Aarp Managed Investment Portfolios · N-30D · For 3/31/00

Filed On 5/26/00 2:57pm ET   ·   SEC File 811-07933   ·   Accession Number 88053-0-560

Annual or Semi-Annual Report Mailed to Shareholders   ·   Rule 30d-1
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Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Semiannual Report - Aarp Managed Investment Port.    179    708K 

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                       AARP Investment Program
                        from SCUDDER

                                                    Our Commitment
                                                   To AARP Members
                                                    Keeps Growing.
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           Mid-Year Report to Shareholders

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 VISIT OUR FINANCIAL LIBRARY AT AARP.SCUDDER.COM
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be ready                                          

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How to Contact the AARP Investment Program        

               WebSite                                          aarp.scudder.com
               -----------------------------------------------------------------

                  Visit us at our Internet Web site for the latest updates and
                information from the AARP Investment Program from Scudder.
         Visitors have access to a broad range of investment
              information, including performance of AARP Mutual Funds,
          which is updated daily, and the complete prospectus.

               Easy-Access Line                                   1-800-631-4636
               -----------------------------------------------------------------

            Shareholders with a touch-tone telephone may call this
                automated line to obtain AARP fund performance and account
            information, or to exchange or sell (redeem) AARP fund
                shares. This service is available 24 hours a day, 7 days a
week.                                     

               Shareholder Service Line                           1-800-253-2277
               -----------------------------------------------------------------

            Our knowledgeable AARP Mutual Fund Representatives are
           available to answer your questions regarding the AARP
                 Investment Program, or your account, Monday through Friday,
                between 8:00 a.m. and 8:00 p.m. Eastern time. Transactions
                   can be made Monday through Friday, between 8:00 a.m. and 4:00
p.m. Eastern time.                        

               Transactions by Fax                                1-800-821-6234
               -----------------------------------------------------------------

               You can fax your confidential transaction requests to us.
                  Please note that any exchange or redemption request received
                  after 4:00 p.m. Eastern time on business days or on weekends
 will be processed on the next business day.

Telecommunications Device for the Deaf and Speech 
               Impaired (TDD) Line                                1-800-634-9454
               -----------------------------------------------------------------

                   AARP members with hearing or speech impairments and access to
            TDD equipment can communicate with the AARP Investment
               Program Monday through Friday, between 8:00 a.m. and 5:00
                   p.m. Eastern time. Transactions can be made between 8:00 a.m.
  and 4:00 p.m. Eastern time on business days.

Mailing Address                                   
               -----------------------------------------------------------------

        AARP Investment Program from Scudder
P.O. Box 2540               
Boston, MA 02208-2540       

   Certified, Registered, and Overnight Delivery Address
               -----------------------------------------------------------------

        AARP Investment Program from Scudder
66 Brooks Drive             
Braintree, MA 02184         

E-mail Address                                    
               -----------------------------------------------------------------

AARP_Funds@scudder.com      

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Table of Contents                                                 

Mid-Year Review -- A Message from Linda C. Coughlin ........     2   /1/        
------------------------------------------------------------------------        
Investment Performance and Individual Portfolio Reviews ....     7   /2/        
------------------------------------------------------------------------        
Investment Performance for the six-month period ......     8        
MONEY MARKET FUNDS                                                              
AARP High Quality Money Fund .........................    17        
AARP High Quality Tax Free Money Fund ................    18        
AARP Premium Money Fund ..............................    19        
INC0ME FUNDS                                                                    
AARP High Quality Short Term Bond Fund ...............    20        
AARP GNMA and U.S. Treasury Fund .....................    22        
AARP Insured Tax Free General Bond Fund ..............    24        
AARP Bond Fund for Income ............................    26        
GROWTH AND INCOME FUNDS                                                         
AARP Balanced Stock and Bond Fund ....................    28        
AARP Growth and Income Fund ..........................    30        
AARP U.S. Stock Index Fund ...........................    34        
GROWTH FUNDS                                                                    
AARP Capital Growth Fund .............................    36        
AARP Small Company Stock Fund ........................    38        
GLOBAL FUNDS                                                                    
AARP Global Growth Fund ..............................    40        
AARP International Stock Fund                                       
(formerly AARP International Growth and Income Fund)    42      
MANAGED INVESTMENT PORTFOLIOS                                                   
AARP Diversified Income with Growth Portfolio ........    44        
AARP Diversified Growth Portfolio ....................    44        
INVESTMENT PORTFOLIOS ......................................    47   /3/        
------------------------------------------------------------------------        
FINANCIAL STATEMENTS .......................................   127   /4/        
------------------------------------------------------------------------        
FINANCIAL HIGHLIGHTS .......................................   145              
NOTES TO FINANCIAL STATEMENTS ..............................   155              
OFFICERS AND TRUSTEES ......................................   167   /5/        
------------------------------------------------------------------------        
INVESTOR SERVICES ..........................................   172   /6/        
------------------------------------------------------------------------        
GLOSSARY ...................................................   175   /7/        
------------------------------------------------------------------------        

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/1/                                                                             
--------------------------------------------------------------------------------

              [logo]
               AARP Investment Program
              from SCUDDER

Mid-Year Review                                                                 
                                                  THE PRINTED DOCUMENT
A Message from Linda C. Coughlin, Chairperson          CONTAINS A PHOTOGRAPH    
AARP Investment Program from Scudder                   OF LINDA C. COUGHLIN     
                                  HERE
Dear Fellow Shareholder,                                                        

In this letter I would like to address  three                         
important  issues that affect the AARP  Investment                              
Program  from  Scudder:   fund   performance,   an       Linda C. Coughlin      
expansion of the Investment Program,  and the high          Chairperson         
volume of calls we've received this spring.                                     

     The last six months rewarded some investments that focused on a few sectors
with exceptional  returns.  Technology and biotechnology stocks were among these
leaders.  While many of these high-fliers have fallen sharply since the close of
the fiscal  period,  many  investors  pursuing  diversified,  conservative,  and
lower-risk investment strategies -- such as the AARP Investment Program funds --
experienced disappointing returns.                                              

     These conditions proved especially challenging for value-oriented funds. In
the case of the AARP  Growth and Income  Fund,  we are pleased to report that an
enhanced  investment  strategy and a change in the market environment helped the
fund  significantly  narrow the gap versus its benchmark  index during the first
three months of this year.                                                      

     The story was similar  for the AARP Small  Company  Stock  Fund:  Small-cap
stocks  outperformed  large-cap  stocks for the six  months,  but the sector was
driven  by the  exceptional  gains of a few  small  growth  stocks.  The  fund's
discipline, which emphasizes small-cap stocks with solid fundamentals selling at
attractive prices, was severely out of favor during this period.                

     While the six  months  proved  challenging  for these  funds,  it  rewarded
others,  especially  AARP Capital  Growth Fund,  AARP U.S. Stock Index Fund, and
AARP International  Stock Fund. These funds turned in solid performances for the
period ended March 31, 2000.                                                    

     We  know  that  fund  performance  is  important  to you  and  that we must
consistently meet or exceed your expectations. We believe that we can meet those
expectations  over  the  long-term,  especially  given  recent  enhancements  to
selected funds and the changed market environment since the end of the period.  

WIDER SELECTION OF FUNDS                                                        

     This year we are taking  another step with the AARP  Investment  Program by
dramatically expanding the products and services available to shareholders. Part
of  expanding  the  Investment   Program's  fund  choices   requires  a  special
shareholder meeting, which will take place in July 2000. As a shareholder in the
AARP Investment  Program funds you are being asked                              

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to vote on several proposals relating to this expansion.  By now you should have
received  shareholder meeting ("proxy") materials describing the proposals along
with a proxy card to cast your vote. The Investment  Program's Board of Trustees
has approved these proposals and recommends that you vote in favor of them.     

     Under the proposals, AARP members will be offered a wider range of funds to
meet a broader  range of  investment  goals (see summary on page 8). The current
offering of 16 mutual funds will expand to include 43 funds,  including six that
will maintain a risk-managed focus. We will accomplish this by making funds from
the Scudder family of funds  available to AARP members.  In addition and subject
to shareholder approval,  AARP and Scudder funds with similar objectives will be
combined. The resulting funds will be called Scudder funds, with AARP Investment
Program  shareholders'  shares  designated  "Class  AARP" at the end of the fund
name, e.g., "Scudder Growth and Income Fund -- Class AARP." The renaming denotes
Scudder's  distinct role in managing the funds and your special privileges as an
investor in the AARP  Investment  Program.  While you may receive  more than one
account statement during the transition period this summer,  investment activity
on all of your fund  holdings  will be  reported on a single  consolidated  AARP
Investment  Program statement when the expansion is completed.  In addition,  we
will continue to offer all funds available  through the Investment  Program on a
no-load basis.                                                                  

AARP'S CONTINUING COMMITMENT TO YOU                                             

     The involvement and level of participation from AARP in the AARP Investment
Program is not changing.  AARP,  through a subsidiary,  will continue to oversee
the Investment  Program's  service quality and  communications.  This subsidiary
will provide insight and direction based on what it believes will best serve the
interests and concerns of AARP members.  Part of the ongoing involvement of AARP
includes their continued representation on the funds' Board of Trustees.        

MID-YEAR AND ANNUAL REPORTS                                                     

     After these changes are approved by shareholders, fund specific information
-- such as performance,  portfolio manager discussions,  portfolio holdings, and
financial  statement  information -- will be provided through individual Scudder
fund reports. These existing reports focus on one or a few related funds and are
mailed at different  times  throughout  the year.  The  individual  fund reports
provide  detailed  information  about your fund(s) and will replace the 200-page
AARP Mid-Year and Annual Reports, such as this report.                          

     We will continue to keep you updated on products,  services,  and topics of
interest  through a number of publications,  including  newsletters and the AARP
Investment Program Web site --  aarp.scudder.com.  We will also publish periodic
reviews that will update you on Investment Program  developments.  As before the
expansion,  we will continue to provide you with education on investment  topics
affecting your life -- an approach we believe is one of the  cornerstones of the
AARP Investment Program.                                                        

     We are  excited  about the  expansion  of the AARP  Investment  Program,  a
development that will provide you with more investment choices. In addition,  we
will be introducing  other                                                      

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services  this year that should help you better manage your  financial  affairs.
Our commitment to  shareholders is stronger than ever, and we hope that you will
find the expanded choices useful.                                               

     As with any change of this type,  you may have  questions.  For answers,  I
encourage  you to review  the  contact  list on the inside  front  cover of this
report,  or visit our Internet Web site at  aarp.scudder.com  (click on "News").
There you'll find the most up-to-date information about the proposed changes. Of
course,  you can also call one of our  representatives  to discuss  any of these
issues.                                                                         

CALLING US                                                                      

     In closing,  I would like to thank you for your patience and support if you
have tried to contact us by telephone recently and have experienced an unusually
long delay. We know that some of you have had an unacceptable experience, and we
offer our sincerest  apologies.  The situation is the result of an unprecedented
number of calls during concentrated  periods and job market conditions that have
challenged our ability to hire additional representatives swiftly. Let me assure
you  that we  have  taken  significant  steps  to  restore  our  responsiveness,
including  the  hiring  of more  AARP  Investment  Program  representatives.  In
addition,  our existing AARP Investment Program  representatives  have agreed to
take shorter lunch breaks,  work overtime each business day, and work  weekends.
Our  representatives  from other  Scudder  phone groups also have offered  their
assistance in answering calls.                                                  

     Even with these best efforts,  some of you have had to wait longer than you
are accustomed.  To assist you with reaching a  representative,  you may want to
avoid  calling  during our busiest  times.  Our  representatives  are busiest on
Mondays and Tuesdays between the hours of 10:00 a.m. and 4:00 p.m. Eastern time.
In order to reach a representative  sooner,  we suggest that you call during the
following periods:                                                              

 o Wednesday through Friday between 8:00 a.m. and 8:00 p.m. Eastern time

o Saturdays between 10:00 a.m. and 2:00 p.m. Eastern time             

o Monday and Tuesday between 4:00 p.m. and 8:00 p.m. Eastern time     

     Thank you again for your understanding  during this  extraordinary  period.
Our  hope  is  that  you  have  begun  to  experience  an   improvement  in  our
responsiveness  by the time you receive this  letter.  For other ways to contact
us,  please turn to the inside front cover of this  report.  Please know that we
value your relationship and that my colleagues and I are extremely  committed to
providing  you with the highest  quality  service  possible in keeping with your
expectations and our standards.                                                 

  Sincerely,

       /s/Lin Coughlin

         Linda C. Coughlin
   Chairperson

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

PROPOSED CHANGES                                                      

o    Expand the current offering from 16 to 43 no-load funds          

     o    Combine  AARP  Investment  Program  funds and Scudder  funds that have
          similar  investment  objectives  (except for AARP Capital Growth Fund,
which will not be combined with another fund)               

     o    Rename funds to denote  Scudder's  distinct role in managing the funds
          and the  special  privileges  for AARP  shareholders  (e.g.,  "Scudder
Growth and Income Fund -- Class AARP")                      

     o    Consolidate the multiple fund Boards of Trustees that exist across the
          AARP and Scudder funds into one consolidated Board with broad business
          experience,   specific   expertise   in  mutual  fund   matters,   and
representation from AARP                                    

AARP INVESTMENT PROGRAM BENEFITS                                      

     o    Continuing  commitment  to  education  through  efforts  such  as  our
     Financial Library, Legacy ServiceSM, and national seminar program

     o    A  dedicated  Internet  Web  site  --  aarp.scudder.com  --  providing
          up-to-date  news and information  pertaining  specifically to the AARP
Investment Program                                          

     o    AARP, through its subsidiary,  will continue to oversee service levels
          and communications  for AARP Investment Program  shareholders and AARP
members                                                     

o    Continued availability of a series of six risk-managed funds     

     o    Through our ongoing relationship with AARP, Scudder will introduce new
  products and services that help meet the needs of AARP members

     o    Pay no sales charges or  commissions  on Scudder funds while  enjoying
low investment minimums and our No-Fee IRA                  

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                                                                             /2/
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                                                         I N V E S T M E N T
                                                       P E R F O R M A N C E

                          Cornelia Small,  President and Investment Director
                          of  the  AARP  Investment  Program  from  Scudder,
                          begins  this  section  with  an  overview  of  the
                          financial  markets  and fund  performance  for the
              six-month period ended March 31, 2000.

                          Some  of the  investment  terms  used  in  various
                          reviews require  additional  explanation.  We have
                          highlighted  in bold italics  certain  words which
                          appear in the  Glossary  which begins on page 175.
                          We hope this  helps you to better  understand  the
commentary.             

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Investment Performance                                                          
For the six-month period ended March 31, 2000                                   

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

Dear Fellow Shareholder:                                                        

 After  dominating the U.S. market returns for      THE PRINTED DOCUMENT
more than two years, a select group of high growth      CONTAINS A PHOTOGRAPH   
stocks  began  to  lose  favor  in  March.   While      OF CORNELIA SMALL       
investor   sentiment  shifted  to  companies  with      HERE                    
demonstrated   earnings  and  solid  fundamentals,                              
growth stocks still  outdistanced most other asset                              
classes by a wide margin for the six-month period.                              

Over the last couple of years  growth  stocks                         
(stocks with accelerating  earnings,  revenues, or                              
sales) have provided  investors  with  outstanding         Cornelia Small       
gains. During the six months, investors flocked to         President and        
growth stocks of all sizes, causing prices to rise       Investment Director    
to   unprecedented    heights.    Technology   and                              
biotechnology   companies   were  among  the  best                              
performing  growth  stocks,  as these  companies  have been  among  the  fastest
growing.  This helped  technology-related  indices to gain more than 60% for the
six-month period.  However, most professional money managers believed that these
levels defied  traditional  methods of valuing a company and,  ultimately,  were
unsupportable.                                                                  

     In sharp contrast,  the majority of stocks have actually fallen during this
period. Among the weakest performing segments were value stocks (stocks that are
selling at attractive  levels).  These have trailed  growth stocks and the broad
market  averages  such  as the  unmanaged  S&P 500  Index.  This  situation  has
confounded  investors with diversified  portfolios as their returns have trailed
the staggering  gains of tech and biotech stocks.  Yet, hidden in the temptation
to invest in these  sectors are the greater  risks  associated  with high growth
stocks. Shortly after the close of the period, some of those risks were realized
as many of these high fliers experienced devastating losses.                    

     In our view,  the  realignment  comes as a welcome  relief for the  overall
market.  While the level of the U.S. stock market remained  above-average  given
our current earnings projections, the price declines since the end of the period
have removed a  substantial  amount of risk from some of the most  highly-valued
stocks.  With  stock  prices at more  reasonable  levels and the  economy  still
healthy,  our longer-term  outlook for the stock markets has actually  improved.

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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE                                  

BAR CHART TITLE:                                                                

 THE STOCK MARKETS

CHART PERIOD:                                                                   

As of March 31, 2000

CHART DATA:                                                                     

  Index                                   Six-month total return
  -----                                   ----------------------

Technology Stocks (price only)                             85.15%               
Nasdaq Composite (price only)                              66.52%               
Small-cap growth stocks                                    45.77%               
MSCI Latin America                                         37.10%               
Large-cap growth stocks                                    34.06%               
MSCI World (excl. U.S.)                                    18.06%               
S&P 500                                                    17.52%               
MSCI Europe                                                17.48%               
MSCI Japan                                                 16.52%               
MSCI Pacific Free (excl. Japan)                            15.11%               
Large-cap value stocks                                      5.94%               
Small-cap value stocks                                      5.41%               

CAPTION TO PRECEDING CHART:                                                     

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

----- 

         However, the market environment is still likely to be filled with price
volatility.  The powerful growth of the U.S. economy has raised fears that tight
labor markets and high levels of consumer  confidence  will cause the demand for
goods and  services to  outstrip  the  available  supply.  This could  result in
accelerating  inflation.  To  counteract  the threat of  inflation,  the Federal
Reserve has raised  short-term  interest rates five times since June of 1999. To
date,  the  increases  have had little  effect on slowing the  economy,  raising
expectations  that several more increases will be necessary to dampen  potential
inflation pressures.                                                            

         Higher interest rates simply have reduced the attractiveness of stocks.
As a result,  investors have focused on stocks that were believed least affected
by rate increases,  mainly stocks with the highest growth rates. Until recently,
these  fast  growing  companies  have been  among the best  performers,  but all
investments have their limits. After the close of the fiscal period on March 31,
high growth  stocks -- which had the  furthest to fall --  continued  to decline
sharply as investors seemed to prefer companies with solid financial  statements
and relatively lower prices for their stocks.                                   

         While the booming U.S.  economy has provided an excellent  backdrop for
growth  stocks,  it has been a distinct  negative for bonds.  In an  environment
where confidence is high,  energy prices are rising,  and gross domestic product
is strong, it is natural that bond prices --                                    

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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE                                  

BAR CHART TITLE:                                                                

THE BOND MARKETS
CHART PERIOD:                                                                   

As of March 31, 2000

CHART DATA:                                                                     

   Index                                    Six-month total return
   -----                                    ----------------------
Merrill Lynch                                                                   
3-Month Treasury Bill                                      2.66%                

Lehman Bros.                                                                    
Municipal Bond                                             2.12%                

Lehman Bros. Aggregate                                     2.08%                

Merrill Lynch Mortgage                                     1.74%                

Lehman Bros. Government                                                         
Bond (Intermediate)                                        1.59%                

Lehman Bros. Corporate                                                          
Bond (Intermediate)                                        1.51%                

Lehman Bros.                                                                    
High Yield Bond                                           -0.74%                

CAPTION TO PRECEDING CHART:                                                     

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

----- 

which tend to thrive when the economy is slowing -- would  experience  weakness.
These factors were  reflected in the  performance  of the 30-year  Treasury bond
yield,  which rose from 6.05% at the beginning of the six-month period to a high
of 6.75%  by  January  18,  2000.(Bond  yields  typically  move in the  opposite
direction of bond prices.)                                                      

         The upward climb in bond yields was  interrupted in early February when
the U.S.  Treasury  announced  plans to buy back existing  bonds and curtail its
issuance of new bonds in order to reduce the national  debt.  Believing that the
Treasury would focus its efforts on  longer-term  bonds,  investors  rushed into
that sector of the market to capitalize on the shrinking  supply.  This drove up
bond prices and caused the yield on the  30-year  bond to plunge to 5.83% by the
end of the period.  Other sectors of the bond market -- such as  corporates  and
mortgage-backed  securities  -- were  disrupted by the  volatility in government
bonds, but still managed to outperform over the full six months.                

         The overseas  markets have tracked the U.S. fairly closely in the sense
that  technology,  media,  and  telecommunications  shares ("TMT  stocks")  have
produced the best returns while other industry  sectors have lagged.  This trend
has held true in both the major markets as well as the developing countries, and
underscores  the fact  that  the  explosive  growth  of  technology  is a global
phenomenon.  The major European  markets  staged a powerful  rally  beginning in

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mid-October that extended into the new year, driving the German equity market to
a gain of 33% and the market in France to an advance  of 25%.  In Japan,  stocks
continued to grind higher behind strength in the country's tech sector,  but the
ongoing  questions  surrounding the state of the country's economy limited gains
to 17% for the six months.  Most of the emerging markets  performed very well on
the  strength  of a sharp  run-up in the final two months of 1999.  Despite  the
strong gains in the international  markets,  we are continuing to find plentiful
opportunities  there that take advantage of important  long-term trends, such as
restructuring on the corporate level and industry consolidations. We expect that
the wealth of positive  changes emerging on the corporate level will continue to
provide excellent stockpicking opportunities.                                   

OVERVIEW OF AARP FUND PERFORMANCE                                               

         AARP Capital  Growth Fund and AARP U.S.  Stock Index Fund  continued to
provide  strong  performance  in the domestic  equity area, due in part to their
significant  exposure  to the best  performing  areas,  specifically  growth and
technology  stocks.  AARP Capital Growth Fund's 28.25% six-month return reflects
our  "growth  at a  reasonable  price"  investment  discipline  and  the  fund's
investment in many dominant,  well-run companies.  This approach  contributed to
the fund's ranking among the top 6% of 424 large-cap core funds for the one-year
period  according to Lipper.^1 AARP U.S. Stock Index Fund, which seeks to mirror
the  performance  of the S&P 500  with  less  risk  than  other  index  funds by
emphasizing  dividend-paying stocks,  essentially matched the performance of its
benchmark with a 17.45% six-month return. In addition, both funds earned overall
4-star Morningstar Ratings(TM) among 3,571 domestic equity funds as of March 31,
2000.^2                                                                         

         Reflecting  a resurgence  of value stocks  toward the end of the period
and the implementation of a broadened investment strategy last year, AARP Growth
and Income Fund  significantly  narrowed  the gap on its  benchmark,  especially
during the final three months of the period.  AARP Balanced Stock and Bond Fund,
which pursues the same investment strategy as AARP Growth and Income Fund in the
equity portion of its portfolio,  also  benefited.  While these two funds do not
invest in many of the  high-priced  and high-risk  stocks that dominated  market
performance during the first five months of the period, we are encouraged by the
funds' improving performance.                                                   

         Among small-cap stocks,  the gulf between the performance of growth and
value stocks  continued to widen.  Small growth stocks  returned  45.77%,  while
small value stocks returned                                                     

----------                                                                      
^1 Source:   Lipper  Analytical  Services,   Inc.,  an  independent  analyst  of
   investment  performance.  Performance includes  reinvestment of dividends and
   capital  gains.  Past  performance is no guarantee of future  results.  As of
   3/31/00,  AARP Capital  Growth Fund ranked in the top 6% of 424 funds for the
   one-year period, in the top 9% of 231 funds for the five-year period,  and in
the top 40% of 54 funds for the ten-year period.                          

^2 Morningstar proprietary ratings reflect historical risk-adjusted  performance
   through 3/31/00.  The ratings are subject to change every month.  Morningstar
   ratings are calculated from the fund's three-,  five-,  and ten-year  returns
   (with fee adjustments) in excess of 90-day Treasury bill returns,  and a risk
   factor that  reflects fund  performance  below 90-day  T-bill  returns.  AARP
   Capital Growth Fund received four stars for the three- and five-year periods.
   AARP U.S. Stock Index Fund received four stars for the three-year  period. In
   their broad asset class  these funds were ranked  among 3571,  2283,  and 786
   domestic  equity  funds,  for  the  three-,   five-,  and  ten-year  periods,
   respectively.  The top 10% of funds in this broad  asset class  receive  five
   stars and the next 22.5% receive four stars. Past performance is no guarantee
of future results.                                                        

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just 5.41%.  AARP Small Company  Stock Fund's  emphasis on  attractively  valued
stocks with smaller market  capitalizations than its benchmark was a significant
limitation to its  short-term  performance.  Recently the fund has broadened its
exposure to include  more growth  stocks in  addition to its  traditional  value
stock holdings,  which has helped performance.  However,  substantial gains were
concentrated  among a few of the largest growth stocks in the fund's  investment
universe  -- a  significant  disadvantage  to the fund's  diversified  approach.
Despite this recent performance, we continue to believe that this fund can offer
shareholders  competitive  returns  and  important  exposure  to one of the more
attractively valued asset classes over the long term.                           

         The Investment  Program's global and international  funds provided some
of the best returns,  as many overseas markets  outperformed the U.S. market for
the six-month  period.  Reflecting this strong  performance,  AARP Global Growth
Fund  returned  19.58%  and  AARP   International   Stock  Fund  (formerly  AARP
International Growth and Income Fund) returned 27.24%,  putting the latter ahead
of the average international fund according to Lipper.^3                        

         Overall,  interest  rates  continued to climb during the period causing
price declines for most fixed income investors. However, fixed income securities
with the shortest  durations -- such as money market funds and  short-term  bond
funds -- weathered this period better than other sectors. While all of our money
market funds adhere to strict quality guidelines, AARP Premium Money Market Fund
earned high honors by ranking among the top 9% of 368 taxable money market funds
for the one-year period  according  to Lipper.^4  Despite the headwind of rising
rates for funds with longer  durations,  AARP High Quality  Short Term Bond Fund
and  AARP  GNMA and  U.S.  Treasury  Fund  continued  to add to their  long-term
performance  records  with  overall  4-star  Morningstar  Ratings(TM)  for their
risk-adjusted  returns (among 1,680 taxable bond funds as of March 31,  2000).^5
Reflecting an improving  performance trend for AARP GNMA and U.S. Treasury Fund,
which is generally  more exposed to the rising rate  environment  than AARP High
Quality Short Term Bond Fund, the fund ranked among the top 23% of 56 GNMA funds
according to Lipper.^6                                                          

IN PERSPECTIVE                                                                  

         With the U.S.  stock market pulling back sharply in the first few weeks
of the  second  quarter,  it  appears  that the  signs  of a shift  in  investor
sentiment  are  continuing  to work their way through  the  market.  Given these
conditions and the Federal Reserve's continuing bias                            

----------                                                                      
^3   As of 3/31/00,  AARP International  Stock Fund ranked in the top 37% of 643
     funds  for the  one-year  period  and in the top 44% of 423  funds  for the
three-year period. See footnote 1 for additional information.         

^4   As of 3/31/00,  AARP Premium  Money Market Fund ranked in the top 9% of 368
   funds for the one-year period. See footnote 1 for additional information.

^5   AARP High Quality  Short Term Bond Fund and AARP GNMA & U.S.  Treasury Fund
     both  received  four stars for the three- and  five-year  periods and three
     stars for the ten-year period among 1680,  1279, and 389 taxable bond funds
     in its broad  asset  class,  respectively.  See  footnote 2 for  additional
information.                                                          

^6   As of 3/31/00, AARP GNMA and U.S. Treasury Fund ranked in the top 23% of 56
     funds for the one-year  period,  in the top 75% of funds for the  five-year
     period,  and in the  top  76% of 24  funds  for the  ten-year  period.  See
footnote 1 for additional information.                                

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toward raising interest rates to slow growth and head off inflation,  we believe
shareholders  should expect increased market volatility in the near term. On the
plus side, we think lower stock prices help to reduce the market's overall risk,
and may contribute to improved market stability over the long term.             

         While  the  daily  ups and  downs of the  stock  and bond  markets  may
continue to make  headlines in the next few months,  we continue to believe that
there are many attractive  opportunities  for investors,  especially in selected
overseas  markets.  Our  portfolio  managers  strive to  capitalize  on the best
opportunities,  whether  they are  found at home or  abroad,  or in stocks or in
bonds.  In the months  ahead they will  continue to seek out the most  promising
securities that meet the goals and risk requirements of their respective funds. 

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

  Sincerely,

         /s/Cornelia Small

      Cornelia Small
                         President and Investment Director

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

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

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

Some investment terms require additional explanation. These terms are           
highlighted in bold italics throughout the report and appear in the Glossary    
beginning on page 175. We hope this helps you to better understand the          
Individual Portfolio Reviews.                                                   

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Frank J. Rachwalski, Jr.                                                        
Lead Portfolio Manager                                                      

Jerri I. Cohen                                                                  
Portfolio Manager                                                           

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

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

INVESTMENT STRATEGY                                                             

    The performance of the AARP High Quality Money Fund reflected the movement
of short-term interest rates over the six-month period ended March 31, 2000.    
After permitting short-term interest rates to subside at the close of 1999 to   
ensure adequate liquidity during the Y2K date changeover, the Federal Reserve   
resumed raising the federal funds rate in February and March 2000 (to 6.00%) to 
try to temper the U.S. economic boom and restrain inflation. Excepting a brief  
period at year-end 1999 when we extended maturity to capture attractive yields  
for maturities beyond January 2000, we have maintained a conservative stance (a 
relatively short portfolio maturity) in order to be able to take advantage of   
the higher yields we expect later this year.                                    

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

OUTLOOK                                                                         

    Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30  
days. In the current economic environment, the fund is expected to meet its goal
of current income and liquidity with a high degree of safety.                   

