trustees' fees and expenses (Note 2).......................... 19,837 30,610 29,332
Shareholder communications.................................... 199,986 54,036 2,052,542
Legal......................................................... 13,059 344 26,270
Auditing...................................................... 25,482 26,500 66,799
Custodian and accounting fees (Note 2)........................ 80,914 52,202 1,083,056
Registration expenses......................................... 76,878 18,630 85,342
Amortization of organization expenses (Note 1)................ -- -- --
Other......................................................... 13,774 7,697 184,075
----------- ---------- ------------
Total Expenses........................................................ 3,666,403 1,094,294 35,170,654
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income................................................. 18,316,417 3,691,193 358,090,095
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investments........................................... (2,594) (5,140) (68,679,536)
Futures contracts (Note 1)............................ -- -- --
Foreign currency related transactions (Note 1)........ -- -- --
Net unrealized appreciation (depreciation) on:
Investments........................................... (235,013) -- 224,571,191
Futures contracts..................................... -- -- --
Foreign currency related transactions................. -- -- --
----------- ---------- ------------
Net gain (loss) on investments........................................ (237,607) (5,140) 155,891,655
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations............................................... $18,078,810 $3,686,053 $513,981,750
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

78
<PAGE>
<TABLE>
<CAPTION>
AARP HIGH AARP INSURED AARP BALANCED
QUALITY TAX FREE GENERAL STOCK AND BOND
BOND FUND BOND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Interest............................................. $37,753,441 $103,897,620 $ 6,141,535
Dividends............................................ -- -- 3,988,384
----------- ------------ -----------
37,753,441 103,897,620 10,129,919
Less foreign taxes withheld.......................... -- -- (37,101)
----------- ------------ -----------
37,753,441 103,897,620 10,092,818
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2).............................. 2,600,629 8,813,051 960,412
Services to shareholders:
Transfer and dividend disbursing expense (Note 2).. 1,720,303 2,148,893 513,031
Other expenses..................................... 206,214 366,879 120,197
Trustees' fees and expenses (Note 2)................. 31,055 30,826 23,992
Shareholder communications........................... 271,351 436,821 124,209
Legal................................................ 1,508 49,933 5,079
Auditing............................................. 48,340 57,863 19,538
Custodian and accounting fees (Note 2)............... 122,478 293,635 97,877
Registration expenses................................ 34,937 58,448 97,922
Amortization of organization expenses (Note 1)....... -- -- 7,315
Other................................................ 21,135 125,346 12,559
----------- ------------ -----------
Total Expenses......................................... 5,057,950 12,381,695 1,982,131
- -----------------------------------------------------------------------------------------------------------
Net investment income.................................. 32,695,491 91,515,925 8,110,687
- -----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investments........................................ 6,264,433 1,141,498 2,922,966
Futures contracts (Note 1)......................... 462,444 (22,927,127) 66,437
Foreign currency related transactions (Note 1)..... -- -- (8,944)
Net unrealized appreciation (depreciation) on:
Investments........................................ 25,349,000 102,468,526 20,344,202
Futures contracts.................................. (235,464) (843,714) (3,391)
Foreign currency related transactions.............. -- -- 159,949
----------- ------------ -----------
Net gain (loss) on investments......................... 31,840,413 79,839,183 23,481,219
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................................... $64,535,904 $171,355,108 $31,591,906
- -----------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
AARP GROWTH AARP CAPITAL
AND INCOME GROWTH
FUND FUND
<S> <C> <C>
INVESTMENT INCOME
INCOME:
Interest............................................. $ 10,888,172 $ 1,251,177
Dividends............................................ 91,816,143 11,484,726
------------ ------------
102,704,315 12,735,903
Less foreign taxes withheld.......................... (1,007,072) (139,552)
------------ ------------
101,697,243 12,596,351
- ----------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2).............................. 12,406,325 3,988,023
Services to shareholders:
Transfer and dividend disbursing expense (Note 2).. 3,249,295 1,171,702
Other expenses..................................... 873,891 291,103
Trustees' fees and expenses (Note 2)................. 28,774 28,697
Shareholder communications........................... 1,036,474 355,297
Legal................................................ 17,001 7,389
Auditing............................................. 46,913 44,057
Custodian and accounting fees (Note 2)............... 396,036 164,779
Registration expenses................................ 252,079 64,893
Amortization of organization expenses (Note 1)....... -- --
Other................................................ 102,424 31,422
------------ ------------
Total Expenses......................................... 18,409,212 6,147,362
- ----------------------------------------------------------------------------------------
Net investment income.................................. 83,288,031 6,448,989
- ----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investments........................................ 82,525,735 3,854,142
Futures contracts (Note 1)......................... -- --
Foreign currency related transactions (Note 1)..... 23,310 (49,230)
Net unrealized appreciation (depreciation) on:
Investments........................................ 331,251,054 124,391,488
Futures contracts.................................. -- --
Foreign currency related transactions.............. 5,828 (4,789)
------------ ------------
Net gain (loss) on investments......................... 413,805,927 128,191,611
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations...................................... $497,093,958 $134,640,600
- ----------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN NET ASSETS

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

INCREASE (DECREASE) IN NET ASSETS:
Years Ended Years Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Net investment income......................... $ 18,316,417 $ 8,576,806 $ 3,691,193 $ 2,330,435
Net realized gain (loss) from:
Investments................................. (2,594) - (5,140) (10,344)
Futures contracts........................... - - - -
Option contracts............................ - - - -
Foreign currency related
transactions.............................. - - - -
Net unrealized appreciation
(depreciation) on:
Investments................................. (235,013) (551,482) - -
Futures contracts........................... - - - -
Foreign currency related
transactions.............................. - - - -
------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations..................... 18,078,810 8,025,324 3,686,053 2,320,091
------------- ------------- ------------ ------------
Distributions to shareholders:
Net investment income......................... (18,316,417) (8,576,806) (3,691,193) (2,330,435)
Net realized gains............................ - - - -
In excess of net realized gains............... - - - -
Tax return of capital......................... - - - -
------------- ------------- ------------ ------------
(18,316,417) (8,576,806) (3,691,193) (2,330,435)
------------- ------------- ------------ ------------
Fund share transactions:

Proceeds from sale of shares.................. 405,381,235 457,195,131 41,129,795 72,891,766

Net asset value of shares issued to
shareholders in reinvestment of
distributions............................... 16,274,697 7,471,832 2,929,152 1,833,452

Cost of shares redeemed....................... (370,960,332) (384,553,352) (53,717,481) (78,946,046)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets
from Fund share transactions.................. 50,695,600 80,113,611 (9,658,534) (4,220,828)
------------- ------------- ------------ ------------
Increase (decrease) in net assets............... 50,457,993 79,562,129 (9,663,674) (4,231,172)
Net assets at beginning of period............... 333,438,059 253,875,930 129,409,645 133,640,817
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (a)................. $ 383,896,052 $ 333,438,059 $119,745,971 $129,409,645
- ----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning
of period..................................... 333,693,761 253,580,150 129,411,544 133,632,372
------------- ------------- ------------ ------------
Shares sold................................... 405,381,235 457,195,131 41,129,795 72,891,766
Shares issued to shareholders in
reinvestment of distributions.............. 16,274,697 7,471,832 2,929,152 1,833,452
Shares redeemed............................... (370,960,332) (384,553,352) (53,717,481) (78,946,046)
------------- ------------- ------------ ------------
Net increase (decrease) in
Fund shares................................... 50,695,600 80,113,611 (9,658,534) (4,220,828)
------------- ------------- ------------ ------------
Shares outstanding at end of period............. 384,389,361 333,693,761 119,753,010 129,411,544
- ----------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income..................... $ - $ - $ - $ -

(b) Commencement of Operations
</TABLE>

<TABLE>
<CAPTION>
AARP GNMA
AND U.S.
TREASURY FUND

INCREASE (DECREASE) IN NET ASSETS:
Years Ended
Sept. 30,
1995 1994
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income......................... $ 358,090,095 $ 377,835,579
Net realized gain (loss) from:
Investments................................. (68,679,536) (301,854,645)
Futures contracts........................... - -
Option contracts............................ - (2,842,351)
Foreign currency related
transactions.............................. - -
Net unrealized appreciation
(depreciation) on:
Investments................................. 224,571,191 (194,039,955)
Futures contracts........................... - -
Foreign currency related
transactions.............................. - -
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations..................... 513,981,750 (120,901,372)
--------------- ---------------
Distributions to shareholders:
Net investment income......................... (347,262,513) (377,835,579)
Net realized gains............................ - -
In excess of net realized gains............... - -
Tax return of capital......................... (10,827,582) -
--------------- ---------------
................................................ (358,090,095) (377,835,579)
--------------- ---------------
Fund share transactions:

Proceeds from sale of shares.................. 313,574,493 767,903,410

Net asset value of shares issued to
shareholders in reinvestment of
distributions............................... 209,361,883 243,322,806

Cost of shares redeemed....................... (1,012,262,747) (1,639,307,179)
--------------- ---------------
Net increase (decrease) in net assets
from Fund share transactions.................. (489,326,371) (628,080,963)
--------------- ---------------
Increase (decrease) in net assets............... (333,434,716) (1,126,817,914)
Net assets at beginning of period............... 5,585,485,190 6,712,303,104
- ------------------------------------------------------------------------------------
Net assets at end of period (a)................. $ 5,252,050,474 $ 5,585,485,190
- ------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning
of period..................................... 379,121,168 420,695,404
--------------- ---------------
Shares sold................................... 21,222,249 49,495,268
Shares issued to shareholders in
reinvestment of distributions.............. 14,034,160 15,901,711
Shares redeemed............................... (68,548,490) (106,971,215)
--------------- ---------------
Net increase (decrease) in
Fund shares................................... (33,292,081) (41,574,236)
--------------- ---------------
Shares outstanding at end of period............. 345,829,087 379,121,168
- ------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income..................... $ - $ -

(b) Commencement of Operations
</TABLE>

The accompanying notes are an integral part of the financial statements.

80
<PAGE>

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
AARP HIGH AARP INSURED
QUALITY TAX FREE GENERAL
BOND FUND BOND FUND

INCREASE (DECREASE) IN NET ASSETS:

Years Ended Years Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income......................... $ 32,695,491 $ 32,320,652 $ 91,515,925 $ 98,275,887
Net realized gain (loss) from:
Investments................................. 6,264,433 (12,214,126) 1,141,498 (782,787)
Futures contracts........................... 462,444 1,131,998 (22,927,127) 5,547,043
Option contracts............................ - - - -
Foreign currency related
transactions.............................. - - - -
Net unrealized appreciation
(depreciation) on:
Investments................................. 25,349,000 (56,963,191) 102,468,526 (198,675,783)
Futures contracts........................... (235,464) 163,838 (843,714) 119,639
Foreign currency related
transactions.............................. - - - -
------------- ------------ ------------- --------------
Net increase (decrease) in net assets
resulting from operations..................... 64,535,904 (35,560,829) 171,355,108 (95,516,001)
------------- ------------ ------------- --------------
Distributions to shareholders:
Net investment income......................... (32,238,660) (32,320,652) (91,515,925) (98,275,887)
Net realized gains............................ - - - (38,761,058)
In excess of net realized gains............... - (13,990,833) - (6,584,253)
Tax return of capital......................... - - - -
------------- ------------ ------------- --------------
(32,238,660) (46,311,485) (91,515,925) (143,621,198)
------------- ------------ ------------- --------------
Fund share transactions:

Proceeds from sale of shares.................. 38,133,943 168,940,806 128,807,008 384,083,220

Net asset value of shares issued to
shareholders in reinvestment of
distributions............................... 22,872,960 34,534,021 56,102,941 97,111,633

Cost of shares redeemed....................... (127,867,757) (157,452,199) (371,972,763) (414,495,879)
------------- ------------ ------------- --------------
Net increase (decrease) in net assets
from Fund share transactions.................. (66,860,854) 46,022,628 (187,062,814) 66,698,974
------------- ------------ ------------- --------------
Increase (decrease) in net assets............... (34,563,610) (35,849,686) (107,223,631) (172,438,225)
Net assets at beginning of period............... 567,985,907 603,835,593 1,914,270,953 2,086,709,178
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a)................. $ 533,422,297 $ 567,985,907 $1,807,047,322 $1,914,270,953
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning
of period..................................... 37,734,181 35,123,046 113,066,680 109,849,454
------------- ------------ ------------- --------------
Shares sold................................... 2,475,377 10,342,361 7,482,591 21,237,027
Shares issued to shareholders in
reinvestment of distributions.............. 1,481,640 2,141,000 3,261,074 5,382,600
Shares redeemed............................... (8,378,816) (9,872,226) (21,937,646) (23,402,401)
------------- ------------ ------------- --------------
Net increase (decrease) in
Fund shares................................... (4,421,799) 2,611,135 (11,193,981) 3,217,226
------------- ------------ ------------- --------------
Shares outstanding at end of period............. 33,312,382 37,734,181 101,872,699 113,066,680
- ---------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income..................... $ 304,913 $ - $ - $ -

(b) Commencement of Operations
</TABLE>

<TABLE>
<CAPTION>
AARP BALANCED AARP GROWTH
STOCK AND BOND AND INCOME
FUND FUND

INCREASE (DECREASE) IN NET ASSETS:
For the Period
Year Ended February 1, Years Ended
September 30, 1994 (b) to Sept. 30,
1995 Sept. 30, 1994 1995 1994
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income......................... $ 8,110,687 $ 2,679,894 $ 83,288,031 $ 58,944,890
Net realized gain (loss) from:
Investments................................. 2,922,966 (481,337) 82,525,735 54,940,316
Futures contracts........................... 66,437 - - -
Option contracts............................ - - - -
Foreign currency related
transactions.............................. (8,944) 56,480 23,310 (92,431)
Net unrealized appreciation
(depreciation) on:
Investments................................. 20,344,202 730,892 331,251,054 38,962,776
Futures contracts........................... (3,391) - - -
Foreign currency related
transactions.............................. 159,949 - 5,828 -
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations..................... 31,591,906 2,985,929 497,093,958 152,755,551
------------ ------------ -------------- --------------
Distributions to shareholders:
Net investment income......................... (7,923,700) (2,565,619) (81,086,105) (66,829,027)
Net realized gains............................ (479,306) - (85,015,819) (11,016,834)
In excess of net realized gains............... - - - -
Tax return of capital......................... - - - -
------------ ------------ -------------- --------------
(8,403,006) (2,565,619) (166,101,924) (77,845,861)
------------ ------------ -------------- --------------
Fund share transactions:

Proceeds from sale of shares.................. 82,046,020 190,243,552 589,883,371 915,359,577

Net asset value of shares issued to
shareholders in reinvestment of
distributions............................... 7,595,827 970,439 149,554,221 57,428,013

Cost of shares redeemed....................... (41,121,662) (16,137,931) (376,048,965) (295,649,512)
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
from Fund share transactions.................. 48,520,185 175,076,060 363,388,627 677,138,078
------------ ------------ -------------- --------------
Increase (decrease) in net assets............... 71,709,085 175,496,370 694,380,661 752,047,768
Net assets at beginning of period............... 175,497,870 1,500 2,312,137,916 1,560,090,148
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (a)................. $247,206,955 $175,497,870 $3,006,518,577 $2,312,137,916
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning
of period..................................... 11,983,629 100 67,740,274 47,404,023
------------ ------------ -------------- --------------
Shares sold................................... 5,336,478 13,025,672 17,103,571 27,412,953
Shares issued to shareholders in
reinvestment of distributions.............. 497,020 67,628 4,523,324 1,732,575
Shares redeemed............................... (2,742,517) (1,109,771) (10,995,485) (8,809,277)
------------ ------------ -------------- --------------
Net increase (decrease) in
Fund shares................................... 3,090,981 11,983,529 10,631,410 20,336,251
------------ ------------ -------------- --------------
Shares outstanding at end of period............. 15,074,610 11,983,629 78,371,684 67,740,274
- --------------------------------------------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income..................... $ 321,966 $ 142,595 $ 6,072,468 $ 4,044,032

(b) Commencement of Operations
</TABLE>

<TABLE>
<CAPTION>
AARP CAPITAL
GROWTH
FUND

INCREASE (DECREASE) IN NET ASSETS:

Years Ended
Sept. 30,
1995 1994
------------- -------------
<S> <C> <C>
Operations:
Net investment income......................... $ 6,448,989 $ 120,099
Net realized gain (loss) from:
Investments................................. 3,854,142 17,135,778
Futures contracts........................... - -
Option contracts............................ - -
Foreign currency related
transactions.............................. (49,230) 2,595
Net unrealized appreciation
(depreciation) on:
Investments................................. 124,391,488 (53,012,292)
Futures contracts........................... - -
Foreign currency related
transactions.............................. (4,789) -
------------- -------------
Net increase (decrease) in net assets
resulting from operations..................... 134,640,600 (35,753,820)
------------- -------------
Distributions to shareholders:
Net investment income......................... (216,094) (916,825)
Net realized gains............................ (13,160,374) (53,175,158)
In excess of net realized gains............... - -
Tax return of capital......................... - -
------------- -------------
(13,376,468) (54,091,983)
------------- -------------
Fund share transactions:

Proceeds from sale of shares.................. 68,276,671 277,949,808

Net asset value of shares issued to
shareholders in reinvestment of
distributions............................... 12,786,953 51,627,257

Cost of shares redeemed....................... (193,118,723) (164,072,900)
------------- -------------
Net increase (decrease) in net assets
from Fund share transactions.................. (112,055,099) 165,504,165
------------- -------------
Increase (decrease) in net assets............... 9,209,033 75,658,362
Net assets at beginning of period............... 682,799,913 607,141,551
- --------------------------------------------------------------------------------
Net assets at end of period (a)................. $ 692,008,946 $ 682,799,913
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES:
Shares outstanding at beginning
of period..................................... 21,513,985 16,773,892
------------- -------------
Shares sold................................... 2,055,946 8,230,221
Shares issued to shareholders in
reinvestment of distributions.............. 424,681 1,522,034
Shares redeemed............................... (5,952,635) (5,012,162)
------------- -------------
Net increase (decrease) in
Fund shares................................... (3,472,008) 4,740,093
------------- -------------
Shares outstanding at end of period............. 18,041,977 21,513,985
- --------------------------------------------------------------------------------
(a) Includes accumulated undistributed
net investment income..................... $ 6,365,346 $ 122,688

(b) Commencement of Operations
</TABLE>

The accompanying notes are an integral part of the financial statements.

81
<PAGE>
FINANCIAL HIGHLIGHTS

AARP HIGH QUALITY MONEY FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------
<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 (a)................................ .049 .028 .021 .040 .060
Distributions from net investment income................. (.049) (.028) (.021) (.040)(b) (.060)
------------------------------------------------------
Net asset value, end of period............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------------------------------------------------
Total Return (%) (c)....................................... 4.99 2.84 2.13 4.12 6.22
Ratios and Supplemental Data
Net assets, end of period ($ millions)..................... 384 333 254 323 357
Ratio of operating expenses to average net assets (%)(a)... .978 1.125 1.312 1.151 1.053
Ratio of net investment income to average net assets (%)... 4.887 2.889 2.123 3.613 6.050
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of: $ -- $ -- $ -- $ .000 $ .001
(b) Includes approximately $.005 per share of net realized
short-term capital gains.
(c) Total returns would have been lower had certain expenses not been reduced.
</TABLE>

AARP HIGH QUALITY TAX FREE MONEY FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------
1995 1994 1993 1992 1991(b)
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ .996
---------------------------------------------------
Income from investment operations:
Net investment income (a).................................. .029 .017 .016 .026 .055
Net realized and unrealized gain on investments............ -- -- -- -- .004
---------------------------------------------------
Total from investment operations............................. .029 .017 .016 .026 .059
---------------------------------------------------
Less distributions from net investment income................ (.029) (.017) (.016) (.026) (.055)
---------------------------------------------------
Net asset value, end of period............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------
Total Return (%) (c)......................................... 2.99 1.76 1.62 2.58 6.10
Ratios and Supplemental Data
Net assets, end of period ($ millions)....................... 120 129 134 127 119
Ratio of operating expenses to average net assets (%) (a).... .87 .90 .93 .95 1.06
Ratio of net investment income to average net assets (%)..... 2.94 1.75 1.60 2.54 5.43
(a) Reflects a per share reimbursement of expenses
during the period by the Fund Manager of:................ $ -- $ .000 $ .002 $ .002 $ .001

(b) On August 1, 1991 the Fund implemented a 15.17 to 1.00 stock split and
adopted its present name and investment objectives. Prior to that date, the
Fund was known as the AARP Insured Tax Free Short Term Fund. Financial
Highlights, for the year ended September 30, 1991, have been restated to
reflect the stock split and should not be considered representative of the
present Fund.

82
<PAGE>
AARP GNMA AND U.S. TREASURY FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 14.73 $ 15.96 $ 16.19 $ 15.72 $ 14.95
---------------------------------------------------
Income from investment operations:
Net investment income...................................... 1.01 .93 1.15 1.22 1.26
Net realized and unrealized gain (loss) on investments..... 0.46 (1.23) (.23) .47 .77
---------------------------------------------------
Total from investment operations............................. 1.47 (.30) .92 1.69 2.03
---------------------------------------------------
Less distributions:
Net investment income...................................... (.98) (.93) (1.15) (1.22) (1.26)
Tax return of capital...................................... (.03) -- -- -- --
---------------------------------------------------
Total distributions........................................ (1.01) (.93) (1.15) (1.22) (1.26)
---------------------------------------------------
Net asset value, end of period............................... $ 15.19 $ 14.73 $ 15.96 $ 16.19 $ 15.72
---------------------------------------------------
Total Return (%)............................................. 10.31 (1.90) 5.89 11.19 14.12
Ratios and Supplemental Data
Net assets, end of period ($ millions)....................... 5,252 5,585 6,712 5,232 3,311
Ratio of operating expenses to average net assets (%)........ .67 .66 .70 .72 .74
Ratio of net investment income to average net assets (%)..... 6.77 6.09 7.15 7.69 8.23
Portfolio turnover rate (%).................................. 70.35 114.54 105.49 74.33 86.64
</TABLE>

AARP HIGH QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 15.05 $ 17.19 $ 16.44 $ 15.71 $ 14.63
---------------------------------------------------
Income from investment operations:
Net investment income...................................... .94 .85 .93 1.03 1.10
Net realized and unrealized gain (loss) on investments..... .95 (1.76) .93 .73 1.08
---------------------------------------------------
Total from investment operations............................. 1.89 (.91) 1.86 1.76 2.18
---------------------------------------------------
Less distributions:
Net investment income...................................... (.93) (.85) (.93) (1.03) (1.10)
Net realized gains on investments.......................... -- -- (.18) -- --
In excess of net realized gains on investments............. -- (.38) -- -- --
---------------------------------------------------
Total distributions.......................................... (.93) (1.23) (1.11) (1.03) (1.10)
---------------------------------------------------
Net asset value, end of period............................... $ 16.01 $ 15.05 $ 17.19 $ 16.44 $ 15.71
---------------------------------------------------
Total Return (%)............................................. 12.98 (5.55) 11.88 11.56 15.44
Ratios and Supplemental Data
Net assets, end of period ($ millions)....................... 533 568 604 384 201
Ratio of operating expenses to average net assets (%)........ .95 .95 1.01 1.13 1.17
Ratio of net investment income to average net assets (%)..... 6.13 5.31 5.64 6.40 7.26
Portfolio turnover rate (%).................................. 201.07 63.75 100.98 63.00 90.43
</TABLE>

83
<PAGE>

FINANCIAL HIGHLIGHTS

AARP INSURED TAX FREE GENERAL BOND FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

Net asset value, beginning of period ................... $16.93 $19.00 $17.88 $17.30 $16.12
---------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .87 .86 .90 .93 1.00
Net realized and unrealized gain (loss) on
investments .................................... .81 (1.67) 1.55 .75 1.18
---------------------------------------------------------------
Total from investment operations ............... 1.68 (.81) 2.45 1.68 2.18
---------------------------------------------------------------
Less distributions:
Net investment income .......................... (.87) (.86) (.90) (.93) (1.00)
Net realized gains on investments .............. -- (.34) (.43) (.17) --
In excess of net realized gains on investments . -- (.06) -- -- --
---------------------------------------------------------------
Total distributions .................................... (.87) (1.26) (1.33) (1.10) (1.00)
---------------------------------------------------------------
Net asset value, end of period ......................... $17.74 $16.93 $19.00 $17.88 $17.30
---------------------------------------------------------------
Total Return (%) ....................................... 10.21 (4.48) 14.31 10.01 13.85
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................. 1,807 1,914 2,087 1,487 1,068
Ratio of operating expenses to average net assets (%) .. .69 .68 .72 .74 .77
Ratio of net investment income to average net
assets (%) ........................................... 5.06 4.80 4.90 5.31 5.92
Portfolio turnover rate (%) ............................ 17.45 38.39 47.96 62.45 32.18
</TABLE>

AARP BALANCED STOCK AND BOND FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Year For the Period
Ended February 1, 1994 (a)
September 30, to September 30,
1995 1994
----------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................... $14.64 $15.00
------------------------
Income from investment operations:
Net investment income .................................. .61 .25
Net realized and unrealized gain (loss) on investments.. 1.79 (.37)(b)
------------------------
Total from investment operations ............................... 2.40 (.12)
------------------------
Less distributions:
Net investment income .................................. (.60) (.24)
Net realized gains on investments ...................... (.04) --
------------------------
Total distributions ............................................ (.64) (.24)
------------------------
Net asset value, end of period ................................. $16.40 $14.64
------------------------
Total Return (%) ............................................... 16.80 (.78)(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 247 175
Ratio of operating expenses to average net assets (%) .......... 1.01 1.31(d)
Ratio of net investment income to average net assets (%) ....... 4.12 3.58(d)
Portfolio turnover rate (%) .................................... 63.77 49.32(d)
</TABLE>

(a) Commencement of operations

(b) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and repurchases
of Fund shares in relation to fluctuating market values during the period.

(d) Annualized

84
<PAGE>

AARP GROWTH AND INCOME FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $34.13 $32.91 $28.67 $26.97 $22.30
----------------------------------------------------------------
Income from investment operations:
Net investment income .............................. 1.11 .94 .83 .97 1.11
Net realized and unrealized gain on investments .... 5.44 1.62 4.58 2.11 4.78
----------------------------------------------------------------
Total from investment operations ........................... 6.55 2.56 5.41 3.08 5.89
----------------------------------------------------------------
Less distributions from:
Net investment income .............................. (1.09) (1.13) (.87) (.90) (1.17)
Net realized gains on investments .................. (1.23) (.21) (.30) (.48) (.05)
----------------------------------------------------------------
Total distributions ........................................ (2.32) (1.34) (1.17) (1.38) (1.22)
----------------------------------------------------------------
Net asset value, end of period ............................. $38.36 $34.13 $32.91 $28.67 $26.97
----------------------------------------------------------------
Total Return (%) ........................................... 20.43 7.99 19.38 11.59 27.19
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... 3,007 2,312 1,560 748 392
Ratio of operating expenses to average net assets (%) ...... .72 .76 .84 .91 .96
Ratio of net investment income to average net assets (%) ... 3.28 3.00 3.08 3.84 4.61
Portfolio turnover rate (%) ................................ 31.26 31.82 17.44 36.40 53.68
</TABLE>

AARP CAPITAL GROWTH FUND

The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 31.74 $ 36.20 $ 30.30 $ 30.23 $ 23.32
---------------------------------------------------------------
Income from investment operations:
Net investment income ................................ .36 .00 .06 .15 .24
Net realized and unrealized gain (loss) on
investments ........................................ 6.91 (1.51) 7.19 1.09 9.05
---------------------------------------------------------------
Total from investment operations ............................. 7.27 (1.51) 7.25 1.24 9.29
---------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.01) (.05) (.14) (.23) (.59)
Net realized gains on investments .................... (.64) (2.90) (1.21) (.94) (1.79)
---------------------------------------------------------------
Total distributions .......................................... (.65) (2.95) (1.35) (1.17) (2.38)
---------------------------------------------------------------
Net asset value, end of period ............................... $ 38.36 $ 31.74 $ 36.20 $ 30.30 $ 30.23
---------------------------------------------------------------
Total Return (%) ............................................. 23.47 (4.70) 24.53 3.94 42.81
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 692 683 607 424 242
Ratio of operating expenses to average net assets (%) ........ .95 .97 1.05 1.13 1.17
Ratio of net investment income to average net assets (%) ..... 1.00 .02 .22 .61 .90
Portfolio turnover rate (%) .................................. 98.44 79.65 100.63 89.20 99.62
</TABLE>

85
<PAGE>

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.

The AARP Cash Investment Funds, consisting of the AARP High Quality Money
Fund, the AARP Income Trust, consisting of the AARP GNMA and U.S. Treasury Fund
and the AARP High Quality Bond Fund, the AARP Tax Free Income Trust, consisting
of the AARP High Quality Tax Free Money Fund, (formerly AARP Insured Tax Free
Short Term Fund), and the AARP Insured Tax Free General Bond Fund, and the AARP
Growth Trust, consisting of the AARP Balanced Stock and Bond Fund, AARP Growth
and Income Fund, and the AARP Capital Growth Fund are each Massachusetts
business trusts and are registered under the Investment Company Act of 1940, as
amended, as open-end management investment companies. All funds are diversified.
The AARP Cash Investment Funds, has one series, the AARP Growth Trust has three
series and each of the other Trusts have two series. The Declaration of Trust of
each Trust permits its Trustees to create an unlimited number of series and to
issue an unlimited number of full and fractional shares of each separate series.

The policies described below are followed consistently by the funds in
preparation of their financial statements and are in conformity with generally
accepted accounting principles.

A. SECURITY VALUATION. The AARP High Quality Money Fund uses the penny
rounding method of security valuation as permitted under Rule 2a-7 of the
Investment Company Act of 1940. Under this method, securities for which market
quotations are readily available and which have remaining maturities of
sixty-one days or more from the date of valuation are valued at the mean between
the over-the-counter bid and asked prices by an independent registered
broker/dealer. On the sixtieth day prior to maturity and thereafter until
maturity, securities originally purchased with more than sixty days remaining to
maturity are valued at amortized cost calculated daily, based upon the market
valuation of the securities on the sixty-first day prior to maturity. The AARP
High Quality Tax Free Money Fund uses the amortized cost method of security
valuation as permitted under Rule 2a-7 of the Investment Company Act of 1940.
Under this method, the value of a security is determined by adjusting its
original cost to face value through the amortization of any acquisition discount
or premium at a constant rate until maturity, which approximates market.
Security valuation with respect to each of the remaining funds is performed in
the following manner:

Common and preferred stocks traded on national securities exchanges are
valued at the most recent sale price on such exchange where the security is
principally traded. If no sale occurred, the security is valued at the mean
between the most recent bid and asked quotations on such exchanges. If there is
no such bid and asked quotations the most recent bid quotation is used. Unlisted
securities quoted on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System, for which there have been sales, are valued at the
most recent sale price reported on such system. If there are no such sales, the
value is the high or "inside" bid quotation. Unlisted securities which are not
quoted on the NASDAQ System but are traded in another over-the-counter market
are valued at the most recent sale price on such market. If no sale occurred,
the security is valued at the mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations the most recent bid
quotation is used.

Portfolio debt securities with remaining maturities greater than sixty days
are valued by pricing agents approved by the Trustees, which prices reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used.

Short-term investments with remaining maturities of 60 days or less are
valued at amortized cost. Variable rate demand notes are carried at cost which
together with accrued interest approximates market.

The value of all other securities is determined in good faith under the
direction of the Trustees.

B. REPURCHASE AGREEMENTS. The AARP High Quality Money Fund, AARP Growth
Funds and AARP GNMA and U.S. Treasury Fund regularly invest in repurchase
agreements. Each of the AARP funds may enter into repurchase agreements with
selected banks and broker/dealers whereby each fund, through its custodian,
receives delivery of the securities collateralizing repurchase

86
<PAGE>

agreements, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market value,
depending on the maturity of the underlying collateral, is equal to at least
101% of the resale price.

C. FUTURES CONTRACTS. Each of the funds in the AARP Income Trust, the AARP
Insured Tax Free General Bond Fund and the AARP Balanced Stock and Bond Fund may
enter into futures contracts. 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 Balanced Stock and Bond Fund purchased interest rate futures as
a temporary substitute for purchasing selected investments. Also, during the
period the AARP Insured Tax Free General Bond Fund sold interest rate securities
futures to hedge against declines in the value of portfolio securities.

Upon entering into a futures contract, the Fund is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.

Certain risks may arise upon entering into futures contracts including the
risk that an illiquid secondary market will limit the Fund's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge, the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.

D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of the funds in the
AARP Growth Trust, in connection with portfolio purchases and sales of
securities denominated in a foreign currency, may enter into forward foreign
currency exchange contracts ("forward contracts"). Additionally, from time to
time, each fund may enter into contracts to hedge certain foreign currency
denominated assets. A forward contract is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the period,
the Fund utilized forward contracts as a hedge against changes in exchange rates
relating to foreign currency denominated assets.

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.

E. 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.

87
<PAGE>

NOTES TO FINANCIAL STATEMENTS

Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.

F. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME. Securities
transactions are accounted for on the trade date basis and dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discount on securities purchased is accreted on an
effective yield basis over the life of the security. Acquisition discount is
accreted on taxable securities purchased with original maturity dates of one
year or less. Premium on securities purchased by the AARP Tax Free Income Trust
is amortized on an effective yield basis over the life of the security.

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.

G. FEDERAL INCOME TAXES. Each of the funds is treated as a single entity
for federal income tax purposes. It is the policy of each fund to comply with
the requirements of the Internal Revenue Code as amended which are applicable to
regulated investment companies, and to distribute all of its taxable and tax
exempt income to its shareholders. Accordingly, the funds paid no U.S. federal
income taxes, and no provisions for federal income taxes were required.

H. DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of
each fund is declared as a dividend to shareholders. The dividends from AARP
High Quality Money Fund and each of the funds in the AARP Income Trust and the
AARP Tax Free Income Trust are declared daily and distributed monthly. The
dividends from AARP Balanced Stock and Bond Fund and AARP Growth and Income Fund
are declared and paid quarterly. The dividends from AARP Capital Growth Fund are
declared and paid annually. During any particular year, net realized gains from
securities transactions for each fund which are in excess of any available
capital loss carryforwards, would be taxable to the fund if not distributed and,
therefore, will be distributed to shareholders in the following fiscal year. The
AARP High Quality Money Fund takes into account realized gains and losses on the
sales of securities held less than one year in its daily distributions. An
additional distribution may be made by each fund to the extent necessary to
avoid the payment of a four percent federal excise tax.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal income tax
rules and regulations which may differ from generally accepted accounting
principles. These differences relate primarily to investments in options,
futures, forward contracts, foreign denominated investments, mortgage backed
securities, 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 significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.

I. EXPENSES. Each fund is charged for those expenses that are directly
attributable to it, such as management, custodian, audit, and certain
shareholder service fees. Expenses that are not directly attributable to a fund,
such as reports to shareholders, portions of Trustees' and legal fees, are
allocated among all the funds.

J. ORGANIZATION COST. Costs incurred by the AARP Balanced Stock and Bond
Fund in connection with its organization and initial registration of shares have
been deferred and are being amortized on a straight-line basis over a five-year
period.

K. PORTFOLIO INSURANCE. The cost of premiums paid by the AARP Insured Tax
Free General Bond Fund for insurance, which covers individual securities, is
non-cancellable and runs the life of such securities, is added to the cost basis
of such securities. This insurance provides for the timely payment of principal
and interest on these securities when due and protects the fund against loss
from default by the Municipal issuer. It does not protect the investor from
losses due to changes in market values.

88
<PAGE>

L. SECURITIES PURCHASED ON A FORWARD DELIVERY OR WHEN-ISSUED BASIS. The
AARP High Quality Money Fund, each of the funds in the AARP Income Trust and
AARP Tax Free Income Trust, and AARP Balanced Stock and Bond Fund may purchase
securities on a forward delivery or when-issued basis. Municipal, corporate and
government securities are frequently offered on a forward delivery or
when-issued basis. At the time the fund makes the commitment to purchase a
security on a forward delivery or when-issued basis, the price of the underlying
security is fixed. The fund will record the transaction at the time of the
commitment and reflect the value of the security in determining its net asset
value. The settlement date of the transaction can occur within one month or more
after the date the commitment was made. During the period between purchase and
settlement date, no payment is made on behalf of the fund and no interest
accrues to the fund.

NOTE 2. MANAGEMENT FEE AND OTHER RELATED TRANSACTIONS.

Under the investment management and advisory agreement (the "Management
Agreement") between each Trust and Scudder, Stevens & Clark, Inc. (the "Fund
Manager") the management fee consists of two elements: a Base Fee and an
Individual Fund Fee. The Base Fee is calculated as a percentage of the combined
net assets of all of the AARP Funds ("Program Assets"). Each AARP Fund pays, as
its portion of the Base Fee, an amount equal to the ratio of its daily net
assets to the daily net assets of all of the AARP Funds. The Annual Base Fee is
calculated as follows: .35%, of the first $2.0 billion of such assets, .33% of
the next $2.0 billion of such assets, .30% of the next $2.0 billion of such
assets, .28% of the next $2.0 billion of such assets, .26% of the next $3.0
billion of such assets, .25% of the next $3.0 billion of such assets, .24% of
such assets in excess of $14.0 billion.

In addition to the Base Fee Rate, each Fund agrees to pay the Fund Manager
a flat Individual Fund Fee based on the average daily net assets of that Fund.
The Individual Fund Fee Rate recognizes the different characteristics of each
Fund, the varying levels of complexity of investment research and securities
trading required to manage each Fund. The Individual Fund Fee Rate is calculated
at the following percentages of the average daily net assets of each fund: .10%
for AARP High Quality Money Fund and AARP High Quality Tax Free Money Fund; .12%
for AARP GNMA and U.S. Treasury Fund; .19% for AARP High Quality Bond Fund, AARP
Insured Tax Free General Bond Fund, AARP Balanced Stock and Bond Fund and AARP
Growth and Income Fund; .32% for AARP Capital Growth Fund. The amount for each
fund is shown in the Statement of Operations as Management Fee.

As manager of the assets of each Fund, the Fund Manager directs the
investments of each Fund in accordance with its investment objectives, policies
and restrictions. In addition to portfolio management services, the Fund Manager
under the Management Agreement will provide certain administrative services in
accordance with such Agreement. The Fund Manager has also entered into a Member
Services Agreement with AARP Financial Services Corp. ("AFSC"), a subsidiary of
AARP, and pays portions of its investment management and advisory fee to AFSC.

The Management Agreement also provides that the Fund Manager will reimburse
the funds for annual expenses in excess of the lowest state limitations imposed,
exclusive of taxes, brokerage commissions, interest and extraordinary expenses.
The Fund Manager agreed to maintain the annualized expenses of the AARP High
Quality Tax Free Money Fund at not more than 0.90% of average daily net assets
until February 1, 1996. The amount of expenses reimbursed by the Fund Manager,
if any, for each fund has been shown in the Statement of Operations as
Reimbursement of expenses from Fund Manager.

Each Trust has a shareholder servicing agreement with Scudder Service
Corporation ("SSC"), a wholly-owned subsidiary of Scudder. As shareholder
servicing agent, SSC provides various transfer agent, dividend disbursing, and
shareholder communication functions. The amount for each fund has been shown in
the Statement of Operations as Transfer and Dividend Disbursing Expense.

Effective September 5, 1995, Scudder Fund Accounting Corporation ("SFAC"),
a wholly-owned subsidiary of the Fund Manager, assumed responsibility for
determining the daily net asset value per share and maintaining the portfolio
and general accounting

89
<PAGE>

NOTES TO FINANCIAL STATEMENTS

records of AARP Growth and Income Fund and AARP Capital Growth Fund. For the
year ended September 30, 1995, the amount charged to the Funds by SFAC
aggregated $17,156 and $7,125, respectively, of which all was paid at September
30, 1995.