PORTFOLIO STATISTICS                                            

Number of Issues .............23                                            
7-Day Current Yield .......5.01%                                            
Average Maturity ........18 Days                                            
Average Quality ............AAAm                                            

PORTFOLIO RETURNS                                           

One-Year Cumulative                                                         
Total Return ..............4.69%                                            
Five-Year Average                                                           
Annual Total Return .......4.73%                                            
Ten-Year Average                                                            
Annual Total Return .......4.51%                                            
Five-Year Cumulative                                                        
Total Return .............26.02%                                            
Ten-Year Cumulative                                                         
Total Return .............55.40%                                            

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

The adviser has agreed to maintain expenses until 1/31/01.                

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Frank J. Rachwalski, Jr.                                                        
Lead Portfolio Manager                                                      

Jerri I. Cohen                                                                  
Portfolio Manager                                                           

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

INVESTMENT STRATEGY                                                             

    The performance of the AARP High Quality Tax Free Money Fund reflected the
movement of short-term interest rates over the six-month period ended March 31, 
2000. After permitting short-term interest rates to subside at the end of 1999  
to ensure adequate liquidity during the Y2K date changeover, the Federal Reserve
raised the federal funds rate two times through the close of the period (to     
6.00%) to try to temper the U.S. economic boom and restrain inflation. Excepting
a brief period at year-end 1999 when we extended maturity to capture attractive 
yields for maturities beyond January 2000, we have maintained a conservative    
stance (a relatively short portfolio maturity) in order to be able to take      
advantage of the higher yields we expect will be available later this year.     

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

OUTLOOK                                                                         

    Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30  
days. In the current economic environment, the fund is expected to meet its goal
of liquidity and current income with a high degree of safety.                   

PORTFOLIO STATISTICS                                                

Number of Issues .......... 53                                                  
7-Day Current Yield .....2.96%                                                  
Average Maturity ......20 Days                                                  
Average Quality ..........AAAm                                                  

PORTFOLIO RETURNS                                               

One-Year Cumulative                                                             
Total Return ............2.68%                                                  
Five-Year Average                                                               
Annual Total Return .....2.76%                                                  
Ten-Year Average                                                                
Annual Total Return .....3.01%                                                  
Five-Year Cumulative                                                            
Total Return ...........14.59%                                                  
Ten-Year Cumulative                                                             
Total Return ...........34.58%                                                  

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

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

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Frank J. Rachwalski, Jr.                                                        
Lead Portfolio Manager                                                      

Jerri I. Cohen                                                                  
Portfolio Manager                                                           

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

    The AARP Premium Money Fund seeks higher yields than the AARP High Quality
Money Fund primarily through a lower expense structure, made possible by a      
higher investment minimum.                                                      

FUND PERFORMANCE                                                                

  The performance of the AARP Premium Money Fund reflected the movement of
short-term interest rates over the six-month period ended March 31, 2000. After 
permitting short-term interest rates to subside at the close of 1999 to ensure  
adequate liquidity during the Y2K date changeover, the Federal Reserve resumed  
raising the federal funds rate in February and March 2000 (to 6.00%) to try to  
temper the U.S. economic boom and restrain inflation. Excepting a brief period  
at year-end 1999 when we extended maturity to capture attractive yields for     
maturities beyond January 2000, we have maintained a conservative stance (a     
relatively short portfolio maturity) in order to be able to take advantage of   
the higher yields we expect will be available later this year.                  

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

OUTLOOK                                                                         

    Until we feel that the Fed has completed its most recent round of interest
rate increases, we expect to maintain an average maturity of between 20 and 30  
days. In the current economic environment, the fund is expected to meet its goal
of high current income and liquidity with a high degree of safety.              

PORTFOLIO STATISTICS                                                

Number of Issues ...........34                                                  
7-Day Current Yield .....5.65%^1                                                
Average Maturity ......30 Days                                                  

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

^1 Fund expenses are being maintained until 1/31/01. Without such maintenance,  
the yield for the AARP Premium Money Fund would have been 5.47%.          

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

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AARP HIGH QUALITY SHORT TERM BOND FUND                                          
--------------------------------------                                          

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

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

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

TOTAL RETURN                                              
As of March 31, 2000                                            

CUMULATIVE                                              

FUND     INDEX++                                    
--------------------------                                              
1 yr.     2.79%     3.28%                                               

5 yr.    35.89%    33.98%                                               

10 yr.  100.23%    90.28%                                               

AVERAGE ANNUAL                                          

FUND     INDEX++                                    
--------------------------                                              
1 yr.     2.79%     3.28%                                               

5 yr.     6.33%     6.02%                                               

10 yr.    7.19%     6.64%                                               

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

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

 The past six months has been a difficult period for the bond market, as
strong growth, tight labor markets, and higher energy prices have forced the    
Federal Reserve to raise short-term interest rates five times since June of     
1999. In the Treasury market, short-term issues were battered by these trends,  
while long-term bonds were boosted by the government's announcement of a plan to
cut the supply of outstanding debt. Outside of the Treasury sector, this        
relationship was reversed -- short-term bonds provided more stable performance  
than longer-term issues. Since we invest the vast majority of the portfolio     
outside of the Treasury sector, the fund was relatively well-positioned for the 
unfavorable environment.                                                        

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE LINE                            

CHART TITLE:       Growth of a $10,000 Investment                               

CHART PERIOD:    Yearly Periods ended March 31, 2000                            

CHART DATA:                                                                     
                                                       SALOMON BROTHERS INC.
        AARP HIGH QUALITY      LEHMAN BROTHERS       TREASURY/GOVERNMENT
         SHORT TERM BOND       AGGREGATE BOND        SPONSORED CORPORATE
              FUND                 INDEX+            INDEX (1-3 YEARS)++
------------------------------------------------------------------------------  
1990            $10000                $10000                  $10000            
1991             11124                 11288                   11113            
1992             12297                 12577                   12179            
1993             13896                 14249                   13226            
1994             14286                 14585                   13600            
1995             14734                 15313                   14202            
1996             16241                 16963                   15310            
1997             16918                 17796                   16142            
1998             18503                 19930                   17352            
1999             19480                 21221                   18424            
2000             20023                 21617                   19028            

FUND PERFORMANCE                                                                

 For the six months ended March 31, 2000, the fund returned 2.16%, which
consisted of 2.80% in income distributions and -0.64% in capital change. During 
the same time frame, the fund's unmanaged benchmark, the Salomon Brothers Inc.  
Treasury/Government Sponsored Corporate Index (1-3 Years), returned 1.67%.      
Reflecting the higher interest rate environment, the fund's 30-day SEC yield    
rose from 5.78% six months ago to 5.91% as of the end of the period.            

THE FUND'S INVESTMENT STRATEGY                                                  

  The fund remains well-diversified among corporate bonds, mortgage-backed
securities (also known as agency pass-throughs), and asset-backed securities.   
The shifts we make in the portfolio are designed to take advantage of values    
that exist among these different sectors. In the last six months, we have       
reduced the fund's position in corporates and raised its weighting in both      
mortgage and asset-backed securities, which we believe offer better relative    
value. Specifically, we have taken positions in securities                      

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

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

 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.                                   

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that offer greater yields than corporates with the same quality rating. We      
intend to maintain our positions in these areas as long as we are able to pick  
up more yield without having to take on a greater level of risk.                

  In terms of duration (which measures interest rate sensitivity), we have
maintained a range of 1.6 to 1.9 years, which is slightly shorter than the      
fund's benchmark. We felt that this conservative positioning was warranted given
that the economy is showing no signs of slowing down. The fund's average credit 
quality stands at AA, which helped performance in a period when higher quality  
securities tended to perform well.                                              

OUTLOOK                                                                         

     We continue to believe that the bond market will have difficulty mounting a
strong, sustainable rally until it becomes clear that growth has slowed enough  
to allow the Federal Reserve to take a less aggressive stance with regard to    
raising interest rates. In the meantime, we will continue to take advantage of  
volatility to build positions in bonds that have fallen to attractive valuation 
levels. While slumps in the bond market are always uncomfortable for investors, 
we view them as an opportunity to buy securities that we feel are mispriced by  
the market. From a long-term standpoint, we continue to believe that investing  
in high-quality, short-term bonds will continue to be an effective way for      
conservative investors to gain a monthly income with a relatively high level of 
principal stability.                                                            

 PORTFOLIO DIVERSIFICATION
As of March 31, 2000

Corporate Bonds           37% 
U.S. Government-Backed        
  Mortgages              23%
Asset-Backed Securities   21% 
Cash Equivalents           9% 
Government National           
  Mortgage Association    5%
U.S. Treasury Obligations  3% 
U.S. Government Agency        
  Pass-Throughs           2%
                        ----
                        100%
                        ====

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o  Want a source of regular monthly income                                      

o  Desire an income component for diversification                               

o  Can invest for at least three years                                          

o  Can handle some ups and downs in investment performance                      

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

MATURITY STRUCTURE                                                  
As of March 31, 2000                                                  

Under 2 Years ...........47.2%                                                  
2 to 3 Years ............25.9%                                                  
3 to 4 Years ............ 6.0%                                                  
4 to 5 Years ............ 9.1%                                                  
5 to 8 Years ............ 4.6%                                                  
Over 8 Years ............ 7.2%                                                  
----                        
100%                        
====                        

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

PORTFOLIO STATISTICS                                                

Number of Issues ...........70                                                  
30-Day SEC Yield ........5.91%                                                  
Average Coupon ..........6.50%                                                  
Average Maturity ....3.0 Years                                                  
Average Duration ....1.7 Years                                                  
Average Quality ............AA                                                  

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Richard L. Vandenberg                                                           
Lead Portfolio Manager                                                      

Scott E. Dolan                                                                  
John E. Dugenske                                                                
Portfolio Managers                                                          

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

TOTAL RETURN                                              
As of March 31, 2000                                            

CUMULATIVE                                              

FUND    INDEX+                                      
------------------------                                                
1 yr.     2.04%    2.89%                                                

5 yr.    34.54%   42.79%                                                

10 yr.   93.61%  117.54%                                                

AVERAGE ANNUAL                                        

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

1 yr.     2.04%    2.89%                                                

5 yr.     6.11%    7.38%                                                

10 yr.    6.83%    8.08%                                                

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

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

   A strong economy and the Federal Reserve's bias toward raising short-term
interest rates over the six months contributed to an overall rising interest    
rate environment for mortgage-backed securities. Despite this adverse           
environment for fixed income securities, GNMAs performed better than other      
mortgage-backed securities and intermediate-term Treasuries. In this            
environment, investors preferred government backing and high quality over lower 
quality fixed income securities.                                                

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                               

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

CHART PERIOD:  Yearly Periods ended March 31, 2000                            

CHART DATA:                                                                   

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

1990           $10000                $10000                       
1991            11227                 11393                       
1992            12412                 12734                       
1993            13743                 14178                       
1994            13794                 14337                       
1995            14390                 15235                       
1996            15631                 16888                       
1997            16406                 17901                       
1998            17951                 19897                       
1999            18975                 21144                       
2000            19361                 21754                       

FUND PERFORMANCE                                                                

The fund's 2.00% six-month return compares to the 2.39% return of its 
benchmark, the Lehman Brothers GNMA Index, for the same period. The fund's total
return consisted of 3.23% in income distributions and -1.23% in capital change. 
Reflecting the higher interest rate environment, the fund's 30-day standardized 
SEC yield rose from 6.10% six months ago to 6.28% as of the end of the period.  

THE FUND'S INVESTMENT STRATEGY                                                  

In pursuing the fund's objectives we employ a "top-down" approach that
focuses on four key factors: the portfolio's sensitivity to changes in interest 
rates (duration), the allocation between GNMA and Treasury                      

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

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

CHART DATA:     (AARP Fund noted by XXXX)                                       

                                                                [Download Table]

                                                                                   
        -----------------------------------                                        
                   Lipper GNMA                                                     
         Return     Peer Group    Risk                                             
        -----------------------------------                                        
Highest                                    Lowest    Over the three years, this    
 Return              Best 25%      XXXX    Risk      fund is in the bottom 25% of  
        ------------            -----------          similar funds for total return
                                                     and among the best 25% of     
                     Next 25%                        similar funds for monthly     
        ------------            -----------          downside risk.                

                     Next 25%                        The monthly averages for risk 
        ------------            -----------          and return are for 19 similar 
 Lowest                                    Highest   funds for the period April 1, 
 Return     XXXX     Worst 25%             Risk      1997 through March 31, 2000.  
        ------------            -----------                                        

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

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

 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.                            

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securities, the vintage and "seasoning" of issues, and the fund's positioning   
with respect to the yield curve.                                                

In the fourth quarter the overall fixed income market was awash with  
liquidity as the Federal Reserve pumped money into the economy by dramatically  
expanding reserves in advance of Y2K concerns. As the new year came and went    
without any major crisis, the economy continued to display some of the strongest
numbers in years, including buoyant consumer confidence, strong housing starts, 
and a healthy rate of new mortgage applications. Meanwhile, interest rates have 
continued to climb as rising commodity prices and record low unemployment       
accelerated inflation fears.                                                    

Over the six months, we attempted to maintain a lower sensitivity to  
changes in interest rates by keeping the fund's duration shorter than our peers.
We began the period with a duration of 4.2 years and closed the period at 4.0   
years. By comparison, the Lehman Brothers GNMA Index's duration was 4.1 years on
March 31, 2000.                                                                 

    During the last six months of the period we reduced the fund's holdings of
GNMAs to 76% of assets (down from 88% six months ago) in an effort to take      
advantage of the rally in Treasuries.                                           

  In the portfolio, we increased our exposure to seasoned GNMA issues with
6.5% and 7% coupons. We believe that these bonds are attractively priced given  
their predictable prepayment characteristics. Positions in seasoned GNMAs with  
8% coupons were sold in favor of new GNMAs with 8% and 7.5% coupons.            
Additionally, new GNMAs with 8.5% coupons were added given their attractive     
valuation.                                                                      

OUTLOOK                                                                         

  Looking forward, we remain concerned that interest rates may continue to
move higher (and prices may decline) unless economic activity slows. GNMAs      
continue to look attractive as prepayment risk remains low and supply remains   
minimal.                                                                        

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o  Want a source of regular monthly income                                      

o  Desire an income component for diversification                               

o  Can invest for at least three years                                          

o  Can handle some ups and downs in investment performance                      

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

PORTFOLIO DIVERSIFICATION                                                 
As of March 31, 2000                                                

Government National                                                           
Mortgage Association   76%                                              
Cash Equivalents          18%                                                 
U.S. Treasury Obligations  6%                                                 
----                        
100%                        
====                        

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

PORTFOLIO STATISTICS                                                

Number of Issues ........2,222                                                  
30-Day Yield ............6.28%                                                  
Average Coupon ..........8.79%                                                  
Average Maturity...11.50 Years                                                  
Average Duration ...4.04 Years                                                  
Average Quality ...........AAA                                                  

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

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AARP INSURED TAX FREE GENERAL BOND FUND                                         

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

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

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

TOTAL RETURN                                                
As of March 31, 2000                                                

CUMULATIVE                                                

FUND    INDEX+                                        
------------------------                                                
1 yr.    -.41%    -.10%                                                 

5 yr.   29.32%   34.27%                                                 

10 yr.  90.51%   99.54%                                                 

AVERAGE ANNUAL                                              

FUND    INDEX+                                        
------------------------                                                
1 yr.    -.41%    -.10%                                                 

5 yr.    5.28%    6.06%                                                 

10 yr.   6.66%    7.15%                                                 

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

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

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

FUND PERFORMANCE                                                                

During the six-month period, yields of intermediate- and long-term    
municipal bonds rose, and their prices generally declined. In this challenging  
environment, AARP Insured Tax Free General Bond Fund managed to post a positive 
total return of 1.82% for the semiannual period ended March 31, 2000. The fund's
30-day SEC yield as of March 31 was 4.58%, equivalent to a 7.58% taxable yield  
for investors in the 39.6% tax bracket.                                         

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Yearly Periods ended March 31                                    

CHART DATA:                                                                     

AARP INSURED TAX FREE        LEHMAN BROTHERS  
     GENERAL BOND FUND     MUNICIPAL BOND INDEX+
---------------------------------------------------------         
1990            $10000                    $10000                
1991             10885                     10922                
1992             11896                     12015                
1993             13561                     13520                
1994             13805                     13833                
1995             14732                     14861                
1996             15797                     16107                
1997             16551                     16985                
1998             18194                     18808                
1999             19130                     19974                
2000             19051                     19954                

  The fund outperformed the 1.73% average total return of its peers during
the period, and ranked in the top 9% among 48 insured municipal debt funds for  
the one-year period ended March 31 according to Lipper Analytical Services, Inc.
Longer term, the fund continues to display strong competitive performance: It   
ranked in the top 18% of 40 funds for the five-year period, and in the top 22%  
of 18 funds for the ten-year period. In light of its conservative strategy aimed
at limiting losses during market declines, the fund may at times lag its        
benchmark, the unmanaged Lehman Brothers Municipal Bond Index.                  

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

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

CHART DATA:    (AARP Fund noted by XXXX)                                        

                                                                [Download Table]

                                                                                   
        -----------------------------------                                        
                     Lipper                                                        
         Return   Insured Muni      Risk                                           
                    Debt Peer                                                      
                      Group                                                        
        -----------------------------------                                        
Highest                                    Lowest    Over the three years, this    
 Return    XXXX      Best 25%      XXXX    Risk      fund is among the best 25% of 
        ------------            -----------          similar funds for total return
                                                     and among the best 25% of     
                     Next 25%                        similar funds for monthly     
        ------------            -----------          downside risk.                

                     Next 25%                        The monthly averages for risk 
        ------------            -----------          and return are for 16 similar 
 Lowest                                    Highest   funds for the period April 1, 
 Return              Worst 25%             Risk      1997 through March 31, 2000.  
        ------------            -----------                                        

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

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.                                   

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THE FUND'S INVESTMENT STRATEGY                                                  

During the fund's most recent semiannual period, the Federal Reserve  
continued to raise interest rates to head off inflationary pressures as         
commodity prices rebounded, the nation's unemployment index reached 30-year     
lows, and consumer spending proceeded at a brisk pace. The Fed's action in March
raised its short-term interest rate target to 6%. As a consequence, yields on   
10-year Treasury bonds rose by 0.18 percentage point and their prices declined  
1.24% over the six-month period. While municipal bond yields rose by 0.13       
percentage point during this period, their prices declined only 0.86%. In light 
of these market conditions, our strategy has been to maintain a slightly shorter
portfolio duration compared with other insured municipal bond funds. Over the   
period, the fund's duration rose from 6.7 years to 7.0 years.                   

Within the fund's portfolio we maintained exposure to a broad range of
geographically diversified high quality insured municipal securities. We        
continued to focus on intermediate-maturity AAA-rated municipal bonds (7-13 year
maturities), but also increased our allocations toward the end of the period in 
20-25 year bonds selling at a discount. We believe this strategy may help the   
fund capture additional income and total return potential over the coming       
months.                                                                         

    During the six-month period, we maintained a two-part strategy: First, (in
addition to our purchases of long-term discount bonds) we focused on premium    
"cushion" bonds -- high coupon bonds trading at a premium to face value. The    
premium dollar price provided protection from the market discount tax and       
provided reduced price volatility.                                              

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

OUTLOOK                                                                         

In terms of the fund's day-to-day strategy, we will continue to seek  
competitive returns by purchasing bonds with the most attractive combination of 
maturity, coupon, and call protection. Rather than attempting to make investment
decisions based on short-term market movements, we will search for attractively 
valued bonds.                                                                   

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o Want a source of regular monthly income                                       

o Desire tax-free income^1                                                      

o Can invest for at least three years                                           

o Can handle some ups and downs in investment performance                       

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

MUNICIPAL BOND                                          
EFFECTIVE MATURITIES                                          
ALLOCATION                                          
As of March 31, 2000                                          

Less than 1 year .......... 3%                                            
1 to less than 5 years ....13%                                            
5 to less than 10 years ...43%                                            
10 to less than 15 years ..28%                                            
Greater than 15 years .....13%                                            
----                  
100%                  
====                  

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

PORTFOLIO STATISTICS                                        

Number of Issues ...........330                                           
30-Day SEC Yield .........4.58%                                           
Average Coupon ...........4.43%                                           
Average Maturity .....9.6 Years                                           
Effective Duration ..6.97 Years                                           
Average Quality ........... AAA                                           

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGER                                                                         

Robert S. Cessine                                                               
Lead Portfolio Manager                                                      

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

TOTAL RETURN                                              
As of March 31, 2000                                              

CUMULATIVE                                                

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

1 yr.     .34%    1.87%                                                 
Life of                                                                 
Fund*   16.23%   20.42%                                                 

AVERAGE ANNUAL                                            

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

1 yr.     .34%    1.87%                                                 
Life of                                                                 
Fund*    4.87%    6.05%                                                 

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

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

     During the six-month period, the bond market suffered as continued strength
in the U.S. economy prompted the Federal Reserve to raise short-term interest   
rates on five separate occasions. Government issues were the best performing    
segment of the bond market, due largely to the Treasury's announcement that it  
would be reducing the supply of government debt by curtailing new issuance and  
buying back existing bonds. Since the Treasury is focusing its efforts on       
reducing the supply of longer-term bonds, that sector of the market performed   
extremely well even as shorter-term bonds were pressured by rising rates. As a  
result, longer-term Treasuries actually offered lower yields than their         
short-term counterparts for the final two months of the period. This anomaly,   
which is particularly unusual during a time of prosperity, roiled other sectors 
of the bond market and caused longer-term corporates and mortgage-backed        
securities to slump even as Treasuries rallied.                                 

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Semiannual Periods from February 1, 1997*                        
to March 31, 2000         

CHART DATA:                                                                     

        AARP BOND FUND             LEHMAN BROTHERS
             FOR INCOME            AGGREGATE BOND INDEX+
----------------------------------------------------------  

2/1/97*         $10000                    $10000            
3/97              9882                      9914            
9/97             10565                     10621            
3/98             10992                     11102            
9/98             11460                     11842            
3/99             11584                     11821            
9/99             11408                     11796            
3/00             11578                     12042            

FUND PERFORMANCE                                                                

    This environment was a distinct negative for the fund, which holds a large
position in corporate bonds and a relatively small weighting in Treasuries. For 
the six months ended March 31, 2000, the fund returned 1.49% compared to a      
return of 2.08% for its unmanaged benchmark, the Lehman Brothers Aggregate Bond 
Index. The fund's return consisted of 3.54% in income distributions and -2.05 % 
in capital change, and its SEC yield was 7.45% as of the close of the period    
versus 7.22% on September 30, 1999.^1                                           

THE FUND'S INVESTMENT STRATEGY                                                  

   Although the fund is widely diversified among a variety of sectors within
the bond market, the aspect of our strategy that had the greatest impact on fund
performance was our focus on corporate bonds, particularly those in the below   
investment grade (or high yield) sector. During the latter                      

--------------------------------------------------------------------------------
+  The unmanaged Lehman Brothers Aggregate Bond Index is a market-value-weighted
measure of Treasury issues, agency issues, corporate bond issues, and     
mortgage securities. Index returns are calculated monthly and assume      
  reinvestment of dividends. Unlike fund returns, index returns do not reflect
any fees or expenses.                                                     

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.                                   

^1 Fund expenses are being maintained until 1/31/01. Without such maintenance,  
the total return would have been lower and the yield on the AARP Bond Fund
for Income would have been 7.25%.                                         

*  The fund commenced operations on February 1, 1997.                           

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part of 1999, we increased the fund's position in high yield bonds based on what
we believed were their attractive valuations. However, the sector has been hurt 
by the volatility in Treasuries, and our high yield position has detracted from 
fund performance. Our holdings in high grade corporates also produced weak      
performance, although these securities generally outperformed high yield issues.
Looking ahead, we believe that the worst is now behind us with respect to the   
performance of corporates. We intend to maintain a substantial position in the  
sector, which we believe is an essential component of a fund that is focused on 
producing a high monthly income. In addition, the sector has fallen to levels   
that, in our view, are very compelling.                                         

  We kept the fund's duration, or interest rate sensitivity, in a range of
4.9 to 5.2 years, which is roughly in line with the benchmark. We intend to     
maintain this neutral approach until the interest rate outlook stabilizes. The  
average credit rating of the portfolio's holdings is A.                         

OUTLOOK                                                                         

We believe that the bond market will remain unsettled until it becomes
clear that the Fed is approaching the end of its series of rate hikes. In the   
interim, we intend to position the portfolio to withstand the effects of further
bond market volatility. We have increased the level of liquidity and            
diversification in the portfolio, and are confident that our mix of corporate   
bonds, government issues, and mortgage-backed securities will enable the fund to
offer high monthly income and strong risk-adjusted returns over the long term.  

PORTFOLIO ALLOCATION
As of March 31, 2000

Corporate Bonds                 55%     
U.S. Treasury Obligations       21%     
U.S. Government-Backed                  
Mortgages                     9%  
Government National                     
Mortgage Association          3%  
Asset-Backed Securities          3%     
Foreign Bonds -- U.S. $                 
Denominated                   2%  
Cash Equivalents                 5%     
Collateralized Mortgage                 
Obligations                   2%  
                          ----
                          100%
                          ====

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o Want a source of regular monthly income                                       

o Desire an income component for diversification                                

o Can invest for at least three years                                           

o Can handle some ups and downs in investment performance                       

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

MATURITY STRUCTURE                                              
As of March 31, 2000                                              

Under One Year ............ 5%                                            
1 to 5 Years ..............25%                                            
5 to 8 Years ..............30%                                            
Over 8 Years ..............40%                                            
----                  
100%                  
====                  

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

PORTFOLIO STATISTICS                                            

Number of Issues ..........85                                           
30-Day SEC Yield .......7.45%                                           
Average Coupon .........7.28%                                           
Average Maturity ...8.9 Years                                           
Average Duration ...5.1 Years                                           
Average Quality ............A                                           

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Kathleen T. Millard                                                             
Lead Portfolio Manager                                                      

Robert S. Cessine                                                               
Gregory S. Adams                                                                
Portfolio Managers                                                          

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

TOTAL RETURN                                                
As of March 31, 2000                                                

CUMULATIVE                                                

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

1 yr.      4.25%    10.29%                                              
5 yr.     81.82%   116.04%                                              
Life of                                                                 
Fund*     87.90%   126.01%                                              

AVERAGE ANNUAL                                              

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

1 yr.      4.25%    10.29%                                              
5 yr.     12.70%    16.64%                                              
Life of                                                                 
Fund*     10.77%    14.14%                                              

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

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

   During the first five months of the period, the U.S. stock market was led
by a small group of technology stocks. However, the stocks of companies in other
industries began to move upward again in March. Rising interest rates, strong   
economic growth, and relatively high prices for some stocks drove this change in
the market.                                                                     

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Annual Periods from February 1, 1994* to March 31, 2000          

CHART DATA:                                                                     

AARP BALANCED                           LEHMAN BROTHERS           
  STOCK AND BOND      STANDARD & POOR'S     AGGREGATE BOND       BLENDED
       FUND             500 INDEX               INDEX             INDEX+
----------------------------------------------------------------------------    

2/94*    $10000              $10000                 $10000           $10000     
3/94       9642                9305                   9583             9490     
3/95      10467               10752                  10062            10461     
3/96      12669               14203                  11146            12602     
3/97      14250               17019                  11694            14157     
3/98      18575               25191                  13095            18168     
3/99      18256               29841                  13944            20493     
3/00      19031               35199                  14204            22601     

FUND PERFORMANCE                                                                

 The dominance of growth stocks and the rising interest rate environment
have been a distinct disadvantage to the fund's diversified approach to         
investing in value-oriented equities and fixed income securities. However, we   
continued to narrow the performance gap between the fund and its benchmark -- a 
blended index of the S&P 500, Lehman Brothers Aggregate Bond, and Merrill Lynch 
3-Month Treasury Bill indices. Reflecting this environment, the fund trailed the
blended index with a return of 5.06% versus 9.83% for the index over the six    
months.                                                                         

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

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

CHART DATA:    (AARP Fund noted by XXXX)                                        

                                                                [Download Table]

                                                                                   
        -----------------------------------                                        
                      Lipper                                                       
        Return       Balanced      Risk                                            
                    Peer Group                                                     
        -----------------------------------                                        
Highest                                    Lowest    Over the three years, this    
 Return              Best 25%              Risk      fund is in the bottom 25% of  
        ------------            -----------          similar funds for total return
                                                     and among the best 50% of     
                     Next 25%      XXXX              similar funds for monthly     
        ------------            -----------          downside risk.                

                     Next 25%                        The monthly averages for risk 
        ------------            -----------          and return are for 171 similar
 Lowest                                    Highest   funds for the period April 1, 
 Return     XXXX     Worst 25%             Risk      1997 through March 31, 2000.  
        ------------            -----------                                        

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

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

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.                                   

*  The fund commenced operations on February 1, 1994.                           