Each fund pays each Trustee not affiliated with Scudder or AARP $2,000
annually, $270 for each Trustees' meeting, $200 for each audit committee meeting
attended, and $100 for other committee meetings, plus expenses, subject to
certain maximums per Trustee for meetings held jointly with other funds. The
amount for each fund has been shown in the Statement of Operations as Trustees'
fees and expenses.

NOTE 3. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

As of September 30, 1995, the AARP Balanced Stock and Bond Fund had entered
into the following forward foreign currency exchange contracts resulting in
net unrealized appreciation of $159,340.

<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
- -------------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
FRF 9,466,230 USD 1,954,419 10/23/95 32,615
DEM 2,840,141 USD 2,116,728 10/23/95 126,725
-------
159,340
=======
</TABLE>

90
<PAGE>

REPORT OF INDEPENDENT
ACCOUNTANTS

November 7, 1995

To the Board of Trustees and Shareholders of
AARP Cash Investment Funds, AARP Income Trust,
AARP Tax Free Income Trust and
AARP Growth Trust

In our opinion, the accompanying statements of assets and liabilities,
including the shares, principal amount, and value of the securities in 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 positions of AARP Cash Investment Funds, AARP Income
Trust, AARP Tax Free Income Trust, and AARP Growth Trust, which are comprised
of the eight AARP Funds listed in Note 1 to the financial statements, at
September 30, 1995 and the results of their operations, the changes in their net
assets, and their financial highlights for each of the periods indicated in
conformity with generally accepted accounting principles. These financial
statements and the financial highlights (thereafter referred to as "financial
statements") are the responsibility of the Trusts' management; our
responsibility is to express an opinion on these financials statements based on
our audits. We conducted our audits on these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain a 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 owned at September 30, 1995 by correspondence with the custodian and
brokers and the application of alterative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for the
opinion expressed above.

/s/Price Waterhouse LLP

<PAGE>

BLANK PAGE

<PAGE>
Officers and Trustees

Adelaide Attard

Trustee of AARP Cash Investment Funds, AARP Income Trust
and AARP Growth Trust; Member, New York City Department
of Aging Advisory Council--Appointed by Mayor (1995);
Consultant, Gerontology; Commissioner, County of Nassau,
NY, Department of Senior Citizen Affairs (1971-1991);
Board Member, American Association of International
Aging (1981 to present); 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.

Cyril F. Brickfield

Trustee of AARP Income Trust, AARP Tax Free Income
Trust, AARP Growth Trust; Honorary Trustee, AARP Cash
Investment Funds; Honorary President and Special
Counsel, American Association of Retired Persons; Board
Member: American Association of International Aging,
National Alzheimer's Association, and American
Federation of Aging Research (AFAR).

Robert N. Butler, M.D.

Trustee of AARP Income Trust and AARP Growth Trust;
Brookdale Professor of Geriatrics and Adult Development;
Chairman, Henry L. Schwartz Department of Geriatrics and
Adult Development, Mount Sinai Medical Center; Formerly
Director, National Institute on Aging, National
Institute of Health (1976-1982).

Linda C. Coughlin

President and Trustee of AARP Cash Investment Funds,
AARP Income Trust, AARP Tax Free Income Trust and AARP
Growth Trust; Managing Director and Member, Board of
Directors of Scudder, Stevens & Clark, Inc.; Director of
Scudder Investor Services, Inc.

Horace B. Deets

Vice Chairman and Trustee of AARP Cash Investment Funds,
AARP Income Trust, AARP Tax Free Income Trust and AARP
Growth Trust; Executive Director, American Association
of Retired Persons; Member, Board of Councilors, Andrus
Gerontology Center; Member of the Board, HelpAge
International.

Mary Johnston Evans

Trustee of AARP Cash Investment Funds, AARP Tax Free
Income Trust and AARP Growth Trust; Director: Baxter
International, Inc., Delta Air Lines, Inc., Household
International, Inc., The Sun Company, Dun & Bradstreet
Corporation and Saint-Gobain Corporation.

93
<PAGE>

Edgar R. Fiedler

Trustee of AARP Cash Investment Funds, AARP Income Trust
and AARP Tax Free Income Trust; Vice President and
Economic Counsellor, The Conference Board, Inc.;
Director of The Stanley Works, Zurich-American Insurance
Company, HT Insight Funds, and Emerging Mexico Fund.

Cuyler W. Findlay

Chairman and Trustee of AARP Cash Investment Funds, AARP
Income Trust, AARP Tax Free Income Trust, and AARP
Growth Trust; Managing Director of Scudder, Stevens &
Clark, Inc., Senior Vice President and Director, Scudder
Investor Services, Inc.

Eugene P. Forrester

Trustee of AARP Income Trust and AARP Tax Free Income
Trust; Consultant, International Trade; Lt. General
(Retired), U.S. Army; Command General, U.S. Army Western
Command, Honolulu; Consultant: Digital Equipment Corp.,
DHI, Philip Morris, PICS Previews, and Whittle
Communications.

Wayne F. Haefer

Trustee of AARP Income Trust, AARP Tax Free Income
Trust, and AARP Growth Trust; Director, Membership
Division of AARP; Secretary, Employee's Pension and
Welfare Trusts of AARP and Retired Persons Services,
Inc.; Formerly Director, Administration and Data
Management Division of AARP.

William B. Macomber

Trustee of AARP Tax Free Income Trust and AARP Growth
Trust; Formerly Teacher, History and Government,
Nantucket High School, Nantucket, MA; Director, Becton,
Dickinson & Co. (until 1994); Trustee Emeritus, Carnegie
Endowment for International Peace; Formerly President,
The Metropolitan Museum of Art and U.S.
Ambassador to Turkey and to Jordan.

George I. Maddox, Jr.

Trustee of AARP Income Trust and AARP Tax Free Income
Trust; Director and Professor, Long Term Care Resources
Program, Duke University Medical Center; Senior Fellow,
Center for the Study of Aging and Human Development,
Duke University; Professor of Sociology, Departments of
Sociology and Psychiatry, Duke University.

94
<PAGE>

Robert J. Myers

Trustee of AARP Cash Investment Funds, AARP Income Trust
and AARP Growth Trust; Actuarial Consultant; Formerly
Executive Director, National Commission on Social
Security Reform; Director: NASL Series Trust, Inc. and
North American Funds, Inc.; Formerly Director, Board of
Pensions, Evangelical Lutheran Church in America;
Formerly Chairman, Commission on Railroad Retirement
Reform; Member, U.S. Office of Technology Assessment,
Prospective Payment Assessment Commission.

Joseph S. Perkins

Trustee of AARP Cash Investment Funds, AARP Income
Trust, AARP Tax Free Income Trust, and AARP Growth
Trust; Director, American Association of Retired
Persons; Corporate Retirement Manager, Polaroid
Corporation.

James H. Schulz

Trustee of AARP Income Trust, AARP Tax Free Income Trust
and AARP Growth Trust; Professor of Economics and
Kirstein Professor of Aging Policy, Policy Center of
Aging, Florence Heller School, Brandeis University.

Gordon Shillinglaw

Trustee of AARP Cash Investment Funds, AARP Tax Free
Income Trust, AARP Growth Trust; Professor Emeritus of
Accounting, Columbia University Graduate School of
Business; Director and Treasurer, FERIS Foundation of
America (until 1994).

Edward V. Creed* Pamela A. McGrath*
Vice President Vice President and Treasurer

Thomas W. Joseph* Edward J. O'Connell*
Vice President Vice President and Assistant Treasurer

David S. Lee* Kathryn L. Quirk*
Vice President and Assistant Treasurer Vice President and Secretary

Douglas M. Loudon* Howard Schneider*
Vice President Vice President

Thomas F. McDonough* Cornelia M. Small*
Vice President and Assistant Secretary Vice President

*Scudder, Stevens & Clark, Inc.

Effective January 1, 1995, each member of and nominee for the Board of Trustees
must own shares of one or more of the Funds within the AARP Investment Program
of which he/she serves as Trustee.

95
<PAGE>

Service and Tax Information

Shareholder Our knowledgeable AARP Mutual Fund
Service Line Representatives are available to answer
1-800-253-2277 questions about the Program or your account
Monday through Friday, between 8:00 a.m. and
8:00 p.m., eastern time. Transactions can be
made Monday through Friday between 8:00 a.m. and
4:00 p.m., eastern time.

Write: AARP Investment Program
from Scudder
P.O. Box 2540
Boston, MA 02208-2540
For overnight AARP Investment Program
and certified mail: from Scudder
42 Longwater Drive
Norwell, MA 02061-1612

Easy-Access Line Shareholders with a touch-tone telephone may
1-800-631-4636 call this automated line to obtain AARP Fund
performance and account information or to
exchange or sell (redeem) AARP Mutual Fund
shares. This service is available 24 hours a
day, 7 days a week.

Transactions by Fax If you have access to a fax machine, you can fax
1-800-821-6234 transaction requests. Any exchange or redemption
request received after 4:00 p.m. business days
or on weekends, will be processed the next
business day. All faxes are kept confidential.

TDD (Telecommunications AARP members with hearing or speech impairments
Device for the Deaf and and access to TDD equipment can communicate with
Speech Impaired) the AARP Investment Program Monday through
1-800-634-9454 Friday between 8:00 a.m. and 6:00 p.m., eastern
time. Transactions can be made between 8:00 a.m.
and 4:00 p.m., eastern time.

Tax Information 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 Funds' fiscal years ending September 30,
1995, 100% constituted exempt-interest dividends
for regular federal income tax purposes.

Pursuant to Section 852 of the Internal Revenue
Code, the AARP Balanced Stock and Bond Fund, the
AARP Growth and Income Fund and the AARP Capital
Growth Fund designate $1,788,162, $58,824,089,
and $3,898,191, respectively, as capital gain
dividends for their fiscal years ended September
30, 1995.

In January 1996 you will receive federal tax
information on all distributions paid to your
account in calendar year 1995.

96
<PAGE>

AARP GLOBAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES

January 24, 1996

Assets
Cash................................................ $1,500
Deferred organization and registration
expenses (Note).................................. 15,000
--------
Total assets........................................ 16,500
--------
Liabilities
Accrued liabilities (Note).......................... 15,000
--------
Total liabilities................................... 15,000
--------
Net Assets............................................ $1,500
========
Net Assets consist of:
Shares of beneficial interest, at par............... 1
Additional paid-in capital.......................... 1,499
--------
Net Assets............................................ $1,500
========
Net asset value, offering price per share
($1,500/100 outstanding shares of beneficial
interest, $.01 par value, unlimited number of
shares authorized).................................... $15.00
========

The accompanying note is an integral part of the financial statement.

AARP Global Growth Fund (the "Fund") is a diversified series of
AARP Growth Trust (the "Trust"), a component of the AARP
Investment Program from Scudder. The Trust is an open-end,
management investment company registered under the Investment
Company Act of 1940. The Trust was organized as a Massachusetts
business trust. The Declaration of 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
Trust's authorized capital consists of an unlimited number of shares
of beneficial interest of $0.01 par value, all of which are of one class
and have equal rights as to voting, dividends and liquidation. The
Trust's shares are currently divided into four series, AARP Balanced
Stock and Bond Fund, AARP Growth and Income Fund, AARP
Capital Growth Fund, and AARP Global Growth Fund. The Trustees
have the authority to issue additional series of shares and to
designate the relative rights and preferences as between the
different series. The Fund has had no operations to date other than
matters relating to its organization and registration as a diversified
series.

Costs incurred by the Fund in connection with its organization and
public offering of shares, estimated at $15,000, will be amortized on
a straight-line basis over a five-year period beginning at the
commencement of operations of the Fund. In the event that any of
the initial shares of the Fund are redeemed during the amortization
period, the redemption proceeds will be reduced by any
unamortized organization expense in the same proportion as the
number of shares being redeemed bears to the number of initial
shares outstanding at the time of such redemption.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees of AARP Growth Trust and Shareholder of
AARP Global Growth Fund:

In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of
AARP Global Growth Fund, which constitutes part of the AARP
Growth Trust, at January 24, 1996 in conformity with generally
accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit on this financial statement in accordance
with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statement is 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 audit provides a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
January 25, 1996
<PAGE>
AARP GROWTH TRUST

PART C. OTHER INFORMATION

<TABLE>
<S> <C> <C>
Item 24. Financial Statements and Exhibits

a. Financial Statements

Included in Part A of this Registration Statement:

Financial Highlights for AARP Growth and Income Fund, and AARP Capital Growth Fund
for the ten fiscal years ended September 30, 1995.

Financial Highlights for AARP Balanced Stock and Bond Fund for the period February
1, 1994 (commencement of operations) to September 30, 1994 and for the fiscal year
ended September 30, 1995.

Financial Highlights for AARP Global Growth Fund to be filed by amendment.

Included in Part B of this Registration Statement:

For AARP Growth and Income Fund and AARP Capital Growth Fund:

List of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the fiscal year ended September 30, 1995
Statements of Changes in Net Assets for the two fiscal years ended September 30,
1995
Financial Highlights for the five fiscal years ended September 30, 1995
Notes to Financial Statements
Report of Independent Accountants

For AARP Balanced Stock and Bond Fund:

List of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations, for the fiscal year ended September 30, 1995
Statements of Changes in Net Assets for the period February 1, 1994 (commencement
of operations) to September 30, 1994 and for the fiscal year ended September 30,
1995
Financial Highlights for the period February 1, 1994 (commencement of operations)
to September 30, 1994 and for the fiscal year ended September 30, 1995
Notes to Financial Statements
Report of Independent Accountants

For AARP Global Growth Fund:

Statement of Assets and Liabilities as of January 24, 1996 and related notes.

Statements, schedules and historical information other than those listed above have been
omitted since they are either not applicable or are not required.

Part C - Page 1
<PAGE>

b. Exhibits:

1. (a)(1) Declaration of Trust dated June 8, 1984, as amended November 1, 1984.
(Previously filed as Exhibit 1(a) to Post-Effective Amendment No. 1
to the Registration Statement.)

(a)(2) Certificate of Amendment dated September 15, 1989 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(2) to Post-Effective Amendment No.
10 to the Registration Statement.)

(a)(3) Certificate of Amendment dated January 25, 1994 to Declaration of
Trust.
(Previously filed as Exhibit 1(a)(3) to Post-Effective Amendment No.
16 to the Registration Statement.)

(b)(1) Establishment of Series dated December 11, 1984.
(Previously filed as Exhibit 1(b) to Post-Effective Amendment No. 4
to the Registration Statement.)

(b)(2) Establishment and Designation of Series of Beneficial Interest dated
September 22, 1993.
(Previously filed as Exhibit 1(b)(2) to Post-Effective Amendment No.
14 to the Registration Statement.)

(b)(3) Establishment and Designation of Series of Beneficial Interest dated
November 17, 1995 is filed herein.

2. (a)(1) By-Laws of the Registrant as amended June 17, 1992.
(Previously filed as Exhibit 2 to Post-Effective Amendment No. 13 to
the Registration Statement.)

(a)(2) By-Laws of the Registrant as amended March 17, 1993.
(Previously filed as Exhibit 2(a)(2) to Post-Effective Amendment No.
14 to the Registration Statement.)

3. Inapplicable.

4. Specimen certificate representing shares of beneficial interest
having par value of $.01 per share.
(Previously filed as Exhibit 4 to Post-Effective Amendment No. 1 to
the Registration Statement.)

5. (a) Investment Management and Advisory Agreement between the Registrant
and AARP/Scudder Financial Management Company dated December 16,
1985.
(Previously filed as Exhibit 5(a) to Post-Effective Amendment No. 5
to the Registration Statement.)

(a)(1) Investment Management Agreement between the Registrant and Scudder,
Stevens & Clark, Inc. dated February 1, 1994. (Previously filed as
Exhibit 5(c) to Post-Effective Amendment No. 15 to the Registration
Statement.)

Part C - Page 2
<PAGE>

(a)(2) Form of Supplement to Investment Management Agreement between the
Registrant and Scudder, Stevens & Clark, Inc. dated February 1, 1996
is filed herein.

(b) Subadvisory Agreement among AARP/Scudder Financial Management
Company, Scudder, Stevens & Clark, Inc., and the Registrant dated
December 16, 1985.
(Previously filed as Exhibit 5(b) to Post-Effective Amendment No. 5
to the Registration Statement.) Terminated February 1, 1994.

6. Underwriting Agreement between the Registrant and Scudder Fund
Distributors, Inc. dated September 4, 1985.
(Previously filed as Exhibit 6 to Post-Effective Amendment No. 4 to
the Registration Statement.)

7. Inapplicable.

8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(1) to Post-Effective Amendment
No. 4 to the Registration Statement.)

(a)(2) Fee schedule for Exhibit 8(a)(l).
(Previously filed as Exhibit 8(a)(2) to Post-Effective Amendment
No. 4 to the Registration Statement.)

(a)(3) Additional Provision to Custodian Agreement between the Registrant
and State Street Bank and Trust Company dated November 30, 1984.
(Previously filed as Exhibit 8(a)(3) to Post-Effective Amendment
No. 4 to the Registration Statement.)

(a)(4) Amendment dated September 23, 1987 to Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(4) to Post-Effective Amendment No.
9 to the Registration Statement.)

(a)(5) Amendment dated September 15, 1988 to Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated
November 30, 1984.
(Previously filed as Exhibit 8(a)(5) to Post-Effective Amendment No.
9 to the Registration Statement.)

(a)(6) Revised fee schedule for Exhibit 8(a)(1).
(Previously filed as Exhibit 8(a)(6) to Post-Effective Amendment No.
17 to the Registration Statement.)

(a)(7) Form of Custodian Agreement between the Registrant on behalf of AARP
Global Growth Fund and Brown Brothers Harriman & Co. dated February
1, 1996 is filed herein.

(a)(8) Fee schedule for Exhibit 8(a)(7) is filed herein.

Part C - Page 3
<PAGE>

9. (a) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Previously filed as Exhibit 9(a) to the Post-Effective Amendment
No. 10 to the Registration Statement.)

(b) Member Services Agreement among AARP/Scudder Financial Management
Company, AARP Financial Services Corp. and the Registrant, dated
November 30, 1984.
(Previously filed as Exhibit 9(b) to Post-Effective Amendment No. 5
to the Registration Statement.) Terminated February 1, 1994.

(b)(1) Member Services Agreement between AARP Financial Services Corp. and
Scudder, Stevens & Clark, Inc. dated February 1, 1994.
(Previously filed as Exhibit 9(b)(1) to Post-Effective Amendment No.
16 to the Registration Statement.)

(c) Service Mark License Agreement among Scudder, Stevens & Clark, Inc.,
American Association of Retired Persons, the Registrant, AARP Income
Trust and AARP Insured Tax Free Income Trust dated November 30, 1984.
(Previously filed as Exhibit 9(c) to Post-Effective Amendment No. 5
to the Registration Statement.)

(d) Shareholder Service Agreement between the Registrant and Scudder
Service Corporation dated June 1, 1988.
(Previously filed as Exhibit 9(d) to Post-Effective Amendment No. 9
to the Registration Statement.)

(e) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Balanced Stock and Bond Fund and Scudder Fund Accounting
Corporation dated October 20, 1995.
(Previously filed as Exhibit 9(e) to Post-Effective Amendment
No. 17 to the Registration Statement.)

(f) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Capital Growth Fund and Scudder Fund Accounting Corporation
dated November 10, 1995.
(Previously filed as Exhibit 9(f) to Post-Effective Amendment
No. 17 to the Registration Statement.)

(g) Fund Accounting Services Agreement between the Registrant, on behalf
of AARP Growth and Income Fund and Scudder Fund Accounting
Corporation dated September 5, 1995.
(Previously filed as Exhibit 9(g) to Post-Effective Amendment
No. 17 to the Registration Statement.)

(h) Form of Fund Accounting Services Agreement between the Registrant,
on behalf of AARP Global Growth Fund and Scudder Fund Accounting
Corporation is filed herein.