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THE FUND'S INVESTMENT STRATEGY                                                  

     The equity portion of the portfolio follows the same investment approach as
AARP Growth and Income Fund (see pages 30-33). In this part of the portfolio, we
continued to focus on three important criteria: valuation, fundamentals, and    
risk management. The fund's recently broadened investment universe allowed us to
significantly increase technology stocks to 12.5% of total assets from 2.0% last
fall. In this area, our holdings of Oracle, Corning, and Intel made important   
contributions to performance.                                                   

In the financial sector, we have a favorable outlook for multinational
financial conglomerates like American International Group and Citigroup, which  
should prosper despite rising interest rates. We believe that global economic   
growth should benefit low cost commodity producers like the major oil companies 
and chemical producer Dow Chemical. Stocks in the consumer and health care areas
are very compelling values, in our opinion, because many have been beaten down  
by concerns about slowing economic growth. The fund has exposure in these areas 
through its holdings in PepsiCo and Merck.                                      

  In the fixed income portion of the portfolio, we kept the fund's overall
duration roughly in line with that of the Lehman Brothers Aggregate Bond Index. 
The fund's average duration ranged from 4.9 to 5.2 years, reflecting our neutral
approach. Although the fund's fixed income holdings are diversified among a     
variety of sectors, our focus on corporate bonds held back performance. Looking 
ahead, we intend to maintain a substantial position in corporates, believing    
that the worst is now behind us and that corporates remain an essential         
component of the fund's balanced approach.                                      

OUTLOOK                                                                         

   We strongly believe that our philosophy, enhanced investment disciplines,
and current holdings in the equity portion of the portfolio will position the   
fund well in striving to achieve its long-term investment goals. While the daily
gyrations of the markets will likely continue for the near term, the overall    
U.S. economy remains healthy. In this environment, we believe that the fund's   
diversified approach can provide investors with exposure to the stock market's  
opportunities with less risk than comparable investments.                       

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

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

o Can invest for at least three to five years                                   

o Can handle some ups and downs in investment performance                       

o Are building a diversified portfolio with a few core investments              

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

ASSET ALLOCATION                                                  
As of March 31, 2000                                              

Stock Holdings         65%                                              
Bond Holdings          33%                                              
Cash Equivalents        2%                                              
----                        
100%                        
====                        

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

STOCK ALLOCATION                                              
As of March 31, 2000                                              

Technology             19%                                              
Financial              18%                                              
Manufacturing          12%                                              
Communications         11%                                              
Energy                 10%                                              
Health                  9%                                              
Consumer Staples        5%                                              
Service Industries      5%                                              
Media                   4%                                              
Other                   7%                                              
----                        
100%                        
====                        

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Kathleen T. Millard                                                             
Lead Portfolio Manager                                                      

Gregory S. Adams                                                                
Portfolio Manager                                                           

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

TOTAL RETURN                                            
As of March 30, 2000                                            

CUMULATIVE                                            

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

1 yr.    8.48%    17.96%                                            

5 yr.  128.67%   227.36%                                            

10 yr. 314.30%   462.08%                                            

AVERAGE ANNUAL                                            

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

1 yr.    8.48%   17.96%                                             

5 yr.   17.99%   26.73%                                             

10 yr.  15.27%   18.83%                                             

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

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

     Over the six-month period AARP Growth and Income Fund was affected by three
factors: overall market conditions, our long-term investment strategy, and the  
stocks currently held in the portfolio. The U.S. stock market, as defined by the
unmanaged S&P 500 Index, was led by a small group of technology stocks for most 
of the period. However, the stocks of companies in other industries began to    
move upward again in March. Rising interest rates, strong economic growth, and  
relatively high prices for some stocks drove this change in the market.         

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Yearly Periods ended March 31                                    

CHART DATA:                                                                     

  AARP GROWTH AND          STANDARD & POOR'S
INCOME FUND               500 INDEX+
-------------------------------------------------------           
1990             $10000                    $10000                 
1991              11435                     11441                 
1992              13120                     12706                 
1993              15176                     14644                 
1994              16006                     14858                 
1995              18118                     17710                 
1996              23900                     22681                 
1997              28159                     27176                 
1998              40928                     40226                 
1999              38192                     47652                 
2000              41430                     56208                 

FUND PERFORMANCE                                                                

The fund significantly narrowed the performance gap versus the S&P 500
Index during the six-month period (see table on page 3). We believe the fund's  
improving performance reflects the recent enhancements to our stock selection   
disciplines, which include a broadening of the fund's investment universe. This 
helped the fund perform well versus the S&P 500 Index during market declines in 
January and March. However, the strategy also caused the fund to lag the index  
during the rally in February. As a result, the fund's 8.20% six-month return    
reflects its weaker performance during the first half                           

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

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

CHART DATA:    (AARP Fund noted by XXXX)                                        

                                                                [Download Table]

                                                                                   
        -----------------------------------                                        
                   Large Blend                                                     
         Return     and Value     Risk                                             
                   Peer Group                                                      
        -----------------------------------                                        
Highest                                    Lowest    Over the three years, this    
 Return              Best 25%      XXXX    Risk      fund is in the bottom 25% of  
        ------------            -----------          similar funds for total return
                                                     and among the best 25% of     
                     Next 25%                        similar funds for monthly     
        ------------            -----------          downside risk.                

                     Next 25%                        The monthy averages for risk  
        ------------            -----------          and return are for 200 similar
 Lowest                                    Highest   funds for the period April 1, 
 Return     XXXX     Worst 25%             Risk      1997 through March 31, 2000.  
        ------------            -----------                                        

 Morningstar is the source for the peer group information of similar funds.        


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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.                                   

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THE PRINTED DOCUMENT CONTAINS A TABLE HERE:                                   

IMPROVING TREND                                                         
  AN ENHANCED INVESTMENT STRATEGY HELPED NARROW THE GAP BETWEEN THE FUND AND
ITS BENCHMARK IN THE FIRST CALENDAR QUARTER OF 2000.                    

TOTAL RETURNS             FUND       S&P 500 INDEX        DIFFERENCE    
--------------------------------------------------------------------------- 

Fourth quarter 1999       6.60%           14.88%            -8.28%      

First quarter 2000        1.50%            2.30%            -0.80%      
--------------------------------------------------------------------------- 

of the period. The S&P 500 Index returned 17.52% for the same six-month period. 
Over the long term (a 3-5 year market cycle), we seek to outperform the market  
averages with less risk than similar growth and income funds while maintaining a
disciplined, value-oriented investment philosophy.                              

 We began to implement our enhanced investment disciplines in the second
half of 1999, which we believe is one of the key reasons why the fund has begun 
to narrow the performance gap versus the S&P 500 during the first calendar      
quarter of 2000. We believe this is an indication that we are making progress   
toward our longer-term investment goals. Given that the market environment did  
not favor value investing during most of the six-month period, we are pleased   
with the fund's progress. However, we believe that longer-term time frames will 
be a more accurate measure of our strategy's success. Over the short-term, we   
expect the fund to outperform the S&P 500 when value-oriented investments are in
favor and lag when growth-oriented investments are in favor. Shareholders should
be mindful that the difference between the returns of growth and value stocks   
can be very wide at times.                                                      

THE FUND'S INVESTMENT STRATEGY                                                  

The fund's current portfolio holdings reflect our long-term investment
strategy of building a diversified portfolio with a value orientation. Within   
this framework our stock selection is based on three important criteria:        
valuation, fundamentals, and risk management. First, we analyze stock           
valuations. We seek to identify the most attractive stocks given their potential
upside and their possible risks versus other investments. Because there are     
several ways of determining a stock's valuation, we use a number of traditional 
yardsticks, including yield, price, and earnings ratios to determine a stock's  
intrinsic worth.                                                                

   Second, we assess the company's prospects. Does the company have a viable
earnings growth path? Does management possess credible tools that can be used to
achieve this growth? Our research analysts help us find                         

                                                        (Continued on next page)

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

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

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

o Can invest for at least five years                                            

o Can handle some ups and downs in investment performance                       

o Are building a diversified portfolio with a few core investments              

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AARP GROWTH AND INCOME FUND (CONTINUED)                                         

answers to these questions. Finally, we manage risk by analyzing how each       
individual stock we buy or sell interacts with the other stocks in the          
portfolio. We consider how these transactions affect the fund's diversification 
and its exposure to certain industries. We also look at the fund's exposure to  
economic events, such as changes in interest rates or economic growth           
indicators.                                                                     

THREE FACTORS                                                                   

  There were three factors contributing to the fund's performance over the
six months: strong performance by top fund holdings, an increased technology    
weighting, and good stock selection. Among the fund's top performing holdings   
were Intel, Corning, Oracle, and American Home Products. These stocks, along    
with several other large portfolio holdings, reflect our investment disciplines 
and have had a positive impact on the portfolio.                                

  During October and November 1999 we took advantage of market weakness to
add key technology stocks that met our investment criteria. The fund's increased
weighting in technology had an important and positive impact on returns,        
especially considering that technology was the only sector that surpassed the   
S&P 500. Investors should be aware that the index now contains a significant    
weighting in technology stocks, with the sector comprising about 30% of the S&P 
500 benchmark. In this sector, there are some very speculative stocks, some of  
which at March 31 valuations were not appropriate for the fund's portfolio. We  
intend to maintain our emphasis on high quality technology companies, which will
likely cause the fund to remain underweighted in this sector. However, a        
significant decline in technology stock prices might bring a number of stocks   
into our "buy" range. In that case, we would carefully weigh each individual    
stock's potential against the risks. Some of our technology holdings include    
Corning, a major supplier of fiberoptic cable -- a key building block for the   
growth of the Internet, and Intel -- the computer chip maker.^1                 

  The fund also benefited from good stock selection over the six months. A
good example of our investment disciplines at work is Disney, which outperformed
the market. The stock was temporarily depressed by poor earnings in 1999, making
it a very attractive value at the time of purchase. Our assessment of the       
company's earnings and cash flow outlook suggested that management's plans to   
improve returns on invested capital would begin to show results in 2000. The    
stock also provided good diversification for the fund because, at the time it   
was added to the portfolio, we had no investments in the media area.            

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

SIDEBAR TEXT:                                                                   

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

SECTOR DIVERSIFICATION --                                               
EXCLUDES CASH EQUIVALENTS                                               
As of March 31, 2000                                                

Technology                19%                                             
Financial                 18%                                             
Manufacturing             11%                                             
Communications            11%                                             
Energy                    10%                                             
Health                     9%                                             
Consumer Staples           5%                                             
Service Industries         5%                                             
Media                      4%                                             
Other                      8%                                             
----                    
100%                    
====                    

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

ASSET ALLOCATION                                                
As of March 31, 2000                                                

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

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

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

^1 Management considers Corning a technology company, although its standard     
industry classification remains under the Manufacturing category in the   
Investment Portfolios section on page 86.                                 

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   The fund is diversified across many sectors and industries, with holdings
in companies that have reasonable stock valuations and strong earnings outlooks.
In the financial sector, we have a favorable outlook for multinational financial
conglomerates such as American International Group and Citigroup, which should  
prosper despite rising interest rates. We believe that global economic growth   
should benefit low cost commodity producers such as the major oil companies and 
chemical producer Dow Chemical. Stocks in the consumer and health care areas are
very compelling values, in our opinion, because many have been beaten down by   
concerns about slowing economic growth. The fund has exposure in these two areas
through its holdings in PepsiCo and Merck.                                      

OUTLOOK                                                                         

   We strongly believe that our philosophy, enhanced investment disciplines,
and current holdings position the fund well in striving to achieve its long-term
investment goals. While the daily gyrations of the markets will likely continue 
for the near term, the overall U.S. economy remains healthy. In this            
environment, we believe that the fund's approach can provide investors with     
exposure to the stock market's opportunities with less risk than comparable     
investments.                                                                    

------------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS                                          
(31% OF PORTFOLIO AS OF MARCH 31, 2000)                             
------------------------------------------------------------------------

1.  Intel Corp.                    6.  General Electric Co.             

2.  Corning, Inc.                  7.  Marsh & McLennan Companies, Inc. 

3.  Oracle Corp.                   8.  Microsoft Corp.                  

4.  Exxon Mobil Corp.              9.  Citigroup, Inc.                  

 5.  American Home Products Corp.   10. American International Group, Inc.

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO MANAGEMENT TEAM                                                       

Bankers Trust Company                                                           
Subadviser                                                                  

James M. Eysenbach                                                              
Scudder Liaison                                                             

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

TOTAL RETURN                                            
As of March 31, 2000                                            

CUMULATIVE                                            

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

1 yr.    18.74%    17.96%                                             

Life of                                                               
Fund*    99.37%    99.87%                                             

AVERAGE ANNUAL                                              

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

1 yr.    18.74%    17.96%                                             

Life of                                                               
Fund*    24.39%    24.46%                                             

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

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

   The strong performance of growth and technology stocks continued to drive
the S&P 500 Index over most of the six-month period. However, market sentiment  
shifted in March, as investors retreated from many of these high-priced stocks  
to those of solid, blue chip companies.                                         

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Semiannual Periods from February 1, 1997* to March 31, 2000      

CHART DATA:                                                                     

AARP U.S. STOCK     STANDARD & POOR'S   
INDEX FUND          500 INDEX+    
-------------------------------------------------               
2/1/97*         $10000               $10000                     
3/97              9658                 9664                     
9/97             12122                12202                     
3/98             14223                14304                     
9/98             13260                13306                     
3/99             16790                16945                     
9/99             16975                17008                     
3/00             19937                19987                     

FUND PERFORMANCE                                                                

    The fund performed well, despite an environment of significantly increased
market volatility and a continued concentration of performance almost           
exclusively in a small group of high growth stocks. For the six-month period    
ended March 31, 2000, the fund returned 17.45%, essentially matching the 17.52% 
return of the unmanaged S&P 500 Index for the same period. In addition, the fund
earned its first Morningstar Rating(TM) -- 4 stars -- among 3,571 domestic      
equity funds for its risk-adjusted performance as of March 31, 2000.^1          

    After solid performance for the S&P 500 in the fourth quarter of 1999, the
first quarter of 2000 was disappointing for almost every industry sector except 
technology. However, tech stocks eased in March on fears of accelerating        
inflation and an apparent acknowledgement that the relatively high prices of    
some technology stocks were not sustainable. Overall, market volatility         
increased significantly, but the fund continued to benefit as performance       
broadened into other sectors in March.                                          

   The dominance of growth and technology stocks over most of the six months
continued to benefit the fund. While consumer cyclicals, capital goods, basic   
materials, and communications sectors performed strongly in the fourth quarter  
of 1999, all reported negative returns for the first quarter of this year.      
Financial stocks, which are the second largest weighting in the S&P 500 after   
technology, were buffeted by rising interest rates during the first five months 
of the period. However, the sector rose more than 18% in                        

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. The adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total 
returns would have been lower.                                            

*  The fund commenced operations on February 1, 1997.                           

^1 Morningstar proprietary ratings reflect historical risk-adjusted performance 
 as of 3/31/00. Ratings are subject to change every month and are calculated
  from the fund's three-, five-, and ten-year average annual returns in excess
  of 90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. In its 
broad asset class, the top 10% of funds receive 5 stars and the next 22.5%
  receive 4 stars. In the domestic equity category, the fund received a 4-star
 rating for the three-year period among 3571 funds in its broad asset class.
Past performance is no guarantee of future results.                       

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     March, besting all other sectors of the S&P 500, including technology. This
activity highlights the shifting nature of the industry sectors over the        
six-month period.                                                               

THE FUND'S INVESTMENT STRATEGY                                                  

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

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

    The fund's other investment characteristics, such as sector weightings and
average market capitalization, are kept roughly in line with the index. Similar 
to the S&P 500 Index, the fund gives greater weight to the largest companies.   
The fund benefited directly from its significant weighting in technology stocks,
as this sector provided the best performance for the six months.                

OUTLOOK                                                                         

The fund's passive approach is well suited to periods when specific   
industry sectors are shifting in and out of favor. Because the fund basically   
seeks to reflect the industry weights and characteristics of the index, it does 
not run the risk of underperforming the index due to subjective weightings in   
specific stocks or industry sectors. While a rising interest rate environment   
generally works against stocks, the U.S. economy is healthy and many companies  
that comprise the S&P 500 Index are among the largest and most financially sound
in the world. In the months ahead we expect the environment of increased market 
volatility to continue. Nevertheless, we believe the fund's approach will remain
an attractive core portfolio component for long-term investors.                 

10 LARGEST EQUITY HOLDINGS                                                    
(25% OF PORTFOLIO AS OF MARCH 31, 2000)                                       
------------------------------------------------------------------------      

1.  Microsoft Corp.            6.  Wal-Mart Stores, Inc.                      

2.  Cisco Systems, Inc.        7.  Exxon Mobil Corp.                          

3.  General Electric Co.       8.  Nortel Networks Corp.                      

4.  Intel Corp.                9.  International Business Machines Corp.      

5.  Oracle Corp.               10. Lucent Technologies, Inc.                  

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

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

o Can invest for at least five years                                            

o Can handle some ups and downs in investment performance                       

o Are building a diversified portfolio with a few core investments              

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

SECTOR DIVERSIFICATION                                                  
As of March 31, 2000                                                  

Technology             27%                                                  
Financial              12%                                                  
Manufacturing           9%                                                  
Communications          9%                                                  
Health                  9%                                                  
Consumer Discretionary  7%                                                  
Energy                  6%                                                  
Consumer Staples        6%                                                  
Durables                4%                                                  
Other                  11%                                                  
----                            
100%                            
====                            

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

ASSET ALLOCATION                                                    
As of March 31, 2000                                                    

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

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

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

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

TOTAL RETURN                                              
As of March 31, 2000                                                

CUMULATIVE                                              

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

1 yr.    33.74%    17.96%                                               

5 yr.   245.16%   227.36%                                               

10 yr.  414.67%   462.08%                                               

AVERAGE ANNUAL                                                

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

1 yr.    33.74%    17.96%                                               
5 yr.    28.12%    26.73%                                               
10 yr.   17.80%    18.83%                                               

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

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

  After falling in the first two months of the year, the S&P 500 surged to
new highs in March on a strong rebound in depressed financial and cyclical      
stocks. A combination of strong economic growth, moderate core inflation, and an
improving outlook for corporate profits helped alleviate investors' concerns    
earlier in the year about the impact of rising energy and labor prices. While   
the Federal Reserve Board raised short-term interest rates three times during   
the six months, stock investors were not deterred by the rising rate            
environment.                                                                    

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                               

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

CHART PERIOD:  Yearly Periods ended March 31                                  

CHART DATA:                                                                   

AARP CAPITAL   STANDARD & POOR'S        
GROWTH FUND     500 INDEX+            
----------------------------------------------                      
1990             10000             10000                            
1991             10888             11441                            
1992             12545             12706                            
1993             14077             14644                            
1994             14327             14858                            
1995             14911             17170                            
1996             19496             22681                            
1997             22642             27176                            
1998             33838             40226                            
1999             38483             47652                            
2000             51467             56208                            

FUND PERFORMANCE                                                                

     AARP Capital Growth Fund returned 28.25% for the period, beating the 17.52%
return of its unmanaged benchmark, the S&P 500 Index. The fund also performed   
well against its peers: according to Lipper Analytical Services, it finished in 
the top 6% of its peer group for the one-year period ended March 31, 2000.1 We  
believe that the fund's strong performance is a result of our disciplined stock 
selection methodology, as well as the fact that the market climate was favorable
for the stocks in our investment universe.                                      

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

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

CHART DATA:    (AARP Fund noted by XXXX)                                        

                                                                [Download Table]

                                                                                  
        -----------------------------------                                       
                   Morningstar                      Over the three years, this    
         Return    Large Growth     Risk            fund is among the top 75% of  
                   Peer Group                       similar funds for total return
        -----------------------------------         and in the top 50% of similar 
Highest                                    Lowest   funds for monthly downside    
 Return              Best 25%              Risk     risk.                         
        ------------            -----------                                       
                                                    The monthly averages for risk 
                     Next 25%      XXXX             and return are for 217 similar
        ------------            -----------         funds for the period April 1, 
                                                    1997 through March 31, 2000.  
            XXXX     Next 25%                                                     
        ------------            -----------         Morningstar is the source for 
 Lowest                                    Highest  the peer group information of 
 Return              Worst 25%             Risk     similar funds.                
        ------------            -----------                                       

--------------------------------------------------------------------------------
+  The Standard & Poor's 500 Index is a capitalization-weighted index of 500    
stocks. The index is designed to measure performance of domestic stocks   
  through changes in the aggregate market value of 500 stocks representing all
major industries.                                                         

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased.                                   

^1 Source: Lipper Analytical Services, Inc., an independent analyst of          
investment performance. The fund's returns placed it in the top 6% of 424 
  Large Cap Core Funds for the one-year period, in the top 9% of 213 funds for
 the three-year period, in the top 5% of 141 funds for the five-year period,
  and in the top 40% of 54 funds for the ten-year period. Performance includes
   reinvestment of dividends and capital gains. Past performance is no guarantee
of future results.                                                        

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THE FUND'S INVESTMENT STRATEGY                                                  

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

The fund's strategy within the technology sector continued to be a key
driver of strong performance. While the fund has not aggressively overweighted  
this sector (in order to maintain balance and diversification), our holdings    
have added significant value. We continued to focus on high-quality, proven     
companies which are capitalizing on the enormous growth in demand for Internet  
and telecommunications capacity, as well as companies creating the tools to     
facilitate the explosive growth in business- to-business electronic commerce.   
Outside of technology, we continued to favor the media sector, where the strong 
economy continues to drive healthy growth in advertising revenues. We trimmed   
our pharmaceutical holdings further as growth rates are moderating, and several 
of our technology holdings where valuations had exceeded our targets.           

OUTLOOK                                                                         

    Over the past few years, many investors have underestimated the resilience
of the U.S. economy and the ability of the monetary authorities to keep the     
economy on an even keel. Instead, it has proven worthwhile to keep a long-term  
view and to avoid the temptation to sell when market conditions deteriorate.    
While we feel that caution is warranted as long as the threat of higher interest
rates is an issue, we remain optimistic about the companies we hold in the      
portfolio, and believe that our disciplined investment style will continue to   
position the fund for outperformance over time.                                 

10 LARGEST EQUITY HOLDINGS                                              
(31% OF PORTFOLIO AS OF MARCH 31, 2000)                                 
------------------------------------------------------------------      

1.  Intel Corp.             6.  AT&T Corp.-Liberty Media Group        

2.  Microsoft Corp.         7.  American International Group, Inc.    

3.  General Electric Co.    8.  Home Depot, Inc.                      

4.  Cisco Systems, Inc.     9.  American Express Co.                  

5.  Warner-Lambert Co.      10. EMC Corp.                             

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o  Want long-term growth of principal                                           

o  Are not looking for a source of regular income                               

o  Can invest for at least five years                                           

o  Can handle potentially large ups and downs in investment performance         

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

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

SECTOR DIVERSIFICATION --                                                   
EXCLUDES CASH EQUIVALENTS                                                   
As of March 31, 2000                                                  

Technology             29%                                                  
Health                 12%                                                  
Financial               9%                                                  
Manufacturing           9%                                                  
Consumer Discretionary  8%                                                  
Communications          8%                                                  
Media                   7%                                                  
Consumer Staples        6%                                                  
Energy                  6%                                                  
Other                   6%                                                  
----                            
100%                            
====                            

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

ASSET ALLOCATION                                                  
As of March 31, 2000                                                  

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

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

James M. Eysenbach                                                              
Lead Portfolio Manager                                                      

Calvin S. Young                                                                 
Portfolio Manager                                                           

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

TOTAL RETURN                                                
As of March 31, 2000                                                

CUMULATIVE                                                

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

1 yr.     9.04%    37.28%                                                 

Life of                                                                   
Fund*    19.83%    51.77%                                                 

AVERAGE ANNUAL                                                  

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

1 yr.     9.04%    37.28%                                                 
Life of                                                                   
Fund*     5.89%    14.09%                                                 

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

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

The fund's emphasis on small-cap stocks with attractive valuations and
solid earnings continued to be out of favor over the six months as stocks rose  
to record highs. On the surface small-cap stocks appeared to perform well, with 
a 26.82% total return as measured by the unmanaged Russell 2000 Index. This     
performance surpassed the return of large-cap stocks for the same six-month     
period. However, the period is best described as a tale of two divergent        
markets: A select group of the largest growth stocks in the Russell 2000 Index  
provided exceptional returns, while the median stock in the index was actually  
down 0.80%.                                                                     

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                               

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

CHART PERIOD:  Semiannual Periods from February 1, 1997*                      
to March 31, 2000         

CHART DATA:                                                                   

  AARP SMALL COMPANY          RUSSELL 2000
  STOCK FUND                  INDEX+
--------------------------------------------------------        
2/1/97*          10000                     10000              
3/97              9940                      9297              
9/97             13353                     12413              
3/98             14387                     13202              
9/98             11362                     10050              
3/99             10989                     11055              
9/99             12009                     11967              
3/00             11983                     15177              

FUND PERFORMANCE                                                                

The fund's -0.22% six-month return as of March 31, 2000 trailed the   
performance of its benchmark, the Russell 2000 Index. The fund's performance    
reflects our ongoing emphasis on companies with strong fundamentals and         
attractive valuations. By contrast, the index leaders were trading at           
astonishingly high prices relative to sales and earnings ratios. These stocks   
continued to climb dramatically in the first quarter of 2000, doubling in value 
from the end of 1999. Towards the end of the period, we witnessed a dramatic    
reversal. From their peaks, these market leaders shed half of their market value
on average -- some in only a few days. While the fund benefited from the shift  
in investor sentiment that occurred late in the period, it was insufficient to  
offset the earlier shortfall.                                                   

Even after pulling back from their highs, technology and biotechnology
stocks still posted the strongest results for the six-month period. Due to high 
prices for many of these stocks, the fund was underweighted relative to the     
Russell 2000 Index, limiting the fund's gains. On the other hand, the fund's    
underweighting in financial stocks was beneficial as this sector lagged all     
others. Within the energy sector, our stock selection worked well. However, the 
positive impact was muted by its small                                          

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

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. The adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total 
returns would have been lower.                                            

*  The fund commenced operations on February 1, 1997.                           

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size at about 3% of the index. In contrast, the technology and health care      
sectors represent 29% and 10% of the index, respectively.                       

THE FUND'S INVESTMENT STRATEGY                                                  

     In the small-cap stock universe, we seek to add value through comprehensive
stock research, disciplined portfolio construction, and efficient trading. Our  
intent is to capture the long-term opportunities of small-cap stocks through a  
systematic evaluation of risk and return. Ultimately, we expect this will result
in competitive returns with less risk.                                          

     Our strategy does not focus on picking a few big winners or sectors, but on
building a portfolio with attractive overall characteristics. As a result, we   
have diversified the fund's portfolio among more than 200 stocks, with          
individual positions representing less than 2% of assets. Furthermore, the      
fund's holdings have strong fundamentals, such as above-average profitability   
and earnings growth. With a price/earnings ratio of less than 18x, the fund's   
overall portfolio is cheaper than the index.                                    

OUTLOOK                                                                         

    The market's reversal at the end of the period can be attributed, in part,
to the extremely high valuations of technology, biotech, and Internet stocks and
a growing recognition of the risks of these stocks. Such a shift in the market  
is welcome news, given the fund's diversified approach to small-cap investing.  
While this change may be accompanied by increased volatility in the short run,  
management believes that it is likely to lead to more favorable performance over
time.                                                                           

LARGEST EQUITY HOLDINGS BY SECTOR                                             
(EXCLUDES CASH EQUIVALENTS)                                                   
---------------------------------------------------------------------------   

1.  Technology (24%)                 6.  Health (8%)                          
Titan Corp.                          ChiRex Inc.                  

2.  Manufacturing (13%)              7.  Financial (7%)                       
Insight Enterprise, Inc.             Hilb, Rogal & Hamilton Co.   

3.  Consumer Discretionary (11%)     8.  Utilities (4%)                       
Thor Industries, Inc.                NUI Corp.                    

4.  Durables (9%)                    9.  Construction (4%)                    
Aeroflex, Inc.                       Florida Rock Industries, Inc.

5.  Service Industries (8%)          10. Consumer Staples (3%)                
ABM Industries, Inc.                 Michael Foods, Inc.          

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

o Want long-term growth of principal                                            

o Are not looking for a source of regular income                                

o Can invest for at least five years                                            

o Can handle potentially large ups and downs in investment performance          

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

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

ASSET ALLOCATION                                                  
As of March 31, 2000                                                  

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

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

William E. Holzer                                                               
Lead Portfolio Manager                                                      

Nicholas Bratt                                                                  
Diego Espinosa                                                                  
Portfolio Managers                                                          

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

TOTAL RETURN                                            
As of March 31, 2000                                              

CUMULATIVE                                            

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

1 yr.    28.12%    21.87%                                             

Life of                                                               
Fund*    78.23%   102.53%                                             

AVERAGE ANNUAL                                                

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

1 yr.    28.12%    21.87%                                             

Life of                                                               
Fund*    14.89%    18.45%                                             

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

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

   Major stock indices performed well during the six-month period, but their
performance obscured a bear market in many sectors of the global equity         
universe. Across the globe, many stocks in the rapidly growing technology,      
telecommunications, and media sectors provided triple-digit returns, while "old 
economy" stocks, such as those in the manufacturing, food, energy, and banking  
industries, generally produced poor returns over the full period.               

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                               

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

CHART PERIOD:  Semiannual Periods from February 1, 1996*                      
to March 31, 2000           

CHART DATA:                                                                     

     AARP GLOBAL              MSCI WORLD
  GROWTH FUND               INDEX+
---------------------------------------------------           
2/1/96*           $10000               $10000             
3/96             10180                10224           
9/96             10327                10661           
3/97             11141                11181           
9/97             12874                13231           
3/98             14010                14754           
9/98             12592                13248           
3/99             13910                16619           
9/99             14905                17155           
3/00             17823                20253           

FUND PERFORMANCE                                                                

For the six-month period ended March 31, 2000, AARP Global Growth Fund
returned 19.58%, which beat the 18.06% total return of its unmanaged benchmark, 
the MSCI World Index. Performance was helped by our holdings in new economy     
stocks, while holdings in defensive issues and commodities producers dampened   
returns.                                                                        

THE FUND'S INVESTMENT STRATEGY                                                  

In managing the portfolio, we employ a theme-based approach that      
identifies long-term developments in the global economy, and seeks to invest in 
the companies best-positioned to capitalize on these trends. The fund is        

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

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

CHART DATA:    (AARP Fund noted by XXXX)                                        

                                                                [Download Table]

                                                                                  
        -----------------------------------                                       
                   Morningstar                                                    
         Return      Global        Risk                                           
                   Peer Group                                                     
        -----------------------------------         Over the three years, this    
Highest                                    Lowest   fund is in the top 75% of     
 Return              Best 25%     XXXX     Risk     similar funds for total return
        ------------            -----------         and among the top 25% of      
                                                    similar funds for monthly     
                     Next 25%                       downside risk.                
        ------------            -----------                                       
                                                    The monthly averages for risk 
           XXXX      Next 25%                       and return are for 77 similar 
        ------------            -----------         funds for the period April 1, 
 Lowest                                    Highest  1997 through March 31, 2000.  
 Return              Worst 25%             Risk                                   
        ------------            -----------         Morningstar is the source for 
                                                    the peer group information of 
                                                    similar funds.                


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

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

*  The fund commenced operations on February 1, 1996.                           

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diversified along two major poles. On one pole are companies that are enabling  
consumers and businesses to take advantage of the Internet. Included in this    
category are makers of consumer devices, providers of Internet access, and      
content producers. In these areas we focus on companies whose business          
strategies are moving to Internet-based models, as well as existing companies   
that are successfully restructuring to adopt and combine Internet-driven        
business models for their suppliers and customers. These segments of the        
portfolio, which include companies such as Oracle, AT&T-Liberty Media Group, and
Sony, produced strong performance over the period.                              

  On the other pole are holdings in old economy stocks, such as cyclicals,
commodity producers, and defensive issues. In this part of the global economy,  
many companies are acting in a disciplined manner in consolidating, reducing    
capacity, and planning capital expenditures for a much more competitive world.  
In addition, there are signs that companies in these areas are gaining improved 
pricing power. Although the poor recent performance of these stocks has hampered
fund returns, we find their value to be extremely compelling and believe that   
they remain crucial to portfolio diversification amid an increasingly volatile  
market environment. We are avoiding companies in between these two poles;       
namely, those with traditional business models that are being squeezed in the   
pincers of technology-driven price deflation on one hand and higher prices for  
commodities on the other.                                                       

OUTLOOK                                                                         

 While we are encouraged by the changes that are unfolding in the global
economy -- such as reform, restructuring, and consolidation -- we are concerned 
about the euphoria that has lifted the technology sector worldwide. Although the
fundamentals are strong for many of the top companies in this area, there are   
just as many companies whose stock prices are not supported by tangible         
earnings. For that reason, we will seek to participate in the tremendous growth 
of the industry by investing only in the tech stocks that we believe are        
positioned for strong earnings over the long-term. In addition, we will continue
to diversify the portfolio by capitalizing on the value opportunities in areas  
of the market that are out of favor.                                            

                                                        [Enlarge/Download Table]

10 LARGEST EQUITY HOLDINGS                                                                
(16% OF PORTFOLIO AS OF MARCH 31, 2000)                                                   
---------------------------------------------------------------------------               
                                                                                          

1.  Oracle Corp. (U.S.)                    6.  Sony Corp. (Japan)                         

2.  Daiwa Securities Group Inc. (Japan)    7.  Canal Plus S.A. (France)                   

3.  Reuters Group PLC (U.K.)               8.  Enron Corp. (U.S.)                         

4.  AT&T Corp.-Liberty Media Group (U.S.)  9.  Carlton Communications PLC (U.K.)          

5.  Sharp Corp. (Japan)                    10. Yamanouchi Pharmaceutical Co., Ltd. (Japan)


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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

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

o Do not need a source of regular income                                        

o Can invest for at least five years                                            

o Can handle potentially large ups and downs in investment performance          

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

SECTOR DIVERSIFICATION --                                                 
EXCLUDES CASH EQUIVALENTs                                                 
As of March 31, 2000                                                  

Financial                 14%                                                 
Manufacturing             13%                                                 
Technology                12%                                                 
Metals & Minerals          9%                                                 
Communications             9%                                                 
Energy                     8%                                                 
Utilities                  6%                                                 
Health                     6%                                                 
Media                      5%                                                 
Other                     18%                                                 
----                        
100%                        
====                        

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

GEOGRAPHICAL                                              
DIVERSIFICATION --                                              
EXCLUDES 3%                                               
CASH EQUIVALENTS                                              
As of March 31, 2000                                                

U.S. & Canada            43%                                                  
Europe                   31%                                                  
Japan                    21%                                                  
Pacific Basin             3%                                                  
Africa                    1%                                                  
Latin America             1%                                                  
----                          
100%                          
====                          

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Irene T. Cheng                                                                  
Lead Portfolio Manager                                                      

Nicholas Bratt                                                                  
Carol L. Franklin                                                               
Marc J. Slendebroek                                                             
Portfolio Managers                                                          

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

TOTAL RETURN                                                    
As of March 31, 2000                                                  

CUMULATIVE                                                    

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

1 yr.    39.45%    25.11%                                                     

Life of                                                                       
Fund*    66.16%    60.48%                                                     

AVERAGE ANNUAL                                                    

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

1 yr.    39.45%   25.11%                                                    

Life of                                                                     
Fund*    17.42%   16.12%                                                    

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

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

Boosted by a powerful rally in high-growth sectors such as technology,
media, and telecommunications (known as "TMT" stocks), the international stock  
markets produced strong gains during the period. The sharp jump in the major    
global indices overshadowed dramatic declines in other sectors such as          
retailers, food producers, and heavy industries. Despite the negative impact of 
this trend on the portfolio's investments in metal, chemical, and steel         
companies, the downdraft was more than offset by significant weightings and     
solid stockpicking in the TMT area.                                             

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                               

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

CHART PERIOD:  Semiannual Periods from February 1, 1997*                      
to March 31, 2000             

CHART DATA:                                                                   

 AARP INTERNATIONAL            MSCI EAFE
     STOCK FUND                 INDEX+
--------------------------------------------------          
2/1/97*          $10000                    $10000           
3/97             10086                     10201          
9/97             11512                     11443          
3/98             12872                     12097          
9/98             11148                     10487          
3/99             11852                     12827          
9/99             12990                     13731          
3/00             16528                     16048          

FUND PERFORMANCE                                                              

    For the six months ended March 31, 2000, the fund returned 27.24%, beating
the 16.87% return of its unmanaged benchmark, the MSCI EAFE Index. Our position 
in TMT stocks was the most important factor in the fund's strong performance.   
The fund's successful investments in this segment include Seat Pagine Gialle,   
the Italian business publisher and Internet portal operator; Vivendi, the French
media and communications conglomerate; and LM Ericsson Telephone, the global    
leader in infrastructure for cellular telephony based in Sweden.                

THE FUND'S INVESTMENT STRATEGY                                                  

  Although we have benefited significantly from strong gains in TMT stocks
during the past 18 months, we believe that expectations for the prospects of    
many companies in the group have moved to unsustainable levels. We have         
therefore reduced the fund's exposure to those areas where valuations have      
become less fundamentally grounded. As part of this process, we reduced or      
eliminated our exposure to stocks where a substantial part of the value could be
attributed to businesses at a very early stage of development, and where        
valuations required more conceptual than tangible                               

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

 All performance is historical and assumes reinvestment of all dividends and
  capital gains and is not indicative of future results. Investment return and
   principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than when purchased. The adviser has agreed to maintain
expenses until 1/31/01. If the adviser had not maintained expenses, total 
returns would have been lower.                                            

*  The fund commenced operations on February 1, 1997.                           

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evidence. As part of the same process, we boosted positions in blue chip        
companies with strong market positions, sustainable long-term cashflows, and    
solid management teams. These additions were made in TMT companies as well as in
other areas.                                                                    

We also hold a large position in companies that are undergoing
significant change. The fund holds a number of companies that are in the process
of restructuring, in order to take advantage of the potential gains in their    
earnings growth. The most important benefit of investing in these companies is  
their positive fundamentals. As a result, their relative performance tends to be
strong in both up and down markets. Siemens, the largest German industrial      
company, provides an excellent illustration of this trend. During the last 24   
months, the company has successfully restructured its business portfolio,       
reduced its operating costs, and drastically cut its product portfolio. Helped  
by an improving economic environment, this process has led to a sharp           
improvement in the company's earnings per share and stock price performance.    

OUTLOOK                                                                         

Despite the turbulence that has characterized the investment  
environment in recent months, we believe that the overseas markets continue to  
offer a wealth of opportunities. Tremendous changes are taking place on both the
overall economic and the corporate levels. With a combination of strong         
fundamental research capabilities and a broad vision of the global economy, we  
believe that we will be able to position the fund in companies that are best    
able to take advantage of these changes. We have little doubt that the markets  
will continue to experience significant volatility in the months ahead, but we  
don't think it's productive to focus on the daily movements of the markets.     
Instead, we will continue to look for companies whose fundamentals are steadily 
improving, since over time their stock prices are likely to follow suit.        

10 LARGEST EQUITY HOLDINGS                                                    
(22% OF PORTFOLIO AS OF MARCH 31, 2000)                                       
----------------------------------------------------------------------------  

1.  Vodafone AirTouch PLC (U.K.)       6.  Vivendi (France)                   

2.  Seat Pagine Gialle SpA (Italy)     7.  Nokia Oyj (Finland)                

3.  Reuters Group PLC (U.K.)           8.  Nomura Securities Co., Ltd. (Japan)

4.  Total Fina ELF (France)            9.  Epcos AG (Germany)                 

5.  NTT Mobile Communications         10.  Daiwa Securities Group Inc. (Japan)
Network, Inc. (Japan)                                                 

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

SIDEBAR TEXT:                                                                   

FOR WHOM THE                                                                    
FUND IS DESIGNED                                                                

The fund is designed for investors who:                                         

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

o Are not looking for a source of regular income                                

o Can invest for at least five years                                            

o Can handle potentially large ups and downs in investment performance          

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

SECTOR DIVERSIFICATION --                                                 
EXCLUDES CASH EQUIVALENTS                                                 
As of March 31, 2000                                                

Technology               18%                                                
Financial                15%                                                
Manufacturing            15%                                                
Communications           14%                                                
Service Industries        9%                                                
Energy                    5%                                                
Consumer Staples          4%                                                
Metals & Minerals         4%                                                
Durables                  3%                                                
Other                    13%                                                
----                        
100%                        
====                        

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

ASSET ALLOCATION                                              
As of March 31, 2000                                              

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

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

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

SIDEBAR TEXT:                                                                   

GOAL                                                                            

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

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

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

PORTFOLIO                                                                       
MANAGEMENT TEAM                                                                 

Shahram Tajbakhsh                                                               
Lead Portfolio Manager                                                      

Salvatore J. Bruno                                                              
Josephine W.K. Chu                                                              
Portfolio Managers                                                          

-------------------------                                               
TOTAL RETURN                                                

DIVERSIFIED INCOME WITH                                                 
GROWTH PORTFOLIO                                                

As of March 31, 2000                                                

CUMULATIVE                                                

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

1 yr.     6.30%     6.72%                                                 

Life of                                                                   
Fund*    27.59%    41.61%                                                 

---------------------------                                                 
TOTAL RETURN                                                

DIVERSIFIED GROWTH                                                  
PORTFOLIO                                                 

As of March 31, 2000                                                  

CUMULATIVE                                                

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

1 yr.    14.85%    13.17%                                                 

Life of                                                                   
Fund*    46.68%    73.44%                                                 

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

PORTFOLIO PERFORMANCE                                                           

For the six months ended March 31, 2000, AARP Diversified Income with 
Growth Portfolio returned 6.26%, representing 2.74% in distributions of income  
and 3.52% in capital change. The portfolio's blended benchmark index, which is  
comprised of the unmanaged Lehman Brothers Aggregate Bond Index (70%) and the   
S&P 500 Index (30%), returned 4.43% for this period.                            

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

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

CHART PERIOD:  Semiannual Periods from February 1, 1997*                        
to March 31, 2000             

CHART DATA:                                                                     

AARP DIVERSIFIED                         LEHMAN BROTHERS          
    INCOME WITH       STANDARD & POOR'S     AGGREGATE BOND     BLENDED
 GROWTH PORTFOLIO      500 INDEX               INDEX          INDEX+
---------------------------------------------------------------------------     
2/97*     $10000              $10000                $10000          $10000      
3/97       9987                 9664                  9914            9839      
9/97       10935               12202                 10621           11087      
3/98       11574               14304                 11102           12009      
9/98       11522               13306                 11842           12336      
3/99       12003               16945                 11821           13269      
9/99       12007               17008                 11796           13274      
3/00       12759               19987                 12042           14161      

    For the six months ended March 31, 2000, AARP Diversified Growth Portfolio
returned 12.46%, representing 3.24% in distributions of income and 9.22% in     
capital change. The portfolio's blended benchmark index, which is comprised of  
the unmanaged S&P 500 Index (70%) and the Lehman Brothers Aggregate Bond Index  
(30%), returned 7.96% for this period.                                          

THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE                                 

LINE CHART TITLE:                                                               

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

CHART PERIOD:  Semiannual Periods from February 1, 1997*                        
to March 31, 2000           

CHART DATA:                                                                     

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

2/97*   $10000          $10000                 $10000          $10000           
3/97      9973            9664                   9914            9739           
9/97     11600           12202                  10621           11720           
3/98     12691           14304                  11102           13290           
9/98     11742           13306                  11842           12926           
3/99     12772           16945                  11821           15326           
9/99     13043           17008                  11796           15367           
3/00     14668           19987                  12042           17344           

INVESTMENT STRATEGIES                                                           

    The concentration of performance among a small group of high growth stocks
proved challenging for the portfolios' conservatively managed asset allocation  
strategies, which focus on broad diversification across several asset classes.  

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

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

 All performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Investment return  
and principal value will fluctuate so an investor's shares, when redeemed,
 may be worth more or less than when purchased. For certain underlying funds
the adviser has agreed to maintain expenses until 1/31/01. If the adviser 
had not maintained expenses, total returns would have been lower.         

*  These portfolios commenced operations on February 1, 1997.                   

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  AARP Diversified Income with Growth Portfolio's exposure to equity funds
made a significant contribution to performance during a period when fixed income
funds struggled against the negative effects of rising interest rates. In the   
portfolio, we maintained our exposure to fixed income and equity funds at 68%   
and 31%, respectively. In the fixed income area, we continued to emphasize Bond 
Fund for Income and GNMA & U.S. Treasury Fund, with a smaller weighting in High 
Quality Short Term Bond Fund. In the equity portion of the portfolio, we made a 
minor shift out of Growth and Income Fund and into U.S. Stock Index Fund.       

  AARP Diversified Growth Portfolio's exposure to a number of equity funds
emphasizing growth stocks was an important contributor to performance. In the   
portfolio, we slightly increased our exposure to stock funds from 71% to 73% of 
assets over the period by reducing our fixed income fund holdings. Within the   
stock fund area, we increased exposure to U.S. Stock Index Fund and Capital     
Growth Fund. These two funds, which together constitute 48% of assets, benefited
significantly from the strong performance of growth stocks over the six months. 
In particular, Capital Growth exceeded the performance of the S&P 500 by a wide 
margin with a 28.25% return, versus 17.52% for the index.                       

DIVERSIFIED INCOME WITH GROWTH                                  
PORTFOLIO ALLOCATION                                  
As of March 31, 2000                                  
----------------------------------------                                      
AARP GNMA and U.S. Treasury Fund     32%                                      
AARP Bond Fund for Income            30%                                      
AARP U.S. Stock Index Fund           24%                                      
AARP High Quality Short Term                                                  
Bond Fund                         7%                                  
AARP Growth and Income Fund           4%                                      
AARP Capital Growth Fund              2%                                      
AARP High Quality Money Fund          1%                                      
AARP Small Company Stock Fund         0%                                      
-----   
100%  
=====   

DIVERSIFIED GROWTH                                  
PORTFOLIO ALLOCATION                                  
As of March 31, 2000                                  
----------------------------------------                                      
AARP U.S. Stock Index Fund           37%                                      
AARP Bond Fund for Income            18%                                      
AARP Capital Growth Fund             11%                                      
AARP Growth and Income Fund          11%                                      
AARP GNMA and U.S. Treasury Fund      8%                                      
AARP Global Growth Fund               5%                                      
AARP Small Company Stock Fund         4%                                      
AARP International Stock Fund         4%                                      
AARP High Quality Money Fund          2%                                      
-----   
100%  
=====   

OUTLOOK                                                                         

   Market volatility increased significantly over the period, with the major
market indices rising and falling by record amounts. In such an environment, the
portfolios' diversified approaches and professional management can help to      
smooth out short-term swings over the long term. This approach can relieve      
investors of the need to manage asset allocations in changing market conditions.
While the concentration of performance among a few growth stocks recently has   
not favored this approach, we are beginning to see signs of a shift in market   
sentiment that should bode well for the portfolios.                             

SIDEBAR TEXT:                                                                   

--------------------------------------------------------------------------------
FOR WHOM THE                                                                    
PORTFOLIOS ARE DESIGNED                                                         

The Managed Investment Portfolios are designed for investors who:               

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

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

o  Can handle some ups and downs in investment performance                      

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

ASSET ALLOCATION                                              
AARP  DIVERSIFIED                                               
INCOME WITH GROWTH                                              
PORTFOLIO                                               
As of March 31, 2000                                              

Stock Fund Holdings    30%                                                
Bond Fund Holdings     69%                                                
Money Fund              1%                                                
----                          
100%                          
====                          

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

ASSET ALLOCATION                                                
AARP DIVERSIFIED                                                
GROWTH PORTFOLIO                                                
As of March 31, 2000                                                

Stock Fund Holdings    73%                                                
Bond Fund Holdings     26%                                                
Money Fund              1%                                                
----                          
100%                          
====                          

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

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I N V E S T M E N T  P O R T F O L I O S                                        

List of investments as of March 31: A detailed breakdown of the investments in  
each fund portfolio at the close of the reporting period.                       

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

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

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

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

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AARP HIGH QUALITY MONEY FUND                                                    

                                                        [Enlarge/Download Table]

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                 
-----------------------------------------------------------------------------------------------------
                                                                             Principal               
                                                                             Amount ($)     Value ($)
-----------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 0.2%                                                                           
-----------------------------------------------------------------------------------------------------

                                                                                                     
State Street Bank and Trust Company, 6.05%, to be repurchased at $962,486                            
   on 4/3/2000** (Cost $962,000) ........................................       962,000      962,000 
                                                                                         ----------- 

COMMERCIAL PAPER 65.6%                                                                               
-----------------------------------------------------------------------------------------------------

Asset Portfolio Funding, 5.91%, 4/3/2000 ................................    20,000,000   19,993,489 
Barton Capital Corp., 5.92%, 4/14/2000 ..................................    20,000,000   19,957,678 
Bavaria Universal Funding, 6%, 4/12/2000 ................................    16,000,000   15,970,764 
CXC Inc., 5.92%, 4/3/2000 ...............................................    20,000,000   19,993,478 
Delaware Funding Corp., 5.91%, 4/20/2000 ................................    20,000,000   19,938,250 
Enterprise Funding Corp., 6.16%, 5/31/2000 ..............................    10,000,000    9,898,333 
GIRO Funding Corp., 5.95%, 4/20/2000 ....................................    20,000,000   19,937,828 
GMAC Mortgage Corp., 5.99%, 4/3/2000 ....................................    10,000,000    9,996,689 
Moat Funding LLC, 5.92%, 4/10/2000 ......................................    20,000,000   19,970,600 
Monte Rosa Capital Corp., 5.9%, 4/11/2000 ...............................    20,000,000   19,967,500 
Receivables Capital Corp., 5.93%, 4/12/2000 .............................    20,000,000   19,964,158 
Salomon Smith Barney Holdings, 5.92%, 4/18/2000 .........................    15,000,000   14,958,492 
Sigma Finance Inc., 5.91%, 4/13/2000 ....................................    20,000,000   19,960,933 
Thunder Bay Funding Corp., 6.01%, 5/12/2000 .............................    19,425,000   19,294,032 
WCP Funding Inc., 5.96% 4/20/2000 .......................................    10,000,000    9,968,914 
                                                                                         ----------- 
Total Commercial Paper (Cost $259,771,138) ..............................                259,771,138 
                                                                                         ----------- 

CERTIFICATES OF DEPOSIT 19.0%                                                                        
-----------------------------------------------------------------------------------------------------

Allfirst Bank, 6.18%, 9/7/2000* .........................................    20,000,000   19,996,600 
First Union National Bank, 6.14%, 7/26/2000* ............................    20,000,000   20,000,000 
Fleet National Bank, 6.28%, 8/14/2000* ..................................    15,000,000   14,995,622 
Harris Trust & Savings Bank, 6.35%, 8/10/2000* ..........................    20,000,000   20,000,000 
                                                                                         ----------- 
Total Certificates of Deposit (Cost $74,992,222) ........................                 74,992,222 
                                                                                         ----------- 

SHORT-TERM AND MEDIUM-TERM NOTES 15.2%                                                               
-----------------------------------------------------------------------------------------------------

Ford Motor Credit Corp., 6.104%, 11/24/2000* ............................    20,000,000   20,002,473 
Goldman Sachs Group, 5.99%, 4/17/2000* ..................................    20,000,000   20,000,000 
Royal Bank of Scotland, 5.916%, 3/6/2001* ...............................    20,000,000   20,000,000 
                                                                                         ----------- 
Total Short-Term and Medium-Term Notes (Cost $60,002,473) ...............                 60,002,473 
                                                                                         ----------- 
-----------------------------------------------------------------------------------------------------

Total Investment Portfolio -- 100% (Cost $395,727,833) (a) ...............               395,727,833 
                                                                                         =========== 
-----------------------------------------------------------------------------------------------------

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY MONEY FUND                                                    

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

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

*      Floating rate notes are securities whose interest rates vary with a  
       designated market index or market rate, such as the coupon equivalent
     of the U.S. Treasury bill rate. These securities are shown at their
rate as of March 31, 2000.                                    

**      Repurchase agreements are fully collateralized by U.S. Treasury or    
Government agency securities.                                 

(a)      At March 31, 2000, the cost for federal income tax purposes was        
$395,727,833.                                                 
--------------------------------------------------------------------------------
  At September 30, 1999, the Fund had a net tax basis capital loss
      carryforward of approximately $120,500, which may be applied against
   any net taxable capital gains of each succeeding year until fully
       utilized or until September 30, 2004 ($63,000) and September 30, 2005
($57,500), the respective expiration dates.                   

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY TAX FREE MONEY FUND             

                                                        [Enlarge/Download Table]

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                        
------------------------------------------------------------------------------------------------------------

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

MUNICIPAL INVESTMENTS 100.0%                                                                                
------------------------------------------------------------------------------------------------------------

                                                                                                            
Alabama                                                                                                     
Alabama Special Care Facilities Financing Authority, Ascension Health Credit,                               
   Weekly Demand Note, Series B, 3.85%, 11/15/2039* ...............................   1,000,000   1,000,000 

Arizona                                                                                                     
Pima County, AZ, Industrial Development Authority, Tucson Electric Power Co.,                               
   Series 1982, Weekly Demand Note, 3.9%, 10/1/2022* ..............................   3,900,000   3,900,000 
Salt River, AZ, Agricultural Improvement and Power District, Tax Exempt                                     
   Commercial Paper:                                                                                        
      3.65%, 4/12/2000 ............................................................   1,100,000   1,100,000 
      3.9%, 5/12/2000 .............................................................   1,500,000   1,500,000 

California                                                                                                  
Los Angeles, CA,, Regional Airport Improvement Lease, Series 1985,                                          
   Daily Demand Note, 4.1%, 12/1/2025* ............................................   1,800,000   1,800,000 

Colorado                                                                                                    
Colorado Health Facilities Authority Revenue, Frasier Meadows Manor Project,                                
   Weekly Demand Note, 3.97%, 6/1/2021* ...........................................     990,000     990,000 

District Of Columbia                                                                                        
District of Columbia, General Obligation, Series B1, Daily Demand Note,                                     
   4.1%, 6/1/2003* ................................................................     800,000     800,000 

Florida                                                                                                     
Florida Housing Finance Agency, Multi-Family Housing,                                                       
   Weekly Demand Note, 4%, 7/1/2008* ..............................................   1,200,000   1,200,000 
Indian River County, FL, District Hospital Revenue, Weekly Demand Note,                                     
   4%, 10/1/2015* .................................................................   1,000,000   1,000,000 
Orange City, FL, Health Facilities Authority Revenue, Tax Exempt Commercial                                 
   Paper, 4.1%, 5/11/2000 (b) .....................................................   2,000,000   2,000,000 
Orange County, FL, Health Facilities Authority Revenue, Presbyterian Retirement,                            
   Weekly Demand Note, 4.05%, 11/1/2028* ..........................................     900,000     900,000 
Pinellas City, FL, Educational Facilities, Tax Exempt Commercial Paper:                                     
   4.1%, 5/9/2000 (b) .............................................................   1,000,000   1,000,000 
   4.05%, 5/15/2000 (b) ...........................................................   1,000,000   1,000,000 
Putnam County, FL, Pollution Control Revenue, Seminole Electric Cooperative                                 
   Finance Corp., 1984 Series H-1, Weekly Demand Note, 3.95%, 3/15/2014* ..........   3,850,000   3,850,000 
Sarasota, FL, County Hospital, Tax Exempt Commercial Paper, 3.95%, 5/12/2000 ......   1,500,000   1,500,000 
University of Northern Florida, Capital Improvement Revenue,                                                
   Weekly Demand Note, 3.95%, 11/1/2024* ..........................................   1,000,000   1,000,000 

Georgia                                                                                                     
Fayette County, GA, Educational Facilities Revenue, Catholic School Properties Inc.                         
   Project, Weekly Demand Note, 3.95%, 4/1/2024* ..................................   2,000,000   2,000,000 
Fulton County, GA, Development Authority Revenue, United Way of Metro Atlanta,                              
   Weekly Demand Note, 3.9%, 6/1/2024* ............................................   3,000,000   3,000,000 

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY TAX FREE MONEY FUND             

                                                        [Enlarge/Download Table]

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

                                                                                   Principal             
                                                                                   Amount ($)   Value ($)
---------------------------------------------------------------------------------------------------------
                                                                                                         
Gainsville, GA, Redevelopment Authority, Riverside Military Project,                                     
   Weekly Demand Note, 3.95%, 7/1/2024* ........................................   1,000,000   1,000,000 

Illinois                                                                                                 
Alsip, IL, Industrial Development Revenue, Keeble Co. Project,                                           
   Weekly Demand Note, 4%, 10/1/2004* ..........................................   3,750,000   3,750,000 
Illinois Health Facilities Authority Revenue, Tax Exempt Commercial Paper,                               
   3.75%, 4/11/2000 ............................................................   2,000,000   2,000,000 

Indiana                                                                                                  
Fort Wayne, IN, Pollution Control Revenue, Weekly Demand Note, 4%, 11/1/2005* ..   1,000,000   1,000,000 
Indiana Health Financing Authority Revenue, Ascension Health Credit,                                     
   Series B, 3.85%, 11/15/2039 .................................................   1,500,000   1,500,000 
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public Services,                          
   Series C, Daily Demand Note, 4%, 4/1/2019* ..................................     600,000     600,000 

Kentucky                                                                                                 
Danville County, KY, Tax Exempt Commercial Paper, 3.75%, 4/12/2000 .............   1,000,000   1,000,000 
Mayfield, KY, Multi-City Lease Revenue, Kentucky League of Cities Funding Trust,                         
   Weekly Demand Note, Series 1996, 3.95%, 7/1/2026* ...........................     755,000     755,000 
Pendleton, KY, City Lease Revenue, Tax Exempt Commercial Paper:                                          
   3.65%, 4/7/2000 .............................................................   1,000,000   1,000,000 
   3.65%, 4/10/2000 ............................................................   1,000,000   1,000,000 

Louisiana                                                                                                
Louisiana Public Finance Authority, Tax Exempt Commercial Paper,                                         
   3.85%, 4/12/2000 (b) ........................................................   1,535,000   1,535,000 

Michigan                                                                                                 
Michigan State Strategic Fund Pollution, Control Revenue, General Motors Corp.,                          
   Weekly Demand Note, 4%, 4/1/2008* ...........................................   1,300,000   1,300,000 
University of Michigan, University Revenue, Series 1995A, Daily Demand Note,                             
   4%, 12/1/2027* ..............................................................   1,100,000   1,100,000 

Minnesota                                                                                                
Cottage Grove, MN, Environmental Control Revenue, Minnesota Mining                                       
   and Manufacturing, Series 1982, Weekly Demand Note, 4.017%, 8/1/2012* .......     300,000     300,000 

Missouri                                                                                                 
Missouri Environmental Improvement & Energy Authority, Tax Exempt                                        
   Commercial Paper, 3.95%, 4/24/2000 ..........................................   1,100,000   1,100,000 

Nevada                                                                                                   
Las Vegas, NV, Valley Water Authority District, Tax Exempt Commercial Paper,                             
   3.6%, 4/10/2000 .............................................................   2,000,000   2,000,000 

New Hampshire                                                                                            
New Hampshire General Obligation, Tax Exempt Commercial Paper,                                           
   3.95%, 5/9/2000 .............................................................   2,000,000   2,000,000 

New York                                                                                                 
Nassau County, NY, Tax Anticipation Note, Series B, 4.75%, 8/31/2000 ...........   1,000,000   1,003,027 

 The accompanying notes are an integral part of the financial statements

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                                                        [Enlarge/Download Table]

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

                                                                                                           
North Carolina                                                                                             
North Carolina Medical Care Community, Retirement Community Revenue,                                       
   Weekly Demand Note, 3.95%, 11/15/2009* ......................................    4,000,000   4,000,000  

Ohio                                                                                                       
Medina County, OH, Health Care Facilities Revenue, Weekly Demand Note,                                     
   3.97%, 12/1/2023* ...........................................................    3,000,000   3,000,000  