10. Inapplicable.

11. Consent of Independent Accountants.

12. Inapplicable.

Part C - Page 4
<PAGE>

13. Inapplicable.

14. (a) Individual Retirement Account (IRA).
(Previously filed as Exhibit 14(a) to Post-Effective Amendment No. 1
to the Registration Statement.)

(b) Harvest Plan for Self-Employed Persons and Corporations.
(Previously filed as Exhibit 14(b) to Post-Effective Amendment No. 1
to the Registration Statement.)

15. Inapplicable.

16. Schedule for Computation of Performance Data.
(Previously filed as Exhibit 16 to Post-Effective Amendment No. 10
to the Registration Statement.)

17. Financial Data Schedules are filed herein.

18. Inapplicable.

Power of Attorney for Cuyler W. Findlay, Adelaide Attard, Cyril F. Brickfield, Robert N. Butler, Mary Johnston
Evans, William B. Macomber, Robert J. Myers, James H. Schulz and Gordon Shillinglaw is incorporated by reference
to the Signature Page of Post-Effective Amendment No. 8.

Power of Attorney for Linda C. Coughlin, Horace Deets, Wayne F. Haefer and Joseph S. Perkins is incorporated by
reference to the Signature Page of Post-Effective Amendment No. 18 to the Registration Statement filed herein.

Item 25. Persons Controlled by or under Common Control with Registrant.

None

Item 26. Number of Holders of Securities (as of December 31, 1995).

(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial interest
with par value of $.01
AARP Balanced Stock and Bond Fund 37,699
AARP Growth and Income Fund 226,728
AARP Capital Growth Fund 77,303

Item 27. Indemnification.

A policy of insurance covering Scudder, Stevens & Clark, Inc., its affiliates, including Scudder Investor
Services, Inc., and all of the registered investment companies advised by Scudder, Stevens & Clark, Inc.
insures the Registrant's Trustees and officers and others against liability arising by reason of an alleged
breach of duty caused by any negligent act, error or accidental omission in the scope of their duties.

Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of Trust provide as follows:

Section 4.1 No Personal Liability of Shareholders, Trustees, Etc. No Shareholder shall be subject to any
personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall be subject to any personal
liability whatsoever to any Person, other than to the Trust or its Shareholders, in connection with Trust

Part C - Page 5
<PAGE>

Property or the affairs of the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs
of the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability of the Trust, he shall not, on account
thereof, be held to any personal liability. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may become subject by reason of his
being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability, provided that any such expenses
shall be paid solely out of the funds and property of the series of the Trust with respect to which such
Shareholders Shares are issued. The rights accruing to a Shareholder under this Section 4.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.

Section 4.2 Non-Liability of Trustees, Etc. No Trustee, officer, employee or agent of the Trust shall be
liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, agent or service
provider thereof for any action or failure to act by him (or her) or any other such Trustee, officer,
employee, agent or service provider (including without limitation the failure to compel in any way any
former or acting Trustee to redress any breach of trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved in the conduct of his office. The term
"service provider" as used in this Section 4.2, shall include any investment adviser, principal underwriter
or other person with whom the Trust has an agreement for provision of services.

Section 4.3 Mandatory Indemnification.

(a) Subject to the exceptions and limitations contained in paragraph (b) below:

(i) every person who is, or has been, a Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;

(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims,
actions, suits or proceedings (civil, criminal, or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Trustee or officer:

(i) against any liability to the Trust or the Shareholders by reason of a final
adjudication by the court or other body before which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his
office;

(ii) with respect to any matter as to which he shall have been finally adjudicated not to
have acted in good faith in the reasonable belief that his action was in the best interest of the Trust;

(iii) in the event of a settlement or other disposition not involving a final adjudication
as provided in paragraph (b)(i) resulting in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his office;

(A) by the court or other body approving the settlement or other disposition; or

Part C - Page 6
<PAGE>

(B) based upon a review of readily available facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on the matter) or (y) written opinion of
independent legal counsel.

(c) The rights of indemnification herein provided may be insured against by policies maintained
by the Trust, shall be severable, shall not affect any other rights to which any Trustee or officer may now
or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing
contained herein shall affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise under law.

(d) Expenses of preparation and presentation of a defense to any claim, action, suit or
proceeding of the character described in paragraph (a) of this Section 4.3 shall be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to indemnification under this Section 4.3
provided that either:

(i) such undertaking is secured by a surety bond or some appropriate security provided by
the recipient, or the Trust shall be insured against losses arising out of any such advances: or

(ii) a majority of the Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately will be found entitled to
indemnification.

As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an "Interested Person"
of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim, action, suit or proceeding.

Item 28. Business or Other Connections of Investment Adviser

The Adviser has stockholders and employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not considered officers for the purpose of
this Item 28.

Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
Stephen R. Beckwith Director, Scudder, Stevens & Clark, Inc. (investment adviser)**

Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown,
Grand Cayman, Cayman Islands

Part C - Page 7
<PAGE>

Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY

Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (Director only on Scudder Global Fund,
a series of Scudder Global Fund, Inc.) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo

Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Investor Services, Inc. (broker/dealer)**
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*

Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*

Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)*
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**

Part C - Page 8
<PAGE>

Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**

Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)++
Vice President, Scudder Variable Life Investment Fund (investment company)*

Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*

Douglas M. Loudon Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Securities Trust (investment company)*
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Chairman, World Capital Fund (investment company) Luxembourg ##
Managing Director, Kankaku - Scudder Capital Asset Management Corporation (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
President, The Japan Fund, Inc. (investment company)**
Trustee, Scudder, Stevens & Clark Supplemental Retirement Income Plan
Trustee, Scudder, Stevens & Clark Profit Sharing Plan **
Chairman & Director, The World Capital Fund (investment company) Luxembourg
Chairman & Director, Scudder, Stevens & Clark (Luxembourg), S.A., Luxembourg#
Chairman, Canadian High Income Fund (investment company) #
Chairman, Hot Growth Companies Fund (investment company) #
Vice President & Director, Scudder Precious Metals, Inc. xxx
Director, Berkshire Farm & Services for Youth
Board of Governors & President, Investment Counsel Association of America

John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x

Juris Padegs Secretary & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**

Part C - Page 9
<PAGE>

Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Trustee, Scudder Funds Trust (investment company)*
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Trustee, Scudder Securities Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)**
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Chairman & Supervisory Director, Sovereign High Yield Investment Company N.V.
(investment company) +
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia

Daniel Pierce Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*

Part C - Page 10
<PAGE>

President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman, Assistant Treasurer & Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Scudder Realty Holdings Corporation (a real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA

Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)*
Vice President, AARP Growth Trust (investment company)*
Vice President, AARP Income Trust (investment company)*
Vice President, AARP Tax Free Income Trust (investment company)*

Edmond D. Villani President & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Trustee, Scudder Securities Trust (investment company)*
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**

Part C - Page 11
<PAGE>

Director, IBJ Global Investment Manager S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg

* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon

Item 29. Principal Underwriters.

(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.

(b)

(1) (2) (3)

Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------

E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110

Part C - Page 12
<PAGE>

Mark S. Casady Vice President and Director None
Two International Place
Boston, MA 02110

Linda Coughlin Director President and Trustee
345 Park Avenue
New York, NY 10154

Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154

Coleen Downs Dinneen Assistant Clerk None
Two International Place
Boston, MA 02110

Paul J. Elmlinger Vice President None
345 Park Avenue
New York, NY 10154

Cuyler W. Findlay Senior Vice President Chairman of the Board and
345 Park Avenue Trustee
New York, NY 10154

Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110

Thomas W. Joseph Vice President, Director, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110

Dudley H. Ladd Senior Vice President and None
Two International Place Director
Boston, MA 02110

David S. Lee President, Assistant Vice President and
Two International Place Treasurer and Director Assistant Treasurer
Boston, MA 02110

Douglas M. Loudon Senior Vice President Vice President
345 Park Avenue
New York, NY 10154

Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110

Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154

Part C - Page 13
<PAGE>

Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154

Juris Padegs Vice President and Director None
345 Park Avenue
New York, NY 10154

Daniel Pierce Vice President, Director None
Two International Place and Assistant Treasurer
Boston, MA 02110

Kathryn L. Quirk Vice President Vice President and
345 Park Avenue Secretary
New York, NY 10154

Edmund J. Thimme Vice President and Director None
345 Park Avenue
New York, NY 10154

David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110

Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110

The Underwriter has employees who are denominated officers of an operational area. Such persons do not have
corporation-wide responsibilities and are not considered officers for the purpose of this Item 29.

(c)

(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------

Scudder Investor None None None None
Services, Inc.

Item 30. Location of Accounts and Records.

Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940
Act and the Rules promulgated thereunder are maintained by Scudder, Stevens & Clark, Inc., Two
International Place, Boston, MA 02110. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust Company, Heritage Drive, North Quincy,
Massachusetts.

Part C - Page 14
<PAGE>

Item 31. Management Services.

Inapplicable.

Item 32. Undertakings.

The Registrant hereby undertakes to file a post-effective amendment, using reasonably current
financial statements of AARP Global Growth Fund, within four to six months from the effective date
of the Registrant's Registration Statement under the 1933 Act.

The Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a
copy of such Fund's latest annual report to shareholders upon request and without change.

The Registrant hereby undertakes to call a meeting of shareholders for the purpose of voting on the
question of removal of a Trustee or Trustees when requested to do so by the holders of at least 10%
of the Registrant's outstanding shares and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940 relating to shareholder
communications.

The Registrant hereby undertakes, insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the registrant will unless in the
opinion of its counsel the matter has been settled by controlling precedent, submits to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.

Part C - Page 15
</TABLE>
<PAGE>
SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 24th day of January, 1996.

AARP GROWTH TRUST

By /s/ Thomas F. McDonough
---------------------------------------
Thomas F. McDonough, Assistant Secretary

<C> <C> <C>
SIGNATURE TITLE DATE

/s/Cuyler W. Findlay
- ----------------------------
Cuyler W. Findlay* Chairman and Trustee January 24, 1996

/s/Adelaide Attard
- ----------------------------
Adelaide Attard* Trustee January 24, 1996

/s/Cyril F. Brickfield
- ----------------------------
Cyril F. Brickfield* Trustee January 24, 1996

/s/Robert N. Butler
- ----------------------------
Robert N. Butler* Trustee January 24, 1996

/s/Linda C. Coughlin
- ----------------------------
Linda C. Coughlin* President and Trustee January 24, 1996

/s/Horace Deets
- ----------------------------
Horace Deets* Vice Chairman and Trustee January 24, 1996

/s/Mary Johnston Evans
- ----------------------------
Mary Johnston Evans* Trustee January 24, 1996

/s/Wayne F. Haefer*
- ----------------------------
Wayne F. Haefer* Trustee January 24, 1996

/s/William B. Macomber
- ----------------------------
William B. Macomber* Trustee January 24, 1996

/s/Robert J. Myers
- ----------------------------
Robert J. Myers* Trustee January 24, 1996

/s/Joseph S. Perkins
- ----------------------------
Joseph S. Perkins* Trustee January 24, 1996

/s/James H. Schulz
- ----------------------------
James H. Schulz* Trustee January 24, 1996

<PAGE>

SIGNATURE TITLE DATE

/s/Gordon Shillinglaw
- ----------------------------
Gordon Shillinglaw* Trustee January 24, 1996

/s/Pamela A. McGrath
- ----------------------------
Pamela A. McGrath Vice President and Treasurer January 24, 1996
(Principal Financial and Accounting
Officer)

*By /s/Thomas F. McDonough
----------------------------
Thomas F. McDonough
</TABLE>

Attorney-in-fact pursuant to a power of attorney contained in the
signature page of Post-Effective Amendment No. 8 to the Registration
Statement filed December 4, 1987 and pursuant to a power of attorney
contained in the signature page of Post-Effective Amendment No. 18 to
the Registration Statement filed herein.

2
<PAGE>

SIGNATURES

AARP GROWTH TRUST

By /s/ Thomas F. McDonough
----------------------------
Thomas F. McDonough, Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in her capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.

<C> <C> <C>
SIGNATURE TITLE DATE

/s/Linda C. Coughlin
- ----------------------------
Linda C. Coughlin President and Trustee January 11, 1996

</TABLE>

3
<PAGE>

SIGNATURES

AARP GROWTH TRUST

By /s/ Thomas F. McDonough
----------------------------
Thomas F. McDonough, Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
<C> <C> <C>
SIGNATURE TITLE DATE

/s/Horace Deets
- ----------------------------
Horace Deets Vice Chairman and Trustee January 19, 1996

</TABLE>

4
<PAGE>

SIGNATURES

By /s/ Thomas F. McDonough
----------------------------
Thomas F. McDonough, Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
<C> <C> <C>
SIGNATURE TITLE DATE

/s/Wayne F. Haefer
- ----------------------------
Wayne F. Haefer Trustee January 16, 1996

</TABLE>

5
<PAGE>

SIGNATURES

AARP GROWTH TRUST

By /s/ Thomas F. McDonough
----------------------------
Thomas F. McDonough, Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as a trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
<C> <C> <C>

SIGNATURE TITLE DATE

/s/Joseph S. Perkins
- ----------------------------
Joseph S. Perkins Trustee January 17, 1996

</TABLE>

<PAGE>
File No. 2-91578
File No. 811-4048

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

EXHIBITS

FORM N-1A

POST-EFFECTIVE AMENDMENT NO. 18

TO REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT NO. 20

TO REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

AARP GROWTH TRUST

<PAGE>

AARP GROWTH TRUST

EXHIBIT INDEX

Exhibit 1(b)(3)

Exhibit 5(a)(2)

Exhibit 8(a)(7)

Exhibit 8(a)(8)

Exhibit 9(h)

Exhibit 11

Exhibit 17

Exhibit 1(b)(3)
AARP GROWTH TRUST

Establishment and Designation of Series
of Beneficial Interest, $.01 Par Value

The undersigned, being a majority of the duly elected and qualified
Trustees of AARP Growth Trust, a Massachusetts business trust, acting pursuant
to Section 5.11 of the Amended and Restated Declaration of Trust of the Trust
dated November 1, 1984 as amended (the "Declaration of Trust"), hereby divide
the shares of beneficial interest of the Trust into four separate series (each
individually a "Fund" or collectively the "Funds"), each Fund to have the
following special and relative rights:

1. The Funds shall be designated as follows:

AARP Balanced Stock and Bond Fund
AARP Capital Growth Fund
AARP Global Growth Fund
AARP Growth and Income Fund

2. Each Fund shall be authorized to hold cash and invest in securities and
instruments and use investment techniques as described in the Trust's
registration statement under the Securities Act of 1933, as amended from time to
time. Each share of beneficial interest of each Fund ("share") shall be
redeemable as provided in the Declaration of Trust, shall be entitled to one
vote (or fraction thereof in respect of a fractional share) on matters on which
shares of that Fund shall be entitled to vote and shall represent a pro rata
beneficial interest in the assets allocated to that Fund. The proceeds of sales
of shares of a Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to that Fund, unless
otherwise required by law. Each share of a Fund shall be entitled to receive its
pro rata share of net assets of that Fund upon liquidation of that Fund.

3. Shareholders of each Fund shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to that Fund as provided in Rule 18f-2 under
the Investment Company Act of 1940, as amended, from time to time in effect, or
any successor rule.

4. The shares of beneficial interest of the Trust outstanding on the date
hereof shall be deemed to be shares of AARP Balanced Stock and Bond Fund, AARP
Capital Growth Fund, and AARP Growth and Income Fund, respectively.

5. The assets and liabilities of the Trust existing on the date hereof
shall, except as provided below, be allocated among AARP Balanced Stock and Bond
Fund, AARP Capital Growth Fund, and AARP Growth and Income Fund and, hereafter,

<PAGE>

the assets and liabilities of the Trust shall be allocated among the Funds as
set forth in Section 5.11 of the Declaration of Trust, except as provided below.

(a) Costs incurred in connection with the organization and
registration of shares of AARP Global Growth Fund shall be
amortized by such Fund over the five-year period beginning with
the month the Fund commences operations.

(b) The liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any
particular Fund shall be allocated among the Funds on the basis of
their relative average daily net assets.

(c) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Funds.

6. The Trustees (including any successor Trustees) shall have the right at
any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created, or to otherwise change the
special and relative rights of any such Fund provided that such change shall not
adversely affect the rights of shareholders of a Fund.

The foregoing shall be effective upon execution.

/s/Adelaide Attard
Adelaide Attard, as Trustee

/s/Cyril F. Brickfield
Cyril F. Brickfield, as Trustee

/s/Robert N. Butler
Robert N. Butler, as Trustee

Linda C. Coughlin, as Trustee

/s/Horace Deets
Horace Deets, as Trustee

/s/Mary Johnston Evans
Mary Johnston Evans, as Trustee

<PAGE>

Cuyler W. Findlay, as Trustee

/s/Wayne F. Haefer
Wayne F. Haefer, as Trustee

William B. Macomber, as Trustee

/s/Robert J. Myers
Robert J. Myers, as Trustee

/s/Joseph S. Perkins
Joseph S. Perkins, as Trustee

/s/James H. Schulz
James H. Schulz, as Trustee

/s/Gordon Shillinglaw
Gordon Shillinglaw, as Trustee

Dated: November 15, 1995

Exhibit 5(a)(2)
AARP GROWTH TRUST
AARP Global Growth Fund

SUPPLEMENT TO
INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT made as of the 1st day of February, 1996, by and between AARP
Growth Trust (the "Trust") and Scudder, Stevens & Clark, Inc. (the "Manager").

WHEREAS, the Trust is an open-end investment company, organized as a
Massachusetts business trust, and consists of such separate series as have been
or may be established and designated by the Trustees of the Trust from time to
time;

WHEREAS, the Fund has adopted an Investment Management Agreement (the
"Agreement") dated February 1, 1994 pursuant to which the Trust has appointed
the Manager to act as investment manager and perform such services specified in
the Agreement; and

WHEREAS, AARP Global Growth Fund (the "Series") is a separate
investment series of the Trust.

NOW THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:

1. As provided for in the Agreement, the Trust hereby adopts the
Agreement with respect to the Series, and the Manager hereby acknowledges that
the Agreement shall pertain to the Series, the terms and conditions of such
Agreement being hereby incorporated herein by reference.

2. The term "Series" as used in the Agreement shall, for purposes
of this Supplement, pertain to the Series.

3. As provided in the Agreement and subject to further conditions as
set forth therein, the Series shall pay the Manager the base fee rate as
specified in Section 5(b) of the Agreement, and a fund fee rate equal to 0.55
percent per annum of the net assets of the Series.

4. This Supplement and the Agreement (together, the "Management
Agreement") shall become effective with respect to the Series as of the date
specified above and shall remain in force until August 31, 1997, and continue in
force from year to year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority of the
Trustees who are not parties to the Management Agreement or interested persons
of any party to the Management Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Trustees of the Trust, or

<PAGE>

by the vote of a majority of the outstanding voting securities of the Series.
The aforesaid requirement that continuance of the Management Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.

5. The Management Agreement may be terminated with respect to the
Series at any time, without the payment of any penalty, by the vote of a
majority of the outstanding voting securities of the Series or by the Trust's
Board of Trustees on 60 days' written notice to the Manager, or by the Manager
on 60 days' written notice to the Trust. The Management Agreement shall
terminate automatically in the event of its assignment, provided that an
assignment to a corporate successor to all or substantially all of the Manager's
business or to a wholly-owned subsidiary of such corporate successor which does
not result in a change of actual control or management of the Manager's business
shall not be deemed to be an assignment for the purposes of the Management
Agreement.

AARP GROWTH TRUST
on behalf of AARP Global Growth Fund

By: --------------------------------
President

SCUDDER, STEVENS & CLARK, INC.

By: --------------------------------
Managing Director

Exhibit 8(a)(7)

CUSTODIAN AGREEMENT

Dated as of February 1, 1996

Between

AARP GROWTH TRUST

and

BROWN BROTHERS HARRIMAN & CO.
<PAGE>
<TABLE>
<CAPTION>

TABLE OF CONTENTS
-----------------

ARTICLE I

APPOINTMENT OF CUSTODIAN

ARTICLE II

POWERS AND DUTIES OF CUSTODIAN

<S> <C> <C>
2.1. Safekeeping......................................................................... 2
2.2. Manner of Holding Securities........................................................ 2
2.3. Registered Name; Nominee............................................................ 2
2.4. Purchases by the Fund............................................................... 3
2.5. Exchanges of Securities............................................................. 4
2.6. Sales of Securities................................................................. 4
2.7. Depositary Receipts................................................................. 5
2.8. Exercise of Rights; Tender Offers................................................... 5
2.9. Stock Dividends, Rights, Etc........................................................ 5
2.10. Options and Swaps................................................................... 6
2.11. Futures and Forward Contracts....................................................... 6
2.12. Borrowings.......................................................................... 7
2.13. Bank Accounts....................................................................... 7
2.14. Interest-Bearing Deposits........................................................... 8
2.15. Foreign Exchange Transactions........................................................ 8
2.16. Securities Loans..................................................................... 9
2.17. Collections.......................................................................... 9
2.18. Dividends, Distributions and
Redemptions...................................................................... 10
2.19. Proxies; Communications Relating to
Portfolio Securities............................................................. 10
2.20. Bills............................................................................... 11
2.21. Nondiscretionary Details............................................................ 11
2.22. Deposit of Fund Assets in Securities
Systems.......................................................................... 11
2.23. Other Transfers..................................................................... 12
2.24. Establishment of Segregated Accounts................................................ 13
2.25. Custodian Advances.................................................................. 13

i
<PAGE>

TABLE OF CONTENTS
-----------------

ARTICLE III

PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS

3.1. Proper Instructions and Special
Instructions..................................................................... 14
3.2. Authorized Persons.................................................................. 15
3.3 Persons Having Access to Assets of the Fund......................................... 15
3.4. Actions of Custodian Based on Proper
Instructions and Special Instructions............................................ 15

ARTICLE IV

SUBCUSTODIANS

4.1. Domestic Subcustodians.............................................................. 16
4.2. Foreign Subcustodians and Interim
Subcustodians.................................................................... 16
4.3. Termination of a Subcustodian....................................................... 18
4.4. Agents.............................................................................. 18

ARTICLE V

STANDARD OF CARE; INDEMNIFICATION

5.1. Standard of Care.................................................................... 19
5.2. Liability of Custodian for Actions of
Other Persons.................................................................... 20
5.3. Indemnification..................................................................... 21
5.4. Investment Limitations.............................................................. 22
5.5. Fund's Right to Proceed............................................................. 22

ARTICLE VI

RECORDS

6.1. Preparation of Reports.............................................................. 23
6.2. Custodian's Books and Records....................................................... 23
6.3. Opinion of Fund's Independent Certified
Public Accountants............................................................... 24
6.4. Reports of Custodian's Independent
Certified Public Accountants..................................................... 24
6.5. Calculation of Net Asset Value...................................................... 24
6.6. Information Regarding Foreign
Subcustodians and Foreign Depositories........................................... 26

ii
<PAGE>
TABLE OF CONTENTS
-----------------

ARTICLE VII

CUSTODIAN FEES

ARTICLE VIII

TERMINATION

ARTICLE IX

MISCELLANEOUS

9.1. Execution of Documents.............................................................. 29
9.2. Entire Agreement.................................................................... 29
9.3. Waivers and Amendments.............................................................. 29
9.4. Captions............................................................................ 29
9.5. Governing Law....................................................................... 29
9.6. Notices............................................................................. 29
9.7. Successors and Assigns.............................................................. 30
9.8. Counterparts........................................................................ 30
9.9. Representative Capacity; Nonrecourse
Obligations...................................................................... 30

Appendix A Procedures Relating to Custodian's Security Interest

Appendix B Subcustodians, Foreign Countries, and Foreign Depositories
</TABLE>

iii
<PAGE>

Form of Custodian Agreement
---------------------------

CUSTODIAN AGREEMENT dated as of February 1, 1996, between AARP Growth Trust
(the "Fund"), a Massachusetts business trust, and Brown Brothers Harriman & Co.
(the "Custodian"), a New York limited partnership. The Fund is entering into
this Agreement on behalf of AARP Global Growth Fund. In the event the Fund
establishes one or more additional series after the date hereof, with respect to
which the Fund desires to have the Custodian render services as Custodian
hereunder, the Fund shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series shall become a
Fund or Funds hereunder. The Custodian shall then treat the assets of each
series as a separate Fund hereunder, and any reference to Fund shall refer to a
series of the Fund as the context shall require.

In consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:

ARTICLE I

APPOINTMENT OF CUSTODIAN

The Fund hereby employs and appoints the Custodian as a custodian for
the term of and subject to the provisions of this Agreement. The Fund agrees to
deliver to the Custodian all securities, cash and other assets owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of
beneficial interest of the Fund as may be issued or sold from time to time.

The Custodian shall not be under any duty or obligation to require the
Fund to deliver to it any securities, cash or other assets owned by the Fund and
shall have no responsibility or liability for or on account of securities, cash
or other assets not so delivered. The Fund will deposit with the Custodian
copies of the Declaration of Trust and By-Laws (or comparable documents) of the
Fund and all amendments thereto, and copies of such votes and other proceedings
of the Fund as may be necessary for or convenient to the Custodian in the
performance of its duties.

1
<PAGE>

ARTICLE II

POWERS AND DUTIES OF CUSTODIAN

The Custodian shall have and perform, or cause to be performed in
accordance with this Agreement, the powers and duties set forth in this Article
II. Pursuant to and in accordance with Article IV, the Custodian may appoint one
or more Subcustodians (as that term is defined in Article IV) to exercise the
powers and perform the duties of the Custodian set forth in this Article II and,
except as the context shall otherwise require, references to the Custodian in
this Article II shall include any Subcustodian so appointed.

2.1. Safekeeping. The Custodian shall keep safely the cash, securities
and other assets of the Fund that have been delivered to the Custodian and from
time to time shall accept delivery of cash, securities and other assets for
safekeeping.

2.2. Manner of Holding Securities. (a) The Custodian shall hold
securities of the Fund (i) by physical possession of the share certificates or
other instruments representing such securities in registered or bearer form, or
the broker's receipts or confirmations for forward contracts, futures contracts,
options and similar contracts and securities, or (ii) in book-entry form by a
Securities System (as that term is defined in section 2.22) or (iii) by a
Foreign Depository (as that term is defined in section 4.2(a)).

(b) The Custodian shall identify securities and other assets held by it
hereunder as being held for the account of the Fund and shall require each
Subcustodian to identify securities and other assets held by such Subcustodian
as being held for the account of the Custodian for the Fund (or, if authorized
by Special Instructions, for customers of the Custodian) or for the account of
another Subcustodian for the Fund (or, if authorized by Special Instructions,
for customers of such Subcustodian); provided that if assets are held for the
account of the Custodian or a Subcustodian for customers of the Custodian or
such Subcustodian, the records of the Custodian shall at all times indicate the
Fund and other customers of the Custodian for which such assets are held in such
account and their respective interests therein.

2.3. Registered Name; Nominee. (a) The Custodian shall hold registered
securities and other assets of the Fund (i) in the name of the Custodian
(including any Subcustodian), the Fund, a Securities System, a Foreign
Depository or any nominee of any such person or (ii) in street certificate form,
so-called, and in any case with or without any indication of fiduciary capacity,
provided that such securities and other assets of the Fund are held in an
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.

2
<PAGE>

(b) Except with respect to securities or other assets which under local
custom and practice generally accepted by Institutional Clients are held in the
investor's name, the Custodian shall not hold registered securities or other
assets in the name of the Fund, and shall require each Subcustodian not to hold
registered securities or other assets in the name of the Fund, unless the
Custodian or such Subcustodian promptly notifies the Fund that such registered
securities are being held in the Fund's name and causes the Securities System,
Foreign Depository, issuer or other relevant person to direct all correspondence
and payments to the address of the Custodian or such Subcustodian, as the case
may be.

2.4. Purchases by the Fund. Upon receipt of Proper Instructions (as
that term is defined in section 3.1(a)) and insofar as funds are available for
the purpose (or as funds are otherwise provided by the Custodian at its
discretion pursuant to section 2.25), the Custodian shall pay for and receive
securities or other assets purchased for the account of the Fund, payment being
made only upon receipt of the securities or other assets (a) by the Custodian,
or (b) by credit to an account which the Custodian may have with a Securities
System, clearing corporation of a national securities exchange, Foreign
Depository or other financial institution approved by the Fund. Notwithstanding
the foregoing, upon receipt of Proper Instructions: (i) in the case of
repurchase agreements entered into by the Fund in a transaction involving a
Securities System or a Foreign Depository, the Custodian may release funds to
the Securities System or Foreign Depository prior to the receipt of advice from
the Securities System or Foreign Depository that the securities underlying such
repurchase agreement have been transferred by book entry into the Account (as
defined in section 2.22) of the Custodian maintained with such Securities System
or similar account with a Foreign Depository, provided that the instructions of
the Custodian to the Securities System or Foreign Depository require that the
Securities System or Foreign Depository, as the case may be, may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account, (ii) in the case of futures and forward contracts, options and similar
securities, foreign currency purchased from third parties, time deposits,
foreign currency call account deposits, and other bank deposits, and
transactions pursuant to sections 2.10, 2.11, 2.13, 2.14 and 2.15, the Custodian
may make payment therefor prior to delivery of the contract, currency, option or
security without receiving an instrument evidencing said contract, currency,
option, security or deposit, and (iii) in the case of the purchase of securities
or other assets the settlement of which occurs outside the United States of
America, the Custodian may make payment therefor and receive delivery thereof in
accordance with local custom and practice generally accepted by Institutional
Clients (as defined below) in the country in which settlement occurs, provided
that in every case the Custodian shall be subject to the standard of care set
forth in Article V and to any Special Instructions given in accordance with
section 3.1(b). Except in the cases provided for in the immediately preceding

3
<PAGE>

sentence, in any case where payment for purchase of securities or other assets
for the account of the Fund is made by the Custodian in advance of receipt of
the securities or other assets so purchased in the absence of Proper
Instructions to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities or other assets to the same extent as if the
securities or other assets had been received by the Custodian. For purposes of
this Agreement, "Institutional Clients" means U.S. registered investment
companies, or major, U.S.-based commercial banks, insurance companies, pension
funds or substantially similar financial institutions which, as a substantial
part of their business operations, purchase or sell securities and make use of
custodial services.

2.5. Exchanges of Securities. Upon receipt of Proper Instructions, the
Custodian shall exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
split-up of shares, change of par value, conversion or other event, and to
deposit any such securities in accordance with the terms of any reorganization
or protective plan. Without Proper Instructions, the Custodian may surrender
securities in temporary form for definitive securities, may surrender securities
for transfer into a name or nominee name as permitted in section 2.3, and may
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued are to be delivered to the Custodian.

2.6. Sales of Securities. Upon receipt of Proper Instructions, the
Custodian shall make delivery of securities or other assets which have been sold
for the account of the Fund, but only against payment therefor (a) in cash, by a
certified check, bank cashier's check, bank credit, or bank wire transfer, or
(b) by credit to the account of the Custodian with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund by Proper Instructions. However, (i)
in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker acting as agent for
the buyer of the securities, against receipt therefor, for examination in
accordance with "street delivery" custom, provided that the Custodian shall have
taken reasonable steps to ensure prompt collection of the payment for, or the
return of, such securities by the broker or its clearing agent and (ii) in the
case of the sale of securities or other assets the settlement of which occurs
outside the United States of America, such securities shall be delivered and
paid for in accordance with local custom and practice generally accepted by
Institutional Clients in the country in which settlement occurs, provided that
in every case the Custodian shall be subject to the standard of care set forth
in Article V and to any Special Instructions given in accordance with section
3.1(b). Except in the cases provided for in the immediately preceding sentence,
in any case where delivery of securities or other assets for the account of the

4
<PAGE>

Fund is made by the Custodian in advance of receipt of payment for the
securities or other assets so sold in the absence of Proper Instructions to so
deliver in advance, the Custodian shall be absolutely liable to the Fund for
such payment to the same extent as if such payment had been received by the
Custodian.

2.7. Depositary Receipts. Upon receipt of Proper Instructions, the
Custodian shall surrender securities to the depositary used by an issuer of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, International Depositary Receipts and other types of Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Custodian that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
securities in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.

Upon receipt of Proper Instructions, the Custodian shall surrender ADRs
to the issuer thereof against a written receipt therefor adequately describing
the ADRs surrendered and written evidence satisfactory to the Custodian that the
issuer of the ADRs has acknowledged receipt of instructions to cause its
depositary to deliver the securities underlying such ADRs to the Custodian.

2.8. Exercise of Rights; Tender Offers. Upon receipt of Proper
Instructions, the Custodian shall (a) deliver to the issuer or trustee thereof,
or to the agent of either, warrants, puts, calls, futures contracts, options,
rights or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by such action are
to be delivered to the Custodian, and (b) deposit securities upon invitations
for tenders of securities, provided that the consideration is to be paid or
delivered or the tendered securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the Custodian
shall take all necessary action, unless otherwise directed to the contrary by
Proper Instructions, to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions or similar rights of security ownership
of which the Custodian receives notice or otherwise becomes aware, and shall
promptly notify the Fund of any such action in writing by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.

2.9. Stock Dividends, Rights, Etc. The Custodian shall receive and
collect all stock dividends, rights and other items of like nature and shall
deal with the same as it would other deposited assets or as directed in Proper
Instructions.

5
<PAGE>

2.10. Options and Swaps. Upon receipt of Proper Instructions or
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase, sale or writing of an option or swap of any type on or
in respect of a security, securities index, currency or similar form of property
by the Fund; (b) deposit and maintain in a segregated account, either physically
or by book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other party designated by the Fund, securities, cash or other assets
in connection with options transactions or swap agreements entered into by the
Fund; (c) transfer securities, cash or other assets to a Securities System,
Foreign Depository, broker, dealer or other party or organization, as margin
(including variation margin) or other security for the Fund's obligations in
respect of an option or swap; and (d) pay, release and/or transfer such
securities, cash or other assets only in accordance with a notice or other
communication evidencing the expiration, termination, exercise of any such
option or default under any such option or swap furnished by The Options
Clearing Corporation, the securities or options exchange on which such option is
traded, or such other organization, party, broker or dealer as may be
responsible for handling such options or swap transactions or have authority to
give such notice or communication under a Procedural Agreement. Subject to the
standard of care set forth in Article V (and to its safekeeping duties set forth
in section 2.1), the Custodian shall not be responsible for the sufficiency of
assets held in any segregated account established and maintained in accordance
with Proper Instructions or instructions from a third party properly given under
any Procedural Agreement or for the performance by the Fund or any third party
of its obligations under any Procedural Agreement. For purposes of this
Agreement, a "Procedural Agreement" is a procedural agreement relating to
options, swaps (including caps, floors and similar arrangements), futures
contracts, forward contracts or borrowings by the Fund to which the Fund, the
Custodian and a third party are parties.

2.11. Futures and Forward Contracts. Upon receipt of Proper
Instructions or instructions from a third party properly given under any
Procedural Agreement, the Custodian shall (a) receive and retain confirmations
or other documents (to the extent confirmations or other documents are provided
to the Custodian) evidencing the purchase or sale of a futures contract or an
option on a futures contract by the Fund or the entry into a forward contract by
the Fund; (b) deposit and maintain in a segregated account, either physically or
by book entry in a Securities System or Foreign Depository, for the benefit of
any futures commission merchant, or pay to such futures commission merchant,
securities, cash or other assets designated by the Fund as initial, maintenance
or variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written, purchased or sold by the Fund or any forward

6
<PAGE>

contracts entered into, in accordance with the provisions of any Procedural
Agreement designed to comply with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations on which such contracts or options are traded; and (c) pay,
release and/or transfer securities, cash or other assets into or out of such
margin accounts only in accordance with any such agreements or rules. Subject to
the standard of care set forth in Article V, the Custodian shall not be
responsible for the sufficiency of assets held in any such margin account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement.

2.12. Borrowings. Upon receipt of Proper Instructions or instructions
from a third party properly given under any Procedural Agreement, the Custodian
shall deliver securities of the Fund to lenders or their agents, or otherwise
establish a segregated account as agreed to by the Fund and the Custodian, as
collateral for borrowings effected by the Fund, but only against receipt of the
amounts borrowed (or to adjust the amount of such collateral in accordance with
the Procedural Agreement), provided that if such collateral is held in
book-entry form by a Securities System or Foreign Depository, such collateral
may be transferred by book-entry to such lender or its agent against receipt by
the Custodian of an undertaking by such lender to pay such borrowed money to or
upon the order of the Fund on the next business day following such transfer of
collateral.

2.13. Bank Accounts. The Custodian shall open and operate one or more
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U.S. bank for a similar deposit.

Upon receipt of Proper Instructions, the Custodian may open and operate
additional accounts in such other banks or trust companies, including any
Subcustodian, as may be designated by the Fund in such instructions (any such
bank or trust company other than the Custodian so designated by the Fund being
referred to hereafter as a "Banking Institution"), provided that any such
account shall be in the name of the Custodian for the account of the Fund (or,
if authorized by Special Instructions, for the account of the Custodian's
customers generally) and subject only to the Custodian's draft or order;
provided that if assets are held in such an account for the account of the
Custodian's customers generally, the records of the Custodian shall at all times
indicate the Fund and other customers for which such assets are held in such
account and their respective interests therein. Such accounts may be opened with
Banking Institutions in the United States and in other countries and may be

7
<PAGE>

denominated in U.S. Dollars or such other currencies as the Fund may determine.
So long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, the Custodian shall have no responsibility for the failure
of any Banking Institution to make payment from such an account upon demand.

2.14. Interest-Bearing Deposits. The Custodian shall place
interest-bearing fixed term and call deposits with such banks and in such
amounts as the Fund may authorize pursuant to Proper Instructions. Such deposits
may be placed with the Custodian or with Subcustodians or other Banking
Institutions as the Fund may determine. Deposits may be denominated in U.S.
Dollars or other currencies, as the Fund may determine, and need not be
evidenced by the issuance or delivery of a certificate to the Custodian,
provided that the Custodian shall include in its records with respect to the
assets of the Fund, appropriate notation as to the amount and currency of each
such deposit, the accepting Banking Institution and all other appropriate
details, and shall retain such forms of advice or receipt evidencing such
deposits as may be forwarded to the Custodian by the Banking Institution in
question. The responsibility of the Custodian for such deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit. With
respect to interest-bearing deposits other than those accepted on the
Custodian's books, (a) the Custodian shall be responsible for the collection of
income as set forth in section 2.17, and (b) so long as the Custodian exercises
reasonable care and diligence in executing Proper Instructions, the Custodian
shall have no responsibility for the failure of any Banking Institution to make
payment in accordance with the terms of such an account. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable steps as the Fund deems
necessary or appropriate to cause such deposits to be insured to the maximum
extent possible by the Federal Deposit Insurance Corporation and any other
applicable deposit insurers.

2.15. Foreign Exchange Transactions. (a) Upon receipt of Proper
Instructions, the Custodian shall settle foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements received by the Custodian evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
section 6.2. In connection with such transactions, upon receipt of Proper
Instructions, the Custodian shall be authorized to make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or that the option has been delivered or received. The Custodian shall

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<PAGE>

have no authority to select third party foreign exchange dealers and, so long as
the Custodian exercises reasonable care and diligence in executing Proper
Instructions, shall have no responsibility for the failure of any such dealer to
settle any such contract or option in accordance with its terms. The Fund shall
reimburse the Custodian for any interest charges or reasonable out-of-pocket
expenses incurred by the Custodian resulting from the failure or delay of third
party foreign exchange dealers to deliver foreign exchange, other than interest
charges and expenses occasioned by or resulting from the negligence, misfeasance
or misconduct of the Custodian.

(b)The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to the
Fund its services as principal in foreign exchange transactions, upon receipt of
Proper Instructions, the Custodian shall enter into foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund with the Custodian as principal.
The responsibility of the Custodian with respect to foreign exchange contracts
and options executed with the Custodian as principal shall be that of a U.S.
bank with respect to a similar contract or option.