Oklahoma                                                                                                   
Oklahoma City, OK, General Obligation, Tax Exempt Commercial Paper,                                        
   3.95%, 5/8/2000 (b) .........................................................    1,500,000   1,500,000  

Pennsylvania                                                                                               
Pennsylvania Higher Educational Facilities Authority, University of Pennsylvania                           
   Health Services, Series B, Weekly Demand Note, 3.9%, 1/1/2026* (b) ..........    1,000,000   1,000,000  
Philadelphia, PA, Tax and Revenue Anticipation Note, Series A, 4.25%, 6/30/2000       700,000     701,250  

Texas                                                                                                      
Harris City, TX, General Obligation, Tax Exempt Commercial Paper:                                          
   3.8%, 4/14/2000 .............................................................    1,500,000   1,500,000  
   3.9%, 5/11/2000 .............................................................    1,500,000   1,500,000  
Harris County, TX, Health Facilities Authority Revenue, Saint Lukes                                        
   Episcopal Hospital, Series A, Daily Demand Note, 4.1%, 2/15/2027* ...........    1,000,000   1,000,000  
Houston, TX, Water and Sewer Authority, Tax Exempt Commercial Paper,                                       
   3.85%, 4/7/2000 .............................................................    1,000,000   1,000,000  
San Antonio, TX, Electric and Gas, Tax Exempt Commercial Paper,                                            
   3.65%, 4/11/2000 ............................................................    2,100,000   2,100,000  
State of Texas, Tax and Revenue Anticipation Note, 4.5%, 8/31/2000 .............    2,800,000   2,808,833  
Tarrant County, TX, Health Facility Authority Revenue, Adventist Health Systems,                           
   Weekly Demand Note, 3.95%, 11/15/2027* ......................................    2,000,000   2,000,000  
Texas Small Business Industrial Development Corp., Industrial Development                                  
   Revenue, Weekly Demand Note, 3.95%, 7/1/2026* ...............................    3,400,000   3,400,000  
University of Texas, TX, Higher Education Authority, Series A,                                             
   Tax Exempt Commercial Paper, 3.95%, 5/11/2000 ...............................    1,500,000   1,500,000  

Virginia                                                                                                   
Albemarle County, VA, Industrial Development Authority, University of Virginia                             
   Health Services, 3.9%, 10/1/2022 ............................................    1,000,000   1,000,000  

Tennessee                                                                                                  
Clarksville, TN, Public Building Authority, Pooled Financings, Series 1994,                                
   Weekly Demand Note, 4%, 6/1/2024* ...........................................    1,900,000   1,900,000  

Vermont                                                                                                    
Vermont Educational & Health Buildings Finance Agency Revenue,                                             
   Weekly Demand Note, 3.95%, 12/1/2030* .......................................    1,000,000   1,000,000  
                                                                                              -----------  
Total Municipal Investments (Cost $84,393,110) .................................               84,393,110  
                                                                                              -----------  
-----------------------------------------------------------------------------------------------------------

Total Investment Portfolio-- 100% (Cost $84,393,110) (a) .......................               84,393,110  
                                                                                              ===========  
-----------------------------------------------------------------------------------------------------------

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY TAX FREE MONEY FUND                       

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

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

  *      Floating rate and monthly, weekly, or daily demand notes are securities
    whose interest rates vary with a designated market index or market
     rate, such as the coupon-equivalent of the U.S. Treasury bill rate.
    Variable rate demand notes are securities whose interest rates are
   reset periodically at levels that are generally comparable to tax
        exempt commercial paper. These securities are payable on demand within
       seven calendar days and normally incorporate an irrevocable letter of
      credit or line of credit from a major bank. These notes are carried,
         for purposes of calculating average weighted maturity, at the longer of
         the period remaining until the next rate change or to the extent of the
       demand period. These securities are shown at their current rate as of
March 31, 2000.                                               

(a)      At March 31, 2000, the cost for federal income tax purposes was        
$84,393,110.                                                  

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

 The accompanying notes are an integral part of the financial statements

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AARP PREMIUM MONEY FUND                                                         

                                                        [Enlarge/Download Table]

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                   
-------------------------------------------------------------------------------------------------------

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

REPURCHASE AGREEMENTS 1.8%                                                                             
-------------------------------------------------------------------------------------------------------

                                                                                                       
State Street Bank and Trust Company, 6.05%, to be repurchased at $4,397,217                            
   on 4/3/2000** (Cost $4,395,000) ........................................     4,395,000    4,395,000 
                                                                                          ------------ 
COMMERCIAL PAPER 65.1%                                                                                 
-------------------------------------------------------------------------------------------------------

Alpine Securitization Corp., 6.15%, 6/15/2000 .............................     9,049,000    8,933,061 
American Home Products Corp., 5.9%, 4/28/2000 .............................     9,000,000    8,960,175 
Barton Capital Corp., 5.85%, 4/6/2000 .....................................    10,000,000    9,991,875 
Bavaria Finance Funding, 6.03%, 4/4/2000 ..................................    10,000,000    9,994,975 
Bavaria Universal Funding, 5.91%, 4/11/2000 ...............................    10,000,000    9,983,583 
CXC Inc., 5.87%, 4/3/2000 .................................................     7,450,000    7,447,570 
GIRO Funding Corp., 5.87%, 4/3/2000 .......................................    11,000,000   10,996,413 
GMAC Mortgage Corp., 5.96%, 4/3/2000 ......................................     1,000,000      999,669 
Knight-Ridder Inc., 5.87%, 4/12/2000 ......................................    10,000,000    9,982,064 
MCI Worldcom Inc., 5.98%, 5/5/2000 ........................................    11,000,000   10,937,874 
Moat Funding LLC, 6.05%, 4/5/2000 .........................................     5,000,000    4,996,639 
Monte Rosa Capital Corp., 5.85%, 4/6/2000 .................................    10,000,000    9,991,875 
Pemex Capital Inc., 6.07%, 4/7/2000 .......................................     9,000,000    8,990,895 
Pemex Capital Inc., 6.29%, 9/21/2000 ......................................    12,000,000   11,637,277 
Quincy Capital Corp., 6.19%, 7/12/2000 ....................................    11,230,000   11,032,885 
Stellar Funding Group, 5.87%, 4/7/2000 ....................................     8,000,000    7,992,173 
Superior Funding Capital, 5.87%, 4/6/2000 .................................     9,289,000    9,281,427 
Thunder Bay Funding Corp., 5.86%, 4/14/2000 ...............................    10,000,000    9,978,839 
                                                                                          ------------ 
Total Commercial Paper (Cost $162,129,269) ................................                162,129,269 
                                                                                          ------------ 

CERTIFICATES OF DEPOSIT 14.8%                                                                          
-------------------------------------------------------------------------------------------------------

American Express Centurian Bank, 6.23%, 6/19/2000* ........................     6,500,000    6,497,541 
Credit Suisse First Boston Corp., 6.22%, 6/9/2000* ........................     5,000,000    5,000,000 
Deutsche Bank AG, 6.14%, 4/17/2000* .......................................     2,000,000    1,999,949 
Finova Capital Corp., 6.19%, 6/12/2000* ...................................     5,000,000    5,000,000 
First National Bank of Maryland, 6.09%, 8/7/2000* .........................     5,000,000    4,999,040 
First Union National Bank, 6.14%, 7/26/2000* ..............................     5,000,000    5,000,000 
Old Kent Bank, 6.19%, 6/16/2000* ..........................................     4,000,000    3,999,673 
Royal Bank of Scotland, 5.89%, 12/11/2000* ................................     4,500,000    4,497,548 
                                                                                          ------------ 
Total Certificates Of Deposit (Cost $36,993,751) ..........................                 36,993,751 
                                                                                          ------------ 

 The accompanying notes are an integral part of the financial statements

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AARP PREMIUM MONEY FUND                                                         

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

SHORT-TERM AND MEDIUM-TERM NOTES 18.3%                                                
--------------------------------------------------------------------------------------

                                                                                      
Beneficial Corp., 6.22%, 9/5/2000* ......................     1,000,000    1,000,090  
Comerica Bank, 5.94%, 1/12/2001* ........................     7,500,000    7,497,692  
Goldman Sachs Group, 5.99%, 4/17/2000* ..................    11,000,000   11,000,000  
GTE Corp., 6.16%, 6/12/2000* ............................     6,000,000    5,999,088  
Heller Financial Inc., 6.32%, 6/1/2000* .................     3,000,000    3,000,648  
Heller Financial Inc., 6.42%, 9/25/2000* ................     1,000,000    1,000,341  
PNC Bank Corp., 5.84%, 7/12/2000* .......................    10,000,000    9,997,765  
U.S. Bank NA, 6.05%, 7/19/2000* .........................     6,000,000    5,998,715  
                                                                        ------------  
Total Short-Term and Medium-Term Notes (Cost $45,494,339)                 45,494,339  
                                                                        ------------  
--------------------------------------------------------------------------------------

Total Investment Portfolio -- 100% (Cost $249,012,359) (a)               249,012,359  
--------------------------------------------------------------------------------------

*        Floating rate notes are securities whose interest rates vary with a    
       designated market index or market rate, such as the coupon equivalent
        of the U.S. Treasury bill rate. The securities are shown at their rate
as of March 31, 2000.                                         

**       Repurchase agreements are fully collateralized by U.S. Treasury or     
Government agency securities.                                 

(a)      At March 31, 2000, the cost for federal income tax purposes was        
$249,012,359.                                                 

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY SHORT TERM BOND FUND                                                                   

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                     
---------------------------------------------------------------------------------------------------------

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

REPURCHASE AGREEMENTS 5.7%                                                                               
---------------------------------------------------------------------------------------------------------
                                                                                                         
State Street Bank and Trust Company, 6.05%, to be repurchased at $20,966,565 on                          
   4/3/2000** (Cost $20,956,000) ..............................................   20,956,000   20,956,000
                                                                                              -----------
SHORT-TERM INVESTMENT 3.3%                                                                               
---------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Corp., 6.05%, 4/3/2000 (Cost $11,993,950) ..........   12,000,000   11,993,950
                                                                                              -----------
U.S. TREASURY OBLIGATIONS 3.2%                                                                           
---------------------------------------------------------------------------------------------------------

U.S. Treasury Note, 7%, 7/15/2006 (Cost $11,790,091) ..........................   11,500,000   11,884,560
                                                                                              -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 4.6%                                                           
---------------------------------------------------------------------------------------------------------

Government National Mortgage Association REMIC, 6.37%, 9/20/2024 ..............    5,119,033    5,130,193
Government National Mortgage Association, 7%, 4/1/2015 (b) ....................    5,000,000    4,931,250
Government National Mortgage Association, 7.5% with various maturities                                   
   to 11/1/2014 ...............................................................    2,289,263    2,292,125
Government National Mortgage Association, 8% with various maturities                                     
   to 8/15/2012 ...............................................................    3,416,194    3,464,226
Government National Mortgage Association, 8.5%, 11/15/2009 ....................    3,473,797    3,536,568
                                                                                              -----------
Total Government National Mortgage Association (Cost $19,477,663) .............                19,354,362
                                                                                              -----------
U.S. GOVERNMENT AGENCY PASS-THRUS* 2.1%                                                                  
---------------------------------------------------------------------------------------------------------

Student Loan Marketing Association, 6.24%, 1/25/2013 (Cost $7,600,000) ........    7,600,000    7,600,000
                                                                                              -----------
U.S. GOVERNMENT BACKED MORTGAGES* 23.4%                                                                  
---------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Association, 6%, 2/15/2017 .........................    9,000,000    8,738,370
Federal Home Loan Mortgage Corp. 5.75%, 3/15/2009 .............................    3,150,000    2,853,711
Federal Home Loan Mortgage Corp., 6%, 11/15/2017 ..............................    7,000,000    6,818,420
Federal Home Loan Mortgage Corp., 7.06%, 6/25/2016 ............................    4,100,000    4,048,750
Federal Home Loan Mortgage Corp., 6.75%, 8/15/2016 ............................    4,500,000    4,457,109
Federal Home Loan Mortgage Corp., 6.15%, 3/15/2021 ............................    3,000,000    2,936,250
Federal Home Loan Mortgage Corp., 6.275%, 11/25/2029 ..........................   19,063,611   19,081,484
Federal Home Loan Mortgage Corp., 5.96% to 5/25/2030 ..........................    8,990,805    8,997,829
Federal National Mortgage Association, 6%, 1/18/2014 ..........................    3,100,000    3,038,961
Federal National Mortgage Association, 6.5%, 3/25/2014 ........................    5,300,000    5,218,844
Federal National Mortgage Association, 6.5%, 4/25/2014 ........................    6,000,000    5,906,250
Federal National Mortgage Association, 6%, 7/25/2017 ..........................    7,700,000    7,517,125
Federal National Mortgage Association, 7.5% with various maturities                                      
   to 10/1/2015 ...............................................................    4,451,588    4,457,150
Federal National Mortgage Association 8% with various maturities                                         
   to 12/1/2009 ...............................................................    4,956,803    5,012,567
Residential Funding Mortgage Security, 7.82%, 4/28/2022 .......................      813,452      811,923
                                                                                              -----------
Total U.S. Government Backed Mortgages (Cost $90,686,688) .....................                89,894,743
                                                                                              -----------

     The accompanying notes are an integral part of the financial statements                             

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AARP HIGH QUALITY SHORT TERM BOND FUND                                                                   

---------------------------------------------------------------------------------------------------------
                                                                                 Principal               
                                                                                 Amount ($)    Value ($) 
---------------------------------------------------------------------------------------------------------
ASSET BACKED* 20.9%                                                                                      
---------------------------------------------------------------------------------------------------------

Miscellaneous Receivables 1.2%                                                                           
Coast-Plymouth Tax Lien Capital, LLC, Series 1999-A A, 6.76%, 11/15/2004 ....    4,303,348    4,276,452  
                                                                                             ----------- 
Automobile Receivables 3.9%                                                                              
Capital Automobile Receivable Asset Trust, Series 1999-1 A2, 5.58%, 6/15/2002    4,758,000    4,708,933  
Ford Credit Auto Owner Trust, Series 1998-C A5, 5.86%, 10/15/2002 ...........    4,500,000    4,431,094  
Premier Auto Trust, Series 1999-2 A4, 5.59%, 2/9/2004 .......................    5,400,000    5,197,500  
                                                                                             ----------- 
                                                                                             14,337,527  
                                                                                             ----------- 
Credit Card Receivables 6.2%                                                                             
CNL Funding, Series 1999-1 A1, 7.295%, 3/18/2010 ............................    2,546,015    2,484,752  
Discover Card Master Trust I, Series 2000-2 A, 6.18%, 9/18/2007 .............    7,500,000    7,495,313  
Discover Card Master Trust I, Series 1996-4 A, 6.38%, 10/16/2013 ............    4,000,000    4,036,250  
MBNA Master Credit Card Trust, Series 1996-C B, 6.28%, 8/15/2003 ............    5,000,000    5,000,000  
Sears Credit Account Master Trust, Series 1999-3, 6.45%, 11/15/2005 .........    4,000,000    3,863,750  
                                                                                             ----------- 
                                                                                             22,880,065  
                                                                                             ----------- 
Home Equity Loans 5.4%                                                                                   
EQCC Home Equity Loan Trust, Series 1996-4 A6, 6.88%, 7/15/2004 .............    3,000,000    2,981,250  
Greenpoint Home Equity Loan Trust, Series 1999-2 A2, 6.38%, 12/15/2025 ......    4,892,542    4,897,129  
HFC Home Equity Loan, Asset Backed Certificate, Series 1999-1 A2, 6.95%,                                 
   10/20/2023 ...............................................................    2,700,000    2,678,063  
Residential Asset Securities Corp., Series 1999-K53 AF3, 7.18%, 1/25/2025 ...    4,500,000    4,391,719  
Residential Funding Mortgage Securities, Inc. Series 2000-HI1 A12, 7.58%,                                
   9/25/2010 ................................................................    5,000,000    4,999,219  
                                                                                             ----------- 
                                                                                             19,947,380  
                                                                                             ----------- 
Manufactured Housing Receivables 4.2%                                                                    
GE Capital Mortgage Services, Inc., Series 1999-HE3 A2, 7%, 8/25/2013 .......    4,500,000    4,452,891  
Green Tree Financial Corp. Series 1993-4 B1, 7.2%, 1/15/2019 ................    3,113,361    2,962,071  
Green Tree Financial Corp. Series 1997-1 B1, 7.23%, 3/15/2028 ...............    4,000,000    3,380,000  
Green Tree Financial Corp. Series 1997-2 B2, 8.05%, 6/15/2028 ...............    1,478,760    1,150,198  
Merrill Lynch Mortgage Investors Inc., "B", Series 1991-D 9.85%, 7/15/2011 ..    3,389,649    3,447,883  
                                                                                             ----------- 
                                                                                             15,393,043  
                                                                                             ----------- 
Total Asset Backed (Cost $78,332,808) .......................................                76,834,467  
                                                                                             ----------- 

CORPORATE BONDS 36.8%                                                                                    
---------------------------------------------------------------------------------------------------------

Consumer Discretionary 2.2%                                                                              
Wal-Mart Stores Inc., 5.85%, 6/1/2000 (c) ...................................    8,000,000    7,989,280  
                                                                                             ----------- 
Consumer Staples 2.7%                                                                                    
Gillette Company, 5.75%, 8/3/2001 ...........................................    5,000,000    4,906,000  
Safeway Inc., 7%, 9/15/2002 .................................................    5,000,000    4,936,050  
                                                                                             ----------- 
                                                                                              9,842,050  
                                                                                             ----------- 
Communications 3.9%                                                                                      
Sprint Capital Corp., 5.875%, 5/1/2004 ......................................    5,000,000    4,740,750  
US West Communications, 6.375%, 10/15/2002 ..................................    5,000,000    4,880,700  

     The accompanying notes are an integral part of the financial statements                             

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--------------------------------------------------------------------------------------                   
                                                              Principal                                  
                                                              Amount ($)     Value ($)                   
--------------------------------------------------------------------------------------                   
WorldCom, Inc., 6.125%, 8/15/2001 .......................     5,000,000     4,923,850                    
                                                                          ------------                   
                                                                           14,545,300                    
                                                                          ------------                   
Financial 17.9%                                                                                          
Associates Corp of North America, 6.21%, 2/22/2002 ......     5,000,000     4,998,431                    
Bank One Milwaukee N.A., 6.625%, 4/15/2003 ..............     5,000,000     4,913,650                    
Bank of America Corp., 6.625%, 6/15/2004 ................     5,000,000     4,858,350                    
CIT Group, Inc., 7.375%, 3/15/2003 ......................     3,500,000     3,502,065                    
Capital One Bank, 6.57%, 1/27/2003 ......................     4,000,000     3,890,000                    
Chase Manhattan Corp., 5.75%, 4/15/2004 .................     5,000,000     4,715,800                    
EOP Operating L.P., 6.375%, 2/15/2003 ...................     6,000,000     5,773,560                    
FleetBoston Financial Group, 6.458%, 3/27/2003 ..........     5,000,000     5,000,550                    
General Electric Capital Corp., 6.02%, 5/4/2001 .........     5,000,000     4,965,625                    
Heller Financial Inc., 5.48%, 2/5/2001 ..................       500,000       492,480                    
NBD Bank NA Michigan, 6.25%, 8/15/2003 ..................     3,000,000     2,901,480                    
Prudential Funding Corp, 6.19%, 2/15/2002 ...............    10,000,000     9,977,100                    
Transamerica Finance Corp., 7.25%, 8/15/2002 ............     5,000,000     4,963,600                    
Wells Fargo Co., 6.5%, 9/3/2002 .........................     5,000,000     4,917,950                    
                                                                          ------------                   
                                                                           65,870,641                    
                                                                          ------------                   
Media 1.3%                                                                                               
Cox Communications, Inc., 7.5%, 8/15/2004 ...............     5,000,000     4,992,900                    
                                                                          ------------                   
Service Industries 1.3%                                                                                  
USA Waste Services, Inc., 6.125%, 7/15/2001 .............     5,000,000     4,775,000                    
                                                                          ------------                   
Durables 2.7%                                                                                            
DaimlerChrysler NA Holdings, 6.84%, 10/15/2002 ..........     5,000,000     4,954,250                    
General Motors Acceptance Corp., 6.75%, 12/10/2002 ......     5,000,000     4,937,000                    
                                                                          ------------                   
                                                                            9,891,250                    
                                                                          ------------                   
Technology 2.4%                                                                                          
International Business Machines Corp., 7.25%, 11/1/2002 .     4,000,000     4,019,800                    
Raytheon Co., 6.45%, 8/15/2002 ..........................     5,000,000     4,855,050                    
                                                                          ------------                   
                                                                            8,874,850                    
                                                                          ------------                   
Energy 1.3%                                                                                              
Atlantic Richfield Co., 5.55%, 4/15/2003 ................     5,000,000     4,761,250                    
                                                                          ------------                   
Utilities 1.1%                                                                                           
Detroit Edison Co., 5.93%, 2/1/2001 .....................     4,000,000     3,963,360                    
                                                                          ------------                   
Total Corporate Bonds (Cost $137,432,986) ...............                 135,505,881                    
                                                                          ------------                   
--------------------------------------------------------------------------------------                   
Total Investment Portfolio -- 100%                                                                       
   (Cost $378,270,186) (a) ..............................                 374,023,963                    
                                                                          ============                   
--------------------------------------------------------------------------------------                   

 The accompanying notes are an integral part of the financial statements

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AARP HIGH QUALITY SHORT TERM BOND FUND                                          

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

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

*  Effective maturities may be shorter due to prepayments.                

** Repurchase agreements are fully collateralized by U.S. Treasury or     
Government agency securities.                                       

(a) At March 31, 2000, the net unrealized depreciation on investments based 
   on cost for federal income tax purposes of $378,270,500 was as follows:

Aggregate gross unrealized appreciation for all                     
investments in which there is an excess of value                    
     over tax cost ............................................  $     327,863

Aggregate gross unrealized depreciation for all                     
investments in which there is an excess of tax cost                 
      over value ...............................................     (4,574,400)
                                                                  --------------

      Net unrealized depreciation .............................. $   (4,246,537)
                                                                  ==============

(b) When issued or forward delivery pools included.                         

(c) At March 31, 2000, this security, in part or in whole, has been         
segregated to cover when issued or forward delivery securities.     

--------------------------------------------------------------------------------
      Purchases  and  sales  of  investment   securities  (excluding  short-term
      investments  and direct  obligations of the U.S.  Government)  for the six
      months  ended March 31, 2000  aggregated  $427,423,441  and  $487,497,024,
      respectively.  Purchases  and  sales  of  direct  obligations  of the U.S.
Government aggregated $217,227,415 and $214,444,648, respectively.  
--------------------------------------------------------------------------------
      At  September  30,  1999,  the  Fund  had a net  tax  basis  capital  loss
      carryforward of approximately $1,293,000, which may be applied against any
      realized net taxable  capital  gains of each  succeeding  year until fully
      realized,  or until September 30, 2005 ($1,182,000) and September 30, 2007
      ($111,000), the respective expiration dates. In addition, from November 1,
      1998  through   September  30,  1999,  the  Fund  incurred   approximately
      $2,650,000  of  net  realized   capital   losses.   As  permitted  by  tax
      regulations,  the Fund  intends to elect to defer  these  losses and treat
them as arising in the fiscal year ending September 30, 2000.       

 The accompanying notes are an integral part of the financial statements

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AARP GNMA AND U.S. TREASURY FUND                                                                          

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                      
----------------------------------------------------------------------------------------------------------
                                                                                Principal                 
                                                                                Amount ($)      Value ($) 
----------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS** 17.5%                                                                             
----------------------------------------------------------------------------------------------------------

                                                                                                          
Goldman Sachs, 6%, to be repurchased at $180,090,000 on 4/3/2000** .......     180,000,000     180,000,000
Merrill Lynch, 6%, to be repurchased at $170,141,667 on 4/5/2000** .......     170,000,000     170,000,000
Morgan Stanley, 6.01%, to be repurchased at $198,165,275 on 4/5/2000 .....     198,000,000     198,000,000
Donaldson, Lufkin, & Jenrette, 6.06%, to be repurchased at $100,050,500                                   
   on 4/3/2000 ...........................................................     100,000,000     100,000,000
Salomon Smith Barney, 6.11%, to be repurchased at $100,067,889 on 4/4/2000     100,000,000     100,000,000
State Street Bank and Trust Company, 6.05%, to be repurchased at                                          
   $118,185,555 on 4/3/2000 ..............................................     118,126,000     118,126,000
                                                                                             -------------
Total Repurchase Agreements (Cost $866,126,000) ..........................                     866,126,000
                                                                                             -------------
U.S. GOVERNMENT & AGENCIES 6.0%                                                                           
----------------------------------------------------------------------------------------------------------

U.S. Treasury Bond, 10.625%, 8/15/2015 ...................................     149,100,000     212,980,404
U.S. Treasury Bond, 6.625%, 2/15/2027 ....................................      60,500,000      64,905,005
U.S. Treasury Note, 7%, 7/15/2006 ........................................      15,300,000      15,811,632
                                                                                             -------------
Total U.S. Government & Agencies (Cost $287,900,782) .....................                     293,697,041
                                                                                             -------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 76.5%                                                           
----------------------------------------------------------------------------------------------------------

6% with various maturities to 2/15/2029 (c) ..............................      34,593,387      31,620,517
6.5% with various maturities to 5/15/2029 (c) ............................   1,146,319,822   1,085,632,911
7% with various maturities to 3/15/2030 (b)(c) ...........................   1,209,099,949   1,172,016,823
7.5% with various maturities to 4/1/2030 (b)(c) ..........................     758,788,705     753,081,559
8% with various maturities to 5/1/2030 (b)(c) ............................     357,258,559     361,263,388
8.5% with various maturities to 4/1/2030 (b)(c) ..........................     242,118,611     248,268,705
9% with various maturities to 3/15/2030 (c) ..............................     113,526,182     117,664,467
9.5% with various maturities to 1/15/2021 (c) ............................          39,817          41,756
10.5% with various maturities to 1/20/2021 (c) ...........................       5,382,075       5,843,584
11.5% with various maturities to 2/15/2016 (c) ...........................       1,398,800       1,554,731
12% with various maturities to 7/15/2015 (c) .............................       2,727,677       3,058,510
12.5% with various maturities to 8/15/2015 (c) ...........................       2,205,828       2,500,005
13% with various maturities to 7/15/2015 (c) .............................         245,175         280,751
13.5% with various maturities to 10/15/2014 (c) ..........................         355,739         412,512
14% with various maturities to 12/15/2014 (c) ............................         212,263         245,942
14.5% with various maturities to 10/15/2014 (c) ..........................          64,218          75,677

     The accompanying notes are an integral part of the financial statements                              

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AARP GNMA AND U.S. TREASURY FUND                                                                          

-------------------------------------------------------------------------------------------------------   
                                                                            Principal                     
                                                                            Amount ($)       Value ($)    
-------------------------------------------------------------------------------------------------------   
15% with various maturities to 10/15/2012 (c) ......................         168,725         199,632      
16% with various maturities to 2/15/2012 (c) .......................          50,095          59,385      
                                                                                      -----------------   
Total Government National Mortgage Association (Cost $3,841,900,840)                   3,783,820,855      
                                                                                      -----------------   
-------------------------------------------------------------------------------------------------------   
Total Investment Portfolio-- 100% (Cost $4,995,927,622) (a) ........                   4,943,643,896      
                                                                                      =================   
-------------------------------------------------------------------------------------------------------   

*  Effective maturities may be shorter due to prepayments.                

** Repurchase agreements are fully collateralized by U.S. Treasury or     
Government agency securities.                                       

(a) At March 31, 2000, the net unrealized depreciation on investments based 
     on cost for federal income tax purposes of $4,995,927,622 was as follows:

Aggregate gross unrealized appreciation for all                     
investments in which there is an excess of value                    
     over tax cost ..........................................    $   7,439,739

Aggregate gross unrealized depreciation for all                     
investments in which there is an excess of tax cost                 
      over value .............................................      (59,723,465)
                                                                 ---------------

      Net unrealized depreciation ............................   $  (52,283,726)
                                                                 ===============

(b) When issued or forward delivery pools included.                         

(c) At March 31, 2000, these securities, in part or in whole, has been      
segregated to cover when issued or forward delivery pools.          

 At March 31, 2000, open futures contracts sold short were as follows:

                                                        [Enlarge/Download Table]

                                                                                                         Unrealized  
                                                    Number of          Aggregate                        Appreciation/
       Futures                  Expiration Date     Contracts        Face Value ($)      Value ($)     (Depreciation)
       -------                  ---------------     ---------        --------------      ---------     --------------
                                                                                                                     
U.S. Treasury Note                 June, 2000           936           91,378,874         91,801,125    $  (422,251)  

U.S. Treasury Note                 June, 2000          1,729         167,841,368        170,306,500     (2,465,132)  

U.S. Treasury Bond                 June, 2000           696           67,625,854         67,990,500       (364,646)  
                                                                                                         ----------- 

Total net unrealized depreciation on open futures contracts .......................................... $(3,252,029)  
                                                                                                       ============  

--------------------------------------------------------------------------------
   Purchases  and  sales  of   investment   securities   (excluding   short-term
   investments and direct obligations of the U.S. Government) for the six months
   ended  March  31,  2000   aggregated   $5,342,476,518   and   $5,646,765,213,
   respectively.   Purchases  and  sales  of  direct  obligations  of  the  U.S.
   Government  aggregated   $1,302,873,076  and  $1,280,867,719,   respectively.
   Purchases  and  sales  of  mortgage  dollar  roll   transactions   aggregated
$1,173,317,644 and $1,174,899,928, respectively.                          
--------------------------------------------------------------------------------
   At September 30, 1999, the Fund had a net tax basis capital loss carryforward
   of approximately  $243,324,000  which may be applied against any realized net
   taxable  capital gains of each  succeeding year until fully utilized or until
   September 30, 2003, the expiration  date. In addition,  from November 1, 1998
   through  September 30, 1999, the Fund incurred  approximately  $88,000,000 of
   net  realized  capital  losses.  As permitted  by tax  regulations,  the Fund
   intends  to elect to defer  these  losses  and treat  them as  arising in the
fiscal year ending September 30, 2000.                                    