2.16. Securities Loans. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof in accordance with the terms of
a written securities lending agreement to which the Fund is a party or which is
otherwise approved by the Fund.

2.17. Collections. The Custodian shall promptly collect, receive and
deposit in the account or accounts referred to in section 2.13 all income,
payments of principal and other payments with respect to the securities and
other assets held hereunder, promptly endorse and deliver any instruments
required to effect such collections and in connection therewith deliver the
certificates or other instruments representing securities to the issuer thereof
or its agent when securities are called, redeemed, retired or otherwise become
payable; provided that the payment is to be made in such form and manner and at
such time, which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of the instrument
representing the security, such Proper Instructions as the Custodian may
receive, governmental regulations, the rules of the Securities System or Foreign
Depository in which such security is held or, with respect to securities
referred to in clause (iii) of the second sentence of section 2.4, in accordance
with local custom and practice generally accepted by Institutional Clients in
the market where payment or delivery occurs, but in all events subject to the
standard of care set forth in Article V. The Custodian shall promptly execute
ownership and other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other payments with

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<PAGE>

respect to securities or other assets of the Fund or in connection with transfer
of securities or other assets. Pursuant to Proper Instructions, the Custodian
shall take such other actions, which may involve an investment decision, as the
Fund may request with respect to the collection or receipt of funds or the
transfer of securities. Except in the cases provided for in the first sentence
of this section, in any case where delivery of securities for the account of the
Fund is made by the Custodian in advance of receipt of payment with respect to
such securities in the absence of Proper Instructions to so deliver in advance,
the Custodian shall be absolutely liable to the Fund for such payment to the
same extent as if such payment had been received by the Custodian. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing if any amount
payable with respect to securities or other assets of the Fund is not received
by the Custodian when due.

2.18. Dividends, Distributions and Redemptions. Upon receipt of Proper
Instructions, or upon receipt of instructions from the Fund's shareholder
servicing agent or agent with comparable duties (the "Shareholder Servicing
Agent") (given by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized by Proper
Instructions), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Shareholder Servicing
Agent shall otherwise instruct (a) for the payment of dividends or other
distributions to Fund shareholders or (b) for payment to the Fund shareholders
who have delivered to such Shareholder Servicing Agent a request for repurchase
or redemption of their shares of beneficial interest in the Fund.

2.19. Proxies; Communications Relating to Portfolio Securities. The
Custodian shall, as promptly as is appropriate under the circumstances, deliver
or mail to the Fund all forms of proxies and all notices of meetings and any
other notices, announcements or information (including, without limitation,
information relating to pendency of calls and maturities of securities and
expirations of rights in connection therewith, notices of exercise of call and
put options written by the Fund, and notices of the maturity of futures
contracts (and options thereon) purchased or sold by the Fund) affecting or
relating to securities owned by the Fund that are received by the Custodian.
Upon receipt of Proper Instructions, the Custodian shall execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominees shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any other action with respect to securities or other assets of the Fund (except
as otherwise herein provided) unless ordered to do so by Proper Instructions.

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<PAGE>

The Custodian shall notify the Fund on or before ex-date (or if later
within 24 hours after receipt by the Custodian of the notice of such corporate
action) of all corporate actions affecting portfolio securities of the Fund
received by the Custodian from the issuers of the securities involved, from
third parties proposing a corporate action, from subcustodians, or from commonly
utilized sources (including proprietary sources) providing corporate action
information, a list of which will be provided by the Custodian to the Fund from
time to time upon request. Information as to corporate actions shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, tender offers, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
ex-, record and pay dates and the amounts or other terms thereof. If the Fund
desires to take action with respect to any corporate action, the Fund shall
notify the Custodian within such period as will give the Custodian (including
any Subcustodian) a sufficient amount of time to take such action.

2.20. Bills. Upon receipt of Proper Instructions, the Custodian shall
pay or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund (including but not limited to
interest charges, taxes, advisory fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).

2.21. Nondiscretionary Details. Without the necessity of express
authorization from the Fund, the Custodian shall (a) attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, cash or other assets of
the Fund held by the Custodian except as otherwise directed from time to time by
the Board of Trustees of the Fund, and (b) make payments to itself or others for
minor expenses of handling securities or other assets and for other similar
items relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.

2.22 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Fund in (a) The Depository Trust
Company, (b) the Participants Trust Company, (c) any book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31
CFR Part 350, or the book-entry regulations of federal agencies substantially in
the form of Subpart O, or (d) any other domestic clearing agency registered with
the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934, as amended, which acts as a securities
depository and whose use the Fund has previously approved by Special
Instructions (as that term is defined in section 3.1(b)) (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board

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<PAGE>

and SEC rules and regulations, if any, and subject to the following provisions:

(i) The Custodian may deposit and/or maintain securities held
hereunder in a Securities System, provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian, or otherwise for
customers;

(ii) The records of the Custodian with respect to securities
of the Fund which are maintained in a securities System shall identify
by book entry those securities belonging to the Fund;

(iii) The Custodian shall pay for securities purchased for the
account of the Fund only upon (A) receipt of advice from the Securities
System that such securities have been transferred to the Account, and
(B) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The Custodian
shall transfer securities sold for the account of the Fund only upon
(1) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (2) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of the
Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. The Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and shall
furnish to the Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the Fund
on the next business day;

(iv) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System; and the Custodian shall send to the
Fund such reports on its own systems of internal accounting control as
the Fund may reasonably request from time to time; and

(v) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any such Securities System on behalf of the Fund
as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund that had been
maintained with such Securities System.

2.23. Other Transfers. The Custodian shall deliver securities, cash,
and other assets of the Fund to a Subcustodian as necessary to effect

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<PAGE>

transactions authorized by Proper Instructions. Upon receipt of Proper
Instructions in writing in advance, the Custodian shall make such other
disposition of securities, cash or other assets of the Fund in a manner other
than or for purposes other than as enumerated in this Agreement, provided that
such written Proper Instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
funds and/or securities to be delivered and the name of the person or persons to
whom delivery is to be made.

2.24. Establishment of Segregated Accounts. Upon receipt of Proper
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other assets of the
Fund, including securities maintained by the Custodian in a Securities System,
said account to be maintained (a) for the purposes set forth in sections 2.10,
2.11, 2.12 and 2.15; (b) for the purposes of compliance by the Fund with the
procedures required by Release No. 10666 under the Investment Company Act of
1940, as amended (the "1940 Act"), or any subsequent release or releases of the
SEC relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as set forth, from time to time, in
Special Instructions.

2.25. Custodian Advances. (a) In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its discretion without further Proper
Instructions, provide an advance ("Advance") to the Fund in an amount sufficient
to allow the completion of the transaction by reason of which such payment or
transfer of funds is to be made. In addition, in the event the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Custodian as of the close of business on the
date of such payment or transfer, said overdraft shall constitute an Advance.
Any Advance shall be payable on demand by the Custodian, unless otherwise agreed
by the Fund and the Custodian, and shall accrue interest from the date of the
Advance to the date of payment by the Fund at a rate agreed upon in writing from
time to time by the Custodian and the Fund. It is understood that any
transaction in respect of which the Custodian shall have made an Advance,
including but not limited to a foreign exchange contract or other transaction in
respect of which the Custodian is not acting as a principal, is for the account
of and at the risk of the Fund, and not, by reason of such Advance, deemed to be
a transaction undertaken by the Custodian for its own account and risk. The
Custodian and the Fund acknowledge that the purpose of Advances is to finance
temporarily the purchase or sale of securities for prompt delivery or to meet
redemptions or emergency expenses or cash needs that are not reasonably

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<PAGE>

foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing
(a "Notice of Advance") of any Advance by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing. At the request
of the Custodian, the Fund shall pledge, assign and grant to the Custodian a
security interest in certain specified securities of the Fund, as security for
Advances provided to the Fund, under the terms and conditions set forth in
Appendix A attached hereto.

ARTICLE III

PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS

3.1. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used in this Agreement, the term "Proper
Instructions" shall mean: (i) a tested telex from the Fund or the Fund's
investment manager or adviser, or a written request, direction, instruction or
certification (which may be given by facsimile transmission) signed or initialed
on behalf of the Fund by one or more Authorized Persons (as that term is defined
in section 3.2); (ii) a telephonic or other oral communication by one or more
Authorized Persons; or (iii) a communication (other than facsimile transmission)
effected directly between electro-mechanical or electronic devices or systems
(including, without limitation, computers) by the Fund or the Fund's investment
manager or adviser or by one or more Authorized Persons on behalf of the Fund;
provided that communications of the types described in clauses (ii) and (iii)
above purporting to be given by an Authorized Person shall be considered Proper
Instructions only if the Custodian reasonably believes such communications to
have been given by an Authorized Person with respect to the transaction
involved. Instructions given in the form of Proper Instructions under clause (i)
shall be deemed to be Proper Instructions if they are reasonably believed by the
Custodian to be genuine. Proper Instructions in the form of oral communications
shall be confirmed by the Fund in the manner set forth in clauses (i) or (iii)
above, but the lack of such confirmation shall in no way affect any action taken
by the Custodian in reliance upon such oral instructions prior to the
Custodian's receipt of such confirmation. The Fund, the Custodian and any
investment manager or adviser of the Fund each is hereby authorized to record
any telephonic or other oral communications between the Custodian and any such
person. Proper Instructions may relate to specific transactions or to types or
classes of transactions, provided that Proper Instructions may take the form of
standing instructions only if they are in writing.

(b) Special Instructions. As used in this Agreement, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the instrument
containing the Proper Instructions or on a separate instrument relating thereto,

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<PAGE>

and (ii) delivered by hand, facsimile transmission, mail or courier service or
in such other manner as the Fund and the Custodian agree in writing.

(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.

3.2. Authorized Persons. Concurrently with the execution of this
Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian a certificate, duly certified by the Treasurer or
Assistant Treasurer of the Fund, setting forth: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Proper
Instructions or any other notice, request, direction, instruction, certificate
or instrument on behalf of the Fund (each an "Authorized Person"); and (b) the
names, titles and signatures of those persons authorized to issue Special
Instructions. Such certificate may be accepted and relied upon by the Custodian
as conclusive evidence of the facts set forth therein and shall be considered to
be in full force and effect until delivery to the Custodian of a similar
certificate to the contrary. Upon delivery of a certificate which deletes the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.

3.3. Persons Having Access to Assets of the Fund. Notwithstanding
anything to the contrary in this Agreement, the Custodian shall not deliver any
assets of the Fund held by the Custodian to or for the account of any Authorized
Person, Trustee, officer, employee or agent of the Fund, provided that nothing
in this section 3.3 shall prohibit (a) any Authorized Person from giving Proper
Instructions, or any person authorized to issue Special Instructions from
issuing Special Instructions, provided such action does not result in delivery
of or access to assets of the Fund prohibited by this section 3.3; or (b) the
Fund's independent certified public accountants from examining or reviewing the
assets of the Fund held by the Custodian. The Fund shall provide a list of such
persons to the Custodian, and the Custodian shall be entitled to rely upon such
list and any modifications thereto that are provided to the Custodian from time
to time by the Fund.

3.4. Actions of Custodian Based on Proper Instructions and Special
Instructions. So long as and to the extent that the Custodian acts in accordance
with Proper Instructions or Special Instructions, as the case may be, and the
terms of this Agreement, the Custodian shall not be responsible for the title,
validity or genuineness of any property, or evidence of title thereof, received
or delivered by it pursuant to this Agreement.

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<PAGE>

ARTICLE IV

SUBCUSTODIANS

The Custodian may, from time to time, in accordance with the relevant
provisions of this Article IV, appoint one or more Domestic Subcustodians,
Foreign Subcustodians and Interim Subcustodians (as such terms are defined
below) to act on behalf of the Fund. For purposes of this Agreement, all duly
appointed Domestic Subcustodians, Foreign Subcustodians and Interim
Subcustodians are referred to collectively as "Subcustodians."

4.1. Domestic Subcustodians. The Custodian may, at any time and from
time to time, at its own expense, appoint any bank as defined in section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a subcustodian for purposes of holding cash, securities and other assets
of the Fund and performing other functions of the Custodian within the United
States (a "Domestic Subcustodian"), provided that the Custodian shall notify the
Fund in writing of the identity and qualifications of any proposed Domestic
Subcustodian at least 30 days prior to appointment of such Domestic
Subcustodian, and the Fund may, in its sole discretion, by written notice to the
Custodian executed by an Authorized Person disapprove of the appointment of such
Domestic Subcustodian. If following notice by the Custodian to the Fund
regarding appointment of a Domestic Subcustodian and the expiration of 30 days
after the date of such notice, the Fund shall have failed to notify the
Custodian of its disapproval thereof, the Custodian may, in its discretion,
appoint such proposed Domestic Subcustodian as its subcustodian.

4.2. Foreign Subcustodians and Interim Subcustodians.
a) Foreign Subcustodians. The Custodian may, at any time and from time
to time, at its own expense, appoint: (i) any bank, trust company or other
entity meeting the requirements of an "eligible foreign custodian" under section
17(f) of the 1940 Act and the rules and regulations thereunder or exempted
therefrom by order of the SEC, or (ii) any bank as defined in section 2(a)(5) of
the 1940 Act meeting the requirements of a custodian under section 17(f) of the
1940 Act and the rules and regulations thereunder to act on behalf of the Fund
as a subcustodian for purposes of holding cash, securities and other assets of
the Fund and performing other functions of the Custodian in countries other than
the United States of America (a "Foreign Subcustodian"); provided that prior to
the appointment of any Foreign Subcustodian, the Custodian shall have obtained
written confirmation of the approval of the Board of Trustees of the Fund (which
approval may be withheld in the sole discretion of such Board of Trustees) with
respect to (A) the identity and qualifications of any proposed Foreign
Subcustodian, (B) the country or countries in which, and the securities
depositories or clearing agencies (meeting the requirements of an "eligible

16
<PAGE>

foreign custodian" under section 17(f) of the 1940 Act and the rules and
regulations thereunder or exempted therefrom by order of the SEC) through which,
any proposed Foreign Subcustodian is authorized to hold Securities, cash and
other assets of the Fund (each a "Foreign Depository") and (C) the form and
terms of the subcustodian agreement to be entered into between such proposed
Foreign Subcustodian and the Custodian. In addition, the Custodian may utilize
directly any Foreign Depository, provided the Board of Trustees shall have
approved in writing the use of such Foreign Depository by the Custodian. Each
such duly approved Foreign Subcustodian and the countries where and the Foreign
Depositories through which it may hold securities and other assets of the Fund
and the Foreign Depositories that the Custodian may utilize shall be listed in
Appendix B, as it may be amended from time to time in accordance with the
provisions of section 9.3. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Foreign Subcustodian is authorized to act, in order
that there shall be sufficient time for the Custodian to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including obtaining approval
as provided in this section 4.2(a). The Custodian shall not agree to any
material amendment to any subcustodian agreement entered into with a Foreign
Subcustodian, or agree to permit any material changes thereunder, or waive any
material rights under such agreement, except upon prior approval pursuant to
Special Instructions. The Custodian shall promptly provide the Fund with notice
of any such amendment, change, or waiver, whether or not material, including a
copy of any such amendment. For purposes of this subsection, a material
amendment, change or waiver means an amendment, change or waiver that may
reasonably be expected to have an adverse effect on the Fund in any material
way, including but not limited to the Fund's or the Board's obligations under
the 1940 Act, including Rule 17f-5 thereunder.

(b) Interim Subcustodians. In the event that the Fund shall invest in a
security or other asset to be held in a country in which no Foreign Subcustodian
is authorized to act (whether because the Custodian has not appointed a Foreign
Subcustodian in such country and entered into a subcustodian agreement with it
or because the Board of Trustees of the Fund has not approved the Foreign
Subcustodian appointed by the Custodian in such country and the related
subcustodian agreement), the Custodian shall promptly notify the Fund in writing
by facsimile transmission or in such other manner as the Fund and Custodian
shall agree in writing that no Foreign Subcustodian is approved in such country
and the Custodian shall, upon receipt of Special Instructions, appoint any
person designated by the Fund in such Special Instructions to hold such security
or other asset. Any person appointed as a Subcustodian pursuant to this section
4.2(b) is hereinafter referred to herein as an "Interim Subcustodian." Each
Interim Custodian and the securities or assets of the Fund that it is authorized
to hold shall be set forth in Appendix B.

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<PAGE>

In the absence of such Special Instructions, such security or other
asset shall be held by such agent as the Custodian may appoint unless and until
the Fund shall instruct the Custodian to move the security or other asset into
the possession of the Custodian or a Subcustodian.

4.3. Termination of a Subcustodian. The Custodian shall (a) cause each
Domestic Subcustodian and Foreign Subcustodian to, and (b) use its best efforts
to cause each Interim Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement between
the Custodian and such Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, exercise
its best efforts to recover any Losses (as hereinafter defined) incurred by the
Fund because of such failure to perform from such Subcustodian under the
applicable subcustodian agreement and, if necessary or desirable, terminate such
subcustodian and appoint a replacement Subcustodian in accordance with the
provisions of this Agreement. In addition to the foregoing, the Custodian (i)
may, at any time in its discretion, upon written notification to the Fund,
terminate any Domestic Subcustodian, Foreign Subcustodian or Interim
Subcustodian, and (ii) shall, upon receipt of Special Instructions, terminate
any Subcustodian with respect to the Fund, in each case in accordance with the
termination provisions of the applicable subcustodian agreement.

4.4. Agents. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank, trust company, securities
depository or clearing agency that is itself qualified to act as a custodian
under the 1940 Act and the rules and regulations thereunder, as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided that the appointment of one or more
Agents (other than an agent appointed to the second paragraph of section 4.2(b))
shall not relieve the Custodian of its responsibilities under this Agreement.
Without limiting the foregoing, the Custodian shall be responsible for any
notices, documents or other information, or any securities, cash or other assets
of the Fund, received by any Agent on behalf of the Custodian or the Fund as if
the Custodian had received such items itself.

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<PAGE>

ARTICLE V

STANDARD OF CARE; INDEMNIFICATION

5.1 Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all Losses suffered or incurred
by the Fund resulting from the failure of the Custodian to exercise such
reasonable care and diligence. For purposes of this Agreement, "Losses" means
any losses, damages, and expenses.

(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, securities depository or securities
system utilized by any such Subcustodian or the Custodian, or any nominee of the
Custodian or any Subcustodian, is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state or D.C., Puerto Rico, etc. thereof, or of any foreign
country, or political subdivision thereof or of any court of competent
jurisdiction; or (ii) any act of God or war or action of any de facto or de jure
government or other similar circumstance beyond the control of the Custodian,
unless, in each case, such delay or nonperformance is caused by the negligence,
misfeasance or misconduct of such person.

(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any Losses to the Fund (i) the Custodian shall, and shall
cause any applicable Domestic Subcustodian or Foreign Subcustodian to, and (ii)
the Custodian shall use its best efforts to cause any applicable Interim
Subcustodian to, use all commercially reasonable efforts and take all reasonable
steps under the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Fund.

(d) Advice of Counsel. The Custodian shall be entitled to receive and
act upon advice of counsel on all matters. The Custodian shall be without
liability for any action reasonably taken or omitted in good faith pursuant to
the advice of (i) counsel for the Fund, or (ii) at the expense of the Custodian,
such other counsel as the Fund may agree to, such agreement not to be
unreasonably withheld or delayed; provided that with respect to the performance
of any action or omission of any action upon such advice, the Custodian shall be
required to conform to the standard of care set forth in section 5.1(a).

(e) Expenses. In addition to the liability of the Custodian under this
Article V, the Custodian shall be liable to the Fund for all reasonable costs
and expenses incurred by the Fund in connection with any claim by the Fund

19
<PAGE>

against the Custodian arising from the obligations of the Custodian hereunder
including, without limitation, all reasonable attorneys' fees and expenses
incurred by the Fund in asserting any such claim, and all reasonable expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim, provided that the Fund has recovered from
the Custodian for such claim.

(f) Liability for Past Records. The Custodian shall have no liability
in respect of any Losses suffered by the Fund, insofar as such Losses arise from
the performance of the Custodian's duties hereunder by reason of the Custodian's
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's employment hereunder.

(g) Reliance on Certifications. The Secretary or an Assistant Secretary
of the Fund shall certify to the Custodian the names and signatures of the
officers of the Fund, the name and address of the Shareholder Servicing Agent,
and any instructions or directions to the Custodian by the Fund's Board of
Trustees or shareholders. Any such certificate may be accepted and relied upon
by the Custodian as conclusive evidence of the facts set forth therein and may
be considered in full force and effect until receipt of a similar certificate to
the contrary.

5.2. Liability of Custodian for Actions of Other Persons.rsons
(a) Domestic Subcustodians, Foreign Subcustodians and Agents. The
Custodian shall be liable for the actions or omissions of any Domestic
Subcustodian, Foreign Subcustodian or Agent (other than an agent appointed
pursuant to section 4.2(b)) to the same extent as if such action or omission
were performed by the Custodian itself pursuant to this Agreement. In the event
of any Losses suffered or incurred by the Fund caused by or resulting from the
actions or omissions of any Domestic Subcustodian, Foreign Subcustodian or Agent
(other than an agent appointed pursuant to section 4.2(b)) for which the
Custodian would be directly liable if such actions or omissions were those of
the Custodian, the Custodian shall promptly reimburse the Fund in the amount of
any such Losses.

(b) Interim Subcustodians. Notwithstanding the provisions of section
5.1 to the contrary, the Custodian shall not be liable to the Fund for any
Losses suffered or incurred by the Fund resulting from the actions or omissions
of an Interim Subcustodian or an agent appointed pursuant to section 4.2(b)
unless such Losses are caused by, or result from, the negligence, misfeasance or
misconduct of the Custodian; provided that in the event of any Losses (whether
or not caused by or resulting from the negligence, misfeasance or misconduct of
the Custodian), the Custodian shall take all reasonable steps to enforce such
rights as it may have against such Interim Subcustodian or agent to protect the
interests of the Fund.

20
<PAGE>

(c) Securities Systems and Foreign Depositories. Notwithstanding the
provisions of section 5.1 to the contrary, the Custodian shall not be liable to
the Fund for any Losses suffered or incurred by the Fund resulting from the use
by the Custodian or any Subcustodian of a Securities System or Foreign
Depository, unless such Losses are caused by, or result from, the negligence,
misfeasance or misconduct of the Custodian; provided that in the event of any
such Losses, the Custodian shall take all reasonable steps to enforce such
rights as it may have against the Securities System or Foreign Depository, as
the case may be, to protect the interests of the Fund.

(d) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.2,
provided that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Custodian.

5.3 Indemnification.
(a) Indemnification Obligations. Subject to the limitations set forth
in this Agreement, the Fund agrees to indemnify and hold harmless the Custodian
and its nominees for all Losses suffered or incurred by the Custodian or its
nominee (including Losses suffered under the Custodian's indemnity obligations
to Subcustodians) caused by or arising from actions taken by the Custodian in
the performance of its duties and obligations under this Agreement, provided
that such indemnity shall not apply to Losses occasioned by or resulting from
the negligence, misfeasance or misconduct of the Custodian or any Subcustodian,
Securities System, Foreign Depository or their respective nominees. In addition,
the Fund agrees to indemnify the Custodian against any liability incurred by
reason of taxes assessed to the Custodian, any Subcustodian, any Securities
System, any Foreign Depository, and their respective nominees, or other Losses
incurred by such persons, resulting from the fact that securities and other
property of the Fund are registered in the name of such persons, provided that
in no event shall such indemnification be applicable to income, franchise or
similar taxes which may be imposed or assessed against such persons.

(b) Notice of Litigation, Right to Prosecute, etc. The Fund shall not
be liable for indemnification under this section 5.3 unless the person seeking
indemnification shall have notified the Fund in writing (i) within such time
after the assertion of any claim as is sufficient for such person to determine
that it will seek indemnification from the Fund in respect of such claim or (ii)
promptly after the commencement of any litigation or proceeding brought against
such person, in respect of which indemnity may be sought; provided that in the
case of clause (i) of this section 5.3(b) the Fund shall not be liable for such
indemnification to the extent the Fund is disadvantaged by any such delay in
notification. With respect to claims in such litigation or proceedings for which
indemnity by the Fund may be sought and subject to applicable law and the ruling

21
<PAGE>

of any court of competent jurisdiction, the Fund shall be entitled to
participate in any such litigation or proceeding and, after written notice from
the Fund to the person seeking indemnification, the Fund may assume the defense
of such litigation or proceeding with counsel of its choice at its own expense
in respect of that portion of the litigation for which the Fund may be subject
to an indemnification obligation, provided that such person shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Fund has not acknowledged in writing its
obligation to indemnify such person with respect to such litigation or
proceeding. If the Fund is not permitted to participate in or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, such person shall reasonably prosecute such litigation
or proceeding. A person seeking indemnification hereunder shall not consent to
the entry of any judgment or enter into any settlement of any such litigation or
proceeding without providing the Fund with adequate notice of any such
settlement or judgment and without the Fund's prior written consent, which
consent shall not be unreasonably withheld or delayed. All persons seeking
indemnification hereunder shall submit written evidence to the Fund with respect
to any cost or expense for which they are seeking indemnification in such form
and detail as the Fund may reasonably request.

5.4. Investment Limitations. If the Custodian has otherwise complied
with the terms and conditions of this Agreement in performing its duties
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund, and the Fund agrees to indemnify the Custodian and its
nominees, for any Losses suffered or incurred by the Custodian and its nominees
arising out of any violation of any investment or other limitation to which the
Fund is subject.

5.5. Fund's Right to Proceed. Notwithstanding anything to the contrary
contained herein, the Fund shall have, at its election upon reasonable notice to
the Custodian, the right to enforce, to the extent permitted by any applicable
agreement and applicable law, the Custodian's rights against any Subcustodian,
Securities System, Foreign Depository or other person for Losses caused the Fund
by such Subcustodian, Securities System, Foreign Depository or other person, and
shall be entitled to enforce the rights of the Custodian with respect to any
claim against such Subcustodian, Securities System, Foreign Depository or other
person which the Custodian may have as a consequence of any such Losses, if and
to the extent that the Fund has not been made whole for such Losses. If the
Custodian makes the Fund whole for such Losses, the Custodian shall retain the
ability to enforce its rights directly against such Subcustodian, Securities
System, Foreign Depository or other person. Upon the Fund's election to enforce
any rights of the Custodian under this section 5.5, the Fund shall reasonably
prosecute all actions and proceedings directly relating to the rights of the

22
<PAGE>

Custodian in respect of the Losses incurred by the Fund; provided that, so long
as the Fund has acknowledged in writing its obligation to indemnify the
Custodian under section 5.3 hereof with respect to such claim, the Fund shall
retain the right to settle, compromise and/or terminate any action or proceeding
in respect of the Losses incurred by the Fund without the Custodian's consent;
and provided further that if the Fund has not made an acknowledgment of its
obligation to indemnify the Custodian, the Fund shall not settle, compromise or
terminate any such action or proceeding without the written consent of the
Custodian, which consent shall not be unreasonably withheld or delayed. The
Custodian agrees to cooperate with the Fund and take all actions reasonably
requested by the Fund in connection with the Fund's enforcement of any rights of
the Custodian. The Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under this section 5.5, provided that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.

ARTICLE VI

RECORDS

6.1. Preparation of Reports. The Custodian shall, as reasonably
requested by the Fund, assist generally in the preparation of reports to Fund
shareholders, regulatory authorities and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by Proper Instructions.

6.2. Custodian's Books and Records. The Custodian shall maintain
complete and accurate records with respect to securities and other assets held
for the account of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including: (a)
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
physical possession, (ii) securities in transfer, (iii) securities borrowed,
loaned or collateralizing obligations of the Fund, (iv) monies borrowed and
monies loaned (together with a record of the collateral therefor and
substitutions of collateral), and (v) dividends and interest received; and (c)
cancelled checks and bank records related thereto. The Custodian shall keep such
other books and records of the Fund as the Fund shall reasonably request. All
such books and records maintained by the Custodian shall be maintained in a form
acceptable to the Fund and in compliance with the rules and regulations of the
SEC (including, but not limited to, books and records required to be maintained

23
<PAGE>

under Section 31(a) of the 1940 Act and the rules and regulations from time to
time adopted thereunder), and any other applicable Federal, State and foreign
tax laws and administrative regulations. All such records will be the property
of the Fund and in the event of termination of this Agreement shall be delivered
to the successor custodian.

All books and records maintained by the Custodian pursuant to this
Agreement and any insurance policies and fidelity or similar bonds maintained by
the Custodian shall be made available for inspection and audit at reasonable
times by officers of, attorneys for, and auditors employed by, the Fund and the
Custodian shall promptly provide the Fund with copies of all reports of its
independent auditors regarding the Custodian's controls and procedures.

6.3. Opinion of Fund's Independent Certified Public Accountants. The
Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of any periodic reports to or filings with the
SEC and with respect to any other requirements of the SEC.

6.4. Reports of Custodian's Independent Certified Public Accountants.
At the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.

6.5. Calculation of Net Asset Value. The Custodian shall compute and
determine the net asset value per share of capital stock of the Fund as of the
close of regular business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (a) the
provisions of the By-Laws of the Fund and Declaration of Trust, as they may from
time to time be amended and delivered to the Custodian, (b) the votes of the
Board of Trustees of the Fund at the time in force and applicable, as they may
from time to time be delivered to the Custodian, and (c) Proper Instructions. On
each day that the Custodian shall compute the net asset value per share of the
Fund, the Custodian shall provide the Fund with written reports which permit the
Fund to verify that portfolio transactions have been recorded in accordance with
the Fund's instructions.

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<PAGE>

In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (i) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (ii) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (iii) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix C hereto, (iv) as to the fair
value to be assigned to any securities or other assets for which price
quotations are not readily available, and (v) as to the sources of information
with respect to "corporate actions" affecting portfolio securities of the Fund,
including those listed in Appendix C. (Information as to "corporate actions"
shall include information as to dividends, distributions, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar transactions, including the ex-
and record dates and the amounts or other terms thereof.)

In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Trustees of the Fund, or any
valuation committee thereof, from time to time may reasonably request.

The Custodian shall be held to the standard of care set forth in
Article V with respect to the performance of its responsibilities under this
Article VI. The parties hereto acknowledge, however, that the Custodian's
causing an error or delay in the determination of net asset value may, but does
not in and of itself, constitute negligence, gross negligence or reckless or
willful misconduct. The Custodian's liability for any such negligence, gross
negligence or reckless or willful misconduct which results in an error in
determination of such net asset value shall be limited to the direct,
out-of-pocket loss the Fund, shareholder or former shareholder shall actually
incur, measured by the difference between the actual and the erroneously
computed net asset value, and any expenses incurred by the Fund in connection
with correcting the records of the Fund affected by such error (including
charges made by the Fund's registrar and transfer agent for making such
corrections), communicating with shareholders or former shareholders of the Fund
affected by such error or responding to or defending against any inquiry or
proceeding with respect to such error made or initiated by the SEC or other
regulatory or self-regulatory body.

Without limiting the foregoing, the Custodian shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or Losses any of them may suffer or incur
resulting from (A) the Custodian's failure to receive timely and suitable
notification concerning quotations or corporate actions relating to or affecting
securities of the Fund or (B) any errors in the computation of the net asset
value based upon or arising out of quotations or information as to corporate

25
<PAGE>

actions if received by the Custodian either (1) from a source which the
Custodian was authorized pursuant to the second paragraph of this section 6.5 to
rely upon, or (2) from a source which in the Custodian's reasonable judgment was
as reliable a source for such quotations or information as the sources
authorized pursuant to that paragraph. Nevertheless, the Custodian will use its
best judgment in determining whether to verify through other sources any
information it has received as to quotations or corporate actions if the
Custodian has reason to believe that any such information might be incorrect.

In the event of any error or delay in the determination of such net
asset value for which the Custodian may be liable, the Fund and the Custodian
will consult and make good faith efforts to reach agreement on what actions
should be taken in order to mitigate any Losses suffered by the Fund or its
present or former shareholders, in order that the Custodian's exposure to
liability shall be reduced to the extent possible after taking into account all
relevant factors and alternatives. Such actions might include the Fund or the
Custodian taking reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of shares such
overpaid amount or to collect from any shareholder who has underpaid upon a
purchase of shares the amount of such underpayment or to reduce the number of
shares issued to such shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which should
appropriately be borne by the Custodian, the Fund and the Custodian will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have reasonably expected to have detected the error sooner than
the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.

Upon written notice from the Fund to the Custodian, the Custodian's
responsibilities under this Section 6.5 shall terminate, but this Agreement
shall otherwise continue in full force and effect. Upon such termination, the
fee schedule provided for under Article VII hereof shall be adjusted by the
parties in such manner as they may agree, and the Custodian will transfer such
of the Fund's books and records, and provide such other reasonable cooperation,
as the Fund may request in connection with the transfer of such
responsibilities.

6.6. Information Regarding Foreign Subcustodians and Foreign
Depositories. (a) The Custodian shall use reasonable efforts to assist the Fund
in obtaining the following with respect to any country in which any assets of
the Fund are held or proposed to be held:

(1) information concerning whether, and to what extent,
applicable foreign law would restrict the access afforded the Fund's

26
<PAGE>

independent public accountants to books and records kept by a foreign
custodian or foreign securities depository used, or proposed to be
used, in that country;

(2) information concerning whether, and to what extent,
applicable foreign law would restrict the Fund's ability to recover its
assets in the event of the bankruptcy of a foreign custodian or foreign
securities depository used, or proposed to be used, in that country;

(3) information concerning whether, and to what extent,
applicable foreign law would restrict the Fund's ability to recover
assets that are lost while under the control of a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;

(4) information concerning the likelihood of expropriation,
nationalization, freezes or confiscation of the Fund's assets in that
country;

(5) information concerning whether difficulties in converting
the Fund's cash and cash equivalents held in that country into U.S.
Dollars are reasonably foreseeable, including without limitation as a
result of applicable foreign currency exchange regulations;

(6) information concerning the financial strength, general
reputation and standing and ability to perform custodial services of
each foreign custodian or foreign securities depository used, or
proposed to be used, in that country;

(7) information concerning whether each foreign custodian or
foreign securities depository used, or proposed to be used, in that
country would provide a level of safeguards for maintaining the Fund's
assets not materially different from that provided by the Custodian in
maintaining the Fund's securities in the United States;

(8) information concerning whether each foreign custodian or
foreign securities depository used, or proposed to be used, in that
country has offices in the United States in order to facilitate the
assertion of jurisdiction over and enforcement of judgments against
such custodian or depository;

(9) as to each foreign securities depository used, or proposed
to be used, in that country information concerning the number of
participants in, and operating history of, such depository; and

(10) such other information as may be requested by the Fund to
ensure compliance with Rule 17f-5 under the 1940 Act.

27
<PAGE>

(b) During the term of this Agreement, the Custodian shall use
reasonable efforts to provide the Fund with prompt notice of any material
changes in the facts or circumstances upon which any of the foregoing
information or statements were based.

(c) Upon request of the Fund, the Custodian shall deliver to the Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; and (ii) the countries in which and the Foreign
Depositories through which each such Foreign Subcustodian or the Custodian is
then holding cash, securities and other assets of the Fund.

ARTICLE VII

CUSTODIAN FEES

The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with the following sentence, shall be billed to the
Fund in such a manner as to permit payment either by a direct cash payment to
the Custodian or by placing Fund portfolio transactions with the Custodian
resulting in an agreed-upon amount of commissions being paid to the Custodian
within an agreed-upon period of time. The Custodian shall be entitled to receive
reimbursement from the Fund on demand for its cash disbursements and expenses
(including cash disbursements and expenses of any Subcustodian or Agent for
which the Custodian has reimbursed such Subcustodian or Agent) permitted by this
Agreement, but excluding salaries and usual overhead expenses, upon receipt by
the Fund of reasonable evidence thereof.

ARTICLE VIII

TERMINATION

This Agreement shall continue in full force and effect until terminated
by either party by an instrument in writing delivered or mailed, postage
prepaid, to the other party, such termination to take effect not sooner than
sixty (60) days after the date of such delivery or mailing. In the event of
termination, the Custodian shall be entitled to receive prior to delivery of the
securities, cash and other assets held by it all accrued fees and unreimbursed
expenses the payment of which is contemplated by Article VII, upon receipt by
the Fund of a statement setting forth such fees and expenses.

In the event of the appointment of a successor custodian, it is agreed
that the cash, securities and other assets owned by the Fund and held by the
Custodian or any Subcustodian or Agent shall be delivered to the successor
custodian, and the Custodian agrees to cooperate with the Fund in execution of

28
<PAGE>

documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this Agreement.

ARTICLE IX

MISCELLANEOUS

9.1. Execution of Documents. Upon request, the Fund shall deliver to
the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.

9.2. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof.

9.3. Waivers and Amendments. No provision of this Agreement may be
amended or terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is sought, provided
that Appendix B listing the Foreign Subcustodians and Foreign Depositories
approved by the Fund may be amended from time to time to add or delete one or
more of such entities by delivery to the Custodian of a revised Appendix B
executed by an Authorized Person, such amendment to take effect immediately upon
execution of the revised Appendix B by the Custodian.

In connection with the operation of this Agreement, the Custodian and
the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.

9.4. Captions. The section headings in this Agreement are for the
convenience of the parties and in no way alter, amend, limit or restrict the
contractual obligations of the parties set forth in this Agreement.

9.5. Governing Law. This instrument shall be governed by and construed
in accordance with the laws of the State of New York.

9.6. Notices. Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at Two International Place, Boston,
Massachusetts 02110 or to such other address as the Fund may have designated to
the Custodian in writing, or to the Custodian at 40 Water Street, Boston,
Massachusetts 02109, Attention: Manager, Securities Department, or to such other
address as the Custodian may have designated to the Fund in writing, shall be

29
<PAGE>

deemed to have been properly delivered or given hereunder to the respective
addressee.

9.7. Successors and Assigns. This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights hereunder without the prior written consent of
the other party.

9.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.

9.9. Representative Capacity; Nonrecourse Obligations. The Custodian
agrees that any claims by it against the Fund under this Agreement may be
satisfied only from the assets of the Fund; that the person executing this
Agreement has executed it on behalf of the Fund and not individually, and that
the obligations of the Fund arising out of this Agreement are not binding upon
such person or the Fund's shareholders individually but are binding only upon
the assets and property of the Fund; and that no shareholders, trustees or
officers of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.

BROWN BROTHERS HARRIMAN & CO.

per pro __________________________________
Name:
Title:

AARP GROWTH TRUST

By: ______________________________________
Name:
Title:

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<PAGE>

APPENDIX A TO THE
CUSTODIAN AGREEMENT BETWEEN
AARP GROWTH TRUST AND
BROWN BROTHERS HARRIMAN & CO.

DATED AS OF February 1, 1996

PROCEDURES RELATING TO CUSTODIAN'S SECURITY INTEREST
----------------------------------------------------

As security for any Advances (as defined in the Custodian Agreement) of
the Fund, the Fund shall pledge, assign and grant to the Custodian a security
interest in Collateral (as hereinafter defined), under the terms, circumstances
and conditions set forth in this Appendix A.

Section 1. Defined Terms. As used in this Appendix A the following terms
shall have the following respective meanings:

(a) "Business Day" shall mean any day that is not a Saturday, a Sunday or a
day on which the Custodian is closed for business.

(b) "Collateral" shall mean those securities having a fair market value (as
determined in accordance with the procedures set forth in the prospectus for the
Fund) equal to the aggregate of all Advance Obligations of the Fund that are (i)
identified in any Pledge Certificate executed on behalf of the Fund or (ii)
designated by the Custodian for the Fund pursuant to Section 3 of this Appendix
A. Such securities shall consist of marketable securities held by the Custodian
on behalf of the Fund or, if no such marketable securities are held by the
Custodian on behalf of the Fund, such other securities designated by the Fund in
the applicable Pledge Certificate or by the Custodian pursuant to Section 3 of
this Appendix A.