 The accompanying notes are an integral part of the financial statements

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AARP INSURED TAX FREE GENERAL BOND FUND                                                                       

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                          
--------------------------------------------------------------------------------------------------------------
                                                                                      Principal               
                                                                                      Amount ($)   Value ($)  
--------------------------------------------------------------------------------------------------------------

SHORT-TERM MUNICIPAL INVESTMENTS 0.7%                                                                         
--------------------------------------------------------------------------------------------------------------

Indiana                                                                                                       
                                                                                                              
Jasper County, IN, Pollution Control Revenue, Northern Indiana Public Services,                               
   Series C, Daily Demand Note, 4%, 4/1/2019* ....................................    7,400,000    7,400,000  

Texas                                                                                                         
Harris County, TX, Health Facilities Authority Revenue, Saint Lukes Episcopal                                 
   Hospital, Series A, Daily Demand Note, 4.1%, 2/15/2027* .......................    2,255,000    2,255,000  
                                                                                                --------------
Total Short-Term Municipal Investments (Cost $9,655,000) .........................                 9,655,000  
                                                                                                --------------
LONG-TERM MUNICIPAL INVESTMENTS 99.3%                                                                         
--------------------------------------------------------------------------------------------------------------

Alaska                                                                                                        
North Slope Borough, AK, General Obligation, Series 1997A, Zero Coupon,                                       
   6/30/2008 (b) .................................................................    7,000,000    4,506,460  
North Slope Borough, AK, General Obligation, Capital Appreciation:                                            
   Series A, Zero Coupon, 6/30/2006 (b) ..........................................    4,000,000    2,879,240  
   Series A, Zero Coupon, 6/30/2007 (b) ..........................................    5,000,000    3,405,000  
   Series B, Zero Coupon, 6/30/2004 (b) ..........................................   15,500,000   12,456,575  
   Series B, Zero Coupon, 6/30/2005 (b) ..........................................   25,600,000   19,472,128  

Arizona                                                                                                       
Arizona Municipal Finance Program, Certificate of Participation, Series 25,                                   
   7.875%, 8/1/2014 (b) ..........................................................    3,500,000    4,333,174  
Maricopa County, AZ:                                                                                          
   School District #6, Washington Elementary, Series B, 4.1%, 7/1/2013 (b) .......    2,950,000    2,554,730  
   School District #28, Kyrene Elementary, Series B, Zero Coupon, 1/1/2004 (b) ...    4,000,000    3,314,040  
   Unified School District #41, Gilbert School, Zero Coupon, 1/1/2005 (b) ........    5,280,000    4,150,872  

California                                                                                                    
Alameda County, CA, Certificate of Participation, Santa Rita Jail Project,                                    
   5.375%, 6/1/2009 (b) ..........................................................    5,000,000    5,199,551  
Banning, CA, Wastewater, Certificate of Participation:                                                        
   8%, 1/1/2019 (b) ..............................................................      960,000    1,204,079  
   8%, 1/1/2019 (b) ..............................................................    1,080,000    1,331,509  
Big Bear Lake, CA, Series 1996, 6%, 4/1/2011 (b) .................................    3,800,000    4,142,075  
California Housing Finance Agency, 5.3%, 8/1/2014 (b) ............................    1,660,000    1,661,526  
California State Public Works Board, Lease Revenue, Series A, 6.3%,                                           
   12/1/2006 (b) .................................................................    8,095,000    8,870,986  
Los Angeles County, CA, Capital Asset Leasing, 6%, 12/1/2006 (b) .................    9,000,000    9,667,620  
Los Angeles County, CA, Public Works Finance Authority, Lease Revenue,                                        
   Multiple Projects IV, 4.75%, 12/1/2010 (b) ....................................   11,140,000   10,983,594  
Madera County, CA, Certificate of Participation, Valley Childrens Hospital,                                   
   6.5%, 3/15/2010 (b) ...........................................................    2,840,000    3,199,317  
Oakland, CA, Redevelopment Agency, Tax Allocations, 6%, 2/1/2007 (b) .............    2,000,000    2,152,740  
San Diego County, CA, Water Authority Revenue, Certificate of Participation:                                  
   5.63%, 4/25/2007 (b) ..........................................................    6,300,000    6,556,473  
   5.68%, 4/22/2009 (b) ..........................................................    4,500,000    4,700,925  

     The accompanying notes are an integral part of the financial statements                                  

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AARP INSURED TAX FREE GENERAL BOND FUND                                                                       

------------------------------------------------------------------------------------------------------------  
                                                                                    Principal                 
                                                                                    Amount ($)    Value ($)   
------------------------------------------------------------------------------------------------------------  
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Revenue Refunding,                              
   6.75%, 7/1/2010 (b) .........................................................    2,000,000    2,295,160    
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road Revenue,                                     
   Capital Appreciation, Revenue Refunding, Series 1997A, Zero Coupon,                                        
   1/15/2012 (b) ...............................................................    3,000,000    1,615,500    

Colorado                                                                                                      
Mesa County, CO, Residual Revenue, Single Family Housing, Series 1992,                                        
   Zero Coupon, ETM, 12/1/2011 (b)** ...........................................    6,435,000    3,436,419    

Connecticut                                                                                                   
Connecticut Resource Recovery Authority, Series 1996, 6.25%,                                                  
   11/15/2005 (b) ..............................................................    2,000,000    2,129,140    
Connecticut State Health Facility Authority, Series 1992B, 6.15%, 11/15/2004 ...    5,000,000    5,138,250    

District Of Columbia                                                                                          
District of Columbia, General Obligation:                                                                     
   6.5%, 6/1/2010 (b) ..........................................................      110,000      121,447    
   Prerefunded 6/1/02 at 102, Series B, 6.125%, 6/1/2003 (b)*** ................       95,000       99,362    
   Series A, 5.875%, ETM, 6/1/2005 (b)** .......................................    2,335,000    2,431,155    
   Series B, 5.4%, 6/1/2006 (b) ................................................   18,905,000   19,190,466    
   Series B, 5.5%, 6/1/2007 (b) ................................................   25,000,000   25,517,000    
   Series B, 5.5%, 6/1/2008 (b) ................................................   21,300,000   21,747,513    
   Series B, 5.5%, 6/1/2009 (b) ................................................   16,150,000   16,463,149    
   Series B, 5.5%, 6/1/2009 (b) ................................................    2,840,000    2,895,068    
   Series B, 5.5%, 6/1/2012 (b) ................................................    1,050,000    1,062,926    
   Series B, Zero Coupon, 6/1/2000 (b) .........................................    3,500,000    3,475,395    
   Series B3, 5.4%, 6/1/2006 (b) ...............................................   10,000,000   10,151,000    

District of Columbia, General Obligation, Unrefunded Balance:                                                 
   6.5%, 6/1/2010 (b) ..........................................................    2,160,000    2,359,735    
   Series A, 5.875%, 6/1/2005 (b) ..............................................    2,415,000    2,503,317    
   Series B, 6.125%, 6/1/2003 (b) ..............................................    3,905,000    4,039,957    

Washington D.C. Convention Center Authority, Dedicated Tax Revenue, 5.25%,                                    
   10/1/2012 ...................................................................    4,000,000    3,985,520    

Georgia                                                                                                       
Cobb County, GA, Kennestone Hospital Authority, Series A, 5.625%,                                             
   4/1/2011 (b) ................................................................    2,305,000    2,373,620    
Macon-Bibb County, GA, Hospital Authority, Medical Center of Central Georgia,                                 
   Series C, 5.25%, 8/1/2011 (b) ...............................................    3,000,000    2,992,170    
Municipal Electric Authority Power Revenue, Series Y, 6.4%, 1/1/2013 (b) .......    3,500,000    3,872,400    
State of Georgia, General Obligation, Series C, 5.5%, 9/1/2014 (b) .............    2,000,000    2,058,200    

Hawaii                                                                                                        
State of Hawaii, General Obligation, Series CT, 5.7%, 9/1/2013 (b) .............   18,095,000   18,629,888    

Illinois                                                                                                      
Central Lake County, IL, Joint Action Water Agency, Refunding Revenue,                                        
   Zero Coupon, 5/1/2002 (b) ...................................................    2,245,000    2,025,910    
Chicago, IL, General Obligation:                                                                              
   6.25%, 1/1/2011 (b) .........................................................    3,000,000    3,261,780    
   Series A, 5.375%, 1/1/2013 (b) ..............................................   15,410,000   15,373,478    
   Series B, 5%, 1/1/2010 (b) ..................................................    5,200,000    5,097,456    
   Series B, 5%, 1/1/2011 (b) ..................................................    1,620,000    1,575,256    

 The accompanying notes are an integral part of the financial statements

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

                                                                                                            
   Series B, 5.125%, 1/1/2015 (b) ............................................    9,550,000    9,144,030    
Chicago, IL, General Obligation Lease, Board of Education:                                                  
   Certificates of Participation, Series A, 6%, 1/1/2020 (b) .................   36,625,000   38,090,733    
   Series 1996, 6.25%, 12/1/2011 (b) .........................................    1,600,000    1,748,368    
   Series A, 6.25%, 1/1/2010 (b) .............................................   11,550,000   12,522,395    
   Series A, 6.25%, 1/1/2015 (b) .............................................   26,000,000   28,169,700    
   Series A, 6%, 1/1/2016 (b) ................................................   11,025,000   11,647,472    
Chicago, IL, O'Hare International Airport, Revenue Refunding, Series C,                                     
   5%, 1/1/2011 (b) ..........................................................    6,500,000    6,320,470    
Chicago, IL, Public Building Commission, Building Revenue:                                                  
   Board of Education, Series A, Zero Coupon, ETM, 1/1/2006 (b)** ............    2,430,000    1,807,871    
   Series A, 5.25%, 12/1/2007 (b) ............................................    3,500,000    3,537,135    
   Series A, 5.25%, 12/1/2009 (b) ............................................   10,420,000   10,489,918    
   Series A, 5.25%, 12/1/2011 (b) ............................................    9,705,000    9,654,049    
Chicago, IL, Wastewater Transmission Revenue:                                                               
   5.5%, 1/1/2009 (b) ........................................................   11,990,000   12,281,597    
   5.5%, 1/1/2010 (b) ........................................................    7,220,000    7,383,389    
Cook & Dupage Counties, IL, Housing Development Authority:                                                  
   Zero Coupon, 12/1/2007 (b) ................................................    2,550,000    1,703,706    
   Zero Coupon, 12/1/2008 (b) ................................................    2,625,000    1,658,344    
   Zero Coupon, 12/1/2009 (b) ................................................    2,860,000    1,705,504    
Cook County, IL, Community High School District #233, Capital Appreciation                                  
   Series 1993B, Zero Coupon, 12/1/2008 (b) ..................................    1,700,000    1,057,791    
Cook County, IL, General Obligation:                                                                        
   Series C, 6%, 11/15/2007 (b) ..............................................    5,000,000    5,300,350    
   Zero Coupon, ETM, 11/1/2004 (b)** .........................................    3,205,000    2,543,264    
Decatur, IL, General Obligation:                                                                            
   Series 1991, Zero Coupon, 10/1/2003 (b) ...................................    1,455,000    1,220,279    
   Series 1991, Zero Coupon, 10/1/2004 (b) ...................................    1,415,000    1,124,118    
Decatur, IL, Public Building Commission, General Obligation, Certificate of                                 
   Participation:                                                                                           
      6.5%, 1/1/2003 (b) .....................................................    1,725,000    1,796,846    
      6.5%, 1/1/2006 (b) .....................................................    1,500,000    1,608,765    
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation, Junior Lien,                              
   Series 1991, Zero Coupon, 5/15/2007 .......................................   17,460,000   11,863,721    
Illinois, Dedicated Tax Revenue, Civic Center Project:                                                      
   6.25%, 12/15/2011 (b) .....................................................    3,000,000    3,254,130    
   6.25%, 12/15/2020 (b) .....................................................    6,975,000    7,406,055    
   Series A, 6.5%, 12/15/2007 (b) ............................................    4,765,000    5,207,430    
   Series A, 6.5%, 12/15/2008 (b) ............................................    5,255,000    5,778,135    
Illinois Educational Facilities Authority, Loyola University:                                               
   Series A, Zero Coupon, ETM, 7/1/2004 (b)** ................................    2,860,000    2,307,991    
   Zero Coupon, ETM, 7/1/2005** ..............................................    4,000,000    3,061,280    
Illinois Health Facilities Authority:                                                                       
   Brokaw-Mennonite Healthcare:                                                                             
      6%, 8/15/2006 (b) ......................................................    1,380,000    1,442,169    
      6%, 8/15/2007 (b) ......................................................    1,460,000    1,530,664    
      6%, 8/15/2008 (b) ......................................................    1,550,000    1,628,895    
      6%, 8/15/2009 (b) ......................................................    1,640,000    1,726,297    

 The accompanying notes are an integral part of the financial statements

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                                                        [Enlarge/Download Table]

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

   Children's Memorial Hospital, 6.25%, 8/15/2013 (b) ...........................    3,400,000    3,665,710                   
   Felician Healthcare Inc., Series A, 6.25%, 12/1/2015 (b) .....................   17,000,000   18,292,850                   
   Memorial Medical Center, Prerefunded 10/1/2000 at 102, 6.75%,                                                              
      10/1/2011 (b)*** ..........................................................    2,135,000    2,204,131                   
   SSM Healthcare System, 6.4%, 6/1/2008 (b) ....................................    1,350,000    1,451,912                   
   Sherman Hospital, Prerefunded at 8/1/2001 at 102, 6.75%, 8/1/2011 (b)*** .....    2,700,000    2,828,655                   
Illinois State Toll Highway Authority, Toll Highway Priority Revenue Bond,                                                    
   Series A, 5.5%, 1/1/2013 (b) .................................................    3,665,000    3,728,588                   
Joliet, IL, Junior College Assistance Corp., Lease Revenue, North Campus                                                      
   Extension Center, 6.7%, 9/1/2012 (b) .........................................    2,500,000    2,767,925                   
Kane County, IL,Series 1996A, 6.5%, 2/1/2010 (b) ................................    1,775,000    1,937,874                   
Kane, Cook and Dupage Counties, IL, School District #46 Elgin:                                                                
   Series 1996B, Zero Coupon, 1/1/2011 (b) ......................................    1,040,000      581,610                   
   Series 1996B, Zero Coupon, 1/1/2012 (b) ......................................    1,300,000      684,047                   
   Series 1996B, Zero Coupon, 1/1/2013 (b) ......................................    2,095,000    1,035,998                   
Kendall, Kane and Will Counties, IL, Community Unit School District #308, Oswego:                                             
      Zero Coupon, 3/1/2002 (b) .................................................    1,055,000      959,902                   
      Zero Coupon, 3/1/2005 (b) .................................................    1,540,000    1,194,763                   
      Zero Coupon, 3/1/2006 (b) .................................................    1,595,000    1,171,783                   
Metropolitan Pier & Exposition Authority, IL, McCormick Place Expansion Project:                                              
   Series 1994, Zero Coupon, 6/15/2013 (b) ......................................    5,625,000    2,712,488                   
   Zero Coupon, 12/15/2003 (b) ..................................................    3,200,000    2,656,192                   
   Zero Coupon, 6/15/2004 (b) ...................................................   10,300,000    8,306,744                   
Northwest Suburban Municipal Joint Action Water Agency, IL, Supply System                                                     
   Revenue, 6.45%, 5/1/2007 (b) .................................................    2,575,000    2,786,047                   
Rosemont, IL, Tax Increment:                                                                                                  
   Series C, Zero Coupon, 12/1/2005 (b) .........................................    4,455,000    3,324,989                   
   Series C, Zero Coupon, 12/1/2007 (b) .........................................    2,655,000    1,773,859                   
Skokie, IL, Park District, Series 1994B, Zero Coupon, 12/1/2011 (b) .............    3,000,000    1,596,600                   
State University Retirement System, IL, Special Revenue, Zero Coupon,                                                         
   10/1/2003 (b) ................................................................    2,750,000    2,306,370                   
University of Illinois, Board of Trustees:                                                                                    
   Series 1991, Zero Coupon, 4/1/2003 (b) .......................................    3,890,000    3,348,434                   
   Series 1991, Zero Coupon, 4/1/2005 (b) .......................................    3,830,000    2,962,965                   
Will County, IL, Community Unit School District #201-U, Crete-Monee,                                                          
   Capital Appreciation:                                                                                                      
      Zero Coupon, 12/15/2000 (b) ...............................................    1,325,000    1,285,687                   
      Zero Coupon, 12/15/2001 (b) ...............................................    1,730,000    1,595,181                   
Indiana                                                                                                                       
Indiana Health Facilities Finance Authority:                                                                                  
   Charity Obligation Group, Series D, 5.75%, 11/15/2012 (b) ....................    4,660,000    4,698,958                   
   Community Hospitals Project, 6.4%, 5/1/2012 (b) ..............................    5,000,000    5,199,550                   
   Series 1990A, 6%, 7/1/2003 (b) ...............................................    1,570,000    1,620,209                   
   Series 1990A, 6%, 7/1/2004 (b) ...............................................    1,665,000    1,727,254                   
   Series 1990A, 6%, 7/1/2005 (b) ...............................................    1,765,000    1,840,489                   
   Series 1990A, 6%, 7/1/2006 (b) ...............................................    1,875,000    1,963,144                   
   Series 1990A, 6%, 7/1/2007 (b) ...............................................    1,985,000    2,085,818                   
   Series 1990A, 6%, 7/1/2008 (b) ...............................................    1,085,000    1,143,275                   

The accompanying notes are an integral part of the financial statements.

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

                                                                                                             
   Series 1990A, 6%, 7/1/2009 (b) .............................................    1,125,000    1,187,786    
   Series 1990A, 6%, 7/1/2010 (b) .............................................    1,185,000    1,246,004    
   Series 1990A, 6%, 7/1/2011 (b) .............................................    1,260,000    1,328,431    
   Series 1990A, 6%, 7/1/2012 (b) .............................................    1,345,000    1,418,975    
   Series 1990A, 6%, 7/1/2013 (b) .............................................    1,420,000    1,492,874    
   Series 1990A, 6%, 7/1/2014 (b) .............................................    1,505,000    1,576,999    
   Series 1990A, 6%, 7/1/2015 (b) .............................................    1,600,000    1,671,584    
   Series 1990A, 6%, 7/1/2016 (b) .............................................    1,700,000    1,775,463    
   Series 1990A, 6%, 7/1/2017 (b) .............................................    1,800,000    1,880,838    
   Series 1990A, 6%, 7/1/2018 (b) .............................................    1,910,000    1,991,977    
   Tax Exempt Custodian Receipts Refund, Series 1997A, 6%, 7/1/2002 (b) .......    1,480,000    1,517,962    
Indiana University, Revenue Refunding:                                                                       
   Series H, Zero Coupon, 8/1/2006 (b) ........................................    8,500,000    6,110,480    
   Student Fee Revenue, Series H, Zero Coupon, 8/1/2008 (b) ...................   10,000,000    6,430,100    
Merrillville, IN, Multiple School Building Corp., First Mortgage, Zero Coupon,                               
   1/15/2011 (b) ..............................................................    4,000,000    2,232,280    
Iowa                                                                                                         
Polk County, IA, Mercy Hospital, Prerefunded 11/1/2001 at 101, 6.75%,                                        
   11/1/2005 (b)*** ...........................................................    5,000,000    5,213,550    
Kansas                                                                                                       
Kansas City, KS, Utility System Revenue:                                                                     
   Zero Coupon, 9/1/2004 (b) ..................................................    2,640,000    2,113,505    
   Zero Coupon, 9/1/2005 (b) ..................................................    3,950,000    2,999,038    
   Zero Coupon, 9/1/2006 (b) ..................................................    1,375,000      989,106    
   Zero Coupon, ETM, 9/1/2004 (b)** ...........................................    3,575,000    2,865,756    
   Zero Coupon, ETM, 9/1/2005 (b)** ...........................................    5,300,000    4,030,385    
   Zero Coupon, ETM, 9/1/2006 (b)** ...........................................    1,875,000    1,351,313    
Louisiana                                                                                                    
Louisiana Public Facilities Authority, Prerefunded 2/15/2008 at 100, 4.75%,                                  
   5/1/2016*** ................................................................    5,765,000    5,657,137    
New Orleans, LA, General Obligation:                                                                         
   Zero Coupon, 9/1/2007 (b) ..................................................   10,000,000    6,804,000    
   Zero Coupon, ETM, 7/15/2006** ..............................................    4,850,000    3,297,855    
Orleans, LA, Levee District, Levee Improvement Bonds, Series 1986, 5.95%,                                    
   11/1/2014 (b) ..............................................................    1,765,000    1,829,599    
Maryland                                                                                                     
Baltimore, MD, Revenue Exchanged, Auto Parking Revenue, Series 1996A,                                        
   5.9%, 7/1/2012 (b) .........................................................    3,100,000    3,310,768    
Massachusetts                                                                                                
Massachusetts Health & Educational Facilities Authority, Boston Medical Center,                              
   Series A, 5.25%, 7/1/2012 (b) ..............................................    2,920,000    2,857,833    
Michigan                                                                                                     
Detroit, MI, General Obligation:                                                                             
   6%, 4/1/2016 (b) ...........................................................    2,865,000    2,981,978    
   City School District, Series 1998C, 5.25%, 5/1/2014 ........................    1,000,000      987,230    
Southgate, MI, Community School District, General Obligation, 5%, 5/1/2025 (b).    5,500,000    4,868,985    

The accompanying notes are an integral part of the financial statements.

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AARP INSURED TAX FREE GENERAL BOND FUND                                         

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

                                                                                                          
Missouri                                                                                                  
Missouri Health & Educational Facilities Authority, SSM Healthcare:                                       
   1992 Series AA, 6.35%, 6/1/2008 (b) ...................................    8,125,000    8,767,606      
   1992 Series AA, 6.4%, 6/1/2009 (b) ....................................    8,640,000    9,395,482      
Nevada                                                                                                    
Clark County, NV, School District:                                                                        
   General Obligation, Series B, Zero Coupon, 3/1/2005 (b) ...............    8,070,000    6,266,839      
   Series 1991B, Zero Coupon, 3/1/2009 (b) ...............................    4,350,000    2,704,874      
New Jersey                                                                                                
New Jersey Highway Authority, 6.5%, ETM, 1/1/2011 (b)** ..................    4,111,000    4,391,411      
New Jersey Turnpike Authority, Series 1991A, 6.3%, 1/1/2001 (b) ..........    1,250,000    1,269,600      
New York                                                                                                  
New York City, NY, General Obligation:                                                                    
   Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2004 (b)*** .......      275,000      289,097      
   Prerefunded 8/1/2002 at 101.50, Series C, 6.4%, 8/1/2005 (b)*** .......   10,235,000   10,759,646      
   Series A, 8%, ETM, 11/1/2001 (b)** ....................................      740,000      742,353      
   Series A, 3%, 8/15/2002 (b) ...........................................    9,000,000    8,549,640      
   Series C, 6.4%, 8/1/2004 (b) ..........................................      225,000      235,301      
   Series C, 6.4%, 8/1/2005 (b) ..........................................      195,000      203,621      
   Series D, 8%, 8/1/2005 (b) ............................................        5,000        5,085      
   Series E, 7%, ETM, 12/1/2007 (b)** ....................................    1,385,000    1,391,537      
   Unrefunded Balance, Series D, 1997, 6%, 8/1/2006 (b) ..................       20,000       20,110      
   Unrefunded Balance, Series D, 1998, 6%, 8/1/2008 (b) ..................       55,000       55,304      
New York State Dormitory Authority Revenue:                                                               
   City University, Series C, 7.5%, 7/1/2010 (b) .........................    5,750,000    6,623,253      
   City University, Series D, 7%, 7/1/2009 (b) ...........................    4,000,000    4,397,480      
   City University System, Series I, 5.125%, 7/1/2027 (b) ................   19,100,000   17,020,965      
   College and University Pooled Capital Program, 7.8%, 12/1/2005 (b) ....    1,605,000    1,637,341      
   Mental Health Services, Series C, 5.25%, 8/15/2024 (b) ................   10,250,000    9,430,923      
New York State Energy Research and Development Authority, Pollution                                       
   Control Revenue, Electric and Gas, 5.9%, 12/1/2006 (b) ................    5,300,000    5,570,247      
New York State Urban Development Authority, Correctional Facilities,                                      
   6.5%, 1/1/2011 (b) ....................................................    4,500,000    5,004,135      
New York, NY, Series C, 5.375%, 11/15/2017 (b) ...........................    5,000,000    4,896,600      
Suffolk County, NY, Industrial Development Agency, Southwest Sewer System,                                
   6%, 2/1/2007 (b) ......................................................    8,000,000    8,434,000      
Triborough Bridge & Tunnel Authority, NY, General Purpose Revenue:                                        
   Series A, 5.125%, 1/1/2018 (b) ........................................    6,500,000    6,078,605      
   Series Y, 5.5%, 1/1/2017 (b) ..........................................    5,050,000    5,064,746      
North Carolina                                                                                            
North Carolina Eastern Municipal Power Agency:                                                            
   5.5%, 1/1/2007 (b) ....................................................    2,000,000    2,041,600      
   Power System Revenue, Series B, 6%, 1/1/2018 (b) ......................    8,775,000    9,216,295      
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue:                                    
   5.25%, 1/1/2008 (b) ...................................................    2,500,000    2,515,600      
   6%, 1/1/2011 (b) ......................................................    8,235,000    8,708,924      
   Series 1992, 7.25%, 1/1/2007 (b) ......................................    5,000,000    5,575,150      
   Series 1997, 6%, 1/1/2008 (b) .........................................    2,585,000    2,723,711      

The accompanying notes are an integral part of the financial statements.

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                                                                            Principal                 
                                                                             Amount ($)   Value ($)   
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North Dakota                                                                                          
Bismarck, ND, Hospital Revenue, St. Alexius Medical Center, Series 1991,                              
   Zero Coupon, ETM, 5/1/2002 (b)** .....................................    2,850,000    2,572,409   
Ohio                                                                                                  
Cleveland, OH, Water Works Revenue, Series 1993G, 5.5%,                                               
   1/1/2013 (b) .........................................................   10,000,000   10,248,100   
Oklahoma                                                                                              
Tulsa, OK, Industrial Development Authority, Hospital Revenue,                                        
   St. John's Medical Center:                                                                         
      Zero Coupon, 12/1/2002 (b) ........................................    3,930,000    3,450,461   
      Zero Coupon, 12/1/2004 (b) ........................................    5,430,000    4,288,831   
      Zero Coupon, 12/1/2006 (b) ........................................    6,430,000    4,560,542   
Pennsylvania                                                                                          
Commonwealth of Pennsylvania, Industrial Development Authority,                                       
   Economic Development Revenue:                                                                      
      5.8%, 1/1/2008 (b) ................................................    4,250,000    4,446,435   
      5.8%, 7/1/2008 (b) ................................................    4,875,000    5,112,071   
Commonwealth of Philadelphia, PA, Water & Wastewater Refunding Revenue,                               
   5.5%, 6/15/2007 (b) ..................................................    5,000,000    5,131,050   
Philadelphia, PA, Water and Wastewater Revenue, 5.25%, 12/15/2012 (b) ...    5,500,000    5,509,680   
Westmoreland County, PA, Industrial Development Revenue, Westmoreland                                 
   Health System, 5.375%, 7/1/2011 (b) ..................................    7,300,000    7,345,333   
Rhode Island                                                                                          
Rhode Island Clean Water Protection Agency, Pollution Control Revenue,                                
   Revolving Fund, Series A, 5.4%, 10/1/2015 (b) ........................    2,000,000    1,977,260   
Rhode Island Convention Center Authority, Refunding Revenue:                                          
   Series 1993 B, 5%, 5/15/2010 (b) .....................................    5,000,000    4,929,500   
   Series 1993 B, 5.25%, 5/15/2015 (b) ..................................   22,000,000   21,505,000   
Rhode Island Depositors Economic Protection Corp., Special Obligation:                                
   Series B, 5.8%, ETM, 8/1/2010 (b)** ..................................    6,200,000    6,539,636   
   Series B, 5.8%, ETM, 8/1/2011 (b)** ..................................    4,525,000    4,770,798   
   Series B, 5.8%, ETM, 8/1/2012 (b)** ..................................    2,500,000    2,632,775   
   Series B, 5.8%, ETM, 8/1/2013 (b)** ..................................    7,340,000    7,715,808   
South Carolina                                                                                        
Piedmont, SC, Municipal Power Agency, Electric Revenue:                                               
   Series 1993, 5.5%, ETM, 1/1/2008 (b)** ...............................      840,000      866,099   
   Series 1993, 5.5%, ETM, 1/1/2012 (b)** ...............................    2,190,000    2,247,028   
   Series 1993, 5.5%, 1/1/2012 (b) ......................................    2,810,000    2,853,527   
   Series 1991A, 6.5%, ETM, 1/1/2016 (b)** ..............................      430,000      477,760   
Tennessee                                                                                             
Knox County, TN, Health & Educational Hospital Facilities Board, Hospital                             
Facilities                                                                                            
   Revenue, Fort Sanders Alliance:                                                                    
      7.25%, 1/1/2009 (b) ...............................................    3,750,000    4,272,638   
      5.75%, 1/1/2011 (b) ...............................................   15,405,000   15,902,427   
      5.75%, 1/1/2012 (b) ...............................................   17,880,000   18,448,942   
      6.25%, 1/1/2013 (b) ...............................................    4,000,000    4,302,360   
      5.75%, 1/1/2014 (b) ...............................................    2,000,000    2,034,060   

The accompanying notes are an integral part of the financial statements.

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AARP INSURED TAX FREE GENERAL BOND FUND                                         

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

Texas                                                                                                      
Austin, TX, Combined Utility System Revenue, Zero Coupon, 11/15/2009 (b) ......    5,020,000    3,009,138  
Austin, TX, Utility Systems Revenue Refunding, Series A, Zero Coupon,                                      
   11/15/2008 (b) .............................................................    3,460,000    2,196,545  
Bexar County, TX, Health Facilities Development Corp., Baptist Health System:                              
   Series 1997, 6%, 11/15/2012 (b) ............................................    3,000,000    3,171,419  
   Series 1997A, 6%, 11/15/2011 (b) ...........................................    2,000,000    2,113,059  
Brownsville, TX, Utility System Revenue, 6.25%, 9/1/2010 (b) ..................    4,085,000    4,426,423  
Cedar Hill, TX, Zero Coupon:                                                                               
   Series 1996, 8/15/2009 .....................................................    1,500,000      900,434  
   Series 1996, 8/15/2010 .....................................................    3,130,000    1,772,174  
Dallas, TX, Civic Center, 5%, 8/15/2028 (b) ...................................   10,000,000    8,719,900  
Dallas, TX, Housing Finance Corp., Single Family Mortgage Revenue,                                         
   Zero Coupon, 10/1/2016 (b) .................................................    5,990,000    1,109,648  
Dallas-Fort Worth, TX, Airport Revenue:                                                                    
   7.75%, 11/1/2003 (b) .......................................................    1,000,000    1,091,710  
   7.8%, 11/1/2005 (b) ........................................................    2,000,000    2,236,780  
   7.8%, 11/1/2006 (b) ........................................................    2,025,000    2,262,674  
   7.375%, 11/1/2008 (b) ......................................................    4,500,000    4,967,145  
   7.375%, 11/1/2010 (b) ......................................................    3,500,000    3,849,685  
Fort Worth, TX, Higher Education Finance Corp., Texas Christian University                                 
   Project, 5%, 3/15/2020 .....................................................    3,500,000    3,156,090  
Harris County, TX, General Obligation:                                                                     
   Capital Appreciation Bond, Zero Coupon, 10/1/2006 (b) ......................    9,035,000    6,438,883  
   Flood Control District, Zero Coupon, 10/1/2000 (b) .........................    1,000,000      978,900  
   Toll Road Authority, Subordinate Lien:                                                                  
      Series A, Zero Coupon, 8/15/2005 (b) ....................................    4,025,000    3,054,895  
      Toll Road Revenue, Series A, Zero Coupon, 8/15/2006 (b) .................    4,010,000    2,882,228  
      Unlimited Tax, Series A, Zero Coupon, 8/15/2004 (b) .....................    2,050,000    1,641,353  
Harris County, TX, Health Facilities Development, Texas Medical Center Project:                            
   6.25%, 5/15/2008 (b) .......................................................    2,785,000    2,972,737  
   6.25%, 5/15/2009 (b) .......................................................    2,965,000    3,175,307  
Houston, TX, Water & Sewer System Authority:                                                               
   Series C, Zero Coupon, 12/1/2006 (b) .......................................   14,575,000   10,317,351  
   Series C, Zero Coupon, 12/1/2008 (b) .......................................   19,000,000   12,033,650  
   Series C, Zero Coupon, 12/1/2009 (b) .......................................   14,750,000    8,820,795  
   Series 1991C, Zero Coupon, 12/1/2012 (b) ...................................    3,350,000    1,676,608  
   Zero Coupon, 12/1/2010 (b) .................................................    5,000,000    2,823,450  
Hurst Euless Bedford, TX, Independent School District, Capital Appreciation                                
   Refunding, Series 1994, Zero Coupon, 8/15/2009 .............................    4,925,000    2,991,741  
Laredo TX, Independent School District, 6%, 8/1/2011 ..........................    2,465,000    2,612,900  
Lubbock, TX, Health Facilities Development Corp., Methodist Hospital:                                      
   Series B, 5.5%, ETM, 12/1/2006 (b)** .......................................    3,945,000    4,059,878  
   Series B, 5.6%, ETM, 12/1/2007 (b)** .......................................    2,415,000    2,503,051  
   Series B, 5.625%, ETM, 12/1/2008 (b)** .....................................    4,400,000    4,569,224  
   Series B, 5.625%, ETM, 12/1/2009 (b)** .....................................    4,640,000    4,820,125  
Mesquite, TX, Independent School District, General Obligation, 5.125%,                                     
   8/15/2019 (b) ..............................................................    2,640,000    2,443,320  

The accompanying notes are an integral part of the financial statements.

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

                                                                                                          
Montgomery County, TX, Capital Appreciation:                                                              
      Zero Coupon, ETM, 9/1/2003 (b)** ........................................      800,000      675,112 
      Zero Coupon, ETM, 9/1/2004** ............................................      795,000      636,453 
      Zero Coupon, ETM, 9/1/2005** ............................................      685,000      520,086 
   Unrefunded Balance:                                                                                    
      Zero Coupon, 9/1/2003 (b) ...............................................    2,675,000    2,255,159 
      Zero Coupon, 9/1/2004 (b) ...............................................    2,680,000    2,140,918 
      Zero Coupon, 9/1/2005 (b) ...............................................    2,790,000    2,112,728 
Northeast, TX, Hospital Authority, Revenue Refunding, Northeast Medical Center,                           
   Series 1997, 6%, 5/15/2010 (b) .............................................    2,180,000    2,292,968 
Northwest Texas Independent School District, Capital Appreciation Bonds,                                  
   Series 1991, Zero Coupon, 8/15/2010 (b) ....................................    3,690,000    2,116,842 
San Antonio, TX, Electric & Gas, Revenue Refunding:                                                       
   Series A, Zero Coupon, 2/1/2005 (b) ........................................    2,500,000    1,950,675 
   Series A, Zero Coupon, 2/1/2006 (b) ........................................   17,900,000   13,267,838 
   Series B, Zero Coupon, ETM, 2/1/2005 (b)** .................................    8,000,000    6,242,160 
   Series B, Zero Coupon, ETM, 2/1/2009 (b)** .................................    4,400,000    2,757,612 
San Antonio, TX, Electric & Gas, Revenue, Series A, 5.25%, 2/1/2012 ...........    3,000,000    2,986,710 
San Antonio, TX, Hotel Revenue, Series 1996, 6%, 8/15/2006 (b) ................    2,000,000    2,107,860 
State of Texas, General Obligation, Capital Appreciation Bond:                                            
   Series C, Zero Coupon, ETM, 4/1/2005 (b)** .................................    7,540,000    5,847,345 
   Series C, Zero Coupon, 4/1/2005 (b) ........................................      850,000      659,184 
   Super Collider, Series C, Zero Coupon, 4/1/2006 (b) ........................    7,385,000    5,430,486 
Tarrant County, TX, Health Facilities Development Corp., Hospital Refunding                               
   Revenue, Fort Worth Osteopathic Hospital:                                                              
      6%, 5/15/2011 (b) .......................................................    4,615,000    4,846,350 
      6%, 5/15/2021 (b) .......................................................    6,235,000    6,400,602 
Texas Municipal Power Agency:                                                                             
   6.1%, 9/1/2007 (b) .........................................................    9,250,000    9,844,128 
   6.1%, ETM, 9/1/2009 (b)** ..................................................    4,435,000    4,773,479 
Texas Public Finance Authority, Building Authority:                                                       
   Series B, 6.25%, 2/1/2008 (b) ..............................................    5,190,000    5,584,907 
   Zero Coupon, 2/1/2006 (b) ..................................................   13,915,000   10,284,855 
Trinity River, TX, Wastewater Systems Revenue, Series B, 5.25%, 8/1/2012 ......    5,540,000    5,524,654 
Utah                                                                                                      
Associated Municipal Power System, UT, Hunter Project, Refunding Revenue:                                 
   Zero Coupon, 7/1/2000 (b) ..................................................    2,755,000    2,725,825 
   Zero Coupon, 7/1/2002 (b) ..................................................    5,200,000    4,657,224 
   Zero Coupon, 7/1/2004 (b) ..................................................    5,895,000    4,749,307 
   Zero Coupon, 7/1/2005 (b) ..................................................    5,900,000    4,506,125 
   Zero Coupon, 7/1/2006 (b) ..................................................    5,895,000    4,264,030 
   Zero Coupon, 7/1/2007 (b) ..................................................    3,750,000    2,566,425 
Intermountain Power Agency, UT, Power Supply Revenue:                                                     
   5%, 7/1/2012 (b) ...........................................................    1,000,000      965,280 
   Series 1993, 5.46%, 7/1/2011 (b) ...........................................    7,000,000    7,027,790 
   Series A, Zero Coupon, 7/1/2003 (b) ........................................    1,000,000      849,290 
   Series A, Zero Coupon, 7/1/2004 (b) ........................................    1,730,000    1,392,045 
   Series A, 6.5%, 7/1/2008 (b) ...............................................    4,000,000    4,364,440 

The accompanying notes are an integral part of the financial statements.

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

                                                                                                          
   Series A, Zero Coupon, 7/1/2002 (b) ........................................    1,655,000    1,481,275 
   Series B, Zero Coupon, 7/1/2002 (b) ........................................    8,230,000    7,366,097 
Provo, UT, Electric System Revenue, 10.375%, ETM, 9/15/2015 (b)** .............    1,800,000    2,459,790 
Virginia                                                                                                  
Roanoke, VA, Industrial Development Authority, Roanoke Memorial Hospital,                                 
   Series B, 6.125%, 7/1/2017 (b) .............................................    5,500,000    5,872,955 
Southeastern Public Service Authority, VA, Refunding Revenue,                                             
   Series A, 5.25%, 7/1/2010 (b) ..............................................    7,380,000    7,425,904 
Winchester County, VA, Industrial Development Authority, Hospital Revenue,                                
   6%, 1/1/2015 (b) ...........................................................    5,700,000    5,705,187 
Washington                                                                                                
Clark County, WA, Public Utility District, Series 1995, 6%, 1/1/2008 (b) ......    2,200,000    2,326,698 
King & Snohomish Counties, WA, General Obligation, School District #417,                                  
   5.6%, 12/1/2010 (b) ........................................................    1,650,000    1,712,964 
King County, WA, Public Hospital District #1, Valley Medical Center,                                      
   Series 1992, 5.5%, 9/1/2017 (b) ............................................    3,500,000    3,415,615 
Snohomish County, WA:                                                                                     
   School District #6, 6.5%, 12/1/2007 (b) ....................................    3,325,000    3,619,229 
   School District #015, General Obligation, Series 1998, 5.75%, 12/1/2011 (b)     3,485,000    3,647,680 
State of Washington, General Obligation, Series AT-5, Zero Coupon, 8/1/2010 (b)    2,625,000    1,509,034 
Washington Health Care Facilities Authority, Empire Health Services-- Spokane:                            
   5.65%, 11/1/2005 (b) .......................................................    2,155,000    2,213,961 
   5.7%, 11/1/2006 (b) ........................................................    3,440,000    3,548,222 
   5.75%, 11/1/2007 (b) .......................................................    7,350,000    7,609,602 
   5.8%, 11/1/2009 (b) ........................................................    4,595,000    4,779,673 
   5.8%, 11/1/2010 (b) ........................................................    2,100,000    2,185,848 
Washington Public Power Supply System, Revenue Refunding                                                  
   Nuclear Project #1:                                                                                    
      Series A, Prerefunded 7/1/2000 at 102, 7%, 7/1/2011 (b)*** ..............    3,830,000    3,932,529 
      Series B, 7.25%, 7/1/2012 (b) ...........................................   10,895,000   11,193,305 
   Nuclear Project #2:                                                                                    
      Series 1992A, Zero Coupon, 7/1/2011 (b) .................................    4,200,000    2,293,704 
      Series A, 5.7%, 7/1/2008 (b) ............................................    5,000,000    5,168,900 
      Series A, Prerefunded 7/1/2000 at 102, 7.25%, 7/1/2003 (b)*** ...........    2,000,000    2,054,760 
      Series C, 7%, 7/1/2001 (b) ..............................................   10,000,000   10,277,500 
      Series C, Prerefunded 7/1/2000 at 102, 7.375%, 7/1/2011 (b)*** ..........    1,370,000    1,428,061 
   Nuclear Project #3:                                                                                    
      Series 1989A, Zero Coupon, 7/1/2010 (b) .................................    5,860,000    3,373,661 
      Series A, Zero Coupon, 7/1/2004 (b) .....................................    3,625,000    2,916,856 
      Series A, Zero Coupon, 7/1/2005 (b) .....................................    4,125,000    3,145,643 
      Series C, 7.5%, 7/1/2008 (b) ............................................    2,000,000    2,293,620 
Wisconsin                                                                                                 
Kenosha, WI, General Obligation, Series C, Zero Coupon, 6/1/2004 (b) ..........    3,475,000    2,811,518 
Wisconsin Health & Educational Facilities Authority:                                                      
   6.1%, 8/15/2009 (b) ........................................................    2,000,000    2,117,140 
   Aurora Medical:                                                                                        
      5.75%, 11/15/2006 (b) ...................................................    2,000,000    2,064,220 
      5.75%, 11/15/2007 (b) ...................................................    1,500,000    1,550,220 

The accompanying notes are an integral part of the financial statements.

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

                                                                                                          
      6%, 11/15/2008 (b) ................................................       4,085,000       4,295,010 
      6%, 11/15/2009 (b) ................................................       4,330,000       4,559,187 
   Felician Healthcare Inc., Series B, 6.25%, 1/1/2022 (b) ..............       5,285,000       5,616,845 
   Hospital Sisters Services Inc.-- Obligated Group, 5.375%, 6/1/2018 (b)       4,800,000       4,546,560 
   SSM Healthcare:                                                                                        
      Series 1992 AA, 6.4%, 6/1/2008 (b) ................................       2,335,000       2,509,681 
      Series 1992 AA, 6.45%, 6/1/2009 (b) ...............................       2,485,000       2,691,280 
      Series 1992 AA, 6.45%, 6/1/2010 (b) ...............................       2,650,000       2,880,391 
      Series 1992 AA, 6.5%, 6/1/2011 (b) ................................       2,820,000       3,109,727 
      Series 1992 AA, 6.5%, 6/1/2012 (b) ................................       3,000,000       3,319,530 
   St. Luke's Medical Center, Prerefunded 8/15/2001 at 102, 7.1%,                                         
      8/15/2011 (b)*** ..................................................       2,000,000       2,106,100 
   Villa St. Francis Inc., Series C, 6.25%, 1/1/2022 (b) ................       9,230,000       9,809,553 
   Wheaton Franciscan Services, 6.1%, 8/15/2008 (b) .....................       4,580,000       4,838,129 
                                                                                            --------------
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Total Long-Term Municipal Investments (Cost $1,382,211,098) .............                   1,456,879,991 
                                                                                            --------------
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Total Investment Portfolio-- 100% (Cost $1,391,866,098) (a) .............                   1,466,534,991 
                                                                                            --------------
                                                                                            --------------
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*        Floating rate demand notes are  securities  whose  interest  rates vary
         with  a  designated   market   index  or  market  rate,   such  as  the
         coupon-equivalent  of the U.S. Treasury bill rate. Variable rate demand
         notes are securities  whose interest  rates are reset  periodically  at
         levels that are generally  comparable to tax-exempt  commercial  paper.
         These  securities  are payable on demand within seven calendar days and
         normally  incorporate an irrevocable letter of credit or line of credit
         from a major bank. These notes are carried, for purposes of calculating
         average weighted maturity,  at the longer of the period remaining until
         the next rate  change  or to the  extent of the  demand  period.  These
  securities are shown at their current rate as of March 31, 2000.

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

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

(a)      At March 31, 2000, the net unrealized appreciation on investments based
         on  cost  for   federal   income  tax   purposes  of  was  as  follows:
$1,392,162,757                                                

         Aggregate gross  unrealized  appreciation  for all investments in which
         there is an excess of value over tax cost                  $ 75,740,096

         Aggregate gross  unrealized  depreciation  for all investments in which
         there is an excess of tax cost over value                   (1,367,862)
                                                                    ------------

         Net unrealized appreciation                                $ 74,372,234
                                                                    ============

(b)      (Unaudited) Bond is insured by one of these companies:  AMBAC,  Capital
Guaranty, FGIC, FSA, or MBIA/BIG.                             

--------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term  investments)
for the six months ended March 31, 2000 aggregated $67,444,767 and $175,516,044,
respectively.                                                                   
--------------------------------------------------------------------------------
From  November  1,  1998  through   September   30,  1999,   the  Fund  incurred
approximately  $700,000 of net  realized  capital  losses.  As  permitted by tax
regulations,  the Fund  intends to elect to defer these losses and treat them as
arising in the fiscal year ending September 30, 2000.                           

The accompanying notes are an integral part of the financial statements.

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AARP BOND FUND FOR INCOME                                                       

                                                        [Enlarge/Download Table]


LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                   
-------------------------------------------------------------------------------------------------------
                                                                              Principal                
                                                                               Amount ($)   Value ($)  
-------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS 4.8%                                                                             
-------------------------------------------------------------------------------------------------------

                                                                                                       
State Street Bank and Trust Company, 6.05%, to be repurchased at $8,799,434                            
   on 4/3/2000** (Cost $8,795,000) ........................................    8,795,000    8,795,000  
                                                                                           ----------  

U.S. GOVERNMENT & AGENCIES 21.5%                                                                       
-------------------------------------------------------------------------------------------------------

U.S. Treasury Note, 5.875%, 11/15/2004 ....................................    4,750,000    4,663,883  
U.S. Treasury Note, Inflationary Index, 3.927%, 1/15/2009 .................    4,000,000    4,069,962  
U.S. Treasury Bond, 10.75%, 8/15/2005 .....................................    9,000,000   10,735,290  
U.S. Treasury Bond Inflationary Index, 3.684%, 4/15/2028 ..................    3,500,000    3,466,668  
U.S. Treasury Bond, 5.25%, 2/15/2029 ......................................    1,650,000    1,479,588  
U.S. Treasury Bond, 6.125%, 8/15/2029 .....................................    8,800,000    8,969,136  
U.S. Treasury Bond, 6.25%, 5/15/2030 ......................................    5,950,000    6,290,281  
                                                                                          -----------  
Total U.S. Government & Agencies (Cost $40,841,956) .......................                39,674,808  
                                                                                          -----------  

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION* 3.4%                                                         
-------------------------------------------------------------------------------------------------------

Government National Mortgage Association 7.5% with                                                     
   various maturities to 4/15/2027 ........................................      779,217      772,399  
Government National Mortgage Association 7% with                                                       
   various maturities to 4/15/2029 ........................................    5,706,293    5,530,647  
                                                                                           ----------  
Total Government National Mortgage Association (Cost $6,559,045) ..........                 6,303,046  
                                                                                           ----------  

U.S. GOVERNMENT BACKED MORTGAGES* 9.1%                                                                 
-------------------------------------------------------------------------------------------------------

Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 ........................    3,000,000    2,890,320  
Federal National Mortgage Association 6.5% with various maturities                                     
   to 3/1/2028 ............................................................    9,047,415    8,498,912  
Federal National Mortgage Association 7.25% with various maturities                                    
   to 1/15/2010 ...........................................................    2,800,000    2,818,816  
Federal National Mortgage Association 8% with various maturities                                       
   to 12/1/2012 ...........................................................    2,505,257    2,534,036  
                                                                                           ----------  
Total U.S. Government Backed Mortgages (Cost $17,563,663) .................                16,742,084  
                                                                                           ----------  

COLLATERALIZED MORTGAGE OBLIGATIONS* 1.5%                                                              
-------------------------------------------------------------------------------------------------------

Residential Accredit Loans, Inc., Series 1997Q512-A7, 7.25%, 11/25/2027                                
   (Cost $2,966,919) ......................................................    2,917,683    2,837,447  
                                                                                           ----------  

FOREIGN BONDS -- U.S. $ DENOMINATED 2.0%                                                               
-------------------------------------------------------------------------------------------------------

PacifiCorp Australia LLC, 6.15%, 1/15/2008 ................................    2,000,000    1,868,780  
                                                                                           ----------  
Petroleum Geo-Services, 6.625%, 3/30/2008 .................................    2,000,000    1,836,740  
                                                                                           ----------  
Total Foreign Bonds-- U.S.$ Denominated (Cost $3,936,200) .................                 3,705,520  
                                                                                           ----------  

The accompanying notes are an integral part of the financial statements.

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

ASSET BACKED 3.4%                                                                              
-----------------------------------------------------------------------------------------------

                                                                                               
Automobile Receivables 1.1%                                                                    
First Security Auto Owner Trust, Series 1999-2 A3, 6%, 10/15/2003    2,000,000    1,979,688    
                                                                                 ----------    
Credit Card Receivables 1.8%                                                                   
Citibank Credit Card Master Trust I, 6%, 4/10/2003 ..............    1,500,000    1,481,250    
                                                                                 ----------    
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 .................    2,000,000    1,928,120    
                                                                                 ----------    
                                                                                  3,409,370    
                                                                                 ----------    
Home Equity Loans 0.3%                                                                         
First Plus Residential Trust Series 1998A, 8.5%, 5/15/2023 ......    1,368,056      547,222    
                                                                                 ----------    
Manufactured Housing Receivables 0.2%                                                          
Green Tree Financial Corp., Series 1997-2 B2, 8.05%, 6/15/2028 ..      492,920      383,399    
                                                                                 ----------    
Total Asset Backed (Cost $7,347,861) ............................                 6,319,679    
                                                                                 ----------    

CORPORATE BONDS 54.3%                                                                          
-----------------------------------------------------------------------------------------------

Consumer Discretionary 3.0%                                                                    
Federated Department Stores, Inc., 8.5%, 6/15/2003 ..............    1,000,000    1,024,440    
Harrah's Operating Co., Inc., 7.875%, 12/15/2005 ................    2,000,000    1,845,000    
Park Place Entertainment, Inc., 9.375%, 2/15/2007 ...............    1,350,000    1,319,625    
Tricon Global Restaurants Inc., 7.65%, 5/15/2008 ................    1,500,000    1,416,000    
                                                                                 ----------    
                                                                                  5,605,065    
                                                                                 ----------    
Consumer Staples 3.6%                                                                          
Aurora Foods, Inc., 8.75%, 7/1/2008 .............................    1,000,000      380,000    
Bass America Inc., 6.625%, 3/1/2003 .............................    1,500,000    1,468,770    
Safeway Inc., 7.25%, 9/15/2004 ..................................    1,900,000    1,888,334    
The Great Atlantic & Pacific Tea Co., Inc., 7.7%, 1/15/2004 .....    3,000,000    2,888,400    
                                                                                 ----------    
                                                                                  6,625,504    
                                                                                 ----------    
Communications 11.0%                                                                           
Call-Net Enterprises Inc., 8%, 8/15/2008 ........................    1,800,000    1,260,000    
Intermedia Communications, Inc., 8.875%, 11/1/2007 ..............    2,000,000    1,870,000    
Level 3 Communications, Inc., 9.125%, 5/1/2008 ..................    2,000,000    1,725,000    
McLeodUSA, Inc., 8.125%, 2/15/2009 ..............................    1,500,000    1,323,750    
McLeodUSA, Inc., Exchange Shares, 8.375%, 3/15/2008 .............      500,000      445,000    
Metromedia Fiber Network, Inc., 10%, 12/15/2009 .................      925,000      888,000    
Nextel Communications, Inc., 9.375%, 11/15/2009 .................    1,200,000    1,107,000    
Qwest Communications International, 7.5%, 11/1/2008 .............    3,000,000    2,917,500    
Sprint Capital Corp., 6.375%, 5/1/2009 ..........................    4,150,000    3,807,625    
Vodafone Airtouch PLC, 6.25%, 2/15/2010 .........................    2,050,000    2,064,145    
WorldCom, Inc., 6.4%, 8/15/2005 .................................    3,000,000    2,879,850    
                                                                                 ----------    
                                                                                 20,287,870    
                                                                                 ----------    
Financial 13.1%                                                                                
Bell Atlantic Financial Services, 7.6%, 3/15/2007 ...............    1,400,000    1,409,660    
Boeing Capital Corp., 6.75%, 12/23/2003 .........................    1,500,000    1,482,525    

The accompanying notes are an integral part of the financial statements.

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AARP BOND FUND FOR INCOME                                                       

--------------------------------------------------------------------------------
                                               Principal
                                                          Amount ($)   Value ($)
--------------------------------------------------------------------------------
Capital One Bank, 6.57%, 1/27/2003 ...................    2,500,000    2,431,250
Chase Manhattan Corp., 5.75%, 4/15/2004 ..............    2,000,000    1,886,320
Firststar Bank, 7.125%, 12/1/2009 ....................    1,100,000    1,045,000
Fleet Boston Corp, 6.375%, 4/15/2008 .................    1,050,000      963,218
Ford Motor Credit Co., 7.375%, 10/28/2009 ............    1,300,000    1,274,910
GS Escrow Corp., 7%, 8/1/2003 ........................    2,000,000    1,841,900
General Electric Capital Corp., 7%, 2/3/2003 .........    2,100,000    2,100,714
General Motors Acceptance Corp., 7.75%, 1/19/2010 ....    1,150,000    1,160,615
Goldman Sachs Group, Inc., 7.8%, 1/28/2010 ...........    1,350,000    1,339,875
Merrill Lynch & Co., Inc., 6%, 2/17/2009 .............      500,000      446,235
National Westminster Bank PLC, 7.375%, 10/1/2009 .....    1,850,000    1,804,213
PNC Funding Corp., 7%, 9/1/2004 ......................    1,200,000    1,181,544
Prudential Insurance Co., 6.375%, 7/23/2006 ..........    2,000,000    1,882,260
Salomon Inc., 7.3%, 5/15/2002 ........................    2,000,000    1,996,200
                                                                     -----------
                                                                      24,246,439
                                                                     -----------
Media 9.9%                                                                      
AMFM, Inc., 10.5%, 1/15/2007 .........................    1,000,000    1,062,500
AMFM, Inc., 8%, 11/1/2008 ............................    2,500,000    2,468,750
British Sky Broadcasting Group PLC, 6.875%, 2/23/2009     2,150,000    1,925,282
Cablevision Systems Corp., 7.875%, 2/15/2018 .........    1,500,000    1,443,600
Charter Communication Holdings LLC, 8.25%, 4/1/2007 ..    2,500,000    2,237,500
Liberty Media Group, 7.875%, 7/15/2009 ...............    1,650,000    1,633,385
News America Holdings Inc., 9.25%, 2/1/2013 ..........    2,500,000    2,738,075
Outdoor Systems, Inc., 8.875%, 6/15/2007 .............    1,000,000    1,013,750
TCI-Communications, Inc., 8%, 8/1/2005 ...............    2,500,000    2,566,825
Time Warner Inc., 9.125%, 1/15/2013 ..................    1,000,000    1,111,320
                                                                     -----------
                                                                      18,200,987
                                                                     -----------
Service Industries 1.3%                                                         
Allied Waste North America, 7.375%, 1/1/2004 .........    1,250,000    1,087,500
Primedia, Inc., 7.625%, 4/1/2008 .....................    1,500,000    1,342,500
                                                                     -----------
                                                                       2,430,000
                                                                     -----------
Durables 2.1%                                                                   
Daimler-Benz NA Holdings, 7.375%, 9/15/2006 ..........    1,500,000    1,466,160
Lear Corp, 7.96%, 5/15/2005 ..........................    2,500,000    2,398,000
                                                                     -----------
                                                                       3,864,160
                                                                     -----------
Energy 4.5%                                                                     
Barrett Resources Corp., 7.55%, 2/1/2007 .............    1,500,000    1,413,750
Duke Energy Corp., 10%, 8/15/2001 ....................    2,000,000    2,059,960
Louis Dreyfus Natural Gas Corp., 6.875%, 12/1/2007 ...    2,500,000    2,324,325
Pioneer Natural Resources Co., 6.5%, 1/15/2008 .......    1,950,000    1,693,166
Williams Gas Pipeline Center, 7.375%, 11/15/2006 .....      900,000      884,952
                                                                     -----------
                                                                       8,376,153
                                                                     -----------
Construction 0.8%                                                               
American Standard Companies Inc., 7.625%, 2/15/2010 ..    1,500,000    1,335,000
Nortek, Inc., 9.125%, 9/1/2007 .......................      250,000      228,750
                                                                     -----------
                                                                       1,563,750
                                                                     -----------

The accompanying notes are an integral part of the financial statements.

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-------------------------------------------------------------------------------------
                                                               Principal             
                                                              Amount ($)    Value ($)
-------------------------------------------------------------------------------------
                                                                                     
Transportation 1.8%                                                                  
Delta Airlines, Inc., 7.9%, 12/15/2009 ..................       550,000       522,830
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ........     1,500,000     1,466,250
Northwest Airlines Corp., 7.875%, 3/15/2008 .............     1,500,000     1,300,680
                                                                          -----------
                                                                            3,289,760
                                                                          -----------
Utilities 3.2%                                                                       
Cleveland Electric Illumination Co., 7.67%, 7/1/2004 ....     2,000,000     1,981,960
Detroit Edison Co., 7.5%, 2/1/2005 ......................     2,000,000     1,989,280
Niagara Mohawk Power Corp., 6.625%, 7/1/2005 ............     2,000,000     1,878,440
                                                                          -----------
                                                                            5,849,680
                                                                          -----------
Total Corporate Bonds (Cost $105,436,419) ...............                 100,339,368
                                                                          -----------
-------------------------------------------------------------------------------------

Total Investment Portfolio-- 100% (Cost $193,447,063) (a)                 184,716,952
                                                                          -----------
                                                                          -----------
-------------------------------------------------------------------------------------

*        Effective maturities may be shorter due to prepayments.                