(c) "Advance Obligations" shall mean the amount of any outstanding
Advance(s) provided by the Custodian to the Fund together with all accrued
interest thereon.

(d) "Pledge Certificate" shall mean a Pledge Certificate in the form
attached as Exhibit 1 to this Appendix A, executed by a duly authorized officer
of the Fund and delivered by the Fund to the Custodian by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.

(e) "Release Certificate" shall mean a Release Certificate in the form
attached as Exhibit 2 to this Appendix A, executed by a duly authorized officer
of the Custodian and delivered by the Custodian to the Fund by facsimile
transmission or in such other manner as the Fund and the Custodian may agree in
writing.

31
<PAGE>

(f) "Written Notice" shall mean a written notice executed by a duly
authorized officer of the party delivering the notice and delivered by facsimile
transmission or in such other manner as the Fund and the Custodian shall agree
in writing.

Section 2. Pledge of Collateral. To the extent that any Advance Obligations
of the Fund are not satisfied by the close of business on the first Business Day
following the Business Day on which the Fund receives a Written Notice
requesting security for such Advance Obligation and stating the amount of such
Advance Obligation, the Fund shall pledge, assign and grant to the Custodian a
first priority security interest in Collateral specified by the Fund by
delivering to the Custodian a Pledge Certificate executed by the Fund describing
such Collateral. Such Written Notice may, in the discretion of the Custodian, be
included within or accompany the Notice of Advance (as defined in the Custodian
Agreement) relating to the applicable Advance Obligation.

Section 3. Failure to Pledge Collateral. In the event that the Fund shall
fail (a) to pay the Advance Obligation described in such Written Notice, (b) to
deliver to the Custodian a Pledge Certificate pursuant to Section 2, or (c) to
identify substitute securities pursuant to Section 6 upon the sale or maturity
of any securities identified as Collateral, the Custodian may, by Written Notice
to the Fund, specify Collateral which shall secure the applicable Advance
Obligation. The Fund hereby pledges, assigns and grants to the Custodian a first
priority security interest in any and all Collateral specified in such Written
Notice; provided that such pledge, assignment and grant of security shall be
deemed to be effective only upon receipt by the Fund of such Written Notice, and
provided further that if the Custodian specifies Collateral in which a first
priority security interest has already been granted, the security interest
pledged, assigned and granted hereunder shall be a security interest that is not
a first priority security interest.

Section 4. Delivery of Additional Collateral. If at any time the Custodian
shall notify the Fund by Written Notice that the fair market value of the
Collateral securing any Advance Obligation is less than the amount of such
Advance Obligation, the Fund shall deliver to the Custodian, within one Business
Day following the Fund's receipt of such Written Notice, an additional Pledge
Certificate describing additional Collateral. If the Fund shall fail to deliver
such additional Pledge Certificate, the Custodian may specify Collateral which
shall secure the unsecured amount of the applicable Advance Obligation in
accordance with Section 3 of this Appendix A.

Section 5. Release of Collateral. Upon payment by the Fund of any Advance
Obligation secured by the pledge of Collateral, the Custodian shall promptly
deliver to the Fund a Release Certificate pursuant to which the Custodian shall

32
<PAGE>

release Collateral from the lien under the applicable Pledge Certificate or
Written Notice pursuant to Section 3 having a fair market value equal to the
amount paid by the Fund on account of such Advance Obligation. In addition, if
at any time the Fund shall notify the Custodian by Written Notice that the Fund
desires that specified Collateral be released and (a) that the fair market value
of the Collateral securing any Advance Obligation exceeds the amount of such
Advance Obligation, or (b) that the Fund has delivered a Pledge Certificate
pursuant to Section 6 substituting Collateral in respect of such Advance
Obligation, the Custodian shall deliver to the Fund, within one Business Day
following the Custodian's receipt of such Written Notice, a Release Certificate
relating to the Collateral specified in such Written Notice.

Section 6. Substitution of Collateral. The Fund may substitute securities
for any securities identified as Collateral by delivery to the Custodian of a
Pledge Certificate executed by the Fund, indicating the securities pledged as
Collateral.

Section 7. Security for Fund Advance Obligations. The pledge of Collateral
by the Fund shall secure only Advance Obligations of the Fund. In no event shall
the pledge of Collateral by the Fund be deemed or considered to be security for
any other types of obligations of the Fund to the Custodian or for the Advance
Obligations or other types of obligations of any other fund.

Section 8. Custodian's Remedies. Upon (a) the Fund's failure to pay any
Advance Obligation of the Fund within thirty days after receipt by the Fund of a
Written Notice demanding security therefor, and (b) one Business Day's prior
Written Notice to the Fund, the Custodian may elect to enforce its security
interest in the Collateral securing such Advance Obligation, by taking title to
(at the then prevailing fair market value), or selling in a commercially
reasonable manner, so much of the Collateral as shall be required to pay such
Advance Obligation in full. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the remedy set
forth in the preceding sentence shall be the only right or remedy to which the
Custodian is entitled with respect to the pledge and security interest granted
pursuant to any Pledge Certificate or Section 3. Without limiting the foregoing,
the Custodian hereby waives and relinquishes all contractual and common law
rights of set-off to which it may now or hereafter be or become entitled with
respect to any obligations of the Fund to the Custodian arising under this
Appendix A to the Custodian Agreement.

33
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Appendix A to be
executed in its name and behalf on the day and year first above written.

BROWN BROTHERS HARRIMAN & CO.

per pro __________________________________
Name:
Title:

AARP GROWTH TRUST

By: ______________________________________
Name:
Title:

34
<PAGE>

EXHIBIT 1
TO
Appendix A

PLEDGE CERTIFICATE
------------------

This Pledge Certificate is delivered pursuant to the Custodian
Agreement dated as of _____________________ (the "Agreement"), between
_____________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to [Section 2 or
Section 4] of Appendix A attached to the Agreement, the Fund hereby pledges,
assigns and grants to the Custodian a first priority security interest in the
securities listed on Schedule A attached to this Pledge Certificate
(collectively, the "Pledged Securities"). Upon delivery of this Pledge
Certificate, the Pledged Securities shall constitute Collateral, and shall
secure all Advance Obligations of the Fund described in that certain Written
Notice dated ________, 19__, delivered by the Custodian to the Fund. The pledge,
assignment and grant of security in the Pledged Securities hereunder shall be
subject in all respects to the terms and conditions of the Agreement, including,
without limitation, Sections 7 and 8 of Appendix A attached hereto.

IN WITNESS WHEREOF, the Fund has caused this Pledge Certificate to be
executed in its name, on behalf of the Fund this ________ day of _______, 19__.

By: _____________________
Name: _____________________
Title: _____________________

35
<PAGE>

SCHEDULE A
TO
PLEDGE CERTIFICATE

Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ------

36
<PAGE>

EXHIBIT 2
TO
Appendix A

RELEASE CERTIFICATE
-------------------

This Release Certificate is delivered pursuant to the Custodian Agreement
dated as of _________, 199_ (the "Agreement"), between _______________________
(the "Fund") and Brown Brothers Harriman & Co. (the "Custodian"). Capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Agreement. Pursuant to Section 5 of Appendix A attached to the
Agreement, the Custodian hereby releases the securities listed on Schedule A
attached to this Release Certificate from the lien under the [Pledge Certificate
dated __________, 19 or the Written Notice delivered pursuant to Section 3 of
Appendix A dated ___________, 19 ].

IN WITNESS WHEREOF, the Custodian has caused this Release Certificate
to be executed in its name and on its behalf this ____ day of 19__.

Brown Brothers Harriman & Co.

By: _____________________
Name: _____________________
Title: _____________________

37
<PAGE>

SCHEDULE A
TO
RELEASE CERTIFICATE

Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ------

Exhibit 8(a)(8)

Brown Brothers Harriman & Co.

December, 1995
AARP Fee Schedule

SCHEDULE A

<TABLE>
<CAPTION>
MARKET ASSET CHARGE (BP) TRANSACTION CHARGE
Group 1
United States 1.0 on first $100 million DTC: $10
.5 on all over $100 million Physical and Same Day
Money Market Transaction: $25
<S> <C> <C>
Group 2
Euroclear and Cedel* 3 35

Group 3
Canada 4 20

Group 4
Germany 5 30
Japan 5 30
Switzerland 5 50
United Kingdom 5 45

Group 5
Australia 6 50
Denmark 6 50
France 6 60
Netherlands 6 75
New Zealand 6 50
Sweden 6 60

Group 6
Belgium 8 50
Finland 8 60
Hong Kong 8 75
Ireland 8 50
Italy 8 60

<PAGE>
Brown Brothers Harriman & Co.

Luxembourg 8 50
Norway 8 75
Singapore 8 75

Group 7
Austria 10 60
Malaysia 10 75
Spain 10 60

Group 8
Indonesia 15 75
Mexico 15 50
Thailand 15 75
South Africa 15 75

Emerging Markets
Argentina 27 75
Bangladesh 45 150
Botswana 60 175
Brazil 21 50
Chile 35 75
China 35 60
Colombia 45 100
Czech Republic 35 75
Egypt 40 175
Ghana 60 175
Greece 50 150
Hungary 60 175
India 40 100 per partial
Israel 25 150
Jordan 45 175
Kenya 60 175
Korea 22 50
Morocco 40 50
Pakistan 35 100

<PAGE>
Brown Brothers Harriman & Co.

Peru 60 150
Philippines 25 50
Poland 50 50
Portugal 25 125
Slovak Republic 35 75
Sri Lanka 20 50
Swaziland 50 175
Taiwan 25 75
Turkey 35 75
Uruguay 50 150
Venezuela 35 75
Zambia 60 175
Zimbabwe 60 175

* Annual Minimum Custody Fee: $10,000 per account
* Automation: This schedule assumes machine readable trade instructions.
</TABLE>

Out-of-Pocket Expenses
----------------------

Out-of-pocket expenses including but not limted to communication expenses,
wire charges, telex, legal, telephone, postage and direct expenses including but
not limited to stamp duties, commissions, dividend and income collection
charges, taxes, certficate fees, special handling, transfer and registration
fees would be additional.

Exhibit 9(h)
FUND ACCOUNTING SERVICES AGREEMENT

THIS AGREEMENT is made on the 1st day of February, 1996 between AARP Growth
Trust (the "Fund"), on behalf of AARP Global Growth Fund (hereinafter called the
"Portfolio"), a registered open-end management investment company with its
principal place of business in Boston, Massachusetts and Scudder Fund Accounting
Corporation, with its principal place of business in Boston, Massachusetts
(hereinafter called "FUND ACCOUNTING").

WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;

NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:

Section 1. Duties of FUND ACCOUNTING - General

FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:

a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.

b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's
net asset value and net income.

c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.

d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.

e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily dividend
rates and money market yields, in accordance with Section 3 of
the Agreement and notify the Fund and such other persons as the
Fund may reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and money
market yields.
<PAGE>

Section 2. Valuation of Securities

Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.

Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields

FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.

FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.

Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice

In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:

a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;

b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;

c. The value to be assigned to any asset for which no price
quotations are readily available;

d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;

e. Transactions in portfolio securities;

f. Transactions in shares of beneficial interest.

FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
<PAGE>

FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.

FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.

Section 5. Proper Instructions

"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.

The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.

Section 6. Standard of Care and Indemnification

FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.

The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
<PAGE>

FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.

Section 7. Compensation and FUND ACCOUNTING Expenses

FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.

Section 8. Amendment and Termination

This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.

Section 9. Services Not Exclusive

FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.

Section 10. Limitation of Liability for Claims

The Fund's Amended and Restated Declaration of Trust, dated November 1,
1984 as amended to date (the "Declaration"), a copy of which, together
with all amendments thereto, is on file in the Office of the Secretary
of State of the Commonwealth of Massachusetts, provides that the name
"AARP Growth Trust" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that
no shareholder of the Fund or the Portfolio, or Trustee, officer,
employee or agent of the Fund shall be subject to claims against or
obligations of the Trust or of the Portfolio to any extent whatsoever,
but that the Trust estate only shall be liable.
<PAGE>

FUND ACCOUNTING is expressly put on notice of the limitation of
liability as set forth in the Declaration and FUND ACCOUNTING agrees
that the obligations assumed by the Fund and/or the Portfolio under
this Agreement shall be limited in all cases to the Portfolio and its
assets, and FUND ACCOUNTING shall not seek satisfaction of any such
obligation

from the shareholders or any shareholder of the Fund or the Portfolio
or any other series of the Fund, or from any Trustee, officer, employee
or agent of the Fund. FUND ACCOUNTING understands that the rights and
obligations of the Portfolio under the Declaration are separate and
distinct from those of any and all other series of the Fund.

Section 11. Notices

Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.

If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President

If to the Fund - Portfolio: AARP Growth Trust -
AARP Global Growth Fund
Two International Place
Boston, Massachusetts 02110
Attn: President, Secretary or Treasurer

Section 12. Miscellaneous

This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.

In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.

This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
<PAGE>

This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.

AARP GROWTH TRUST, on behalf of
AARP Global Growth Fund

By:____________________________
President

SCUDDER FUND ACCOUNTING CORPORATION

By:____________________________
Vice President

Exhibit 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post Effective Amendment No. 18
to the Registration Statement of AARP Growth Trust on Form N-1A of our report
dated November 7, 1995 relating to the financial statements and financial
highlights of AARP Growth Trust which is comprised of AARP Balanced Stock and
Bond Fund, AARP Growth and Income Fund and AARP Capital Growth Fund, AARP Cash
Investment Funds which is comprised of AARP High Quality Money Fund, AARP Income
Trust which is comprised of AARP GNMA and U.S. Treasury Fund and AARP High
Quality Bond Fund and AARP Tax Free Income Trust which is comprised of AARP High
Quality Tax Free Money Fund and AARP Insured Tax Free General Bond Fund which
appear in the Annual Report to Shareholders for the year ended September 30,
1995, which is incorporated by reference in such Statement of Additional
Information. We further consent to the references to us under the headings
"Experts" in the Statement of Additional Information and "Financial Information"
in the Prospectus constituting part of this Post Effective Amendment No. 18.

/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
January 24, 1996
<PAGE>
Exhibit 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 18 to the registration
statement of AARP Growth Trust on Form N-1A (the "Registration Statement") of
our report dated January 25, 1996, relating to the financial statement of AARP
Global Growth Fund, which constitutes part of the AARP Growth Trust, which
appears in such Statement of Additional Information. We also consent to the
reference to us under the headings "Experts" in such Statement of Additional
Information and "Financial Information" in the Prospectus constituting part of
this Post-Effective Amendment No. 18.

/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
January 25, 1996

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
Balanced Stock and Bond Fund Annual Report for the fiscal year ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME>AARP BALANCED STOCK AND BOND FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 224,895,926
<INVESTMENTS-AT-VALUE> 245,971,020
<RECEIVABLES> 2,092,265
<ASSETS-OTHER> 32,074
<OTHER-ITEMS-ASSETS> 159,340
<TOTAL-ASSETS> 248,254,699
<PAYABLE-FOR-SECURITIES> 522,234
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525,510
<TOTAL-LIABILITIES> 1,047,744
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 223,597,765
<SHARES-COMMON-STOCK> 15,074,610
<SHARES-COMMON-PRIOR> 11,983,629
<ACCUMULATED-NII-CURRENT> 321,966
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,055,572
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,231,652
<NET-ASSETS> 247,206,955
<DIVIDEND-INCOME> 3,988,384
<INTEREST-INCOME> 6,141,535
<OTHER-INCOME> 0
<EXPENSES-NET> 1,982,131
<NET-INVESTMENT-INCOME> 8,110,687
<REALIZED-GAINS-CURRENT> 2,980,459
<APPREC-INCREASE-CURRENT> 20,500,760
<NET-CHANGE-FROM-OPS> 31,591,906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,923,700)
<DISTRIBUTIONS-OF-GAINS> (479,306)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,336,478
<NUMBER-OF-SHARES-REDEEMED> (2,742,517)
<SHARES-REINVESTED> 497,020
<NET-CHANGE-IN-ASSETS> 48,520,185
<ACCUMULATED-NII-PRIOR> 142,595
<ACCUMULATED-GAINS-PRIOR> (453,177)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 960,412
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,982,131
<AVERAGE-NET-ASSETS> 196,846,786
<PER-SHARE-NAV-BEGIN> 14.64
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.40
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
Growth and Income Fund Annual Report for the fiscal year ended September 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> AARP GROWTH AND INCOME FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,460,026,972
<INVESTMENTS-AT-VALUE> 3,040,229,571
<RECEIVABLES> 16,222,446
<ASSETS-OTHER> 1,097,088
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,057,549,105
<PAYABLE-FOR-SECURITIES> 49,038,772
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,991,756
<TOTAL-LIABILITIES> 51,030,528
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,367,667,616
<SHARES-COMMON-STOCK> 78,371,684
<SHARES-COMMON-PRIOR> 67,740,274
<ACCUMULATED-NII-CURRENT> 6,072,468
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52,570,066
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 580,208,427
<NET-ASSETS> 3,006,518,577
<DIVIDEND-INCOME> 91,816,143
<INTEREST-INCOME> 10,888,172
<OTHER-INCOME> 0
<EXPENSES-NET> 18,409,212
<NET-INVESTMENT-INCOME> 83,288,031
<REALIZED-GAINS-CURRENT> 82,549,045
<APPREC-INCREASE-CURRENT> 331,256,882
<NET-CHANGE-FROM-OPS> 497,093,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (81,086,105)
<DISTRIBUTIONS-OF-GAINS> (85,015,819)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,103,571
<NUMBER-OF-SHARES-REDEEMED> (10,995,485)
<SHARES-REINVESTED> 4,523,324
<NET-CHANGE-IN-ASSETS> 363,388,627
<ACCUMULATED-NII-PRIOR> 4,044,032
<ACCUMULATED-GAINS-PRIOR> 54,862,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,406,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,409,212
<AVERAGE-NET-ASSETS> 2,542,804,534
<PER-SHARE-NAV-BEGIN> 34.13
<PER-SHARE-NII> 1.11
<PER-SHARE-GAIN-APPREC> 5.44
<PER-SHARE-DIVIDEND> (1.09)
<PER-SHARE-DISTRIBUTIONS> (1.23)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 38.36
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the AARP
Capital Growth Fund Annual Report for the fiscal year ended September 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> AARP CAPITAL GROWTH FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 550,616,455
<INVESTMENTS-AT-VALUE> 692,332,062
<RECEIVABLES> 2,020,044
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 694,352,106
<PAYABLE-FOR-SECURITIES> 1,625,475
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 717,685
<TOTAL-LIABILITIES> 2,343,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 540,198,862
<SHARES-COMMON-STOCK> 18,041,977
<SHARES-COMMON-PRIOR> 21,513,985
<ACCUMULATED-NII-CURRENT> 6,365,346
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,733,920
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 141,710,818
<NET-ASSETS> 692,008,946
<DIVIDEND-INCOME> 11,484,726
<INTEREST-INCOME> 1,251,177
<OTHER-INCOME> 0
<EXPENSES-NET> 6,147,362
<NET-INVESTMENT-INCOME> 6,448,989
<REALIZED-GAINS-CURRENT> 3,804,912
<APPREC-INCREASE-CURRENT> 124,386,699
<NET-CHANGE-FROM-OPS> 134,640,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (216,094)
<DISTRIBUTIONS-OF-GAINS> (13,160,374)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,055,946
<NUMBER-OF-SHARES-REDEEMED> (5,952,635)
<SHARES-REINVESTED> 424,681
<NET-CHANGE-IN-ASSETS> (112,055,099)
<ACCUMULATED-NII-PRIOR> 122,688
<ACCUMULATED-GAINS-PRIOR> 13,099,140
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,988,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,147,362
<AVERAGE-NET-ASSETS> 645,512,847
<PER-SHARE-NAV-BEGIN> 31.74
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> 6.91
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 38.36
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>