**       Repurchase  agreements  are fully  collateralized  by U.S.  Treasury or
Government agency securities.                                 

(a)      At March 31, 2000, the net unrealized depreciation on investments based
         on cost for federal income tax purposes of $193,447,063 was as follows:

         Aggregate gross  unrealized  appreciation  for all investments in which
        there is an excess of value over tax cost ................ $ 1,022,144

         Aggregate gross  unrealized  depreciation  for all investments in which
         there is an excess of tax cost over value ................  (9,752,255)
                                                                    ------------
         Net unrealized depreciation                                $(8,730,111)
                                                                    ------------
                                                                    ------------
--------------------------------------------------------------------------------
         Purchases  and sales of  investment  securities  (excluding  short-term
         investments and direct obligations of the U.S.  Government) for the six
         months ended March 31, 2000 aggregated  $75,662,380  and  $100,169,190,
         respectively.  Purchases  and sales of direct  obligations  of the U.S.
   Government aggregated $76,764,945, and $74,416,920, respectively.
--------------------------------------------------------------------------------
         At  September  30,  1999,  the Fund had a net tax  basis  capital  loss
         carryforward of approximately $39,000, which may be applied against any
         realized net taxable  capital gains of each succeeding year until fully
         utilized or until September 30, 2007, the expiration date. In addition,
         from  November 1, 1998 through  September  30, 1999,  the Fund incurred
         approximately  $2,634,000 of net realized capital losses.  As permitted
         by tax regulations, the Fund intends to elect to defer these losses and
         treat them as arising in the fiscal year  ending  September  30,  2000.

The accompanying notes are an integral part of the financial statements.

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AARP BALANCED STOCK AND BOND FUND                                               

                                                        [Enlarge/Download Table]

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                                                        
------------------------------------------------------------------------------------------------------------

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

                                                                                                            
REPURCHASE AGREEMENTS 1.7%                                                                                  
------------------------------------------------------------------------------------------------------------

State Street Bank and Trust Company, 6.05%, to be repurchased at $10,108,094 on                             
   4/3/2000** (Cost $10,103,000) ..............................................   10,103,000   10,103,000   
                                                                                              --------------
U.S. GOVERNMENT & AGENCIES 9.0%                                                                             
------------------------------------------------------------------------------------------------------------

U.S. Treasury Note, 5.5%, 8/31/2001 ...........................................      800,000      789,376   
U.S. Treasury Note, 6%, 8/15/2004 .............................................    1,950,000    1,923,500   
U.S. Treasury Note, 6.5%, 10/15/2006 ..........................................    4,000,000    4,033,760   
U.S. Treasury Note, 6%, 8/15/2009 .............................................    4,500,000    4,443,030   
U.S. Treasury Note Inflationary Index, 3.875%, 1/15/2009 ......................    4,000,000    4,069,962   
U.S. Treasury Bond, 6.5%, 2/15/2010 ...........................................    3,000,000    3,105,000   
U.S. Treasury Bond, 7.25%, 5/15/2016 ..........................................   20,000,000   22,100,000   
U.S. Treasury Bond, 5.25%, 2/15/2029 ..........................................    6,050,000    5,425,156   
U.S. Treasury Bond, 6.125%, 8/15/2029 .........................................    1,500,000    1,528,830   
U.S. Treasury Bond Inflationary Index, 3.625%, 4/15/2028 ......................    5,750,000    5,695,240   
                                                                                              --------------
Total U.S. Government & Agencies (Cost $53,959,611) ...........................                53,113,854   
                                                                                              --------------

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION*** 1.2%                                                            
------------------------------------------------------------------------------------------------------------

Government National Mortgage Association, 7%                                                                
   with various maturities to 5/1/2029 (Cost $7,330,717) ......................    7,234,632    7,011,867   
                                                                                              --------------

U.S. GOVERNMENT BACKED MORTGAGES*** 4.1%                                                                    
------------------------------------------------------------------------------------------------------------

Federal National Mortgage Association, 8%, 2/1/2013 ...........................    3,451,437    3,491,335   
Federal National Mortgage Association 6.50% with various maturities to 3/1/2028   21,669,493   20,386,189   
                                                                                              --------------
Total U.S. Government Backed Mortgages (Cost $24,926,551) .....................                23,877,524   
                                                                                              --------------

COLLATERALIZED MORTGAGE OBLIGATIONS*** 1.3%                                                                 
------------------------------------------------------------------------------------------------------------

Residential Accredit Loans, Inc., Series 1997-A7, 7.25%, 11/25/2027 ...........    3,886,955    3,780,064   
Residential Funding Mortgage Securities, Series 1993-A2, 6.83%, 9/25/2023 .....    2,174,515    2,137,140   
Ryland Mortgage Securities Corp., 8%, 8/25/2025 ...............................    1,989,549    1,967,687   
                                                                                              --------------
Total Collateralized Mortgage Obligations (Cost $8,163,067) ...................                 7,884,891   
                                                                                              --------------

FOREIGN BONDS -- U.S. $ DENOMINATED 1.6%                                                                    
------------------------------------------------------------------------------------------------------------

PacifiCorp Australia LLC, 6.15%, 1/15/2008 ....................................    6,000,000    5,606,340   
Petroleum Geo-Services, 6.625%, 3/30/2008 .....................................    4,000,000    3,673,480   
                                                                                              --------------
Total Foreign Bonds-- U.S. $ Denominated (Cost $10,037,380) ...................                 9,279,820   
                                                                                              --------------

The accompanying notes are an integral part of the financial statements.

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

Asset Backed*** 1.9%                                                                      
------------------------------------------------------------------------------------------

                                                                                          
Automobile Receivables 0.5%                                                               

First Security Auto Owner Trust, Series 1999-2 A3, 6%, 1/15/2003    3,000,000    2,969,531
                                                                               -----------
Credit Card Receivables 1.4%                                                              

Citibank Credit Card Master Trust I, 6%, 4/10/2003 .............    3,500,000    3,456,250
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ................    5,000,000    4,820,300
                                                                               -----------
                                                                                 8,276,550
                                                                               -----------
Total Asset Backed (Cost $11,488,015) ..........................                11,246,081
                                                                               -----------

Corporate Bonds 14.4%                                                                     
------------------------------------------------------------------------------------------

Consumer Staples 1.3%                                                                     

Bass America Inc., 6.625%, 3/1/2003 ............................    5,000,000    4,895,900
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 ...............    3,500,000    3,118,290
                                                                               -----------
                                                                                 8,014,190
                                                                               -----------
Communications 1.7%                                                                       

Sprint Capital Corp., 6.125%, 11/15/2008 .......................    3,000,000    2,731,170
Vodafone Airtouch PLC, 7.75%, 2/15/2010 ........................    2,300,000    2,315,870
WorldCom, Inc., 6.4%, 8/15/2005 ................................    5,000,000    4,799,750
                                                                               -----------
                                                                                 9,846,790
                                                                               -----------
Financial 6.9%                                                                            

Boeing Capital Corp., Medium Term Note, 6.75%, 12/23/2003 ......    3,000,000    2,965,050
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 ...........    4,000,000    3,936,640
First Union National Bank, 6.18%, 2/15/2036 ....................    2,500,000    2,336,975
Ford Motor Credit Corp., 5.75%, 2/23/2004 ......................   10,000,000    9,427,300
Ford Motor Credit Corp., 7.375%, 10/28/2009 ....................    2,450,000    2,402,715
General Electric Capital Corp., 7%, 2/3/2003 ...................    2,350,000    2,350,799
General Motors Acceptance Corporation, 7.75%, 1/19/2010 ........      550,000      555,077
Goldman Sachs Group, Inc., 7.8%, 1/28/2010 .....................    1,450,000    1,439,125
Merrill Lynch & Co., Inc., 6%, 2/17/2009 .......................      550,000      490,859
PNC Funding Corp., 7%, 9/1/2004 ................................    1,400,000    1,378,468
PNC Funding Corp., 7.5%, 11/1/2009 .............................    2,200,000    2,159,102
Prudential Insurance Co., 6.375%, 7/23/2006 ....................    3,000,000    2,823,390
Salomon Inc., 7.3%, 5/15/2002 ..................................    2,300,000    2,295,630
Southern National Corp., 7.05%, 5/23/2003 ......................    4,000,000    3,921,040
Wells Fargo & Co., 6.875%, 4/1/2006 ............................    2,000,000    1,938,120
                                                                               -----------
                                                                                40,420,290
                                                                               -----------
Media 2.1%                                                                                

News America Holdings, Inc., 9.25%, 2/1/2013 ...................    3,000,000    3,285,690
TCI-Communications, Inc., 8%, 8/1/2005 .........................    4,000,000    4,106,920
Time Warner, Inc., 9.125%, 1/15/2013 ...........................    4,500,000    5,000,940
                                                                               -----------
                                                                                12,393,550
                                                                               -----------


The accompanying notes are an integral part of the financial statements.

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AARP Balanced Stock and Bond Fund                                               

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

Manufacturing 0.5%                                                              

Fort James Corp., 6.625%, 9/15/2004 ..............      3,000,000      2,878,950
                                                                    ------------

Energy 0.8%                                                                     

Anadarko Petroleum Corp., 5.875%, 10/15/2003 .....      5,000,000      4,735,200
                                                                    ------------

Transportation 0.1%                                                             

Delta Airlines, Inc., 7.9%, 12/15/2009 ...........        600,000        570,360
                                                                    ------------

Utilities 1.0%                                                                  

Alabama Power Co., 7.125%, 8/15/2004 .............      2,700,000      2,681,397
Detroit Edison Co., 7.5%, 2/1/2005 ...............      3,500,000      3,481,240
                                                                    ------------
                                                                       6,162,637
                                                                    ------------

Total Corporate Bonds (Cost $ 87,313,785) ........                    85,021,967

Common Stocks 64.8%                                                             
--------------------------------------------------------------------------------

                                          Shares
--------------------------------------------------------------------------------

Consumer Discretionary 1.0%                                                     
Department & Chain Stores                                                       

Wal-Mart Stores, Inc. ............................        108,300      6,010,650
                                                                    ------------

Consumer Staples 3.1%                                                           
Alcohol & Tobacco 1.0%                                                          

Anheuser-Busch Companies, Inc. ...................         94,500      5,882,625
                                                                    ------------

Food & Beverage 1.2%                                                            
PepsiCo, Inc. ....................................        212,500      7,344,531
                                                                    ------------

Package Goods/Cosmetics 0.9%                                                    
Avon Products, Inc. ..............................        177,700      5,164,406
                                                                    ------------

Health 5.7%                                                                     
Biotechnology 0.3%                                                              

Amgen Inc.* ......................................         33,500      2,056,063
                                                                    ------------

Medical Supply & Specialty 1.4%                                                 
Becton, Dickinson & Co. ..........................         69,400      1,826,088
Medtronic, Inc. ..................................        120,500      6,198,219
                                                                    ------------
                                                                       8,024,307
                                                                    ------------
Pharmaceuticals 4.0%                                                            

American Home Products Corp. .....................        201,300     10,794,713
Bristol-Myers Squibb Co. .........................         85,000      4,908,750
Johnson & Johnson, Inc. ..........................         46,800      3,278,925
Merck & Co., Inc. ................................         71,500      4,441,938
                                                                    ------------
                                                                      23,424,326
                                                                    ------------
Communications 7.0%                                                             

Cellular Telephone 0.6%                                                         
Vodafone AirTouch PLC (ADR) ......................         67,000      3,722,688
                                                                    ------------

The accompanying notes are an integral part of the financial statements.

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

Telephone/Communications 6.4%                                                   

AT&T Corp. .....................................          75,400       4,241,250
Bell Atlantic Corp. ............................         103,864       6,348,687
BellSouth Corp. ................................         156,100       7,336,700
GTE Corp. ......................................          97,100       6,894,100
Global Crossing Ltd.* ..........................          99,230       4,062,228
SBC Communications, Inc. .......................          82,325       3,457,650
Sprint Corp. ...................................          85,400       5,380,200
                                                                    ------------
                                                                      37,720,815
                                                                    ------------
Financial 11.8%                                                                 
Banks 3.8%                                                                      

Chase Manhattan Corp. ..........................          92,800       8,091,000
First Union Corp. ..............................         120,166       4,476,184
FleetBoston Financial Corp. ....................         121,700       4,442,050
J.P. Morgan & Co., Inc. ........................          14,900       1,963,075
US Bancorp .....................................         140,300       3,069,063
                                                                    ------------
                                                                      22,041,372
                                                                    ------------
Insurance 1.5%                                                                  

American International Group, Inc. .............          79,500       8,705,250
                                                                    ------------

Consumer Finance 2.0%                                                           

American Express Co. ...........................          17,600       2,621,300
Citigroup, Inc. ................................         154,000       9,134,125
                                                                    ------------
                                                                      11,755,425
                                                                    ------------
Other Financial Companies 4.3%                                                  

Federal National Mortgage Association ..........         150,300       8,482,556
Marsh & McLennan Companies, Inc. ...............          87,400       9,641,313
Morgan Stanley Dean Witter & Co. ...............          89,200       7,275,375
                                                                    ------------
                                                                      25,399,244
                                                                    ------------
Real Estate 0.2%                                                                

General Growth Properties, Inc. (REIT) .........          44,800       1,363,600
                                                                    ------------

Media 2.4%                                                                      
Advertising 0.5%                                                                

Interpublic Group of Companies, Inc. ...........          61,000       2,882,250
                                                                    ------------

Broadcasting & Entertainment 1.5%                                               

Walt Disney Co. ................................         208,100       8,610,138
                                                                    ------------

Cable Television 0.4%                                                           

Comcast Corp.  "A" .............................          57,800       2,507,075
                                                                    ------------

Service Industries 3.0%                                                         

EDP Services 1.7%                                                               

Electronic Data Systems Corp. ..................          95,700       6,142,744
First Data Corp. ...............................          85,600       3,787,800
                                                                    ------------
                                                                       9,930,544
                                                                    ------------
Miscellaneous Commercial Services 0.3%                                          

Sabre Group Holdings, Inc. "A" .................          54,606       2,017,009
                                                                    ------------

The accompanying notes are an integral part of the financial statements.

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AARP Balanced Stock and Bond Fund                                               

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

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

Printing/Publishing 1.0%                                                        

McGraw-Hill, Inc. ................................        124,000      5,642,000
                                                                    ------------

Durables 2.2%                                                                   
Aerospace 0.9%                                                                  

Rockwell International Corp. .....................        125,500      5,247,469
                                                                    ------------

Automobiles 0.9%                                                                

Ford Motor Co. ...................................        107,900      4,956,656
                                                                    ------------

Construction/Agricultural Equipment 0.4%                                        

Deere & Co. ......................................         67,800      2,576,400
                                                                    ------------

Manufacturing 7.5%                                                              
Chemicals 1.6%                                                                  

Dow Chemical Co. .................................         65,600      7,478,400
E.I. du Pont de Nemours & Co. ....................         41,100      2,173,163
                                                                    ------------
                                                                       9,651,563
                                                                    ------------

Diversified Manufacturing 1.7%                                                  

General Electric Co. .............................         66,800     10,366,525
                                                                    ------------

Industrial Specialty 3.2%                                                       

Corning, Inc. ....................................         96,200     18,662,800
                                                                    ------------

Machinery/Components/Controls 1.0%                                              

Parker-Hannifin Corp. ............................        138,400      5,717,650
                                                                    ------------

Technology 12.5%                                                                
Computer Software 5.2%                                                          

America Online, Inc.* ............................         60,500      4,068,625
Computer Associates International, Inc. ..........         76,100      4,504,169
Microsoft Corp.* .................................         81,800      8,691,250
Oracle Corp.* ....................................        174,700     13,637,519
                                                                    ------------
                                                                      30,901,563
                                                                    ------------
Electronic Components/Distributors 1.1%                                         

Cisco Systems, Inc.* .............................         86,100      6,656,606
                                                                    ------------

Electronic Data Processing 2.5%                                                 

Compaq Computer Corp. ............................        169,000      4,499,625
Hewlett-Packard Co. ..............................         31,700      4,202,231
International Business Machines Corp. ............         48,000      5,664,000
                                                                    ------------
                                                                      14,365,856
                                                                    ------------

Semiconductors 3.7%                                                             

Conexant Systems, Inc.* ..........................         36,400      2,584,400
Intel Corp. ......................................        146,800     19,368,425
                                                                    ------------
                                                                      21,952,825
                                                                    ------------

Energy 6.5%                                                                     
Oil & Gas Production 5.2%                                                       

Exxon Mobil Corp. ................................        145,323     11,307,946
Royal Dutch Petroleum Co. (New York shares) ......        115,800      6,665,738
Texaco, Inc. .....................................        108,400      5,812,950

The accompanying notes are an integral part of the financial statements.

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                                                        [Enlarge/Download Table]


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

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

                                                                                      
Total Fina SA (ADR) .....................................        94,574     6,963,011 
                                                                         ------------ 
                                                                           30,749,645 
                                                                         ------------ 
Oil Companies 0.5%                                                                    

Chevron Corp. ...........................................        30,100     2,782,369 
                                                                         ------------ 

Oilfield Services/Equipment 0.8%                                                      

Schlumberger Ltd. .......................................        61,800     4,727,700 
                                                                         ------------ 
Metals & Minerals 0.5%                                                                
Steel & Metals                                                                        

Alcoa, Inc. .............................................        39,500     2,774,875 
                                                                         ------------ 

Transportation 0.2%                                                                   
Airlines                                                                              

AMR Corp.* ..............................................        41,800     1,332,375 
                                                                         ------------ 

Utilities 1.4%                                                                        
Electric Utilities                                                                    

FPL Group, Inc. .........................................        66,800     3,076,970 
Unicom Corp. ............................................       145,000     5,292,500 
                                                                         ------------ 
                                                                            8,369,470 
                                                                         ------------ 
Total Common Stocks (Cost $292,862,847) .................                 381,996,665 
                                                                         ------------ 
--------------------------------------------------------------------------------------

Total Investment Portfolio -- 100% (Cost $506,184,973) (a)                589,535,669 
                                                                         ============ 
--------------------------------------------------------------------------------------

*    Non income producing security.                                                   

**   Repurchase agreements are fully collateralized by U.S. Treasury or               
     Government agency securities.                                                    

***  Effective maturities may be shorter due to prepayments.                          

(a)  At March 31, 2000, the net unrealized appreciation on investments based on       
     cost for federal income tax purposes of $507,165,330 was as follows:             

     Aggregate gross unrealized appreciation                                          
     for all investments in which there is                                            
     an excess of value over tax cost............................. $ 99,816,981       

     Aggregate gross unrealized depreciation                                          
     for all investments in which there is an                                         
     excess of tax cost over value................................  (17,446,642)      
                                                                   -------------      

     Net unrealized appreciation                                   $  82,370,339      
                                                                   =============      

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

Purchases and sales of investment securities (excluding short-term
    investments and direct obligations of the U.S. Government) for the six
   months ended March 31, 2000 aggregated $262,262,037 and $379,288,921,
 respectively. Purchases and sales of direct obligations of the U.S.
Government aggregated $48,936,266 and $45,332,547, respectively.  
--------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements.

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AARP GROWTH AND INCOME FUND                                                     

LIST OF INVESTMENTS AS OF MARCH 31, 2000 (UNAUDITED)                            

                                                        [Enlarge/Download Table]

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

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

                                                                                                              
State Street Bank and Trust Company, 6.05%, to be repurchased at $59,963,216                                  
   on 4/3/2000** (Cost $59,933,000) ............................................    59,933,000     59,933,000 
                                                                                                ------------- 

Commercial Paper 1.1%                                                                                         
--------------------------------------------------------------------------------------------------------------

Bell Atlantic Network Funding Corp., 5.9%***, 4/20/2000 ........................    20,000,000     19,937,722 
Bell Atlantic Network Funding Corp., 5.9%***, 4/24/2000 ........................    15,000,000     14,943,458 
Finova Capital Corp., 5.93%***, 5/18/2000 ......................................    30,000,000     29,767,742 
                                                                                                ------------- 
Total Commercial Paper (Cost $64,648,922) ......................................                   64,648,922 
                                                                                                ------------- 

Common Stocks 97.8%                                                                                           
--------------------------------------------------------------------------------------------------------------

                                                                                      Shares                  
--------------------------------------------------------------------------------------------------------------

Consumer Discretionary 1.6%                                                                                   
Department & Chain Stores                                                                                     

Wal-Mart Stores, Inc. ..........................................................     1,613,200     89,532,600 
                                                                                                ------------- 
Consumer Staples 4.9%                                                                                         
Alcohol & Tobacco 1.5%                                                                                        

Anheuser-Busch Companies, Inc. .................................................     1,402,200     87,286,950 
                                                                                                ------------- 
Food & Beverage 1.9%                                                                                          

PepsiCo, Inc. ..................................................................     3,154,300    109,020,494 
                                                                                                ------------- 
Package Goods/Cosmetics 1.5%                                                                                  

Avon Products, Inc. ............................................................     2,888,400     83,944,125 
                                                                                                ------------- 
Health 8.6%                                                                                                   
Biotechnology 0.5%                                                                                            

Amgen Inc.* ....................................................................       496,200     30,454,275 

Medical Supply & Specialty 2.1%                                                                               

Becton, Dickinson & Co. ........................................................     1,027,800     27,043,988 
Medtronic, Inc. ................................................................     1,787,700     91,954,819 
                                                                                                ------------- 
                                                                                                  118,998,807 
                                                                                                ------------- 
Pharmaceuticals 6.0%                                                                                          

American Home Products Corp. ...................................................     2,989,000    160,285,125 
Bristol-Myers Squibb Co. .......................................................     1,239,900     71,604,225 
Johnson & Johnson, Inc. ........................................................       704,400     49,352,025 
Merck & Co., Inc. ..............................................................     1,059,000     65,790,375 
                                                                                                ------------- 
                                                                                                  347,031,750 
                                                                                                ------------- 

The accompanying notes are an integral part of the financial statements.

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

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

Communications 10.6%                                                            
Cellular Telephone 1.0%                                                         

Vodafone AirTouch PLC (ADR)* .............       993,100    55,179,119          
                                                ------------
Telephone/Communications 9.6%                                                   

AT&T Corp. ...............................     1,086,200    61,098,753          
Bell Atlantic Corp. ......................     1,533,380    93,727,852          
BellSouth Corp. ..........................     2,304,400   108,306,800          
GTE Corp. ................................     1,440,200   102,254,200          
Global Crossing Ltd.* ....................     1,495,150    61,207,703          
SBC Communications, Inc. .................     1,199,767    50,390,214          
Sprint Corp. .............................     1,220,800    76,910,400          
                                                ------------
                                                 553,895,922
                                                ------------
Financial 17.6%                                                                 
Banks 5.6%                                                                      

Chase Manhattan Corp. ....................     1,359,700   118,548,844          
First Union Corp. ........................     1,737,174    64,709,732          
FleetBoston Financial Corp. ..............     1,716,300    62,644,950          
J.P. Morgan & Co., Inc. ..................       250,300    32,977,025          
US Bancorp ...............................     2,107,900    46,110,313          
                                                ------------
                                                 324,990,864
                                                ------------
Insurance 2.2%                                                                  

American International Group, Inc. .......     1,173,300   128,476,350          
                                                ------------

Consumer Finance 2.9%                                                           

American Express Co. .....................       246,900    36,772,662          
Citigroup, Inc. ..........................     2,171,600   128,803,025          
                                                ------------
                                                 165,575,687
                                                ------------
Other Financial Companies 6.5%                                                  

Federal National Mortgage Association ....     2,230,600   125,889,488          
Marsh & McLennan Companies, Inc. .........     1,298,700   143,262,844          
Morgan Stanley Dean Witter & Co. .........     1,255,000   102,360,937          
                                                ------------
                                                 371,513,269
                                                ------------
Real Estate 0.4%                                                                

General Growth Properties, Inc. (REIT) (b)       772,600    23,516,013          
                                                ------------

Media 3.4%                                                                      
Advertising 0.7%                                                                

Interpublic Group of Companies, Inc. .....       901,900    42,614,775          
                                                ------------

Broadcasting & Entertainment 2.1%                                               

Walt Disney Co. ..........................     2,964,700   122,664,463          
                                                ------------
Cable Television 0.6%                                                           

Comcast Corp. "A" ........................       827,100    35,875,463          
                                                ------------
Service Industries 4.5%                                                         
EDP Services 2.5%                                                               

Electronic Data Systems Corp. ............     1,426,700    91,576,306          
First Data Corp. .........................     1,270,800    56,232,900          
                                                ------------
                                                 147,809,206
                                                ------------

The accompanying notes are an integral part of the financial statements.

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AARP GROWTH AND INCOME FUND                                                     

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

                                     Shares        Value ($)
----------------------------------------------------------------------          
Miscellaneous Commercial Services 0.5%                                          
Sabre Group Holdings, Inc. "A" ............     785,234    29,004,581           
                                             -------------
Printing/Publishing 1.5%                                                        
McGraw-Hill, Inc. .........................   1,845,400    83,965,700           
                                             -------------
Durables 3.3%                                                                   
Aerospace 1.4%                                                                  
Rockwell International Corp. ..............   1,871,000    78,231,187           
                                             -------------
Automobiles 1.3%                                                                
Ford Motor Co. ............................   1,597,900    73,403,531           
                                             -------------
Construction/Agricultural Equipment 0.6%                                        
Deere & Co. ...............................   1,003,500    38,133,000           
                                             -------------
Manufacturing 11.0%                                                             
Chemicals 2.5%                                                                  
Dow Chemical Co. ..........................     974,200   111,058,800           
E.I. du Pont de Nemours & Co. .............     577,700    30,545,888           
                                             -------------
                                               141,604,688
                                             -------------
Diversified Manufacturing 2.6%                                                  
General Electric Co. ......................     979,600   152,021,675           
                                             -------------
Industrial Specialty 4.8%                                                       
Corning, Inc. .............................   1,428,800   277,187,200           
                                             -------------
Machinery/Components/Controls 1.1%                                              
Parker-Hannifin Corp. .....................   1,578,300    65,203,519           
                                             -------------
Technology 19.0%                                                                
Computer Software 7.9%                                                          
America Online, Inc.* .....................     898,000    60,390,500           
Computer Associates International, Inc. ...   1,067,300    63,170,819           
Microsoft Corp.* ..........................   1,213,900   128,976,875           
Oracle Corp.* .............................   2,589,200   202,119,425           
                                             -------------
                                               454,657,619
                                             -------------
Electronic Components/Distributors 1.7%                                         
Cisco Systems, Inc.* ......................   1,275,600    98,619,825           
                                             -------------
Electronic Data Processing 3.7%                                                 
Compaq Computer Corp. .....................   2,506,700    66,740,888           
Hewlett-Packard Co. .......................     490,100    64,968,881           
International Business Machines Corp. .....     679,300    80,157,400           
                                             -------------
                                               211,867,169
                                             -------------
Semiconductors 5.7%                                                             
Conexant Systems, Inc.* ...................     540,200    38,354,200           
Intel Corp. ...............................   2,182,300   287,927,206           
                                             -------------
                                               326,281,406
                                             -------------
Energy 10.1%                                                                    
Oil & Gas Production 6.3%                                                       
Exxon Mobil Corp. .........................   2,167,867   168,687,151           
Royal Dutch Petroleum Co. (New York shares)   1,658,400    95,461,650           
Texaco, Inc. ..............................   1,875,400   100,568,325           
                                             -------------
                                               364,717,126
                                             -------------

 The accompanying notes are an integral part of the financial statements

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

                                                                    Shares      Value ($)
-----------------------------------------------------------------------------------------
                                                                                         
Oil Companies 2.6%                                                                       
Chevron Corp. .............................................         440,400    40,709,475
Total Fina S.A. "B" .......................................         710,543   106,279,352
                                                                            -------------
                                                                              146,988,827
                                                                            -------------
Oilfield Services/Equipment 1.2%                                                         
Schlumberger Ltd. .........................................         880,900    67,388,850
                                                                            -------------
Metals & Minerals 0.7%                                                                   
Steel & Metals                                                                           
Alcoa, Inc. ...............................................         585,700    41,145,425
                                                                            -------------
Transportation 0.3%                                                                      
Airlines                                                                                 
AMR Corp.* ................................................         584,700    18,637,313
                                                                            -------------
Utilities 2.2%                                                                           
Electric Utilities                                                                       
FPL Group, Inc. ...........................................         992,100    45,698,606
Unicom Corp. ..............................................       2,153,800    78,613,700
                                                                            -------------
                                                                              124,312,306
                                                                            -------------
Total Common Stocks (Cost $4,167,448,960) .................                 5,631,751,079
                                                                            -------------

-----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $4,292,030,882) (a)                5,756,333,001
                                                                            =============
-----------------------------------------------------------------------------------------

*      Non income producing.                                                

**      Repurchase agreements are fully collateralized by U.S. Treasury or    
Government agency securities.                                 

***      Annualized yield at time of purchase; not a coupon rate.               

(a)      At March 31, 2000, the net unrealized appreciation on investments based
  on cost for federal income tax purposes of $4,290,931,712 was as
follows:                                                      

                                                        [Enlarge/Download Table]
                                                                                        
Aggregate gross unrealized appreciation for all investments in which                    
there is an excess of value over tax cost ............................. $ 1,588,453,690 

Aggregate gross unrealized depreciation for all investments in which                    
there is an excess of tax cost over value .............................    (123,052,401)
                                                                        --------------- 
Net unrealized appreciation .......